<PAGE> 1
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS RELATE TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, BUT ARE
NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND WE
ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED APRIL 4, 2000
PRELIMINARY PROSPECTUS SUPPLEMENT Pursuant to Rule 424(b)5
(TO PROSPECTUS DATED MARCH 27, 2000) Registration No. 333-91815
[SEMCO ENERGY LOGO]
1,600,000 TRUST PREFERRED SECURITIES
SEMCO CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
SEMCO ENERGY, INC.
------------------------------------
THE TRUST:
SEMCO Capital Trust I is a Delaware business trust which will:
- Sell Trust Preferred Securities to the public;
- Sell Trust Common Securities to SEMCO;
- Use the proceeds from these sales to buy an equal principal amount of %
Subordinated Debentures of SEMCO due June 30, 2040; and
- Distribute the cash payments it receives from SEMCO on the Subordinated
Debentures to the holders of the Trust Preferred Securities and the Trust
Common Securities.
QUARTERLY DISTRIBUTIONS:
- For each Trust Preferred Security that you own, you will receive
cumulative cash distributions accumulating from April , 2000, at an
annual rate of % of the liquidation amount of $25 per Trust Preferred
Security, on March 31, June 30, September 30 and December 31 of each year,
beginning June 30, 2000.
- SEMCO may defer interest payments on the Subordinated Debentures on one or
more occasions for up to 20 consecutive quarterly periods. If SEMCO does
defer interest payments, the Trust will also defer payments of
distributions on the Trust Preferred Securities to you. However, deferred
distributions will themselves accumulate distributions at an annual rate
of % (to the extent permitted by law).
REDEMPTION:
- The Trust may redeem some or all of the Trust Preferred Securities at
times discussed herein at a redemption price equal to $25 per Trust
Preferred Security plus accumulated distributions, if any.
- The Trust will redeem all of the Trust Preferred Securities when the
Subordinated Debentures are paid at maturity.
SEMCO ENERGY
- SEMCO will effectively guarantee, fully and unconditionally, the payment
by the Trust of amounts due on the Trust Preferred Securities as described
in this Prospectus Supplement and in the accompanying Prospectus. SEMCO's
obligations under the guarantee are junior to SEMCO's senior indebtedness.
The Trust plans to list the Trust Preferred Securities on the New York Stock
Exchange under the symbol "SENPrL." Trading on the New York Stock Exchange is
expected to commence within 30 days after the Trust Preferred Securities are
first issued.
------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTING IN THE TRUST PREFERRED SECURITIES INVOLVES CERTAIN RISKS. YOU
SHOULD CAREFULLY READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE S-7
OF THIS PROSPECTUS SUPPLEMENT BEFORE INVESTING IN THE TRUST PREFERRED
SECURITIES.
------------------------------------
<TABLE>
<CAPTION>
PER SECURITY TOTAL
------------ -----
<S> <C> <C>
Public offering price....................................... $25.00 $40,000,000
Underwriting commission to be paid by SEMCO................. (1) (1)
Proceeds to the Trust....................................... $25.00 $40,000,000
</TABLE>
- ---------
(1) SEMCO has agreed to pay underwriting commissions of $0.7875 per Trust
Preferred Security. See "Underwriting."
SEMCO expects the Trust Preferred Securities to be ready for delivery in
book-entry form only through The Depository Trust Company on or about April ,
2000.
A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED
FIRST OF MICHIGAN NATCITY INVESTMENTS, INC.
DIVISION OF FAHNESTOCK & CO. INC.
------------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL , 2000.
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Information -- Q&A.................................. S-3
Risk Factors................................................ S-7
Use of Proceeds............................................. S-10
SEMCO Capital Trust I....................................... S-11
Description of the Trust Preferred Securities............... S-12
Description of the Subordinated Debentures.................. S-26
Material Federal Income Tax Considerations.................. S-30
Relationship Among the Trust Preferred Securities, the
Subordinated Debentures and the Trust Guarantee........... S-34
Underwriting................................................ S-36
Legal Opinions.............................................. S-38
Glossary.................................................... S-39
PROSPECTUS
Where You Can Find More Information......................... 2
Incorporation of Certain Documents by Reference............. 3
Cautionary Statement Regarding Forward-Looking
Information............................................... 3
SEMCO Energy................................................ 5
The Trusts.................................................. 10
Use of Proceeds............................................. 11
Accounting Treatment Relating to Trust Securities........... 12
Consolidated Ratios of Earnings to Fixed Charges............ 12
Description of Capital Stock................................ 13
Description of Debt Securities.............................. 16
Description of Trust Preferred Securities................... 29
Description of Trust Guarantees............................. 31
The Agreement as to Expenses and Liabilities................ 33
Additional Description of Subordinated Debentures to be
Issued to Trust........................................... 33
Effect of Obligations Under Subordinated Debentures and
Trust Preferred Securities Guarantees..................... 38
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 39
Plan of Distribution........................................ 39
Legal Matters............................................... 40
Experts..................................................... 41
</TABLE>
You should rely only on the information contained or incorporated by reference
in this Prospectus Supplement or the accompanying Prospectus. We have not, and
the Underwriters have not, authorized any person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the Underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
Prospectus Supplement and the accompanying Prospectus is accurate as of the date
on the front cover of this Prospectus Supplement and the accompanying
Prospectus, respectively. SEMCO's business, financial condition, results of
operations and prospects may have changed since such dates.
The following information concerning SEMCO, the Trust, the Trust Preferred
Securities, the Guarantee and the Subordinated Debentures adds to, and should be
read in conjunction with, the information contained in the accompanying
Prospectus. Capitalized terms used in this Prospectus Supplement have the
meanings assigned in the Glossary.
S-2
<PAGE> 3
SUMMARY INFORMATION -- Q&A
This Prospectus Supplement and the accompanying Prospectus should be read
together. This summary highlights selected information from this Prospectus
Supplement and the accompanying Prospectus to help you understand the Trust
Preferred Securities. You should carefully read this Prospectus Supplement and
the accompanying Prospectus to understand fully the terms of the Trust Preferred
Securities, as well as the tax and other considerations that are important to
you in making a decision about whether to invest in the Trust Preferred
Securities. You should pay special attention to the "Risk Factors" section
beginning on page S-7 of this Prospectus Supplement to determine whether an
investment in the Trust Preferred Securities is appropriate for you.
For your convenience, we make reference to sections in this Prospectus
Supplement and the accompanying Prospectus for more detailed information
regarding some of the terms and concepts used throughout this Prospectus
Supplement.
WHO IS SEMCO ENERGY?
SEMCO is a diversified energy and infrastructure services company headquartered
in southeastern Michigan. It was founded in 1950 as Southeastern Michigan Gas
Company. SEMCO and its subsidiaries operate four business segments: (1) gas
distribution; (2) construction services; (3) engineering services; and (4)
propane, pipelines and storage. SEMCO's gas distribution business segment
operates in Michigan and Alaska. The Alaska-based operation, which consists of
ENSTAR Natural Gas Company and Alaska Pipeline Company (together known as
"ENSTAR"), was acquired on November 1, 1999. See "SEMCO Energy" in the
accompanying Prospectus.
WHAT ARE THE TRUST PREFERRED SECURITIES?
Each Trust Preferred Security represents an undivided beneficial interest in the
assets of the Trust. The underwriters are offering 1,600,000 Trust Preferred
Securities at a public offering price of $25 for each Trust Preferred Security.
See "Underwriting" in this Prospectus Supplement.
WHO IS THE TRUST?
SEMCO Capital Trust I is a Delaware business trust. The Trust will sell its
Trust Preferred Securities to the public and its Common Securities to SEMCO. The
Trust will use the proceeds from these sales to buy a series of %
Subordinated Debentures due June 30, 2040 from SEMCO with the same economic
terms as the Trust Preferred Securities.
There will initially be four Trustees of the Trust. Two of the Trustees are
officers of SEMCO referred to as the "Administrative Trustees." Bank One Trust
Company, National Association will act as the Property Trustee of the Trust and
Bank One Delaware, Inc. will act as the Delaware Trustee, in each case until
removed or replaced by the holder of the Trust Common Securities. Bank One Trust
Company, National Association will also act as indenture trustee under the Trust
Guarantee and also as indenture trustee under the indenture under which the
% Subordinated Debentures are issued.
S-3
<PAGE> 4
WHEN WILL YOU RECEIVE DISTRIBUTIONS ON THE TRUST PREFERRED SECURITIES?
If you purchase the Trust Preferred Securities, you will be entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation
amount of $25 per Trust Preferred Security. Distributions will accumulate from
April , 2000. They will be payable quarterly in arrears on March 31, June 30,
September 30, and December 31 of each year, beginning June 30, 2000, to those
persons in whose name the Trust Preferred Securities are registered at the close
of business on the 15th calendar day preceding such interest payment date.
Distributions payable for the first payment period will be computed on the basis
of days.
WHEN CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
SEMCO may, on one or more occasions, defer interest payments on the Subordinated
Debentures for up to 20 consecutive quarterly periods. See "Description of the
Subordinated Debentures -- Option to Extend Interest Payment Period" in this
Prospectus Supplement. A deferral of interest payments cannot extend beyond the
stated maturity date of the Subordinated Debentures (which is June 30, 2040).
If SEMCO defers interest payments on the Subordinated Debentures, the Trust will
also defer its distributions on the Trust Preferred Securities to you. During
this deferral period, distributions will continue to accumulate on the Trust
Preferred Securities at an annual rate of % of the liquidation amount of
$25 per Trust Preferred Security. Also, the deferred distributions will
themselves accumulate distributions at an annual rate of % (to the extent
permitted by law). Once SEMCO makes all deferred interest payments on the
Subordinated Debentures, with accrued interest, it may again defer interest
payments on the Subordinated Debentures if no event of default under the
Subordinated Debentures has then occurred and is continuing.
During any period in which SEMCO defers interest payments on the Subordinated
Debentures, SEMCO will not be permitted to, with some exceptions:
- - pay a dividend or make any other payment or distribution on its capital stock;
- - redeem, purchase or make a liquidation payment on any of its capital stock; or
- - make a principal, premium or interest payment or repurchase or redeem, any of
its debt securities that rank equal with or junior to the Subordinated
Debentures.
If SEMCO defers interest payments on the Subordinated Debentures, you will be
required to accrue interest income for United States federal income tax purposes
before you receive cash distributions. See "Material Federal Income Tax
Considerations" and "Risk Factors -- Deferral of Distributions would have
Adverse Tax Consequences for you and may Adversely Affect the Trading Price of
the Trust Preferred Securities" in this Prospectus Supplement.
WHEN CAN THE TRUST REDEEM THE TRUST PREFERRED SECURITIES?
The Trust will redeem all of the outstanding Trust Preferred Securities when the
Subordinated Debentures are paid either at maturity on June 30, 2040 or upon
early redemption.
S-4
<PAGE> 5
SEMCO will pay the Subordinated Debentures at maturity on June 30, 2040. SEMCO
may redeem, before their maturity at a redemption price equal to 100% of the
principal amount being redeemed plus accrued and unpaid interest to the date of
redemption:
- - all or some of the Subordinated Debentures on one or more occasions at any
time on or after April , 2005; but if a redemption of less than all
Subordinated Debentures would result in the delisting of the Trust Preferred
Securities, SEMCO may redeem the Subordinated Debentures only in whole; or
- - all but not some of the Subordinated Debentures if certain changes in tax or
investment company law occur or will occur within 90 days (each of which is a
"Special Event"). See "Description of Trust Preferred Securities -- Special
Event Redemption" in this Prospectus Supplement.
The Trust will use the cash it receives on any redemption of the Subordinated
Debentures to redeem, proportionately, Trust Preferred Securities and Common
Securities having a total liquidation amount equal to the total principal amount
of the Subordinated Debentures redeemed, unless an event of default under the
amended and restated Declaration of Trust has occurred and is continuing, in
which case the Trust Common Securities will be subordinated to the Trust
Preferred Securities. An event of default with respect to the Subordinated
Debentures constitutes an event of default under the Trust Agreement. See
"Relationship Among the Trust Preferred Securities, the Subordinated Debentures
and the Trust Guarantee" in this Prospectus Supplement for a description of the
consequences of an event of default in respect of the Subordinated Debentures
and the Guarantee, respectively. The redemption price will be equal to $25 per
security plus any accumulated distributions.
WHAT IS THE NATURE OF SEMCO'S GUARANTEE OF THE TRUST PREFERRED SECURITIES?
As described herein, SEMCO will fully and unconditionally guarantee the Trust
Preferred Securities through a combination of its obligations:
- - under the Subordinated Indenture to make payments on the Subordinated
Debentures;
- - under its Trust Guarantee where SEMCO guarantees the payment of distributions
on the Trust Preferred Securities to the extent the Trust has funds legally
and immediately available to make distributions;
- - under the Trust Agreement; and
- - under an agreement to pay certain expenses and liabilities of the Trust.
If SEMCO does not make a required payment on the Subordinated Debentures, the
Trust will not have sufficient funds to make the related payment on the Trust
Preferred Securities. The Trust Guarantee does not cover payments on the Trust
Preferred Securities when the Trust does not have sufficient funds to make such
payments. SEMCO's obligations under the Subordinated Debentures are junior to
its obligations to make payments on its Senior Debt. Furthermore, SEMCO's
obligations under the Trust Guarantee are junior to its obligations to make
payments on its liabilities. See "Risk Factors -- SEMCO's Obligations under the
Subordinated Debentures" and "Risk Factors -- The Trust Guarantee Covers
Payments only if the Trust has Cash Available" in this Prospectus Supplement.
S-5
<PAGE> 6
WHEN CAN THE SUBORDINATED DEBENTURES BE DISTRIBUTED TO YOU?
SEMCO has the right to dissolve the Trust at any time. If SEMCO exercises this
right to dissolve the Trust, the Trust, after satisfying any of its creditors,
will be liquidated by distribution of the Subordinated Debentures to holders of
the Trust Preferred Securities and the Trust Common Securities.
WHAT HAPPENS IF THE TRUST IS DISSOLVED AND THE SUBORDINATED DEBENTURES ARE NOT
DISTRIBUTED?
The Trust may also be dissolved in circumstances where the Subordinated
Debentures will not be distributed to you. In those situations, after satisfying
any of its creditors, the Trust will be obligated to pay in cash the liquidation
amount of $25 for each Trust Preferred Security plus accumulated distributions
to the date such payment is made. The Trust will be able to make this
liquidation distribution only if the Subordinated Debentures are paid or
redeemed by SEMCO.
WILL THE TRUST PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
The Trust will apply to have the Trust Preferred Securities listed on the New
York Stock Exchange under the symbol "SENPrL." If approved for listing, trading
of the Trust Preferred Securities on the New York Stock Exchange is expected to
commence within 30 days after the Trust Preferred Securities are first issued.
You should be aware that the listing of the Trust Preferred Securities will not
necessarily ensure that a liquid trading market will be available for the Trust
Preferred Securities.
If the Trust distributes the Subordinated Debentures, SEMCO will use its best
efforts to list them on the New York Stock Exchange or any other exchange or
other organization on which the Trust Preferred Securities are then listed.
IN WHAT FORM WILL THE TRUST PREFERRED SECURITIES BE ISSUED?
The Trust Preferred Securities will initially be represented by one or more
global securities that will be deposited with, or on behalf of, and registered
in the name of, The Depository Trust Company, New York, New York ("DTC") or its
nominee. This means that you will not receive a certificate for your Trust
Preferred Securities. Instead, you will hold your interest through DTC's
book-entry system. The Trust expects that the Trust Preferred Securities will be
ready for delivery through DTC on or about April , 2000.
HOW WILL SEMCO AND THE TRUST USE THE MONEY FROM THE TRUST PREFERRED
SECURITIES?
The Trust will invest the proceeds from the sale of the Trust Preferred
Securities in Subordinated Debentures of SEMCO. SEMCO will use the entire net
proceeds from its sale of Subordinated Debentures to the Trust to repay a
portion of the debt incurred for the ENSTAR acquisition. See "Use of Proceeds."
S-6
<PAGE> 7
RISK FACTORS
You should carefully review the information contained elsewhere in this
Prospectus Supplement and in the accompanying Prospectus and should consider
particularly the following matters:
SEMCO'S OBLIGATIONS UNDER THE SUBORDINATED DEBENTURES
No amounts will be available to make payments on the Trust Preferred Securities
except from payments made on the Subordinated Debentures. The obligations of
SEMCO under the Subordinated Debentures are subordinate and junior in right of
payment to all present and future Senior Debt, as described herein, of SEMCO. As
of March 31, 2000, our Senior Debt aggregated approximately $521 million. See
"Description of Trust Guarantee" and "Description of Debt
Securities -- Subordination" in the accompanying Prospectus.
THE TRUST GUARANTEE COVERS PAYMENTS ONLY IF THE TRUST HAS CASH AVAILABLE
Our obligations under the Trust Guarantee are subordinate and junior in right of
payment to all of our liabilities and will be equal in priority of payment with
the most senior preferred stock that we may issue or guarantee. If we were to
default in our obligation to make payments on the Subordinated Debentures, the
Trust would lack available funds for payment to you of distributions or amounts
payable on redemption of the Trust Preferred Securities or otherwise. If this
happens, you would not be able to rely upon the Trust Guarantee for payment of
such amounts.
DEFERRAL OF DISTRIBUTIONS WOULD HAVE ADVERSE TAX CONSEQUENCES FOR YOU AND MAY
ADVERSELY AFFECT THE TRADING PRICE OF THE TRUST PREFERRED SECURITIES
We have the right under the Subordinated Indenture, at any time, and from time
to time, to defer payments of interest on the Subordinated Debentures for a
period of up to 20 consecutive quarters (each, an "Extension Period"), but not
beyond the stated maturity of the Subordinated Debentures. Prior to the
termination of any Extension Period, we may further defer payments of interest;
provided that such Extension Period, together with all such previous and further
extensions thereof, may not exceed 20 consecutive quarters. During an Extension
Period, we will have the right to make partial payments of interest on any
Interest Payment Date. Upon the termination of any Extension Period and the
payment of all amounts then due, we may select a new Extension Period, subject
to the above requirements. There could be multiple Extension Periods of varying
lengths throughout the term of the Subordinated Debentures. Deferred
installments of interest on the Subordinated Debentures will bear interest at a
rate per annum equal to the Securities Rate, compounded quarterly, to the date
of payment to the extent permitted by applicable law. The payment of such
deferred interest, together with any interest thereon, will be passed through to
you as received at the end of any Extension Period.
The only restrictions on our ability to defer payments of interest are that
during any Extension Period we may not, with certain exceptions, (a) declare or
pay any dividend on, or make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of our
capital stock, or (b) make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by us which
rank equally in priority of payment with or junior to the
S-7
<PAGE> 8
Subordinated Debentures. See "Description of the Trust Preferred
Securities -- Distributions" and "Description of the Subordinated
Debentures -- Option to Extend Interest Payment Period" and "-- Certain
Covenants" in this Prospectus Supplement.
Should we exercise our right to defer payments of interest, you will be required
to include income in the form of original issue discount in your gross income
for United States federal income tax purposes in respect of the deferred
interest allocable to the Trust Preferred Securities. As a result, you will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash from the Trust related to such
income if you dispose of your Trust Preferred Securities prior to the record
date for the date on which distributions of such amounts are made. See "Material
Federal Income Tax Considerations -- Original Issue Discount" and "-- Sale of
Trust Preferred Securities" in this Prospectus Supplement. YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN INVESTMENT IN
THE TRUST PREFERRED SECURITIES.
We have no current intention of exercising our right to defer payments of
interest by extending the interest payment period on the Subordinated
Debentures. However, if we exercise this right in the future, the market price
of the Trust Preferred Securities is likely to be affected. If you dispose of
your Trust Preferred Securities during an Extension Period, therefore, you might
receive a different return on your investment than a holder that continues to
hold its Trust Preferred Securities. In addition, as a result of the existence
of our right to defer interest payments, the market price of the Trust Preferred
Securities (which represent an undivided beneficial interest in the Subordinated
Debentures) may be more volatile than other similar securities that do not have
such rights.
TRUST PREFERRED SECURITIES MAY BE REDEEMED IF A SPECIAL EVENT OCCURS
If a Special Event occurs, we may, within 90 days afterwards, redeem the
Subordinated Debentures in cash (with the result that the Trust Securities will
be redeemed). In addition, we will have the right at any time to terminate the
Trust and cause the Subordinated Debentures to be distributed to you in
liquidation of the Trust. See "Description of the Trust Preferred
Securities -- Special Event Redemption" and "Distribution of Subordinated
Debentures Upon Termination of the Trust" in this Prospectus Supplement.
There can be no assurance as to the market price for the Subordinated Debentures
that may be distributed in exchange for Trust Preferred Securities if a
termination or liquidation of the Trust were to occur. Accordingly, the
Subordinated Debentures that you may receive on termination and liquidation of
the Trust may trade at a discount to the price that you paid to purchase the
Trust Preferred Securities offered hereby. See "Description of the Trust
Preferred Securities -- Distribution of Subordinated Debentures Upon Termination
of the Trust" in this Prospectus Supplement.
LIMITED VOTING RIGHTS
You will have limited voting rights and, except for your right to appoint a
substitute Property Trustee or Delaware Trustee under certain circumstances, you
will not be entitled to vote to appoint, remove or replace any of the
Administrative Trustees, which voting
S-8
<PAGE> 9
rights are vested exclusively in the holder of the Trust Common Securities. See
"Description of the Trust Preferred Securities -- Voting Rights" in this
Prospectus Supplement.
NO ASSURANCE AS TO MARKET PRICES FOR THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities are expected to be listed on the New York Stock
Exchange, subject to official notice of issuance. The Trust Preferred Securities
are expected to trade at a price that takes into account the value, if any, of
accrued but unpaid distributions; thus, you will not pay and sellers will not
receive any accrued and unpaid interest with respect to the Trust Preferred
Securities that is not included in the trading price. If a Trust Preferred
Security is disposed of prior to the occurrence of an Extension Period, any
portion of the amount received that is attributable to accrued interest will be
treated as interest income to a U.S. holder for tax purposes and will not be
treated as part of the amount realized for purposes of determining gain or loss
on the disposition of the Trust Preferred Security. If an Extension Period
occurs, interest on the Subordinated Debentures will be included in the gross
income of U.S. holders of Trust Preferred Securities as it accrues rather than
when it is paid. Should an Extension Period occur, if you dispose of your Trust
Preferred Securities between record dates for payments of distributions thereon,
you would be required to include accrued but unpaid interest on the Subordinated
Debentures through the date of disposition in income as OID, and to add such
amount to your adjusted tax basis in your pro rata share of the related
Subordinated Debentures which are deemed disposed of. To the extent the selling
price is less than your adjusted tax basis, you generally 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.
See "Material Federal Income Tax Considerations -- Original Issue Discount" and
"-- Sale of Trust Preferred Securities" in this Prospectus Supplement.
The trading price of the Trust Preferred Securities is likely to be sensitive to
the level of interest rates generally. If interest rates rise in general, the
trading price of the Trust Preferred Securities may decline to reflect the
additional yield requirements of the purchasers. Conversely, a decline in
interest rates may increase the trading price of the Trust Preferred Securities,
although any increase in trading price will be moderated by SEMCO's ability to
redeem the Subordinated Debentures, in whole or in part, at any time on or after
April , 2005 at a redemption price equal to 100% of the principal amount to be
redeemed plus accrued but unpaid interest. In addition, because you will be paid
only from payments on the Subordinated Debentures and may receive Subordinated
Debentures upon the termination of the Trust, you are making an investment
decision with regard to the Subordinated Debentures and should carefully review
all the information regarding the Subordinated Debentures contained herein. See
"Description of the Trust Preferred Securities -- Distribution of Subordinated
Debentures Upon Termination of the Trust" and "Description of the Subordinated
Debentures" in this Prospectus Supplement.
Prior to this offering, there has been no public market for the Trust Preferred
Securities, and there can be no assurance that an active public market for the
Trust Preferred Securities will develop or, if one does develop, that it will be
sustained after this offering. See "Plan of Distribution" in the accompanying
Prospectus.
S-9
<PAGE> 10
RISKS OF INVESTMENT IN TRUST
The Trust is not organized as a corporation and is subject to the separate and
different rules applicable to entities organized as a business trust. See "SEMCO
Capital Trust I" in this Prospectus Supplement. However, as with an investment
in SEMCO, an investment in the Trust involves risks associated with operating
conditions, competitive factors, economic conditions, industry conditions and
equity market conditions.
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Subordinated Indenture does not contain provisions that afford holders of
the Subordinated Debentures protection in the event of a highly leveraged
transaction involving SEMCO.
SEMCO WOULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO REFINANCE OUR $290 MILLION
BRIDGE LOAN ON A TIMELY BASIS OR ON REASONABLE TERMS.
We have a $290 million short-term, unsecured bridge loan that was used to
acquire the assets and some of the liabilities of ENSTAR Natural Gas Company and
the outstanding stock of Alaska Pipeline Company. This bridge loan matures on
October 30, 2000. Although we plan to retire the bridge loan by publicly issuing
a combination of medium-term notes, trust preferred securities and common stock,
we cannot assure you that we will be able to secure permanent financing for this
amount on a timely basis or on commercially reasonable terms. Our ability to
refinance the bridge loan is subject to factors beyond our control such as the
state of the financial markets and general economic conditions. In this
connection, approximately contemporaneous with the public offering of the Trust
Preferred Securities, we are making a public offering of $30 million principal
amount of our Senior Notes. The net proceeds of the Senior Notes also are
expected to be used to retire a portion of the bridge loan. These Senior Notes
are offered by a separate prospectus supplement.
USE OF PROCEEDS
We will use the proceeds from the sale of the Trust Preferred Securities to
repay a portion of the bridge loan used in connection with our 1999 acquisition
of the assets and some of the liabilities of ENSTAR Natural Gas Company and the
outstanding stock of Alaska Pipeline Company. The bridge loan is a $290 million
short-term unsecured obligation that matures on October 30, 2000, with interim
payments of $56 million each due on May 1, 2000 and August 1, 2000. The interest
rate on the bridge loan can range from 100 to 150 basis points above the London
Interbank Offered Rate.
S-10
<PAGE> 11
SEMCO CAPITAL TRUST I
The Trust is a statutory business trust created under Delaware law pursuant to
the filing of a certificate of trust with the Delaware Secretary of State on
November 23, 1999. The business of the Trust is set forth in a trust agreement
dated November 23, 1999 and executed by SEMCO, as Depositor, the Administrative
Trustees, the Property Trustee and the Delaware Trustee thereunder. This trust
agreement will be amended and restated in its entirety on the date the Trust
Preferred Securities are issued substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part (as amended and restated the "Trust
Agreement"). The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Trust
exists for the exclusive purposes of (i) issuing and selling the Trust Preferred
Securities and the Trust Common Securities, collectively referred to as the
Trust Securities, representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debentures, and (iii) engaging in only those other activities
necessary, appropriate, convenient or incidental thereto. The Trust has a term
of 50 years from its creation, but may terminate earlier as provided in the
Trust Agreement.
Upon issuance of the Trust Preferred Securities, the purchasers thereof will own
all of the Trust Preferred Securities. SEMCO will acquire all of the Trust
Common Securities, which will have an aggregate liquidation amount equal to at
least 3% of the total capital of the Trust. The Trust Common Securities will
have terms substantially identical to, and will rank equally in priority of
payment, and payments will be made thereon pro rata, with the Trust Preferred
Securities, except that upon the occurrence and continuance of a Subordinated
Indenture Event of Default, the rights of the holders of Trust Common Securities
to payment in respect of distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities as provided in the Trust Agreement.
The Trust's business and affairs will be conducted by the Trustees, which shall
be appointed by SEMCO as the holder of the Trust Common Securities. Two officers
of SEMCO will initially serve as Administrative Trustees. Bank One Trust
Company, National Association will serve as Property Trustee and will hold legal
title to the Subordinated Debentures issued by SEMCO on behalf of the Trust and
the holders of the Trust Securities. Bank One of Delaware, Inc. will serve as
Delaware Trustee. In certain circumstances, the holders of a majority in
liquidation amount of the Trust Preferred Securities will be entitled to appoint
a substitute Property Trustee or Delaware Trustee. See "Description of the Trust
Preferred Securities -- Events of Default."
The Property Trustee will hold legal title to the Subordinated Debentures for
the benefit of the Trust and the holders of the Trust Securities and will have
the power to exercise all rights, powers and privileges under the Subordinated
Indenture as the holder of the Subordinated Debentures. To the extent payments
in respect of the Subordinated Debentures are made to the Property Trustee, the
Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities.
Subject to the right of the holders of the Trust Preferred Securities to appoint
a substitute Property Trustee or Delaware Trustee under certain circumstances,
SEMCO, as the holder of all the Trust Common Securities, will have the right to
appoint, remove or replace any of the Trustees.
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The Subordinated Debentures will constitute substantially all of the assets of
the Trust. Other assets that may constitute "Trust Property" (as that term is
defined in the Trust Agreement) include any cash on deposit in, or owing to, the
payment account as established under the Trust Agreement, as well as any other
property or assets held by the Property Trustee pursuant to the Trust Agreement.
In addition, the Trust may, from time to time, receive cash from SEMCO pursuant
to the Agreement as to Expenses and Liabilities.
The rights of the holders of the Trust Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the Trust
Agreement, the Delaware Business Trust Act, and the Trust Indenture Act. See
"Description of the Trust Preferred Securities."
The Trust's office in the State of Delaware is c/o Bank One Delaware, Inc., 3
Christina Center, 201 N. Walnut Street, Wilmington, Delaware 19801. The
principal place of business of the Trust shall be c/o SEMCO, 405 Water Street,
Port Huron, Michigan 48060, telephone number (810) 987-2200.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee with
respect to the Trust Agreement, as well as the Trust Guarantee, for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Trust Preferred Securities will include those stated in the Trust Agreement, the
Delaware Business Trust Act, and those made part of the Trust Agreement by the
Trust Indenture Act. The following summary of the principal terms and provisions
of the Trust Preferred Securities does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the Trust Agreement, the form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus are a part, as well as the
Trust Indenture Act.
GENERAL
The Trust Agreement authorizes the Administrative Trustees, on behalf of the
Trust, to issue the Trust Preferred Securities, which represent preferred
undivided beneficial interests in the assets of the Trust, and the Trust Common
Securities, which represent common undivided beneficial interests in the assets
of the Trust. All of the Trust Common Securities will be owned by SEMCO. The
Trust Common Securities rank pari passu, and payments will be made thereon on a
pro rata basis, with the Trust Preferred Securities, except that upon the
occurrence of a Subordinated Indenture Event of Default, the rights of the
holders of the Trust Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Trust Preferred Securities. The
Trust Agreement does not permit the issuance by the Trust of any securities
other than the Trust Securities or the incurrence of any indebtedness for
borrowed money by the Trust. Pursuant to the Trust Agreement, the Property
Trustee will own and hold the Subordinated Debentures for the benefit of the
Trust and the holders of the Trust Securities. The payment of distributions
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out of money held by the Trust, and payments upon redemption of the Trust
Preferred Securities or liquidation of the Trust, are guaranteed by SEMCO on a
subordinated basis as and to the extent described under "Description of the
Trust Guarantee" in the accompanying Prospectus. The Trust Guarantee does not
cover payment of distributions or amounts payable on redemption of the Trust
Preferred Securities or otherwise in respect of the Trust Preferred Securities
when the Trust does not have legally and immediately available funds sufficient
to make such distributions or payments. In such event, the holders of a majority
in aggregate liquidation amount of the Trust Preferred Securities may direct the
Property Trustee to enforce its rights under the Subordinated Debentures. In
addition, a holder of Trust Preferred Securities may institute a legal
proceeding directly against SEMCO, without first instituting a legal proceeding
against the Property Trustee or any other person or entity, for enforcement of
payment to such holder of principal of or interest on the Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the Trust Preferred Securities of such holder on or after the due dates
specified or provided for in the Subordinated Debentures. The above mechanisms
and obligations, together with SEMCO's obligations under the Agreement as to
Expenses and Liabilities, provide a full and unconditional guarantee, subject to
the subordination provisions, by SEMCO of the payments due on the Trust
Preferred Securities.
DISTRIBUTIONS
Distributions on the Trust Preferred Securities will be fixed at the Securities
Rate, will be cumulative and will accrue from the Issue Date and, except in the
event of an Extension Period, will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing on June 30, 2000.
In the event that any date on which distributions are to be made on the Trust
Preferred 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 interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date the payment was originally
payable. A "Business Day" shall mean any day other than a Saturday or Sunday, a
day on which banks in New York City are authorized or obligated by law or
executive order to remain closed or a day on which the principal corporate trust
office of the Property Trustee is closed for business.
Distributions payable on any Distribution Date will be payable to the holders of
record on the Record Date for such Distribution Date, which is the close of
business on the fifteenth calendar day preceding such Distribution Date. Subject
to any applicable laws and regulations and the provisions of the Trust
Agreement, each such payment will be made as described under "-- Book-Entry Only
Issuance -- The Depository Trust Company" below. The amount of distributions
payable for any period will be computed on the basis of a 360 day year of twelve
30-day months.
SEMCO has the right under the Subordinated Indenture to defer payments of
interest on the Subordinated Debentures by extending the interest payment period
from time to time on the Subordinated Debentures (each, an "Extension Period")
which, if exercised, would defer quarterly distributions on the Trust Preferred
Securities during any such extended interest payment period. Deferred
installments of interest on the Subordinated Debentures
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will bear interest at a rate per annum equal to the Securities Rate, compounded
quarterly, to the date of payment to the extent permitted by applicable law.
During an Extension Period, SEMCO will have the right to make partial payments
of interest on any Interest Payment Date. If distributions are deferred, the
deferred distributions and accrued interest thereon shall be paid, if funds are
legally available therefor, to holders of record of the Trust Preferred
Securities as they appear on the books and records of the Trust on the Record
Date next following the termination of such Extension Period. See "Description
of the Subordinated Debentures -- Interest" and "-- Option to Extend Interest
Payment Period."
Distributions on the Trust Preferred Securities must be paid on the Distribution
Dates to the extent that the Trust has funds legally and immediately available
for the payment of such distributions. The Trust's funds available for
distribution to the holders of the Trust Preferred Securities will be limited to
payments received under the Subordinated Debentures. See "Description of the
Subordinated Debentures."
REDEMPTION
The Trust Preferred Securities are subject to mandatory redemption upon
repayment of the Subordinated Debentures at maturity or their earlier
redemption. The Subordinated Debentures will mature on June 30, 2040 and may be
redeemed, in whole or in part, at the option of SEMCO, at any time on or after
April , 2005 or at any time in whole within 90 days following the occurrence
of a Special Event, in each case at a Redemption Price equal to 100% of the
principal amount to be redeemed plus accrued but unpaid interest (including any
Additional Interest) to the Redemption Date. Upon the repayment of the
Subordinated Debentures, whether at maturity or upon redemption, the proceeds
from such repayment or payment shall simultaneously be applied to redeem a like
liquidation amount of Trust Preferred Securities upon not less than 30 nor more
than 60 days' notice, at the Redemption Price. See "Description of the
Subordinated Debentures -- Optional Redemption." If a partial redemption of the
Subordinated Debentures would result in the delisting of the Trust Preferred
Securities, SEMCO may redeem the Subordinated Debentures only in whole. In the
event that fewer than all of the outstanding Trust Preferred Securities are to
be redeemed, the Trust Preferred Securities to be redeemed will be selected as
described under "Book-Entry Only Issuance -- The Depository Trust Company"
below. If the Trust Preferred Securities are no longer in book-entry only form,
the Trust Preferred Securities to be redeemed will be selected by such method as
the Property Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $25 or integral multiples
thereof) of the aggregate liquidation amount of Trust Preferred Securities of a
denomination larger than $25 provided, however, that before undertaking the
redemption of the Trust Preferred Securities on other than a pro rata basis, the
Property Trustee shall have received an opinion of counsel that the status of
the Trust as a grantor trust for United States federal income tax purposes would
not be adversely affected.
The Redemption Price for each Trust Preferred Security shall equal the
liquidation amount of $25 plus accrued and unpaid distributions thereon to the
date of payment.
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SPECIAL EVENT REDEMPTION
Upon the occurrence of a Special Event at any time, SEMCO will have the option
to redeem, within 90 days following the occurrence thereof, the Subordinated
Debentures in whole (and thus cause the redemption of the Trust Preferred
Securities in whole) (see "Description of the Subordinated Debentures --
Optional Redemption"). A Special Event is either a Tax Event or an Investment
Company Act Event.
A "Tax Event" means that the Administrative Trustees and SEMCO shall have
received an opinion of counsel experienced in such matters (which may be counsel
to SEMCO) 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 amendment to, or change in, an
interpretation or application of such laws or regulations, there is more than an
insubstantial risk that (i) the Trust would be subject to United States federal
income tax with respect to income accrued or received on the Subordinated
Debentures, (ii) interest payable on the Subordinated Debentures would not be
deductible by SEMCO for United States federal income tax purposes, or (iii) the
Trust would be subject to more than a de minimis amount of other taxes, duties
or other governmental charges, which change or amendment becomes effective on or
after the Issue Date.
An "Investment Company Act Event" means that the Administrative Trustees and
SEMCO shall have received an opinion of counsel experienced in such matters
(which may be counsel to SEMCO) to the effect that, as a result of the
occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority on or after the Issue Date,
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" under the 1940 Act, which change becomes effective on or
after the Issue Date.
DISTRIBUTION OF SUBORDINATED DEBENTURES UPON TERMINATION OF TRUST
SEMCO will have the right at any time to terminate the Trust and, after
satisfaction of liabilities to creditors of the Trust, cause the Subordinated
Debentures to be distributed to the holders of the Trust Preferred Securities in
liquidation of the Trust. See "Liquidation Distribution Upon Dissolution" below.
This right is optional and wholly within the discretion of SEMCO. Circumstances
under which SEMCO may determine to exercise such right could include the
occurrence of an Investment Company Act Event or a Tax Event, adverse tax
consequences to SEMCO or the Trust that are not within the definition of a Tax
Event because they do not result from an amendment or change described in the
applicable definition under the Subordinated Debenture Indenture, or changes in
the accounting requirements applicable to the Trust Preferred Securities.
If Subordinated Debentures are distributed to the holders of the Trust Preferred
Securities, SEMCO will use its best efforts to have the Subordinated Debentures
listed on the New York Stock Exchange or on such other exchange as the Trust
Preferred Securities are then listed. After the date for any distribution of
Subordinated Debentures upon termination of the Trust, (i) the Trust Preferred
Securities and the Trust Guarantee will no longer be deemed to be outstanding,
(ii) the depositary or its nominee, as the record holder of the Trust Preferred
Securities, will receive a registered global certificate or certificates
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representing the Subordinated Debentures to be delivered upon such distribution
and (iii) any certificates representing Trust Preferred Securities not held by
the depositary or its nominee will be deemed to represent Subordinated
Debentures having an aggregate principal amount equal to the aggregate
liquidation amount of, with an interest rate identical to the Securities Rate
of, and accrued and unpaid interest equal to accrued and unpaid distributions
on, such Trust Preferred Securities, until such certificates are presented to
SEMCO or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Trust Preferred Securities if a termination and liquidation of the Trust
were to occur. Accordingly, the Trust Preferred Securities that an investor may
purchase, or the Subordinated Debentures that the investor may receive on
termination and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Trust Preferred Securities.
REDEMPTION PROCEDURES
In the event that fewer than all of the Trust Securities are to be redeemed,
then the aggregate liquidation amount of the Trust Securities to be redeemed
shall be allocated 97% to the Trust Preferred Securities and 3% to the Trust
Common Securities.
The Trust Preferred Securities redeemed on each redemption date shall be
redeemed at the Redemption Price as defined in the Trust Agreement with the
proceeds from the contemporaneous redemption of the Subordinated Debentures. The
Redemption Price of Trust Preferred Securities shall be deemed payable on each
redemption date only to the extent that the Trust has funds legally and
immediately available for payment of such Redemption Price.
If the Property Trustee gives a notice of redemption in respect of Trust
Preferred Securities (which notice will be irrevocable), then, by 2:00 P.M., New
York City time, on the redemption date, subject to the immediately preceding
paragraph, the Property Trustee will irrevocably deposit with the securities
depositary, so long as the Trust Preferred Securities are in book-entry only
form, sufficient funds to pay the applicable Redemption Price. See "Book-Entry
Only Issuance -- The Depository Trust Company" below. If the Trust Preferred
Securities are not in book-entry only form, the Property Trustee, subject to the
immediately preceding paragraph, will irrevocably deposit with the Paying Agent
funds sufficient to pay the applicable Redemption Price and will give the Paying
Agent irrevocable instructions to pay the Redemption Price to the holders
thereof upon surrender of their Trust Preferred Securities certificates. If
notice of redemption shall have been given and funds deposited as required, then
immediately prior to the close of business on the date of such deposit, all
rights of holders of such Trust Preferred Securities so called for redemption
will cease, including rights to distributions of any amount not theretofore paid
or accrued, except the right of the holders of such Trust Preferred Securities
to receive the Redemption Price, but without interest on such Redemption Price.
In the event that any date fixed for redemption of Trust Preferred Securities is
not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day 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 the event that payment of the Redemption
Price in respect of Trust Preferred Securities is
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improperly withheld or refused and not paid either by the Trust or by SEMCO
pursuant to the Trust Guarantee, distributions on such Trust Preferred
Securities will continue to accrue at the then applicable rate, from such
redemption date originally established by the Trust for such Trust Preferred
Securities to the date such Redemption Price is actually paid. See "--Events of
Default" below, "Relationship Among the Trust Preferred Securities, the
Subordinated Debentures and the Trust Guarantee" herein and "Description of
Trust Guarantee -- Events of Default" in the accompanying Prospectus.
Subject to the foregoing and to applicable law (including, without limitation,
United States federal securities laws), SEMCO or any of its affiliates may, at
any time and from time to time, purchase outstanding Trust Preferred Securities
by tender, in the open market or by private agreement.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as the initial securities depositary for the Trust Preferred
Securities. The Trust Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co., DTC's nominee. One
or more fully registered global Trust Preferred Securities certificates will be
issued, representing in the aggregate the total number of Trust Preferred
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 company" 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
companies and certain other organizations ("Direct Participants"). DTC is owned
by a number of its Direct Participants and by the NYSE, 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 a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of Trust Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Trust Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Trust Preferred Securities ("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 Trust Preferred
Securities. Transfers of ownership interests in the Trust Preferred Securities
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their
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ownership interests in Trust Preferred Securities, except in the event that use
of the book-entry system for the Trust Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Trust Preferred
Securities. DTC's records reflect only the identity of the Direct Participants
to whose accounts such Trust Preferred Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices with respect to Trust Preferred Securities registered in
book-entry only form shall be sent to Cede & Co. as DTC's nominee. If less than
all of the Trust Preferred Securities are being redeemed, DTC will reduce the
amount of the interest of each Direct Participant in the Trust Preferred
Securities in accordance with its procedures.
Although voting with respect to the Trust Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Trust Preferred Securities. Under its usual
procedures, DTC would mail an "Omnibus Proxy" to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Trust Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Distributions, redemption proceeds and other payments in respect of the Trust
Preferred Securities will be made to Cede & Co., as the nominee of DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers registered in "street name," and will be the
responsibility of each such Participant and not of DTC, the Trust, any Trustee
or SEMCO, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions, redemption proceeds and
other amounts to Cede & Co., as nominee of DTC is the responsibility of the
Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of each of the Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Trust Preferred
Security will not be entitled to receive physical delivery of Trust Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Trust Preferred Securities. The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of securities in definitive form. Such laws may impair the ability to
transfer beneficial interests in a global Trust Preferred Security.
DTC may discontinue providing its services as securities depositary with respect
to the Trust Preferred Securities at any time by giving reasonable notice to the
Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained within
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90 days, Trust Preferred Securities certificates will be printed and delivered
to the holders of record. Additionally, SEMCO may decide to discontinue use of
the system of book-entry transfers through DTC (or a successor depositary) with
respect to the Trust Preferred Securities. In that event, certificates for the
Trust Preferred Securities will be printed and delivered to the holders of
record.
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that SEMCO and the Trust believe to be reliable, but
SEMCO and the Trust take no responsibility for the accuracy thereof. The Trust
has no 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.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Trust shall terminate on April , 2050 or
earlier upon (i) the occurrence of a Bankruptcy Event (as defined in the Trust
Agreement) in respect of SEMCO, dissolution or liquidation of SEMCO, or
dissolution of the Trust pursuant to a judicial decree; (ii) the delivery of
written direction to the Property Trustee by SEMCO, as Depositor, at any time
(which direction is optional and wholly within the discretion of SEMCO, as
Depositor) to terminate the Trust and distribute the Subordinated Debentures to
the holders of the Trust Preferred Securities and the Trust Common Securities in
liquidation of the Trust (See "-- Special Event Redemption" above); or (iii) the
payment at maturity or redemption of all of the Subordinated Debentures, and the
consequent payment of the Trust Common Securities.
If an early termination occurs as described in clause (i) or (ii) above, the
Trust shall be liquidated, and the Property Trustee shall distribute to each
holder of Trust Preferred Securities and Trust Common Securities, after the
satisfaction of liabilities to creditors of the Trust, a like principal amount
of Subordinated Debentures, unless in the case of an event described in clause
(i) such distribution is determined by the Administrative Trustees not to be
practical, 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, an amount equal to the aggregate of the liquidation
amount of $25 per Trust Security 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 subject to the next succeeding sentence, the amounts payable
by the Trust on the Trust Securities shall be paid on a pro rata basis. The
holder of the Trust Common Securities will be entitled to receive payments upon
any such dissolution pro rata with the holders of the Trust Preferred
Securities, except that if a Subordinated Indenture Event of Default has
occurred and is continuing, the Trust Preferred Securities shall have a
preference over the Trust Common Securities.
EVENTS OF DEFAULT
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement ("Trust Agreement Event of Default") with respect to the Trust
Securities issued thereunder (whatever the reason for such Trust Agreement Event
of Default, and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant
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to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) the occurrence of an "Event of Default," as defined in the Subordinated
Indenture, with respect to the Subordinated Debentures ("Subordinated
Indenture Event of Default") (See "Description of Debt
Securities -- Events of Default, Notice and Waiver" and "Additional
Description of Subordinated Debentures to be Issued to
Trust -- Subordinated Indenture Additional Events of Default" in the
accompanying Prospectus); or
(ii) default by the Trust in the payment of any Distribution (as defined in
the Trust Agreement) when it becomes due and payable, and the
continuation of such default for a period of 30 days; or
(iii) default by the Trust in the payment of any Redemption Price (as
defined in the Trust Agreement) of any Trust Preferred Security or
Trust Common Security when it becomes due and payable; or
(iv) default in the performance, or breach, of any covenant or warranty of
the Trustees in the Trust Agreement (other than a covenant or warranty
a default in the performance of which or the breach of which is dealt
with in clause (ii) or (iii) above), and continuation of such default
or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Trustees by the holders of at
least 25% in liquidation amount of the outstanding Trust Preferred
Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" under the Trust Agreement; or
(v) the occurrence of a Bankruptcy Event (as defined in the Trust
Agreement) with respect to the Trust.
Within 90 days after the occurrence of any default under the Trust Agreement
known to the Property Trustee, the Property Trustee shall transmit notice of any
such default to the holders of Trust Securities, the Administrative Trustees and
SEMCO, unless such default shall have been cured or waived. For such purpose,
the term "default" means any event which is, or after notice or lapse of time or
both would become, a Trust Agreement Event of Default.
If a Subordinated Indenture Event of Default occurs and is continuing, then,
pursuant to the Trust Agreement, (i) the holders of Trust Preferred Securities
will rely on the enforcement by the Property Trustee of its rights against SEMCO
as the holder of the Subordinated Debentures and (ii) the holders of a majority
in aggregate liquidation amount of the Trust Preferred 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 Trust Agreement,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the Subordinated Debentures subject to limited
exceptions specified in the Trust Agreement. If the Property Trustee fails to
enforce its rights under the Subordinated Debentures, a holder of Trust
Preferred Securities may, to the extent permitted by applicable law and as
provided in the Trust Agreement, institute a legal proceeding against SEMCO to
enforce its rights under the Trust Agreement without
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first instituting any legal proceeding against the Property Trustee or any other
person or entity, including the Trust. Notwithstanding the foregoing, a holder
of Trust Preferred Securities may institute a legal proceeding directly against
SEMCO, without first instituting a legal proceeding against the Property Trustee
or any other person or entity, for enforcement of payment to such holder of
principal of or interest on the Subordinated Debentures having a principal
amount equal to the aggregate liquidation amount of the Trust Preferred
Securities of such holder on or after the due dates specified in the
Subordinated Debentures. See "Relationship Among the Trust Preferred Securities,
the Subordinated Debentures and the Trust Guarantee" herein and "Description of
Trust Guarantee -- Events of Default" in the accompanying Prospectus.
Unless a Subordinated Indenture Event of Default shall have occurred and be
continuing, the Trustees may be removed at any time by act of the holder of the
Trust Common Securities. The holders of the Trust Preferred Securities do not
have a right to appoint, remove or replace the Administrative Trustees. If a
Subordinated Indenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by act of
the holders of a majority in liquidation amount of the Trust Preferred
Securities, delivered to the appropriate Trustee (in its individual capacity and
on behalf of the Trust). No resignation or removal of any Trustee and no
appointment of a successor shall be effective until the acceptance of
appointment by the successor Trustee in accordance with the requirements of the
Trust Agreement.
If a Subordinated Indenture Event of Default has occurred and is continuing, the
holders of Trust Preferred Securities shall have a preference over the holders
of Trust Common Securities upon dissolution of the Trust as described above. See
"-- Liquidation Distribution Upon Dissolution."
VOTING RIGHTS
Except as described in "Amendment of the Trust Agreement" herein, in
"Description of Trust Guarantee -- Amendment of Trust Guarantee; Assignment" in
the accompanying Prospectus and in the immediately succeeding paragraphs and
except as otherwise required by law and the Trust Agreement, the holders of the
Trust Preferred Securities will have no voting rights.
So long as any Subordinated Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Subordinated Indenture Trustee (as
defined herein), or executing any trust or power conferred on the Subordinated
Indenture Trustee with respect to the Subordinated Debentures, (ii) consent to
waive any past default which is waivable under Section 513 of the Subordinated
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of the Subordinated Debentures shall be due and payable, or (iv)
consent to any amendment, modification or termination of the Subordinated
Indenture or the Subordinated Debentures, where such consent shall be required,
or to any other action, as the holder of the Subordinated Debentures, under the
Subordinated Indenture, without, in each case, obtaining the prior approval of
the holders of at least 66 2/3% in liquidation amount of the outstanding Trust
Preferred Securities; provided, however, that where a consent under the
Subordinated Indenture would require the consent of each holder of Subordinated
Debentures affected thereby, no such consent shall be given by the Trustees
without the prior consent of each holder of Trust Preferred Securities. The
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Trustees shall not revoke any action previously authorized or approved by a vote
of the holders of the Trust Preferred Securities, except pursuant to a
subsequent vote of such holders. The Property Trustee shall notify all holders
of the Trust Preferred Securities of any notice of default received from the
Subordinated Indenture Trustee with respect to the Subordinated Debentures.
If any proposed amendment to the Trust Agreement provides for, or the Trustees
otherwise propose to effect, (i) any action that would adversely affect the
powers, preferences or special rights of the Trust Preferred Securities, whether
by way of amendment to the Trust Agreement or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust, other than pursuant to the
Trust Agreement, then the holders of outstanding Trust Preferred Securities will
be entitled to vote as a class on such amendment or proposal, and such amendment
or proposal shall not be effective except with the approval of the holders of at
least 66 2/3% in liquidation amount of the outstanding Trust Preferred
Securities.
Any required approval of holders of Trust Preferred Securities may be given at a
separate meeting of holders of Trust Preferred Securities convened for such
purpose or pursuant to written consents satisfying the requirements of the Trust
Agreement. The Administrative Trustees are required to cause a notice of any
meeting at which holders of Trust Preferred Securities are entitled to vote to
be given to each holder of record of Trust Preferred Securities in the manner
set forth in the Trust Agreement.
Notwithstanding that holders of Trust Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Trust
Preferred Securities that are owned (whether of record or beneficially) by
SEMCO, the Administrative Trustees or any affiliate of SEMCO or any
Administrative Trustee shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE
At any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property (as defined in the Trust Agreement) may at the time be located, the
holder of the Trust Common Securities and the Property Trustee shall have power
to appoint, and upon the written request of the Property Trustee, SEMCO, as
Depositor, shall for such purpose join with the Property Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper to appoint, one or more persons approved by the Property Trustee
either to act as co-property trustee, jointly with the Property Trustee, of all
or any part of such Trust Property, or to act as separate trustee of any such
property, in either case subject to the provisions of the Trust Agreement and
with such powers as may be provided in the instrument of appointment, and to
vest in such person or persons in such capacity, any property, title, right or
power deemed necessary or desirable. If SEMCO, as Depositor, does not join in
such appointment within 15 days after the receipt by it of a request so to do,
or in case a Subordinated Indenture Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make such
appointment.
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AMENDMENT OF THE TRUST AGREEMENT
The Trust Agreement may be amended from time to time by SEMCO and the
Administrative Trustees without the consent of the holders of the Trust
Securities, (i) to cure any ambiguity, correct or supplement any provision
therein which may be inconsistent with any other provision therein, or to make
any other provisions with respect to matters or questions arising under the
Trust Agreement, which shall not be inconsistent with the other provisions of
the Trust Agreement; provided that the amendment does not adversely affect in
any material respect the interests of any holder of Trust Securities, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that the Trust will not be classified as other
than a grantor trust for United States federal income tax purposes or (iii) to
provide the Property Trustee with the authority to execute on behalf of the
Administrative Trustees Trust Preferred Securities certificates. Except as
provided in the succeeding paragraph, other amendments to the Trust Agreement
may be made (i) upon approval of the holders of not less than 66 2/3% in
aggregate liquidation amount of the Trust Securities then outstanding and (ii)
upon receipt by the Trustees of an opinion of counsel to the effect that such
amendment will not affect the Trust's status as a grantor trust or the Trust's
exemption from the 1940 Act.
Also, without the consent of the Property Trustee or the Delaware Trustee, no
amendment may be made that affects the powers, duties or rights of the Property
Trustee or the Delaware Trustee, respectively.
Notwithstanding the foregoing, without the consent of each affected holder of
Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any distribution (or any payment upon redemption) on the
Trust Securities or otherwise adversely affect the amount of any distribution
(or any payment upon redemption) required to be made in respect of the Trust
Securities as of a specified date, (ii) restrict the right of a holder of Trust
Securities to institute suit for the enforcement of any such payment on or after
such date, (iii) change the purpose of the Trust, (iv) authorize the issuance of
any additional beneficial interests in the Trust, or (v) change the consent
required to amend the Trust Agreement.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any corporation or other entity, except as described below. The
Trust may, at the request of SEMCO, with the consent of the Administrative
Trustees and, unless an Event of Default shall have occurred or be continuing,
without the consent of the holders of the Trust Securities or the Property
Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or into, or
be replaced by a trust organized as such under the laws of any state; provided
that (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust with respect to the Trust Securities or (y) substitutes
for the Trust Securities other securities having substantially the same terms as
the Trust Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Trust Securities rank in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
SEMCO expressly appoints a trustee of such successor entity possessing
substantially the same powers and duties as the Property Trustee as the holder
of the legal title to the Subordinated Debentures, (iii) the Trust Preferred
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Securities or any Successor Securities are listed, or any Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or other organization on which the Trust Preferred Securities are then
listed, (iv) such consolidation, amalgamation, merger or replacement does not
cause the Trust Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such consolidation, amalgamation, merger or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose substantially identical to that of the
Trust, (vii) prior to such consolidation, amalgamation, merger or replacement,
SEMCO and the Property Trustee have received an opinion of counsel to the effect
that (A) such consolidation, amalgamation, merger or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect,
and (B) following such consolidation, amalgamation, merger or replacement,
neither the Trust nor such successor entity will be required to register as an
"investment company" under the 1940 Act, and (viii) SEMCO 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 Trust Guarantee. Notwithstanding the foregoing, the Trust may not, except
with the consent of holders of 100% in liquidation amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.
Any corporation or other entity into which any of the Property Trustee, the
Delaware Trustee or any Administrative Trustee that is not a natural person may
be merged or converted or with which it may be consolidated, or any corporation
or other entity resulting from any merger, conversion or consolidation to which
any such Trustee shall be a party, or any corporation or other entity succeeding
to all or substantially all the corporate trust business of any such Trustee,
shall be the successor of such Trustee under the Trust Agreement; provided that
such corporation or other entity is otherwise qualified and eligible.
PAYMENT AND PAYING AGENT
So long as DTC or a successor clearing agency is acting as securities depositary
for the Trust Preferred Securities, payments in respect of the Trust Preferred
Securities shall be made to DTC, which is expected to credit the relevant
accounts at DTC or such successor clearing agency on the applicable Distribution
Dates. If the Trust Preferred Securities are not held by DTC or a successor
clearing agency, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear in the Security
Register (as such term is defined in the Trust Agreement). The Paying Agent
shall initially be the Property Trustee. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Administrative
Trustees and SEMCO. In such event, the Administrative Trustees shall appoint a
successor to act as Paying Agent.
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REGISTRAR AND TRANSFER AGENT
It is anticipated that the Property Trustee initially, and thereafter it or one
of its affiliates, will act as registrar and transfer agent (the "Security
Registrar") for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected upon
delivery of a transfer instrument in a form satisfactory to the Administrative
Trustees without charge by or on behalf of the Trust, but upon payment in
respect of any tax or other governmental charges which may be imposed in
relation to it.
The Security Registrar will not be required to register or cause to be
registered any transfer of Trust Preferred Securities that have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a Trust Agreement Event of
Default with respect to the Trust Securities, undertakes to perform only such
duties as are specifically set forth in the Trust Agreement and, after default,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Trust Preferred Securities,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby.
Bank One Delaware, Inc. serves as the Delaware Trustee. Bank One Trust Company,
National Association serves as the Property Trustee, Subordinated Indenture
Trustee and Trust Guarantee Trustee. SEMCO and certain of its affiliates also
maintain deposit accounts and banking relationships with Bank One.
GOVERNING LAW
The Trust Agreement and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the Trust so
that the Trust will not be deemed to be an "investment company" required to be
registered under the 1940 Act or taxed as other than a grantor trust for United
States federal income tax purposes and so that the Subordinated Debentures will
be treated as indebtedness of SEMCO for United States federal income tax
purposes. In this connection, the Administrative Trustees and SEMCO are
authorized to take any action, not inconsistent with applicable law, the Trust's
certificate of trust or the Trust Agreement, that the Administrative Trustees
and SEMCO 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 Trust Preferred Securities.
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DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the terms of the Subordinated Debentures
which are designated as Subordinated Debentures, Series A. This description
supplements, and should be read together with, the description of the general
terms and provisions of the Subordinated Debentures set forth in the
accompanying Prospectus under the captions "Description of the Debt Securities"
and "Additional Description of Subordinated Debentures To Be Issued to the
Trust". The following description does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the description in the
accompanying Prospectus and the Subordinated Indenture (as defined therein) and
the Supplemental Indenture creating the Subordinated Debentures. Certain
capitalized terms used herein are defined in the Subordinated Indenture.
GENERAL
The Subordinated Debentures will be issued as a series of Debt Securities under
the Subordinated Indenture. The Subordinated Debentures will be limited in
aggregate principal amount to $41,237,125, such amount being equal to the
aggregate liquidation amount of the Trust Securities.
The entire principal amount of the Subordinated Debentures will mature and
become due and payable, together with any accrued and unpaid interest thereon
(including any Additional Interest (as defined below)), on June 30, 2040. The
Subordinated Debentures are not subject to any sinking fund provision.
The interest rate and interest and other payment dates of the Subordinated
Debentures will correspond to those applicable to the quarterly distribution on
the Trust Preferred Securities, as described herein.
The Subordinated Debentures will rank equal in priority of payment with any
other series of Subordinated Debentures issued under the Subordinated Indenture.
OPTIONAL REDEMPTION
The Subordinated Indenture provides that SEMCO will have the right to redeem the
Subordinated Debentures, in whole or in part, without premium, from time to
time, on or after April , 2005, or at any time in whole within 90 days
following the occurrence of a Special Event as described under "Description of
the Trust Preferred Securities -- Special Event Redemption or Distribution,"
upon not less than 30 nor more than 60 days' notice, at a Redemption Price equal
to 100% of the principal amount to be redeemed plus any accrued and unpaid
interest (including any Additional Interest) to the Redemption Date. If a
partial redemption of the Subordinated Debentures would result in the delisting
of the Trust Preferred Securities, SEMCO may redeem the Subordinated Debentures
only in whole.
INTEREST
Each Subordinated Debenture will bear interest at the Securities Rate from the
Issue Date, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing on June 30, 2000, to the person in whose
name such
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Subordinated Debenture is registered at the close of business on the fifteenth
calendar day prior to such payment date; provided that interest payable at the
stated maturity of principal of the Subordinated Debentures or on a Redemption
Date will be paid to the person to whom such principal is payable. The amount of
interest payable 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
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date the payment was originally
payable.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
SEMCO will have the right at any time, and from time to time, to defer payments
of interest on the Subordinated Debentures by extending the interest payment
period for up to 20 consecutive quarters, but not beyond the stated maturity
date. Upon the termination of an Extension Period, which termination shall be on
an Interest Payment Date, SEMCO shall pay all interest then accrued and unpaid
(including any Additional Interest) on the next succeeding Interest Payment
Date. Prior to the termination of any Extension Period, SEMCO may further defer
payments of interest by extending the interest payment period; provided that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters. During an Extension Period,
SEMCO will have the right to make partial payments of interest on any Interest
Payment Date. Upon the termination of any Extension Period and the payment of
all amounts then due, SEMCO may select a new Extension Period, subject to the
above requirements. SEMCO has no present intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Subordinated Debentures.
SEMCO shall give the holder or holders of the Subordinated Debentures and the
Subordinated Indenture Trustee notice of its selection or extension of an
Extension Period at least one Business Day prior to the earlier of (i) the
record date relating to the Interest Payment Date on which the Extension Period
is to commence or relating to the Interest Payment Date on which an Extension
Period that is being extended would otherwise terminate or (ii) the date SEMCO
or the Trust is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization of the record date or the date such
distributions are payable.
ADDITIONAL INTEREST
"Additional Interest" with respect to the Subordinated Debentures is defined in
the Subordinated Indenture as (i) such additional amounts as may be required so
that the net amounts received and retained by a holder of Subordinated
Debentures (if the holder is the Trust) after paying taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States or any other taxing authority will not be less than
the amounts the holder would have received had not such taxes, duties,
assessments, or other governmental charges been imposed; and (ii) such interest
as shall accrue on interest due and not paid on an Interest Payment Date,
accruing at the Securities Rate from the applicable Interest Payment Date to the
date of payment,
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compounded quarterly, on each Interest Payment Date, to the extent permitted by
applicable law.
CERTAIN COVENANTS
SEMCO covenants in the Subordinated Indenture, for the benefit of the holders of
Subordinated Debentures, that, (i) if at such time SEMCO shall have given notice
of its election to extend an interest payment period for the Subordinated
Debentures and such extension shall be continuing or (ii) if at such time a
Subordinated Indenture Event of Default shall have occurred and be continuing,
(a) SEMCO shall not declare or pay any dividend or make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock, and (b) SEMCO shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees other than the Trust Guarantee) issued by
SEMCO which rank pari passu with or junior to the Subordinated Debentures. None
of the foregoing, however, shall restrict (i) any of the actions described in
the preceding sentence resulting from any reclassification of SEMCO's capital
stock or the exchange or conversion of one class or series of SEMCO's capital
stock for another class or series of SEMCO's capital stock, (ii) repurchases,
redemptions or other acquisitions of shares of SEMCO's capital stock in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of employees, officers or directors or a
stock purchase and dividend reinvestment plan, (iii) dividends or distributions
in capital stock of SEMCO, or (iv) the purchase of fractional interests in
shares of SEMCO's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged.
The Subordinated Indenture further provides that, for so long as the Trust
Securities remain outstanding, SEMCO covenants (i) directly or indirectly to
maintain 100% ownership of the Trust Common Securities of the Trust; provided,
however, that any permitted successor of SEMCO under the Subordinated Indenture
may succeed to SEMCO's ownership of such Trust Common Securities, and (ii) to
use its reasonable efforts to cause the Trust (a) to remain a statutory business
trust, except in connection with the distribution of Subordinated Debentures to
the holders of Trust Securities in liquidation of such Trust, the redemption of
all of the Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Trust Agreement, and (b) to otherwise
continue to be classified as a grantor trust for United States federal income
tax purposes.
BOOK-ENTRY AND ISSUANCE
If distributed to holders of Trust Securities in connection with the voluntary
or involuntary dissolution, winding-up or liquidation of the Trust, the
Subordinated Debentures are expected to be issued in the form of one or more
global certificates registered in the name of the securities depositary or its
nominee. In such event, the procedures applicable to the transfer and payment of
the Subordinated Debentures are expected to be substantially similar to those
described with respect to the Trust Preferred Securities in "Description of the
Trust Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company."
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DENOMINATIONS
The Subordinated Debentures will be issuable in registered form without coupons
in denominations of $25 or any integral multiples thereof.
DEFEASANCE
SEMCO may cause itself to be discharged from its obligations (with certain
exceptions) with respect to any Subordinated Debentures ("Defeasance"). See
"Description of Debt Securities -- Discharge, Defeasance and Covenant
Defeasance" in the accompanying Prospectus.
Under current United States federal income tax laws, Defeasance would be treated
as an exchange of the relevant Subordinated Debentures in which holders of such
Subordinated Debentures might recognize gain or loss. In addition, thereafter,
the amount, timing and character of amounts that holders would be required to
include in income might be different from that which would be includible in the
absence of such Defeasance. Prospective investors are urged to consult their own
tax advisors as to the specific consequences of a Defeasance, including the
applicability and effect of tax laws other than the United States federal income
tax laws.
MISCELLANEOUS
SEMCO will have the right at all times to assign any of its rights or
obligations under the Subordinated Indenture with respect to the Subordinated
Debentures to a direct or indirect wholly-owned subsidiary of SEMCO; provided
that, in the event of any such assignment, SEMCO will remain primarily liable
for the performance of all such obligations.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Trust Preferred
Securities and constitutes the opinion of Dickinson Wright PLLC, special tax
counsel to SEMCO and the Trust, insofar as it relates to matters of law and
legal conclusions. This discussion deals only with Trust Preferred Securities
held as capital assets within the meaning of the Internal Revenue Code of 1986,
as amended to the date hereof (the "Code"), by US Holders (as defined herein)
that are the beneficial owners of the Trust Preferred Securities and that
acquire Trust Preferred Securities on their original issue at their original
offering price. As used herein, the term "US Holder" means a beneficial owner of
a Trust Preferred Security that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) a corporation, partnership,
limited liability company or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source, and (iv) a trust if (a) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (b) one or more U.S. persons have the authority to control all
substantial decisions of the trust.
This discussion does not include all of the tax consequences that may be
important to a US Holder in light of the US Holder's particular circumstances or
to US Holders subject to special rules, such as banks, certain financial
institutions, real estate investment trusts, regulated investment companies,
insurance companies, tax-exempt organizations, dealers in securities or
currencies, individual retirement and certain tax deferred accounts, foreign
investors and persons who engage in a straddle, hedge or other integrated
transaction, relating to a Trust Preferred Security.
This discussion does not include any description of any alternative minimum tax
consequences or other collateral tax consequences under United States federal
income tax laws, or the tax laws of any state, local or foreign government that
may be applicable to a holder of preferred securities. In addition, the
following discussion does not address any tax consequences that apply
specifically to nonresident aliens or foreign entities. Investors with a special
tax situation, including investors subject to alternative minimum tax and
Non-United States persons should consult their own tax advisors as to the
specific United States federal income tax consequences of the purchase,
ownership and disposition of preferred securities.
The authorities on which this discussion is based are subject to various
interpretations and the opinions of counsel are not binding on the Internal
Revenue Service ("IRS") which could take a contrary position. Moreover, this
summary is based on laws, existing and proposed regulations, and applicable
judicial and administrative determinations, all of which are subject to change
at any time, and any such changes may be retroactively applied in a manner that
could adversely affect US Holders. No rulings have been or will be sought from
the IRS regarding the transactions described in this prospectus. Accordingly,
there can be no assurance that the IRS will not challenge the opinions expressed
in this discussion. It is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of preferred securities may
differ from the treatment described below.
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PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL OR OTHER TAX LAWS.
TREATMENT OF THE TRUST AND TRUST PREFERRED SECURITIES FOR FEDERAL INCOME TAX
PURPOSES
Assuming full compliance with the terms of the trust agreement, the Trust will
be treated as a "grantor trust" and not as an "association taxable as a
corporation" for federal income tax purposes. Thus, for federal income tax
purposes, each US Holder will be treated as the beneficial owner of a pro rata
undivided interest in the Subordinated Debentures. Consequently, such US Holder
will be required to include in income the US Holder's pro rata share of the
entire income from the Subordinated Debentures. Each US Holder generally will
determine net income or loss with respect to the Trust in accordance with the US
Holder's own method of accounting, although income arising from OID, if any,
must be taken into account under the accrual method of accounting even if the US
Holder otherwise would use the cash receipts and disbursements method. Because
income on the Trust Preferred Securities will constitute interest or OID,
corporate US Holders will not be entitled to a dividends-received deduction with
respect to any income recognized with respect to the Trust Preferred Securities.
ORIGINAL ISSUE DISCOUNT
Under applicable income tax regulations, SEMCO believes that the Subordinated
Debentures will not be treated as issued with OID. It should be noted that these
are complex regulations and that the treatment of securities such as the Trust
Preferred Securities has not yet been addressed in any rulings or other
interpretations by the IRS. Accordingly, it is possible that the IRS could take
a position contrary to the interpretations described herein. Should SEMCO
exercise its option to defer payments of interest, the Subordinated Debentures
would at that time be treated as issued with OID and all the stated interest
payments on the Subordinated Debentures would thereafter be treated as OID for
so long as they remained outstanding. As a result, all US Holders would, in
effect, be required to accrue interest income even if such US Holders are on a
cash method of accounting. Consequently, in the event that the payment of
interest is deferred, a US Holder could be required to include OID in income on
an economic accrual basis, notwithstanding that SEMCO would not be expected or
required to make any interest payments during such period on the Subordinated
Debentures.
SALE OF TRUST PREFERRED SECURITIES
Upon the sale, retirement (including redemption) or other taxable disposition of
all or part of a Trust Preferred Security, a US Holder thereof will recognize
gain or loss equal to the difference between the amount realized on such sale,
retirement or other disposition and such US Holder's adjusted tax basis in the
Trust Preferred Security or part thereof. If the US Holder disposes of a Trust
Preferred Security prior to the occurrence of an Extension Period, any portion
of the amount received that is attributable to accrued interest will be treated
as interest income to the US Holder and will not be treated as part of the
amount realized for purposes of determining gain or loss on the disposition of
the Trust Preferred Security. Any recognized gain or loss will be capital gain
or loss, and such capital gain or
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<PAGE> 32
loss will be long-term if the holding period for the Trust Preferred Security is
more than one year at the time of sale, retirement or other disposition. In the
case of individuals, "net capital gain," i.e., the excess of net long-term
capital gain over net short-term capital loss is generally subject to a reduced
rate of federal income tax of 20% or 10% in the case of taxpayers in the lowest
bracket.
A US Holder's adjusted tax basis in a Trust Preferred Security acquired by
purchase will generally equal the cost of such Trust Preferred Security to the
US Holder, increased by the amount of any related accrued OID included in
taxable income by the US Holder and reduced by any prior payments on the
Subordinated Debentures. The redemption of only part of a Trust Preferred
Security will require an allocation of the US Holder's pro rata share of the
adjusted issue price of the related Subordinated Debentures between the portion
of the Subordinated Debentures redeemed and the portion retained by the US
Holder in order to determine gain or loss.
RECEIPT OF SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
As described under "Description of the Trust Preferred Securities --
Distribution of Subordinated Debentures upon Termination of Trust," Subordinated
Debentures may be distributed to US Holders in exchange for the Trust Preferred
Securities and in liquidation of the Trust. Such a distribution would be treated
as a nontaxable event to each US Holder and each US Holder would receive an
aggregate tax basis and be treated as having a holding period in the US Holder's
Subordinated Debentures equal to the US Holder's aggregate tax basis and holding
period in its Trust Preferred Securities. A US Holder's holding period with
respect to the Subordinated Debentures so received in liquidation of the Trust
would include the period for which the Trust Preferred Securities were held by
such US Holder.
If, however, the Trust were to be characterized for United States federal income
tax purposes as an association taxable as a corporation at the time of its
dissolution, the distribution of the Subordinated Debentures would constitute a
taxable event to US Holders of Trust Preferred Securities and a US Holder's
holding period in Subordinated Debentures would begin on the date such
Subordinated Debentures were received.
INFORMATION REPORTING TO US HOLDERS
Interest paid or OID accrued, if any, on the Trust Preferred Securities will be
generally reported to US Holders on Form 1099, which form is expected to be
mailed to US Holders of Trust Preferred Securities by January 31 following each
calendar year.
BACKUP WITHHOLDING
A US Holder may be subject to "backup withholding" under certain circumstances.
Backup withholding applies to a US Holder if the US Holder, among other things,
(i) fails to furnish his social security number or other taxpayer identification
number ("TIN") to the payor responsible for backup withholding (for example, the
US Holder's securities broker), (ii) furnishes such payor an incorrect TIN,
(iii) fails to provide such payor with a certified statement, signed under
penalties of perjury, that the TIN provided to the payor is correct and that the
US Holder is not subject to backup withholding, or (iv) fails to properly report
interest and dividends on his tax return. Backup withholding,
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<PAGE> 33
however, does not apply to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. The backup withholding rate is 31% of
"reportable payments," which generally will include distributions of interest
and principal payments on the Subordinated Debentures and payment of the
proceeds from the disposition of Trust Preferred Securities. Any amount withheld
from a US Holder under the backup withholding rules will be allowed as a refund
or a credit against such US Holder's United States federal income tax liability,
provided the required information is furnished to the IRS.
TAX LAW UNCERTAINTIES AND POSSIBLE TAX LAW CHANGES AFFECTING TRUST PREFERRED
SECURITIES
The combined tax effects of the Trust's purchase of debt instruments such as the
Subordinated Debentures in conjunction with its issuance of equity interests
such as the Trust Securities have not been addressed in any Treasury Regulations
or court decision and have not been approved or disapproved by the IRS in any
published ruling or notice.
The IRS proposed disallowance in a recent audit of the deduction of the interest
expense claimed by a corporation on subordinated debt instruments issued by such
corporation and sold to a related trust. Although the IRS agreed to dismissal of
the relevant adjustments in that case prior to litigation, it is not precluded
from asserting similar adjustments against other taxpayers. A variation of the
structure described in this Prospectus involving an intermediate limited life
company rather than a trust was accepted by the IRS as creating debt giving rise
to deductible interest in Private Letter Ruling 1999-10046. However, taxpayers
(other than the taxpayer to whom a Private Letter Ruling is addressed) are not
entitled to rely on IRS holdings in Private Letter Rulings.
Legislative proposals have previously been made by the current administration,
which if enacted, could have adversely affected the ability of SEMCO to deduct
interest paid on the Subordinated Debentures. Although these proposals were not
enacted, there can be no assurance that future legislative proposals or
legislation will not affect the ability of SEMCO to deduct interest on the
Subordinated Debentures or otherwise adversely affect the tax treatment of the
transactions described in this prospectus.
Although the IRS agreed to dismissal of the adjustments in the litigation
described above, it could assert similar adjustments against other taxpayers. If
it were to do so and the issue were litigated to a conclusion in which the IRS's
position on this matter was sustained, such a judicial determination could
constitute a tax event which could result in an early redemption of the Trust
Preferred Securities. Similarly, if legislative proposals of the type described
above were to be enacted, a change of this nature could give rise to a tax
event, which may permit SEMCO to cause a redemption of the Trust Preferred
Securities.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE APPLICABLE TO A US
HOLDER, DEPENDING UPON A US HOLDER'S PARTICULAR SITUATION, AND THEREFORE EACH US
HOLDER SHOULD CONSULT A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
OWNERSHIP AND DISPOSITION OF TRUST PREFERRED SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAW.
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<PAGE> 34
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES AND THE TRUST GUARANTEE
So long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities primarily because (i) the aggregate
principal amount of Subordinated Debentures will be equal to the sum of the
aggregate liquidation amount of the Trust Securities; (ii) the interest rate and
interest and other payment dates on the Subordinated Debentures will correspond
to the distribution rate and distribution and other payment dates for the Trust
Preferred Securities; (iii) SEMCO will pay for all costs and expenses of the
Trust pursuant to the Agreement as to Expenses and Liabilities; and (iv) the
Trust Agreement provides that the Trustees shall not cause or permit the Trust
to, among other things, engage in any activity that is not consistent with the
purposes of the Trust.
Payments of distributions (to the extent funds therefor are legally and
immediately available) and other payments due on the Trust Preferred Securities
(to the extent funds therefor are legally and immediately available) are
guaranteed by SEMCO as and to the extent set forth under "Description of Trust
Guarantees" in the accompanying Prospectus. If SEMCO does not make the required
payments on the Subordinated Debentures, it is not expected that the Trust will
have sufficient funds to make the related distributions on the Trust Preferred
Securities. The Trust Guarantee is a guarantee from the time of its issuance,
but does not apply to any payment of distributions unless and until the Trust
has sufficient funds legally and immediately available for the payment of such
distributions.
If a Subordinated Indenture Event of Default occurs and is continuing, then (i)
the holders of Trust Preferred Securities will rely on the enforcement by the
Property Trustee of its rights against SEMCO as the holder of the Subordinated
Debentures and (ii) the holders of a majority in aggregate liquidation amount of
the Trust Preferred 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 Trust Agreement, including the right to direct the
Property Trustee to exercise the remedies available to it as a holder of the
Subordinated Debentures. If the Property Trustee fails to enforce its rights
under the Subordinated Debentures, a holder of Trust Preferred Securities may,
to the extent permitted by applicable law and as provided in the Trust
Agreement, institute a legal proceeding against SEMCO to enforce its rights
under the Trust Agreement without first instituting any legal proceeding against
the Property Trustee or any other person or entity, including the Trust;
provided that no one or more of such holders has any right under the Trust
Agreement to affect, disturb or prejudice the rights of any other of such
holders or to obtain or to seek to obtain priority or preference over any other
of such holders or to enforce any right under the Trust Agreement, except in the
manner provided in the Trust Agreement and for the equal and ratable benefit of
all such holders. Notwithstanding the foregoing, a holder of Trust Preferred
Securities may institute a legal proceeding directly against SEMCO, without
first instituting a legal proceeding against, or requesting or directing that
action be taken by, the Property Trustee or any other person or entity, for
enforcement of payment to such holder of principal of or interest on the
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Trust Preferred Securities of such holder on or after
the due dates specified in the
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<PAGE> 35
Subordinated Debentures. The Trust Agreement also provides a mechanism whereby
the holders of Trust Preferred Securities may appoint a substitute Property
Trustee if a Subordinated Indenture Event of Default occurs and is continuing.
The Trust Guarantee provides a mechanism whereby the holders of the Trust
Preferred Securities may direct the Trust Guarantee Trustee to enforce its
rights thereunder. In addition, any holder of Trust Preferred Securities may
institute a legal proceeding directly against SEMCO to enforce its rights under
the Trust Guarantee without first instituting a legal proceeding against the
Trust Guarantee Trustee or any other person or entity.
The Trust Guarantee, the Subordinated Indenture, the Subordinated Debentures,
the Trust Agreement and the Agreement as to Expenses and Liabilities, as
described above, provide a full and unconditional guarantee, subject to certain
subordination provisions, by SEMCO of the payments due on the Trust Preferred
Securities.
Upon any voluntary or involuntary dissolution, winding-up or termination of the
Trust, unless the Subordinated Debentures are distributed in connection
therewith, the holders of Trust Preferred Securities will be entitled to
receive, out of assets legally available for distribution to holders, the
Liquidation Distribution in cash. See "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Dissolution."
Upon any voluntary or involuntary liquidation or bankruptcy of SEMCO, the
Property Trustee, as holder of the Subordinated Debentures, would be a
subordinated creditor of SEMCO, subordinated in right of payment to all Senior
Debt, but entitled to receive payment in full of principal and interest, before
the shareholders of SEMCO receive payments or distributions. Because SEMCO is
guarantor under the Trust Guarantee and has agreed to pay for all costs,
expenses and liabilities of the Trust (other than the Trust's obligations to
holders of the Trust Preferred Securities) pursuant to the Agreement as to
Expenses and Liabilities, the positions of a holder of Trust Preferred
Securities and a holder of Subordinated Debentures relative to other creditors
and the shareholders of SEMCO in the event of liquidation or bankruptcy of SEMCO
would be substantially the same.
A default or event of default under any Senior Debt would not constitute a
default or Event of Default under the Subordinated Indenture with respect to the
Subordinated Debentures. However, in the event of a default under, or
acceleration of, Senior Debt, the subordination provisions of the Subordinated
Debentures provide that no payments may be made in respect of the Subordinated
Debentures until such Senior Debt has been paid in full. Failure to make
required payments on the Subordinated Debentures would (with the lapse of time,
in the case of defaults in the payment of interest) constitute a Subordinated
Indenture Event of Default, except that failure to make interest payments on the
Subordinated Debentures will not be a Subordinated Indenture Event of Default
during an Extension Period; provided, however, that any Extension Period may not
exceed 20 consecutive quarters or extend beyond the stated maturity of the
Subordinated Debentures.
S-35
<PAGE> 36
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement"), the Trust has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom A.G. Edwards & Sons, Inc. and PaineWebber Incorporated, are acting lead
managers (the "Representatives"), has severally agreed to purchase the number of
Trust Preferred Securities set forth opposite its name below. In the
Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Trust Preferred
Securities offered hereby if any of the Trust Preferred Securities are
purchased. In the event of default by an Underwriter, the Underwriting Agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER OF
TRUST PREFERRED
UNDERWRITER SECURITIES
----------- ---------------
<S> <C>
A.G. Edwards & Sons, Inc....................................
PaineWebber Incorporated....................................
Fahnestock & Co. Inc........................................
NatCity Investments, Inc....................................
---------
Total.................................................. 1,600,000
=========
</TABLE>
The Underwriters propose to offer the Trust Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and, in part, to certain securities
dealers at such price less a concession of $ per Trust Preferred Security.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Trust Preferred Security to certain brokers and dealers.
After the Trust Preferred Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Representatives.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be used to purchase the Subordinated Debentures, the
Underwriting Agreement provides that SEMCO will pay as compensation (the
"Underwriters' Compensation") for the Underwriters arranging the investment
therein of such proceeds, an amount in immediately available funds of $
per Trust Preferred Security (or $ in the aggregate) for the accounts of
the several Underwriters.
SEMCO and the Trust have agreed, during the period of 45 days from the date of
the Underwriting Agreement, not to sell, offer to sell, grant any option for the
sale of, or otherwise dispose of any Trust Preferred Securities, any security
convertible into or exchangeable into or exercisable for Trust Preferred
Securities or the Subordinated Debentures or any debt securities substantially
similar to the Subordinated Debentures or equity securities substantially
similar to the Trust Preferred Securities (except for the Subordinated
Debentures and the Trust Preferred Securities issued pursuant to the
Underwriting Agreement), without the prior written consent of the
Representatives.
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<PAGE> 37
Prior to this offering, there has been no public market for the Trust Preferred
Securities. Application has been made to list the Trust Preferred Securities on
the New York Stock Exchange. If so approved, trading of the Trust Preferred
Securities on the New York Stock Exchange is expected to commence within a 30
day period after the initial delivery of the Trust Preferred Securities. The
Representatives have advised SEMCO and the Trust that they intend to make a
market in the Trust Preferred Securities prior to the commencement of trading on
the New York Stock Exchange. The Representatives will have no obligation to make
a market in the Trust Preferred Securities, however, and may cease market making
activities, if commenced, at any time.
Prior to this offering, there has been no public market for Trust Preferred
Securities. In order to meet one of the requirements for listing the Trust
Preferred Securities on the NYSE, the Underwriters will undertake to sell lots
of 100 or more Trust Preferred Securities to a minimum of 400 beneficial
holders.
In order to facilitate the offering of the Trust Preferred Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Trust Preferred Securities. Specifically, the
Underwriters may over-allot in connection with this offering, creating short
positions in the securities for their own account. In addition, to cover
over-allotments or to stabilize the price of the Trust Preferred Securities, the
Underwriters may bid for, and purchase, Trust Preferred Securities in the open
market. Finally, the Underwriters may reclaim selling concessions allowed to an
underwriter or dealer for distributing Trust Preferred Securities in this
offering, if the Underwriters repurchase previously distributed Trust Preferred
Securities in transactions that cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Trust Preferred Securities above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
SEMCO estimates that its expenses in connection with this offering, excluding
underwriting discounts and commission, will be approximately $ .
Neither SEMCO, the Trust, nor any of the Underwriters makes 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 Trust Preferred
Securities. In addition, neither SEMCO, the Trust, nor any of the Underwriters
makes any representation that the Underwriters will engage in such transactions
or that such transactions once commenced, will not be discontinued without
notice.
SEMCO and the Trust have agreed to indemnify the Underwriters against certain
liabilities and, in certain circumstances, contribute to payments the
Underwriters may be required to make, including liabilities under the 1933 Act.
Certain of the Underwriters engage in transactions with, and, from time to time,
have performed services for, SEMCO and its affiliates in the ordinary course of
business. In addition, NatCity Investments, Inc. is an affiliate of National
City Bank (Cleveland, Ohio) through their parent holding company, National City
Corp. SEMCO is indebted to National City Bank in the amount of $17.5 million as
part of the $290 million short term unsecured bridge loan which the net proceeds
from the sale of the Trust Preferred Securities (and the subsequent purchase of
the Subordinated Debentures from SEMCO) will be used to partially repay. See
"Use of Proceeds."
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<PAGE> 38
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the Trust Preferred
Securities will be passed upon on behalf of SEMCO and the Trust by Richards,
Layton & Finger, Wilmington, Delaware, special Delaware counsel to SEMCO and the
Trust. The validity of the Subordinated Debentures, the Trust Guarantee and
certain matters relating thereto, as well as certain matters relating to United
States federal income tax considerations, will be passed upon on behalf of SEMCO
by Dickinson Wright PLLC, Detroit, Michigan. Certain matters will be passed upon
for the Underwriters by Dewey Ballantine LLP, New York, New York.
S-38
<PAGE> 39
GLOSSARY
<TABLE>
<S> <C>
1933 Act............................. The Securities Act of 1933, as amended.
1934 Act............................. The Securities Exchange Act of 1934, as amended.
1940 Act............................. The Investment Company Act of 1940, as amended.
Additional Interest.................. Amounts payable by SEMCO as defined under
"Description of the Subordinated Debentures --
Additional Interest."
Administrative Trustees.............. The officers of SEMCO named to act as Trustees,
initially
Agreement as to Expenses and
Liabilities........................ The agreement between SEMCO and the Trust
pursuant to which SEMCO has agreed to pay all
indebtedness, expenses or liabilities of the
Trust, other than the Trust's obligations to pay
to the holders of the Trust Preferred Securities
the amounts due such holders pursuant to the
terms thereof.
Code................................. The Internal Revenue Code of 1986, as amended.
Company.............................. SEMCO Energy, Inc.
Delaware Trustee..................... Bank One Delaware, Inc.
DTC.................................. The Depository Trust Company, a clearing company
that initially will hold (through its agents) a
global certificate or certificates evidencing the
Trust Preferred Securities.
Distribution Dates................... March 31, June 30, September 30 and December 31
of each year.
Extension Period..................... Any period during which interest is not paid on
the Subordinated Debentures (and, consequently,
on the Trust Preferred Securities) at the
election of SEMCO to the extent permitted under
the terms of the Subordinated Debentures.
Issue Date........................... The date on which the Subordinated Debentures and
Trust Preferred Securities are issued.
Investment Company
Act Event.......................... An event of the type described in "Description of
the Trust Preferred Securities -- Special Event
Redemption or Distribution."
Property Trustee..................... A trustee under the Trust Agreement designated to
hold the trust property; initially Bank One Trust
Company, National Association.
Record Date.......................... The close of business on the 15th calendar day
prior to a Distribution Date.
Redemption Price..................... The liquidation amount of $25 per Trust Preferred
Security, plus accrued and unpaid distributions
thereon (including any interest thereon) to the
date of payment.
</TABLE>
S-39
<PAGE> 40
<TABLE>
<S> <C>
Securities Rate..................... The per annum interest rate expressed as a percentage of the
liquidation amount of $25 per Trust Preferred Security as set
forth on the cover page of this Prospectus Supplement.
Senior Debt......................... Senior Indebtedness of SEMCO described under "Description of
Debt Securities -- Subordination" in the accompanying
Prospectus.
Special Event....................... A Tax Event or an Investment Company Act Event.
Subordinated Debentures............. The junior subordinated deferrable-interest debentures of SEMCO
designated as % Subordinated Debentures due June 30, 2040
Subordinated Indenture
Trustee........................... The trustee under the Subordinated Indenture initially, Bank
One Trust Company, National Association
Subordinated Indenture.............. The indenture pursuant to which SEMCO's Subordinated Debentures
will be issued.
Subordinated Debenture Indenture
Event of Default.................. As described, with respect to the Subordinated Debentures,
under "Description of Debt Securities -- Events of Default" and
"Additional Description of Subordinated Debentures To Be Issued
to Trust -- Subordinated Indenture Additional Events of
Default" in the accompanying Prospectus.
Tax Event........................... An event of the type described in "Description of the Trust
Preferred Securities -- Special Event Redemption or
Distribution."
Trust............................... SEMCO Capital Trust I, a Delaware business trust that will
issue the Trust Securities.
Trust Agreement..................... The agreement pursuant to which the Trust is organized, as it
may be amended and restated from time to time.
Trust Agreement Event of Default.... As described under "Description of the Trust Preferred
Securities -- Events of Default."
Trust Common Securities............. The trust securities being sold to SEMCO.
Trustees............................ The Property Trustee, Administrative Trustees and Delaware
Trustee.
Trust Guarantee..................... The guarantee by SEMCO of the payments by the Trust on the
Trust Preferred Securities from funds legally and immediately
available in the Trust.
Trust Guarantee Payments............ Payments required to be made pursuant to the Trust Guarantee as
described in "Description of the Trust Guarantee -- General" in
the accompanying Prospectus.
Trust Guarantee Trustee............. The trustee under the Trust Guarantee; initially, Bank One
Trust Company, National Association.
Trust Indenture Act................. The Trust Indenture Act of 1939, as amended.
</TABLE>
S-40
<PAGE> 41
<TABLE>
<S> <C>
Trust Preferred Securities........... The trust securities being offered to investors
pursuant to this Prospectus Supplement and the
accompanying Prospectus.
Trust Securities..................... The Trust Preferred Securities and the Trust
Common Securities.
</TABLE>
S-41
<PAGE> 42
PROSPECTUS
SEMCO ENERGY, INC.
SEMCO CAPITAL TRUST I
SEMCO CAPITAL TRUST II
SEMCO CAPITAL TRUST III
---------------------
The following are types of securities that we may, from time to time, offer
and sell under this prospectus:
- Debt securities
- Preferred Stock
- Common Stock
- Stock purchase contracts
- Stock purchase units
In addition, we, in conjunction with our trusts, may, from time to time,
offer and sell:
- Trust preferred securities and related guarantees
We may offer these securities separately or as units which may include
other securities. We will describe in a prospectus supplement, which must
accompany this prospectus, the type and amount of securities we are offering and
selling, as well as the specific terms of the securities. Those terms may
include:
- Maturity
- Interest or dividend rate
- Sinking fund terms
- Currency of payments
- Redemption terms
- Listing on a securities exchange
- Amount payable at maturity
- Ranking
Our shares of Common Stock are traded on the New York Stock Exchange under
the symbol SEN.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We may offer the securities in amounts, at prices and on terms determined
at the time of offering. We may sell the securities directly to you, through
agents we select, or through underwriters and dealers we select. If we use
agents, underwriters or dealers to sell the securities, we will name them and
describe their compensation in a prospectus supplement.
March 27, 2000
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information......................... 2
Incorporation of Certain Documents by Reference............. 3
Cautionary Statement Regarding Forward-Looking
Information............................................... 3
SEMCO Energy................................................ 5
The Trusts.................................................. 10
Use of Proceeds............................................. 11
Accounting Treatment Relating to Trust Securities........... 12
Consolidated Ratios of Earnings to Fixed Charges............ 12
Description of Capital Stock................................ 13
Description of Debt Securities.............................. 16
Description of Trust Preferred Securities................... 29
Description of Trust Guarantees............................. 31
The Agreement as to Expenses and Liabilities................ 33
Additional Description of Subordinated Debentures to be
Issued to Trust........................................... 33
Effect of Obligations Under Subordinated Debentures and
Trust Preferred Securities Guarantees..................... 38
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 39
Plan of Distribution........................................ 39
Legal Matters............................................... 40
Experts..................................................... 41
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
SEMCO files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. You may read and copy this information at the
following locations of the Commission:
<TABLE>
<S> <C> <C>
Judiciary Plaza, Room 10024 Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison St., Ste.
Washington, D.C. 20549 New York, New York 10048 1400
Chicago, Illinois 60661
</TABLE>
You can also obtain copies of this information by mail from the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Room 10024, Washington
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the Commission at (800) SEC-0330.
The Commission also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like SEMCO, who
file electronically with the Commission. The address of that site is
http://www.sec.gov.
We and our trusts have filed jointly with the Commission a registration
statement on Form S-3 that registers the securities we or they are offering. The
registration statement, including the attached exhibits, contains additional
relevant information about SEMCO, the trusts and the securities offered. The
rules and regulations of the Commission allow us to omit certain information
included in the registration statement from this prospectus.
2
<PAGE> 44
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is considered to be part of this
prospectus, except for any information that is superseded by information that is
included directly in this document.
This prospectus includes by reference the documents listed below that we
have previously filed with the Commission and that are not included in or
delivered with this document. They contain important information about us and
our financial condition.
<TABLE>
<CAPTION>
FILING PERIOD
- ------ ------
<S> <C>
Annual Report on Form 10-K................... Year ended December 31, 1999
Current Report on Form 8-K................... Filed March 20, 2000
</TABLE>
We incorporate by reference additional documents that we may subsequently
file with the Commission prior to termination of any offering of securities made
by this prospectus. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements. The information in this prospectus, in
documents incorporated into this prospectus, and in prospectus supplements may
be changed or superceded by information given at a later date in these
documents.
You can obtain any of the documents incorporated by reference in this
document from us without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference as an exhibit to
this prospectus. You can obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone from us at the
following address:
Edric R. Mason, Jr.
Director of Investor Relations
SEMCO Energy, Inc.
405 Water Street
Port Huron, Michigan 48060
(810) 989-4104
We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this prospectus. Therefore, if anyone does give
you information of this nature, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
prospectus does not extend to you. The information contained in this prospectus
speaks only as of the date of this prospectus, unless the information
specifically indicates that another date applies.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about our outlook, beliefs, plans, goals and
expectations are forward-looking statements. These statements are subject to
potential risks and uncertainties and, therefore, actual results may differ
materially. We undertake no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
Factors that may impact forward-looking statements include, but are not limited
to, the following: (i) the effects of weather and other natural phenomena; (ii)
the economic climate and growth in the geographical
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<PAGE> 45
areas where we do business; (iii) the capital intensive nature of our business;
(iv) increased competition within the energy industry as well as from
alternative forms of energy; (v) the timing and extent of changes in commodity
prices for natural gas and propane; (vi) the effects of changes in governmental
and regulatory policies, including income taxes, environmental compliance and
authorized rates; (vii) our ability to bid on and win construction, engineering
and quality assurance contracts; (viii) the impact of energy prices on the
amount of projects and business available to the engineering business; (ix) the
nature, availability and projected profitability of potential investments
available to us; (x) our ability to accomplish our financing objectives in a
timely and cost-effective manner, in light of changing conditions in the capital
markets, and, in particular, our ability to refinance, in a timely and
cost-effective manner, the $290,000,000 short-term bridge loan obtained to
finance the acquisition of ENSTAR Natural Gas Company and Alaska Pipeline
Company, and (xi) our ability to operate and integrate acquired businesses in
accordance with our plans.
4
<PAGE> 46
SEMCO ENERGY
SEMCO is a diversified energy services and infrastructure holding company
headquartered in southeastern Michigan. It was founded in 1950 as Southeastern
Michigan Gas Company. SEMCO and its subsidiaries operate four business segments:
(1) gas distribution; (2) construction services; (3) engineering services; and
(4) propane, pipelines and storage. The latter three segments are sometimes
referred to together as the "diversified businesses". SEMCO sold the subsidiary
comprising its energy marketing business effective March 31, 1999. In addition,
several business acquisitions were made during 1999. These acquisitions are
discussed in the following business segment sections. SEMCO had approximately
1,632 employees at December 31, 1999.
GAS DISTRIBUTION
SEMCO's gas distribution business segment operates in Michigan and Alaska.
The Alaska-based operation, which consists of ENSTAR Natural Gas Company and
Alaska Pipeline Company (together known as "ENSTAR"), was acquired on November
1, 1999 for approximately $290,000,000. The acquisition of ENSTAR was accounted
for as a purchase and, therefore, the consolidated financial statements and the
table below include the results of ENSTAR's operations since November 1, 1999.
The success of the ENSTAR acquisition is, in part, dependent on the synergies
obtained in combining ENSTAR with our other gas distribution operations, our
ability to operate ENSTAR in accordance with our plans and our ability to
accomplish the permanent financing related to the ENSTAR acquisition in a timely
and cost-effective manner in light of changing conditions in the capital
markets.
The Michigan gas distribution operation and ENSTAR are referred to together
as the "Gas Distribution Business". The Michigan gas distribution operation and
ENSTAR Natural Gas Company operate as divisions of SEMCO. SEMCO Energy Gas
Company, which had conducted the Michigan gas distribution operation, was merged
into SEMCO on December 31, 1999. Alaska Pipeline Company operates as a
subsidiary of SEMCO.
The Gas Distribution Business distributes and transports natural gas to
residential, commercial and industrial customers and is our largest business
segment. Set forth in the table below is gas sales and transportation
information for the past three years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999(B) 1998 1997
------- ---- ----
<S> <C> <C> <C>
GAS SALES REVENUE (IN THOUSANDS):
Residential............................................... $137,407 $118,220 $139,538
Commercial................................................ 38,451 42,041 66,577
Industrial................................................ 6,763 6,439 12,065
-------- -------- --------
Total gas sales revenue(a)........................... $182,621 $166,700 $218,180
======== ======== ========
GAS TRANSPORTATION REVENUE (IN THOUSANDS)................... $ 22,369 $ 14,832 $ 13,243
======== ======== ========
VOLUMES OF GAS SOLD (MMCF):
Residential............................................... 28,583 21,946 25,968
Commercial................................................ 8,882 8,840 13,483
Industrial................................................ 1,780 1,461 2,534
-------- -------- --------
Total volumes of gas sold(a)......................... 39,245 32,247 41,985
VOLUMES OF GAS TRANSPORTED (MMCF)........................... 32,417 23,791 21,373
-------- -------- --------
TOTAL VOLUMES DELIVERED(A).................................. 71,662 56,038 63,358
======== ======== ========
</TABLE>
- ---------------
(a) Does not include the sale of excess inventory gas to a third party in 1999.
(b) 1999 results include two months of activity from ENSTAR.
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<PAGE> 47
GAS SALES. Gas sales revenue is generated primarily through the sale and
delivery of natural gas to residential and commercial customers. These customers
use natural gas mainly for space heating purposes. Consequently, weather has a
significant impact on sales. Given the impact of weather on this business
segment, most of its gas sales revenue is earned in the first and fourth
quarters of the calendar year. Revenues from gas sales accounted for 50%, 26%
and 28% of consolidated operating revenues in 1999, 1998 and 1997, respectively.
If operating revenues from our energy marketing business, which was sold
effective March 31, 1999, are excluded, gas sales by the Gas Distribution
Business would have accounted for 66%, 68% and 88% of consolidated operating
revenues for those three years.
Competition in the gas sales market arises from alternative energy sources
such as electricity, propane and oil. However, this competition is inhibited
because of the time, inconvenience and investment for residential and commercial
customers to convert to an alternate energy source when the price of natural gas
fluctuates.
An aggregation tariff, which was effective April 1, 1998, provides all
Michigan commercial and industrial customers the opportunity to purchase their
gas from a third-party supplier, while allowing the Gas Distribution Business to
continue charging the existing distribution fees and customer fees plus a gas
load balancing fee.
TRANSPORTATION. The Gas Distribution Business provides transportation
services to our large-volume commercial and industrial customers. This service
offers those customers the option of purchasing natural gas directly from
producers or marketing companies while utilizing the Gas Distribution Business'
distribution network to transport the gas to their facilities.
Alaska Pipeline Company ("APC") owns and operates the only natural gas
transmission lines in its service area that are operated for utility purposes.
APC's transmission system delivers natural gas from producing fields in south
central Alaska to ENSTAR's Anchorage-based gas distribution system. APC's only
customer is ENSTAR Natural Gas Company.
The market price of alternate energy sources such as coal, electricity, oil
and steam is the primary competitive factor affecting the demand for
transportation. Certain large industrial customers have some ability to convert
to another form of energy if the price of natural gas increases significantly.
Partially offsetting the impact of price sensitivity has been the use of natural
gas as an industrial fuel because of clean air legislation and the resultant
pressures on industry and electric utilities to reduce emissions from their
plants.
As is the case with many gas distribution utilities, there has been
downward pressure on transportation rates due to the potential risk for
industrial customers and electric generating plants located in close proximity
to interstate natural gas pipelines to bypass SEMCO and connect directly to such
pipelines. However, management is currently unaware of any significant bypass
efforts by our customers. SEMCO has and would continue to address any such
efforts by offering special services and contractual arrangements designed to
retain these customers on SEMCO's system. Customers in ENSTAR's service
territory are currently precluded from bypassing ENSTAR's transportation and
distribution system due to the limited availability of gas transmission systems
and the large distances between producing fields and the locations of current
customers.
CUSTOMER BASE. At December 31, 1999, the Michigan gas distribution
operation had approximately 255,000 customers. The largest concentration of
customers, approximately 100,000, is located in southeastern Michigan. The
remaining Michigan customers are located in and around the following
communities: Battle Creek, Albion, Holland, Three Rivers, Niles, Marquette and
Houghton. The Michigan customer base is diverse and includes residential,
commercial and industrial customers. The largest customers include power plants,
food production facilities, paper processing plants, furniture manufacturers and
others in a variety of other industries. The average number of customers in
Michigan has increased by an average of approximately 3% annually during the
past three years. By contrast, the customer growth rate for the U.S. gas
distribution industry has averaged approximately 1% annually during the past
three years.
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<PAGE> 48
At December 31, 1999, ENSTAR had approximately 102,000 customers in and
around the Anchorage, Alaska area including the communities of Big Lake, Bird
Creek, Butte, Chugiak, Eagle River, Eklutna, Girdwood, Houston, Indian, Kenai,
Knik, Nikiski, Palmer, Peters Creek, Portage, Sterling, Soldotna, Wasilla and
Whittier. ENSTAR is the sole distributor of natural gas to the greater Anchorage
metropolitan area, and its service area encompasses approximately 50% of the
population of Alaska. ENSTAR has two types of customers: gas sales and
transportation. Gas sales customers are primarily residential and commercial.
ENSTAR provides transportation service to power plant sites, a liquefied natural
gas plant, an ammonia plant, and hundreds of commercial locations on behalf of
gas producers and gas marketers. The average number of customers at ENSTAR has
increased by an average of approximately 3% annually during the past three
years.
GAS SUPPLY. The Gas Distribution Business has agreements with TransCanada
Gas Services, Inc. ("TransCanada"), under which TransCanada provides SEMCO's
natural gas requirements and manages its natural gas supply and the supply
aspects of transportation and storage operations in Michigan for the three year
period that began April 1, 1999. The Gas Distribution Business owns underground
storage facilities in Michigan with a working capacity of 5.0 billion cubic feet
("Bcf"). In addition, it leases 6.5 Bcf of storage from Eaton Rapids Gas Storage
System and 4.5 Bcf from non-affiliates in Michigan. The owned and leased storage
capacity equals 35% to 40% of SEMCO's average annual gas sales volumes in
Michigan. SEMCO Gas Storage Company (an affiliated company) is a 50% owner of
Eaton Rapids Gas Storage System.
ENSTAR has a gas purchase contract (the "Marathon Contract") with Marathon
Oil Company ("Marathon") that has been approved by the Regulatory Commission of
Alaska ("RCA") and is a "requirements" contract with no specified daily
deliverability or annual take-or-pay quantities. Marathon has agreed to deliver
all of ENSTAR's gas requirements in excess of those provided for in other gas
supply contracts in existence as of May 1, 1988, subject to certain exceptions,
until the commitment has been exhausted. However, ENSTAR's purchase obligations
and Marathon's delivery obligations are set at specified annual amounts after
2001. The contract has a base price and is subject to an annual adjustment based
on changes in the price of certain traded oil futures contracts plus
reimbursement for any severance taxes and other charges.
ENSTAR also has an RCA-approved gas purchase contract with the Municipality
of Anchorage, Chevron U.S.A., Inc. and ARCO Alaska, Inc. (the "Beluga Contract")
which provides for the delivery of up to approximately 220 Bcf of gas through
the year 2009. The pricing mechanism in the Beluga Contract is similar to that
contained in the Marathon Contract.
Based on gas purchases during the twelve months ended December 31, 1999,
which are not necessarily indicative of the volume of future purchases, gas
reserves committed to ENSTAR under the Marathon and Beluga Contracts are
sufficient to supply all of ENSTAR's expected gas supply requirements through
the year 2001. After that time supplies will still be available under the
Marathon and Beluga Contracts in accordance with their terms, but at least a
portion of ENSTAR's requirements are expected to be satisfied outside the terms
of these contracts, as currently in effect.
The Michigan-based gas distribution operation is served by four major
interstate pipelines: (1) Panhandle Eastern Pipe Line Company; (2) Northern
Natural Gas Company; (3) Great Lakes Gas Transmission Company and (4) ANR
Pipeline Company. Currently, ENSTAR's supply source, primarily though the
Marathon and Beluga Contracts, is confined to the Cook Inlet area with no direct
access to other natural gas pipelines. However, the Cook Inlet area is home to
major gas producing fields, with proven and producing reserves of approximately
2.6 trillion cubic feet ("Tcf"). An additional 2.3 Tcf of undiscovered gas in
the Cook Inlet area has been estimated by the United States Geological Survey
and Minerals Management Service.
RATES AND REGULATION. The rates of gas distribution customers located in
the City of Battle Creek, Michigan and surrounding communities are subject to
the jurisdiction of the City Commission of Battle Creek. The Michigan Public
Service Commission ("MPSC") authorizes the rates charged to all of the remaining
Michigan customers. ENSTAR is subject to regulation by the RCA which has
jurisdiction over,
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<PAGE> 49
among other things, rates, accounting procedures, and standards of service. The
RCA order approving our acquisition of ENSTAR provides that ENSTAR's existing
rates remain in effect on an interim basis and requires SEMCO to file revenue
requirement and cost of service information by July 1, 2000.
Our management periodically reviews the adequacy of the Gas Distribution
Business' rates and files requests for rate increases whenever it is deemed
necessary and appropriate. However, a recent rate case includes provisions
limiting our ability to request a rate increase in Michigan during the three
year period that began April 1, 1999.
ENVIRONMENTAL MATTERS. The Gas Distribution Business currently owns seven
Michigan sites which formerly housed manufactured gas plants. In the earlier
part of the 20th century, gas was manufactured from processes using coal, coke
or oil. By-products of this process have left some contamination at these sites.
The Gas Distribution Business has submitted plans to the appropriate regulatory
authority in the State of Michigan to close one site and begin work at another
site.
DIVERSIFIED BUSINESSES
SEMCO's diversified businesses have grown during the past three years
primarily through acquisitions. The following table shows operating revenues for
each of the diversified businesses, including intercompany revenues, for 1997
through 1999:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Revenues
Construction Services..................................... $58,272 $25,904 $13,207
Engineering Services...................................... 17,486 41,366 5,660
Propane, Pipelines and Storage............................ 6,284 4,852 3,027
</TABLE>
The amounts in the above table include intercompany transactions.
CONSTRUCTION SERVICES
Our construction services segment operates in the mid-western and
southeastern areas of the United States and has offices in Michigan, Tennessee,
Kansas, Iowa, Georgia, and Texas as of December 31, 1999. Its primary service is
underground pipeline installation and replacement for the natural gas
distribution industry. During 1999, SEMCO made four business acquisitions that
not only expanded the geographic reach of our construction services business but
also expanded underground construction service offerings in new industries such
as telecommunications and water supply. As of December 31, 1999, the
construction services business was comprised of six companies that were all
acquired during the past three years: (1) Sub-Surface Construction Co.; (2) King
Energy & Construction Co.; (3) K&B Construction, Inc.; (4) Iowa Pipeline
Associates, Inc.; (5) Flint Construction Co.; and (6) Long's Underground
Technologies, Inc. On December 31, 1999, King Energy & Construction Co. was
merged into Flint Construction Co.
Our construction services segment had operating revenues, excluding
intercompany transactions, of $49,965,000, $16,621,000, and $7,484,000 in 1999,
1998 and 1997, respectively. These operating revenues accounted for 17%, 7% and
3% of consolidated operating revenues, excluding energy marketing operating
revenues, during those years.
The natural gas construction services industry is comprised of a highly
fragmented group of companies focused primarily on regional or local markets. We
estimate that the top six construction companies in the United States have less
than 10% of the market and that approximately 30% of the market represents work
done by utility companies' in-house construction operations with the remainder
of the market being served by a large number of small and medium-size companies.
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<PAGE> 50
The construction services business is seasonal in nature. Most of this
segment's annual profits are made during the summer and fall months. The
construction services segment generally incurs losses during the winter months
when underground construction is inhibited.
ENGINEERING SERVICES
Our engineering services business segment is comprised of two companies,
Maverick Pipeline Services, Inc. ("Maverick") and Oilfield Materials
Consultants, Inc. ("OMC"). Maverick was acquired in December 1997 and OMC was
acquired in November 1998. Maverick purchased the assets and certain liabilities
of Drafting Services, Inc. in September 1999 and Pinpoint Locators, Inc. in
October 1999. These two businesses are being operated as divisions of Maverick.
Engineering services has offices in New Jersey, Michigan, Louisiana and Texas
and provides a variety of energy related engineering and quality assurance
services in several states.
Our engineering services business had operating revenues, excluding
intercompany transactions, of $14,841,000, $40,937,000, and $5,660,000 in 1999,
1998 and 1997, respectively. These operating revenues accounted for 5%, 17% and
2% of consolidated operating revenues, excluding energy marketing operating
revenues, during those years.
The engineering services business serves the natural gas distribution and
transmission, oil products, exploration/production and telecommunication
industries. The primary services provided include engineering design,
distribution system design, construction project management, field surveys,
global positioning surveys, inspection, testing, pipeline-mill quality assurance
and full turn-key service. The engineering services segment competes with
regional, national and international firms as well as in-house engineering and
field service departments.
There has been a reduction in oil and gas production and related activities
due to the downturn in oil prices in late 1998 and early 1999. There has also
been a reduction or deferral of new engineering projects for the gas
distribution industry due to the cash flow impact on the industry of the warm
weather during the past two years. As a result, our engineering services
business has experienced a reduction in the level of available projects.
Management believes that the level of available projects will increase as gas
distribution companies start releasing new engineering projects and as pipeline
construction and inspection projects become available as a result of the
recovery in oil prices in late 1999.
PROPANE, PIPELINES AND STORAGE
SEMCO's pipelines and storage operations consist of several pipelines and a
gas storage facility. SEMCO has partial ownership interests or equity interests
in certain of these operations. The pipelines and storage operations are all
located in Michigan. In March 1998, we entered the propane distribution business
with the acquisition of Hotflame Gas, Inc. and Hotflame Transport Co., Inc.
(together known as "Hotflame"). Hotflame supplies approximately 5 million
gallons of propane annually to retail customers in Michigan's upper peninsula
and northeast Wisconsin. Because propane is used principally for heating, most
of the operating income for the propane business is generated in the first and
fourth quarters of the calendar year.
The retail propane industry is highly fragmented with the largest firm in
the industry serving less than 10% of the national market and the vast majority
of propane companies individually having less than one percent market share.
Propane is transported easily in pressurized containers and is generally the
fuel used in rural areas where natural gas pipelines and distribution systems do
not exist or are uneconomical to build. SEMCO purchases the majority of its
propane from BP Amoco PLC. The propane operation competes with other energy
sources such as natural gas, fuel oil, electricity and other regional propane
providers. The basis of the competition is generally price and service. The
propane business has become increasingly competitive and less profitable, which
necessitates large-scale operations to be successful in the long term. We will
continue to assess regional growth opportunities and the strategic fit of the
propane business over the coming year.
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<PAGE> 51
BUSINESS STRATEGY
SEMCO's business strategy is to expand significantly both its gas
distribution and diversified businesses through normal market growth and
acquisitions that meet pre-determined financial criteria and provide incremental
revenue, cost synergies, additional business opportunities and ultimately higher
shareholder value. Management has experience in operating non-contiguous gas
distribution properties based on operating its Michigan properties. As such, we
will continue to evaluate acquisition opportunities throughout the United
States. With respect to the diversified business segments, SEMCO's vision is to
become one of the largest engineering and construction companies in the United
States in the pipeline/underground infrastructure business. The key to SEMCO's
business strategy is the acquisition of a number of companies which provide
engineering and construction services to companies in the natural gas,
telecommunications, water and electric industries. The Company desires to
consolidate these acquisitions to achieve the synergies and lower administrative
and financing costs usually present in a large firm, while maintaining the
entrepreneurial spirit of a small company. A cornerstone of SEMCO's strategy is
to build complementary businesses capable of providing a large menu of
engineering and construction services in the pipeline/underground infrastructure
industry which can be packaged in full turnkey services for higher profit
potential. Other major benefits of SEMCO's consolidation strategy is the
development of greater depth and overall strength of management, more
sophisticated systems, enhanced purchasing capabilities, and better utilization
of equipment and resources. We anticipate that this group of diversified
businesses could contribute an increasing share of SEMCO's consolidated net
income. In addition to this increased contribution, such engineering and
construction businesses provide a counter-seasonal earnings pattern to our
traditional gas distribution business. These engineering and construction
businesses tend to have higher earnings in the spring through fall months. The
gas distribution business has higher earnings in the late fall and winter that
is associated with colder weather.
THE TRUSTS
We created three Delaware business trusts pursuant to three trust
agreements executed by us as sponsor for each trust, appointed trustees for each
trust and filed a certificate of trust for each trust with the Delaware
Secretary of State. The trusts are named SEMCO Capital Trust I, SEMCO Capital
Trust II and SEMCO Capital Trust III, which we refer to herein as, collectively,
the "trusts" and, individually, each a "trust." The amended and restated trust
agreement for each trust, (as so amended and restated, the "trust agreement")
which is filed as an exhibit to the registration statement of which this
prospectus forms a part, states the terms and conditions for each trust to issue
and sell its trust preferred securities and trust common securities, which we
refer to herein, together with the trust preferred securities, as the trust
securities.
Each trust will exist solely to:
- issue and sell its trust securities;
- use the proceeds from the sale of its trust securities to purchase and
hold a series of our debt securities;
- maintain its status as a grantor trust for federal income tax purposes;
and
- engage in other activities that are necessary or incidental to these
purposes.
We will purchase all of the trust common securities of each trust. The
trust common securities will represent an aggregate liquidation amount equal to
at least 3% of each trust's total capitalization. The trust common securities
will have terms substantially identical to, and will rank equal in priority of
payment with, the trust preferred securities. However, if we default on the
subordinated debt securities, then cash distributions and liquidation,
redemption and other amounts payable on the trust common securities will be
subordinate to the trust preferred securities in priority of payment.
We will guarantee the trust preferred securities as described later in this
prospectus.
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<PAGE> 52
The trust's business and affairs will be conducted by the trustees (the
"Trustees") appointed by us, as holder of the trust common securities. The
duties and obligations of the trustees will be governed by the trust agreement.
Pursuant to each trust agreement, the number of trustees will initially be four.
Two of the trustees (the "Administrative Trustees") will be persons who are our
employees or officers of or affiliated with us. The third Trustee will be a
corporation which maintains a principal place of business in the State of
Delaware that will serve for the sole purpose of complying with certain Delaware
laws (the "Delaware Trustee"). The fourth trustee will be a financial
institution unaffiliated with us which will serve as property trustee under each
trust agreement and as indenture trustee for purposes of the Trust Indenture Act
(the "Property Trustee"). Bank One Delaware, Inc. will act as the Delaware
Trustee and Bank One Trust Company, National Association as the Property
Trustee, in each case until removed or replaced by the holder of the trust
common securities. The Property Trustee will also act as indenture trustee under
the indenture and guarantee trustee under the Trust Guarantee (the "Guarantee
Trustee"). See "Description of the Trust Guarantee." We, as the holder of all
the trust common securities, will have the right to appoint, remove or replace
any trustee and to increase the number of trustees, provided that the number of
trustees will be at least three, two of which will be the Administrative
Trustees.
The Property Trustee will hold title to the subordinated debt securities
for the benefit of the holders of the trust securities, and will have the power
to exercise all rights, powers and privileges as the holder of the subordinated
debt securities under the indenture pursuant to which the subordinated debt
securities are issued. In addition, the Property Trustee will maintain exclusive
control of a segregated non-interest bearing bank account to hold all payments
made in respect of the subordinated debt securities for the benefit of the
holders of the trust securities. The Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the trust securities out of funds from the property account. The
Guarantee Trustee will hold the guarantee by us of the trust securities for the
benefit of the holders of the trust preferred securities.
In addition, unless the Property Trustee maintains a principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law, another trustee of each trust, the Delaware trustee, will either
be a natural person who is a resident of the State of Delaware or an entity
which has its principal place of business or resides in the State of Delaware.
We have appointed Bank One Delaware, Inc., as Delaware trustee. We will pay all
fees and expenses related to each trust and each offering of the related trust
preferred securities and will pay all ongoing costs and expenses of each trust,
except such trust's obligations under the related trust securities.
The rights of the holders of the trust preferred securities, including
economic rights, rights to information and voting rights, are set forth in each
trust's trust agreement and the Delaware Business Trust Act, as amended, and the
Trust Indenture Act. The principal place of business of the trusts is c/o SEMCO
Energy, Inc., 405 Water Street, Port Huron, Michigan 48060, and their telephone
number is 810-987-2200.
USE OF PROCEEDS
Except as may otherwise be described in the prospectus supplement relating
to an offering of securities, the net proceeds from the sale of the securities
will be used to finance acquisitions, repay our short-term borrowings and for
other general corporate purposes. Prior to such uses, the net proceeds from the
sale of securities may be invested in certificates of deposit or other highly
liquid investments with short-term maturities. Any specific allocation of the
net proceeds of an offering of securities to a specific purpose will be
determined at the time of such offering and will be described in the related
prospectus supplement. A significant portion of the net proceeds from the sale
of these securities are expected to be used to refinance a $290,000,000
short-term, unsecured bridge loan facility that was used to acquire the assets
and some of the liabilities of ENSTAR Natural Gas Company and the outstanding
stock of Alaska Pipeline Company. This bridge loan facility matures on October
30, 2000. We currently plan to retire the bridge loan by publicly issuing a
combination of medium-term notes, trust preferred securities and common stock,
however, our ability to secure permanent financing for this amount on a timely
basis or on
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<PAGE> 53
commercially reasonable terms depends to an extent on factors beyond our control
such as the state of the financial markets and general economic conditions.
ACCOUNTING TREATMENT RELATING TO TRUST SECURITIES
The financial statements of each trust that has issued trust securities
will be consolidated with our financial statements, with the trust preferred
securities of each trust shown on our consolidated financial statements as our
obligated mandatory redemption preferred securities of a consolidated trust. Our
financial statements will include a footnote that discloses, among other things,
that the sole asset of each trust included therein consists of our subordinated
deferrable interest debentures and will specify the designation, principal
amount, interest rate and maturity date of such subordinated deferrable interest
debentures.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges for SEMCO and its subsidiaries for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
RATIO OF EARNINGS TO: 1999 1998 1997(3) 1996(3) 1995
--------------------- ---- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Fixed Charges(1).................................. 2.18 2.17 2.42 (2) 2.21
Fixed Charges and Preferred Dividends(1).......... 2.18 2.17 2.42 (2) 2.20
</TABLE>
- ---------------
(1) In January 1998, SEMCO, through a subsidiary of SEMCO Energy Ventures, SEMCO
Arkansas Pipeline Company, sold its 32.07% partnership interest in NOARK
Pipeline System L.P. ("NOARK"). NOARK had been generating losses since it
was placed in service in 1992. Earnings reflect a share of NOARK's operating
losses and fixed charges include a share of NOARK's interest expense equal
to SEMCO's percentage interest in NOARK.
For purposes of calculating the ratios, "earnings" represent the sum of (a)
pretax income from continuing operations (excluding extraordinary charges
from the early retirement of debt in 1994 and 1998) and (b) fixed charges.
"Fixed charges" represent the sum of (i) interest incurred by SEMCO and its
subsidiaries plus their share of interest on debt to outsiders incurred by
less-than-fifty-percent-owned persons, (ii) amortization of debt expense and
(iii) the preferred stock dividend requirements of SEMCO's subsidiaries,
increased to an amount representing the pretax earnings required to cover
such dividend requirement. "Preferred Dividends" represents dividends on
SEMCO's Cumulative Convertible Preferred Stock which was called for
redemption in November 1999.
(2) For the year ended December 31, 1996, fixed charges exceeded earnings by
$20.0 million. Earnings as defined include a $32.3 million non-cash pretax
write-down of the NOARK (1) investment. Excluding the NOARK write-down the
ratio of earnings to fixed charges and ratio of earnings to fixed charges
and preferred dividends would have been 1.84 and 1.84, respectively.
(3) Restated to account for a 1998 acquisition as a pooling of interests. Years
prior to 1996 were not restated for the pooling of interests as the effects
were not material.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common stock,
$1.00 par value ("common stock"), 500,000 shares of cumulative preferred stock,
$1.00 par value ("preferred stock"), and 3,000,000 shares of preference stock,
$1.00 par value ("preference stock"). At February 29, 2000, there were
outstanding 17,918,619 shares of common stock and no shares of preferred stock.
2,000,000 shares of the preference stock are reserved for issuance pursuant to a
Shareholder Rights Plan described below; no preference stock is outstanding.
The following is a summary description of our common stock and preferred
stock. You should look at our restated articles of incorporation which are filed
as an exhibit to the Registration Statement for a complete description. The
following summary is subject in all respects to the provisions of our restated
articles of incorporation and does not relate to or give effect to the
provisions of the statutory or common law of the State of Michigan. The summary
given below is qualified in its entirety by reference to our restated articles
of incorporation and the laws of the State of Michigan.
COMMON STOCK
Dividend Rights. The holders of common stock are entitled to dividends
when, as and if, declared by the Board of Directors out of our surplus after
full cumulative dividends on the preferred stock and preference stock, if any,
shall have been paid or set apart for payment and any sinking fund obligations
with respect to the preferred stock and preference stock, if any, have been
satisfied.
We have long-term debt agreements which contain restrictive financial
covenants including, among others, limits on the payment of dividends beyond
certain levels. We are currently in compliance with all of the covenants in
these agreements. With respect to the payment of dividends or any other
distributions in respect of our capital stock, such agreements provide that we
may not declare and pay any dividends (except dividends or other distributions
payable in shares of our capital stock), redeem or retire our capital stock (or
any warrants, rights, or options to purchase or acquire our capital stock), or
make other distributions with respect to our capital stock (such declarations or
payments of dividends, purchases, redemptions or retirements of capital stock
and warrants, rights or options and all such other payments or distributions
being collectively referred to as "Restricted Payments") if, after giving effect
thereto, (i) any event of default under such agreements exists; (ii) the
aggregate amount of Restrictive Payments since January 1, 1994 would exceed our
consolidated net income for the same period plus an adjustment factor of
$21,000,000; or (iii) would cause our consolidated net worth to be less than
$80,000,000.
After September 30, 1999, the adjustment factor of $21,000,000 is reduced
each quarter by $625,000 until the adjustment factor equals $11,000,000. Under
the most restrictive terms, as of December 31, 1999, $7,720,000 is available for
dividends.
Voting Rights. The holders of Common Stock are entitled to one vote for
each share on all matters voted upon by our shareholders and, subject to any
voting rights of the holders of the preferred stock and preference stock
described below, the holders of such shares currently possess all voting power.
Our Articles of Incorporation provide for cumulative voting for the election of
our directors.
Preemptive Rights. No holder of common stock has any preemptive right to
subscribe to any additional securities which we may issue.
Liquidation Rights. Subject to the preferential rights of holders of the
preferred stock and preference stock, upon our liquidation the holders of the
common stock are entitled to share on a pro rata basis in our net assets which
remain after satisfaction of all liabilities.
PREFERRED STOCK
The Board of Directors is authorized, without further action by
shareholders, to issue preferred stock, in one or more series, from time to
time, with such rights and preferences as may be provided in a resolution
adopted by the Board of Directors. The authority of the Board includes, but is
not limited to,
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the determination or fixing of the following with respect to shares of such
class or any series thereof: (i) the rate of dividends and the extent of further
participation in dividend distribution, if any; (ii) the price at and the terms
and conditions on which the shares are redeemable; (iii) the amount payable upon
shares in event of voluntary or involuntary liquidation; (iv) sinking fund
provisions for the redemption or purchase of shares; and (v) the terms and
conditions on which shares are convertible.
The terms of each series of preferred stock will be described in any
prospectus supplement related to such series of preferred stock and may include
the following:
(1) the title and stated value of such preferred stock;
(2) the number of shares of such preferred stock offered and the offering
price and liquidation preference per share of such preferred stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such preferred stock;
(4) the date from which dividends on such preferred stock shall accumulate,
if applicable;
(5) the provision for a sinking fund, if any, for such preferred stock;
(6) the provision for redemption, if applicable, of such preferred stock;
(7) any listing of such preferred stock on any securities exchange;
(8) a discussion of federal tax considerations applicable to such preferred
stock;
(9) any voting rights of holders of such preferred stock;
(10) any other specific terms, preferences, rights, limitations or
restrictions of such preferred stock;
(11) the relative ranking and preference of such preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of our
affairs;
(12) any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with such series of preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our affairs;
and
(13) the terms and condition. if applicable, upon which such preferred
stock will be convertible into or participate in dividends, if any, paid on the
common stock, including the conversion price (or manner of calculation thereof).
In the event of our liquidation or dissolution, the holders of preferred
stock are entitled to receive a fixed amount for each series before any
distribution is made to the holders of common stock. As long as any preferred
stock remains outstanding, we may not purchase any shares of our common stock or
redeem any preference stock.
As long as any preferred stock remains outstanding, we may not without the
consent of the holders of at least two-thirds of the outstanding preferred stock
authorize any class of stock having a priority or preference over or ranking on
a parity with the preferred stock as to dividends or distribution of assets.
If at any time we fail to declare and pay or set apart for payment in full
eight quarterly dividends (whether or not consecutive) on all of the outstanding
preferred stock, then the holders of the outstanding preferred stock shall have
the right, voting as a single class irrespective of series, to elect such number
of our directors as shall constitute one less than the smallest number of
directors necessary to constitute a majority of the full Board of Directors, and
such right shall continue (and may be exercised at any annual or other meeting
of shareholders for the election of directors) until we shall have paid or
declared and set apart for payment all accrued dividends on the preferred stock
for all past quarterly dividend periods.
At February 29, 2000, no shares of preferred stock were outstanding.
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PREFERENCE STOCK
The Board of Directors has the authority to divide the 3,000,000 shares of
preference stock into series and, within the limitations set forth in the laws
of the State of Michigan and in the Articles of Incorporation, to fix and
determine the relative rights and preferences of the shares of any series so
established. The preference stock ranks junior to all series of preferred stock
as to the payment of dividends and the distribution of assets, except to the
extent that a specific series of preferred stock provides otherwise.
SERIES A PREFERENCE STOCK
In January, 1997, the Board of Directors created a series of preference
stock designated as Series A preference stock with the number of shares
constituting such series set at 2,000,000. No shares of preference stock are
outstanding.
If Series A preference stock was outstanding, dividends would accrue and be
cumulative in an amount per share per quarter equal to the greater of (i) $10.00
or (ii) the Adjustment Number (as defined below) times the per share amount of
all cash dividends, and the Adjustment Number times the per share amount
(payable in kind) of all non-cash dividends or other distributions (other than a
dividend payable in shares of common stock or a subdivision of the shares of
common stock), declared on the common stock since the preceding quarterly
dividend payment date, or, if later, since the issuance or such Series A
preference stock. Upon our liquidation or dissolution the holders of Series A
preference stock are entitled to receive $100 per share plus all accrued and
unpaid dividends. The Series A preference stock is not redeemable and ranks
junior to all series of preferred stock as to the payment of dividends and the
distribution of assets, unless the terms of any series provides otherwise. If
Series A preference stock was outstanding, a holder of Series A preference stock
would be entitled to the number of votes equal to the Adjustment Number times
the number of votes to which a holder of common stock is entitled. Except as
otherwise provided below or by law, Series A preference stock and common stock
shall vote together as one class on all matters submitted to a vote of the
holders of common stock. If any dividends on Series A preference stock shall be
in arrears for six or more quarterly dividends, a "default period" shall begin.
The default period shall end when all accrued dividends shall have been paid or
set apart for payment. During a default period, Series A preference stock shall
have the right to elect two directors. This vote shall be as a class for all
series of preference stock entitled to vote.
The Articles of Incorporation initially set the Adjustment Number at 100.
If we shall (i) pay any dividend on common stock in shares of common stock, (ii)
subdivide the common stock, or (iii) combine the common stock into a smaller
number of shares, the Adjustment Number shall be modified by multiplying it by a
fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock outstanding immediately prior to such event.
DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
We sponsor a direct stock purchase and dividend reinvestment plan under
which investors may purchase shares of common stock without paying brokerage
fees and other expenses. Under the plan, the plan administrator may purchase
common stock in the open market, through private transactions or from SEMCO. If
shares are purchased on the open market, or through private transactions, the
price of the shares purchased through the plan will be the weighted average
price paid in the stock market for the particular investment date. If the plan
administrator purchases shares from SEMCO, the price paid for those shares will
be the average of the closing prices on the three trading days prior to the 15th
of each month as quoted on the New York Stock Exchange. We initially reserved
2,000,000 shares of common stock for issuance under the plan. As of February 29,
2000, 1,202,047 shares were available for issuance under the plan.
OTHER PROVISIONS
Articles of Incorporation. The following provisions of our Articles of
Incorporation may delay, defer or prevent a person from acquiring us or changing
control of the Board of Directors. Our Articles of
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Incorporation divide the Board into three classes with staggered terms; each
director is elected for a three year term. Approximately one-third of the Board
positions are filled by a shareholder vote each year. Directors may be removed
but only for cause, at an annual meeting of shareholders and by the affirmative
vote of a majority of the shares then entitled to vote for the election of
directors. In addition to requirements imposed under Section 7A of the Michigan
Business Corporation Act (the "MBCA"), our Articles of Incorporation provide
that a business combination cannot occur unless a written opinion is obtained
from an independent investment banker that the consideration to be paid to our
shareholders is fair and reasonable; provided, however, the directors may waive
this requirement. Our Articles of Incorporation also contain provisions limiting
the personal liability of directors.
Anti-Takeover Statutes. We are subject to Chapter 7A of the MBCA, which
provides that business combinations subject to Chapter 7A between a Michigan
corporation and a beneficial owner of shares entitled to 10% or more of the
voting power of such corporation generally require the affirmative vote of 90%
of the votes of each class of stock entitled to vote, and not less than 2/3 of
each class of stock entitled to vote (excluding voting shares owned by such 10%
owner), voting as a separate class. Such requirements do not apply if (i) the
corporation's board of directors approves the transaction prior to the time the
10% owner becomes such or (ii) the transaction satisfies certain fairness
standards, certain other conditions are met and the 10% owner has been such for
at least five years.
We are also subject to Chapter 7B of the MBCA which provides that, unless a
corporation's articles of incorporation or bylaws provide that Chapter 7B does
not apply, "control shares" of a corporation acquired in a control share
acquisition have no voting rights except as granted by the stockholders of the
corporation. "Control shares" are shares which, when added to shares previously
owned by a stockholder, increase such stockholder's ownership of voting stock to
more than 20% but less than 33 1/3%, more than 33 1/3% but less than a majority,
or more than a majority, of the votes to which all of the capital stock of the
corporation is entitled. Voting rights of control shares must be approved by the
affirmative vote of a majority of all shares entitled to vote excluding voting
shares owned by the acquirer and certain officers and directors. However, no
such approval is required for gifts or other transactions not involving
consideration, for a merger to which the corporation is a party or certain other
transactions described in Chapter 7B.
Rights to Purchase Preference Stock. In January 1997, we adopted a
Shareholder's Rights Plan pursuant to which 2,000,000 shares of Series A
preference stock are reserved under the plan for sale to holders of common
stock. The common stock currently trades with a right to purchase such Series A
preference stock. The right is intended to protect shareholders in the event of
an unsolicited attempt to acquire us and becomes exercisable upon the occurrence
of certain triggering events. The right is transferred automatically with the
transfer of the common stock until separate rights certificates are distributed
upon the occurrence of certain events. The right could have the effect of
delaying, deferring or preventing a person from acquiring us or accomplishing a
change in control of the board of directors.
Registration Rights. In connection with certain of our acquisitions, we
agreed, among other things, to file with the Commission registration statements
for shares of common stock received by the shareholders of such companies. As of
February 29, 2000, approximately 1,044,874 shares of our common stock in the
aggregate are subject to such agreements.
Transfer Agent. Norwest Bank Minnesota, N.A. is our transfer agent and
registrar for our common stock.
The common stock is traded on the New York Stock Exchange under the symbol
SEN.
DESCRIPTION OF DEBT SECURITIES
GENERAL
Our senior debt securities and subordinated debt securities (collectively,
for purposes of this section of the Prospectus, the "Debt Securities"),
consisting of notes, debentures and other evidence of indebtedness
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may be issued from time to time in one or more series, in the case of the Senior
Debt Securities, under an indenture, dated as of October 23, 1998, as
supplemented from time to time (the "Senior Indenture") between us and Bank One
Trust Company, National Association, as trustee (the "Senior Indenture
Trustee"), and in the case of the Subordinated Debentures, under an indenture as
supplemented from time to time (the "Subordinated Indenture"), between us and
Bank One Trust Company, National Association, as trustee (the "Subordinated
Indenture Trustee"). The term "Indenture Trustee," as used herein, shall refer
to the Senior Indenture Trustee or the Subordinated Indenture Trustee, as
appropriate. The form of Senior Indenture and the form of the Subordinated
Indenture being sometimes referred to herein collectively as the "Indentures"
and individually as an "Indenture" are filed, along with the form of
Supplemental Indenture in the case of the Subordinated Indenture, as exhibits to
the Registration Statement to which this Prospectus is a part and, upon
execution and delivery, will be available for inspection at the corporate trust
offices of the Senior Indenture Trustee and the Subordinated Indenture Trustee,
or as described under "Available Information." The Indentures are subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act" or "TIA"). The following statements relating to the Debt Securities and the
Indentures are summaries of the provisions thereof and do not purport to be
complete and are qualified in their entirety by reference to the Indentures and
the Debt Securities. All Section references herein are to sections of the
Indentures, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indentures and the Debt Securities. The
Subordinated Debentures are further described under "Additional Description of
Subordinated Debentures to be Issued to Trust" below.
TERMS
The Debt Securities will be our direct, unsecured obligations. The
indebtedness represented by the Senior Debt will rank on a parity with all our
other unsecured and unsubordinated indebtedness. The indebtedness represented by
the Subordinated Debentures will be subordinated in right of payment to the
prior payment in full of all our existing and future Senior Indebtedness, as
described below under "Subordination." Each Indenture provides that the Debt
Securities may be issued without limit as to aggregate principal amount, in one
or more series, in each case as established from time to time by our Board of
Directors or as established in one or more indentures supplemental to such
Indenture. Debt Securities may be issued with terms different from those of Debt
Securities previously issued. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section 301
of each Indenture).
Each Indenture provides that there may be more than one Indenture Trustee
thereunder, each with respect to one or more series of Debt Securities. Any
Indenture Trustee under either Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Indenture Trustee may
be appointed to act with respect to such series (Section 608 of each Indenture).
In the event that two or more persons are acting as Indenture Trustee with
respect to different series of Debt Securities, each such Indenture Trustee
shall be an Indenture Trustee of a trust under the applicable Indenture separate
and apart from the trust administered by any other Indenture Trustee (Section
609 of each Indenture), and, except as otherwise indicated herein, any action
described herein to be taken by an Indenture Trustee may be taken by each such
Indenture Trustee with respect to, and only with respect to, the one or more
series of Debt Securities of which it is Indenture Trustee under the applicable
Indenture.
The Prospectus Supplement relating to the series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) The title and any series of such Debt Securities and whether such Debt
Securities are Senior Debt or Subordinated Debentures;
(2) The aggregate principal amount of such Debt Securities and any limit on
such principal amount;
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(3) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion of
the principal amount thereof payable upon declaration of acceleration of the
maturity thereof;
(4) The date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable and the amount of
principal payable thereon;
(5) The rate or rates (which may be fixed or variable) at which such Debt
Securities will bear interest, if any, or the method by which such rate or rates
shall be determined, the date or dates, or the method for determining such date
or dates, from which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment dates, or
the method by which such dates shall be determined, the persons to whom such
interest shall be payable, and the basis upon which interest shall be calculated
if other than that of a 360-day year of twelve 30-day months;
(6) The place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for registration of transfer or exchange and where
notices or demands to or upon us in respect of such Debt Securities and the
applicable Indenture may be served;
(7) If applicable, whether the interest payment periods may be extended by
us and, if so, the terms of any such extension;
(8) The period or periods within which, the price or prices at which, and
other terms and conditions upon which such Debt Securities may be redeemed, as a
whole or in part, at our option, if we are to have such an option;
(9) Our obligation, if any, to redeem, repay or purchase such Debt
Securities pursuant to any sinking fund or analogous provision or at the option
of a holder thereof, and the period or periods within which or the date or dates
on which, the price or prices at which, and other terms and conditions upon
which such Debt Securities will be redeemed, repaid or purchased, as a whole or
in part, pursuant to such obligation;
(10) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with reference to
an index, formula or other method and the manner in which such amounts shall be
determined;
(11) Provisions, if any, granting special rights to the holders of such
Debt Securities upon the occurrence of such events as may be specified;
(12) Any deletions from, modifications of or additions to the Events of
Default or our covenants with respect to such Debt Securities, whether or not
such Events of Default or covenants are consistent with the Events of Default or
covenants set forth in the applicable Indenture;
(13) Whether such Debt Securities will be issued in certificated or
book-entry form;
(14) Whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof and
terms and conditions relating thereto;
(15) The applicability if any, of the defeasance and covenant defeasance
provisions described herein, or any modification thereof;
(16) Whether and under what circumstances we will pay any Additional
Amounts as defined and contemplated in the applicable Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and, if so,
whether we will have the option to redeem such Debt Securities in lieu of making
such payment; and
(17) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301 of each Indenture).
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The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth below under "Certain Covenants" and as may be set forth
in any Prospectus Supplement, the Indentures will not contain any provisions
that would limit our ability to incur indebtedness or that would afford holders
of Debt Securities protection in the event of a highly leveraged or similar
transaction involving us or in the event of a change of control. You should
refer to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of, or additions to the events of default or
covenants of us that are described below, including any addition of a covenant
or other provision providing event risk or similar protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium if any) and interest on any series of Senior Debt will
be payable at the corporate trust office of the Senior Indenture Trustee, and
the principal of (and premium, if any) and interest on any series of
Subordinated Debentures will be payable at the corporate trust office of the
Subordinated Indenture Trustee; provided that, at our option, payment of
interest on any series of Debt Securities may be made by check mailed to the
address of the Person entitled thereto as it appears in the applicable register
for such Debt Securities or by wire transfer of funds to such person at an
account maintained within the United States (Sections 301, 307 and 1002 of each
Indenture).
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Indenture Trustee, notice whereof shall be given to the holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner, all as more completely described in the
applicable Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Indenture
Trustee referred to above. In addition, subject to certain limitations imposed
upon Debt Securities issued in book-entry form, the Debt Securities of any
series may be surrendered for registration of transfer or exchange thereof at
the corporate trust office of the applicable Indenture Trustee. Every Debt
Security surrendered for registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith (Section 305 of each
Indenture). If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Indenture Trustee) initially designated by us
with respect to any series of Debt Securities, we may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the trust will be
required to maintain a transfer agent in each place of payment for such series.
We may at any time designate additional transfer agents with respect to any
series of Debt Securities (Section 1002 of each Indenture).
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Neither we nor any Indenture Trustee shall be required to (i) issue,
register the transfer of or exchange of Debt Securities of any series which are
issued in registered form during a period beginning at the opening of business
15 days before any selection of Debt Securities of that series to be redeemed
and ending at the close of business on the day of mailing of the relevant notice
of redemption; (ii) register the transfer of or exchange any Debt Security or
portion thereof, called for redemption, except the unredeemed portion of any
Debt Security which is issued in registered form being redeemed in part; or
(iii) issue, register the transfer of or exchange any Debt Security which is
issued in registered form that has been surrendered for repayment at the option
of the holder, except the portion, if any, of such Debt Security not to be so
repaid (Section 305 of each Indenture).
MERGER, CONSOLIDATION OR SALE
The Senior Indenture provides that we will be permitted to consolidate
with, or sell, lease or convey all or substantially all of our assets to, or
merge with or into, any other entity provided that (a) either we shall be the
continuing entity, or the successor entity (if other than us) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all of the Senior Debt and the due and punctual
performance and observance of all of the covenants and conditions contained in
the Senior Indenture; (b) immediately after giving effect to such transaction
and treating any indebtedness that becomes an obligation of us or any Subsidiary
as a result thereof as having been incurred by us or such Subsidiary at the time
of such transaction, no Event of Default under the Senior Indenture, and no
event which, after notice or the lapse of time, or both, would become such an
Event of Default, shall have occurred and be continuing; and (c) an officer's
certificate and legal opinion covering such conditions shall be delivered to the
Indenture Trustee (Sections 801 and 803 of the Senior Indenture). The provisions
of the Subordinated Indenture regarding merger, consolidation and sale are
discussed in "Additional Description of Subordinated Debentures to be Issued to
Trust -- Consolidation, Merger and Sale" below.
CERTAIN COVENANTS
Limitations on Liens. The Indentures provide that we shall not, and shall
not cause or permit any Subsidiary to, issue, assume or guarantee any Debt
secured by a Lien upon any of our property or assets (other than cash) or that
of such Subsidiary, as applicable, without effectively providing that the
outstanding Debt Securities (together with, if we so determine, any other
indebtedness or obligation then existing or thereafter created ranking equally
with such Debt Securities) shall be secured equally and ratably with (or prior
to) such Debt so long as such Debt shall be so secured. The foregoing
restriction on Liens will not, however, apply to:
(a) Liens in existence on the date of original issue of such Debt
Securities;
(b) (i) any Lien created or arising over any property which is
acquired, constructed or created by us, or any of our Subsidiaries, but
only if (A) such Lien secures only principal amounts (not exceeding the
cost of such acquisition, construction or creation) raised for the purposes
of such acquisition, construction or creation, together with any costs,
expenses, interest and fees incurred in relation thereto or a guarantee
given in respect thereof, (B) such Lien is created or arises on or before
90 days after the completion of such acquisition, construction or creation
and (C) such Lien is confined solely to the property so acquired,
constructed or created; or (ii) any Lien to secure our Debt or the Debt of
a Subsidiary incurred in connection with a specifically identifiable
project where the Lien relates to and is confined to a property or
properties (including, without limitation, shares or other rights of
ownership in the entities which own such property or project) involved in
such project and acquired by us or a Subsidiary after the date of original
issue of the Debt Securities of any series and the recourse of the
creditors in respect of such Debt is limited to any or all of such project
and property (including as aforesaid);
(c) any Lien securing amounts not more than 90 days overdue or
otherwise being contested in good faith;
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(d) (i) rights of financial institutions to offset credit balances in
connection with the operation of cash management programs established for
our benefit or the benefit of a Subsidiary or in connection with the
issuance of letters of credit for the benefit of the us or a Subsidiary;
(ii) any Lien securing our Debt or the Debt of a Subsidiary incurred in
connection with the financing of accounts receivable; (iii) any Lien
incurred or deposits made in the ordinary course of business, including,
but not limited to, (A) any mechanics', materialmens', carriers',
workmens', vendors' or other like Liens and (B) any Liens securing amounts
in connection with workers' compensation, unemployment insurance and other
types of social security; (iv) any Lien upon specific items of inventory or
other goods and proceeds of us or a Subsidiary securing obligations of us
or a Subsidiary in respect of bankers' acceptances issued or created for
the account of such person to facilitate the purchase, shipment or storage
of such inventory or other goods; (v) any Lien incurred or deposits made
securing the performance of tenders, bids, leases, trade contracts (other
than for borrowed money), statutory obligations, surety bonds, appeal
bonds, government contracts, performance bonds, return-of-money bonds and
other obligations of like nature incurred in the ordinary course of
business; (vi) any Lien constituted by a right of set off or right over a
margin call account or any form of cash or cash collateral or any similar
arrangement for obligations incurred in respect of the hedging or
management of risks under transactions involving any currency or interest
rate swap, cap or collar arrangements, forward exchange transaction,
option, warrant, forward rate agreement, futures contract or other
derivative instrument of any kind; (vii) any Lien arising out of title
retention or like provisions in connection with the purchase of goods and
equipment in the ordinary course of business; and (viii) any Lien securing
reimbursement obligations under letters of credit, guaranties and other
forms of credit enhancement given in connection with the purchase of goods
and equipment in the ordinary course of business;
(e) Liens in favor of us or a Subsidiary;
(f) (i) Liens on any property or assets acquired from a corporation
which is merged with or into us or a Subsidiary, or any Liens on the
property or assets of any corporation or other entity existing at the time
such corporation or other entity becomes a Subsidiary of us and, in either
such case, is not created in anticipation of any such transaction (unless
such Lien is created to secure or provide for the payment of any part of
the purchase price of such corporation); (ii) any Lien on any property or
assets existing at the time of acquisition thereof and which is not created
in anticipation of such acquisition (unless such Lien was created to secure
or provide for the payment of any part of the purchase price of such
property or assets); and (iii) any Lien created or outstanding on or over
any asset of any Person which becomes a Subsidiary on or after the date of
the issuance of such Debt Securities when such Lien is created prior to the
date on which such Person becomes a Subsidiary;
(g) (i) Liens required by any contract or statute in order to permit
us or a Subsidiary to perform any contract or subcontract made by us or it
with or at the request of a governmental entity or any department, agency
or instrumentality thereof, or to secure partial, progress, advance or any
other payments by us or a Subsidiary to such governmental unit pursuant to
the provisions of any contract or statute; (ii) any Lien securing
industrial revenue, development or similar bonds issued by or for the
benefit of us or a Subsidiary, provided that such industrial revenue,
development or similar bonds are nonrecourse to us or such Subsidiary; and
(iii) any Lien securing taxes or assessments or other applicable
governmental charges or levies;
(h) (i) any Lien which arises pursuant to any order of attachment,
distrait or similar legal process arising in connection with court
proceedings and any Lien which secures the reimbursement obligation for any
bond obtained in connection with an appeal taken in any court proceeding,
so long as the execution or other enforcement of such Lien arising pursuant
to such legal process is effectively stayed and the claims secured thereby
are being contested in good faith and, if appropriate, by appropriate legal
proceedings, or any Lien in favor of a plaintiff or defendant in any action
before a court or tribunal as security for costs and/or other expenses; or
(ii) any Lien arising by operation of law or by order of a court or
tribunal or any Lien arising by an agreement of similar effect, including,
without limitation, judgment liens; or
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(i) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, or any Liens referred to
in the foregoing clauses, for amounts not exceeding the principal amount of
the Debt secured by the Lien so extended, renewed or replaced, provided
that such extension, renewal or replacement Lien is limited to all or a
part of the same property or assets that were covered by the Lien extended,
renewed or replaced (plus improvements on such property or assets) (Section
1011 of each Indenture).
Limitations on Sale and Leaseback Transactions. The Indentures also provide
that we will not, and will not permit any Subsidiary to, enter into any
arrangement with any Person (other than us or a Subsidiary), providing for the
leasing to us or a Subsidiary of any assets which have been or are to be sold or
transferred by us or such Subsidiary to such Person (a "Sale and Lease-Back
Transaction") unless: (a) such transaction involves a lease for a temporary
period not to exceed three years; (b) such transaction is between us or a
Subsidiary and an affiliate of ours; (c) we would be entitled to incur debt
secured by a Lien on the assets or property involved in such transaction at
least equal in amount to the Attributable Debt with respect to such Sale and
Lease-Back Transaction, without equally and ratably securing the Debt
Securities, pursuant to the limitation on Liens described above; (d) such
transaction is entered into within 90 days after the initial acquisition by us
of the assets or property subject to such transaction; (e) after giving effect
thereto, the aggregate amount of all Attributable Debt with respect to all such
Sale and Lease-Back Transactions does not exceed 10% of Consolidated Net
Tangible Assets; or (f) we or a Subsidiary within the twelve months preceding
the sale or transfer or the twelve months following the sale or transfer,
regardless of whether such sale or transfer may have been made by us or such
Subsidiary, apply in the case of a sale or transfer for cash, an amount equal to
the net proceeds thereof and, in the case of a sale or transfer otherwise than
for cash, an amount equal to the fair value of the assets so leased at the time
of entering into such arrangement (as determined by our Board of Directors or
the Board of Directors of such Subsidiary), (i) to the retirement of debt,
incurred or assumed by us or a Subsidiary, which by its terms matures at, or is
extendible or renewable at the option of the obligor to, a date more than twelve
months after the date of incurring, assuming or guaranteeing such debt or (ii)
to investment in any of our assets or the assets of any Subsidiary (Section 1012
of each Indenture).
Existence. Except as permitted under "Merger, Consolidation or Sale," we
will be required to do or cause to be done all things necessary to preserve and
keep in full force and effect our existence, rights and franchises; provided,
however, that we shall not be required to preserve any right or franchise if we
determine that the preservation thereof is no longer desirable in the conduct of
our business (Section 1004 of each Indenture).
Maintenance of Properties. We will be required to cause all of our material
properties used or useful in the conduct of our business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in our judgment may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times
(Section 1005 of each Indenture).
Insurance. We will be required to, and will be required to cause each of
our Subsidiaries to, keep all of our insurable properties insured against loss
or damage at least equal to their then full insurable value with insurers of
recognized responsibility and, if described in the applicable Prospectus
Supplement, having a specified rating from a recognized insurance rating service
(Section 1006 of each Indenture).
Payment of Taxes and Other Claims. We will be required to pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon us or any
Subsidiary or upon our income, profits or property or, that of any Subsidiary,
and (ii) all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a material lien upon our property or that of any Subsidiary;
PROVIDED, HOWEVER, that we shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment,
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charge or claim whose amount, applicability or validity is being contested in
good faith (Section 1007 of each Indenture).
Provision of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Exchange Act, we will be required, within 15 days of
each of the respective dates by which we would have been required to file annual
reports, quarterly reports and other documents with the Commission if we were so
subject, to (i) transmit by mail to all holders of Debt Securities, as their
names and addresses appear in the applicable register for such Debt Securities,
without cost to such holders, copies of the annual reports, quarterly reports
and other documents that we would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if we were subject to such
sections, (ii) file with the applicable Indenture Trustee copies of the annual
reports, quarterly reports and other documents that we would have been required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if we were subject to such Sections, and (iii) promptly upon written request and
payment of the reasonable cost of duplication and delivery, supply copies of
such documents to any prospective holder (Section 1008 of each Indenture).
Additional Covenants. Any of our additional covenants with respect to any
series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default for 30 days in the payment of any installment of interest or Additional
Amounts, or Additional Interest, as applicable, payable on any Debt Security of
such series; (b) default in the payment of principal of (or premium, if any, on)
any Debt Security of such series at its maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance or breach of any other covenant or warranty of ours
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), continued for 60 days after written notice as provided in the
Indenture; (e) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by us (including obligations under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles but not including any indebtedness or obligations
for which recourse is limited to property purchased) in an aggregate principal
amount in excess of $5,000,000 or under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by us (including such leases, but not
including such indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $5,000,000,
whether such indebtedness now exists or shall hereafter be created which default
shall have resulted in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable or such obligations being accelerated, without such acceleration having
been rescinded or annulled; (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of us
or any Significant Subsidiary of ours; and (g) any other event of default
provided with respect to a particular series of Debt Securities (Section 501 of
each Indenture). The term "Significant Subsidiary" means each of our significant
subsidiaries (as defined in Regulation S-X promulgated under the Securities
Act).
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing, then
in every such case the Indenture Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms thereof) of, and premium, if any, on all of the
Debt Securities of that series to be due and payable immediately by written
notice thereof to us (and to the Indenture Trustee if given by the holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then outstanding under
the applicable Indenture, as the case may be) has been made, but before a
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judgment or decree for payment of the money due has been obtained by the
Indenture Trustee, the holders of not less than a majority in principal amount
of outstanding Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may rescind and
annul such declaration and its consequences if (a) we shall have deposited with
the applicable Indenture Trustee all required payments of the principal of (and
premium, if any) and interest, and any Additional Amounts, on the Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of such Indenture Trustee and (b) all Events of
Default, other than the non-payment of accelerated principal (or specified
portion thereof and the premium, if any) or interest, with respect to Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) have been cured or waived as provided
in the applicable Indenture (Section 502 of each Indenture). Each Indenture also
provides that the holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest or
Additional Amounts, or Additional Interest, as applicable, payable on any Debt
Security of such series or (y) in respect of a covenant or provision contained
in the applicable Indenture that cannot be modified or amended without the
consent of the holder of each outstanding Debt Security affected thereby
(Section 513 of each Indenture).
Each Indenture Trustee will be required to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; PROVIDED, HOWEVER, that
such Indenture Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest or Additional
Amounts, or Additional Interest, as applicable, payable on any Debt Security of
such series or in the payment of any sinking fund installment in respect of any
Security of such series) if specified responsible officers of such Indenture
Trustee consider such withholding to be in the interest of such holders (Section
601 of each Indenture).
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the Indenture Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507 of each Indenture). This provision will not
prevent, however, any holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any), interest on
and Additional Amounts, or Additional Interest, as applicable, payable with
respect to, such Debt Securities at the respective due dates thereof.
Subject to provisions in each Indenture relating to its duties in case of
default, each Indenture Trustee will not be under any obligation to exercise any
of its rights or powers under the applicable Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Indenture Trustee
thereunder reasonable security or indemnity (Section 602 of each Indenture). The
holders of not less than a majority in principal amount of the outstanding Debt
Securities of any series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee, or of exercising any trust or power conferred upon such
Indenture Trustee. However, an Indenture Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
the Indenture Trustee in personal liability or which may be unduly prejudicial
to the holders of Debt Securities of such series not joining therein (Section
512 of each Indenture).
Within 120 days after the close of each fiscal year, we will be required to
deliver to each Indenture Trustee a certificate, signed by one of our several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1009 of each Indenture).
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Additional provisions of the Subordinated Indenture regarding Events of
Default are discussed in "Additional Description of Subordinated Debentures to
be Issued to Trust -- Subordinated Indenture Additional Events of Default"
below.
MODIFICATION OF THE INDENTURES
Modifications and amendments of either Indenture will be permitted to be
made only with the consent of the holders of not less than a majority in
principal amount of all outstanding Debt Securities issued under each Indenture
which are affected by such modification or amendment; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the holder of each
such Debt Security affected thereby, (a) change the stated maturity of the
principal of (or premium, if any), or any installment of principal of or
interest payable on, any such Debt Security; (b) reduce the principal amount of,
or the rate or amount of interest on, or any premium payable on redemption of,
or Additional Amounts, or Additional Interest, as applicable, payable with
respect to, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon declaration
of acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any such Debt Security;
(c) change the place of payment, or currency, for payment of principal of (and
premium, if any), or interest on, or any Additional Amounts, or Additional
Interest, as applicable, payable with respect to, any such Debt Security; (d)
impair the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (e) reduce the above-stated percentage of
outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the holder of such Debt Security
(Section 902 of each Indenture).
The holders of not less than a majority in principal amount of outstanding
Debt Securities issued under either Indenture will have the right to waive
compliance by us with certain covenants in such Indenture (Section 1013 of each
Indenture).
Modifications and amendments of each Indenture will be permitted to be made
by us and the applicable Indenture Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to us as obligor under the applicable Indenture;
(ii) to add to our covenants for the benefit of the holders of all or any series
of Debt Securities or to surrender a right or power conferred upon us in the
applicable Indenture; (iii) to add events of default for the benefit of the
holders of all or any series of Debt Securities; (iv) to add or change any
provisions of the applicable Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, PROVIDED that
such action shall not adversely affect the interests of the holders of the Debt
Securities of any series in any material aspect; (v) to change or eliminate any
provisions of the applicable Indenture, PROVIDED that any such change or
elimination shall become effective only when there are no Debt Securities
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series; (viii) to provide
for the acceptance of appointment by a successor Indenture Trustee or facilitate
the administration of the trusts imposed under the applicable Indenture by more
than one Indenture Trustee; (ix) to cure any ambiguity, defect or inconsistency
in the applicable Indenture, PROVIDED that such action shall not adversely
affect the interests of holders of Debt Securities of any series issued under
such Indenture in any material respect; or (x) to supplement any of the
provisions of such Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, PROVIDED that
such action shall not adversely affect the interests of the holders of the Debt
Securities of any series in any material respect (Section 901 of each
Indenture).
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Each Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, and (ii) Debt Securities
owned by us or any other obligor upon the Debt Securities or any affiliate of us
or of such other obligor shall be disregarded (Section 104 and Section 101 of
each Indenture).
Each Indenture will contain provisions for convening meetings of the
holders of Debt Securities of a series (Section 1501 of each Indenture). A
meeting will be permitted to be called at any time by the applicable Indenture
Trustee, and also, upon request, by us or the holders of at least 10% in
principal amount of the outstanding Debt Securities of such series, in any such
case upon notice given as provided in the applicable Indenture (Section 1502 of
each Indenture). Except for any consent that must be given by the holder of each
Debt Security affected by certain modifications and amendments of the applicable
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; PROVIDED, HOWEVER, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of holders of
Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all holders of Debt Securities of that series. The
quorum at any meeting called to adopt a resolution, and at an reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; PROVIDED, HOWEVER, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series will constitute a quorum (Section 1504 of each
Indenture).
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that the Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture (Section 1504 of each Indenture).
SUBORDINATION
Upon any distribution to our creditors in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on the Subordinated
Debentures will be subordinated to the extent provided in the Subordinated
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness defined below (Sections 1601 and 1602 of the Subordinated
Indenture), but our obligation to make payment of the principal and interest on
the Subordinated Debentures will not otherwise be affected (Section 1606 of the
Subordinated Indenture). No payment of principal or interest may be made on the
Subordinated Debentures at any time if (i) any Senior Indebtedness is not paid
when due and any applicable grace period has ended or such default has not been
waived; (ii) a default on Senior
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Indebtedness exists that permits the holders of such Senior Indebtedness to
accelerate its maturity or (iii) notice has been given of the exercise of an
option to require repayment or prepayment of Senior Indebtedness (Section 1603
of the Subordinated Indenture). After all Senior Indebtedness is paid in full
and until the Subordinated Debentures are paid in full, holders will be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Indebtedness (Section 1605 of the Subordinated Indenture). By reason of
such subordination, in the event of a distribution of assets upon insolvency,
certain of our general creditors may recover more, ratably, than holders of the
Subordinated Debentures.
Senior Indebtedness is defined in the Subordinated Indenture as, (i) any
payment due in respect of indebtedness of a Person, whether outstanding at the
date of execution of the Subordinated Indenture or thereafter incurred, created
or assumed, (a) in respect of money borrowed (including any financial
derivative, hedging or futures contract or similar instrument) and (b) evidenced
by securities, debentures, bonds, notes or other similar instruments issued by
such Person which, by their terms, are senior or senior subordinated debt
securities including, without limitation, all obligations under its indentures
with various trustees; (ii) all capital lease obligations; (iii) all obligations
issued or assumed as the deferred purchase price of property, all conditional
sale obligations and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business and long-term purchase obligations); (iv) all obligations for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction; (v) all obligations of the type referred
to in clauses (i) through (iv) above of other Persons the payment of which such
Person is responsible or liable as obligor, guarantor or otherwise; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
Persons secured by any lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debentures and (2) any unsecured indebtedness between or among such
Person or its Affiliates. At February 29, 2000, Senior Indebtedness aggregated
approximately $543,600,000. There are no restrictions in the Subordinated
Indenture upon the creation of additional Senior Indebtedness.
Upon payment in full of all amounts due on the Senior Indebtedness then
outstanding, the rights of the holders of the Subordinated Debentures will be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions applicable to such Senior Indebtedness until all
amounts owing on the Subordinated Debentures are paid in full.
In addition, because we are a holding company our right, and hence the
right of our creditors (including any holder of Subordinated Debentures), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or recognition or otherwise is necessarily subject to the prior
claims of creditors of such subsidiary, except to the extent that our claims as
a creditor of such subsidiary may be recognized. There is no restriction in the
Subordinated Indenture against our subsidiaries incurring secured or unsecured
indebtedness or issuing secured or unsecured securities. Our ability to make
payments of principal and interest on the Subordinated Debentures will be
dependent upon the payment to it by its subsidiaries of dividends, loans or
advances.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, we may discharge certain obligations to holders of
any series of Debt Securities issued thereunder that have not already been
delivered to the applicable Indenture Trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Indenture Trustee, in trust, funds in an amount sufficient to pay the
entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest and any Additional Amounts, or Additional
Interest, as applicable, payable to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be (Section 401 of each Indenture).
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Each Indenture will provide that, if the provisions of Article Fourteen
thereof are made applicable to the Debt Securities of or within any series
pursuant to Section 301 of such Indenture, we may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligations to pay Additional Amounts, or Additional
Interest, as applicable, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") (Section 1402 of each
Indenture) or (b) to be released from our obligations with respect to such Debt
Securities under Sections 1004 to 1008, inclusive, and Sections 1011 and 1012
under such Indenture (being the restrictions described under "Certain
Covenants") or, if provided pursuant to such Indenture, our obligations with
respect to any other covenant, and any omission to comply with such obligations
shall not constitute an event of default with respect to such Debt Securities
("covenant defeasance") (Section 1403 of each Indenture), in either case upon
the irrevocable deposit by us with the applicable Indenture Trustee, in trust,
of an amount of money, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor (Section 1404 of each Indenture).
Such a trust will only be permitted to be established if, among other
things, we have delivered to the applicable Indenture Trustee an opinion of
counsel (as specified in each Indenture) to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, will be required to refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal income
tax law occurring after the date of such Indenture (Section 1404 of each
Indenture).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America, for which its full faith and credit is pledged
or (ii) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the holder
of a depository receipt, PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository receipt
(Section 101 of each Indenture).
In the event we effect covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than the Event of Default described in
clause (d) under "Events of Default, Notice and Waiver" with respect to Sections
1004 to 1008, inclusive, and Sections 1011 and 1012 of either Indenture (which
sections would no longer be applicable to such Debt Securities) or described in
clause (g) under "Events of Default, Notice and Waiver" with respect to any
other covenant as to which there has been covenant defeasance, the amount in
which such Debt Securities are payable, and Government Obligations on deposit
with the applicable Indenture Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, we would remain
liable to make payment of such amounts due at the time of acceleration.
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The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
GOVERNING LAW
The Indentures, each Supplemental Indenture thereto, the Senior Debt and
the Subordinated Debentures will be governed by the laws of the State of New
York.
DESCRIPTION OF TRUST PREFERRED SECURITIES
Each trust may issue only one series of Trust Preferred Securities having
terms described in the prospectus supplement relating thereto. Each Trust
Agreement will be qualified as an indenture under the Trust Indenture Act and
will contain the terms of Trust Preferred Securities.
The Property Trustee will act as indenture trustee for purposes of the
Trust Indenture Act. The Trust Preferred Securities will have such terms,
including distributions, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or such restrictions as will be set
forth in the Trust Agreement or made part of the Trust Agreement by the Trust
Indenture Act and which will correspond to the terms of the Subordinated
Debentures held by the Trust and described in the Prospectus Supplement relating
thereto.
The Prospectus Supplement relating to the Trust Preferred Securities of a
trust will include the specific terms of the series of trust preferred
securities being issued, including:
(i) the distinctive designation of the Trust Preferred Securities;
(ii) the number of Trust Preferred Securities issuable by the Trust;
(iii) the annual distribution rate (or method of determining such
rate) for Trust Preferred Securities and the date or dates upon which such
distributions will be payable;
(iv) whether distributions on Trust Preferred Securities will be
cumulative, and, in the case of Trust Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Trust Preferred Securities
will be cumulative;
(v) the amount or amounts which will be paid out of the assets of the
Trust to the holders of Trust Preferred Securities upon voluntary or
involuntary dissolution, winding-up or termination of the Trust;
(vi) the obligation, if any, of the Trust to purchase or redeem Trust
Preferred Securities and the price or prices at which, the period or
periods within which, and the terms and conditions upon which Trust
Preferred Securities will be purchased or redeemed, in whole or in part,
pursuant to such obligation;
(vii) the voting rights, if any, of holders of Trust Preferred
Securities in addition to those required by law, including the number of
votes per Trust Preferred Security and any requirement for
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approval by the holders of such Trust Preferred Securities, as a condition
to specified action or amendments to the Trust Agreement;
(viii) the terms and conditions, if any, upon which the Subordinated
Debentures owned by the Trust may be distributed to holders of Trust
Preferred Securities;
(ix) if applicable, any securities exchange upon which the Trust
Preferred Securities will be listed; and
(x) any other relevant rights, preferences, privileges, limitations or
restrictions of Trust Preferred Securities not inconsistent with the Trust
Agreement or with applicable law.
We will guarantee distributions on Trust Preferred Securities to the extent
set forth below under "Description of the Trust Guarantee." Certain United
States federal income tax considerations applicable to Trust Preferred
Securities will be described in a Prospectus Supplement relating to the Trust
Preferred Securities.
Each Trust will issue a series of Trust Common Securities in connection
with the issuance of Trust Preferred Securities. Except for voting rights, the
terms of Trust Common Securities will be substantially identical to the terms of
Trust Preferred Securities. Trust Common Securities will rank pari passu with
Trust Preferred Securities except that, upon an event of default under the Trust
Agreement, the rights of holders of Trust Common Securities to payments will be
subordinated to the rights of holders of Trust Preferred Securities. The Trust
Common Securities will also carry the right to vote to appoint, remove or
replace any Trustee of the Trust. We will own all of the Trust Common
Securities.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an Event of Default as defined and provided in a Trust Agreement occurs
and is continuing, then the holders of Trust Preferred Securities of such Trust
would rely on the enforcement by the Property Trustee of such Trust of its
rights as a holder of the applicable series of Subordinated Debentures against
us. In addition, the holders of a majority in aggregate liquidation amount of
Trust Preferred Securities of such Trust will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to such
Property Trustee or to direct the exercise of any trust or power conferred upon
such Property Trustee under such Trust Agreement, including the right to direct
such Property Trustee to exercise the remedies available to it as a holder of
Subordinated Debentures provided that such direction shall not be in conflict
with any rule of law or with such Trust Agreement, and could not involve such
Property Trustee in personal liability in circumstances where reasonable
indemnity would not be adequate. If such Property Trustee fails to enforce its
rights under the Subordinated Debentures held by such Trust, a holder of Trust
Preferred Securities of such Trust may, to the extent permitted by law,
institute a legal proceeding directly against us to enforce such Property
Trustee's rights under such Trust Agreement without first instituting any legal
proceeding against such Property Trustee or any other entity or person,
including such Trust; it being understood and intended that no one or more of
such holders shall have any right in any manner whatsoever by virtue of, or by
availing of, any provision of such Trust Agreement to affect, disturb or
prejudice the rights of any other of such holders or to obtain or to seek to
obtain priority or preference over any other of such holders or to enforce any
right under such Trust Agreement, except in the manner herein provided and for
the equal and ratable benefit of all such holders. Notwithstanding the
foregoing, a holder of Trust Preferred Securities of such Trust may institute a
proceeding directly against us without first instituting a legal proceeding
against or requesting that action be taken by such Property Trustee or any other
Person for enforcement of payment to such holder of the principal of or interest
on the Subordinated Debentures held by such Trust having a principal amount
equal to the aggregate stated liquidation amount of such Trust Preferred
Securities of such holder (a "Direct Action") on or after the due dates
specified or provided for in such Subordinated Debentures. In connection with
such Direct Action, we will be subrogated to the rights of such holder of Trust
Preferred Securities under the Trust Agreement to the extent of any payment made
by us to such holder of Trust Preferred Securities in such Direct Action.
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DESCRIPTION OF TRUST GUARANTEES
The following is a summary of information concerning the guarantees of the
trust preferred securities of each trust, which we refer to as the Trust
Guarantees. Each Trust Guarantee will be executed by us for the benefit of
holders of Trust Preferred Securities. Each Trust Guarantee will be qualified as
an indenture under the Trust Indenture Act. A Prospectus Supplement with respect
to the Trust Preferred Securities will identify the indenture trustee for
purposes of the Trust Indenture Act (the "Trust Guarantee Trustee").
The following summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified by its entirety by reference to,
the form of Trust Guarantee, which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Trust Guarantee will be
held by the Property Trustee for the benefit of holders of Trust Preferred
Securities.
GENERAL
To the extent set forth in the Trust Guarantee, we will agree to pay in
full the Guarantee Payments, described below, without duplication of amounts
theretofore paid by or on behalf of the Trust, as and when due regardless of
defense, right of set off or counter-claim which we may have. The following
payments or distributions are referred to herein as the Guarantee Payments and,
with respect to trust preferred securities issued by a trust, to the extent not
paid or made by such trust will be subject to the Trust Guarantee:
(i) any accrued and unpaid distributions on Trust Preferred
Securities, to the extent such Trust has funds legally and immediately
available therefor;
(ii) the redemption price, including all accrued and unpaid
distributions to the date of redemption (the "Redemption Price"), with
respect to the Trust Preferred Securities called for redemption by the
Trust to the extent such Trust has funds legally and immediately available
therefor with respect to Trust Preferred Securities called for redemption;
and
(iii) upon voluntary or involuntary termination, dissolution or
winding up of such Trust (other than in connection with the distribution of
Subordinated Debentures to holders of Trust Preferred Securities or the
redemption of all Trust Preferred Securities), the lesser of:
(a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such Trust Preferred Securities to the date of
payment, to the extent such Trust has funds legally and immediately
available therefor and
(b) the amount of assets of the Trust remaining available for
distribution to holders of Trust Preferred Securities in liquidation of
the Trust.
The redemption price and liquidation amount will be fixed at the time the
Trust Preferred Securities are issued. Our obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by us to the
holders of such Trust Preferred Securities or by causing the Trust to pay such
amounts to such holders.
Each Trust Guarantee will not apply to any payment or distribution except
to the extent such Trust has funds legally available therefor. If we do not make
interest payments on the Subordinated Debentures purchased by a Trust, such
Trust will not pay distributions on such Trust Preferred Securities issued by
such Trust and will not have funds legally available therefor. The Trust
Guarantee, when taken together with our obligations under the Subordinated
Debentures, the Subordinated Indenture and the Trust Agreement, including our
obligation to pay costs, expenses, debt, and liabilities of such Trust (other
than with respect to the Trust Securities), will be a full and unconditional
guarantee, on a subordinated basis, by us of payments due on the Trust Preferred
Securities from the time of issuance, but will not apply to the payment of
distributions and other payments on the Trust Preferred Securities when the
Property Trustee does not have sufficient funds in the Property Account of the
Trust to make such distributions or
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other payments. If we do not make interest payments on the Subordinated
Debentures held by the Property Trustee, the Trust will not make distributions
on the Trust Preferred Securities and will not have funds available therefor.
See "Additional Description of the Subordinated Debentures to be Issued to
Trust -- Certain Covenants."
AMENDMENT OF TRUST GUARANTEE; ASSIGNMENT
Except for changes which do not materially adversely affect the rights of
holders of Trust Preferred Securities, each Trust Guarantee may be amended only
with the approval of not less than 66 2/3% in liquidation amount of Trust
Preferred Securities issued by the applicable Trust. The manner of obtaining any
such approval will be as set forth in Article Six of the applicable Trust
Agreement. The Trust Guarantee will bind the successors, assigns receivers,
trustees and representatives of us and continue to benefit the Trust Guarantee
Trustee and holders of Trust Preferred Securities. Except in connection with a
consolidation, merger, conveyance, transfer or lease involving us, permitted
under Article Eight of the Subordinated Indenture, we may not assign its rights
or delegate our obligations under the Trust Guarantee.
TERMINATION OF THE TRUST GUARANTEE
Each Trust Guarantee will terminate as to the Trust Preferred Securities
issued by the applicable Trust (a) upon full payment of the Redemption Price of
all Trust Preferred Securities of such trust, (b) upon distribution of
Subordinated Debentures held by such Trust to the holders of and in exchange for
all of the Trust Preferred Securities or (c) upon full payment of amounts
payable in accordance with the Trust Agreement upon liquidation of such Trust.
See "Status of the Trust Guarantee" and "Additional Description of Subordinated
Debentures to be Issued to Trust -- Subordinated Indenture Additional Events of
Default" for a description of the events of default and enforcement rights of
the holders of Subordinated Debentures. The Trust Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Trust Preferred Securities must repay any sums paid to them under the Trust
Preferred Securities or Trust Guarantee.
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur if we fail to make
the payments required by the Trust Guarantee.
The holders of a majority in liquidation amount of Trust Preferred
Securities relating to such Trust Guarantee have the right to direct the time,
method and place of conducting any proceeding for any remedy available to such
Trust Guarantee Trustee or to direct the exercise of any trust or power
conferred upon such Trust Guarantee Trustee under the Trust Guarantee.
Accordingly if the Trust Guarantee Trustee fails to enforce such Trust
Guarantee, any holder of record of Trust Preferred Securities relating to such
Trust Preferred Guarantee may institute a legal proceeding directly against us
to enforce the Trust Guarantee Trustee's rights, without first instituting any
other legal proceeding.
STATUS OF TRUST GUARANTEE
The Trust Guarantee will constitute our unsecured obligation and will rank:
(i) subordinate and junior in right of payment to all of our other
liabilities, including the Subordinated Debentures, except those made pari
passu or subordinate by their terms,
(ii) pari passu with the most senior preferred or preference stock
which may now or hereafter be issued or guaranteed by us; and
(iii) senior to our Common Stock.
The terms of the Trust Preferred Securities provide that each holder of
Trust Preferred Securities issued by such trust, by acceptance thereof, agrees
to the subordination provisions and other terms of the
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Trust Guarantee relating thereto. Each Trust Guarantee will constitute a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the guarantor to enforce its
rights under such Trust Guarantee without instituting a legal proceeding against
any other person or entity). Each Trust Guarantee will be deposited with the
applicable Guarantee Trustee to be held for the benefit of the holders of such
Trust Preferred Securities. Except as otherwise noted herein, the Guarantee
Trustee has the right to enforce the Trust Guarantee on behalf of the holders of
the related Trust Preferred Securities. Except as described under "Termination
of the Trust Guarantee" above, the Trust Guarantee will not be discharged except
by payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Trust).
INFORMATION CONCERNING TRUST GUARANTEE TRUSTEE
The Trust Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Guarantee and after the curing or waiving of all such
defaults that may have occurred, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, during the continuance of any
default, will exercise the same degree of care as a prudent individual would
exercise in the conduct of such individual's own affairs. Subject to such
provisions, the Trust Guarantee Trustee is under no obligation to exercise any
of the powers vested in it by the Trust Guarantee at the request of any holder
of Trust Preferred Securities, unless offered reasonable indemnity against the
costs, expenses and liabilities which might be incurred thereby; but the
foregoing shall not relieve the Trust Guarantee Trustee, upon the occurrence of
an Event of Default under such Trust Guarantee, from exercising the rights and
powers vested in it by such Trust Guarantee. The Trust Guarantee Trustee also
serves as Property Trustee. We and our officers and directors have no material
relationship with the initial Trust Guarantee Trustee other than normal banking
relationships.
GOVERNING LAW
The Trust Guarantee will be governed by the laws of the State of New York.
THE AGREEMENT AS TO EXPENSES AND LIABILITIES
Pursuant to an Agreement as to Expenses and Liabilities to be entered into
by us under the Trust Agreement, we will irrevocably and unconditionally
guarantee to each person or entity to whom the Trust becomes indebted or liable
the full payment of any indebtedness, expenses or liabilities of the Trust other
than obligations of the Trust to pay to the holders of the related Trust
Securities or other similar interests in the Trust the amounts due such holders
pursuant to the terms of such Trust Securities or such other similar interests,
as the case may be.
ADDITIONAL DESCRIPTION OF SUBORDINATED DEBENTURES
TO BE ISSUED TO TRUST
Set forth below is a description of the terms of the Subordinated
Debentures which each Trust will hold as trust assets. The general provisions of
the Subordinated Debentures are set forth under "Description of Debt Securities"
above. The following description does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Subordinated Indenture
(as defined in "Description of Debt Securities" above), as supplemented by the
Supplemental Indenture creating the Subordinated Debentures. The Subordinated
Indenture and the Supplemental Indenture are filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The terms of the
Subordinated Debentures will include those stated in the Subordinated Indenture
and the related Supplemental Indenture and those made a part of the Subordinated
Indenture by reference to the Trust Indenture Act.
Upon a dissolution of a Trust, Subordinated Debentures held by such Trust
may be distributed to the holders of Trust Securities in liquidation of such
Trust.
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If any Subordinated Debentures are distributed to holders of Trust
Preferred Securities, we will use our best efforts to have such Subordinated
Debentures traded on the same stock exchange as the related Trust Preferred
Securities are traded.
GENERAL
Subordinated Debentures will be issued in a principal amount equal to the
aggregate stated Liquidation Amount of Trust Preferred Securities plus our
investment in Trust Common Securities.
The entire principal amount of the Subordinated Debentures held by each
Trust will mature and become due and payable, together with any accrued and
unpaid interest thereon, including Additional Interest (as defined herein), if
any, on the date set forth in the applicable Prospectus Supplement.
The covenants contained in the Subordinated Debenture Indenture would not
necessarily afford protection to holders of the Subordinated Debentures in the
event of a decline in our credit quality resulting from takeovers,
recapitalizations or similar restructurings.
If Subordinated Debentures held by a Trust are distributed to holders of
Trust Preferred Securities of such Trust in liquidation of such holders'
interests in such Trust, such Subordinated Debentures will initially be issued
as a Global Security. Under certain limited circumstances, Subordinated
Debentures may be issued in certificated form in exchange for a Global Security.
In the event Subordinated Debentures are issued in certificated form, such
Subordinated Debentures will be in denominations as specified in the applicable
Prospectus Supplement and integral multiples thereof and may be transferred or
exchanged at the offices described therein. Payments on Subordinated Debentures
issued as a Global Security will be made to the Depositary for the Subordinated
Debentures. In the event Subordinated Debentures are issued in certificated
form, principal and interest will be payable, the transfer of the Subordinated
Debentures will be registrable and Subordinated Debentures will be exchangeable
for Subordinated Debentures of other denominations of a like aggregate principal
amount at the corporate trust office of the Debt Trustee in New York, New York;
provided, that payment of interest may be made at our option by check mailed to
the address of the persons entitled thereto.
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event we are involved in a highly
leveraged transaction.
CERTAIN COVENANTS
If there has occurred any event that would constitute an Indenture Event of
Default, then (a) we may not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of our capital stock and, (b) we may
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees other than the
Trust Guarantee) issued by us which rank pari passu with or junior to the
Subordinated Debentures. The preceding sentence, however, shall not restrict (A)
any of the actions described in the preceding sentence resulting from any
reclassification of our capital stock or the exchange or conversion of one class
or series of our capital stock for another class or series of our capital stock,
(B) repurchases, redemptions or other acquisition of shares of our capital stock
in connection with any employment contract benefit plan or other similar
arrangement with or for the benefit of employees, officers or directors or a
stock purchase and dividend reinvestment plan, (C) dividends or distributions of
our capital stock, or (D) the purchase of fractional interests in shares of our
capital stock pursuant to the conversion or exchange provision of such capital
stock or the security being converted or exchanged.
We will covenant, as long as Trust Preferred Securities of a Trust remain
outstanding, (i) to maintain 100% ownership of Trust Common Securities of such
Trust, and (ii) to use its reasonable efforts to cause such Trust (a) to remain
a statutory business trust, except in connection with the distribution of
Subordinated Debentures held by such Trust to the holders of Trust Securities in
liquidation of such Trust, the redemption of all Trust Securities, or certain
mergers, consolidations or amalgamations, each as
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permitted by the Trust Agreement, and (b) to otherwise continue to be classified
as a grantor trust for United States federal income tax purposes.
OPTIONAL REDEMPTION
We will have the right to redeem the Subordinated Debentures, in whole or
in part, from time to time, without premium or penalty, on or after the date set
forth in the applicable Prospectus Supplement, upon not less than thirty (30) or
more than sixty (60) days' notice, at a redemption price equal to a percentage
of the principal amount to be redeemed plus any accrued and unpaid interest,
including Additional Interest (as defined herein), if any, to the Redemption
Date, as specified in the applicable Prospectus Supplement. If a partial
redemption of the Trust Preferred Securities resulting from a partial redemption
of the Subordinated Debentures held by a trust would result in the delisting of
the Trust Preferred Securities of such Trust, we may only redeem such
Subordinated Debentures held by such trust in whole. In addition, upon the
occurrence of a Special Event, we may, upon not less than thirty (30) or more
than (60) days notice, within ninety (90) days following the occurrence thereof
and subject to the terms and conditions of the Subordinated Indenture, redeem
such Subordinated Debentures, in whole, at a price equal to 100% of the
principal amount to be redeemed plus any accrued but unpaid interest (including
Additional Interest, if any) to the Redemption Date. In the event of redemption
of such Subordinated Debentures in part only, new Subordinated Debentures for
the unredeemed portion shall be issued in the name or names of the holders
thereof upon the surrender thereof.
INTEREST
Each Subordinated Debenture will bear interest at the rate set forth in the
applicable Prospectus Supplement from the original date of issuance, payable
quarterly in arrears on dates which will be specified in the Prospectus
Supplement (each, an "Interest Payment Date"), to the person in whose name such
Subordinated Debenture is registered, subject to certain exceptions, on the
record date specified in the applicable Prospectus Supplement.
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 Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Except to the extent set forth in the applicable Prospectus Supplement, we
will have the right at any time to defer payments of interest on Subordinated
Debentures by extending the interest payment period for up to 20 consecutive
quarters, during which Extension Period we will have the right to make partial
payments of interest on Interest Payment Dates. At the end of such an Extension
Period, we will pay all interest then accrued and unpaid (including any
Additional Interest, together with interest thereon at the rate specified and to
the extent permitted by applicable law). We covenant in the Supplemental
Indenture for the benefit of the holders of a series of Subordinated Debentures,
that, subject to the next succeeding sentence, (a) we shall not declare or pay
any dividend on, or make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital stock,
and (b) we shall not make any payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities (including guarantees
other than the Trust Guarantee) issued by us which rank pari passu with or
junior to said series of Subordinated Debentures (i) if at such time we shall
have given notice of our election to extend an interest payment period for a
series of Subordinated Debentures and such extension shall be continuing or (ii)
if at such time an Event of Default with respect to a series of Subordinated
Debentures shall have occurred and be continuing. The preceding sentence,
however, shall not restrict (A) any of the actions described in the preceding
sentence resulting from any reclassification
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of our capital stock or the exchange or conversion of one class or series of our
capital stock for another class or series of our capital stock, (B) repurchases,
redemptions or other acquisitions of shares of our capital stock in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of employees, officers or directors or a stock purchase and
dividend reinvestment plan, and (C) dividends or distributions in our capital
stock, or (D) the purchase of fractional interests in shares of our capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged.
Prior to the termination of any such Extension Period for a series of
Subordinated Debentures, we may further defer payments of interest on such
Subordinated Debentures, by extending the interest payment period, provided that
such Extension Period together with all such previous and further extensions
thereof for such series of Subordinated Debentures may not exceed 20 consecutive
quarters or extend beyond the maturity of such series of Subordinated
Debentures.
Upon the termination of any Extension Period for a series of Subordinated
Debentures, and the payment of all accrued and unpaid interest on the
Subordinated Debentures then due, we may select a new Extension Period for such
series of Subordinated Debentures, as if no Extension Period had previously been
declared, subject to the above requirements. No interest on a series of
Subordinated Debentures during an Extension Period, except at the end thereof,
will be due and payable on such series of Subordinated Debentures.
If the Property Trustee is the sole holder of the Subordinated Debentures,
we will give the Property Trustee notice of our selection of such Extension
Period for such series of Subordinated Debentures one Business Day prior to the
earlier of (i) the Regular Record Date relating to the Interest Payment Date on
which the Extension Period is to commence or relating to the Interest Payment
Date on which an Extension Period that is being extended would otherwise
terminate or (ii) the date a Trust is required to give notice to the applicable
self-regulatory organization or to holders of such Trust Preferred Securities on
the record date or the date such distribution is payable, but in any event not
less than one Business Day prior to such record date. The Administrative
Trustees shall give notice of our selection of such Extension Period to the
holders of such Trust Preferred Securities. If the Property Trustee is not the
sole holder of a series of Subordinated Debentures, we will give the holders of
such Subordinated Debentures notice of our selection of such Extension Period
ten Business Days prior to the earlier of (i) the Regular Record Date relating
to the Interest Payment Date on which the Extension Period is to commence or
relating to the Interest Payment Date on which an Extension Period that is being
extended would otherwise terminate or (ii) the date we are required to give
notice to the applicable self-regulatory organization or to holders of such
Subordinated Debentures, but in any event at least two Business Days before such
record date.
We have no present intention to defer interest payments.
ADDITIONAL INTEREST
If a Trust is required to pay any taxes, duties, assessments or other
governmental charges (other than withholding taxes) imposed by the United
States, or any other taxing authority, we will pay as additional interest
("Additional Interest") such additional amounts as shall be required so that the
net amounts received and retained by a Trust after paying any such charges will
be equal to the amount such Trust would have received had no such charge been
imposed.
SUBORDINATED INDENTURE ADDITIONAL EVENTS OF DEFAULT
In addition to the Events of Default described under "Description of Debt
Securities -- Events of Default," the following will be an additional Event of
Default:
the voluntary or involuntary dissolution, winding up or termination of
a Trust except in connection with
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(i) the distribution of Subordinated Debentures to holders of Trust
Securities in liquidation of a Trust,
(ii) the redemption of all outstanding Trust Securities of such
Trust, or
(iii) certain mergers or consolidations permitted by the Trust
Agreement.
The holders of not less than a majority in aggregate principal amount of
Subordinated Debentures of any series may waive any past default, except (i) a
default in payment of principal, premium, interest or Additional Interest or
(ii) a default in a covenant or provision which under Article Nine of the
Subordinated Indenture may not be modified or amended without the consent of
each holder of a Subordinate Debenture of the affected series. The holders of
Trust Preferred Securities in certain circumstances have the right to direct the
Property Trustee to exercise its rights as holder of Subordinated Debentures.
PAYMENT AND PAYING AGENTS
Payment of principal and premium (if any) on Subordinated Debentures will
be made only if the holder of Subordinated Debentures surrenders them to the
Paying Agent of the Subordinated Debentures.
Principal of and any premium and interest, if any, on Subordinated
Debentures will be payable, subject to any applicable laws and regulations, at
the office of such Paying Agent or Paying Agents as we may designate from time
to time pursuant to the Subordinated Debenture Indenture. Payment of interest on
the Subordinated Debentures on any Interest Payment Date will be made to the
person in whose name the Subordinated Debenture (or predecessor security) is
registered at the close of business on the Regular Record Date for such interest
payment.
The Subordinated Indenture Trustee will act as Paying Agent with respect to
the Subordinated Debentures. We may at any time 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 we will be required to
maintain a Paying Agent at the place of payment.
CONSOLIDATION, MERGER AND SALE
The Subordinated Indenture provides that we will be permitted to
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other entity provided that (a) either we
shall be the continuing entity, or the successor entity (if other than us)
formed by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall expressly assume our obligations
under the Trust Guarantee and the payment of the principal of (and premium, if
any) and interest including all Additional Interest on all of the Subordinated
Debentures and the due and punctual performance and observance of all of the
covenants and conditions contained in the Subordinated Indenture; (b)
immediately after giving effect to such transaction and treating any
indebtedness that becomes an obligation of ours or any Subsidiary as a result
thereof as having been incurred by us or such Subsidiary at the time of such
transaction, no Event of Default under the Subordinated Indenture or the Trust
Guarantee, and no event which, after notice or the lapse of time, or both, would
become such an Event of Default, shall have occurred and be continuing; and (c)
an officer's certificate and legal opinion covering such conditions shall be
delivered to the Indenture Trustee (Sections 801 and 803 of the Subordinated
Indenture).
INFORMATION CONCERNING SUBORDINATED DEBENTURE TRUSTEE
The Subordinated Indenture Trustee, prior to default and after the curing
of all defaults, if any, undertakes to perform only such duties as are
specifically set forth in the Subordinated Indenture and, after a default (that
has not been cured or waived), will exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, the Subordinated Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the
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Subordinated Indenture at the request of any holder of Subordinated Indentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby; but the foregoing will not
relieve the Subordinated Indenture Trustee, upon the occurrence of an Indenture
Event of Default, from exercising the rights and powers vested in it by the
Subordinated Indenture. The Subordinated 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 Subordinated Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
We will have the right at all times to assign any of our rights or
obligations under the Subordinated Indenture to a direct or indirect
wholly-owned subsidiary of ours; provided that, in the event of any such
assignment, we will remain liable for all of such obligations. Subject to the
foregoing, the Subordinated Indenture will be binding upon and inure to the
benefit of the parties thereto and their respective successors and assigns.
EFFECT OF OBLIGATIONS UNDER SUBORDINATED DEBENTURES
AND TRUST PREFERRED SECURITIES GUARANTEE
As long as payments are made when due on Subordinated Debentures, the Trust
will have sufficient funds to be able to make all appropriate payments on Trust
Securities. This is primarily because (i) the aggregate principal amount of the
Subordinated Debentures will be equal to the sum of the aggregate stated
liquidation amount of such Trust Securities; (ii) the interest rate and interest
and other payment dates on the Subordinated Debentures will match the
distribution rate and distribution and other payment dates for the Trust
Securities; (iii) we will pay for all costs and expenses of each Trust; and (iv)
the Trust Agreement provides that the Trustees may not cause or permit the Trust
to, among other things, engage in any activity that is not consistent with the
purposes of the Trust.
Payments of distributions and other payments due on the Trust Preferred
Securities (to the extent funds are available therefor) are guaranteed by us to
the extent set forth under "Description of the Trust Guarantee." If we do not
make interest payments on Subordinated Debentures, it is expected that the Trust
will not have sufficient funds to pay distributions on its Trust Preferred
Securities. The Trust Guarantee is a full and unconditional guarantee, but does
not apply to any payment unless the Trust has sufficient funds for such payment.
If we fail to make payments on Subordinated Debentures when due (taking
into account any Extension Period), the Trust Agreement will provide a mechanism
whereby holders of Trust Preferred Securities may direct the Property Trustee to
enforce its rights, including proceeding directly against us. Accordingly, if
the Property Trustee fails to enforce its rights, a holder of Trust Preferred
Securities may sue us directly to enforce those rights, without first
instituting legal proceedings against the Trust, the Property Trustee or any
other person or entity.
If we fail to make payments under the Trust Guarantee, the Trust Guarantee
provides a mechanism whereby the holders of Trust Preferred Securities may
direct the Trust Guarantee Trustee to enforce its rights. If the Trust Guarantee
Trustee fails to enforce its rights, any holder of Trust Preferred Securities
may institute a legal proceeding against us directly to enforce those rights
without first instituting legal proceedings against the Trust, the Trust
Guarantee Trustee or any other person or entity.
Pursuant to an Agreement as to Expenses and Liabilities to be entered into
by the Company under the Trust Agreement, we will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust becomes
indebted or liable the full payment of any indebtedness, expenses or liabilities
of the Trust other than obligations of the Trust to pay to the holders of the
related Trust Securities or other similar interests in the Trust the amounts due
such holders pursuant to the terms of such Trust Securities or such other
similar interests, as the case may be.
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The above mechanisms and obligations, taken together, are equivalent to a
full and unconditional guarantee by us of payments due on Trust Preferred
Securities to the extent of funds available to the Trust.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of common stock at a future date or dates, which we refer to herein as
"stock purchase contract." The consideration per share of common stock may be
fixed at the time stock purchase contracts are issued or may be determined by
reference to a specific formula set forth in the stock purchase contracts. The
stock purchase contracts may be issued separately, or as part of units
consisting of a stock purchase contract and debt securities, trust preferred
securities or debt obligations of third parties, including U.S. treasury
securities, securing the holders' obligations to purchase the common stock under
the stock purchase contracts, which we refer to herein as "stock purchase
units." The stock purchase contracts may require us to make periodic payments to
the holders of the stock purchase units or vice versa, and such payments may be
unsecured or prefunded on some basis. The stock purchase contracts may require
holders to secure their obligations thereunder in a specified manner.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units. The description in the prospectus
supplement will not necessarily be complete, and reference will be made to the
stock purchase contract, and, if applicable, collateral or depositary
arrangements, relating to such stock purchase contracts or stock purchase units.
Material United States federal income tax considerations applicable to the stock
purchase units and the stock purchase contracts will be discussed in the
prospectus supplement relating thereto.
PLAN OF DISTRIBUTION
We and the trusts may sell securities in any of three ways: (1) through
underwriters or dealers; (2) directly to a limited number of institutional
purchasers or to a single purchaser; or (3) through agents. Any such dealer or
agent, in addition to any underwriter, may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended. The terms of the offering
of the securities with respect to which this prospectus is being delivered will
be set forth in the applicable prospectus supplement and will include:
- the name or names of any underwriters, dealers or agents;
- the purchase price of such securities and the proceeds to us from such
sale;
- any underwriting discounts and other items constituting underwriters'
compensation;
- the public offering price; and
- any discounts or concessions which may be allowed or reallowed or paid to
dealers and any securities exchanges on which the securities may be
listed.
If underwriters are used in the sale of securities, such securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by one or more
underwriters acting alone. Unless otherwise set forth in the applicable
prospectus supplement, the obligations of the underwriters to purchase the
securities described in the applicable prospectus supplement will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all such securities if any are so purchased by them. Any public
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offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
The securities may be sold directly by us or the applicable trust or
through agents designated by us or the applicable trust from time to time. Any
agents involved in the offer or sale of the securities in respect of which this
prospectus is being delivered, and any commissions payable by us or the
applicable trust to such agents, will be set forth in the applicable prospectus
supplement. Unless otherwise indicated in the applicable prospectus supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment.
If dealers are utilized in the sale of any securities, we or the applicable
trust will sell the securities to the dealers, as principals. Any dealer may
resell the securities to the public at varying prices to be determined by the
dealer at the time of resale. The name of any dealer and the terms of the
transaction will be set forth in the prospectus supplement with respect to the
securities being offered.
Securities may also be offered and sold, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms, which we refer to herein as the "remarketing firms,"
acting as principals for their own accounts or as our or a trust's agents, as
applicable. Any remarketing firm will be identified and the terms of its
agreement, if any, with us or the applicable trust and its compensation will be
described in the applicable prospectus supplement. Remarketing firms may be
deemed to be underwriters, as that term is defined in the Securities Act of
1933, as amended, in connection with the securities remarketed thereby.
If so indicated in the applicable prospectus supplement, we or the
applicable trust will authorize agents, underwriters or dealers to solicit
offers by certain specified institutions to purchase the securities to which
this prospectus and the applicable prospectus supplement relates from us or the
applicable trust at the public offering price set forth in the applicable
prospectus supplement, plus, if applicable, accrued interest, pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject only to those conditions set
forth in the applicable prospectus supplement, and the applicable prospectus
supplement will set forth the commission payable for solicitation of such
contracts.
Underwriters will not be obligated to make a market in any securities. No
assurance can be given regarding the activity of trading in, or liquidity of,
any securities.
Agents, dealers, underwriters and remarketing firms may be entitled, under
agreements entered into with us or the applicable trust (or both), to
indemnification by us or the applicable trust (or both) against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution to payments they may be required to make in respect thereof.
Agents, dealers, underwriters and remarketing firms may be customers of, engage
in transactions with, or perform services for, us and/or the applicable trust in
the ordinary course of business.
Each series of securities will be a new issue and, other than the common
stock, which is listed on NASDAQ, will have no established trading market. We
may elect to list any series of securities on an exchange, and in the case of
the common stock, on any additional exchange, but, unless otherwise specified in
the applicable prospectus supplement, we shall not be obligated to do so. No
assurance can be given as to the liquidity of the trading market for any of the
securities.
Agents, underwriters, dealers and remarketing firms may be customers of,
engage in transactions with, or perform services for, us and our subsidiaries in
the ordinary course of business.
LEGAL MATTERS
The validity of the securities offered here and certain related matters
will be passed upon for us, and certain United Stated federal income taxation
matters will be passed upon for us and the Trusts by Dickinson Wright PLLC,
Detroit, Michigan. Certain matters of Delaware law relating to the validity of
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the Trust Preferred Securities will be passed upon on behalf of the Trusts by
Richards, Layton & Finger, P.A., Wilmington, Delaware. Certain legal matters
will be passed upon for the Underwriters by Dewey Ballantine LLP, New York, New
York.
EXPERTS
The consolidated financial statements of SEMCO Energy, Inc. as of December
31, 1999 and 1998, and for the three years ended December 31, 1999, incorporated
by reference in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, and the SEMCO Energy, Inc. pro forma Combined
Statement of Income for the year ended December 31, 1999, incorporated by
reference in this prospectus has been examined by Arthur Andersen LLP, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The combined financial statements of ENSTAR Natural Gas Company (a division
of SEMCO Energy, Inc.) and Alaska Pipeline Company (a subsidiary of SEMCO
Energy, Inc.) as of December 31, 1999 and 1998, and for each of the years in the
three year period ended December 31, 1999, have been incorporated by reference
in this prospectus in reliance upon the report of KPMG LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
Our future Financial Statements and the reports thereon of Arthur Andersen
LLP also will be incorporated by reference in this prospectus in reliance upon
the authority of that firm as experts in giving those reports to the extent that
said firm has audited said Financial Statements and consented to the use of
their reports thereon.
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SEMCO CAPITAL TRUST I
% CUMULATIVE
TRUST PREFERRED SECURITIES
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PROSPECTUS SUPPLEMENT
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A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED
FIRST OF MICHIGAN NATCITY INVESTMENTS, INC.
DIVISION OF FAHNESTOCK & CO. INC.
APRIL , 2000
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