<PAGE> 1
PROSPECTUS SUPPLEMENT Pursuant to Rule 424(b)5
JUNE 26, 2000 Registrant No. 333-91815
(TO PROSPECTUS DATED MARCH 27, 2000)
$105,000,000
[SEMCO ENERGY, INC. LOGO]
SEMCO ENERGY, INC.
------------------------
8.95% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS(SM))
DUE 2008 (REMARKETING DATE JULY 1, 2003)
SEMCO:
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 five business segments: (1) gas
distribution; (2) construction services; (3) engineering services; (4) propane,
pipelines and storage; and (5) information technology services.
THE OFFERING:
Use of Proceeds: We intend to use the net proceeds from the sale of the ROARS to
repay a portion of the financing obtained for our 1999 acquisition of ENSTAR
Natural Gas Company and Alaska Pipeline Company.
Delivery: The underwriters are offering the ROARS subject to various conditions.
The underwriters expect to deliver the ROARS to purchasers on or about June 29,
2000.
THE ROARS:
Maturity: July 1, 2008, unless extended until the fifth anniversary of the Fixed
Rate Remarketing Date, as described under "Description of the ROARS".
Interest Payments and Remarketing: The ROARS will bear interest at the rate of
8.95% per year from the date of delivery to but excluding July 1, 2003, which is
the first Remarketing Date, and then at a rate described under "Description of
the ROARS." Interest on the ROARS is payable on January 1 and July 1 of each
year, beginning on January 1, 2001 and continuing through July 1, 2003, and then
at intervals described under "Description of the ROARS." On any Remarketing
Date, the ROARS will be either mandatorily tendered to and purchased by Banc of
America Securities LLC, as Remarketing Dealer, or mandatorily redeemed by us, in
each case at the prices described under "Description of the ROARS." If purchased
by the Remarketing Dealer, the ROARS will bear interest from the Remarketing
Date at a rate to be determined as described under "Description of the ROARS."
Ranking: The ROARS will be senior obligations of ours and will rank equally with
all of our other unsecured senior indebtedness.
<TABLE>
<CAPTION>
PER ROARS TOTAL
--------- ------------
<S> <C> <C>
Public Offering Price....................................... 99.759% $104,746,950
Underwriting Discount....................................... 0.400% $ 420,000
Proceeds to SEMCO (before expenses)(1)...................... 101.759% $106,846,950
</TABLE>
---------------
(1) Includes consideration for the related option.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the related prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
FIRST UNION SECURITIES, INC.
---------------
(SM) "ROARS" is a service mark of Banc of America Securities LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Forward-Looking Statements.................................. S-1
Summary..................................................... S-2
Use of Proceeds............................................. S-7
Capitalization.............................................. S-7
Selected Financial Information.............................. S-8
Description of the ROARS.................................... S-9
Certain United States Federal Income Tax Considerations..... S-18
Underwriting................................................ S-22
Experts..................................................... S-23
Legal Opinions.............................................. S-23
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 other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
prospectus, as well as information we previously filed with the SEC and
incorporated by reference, is accurate as of the date on the front covers of
those documents only. Our business, financial condition, results of operations
and prospects may have changed since that date. Unless the context otherwise
requires, the terms "SEMCO," "we" and "our" refer to SEMCO Energy, Inc. and its
consolidated subsidiaries.
ii
<PAGE> 3
FORWARD-LOOKING STATEMENTS
Statements contained in or incorporated by reference into this prospectus
supplement or the accompanying prospectus include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
involve certain risks and uncertainties that may cause future results to differ
materially from those contemplated, projected, estimated or budgeted in such
forward-looking statements. Factors that may impact forward-looking statements
include, but are not limited to, the following:
- the effects of weather and other natural phenomena;
- economic climate and growth in the geographic areas in which we do
business;
- the capital intensive nature of our businesses;
- increased competition within the energy industry as well as from
alternative forms of energy;
- the timing and extent of changes in commodity prices for natural gas and
propane;
- the effects of changes in governmental policies and regulatory actions,
including income taxes, environmental compliance and authorized rates;
- our ability to bid on and win construction, engineering and quality
assurance contracts;
- the impact of energy prices on the amount of projects and business
available to our engineering business;
- the nature, availability and projected profitability of potential
investments available to us;
- our ability to finance our operations in a timely and cost-effective
manner, in light of changing conditions in the capital markets; and
- our ability to operate and integrate acquired businesses in accordance
with our plans.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
S-1
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this prospectus supplement and in
the accompanying prospectus.
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 five business segments:
(1) gas distribution; (2) construction services; (3) engineering services; (4)
propane, pipelines and storage; and (5) information technology services. The
latter four segments are sometimes referred to together as the "diversified
businesses."
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 $290 million.
The Michigan gas distribution operation and ENSTAR are referred to together
as the "gas distribution business." The Michigan gas distribution operation and
ENSTAR Natural Gas Company operate as divisions of SEMCO.
The gas distribution business distributes and transports natural gas to
residential, commercial and industrial customers and is SEMCO's largest business
segment. Set forth in the charts below is gas sales and transportation
information for the past three years. Because the acquisition of ENSTAR was
accounted for as a purchase, the charts below include the results of ENSTAR's
operations since November 1, 1999.
GAS SALES AND TRANSPORTATION REVENUE
($MM)
[GRAPH]
VOLUME OF GAS SOLD AND TRANSPORTED
(BCF)
[GRAPH]
<TABLE>
<CAPTION>
GAS TRANSPORTATION
RESIDENTIAL SALES COMMERCIAL SALES INDUSTRIAL SALES REVENUE
----------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
1999 137.4 38.5 6.8 22.4
1998 118.2 42.0 6.4 14.8
1997 139.5 66.6 12.1 13.2
</TABLE>
<TABLE>
<CAPTION>
RESIDENTIAL SALES COMMERCIAL SALES INDUSTRIAL SALES GAS TRANSPORTATION
----------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
1999 28.6 8.9 1.8 32.4
1998 21.9 8.8 1.5 23.8
1997 26.0 13.5 2.5 21.4
</TABLE>
The gas delivery system of the Michigan gas distribution operation included
approximately 153 miles of gas transmission pipelines and 5,222 miles of gas
distribution pipelines at December 31, 1999. The pipelines are located
throughout the southern half of Michigan's lower peninsula and also in the
central and western areas of Michigan's upper peninsula. At December 31, 1999,
ENSTAR's gas delivery system included approximately 394 miles of gas
transmission pipelines and 2,244 miles of gas distribution pipelines. ENSTAR's
pipelines are located in Anchorage and other communities around the Cook Inlet
area of Alaska.
The gas distribution business owns underground gas storage facilities in
Michigan with an aggregate working capacity of approximately 5.0 billion cubic
feet ("Bcf"). In addition, it leases 6.5 Bcf of storage from Eaton Rapids Gas
Storage System, which is partially owned by an affiliate, and 4.5 Bcf from non-
affiliates in Michigan.
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.
S-2
<PAGE> 5
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 SEMCO's 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.
TRANSPORTATION -- The gas distribution business provides transportation
services to its 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.
SEMCO's wholly owned subsidiary, 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.
Management is currently unaware of any significant bypass efforts by
SEMCO's customers 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
Michigan customer base is diverse and includes residential, commercial and
industrial customers. The average number of customers in Michigan has increased
by an average of approximately 3% annually during the past three years.
At December 31, 1999, ENSTAR had approximately 102,000 customers in and
around the Anchorage, Alaska area. 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. 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 SEMCO's 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 owned and leased storage capacity of the
gas distribution business equals 35% to 40% of SEMCO's average annual gas sales
volumes in Michigan.
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
presently existing gas supply contracts, subject to certain exceptions, until
the commitment has been exhausted.
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.
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, among other things, rates, accounting procedures, and
standards of service. The RCA order approving SEMCO's 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.
S-3
<PAGE> 6
DIVERSIFIED BUSINESSES
CONSTRUCTION SERVICES -- SEMCO's construction services segment
("Construction Services") operates in the mid-western, southern and southeastern
areas of the United States and has offices in Michigan, Kansas, Iowa, Georgia,
and Texas. Its primary service is underground pipeline installation and
replacement for the natural gas distribution industry. Construction Services 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. Construction
Services' business is seasonal in nature. Most of this segment's annual profits
are made during the summer and fall months. Construction Services generally
incurs losses during the winter months when underground construction is
inhibited.
ENGINEERING SERVICES -- SEMCO's engineering services business segment
("Engineering Services") 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.
Engineering Services 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. Although there has been a reduction in new engineering projects during
the past two years, in part due to the downturn in oil prices in late 1998 and
early 1999, management believes that the level of available projects will
increase as a result of the recovery of oil prices in late 1999 and early 2000.
CONSOLIDATION OF CONSTRUCTION SERVICES AND ENGINEERING SERVICES -- We are
currently in the process of consolidating our construction and engineering
businesses into one company headquartered in Houston, Texas. This will allow us
to centralize and consolidate certain functions such as administration,
accounting, human resources, marketing, etc. We will still maintain facilities
for the operations group throughout the United States.
PROPANE, PIPELINES AND STORAGE -- SEMCO's pipelines and storage operations
consist of several pipelines and a gas storage facility, all located in
Michigan. SEMCO has partial ownership interests or equity interests in certain
of these operations. The propane distribution segment 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 propane business has
become increasingly competitive and less profitable, which necessitates
large-scale operations to be successful in the long term. SEMCO will continue to
assess regional growth opportunities and the strategic fit of the propane
business over the coming year.
INFORMATION TECHNOLOGY SERVICES -- We recently launched an information
technology company called Aretech Information Services, Inc. that specializes in
outsourcing with a focus on the mid-range computing market, which has been
neglected by larger IT service companies. Aretech will focus on four key
offerings: information technology outsourcing services aimed at mid-sized
companies with AS/400 platforms; application service provider (ASP) services
through an agreement with J.D. Edwards; business-to-business e-commerce through
the creation of a supplier exchange; and business-to-consumer e-commerce,
including offerings such as electronic bill presentation.
RECENT DEVELOPMENTS
On June 9, 2000, Moody's Investors Service assigned a "Baa1" rating to
certain trust preferred and senior debt securities which are components of a
FELINE PRIDES offering made by us in early June. However, Moody's Investors
Service also assigned a negative outlook to SEMCO's outstanding debt and
preferred ratings. While the term "negative" implies that a rating may be
lowered, it does not mean that a rating change is inevitable. A security rating
is not a recommendation to buy, sell or hold securities, may be subject to
revision or withdrawal at any time by the assigning rating organization and
should be evaluated independently of any other security rating.
S-4
<PAGE> 7
SUMMARY OF TERMS OF THE OFFERING
The following summary is a short description of the main terms of the
offering of the securities. For that reason, this summary does not contain all
of the information that may be important to you. To fully understand the terms
of the offering of the securities, you will need to read both this prospectus
supplement and the attached prospectus, each in its entirety.
ISSUER........................ SEMCO Energy, Inc. will issue the ROARS.
TRUSTEE....................... Bank One Trust Company, National Association.
OFFERED SECURITIES............ We will issue $105,000,000 aggregate principal
amount of 8.95% ROARS. The ROARS will mature on
July 1, 2008; however, we may purchase, or be
required to purchase, all of the ROARS before
that date.
INTEREST RATES................ The ROARS will bear interest at the rate of
8.95% per year from June 29, 2000 to but
excluding July 1, 2003, which is the first
Remarketing Date, and then at a rate described
under "Description of the ROARS."
INTEREST PAYMENT DATES........ We will pay interest on January 1 and July 1
beginning on January 1, 2001 and continuing
through July 1, 2003, and then at intervals
discussed under "Description of the ROARS."
INTEREST ACCRUAL.............. The ROARS will accrue interest at a rate of
8.95% per annum from June 29, 2000 to, but
excluding, July 1, 2003, computed on the basis
of a 360-day year consisting of twelve 30-day
months. From July 1, 2003, the ROARS will
accrue interest at a fixed rate or at a
floating rate, depending on our decision. If
the rate is fixed, interest will be computed on
the basis of a 360-day year consisting of
twelve 30-day months. If the rate is floating,
interest will be computed on the basis of the
actual number of days in the applicable
floating rate reset period over a 360-day year.
For a more detailed description of the payment
of interest, you should refer to the sections
of this prospectus supplement entitled
"Description of the ROARS -- Interest and
Interest Payment Dates," "-- Interest Rate to
Maturity" and "-- Floating Rate Period."
RANKING....................... The ROARS will rank equally in right of payment
with all of our existing and future unsecured
senior indebtedness. The ROARS will rank senior
to all of our existing and future subordinated
indebtedness.
MANDATORY TENDER.............. We have entered into a Remarketing Agreement
with Banc of America Securities LLC as
Remarketing Dealer. This agreement gives the
Remarketing Dealer the option to purchase all
of the ROARS on July 1, 2003 or any subsequent
Remarketing Date. The purchase price for the
ROARS will be equal to 100% of the aggregate
principal outstanding on the first Remarketing
Date or at the Dollar Price (as defined in
"Description of the ROARS -- Interest Rate to
Maturity" section of this prospectus
supplement) on any subsequent Remarketing Date.
S-5
<PAGE> 8
For a more detailed description of the
mandatory tender, you should refer to the
section of this prospectus supplement entitled
"Description of the ROARS -- Mandatory Tender."
MANDATORY REDEMPTION.......... If the Remarketing Dealer does not purchase the
ROARS on any Remarketing Date, the trustee, on
behalf of the beneficial owners, must require
us to purchase all of the ROARS for 100% of the
aggregate principal outstanding on the first
Remarketing Date or at the Dollar Price on any
subsequent Remarketing Date, in addition to all
accrued and unpaid interest, if any.
For a more detailed description of the
mandatory redemption, you should refer to the
section of this prospectus supplement entitled
"Description of the ROARS -- Mandatory
Redemption."
OPTIONAL REDEMPTION........... If the Remarketing Dealer chooses to purchase
the ROARS, we have the option of redeeming all
of the ROARS on July 1, 2003 or any subsequent
Remarketing Date at the Dollar Price, in
addition to all accrued and unpaid interest, if
any.
RATINGS....................... The ROARS are rated "BBB" by Standard & Poor's
Ratings Group and "Baal" by Moody's Investors
Service, Inc.
SINKING FUND.................. The ROARS are unsecured and are not entitled to
any sinking fund.
USE OF PROCEEDS............... The net proceeds from the sale of the ROARS
will be approximately $106.8 million. We expect
to use the net proceeds to repay a portion of
the financing obtained for our 1999 acquisition
of ENSTAR Natural Gas Company and Alaska
Pipeline Company.
S-6
<PAGE> 9
USE OF PROCEEDS
We currently anticipate using the net proceeds from the sale of the ROARS,
estimated to be approximately $106.8 million to repay a portion of the remaining
principal balance on the short-term loan obtained to finance our 1999
acquisition of ENSTAR Natural Gas Company and Alaska Pipeline Company. The loan
is a $290 million short-term unsecured obligation which has been paid down to a
principal balance of $136 million as of June 16, 2000. The loan matures on
October 30, 2000, and has an interest rate that can range from 100 to 150 basis
points above the London Interbank Offered Rate.
CAPITALIZATION
The following table sets forth SEMCO's capitalization at March 31, 2000, as
adjusted to reflect (a) the sale by SEMCO (1) in April, 2000 of $30 million
aggregate principal amount of Senior Notes due 2010, (2) in June 2000 of
9,000,000 FELINE PRIDES(SM) for an aggregate offering of $90 million, less
estimated offering costs of $3.9 million and that SEMCO has recognized a $5
million liability as the discounted present value of the payments required to be
made under the related purchase contracts, and the application of the proceeds
of these sales, and (3) the sale by SEMCO Capital Trust I in April, 2000 of 1.6
million Trust Preferred Securities for an aggregate offering of $40 million and
the application of the proceeds of these sales (the securities referred to in
this clause (a), the "Other Securities"); and (b) the sale of the Other
Securities and the ROARS, less estimated offering costs of $0.7 million and
discounts of approximately $0.3 million. The following data is qualified in its
entirety by reference to and should be read together with, the detailed
information and the financial statements appearing in the documents incorporated
by reference in this prospectus supplement and the accompanying prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 2000
--------------------------------------
AS AS
ACTUAL ADJUSTED(1) ADJUSTED(2)
-------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt.............................................. $170,000 $200,000 $304,747
Company-obligated mandatorily redeemable trust preferred
securities of subsidiary holding solely debt securities of
SEMCO..................................................... -- 128,500 128,500
Common shareholders equity.................................. 150,880 141,980 141,980
-------- -------- --------
Total Capitalization................................... $320,880 $470,480 $575,227
======== ======== ========
Short-term debt............................................. $352,837 $198,957 $ 92,390
======== ======== ========
</TABLE>
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(1) Adjusted to reflect the sale of the Other Securities.
(2) Adjusted to reflect the anticipated sale of the ROARS and the items in (1).
S-7
<PAGE> 10
SELECTED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
that has been derived from our audited and unaudited consolidated financial
statements. The unaudited financial statements include all adjustments which we
consider necessary for a fair presentation of our financial position and the
results of operations as of such dates and for such periods. You should read the
following information in conjunction with our consolidated financial statements
and the notes thereto, Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 1999 and
other financial information incorporated by reference in this prospectus
supplement and the accompanying prospectus.
<TABLE>
<CAPTION>
FOR THREE
MONTHS ENDED
MARCH 31, (1) FOR THE YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------------------------
2000 1999 1999(2) 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data:
Operating revenue...... $130,302 $183,880 $384,763(3) $637,485 $775,932 $547,910 $335,538
Operating income....... 26,269 17,347 41,890 24,195 29,167 24,834 28,614
Income before interest
and taxes............ 27,329 18,840 45,246 29,886(4) 36,953(5) (8,785)(6) 28,203
Net income............. 11,994 10,403 17,659 10,040(4) 15,425(5) (12,762)(6) 11,331
Ratio of earnings to
fixed charges........ -- -- 2.18x 2.17x 2.42x (7) 2.21x
</TABLE>
---------------
(1) Results for the interim periods are not necessarily indicative of results to
be expected for the full year due to the seasonal nature of SEMCO's
business.
(2) Results include two months of operating results from the ENSTAR/Alaska
Pipeline acquisition.
(3) The decrease in operating revenue in 1999 was due primarily to SEMCO's
energy marketing business, which was sold effective March 31, 1999, offset
partially by revenues from new business acquisitions.
(4) Includes $.5 million (net of tax) or $0.03 per share attributable to an
extraordinary charge on the early extinguishment of debt, income of $1.78
million (net of tax) or $0.11 per share attributable to a change in
accounting method, and a gain of $1.71 million (net of tax) or $0.11 per
share from the sale of our NOARK pipeline investment.
(5) Includes income of $5.0 million (net of tax) or $0.34 per share due to an
adjustment to the reserve for our NOARK pipeline investment.
(6) Includes the $21.0 million (net of tax) or $1.44 per share write-down of our
NOARK pipeline investment.
(7) For the year ended December 31, 1996, fixed charges exceeded earnings by
$20.0 million. Earnings as defined included a $32.2 million non-cash pretax
write-down of our NOARK pipeline investment. Excluding the NOARK write-down,
the ratio of earnings to fixed charges would have been 1.84.
S-8
<PAGE> 11
DESCRIPTION OF THE ROARS
The following description of the particular terms of the ROARS, which are
referred to in the accompanying prospectus as "debt securities" supplements and,
to the extent it is inconsistent with the description in the accompanying
prospectus, replaces the description of the general terms and provisions of the
debt securities in the prospectus. We will issue the ROARS under an Indenture,
dated as of October 23, 1998, as supplemented by the Second Supplemental
Indenture, to be dated as of June 29, 2000 between us and Bank One Trust
Company, National Association, as trustee. We have summarized select portions of
the indenture below. The summary is not complete and is qualified in its
entirety by reference to the indenture.
GENERAL
The ROARS will be initially limited to $160,000,000 aggregate principal
amount and will mature on July 1, 2008, but we may purchase, or be required to
purchase, the ROARS before that date as described in "Mandatory Redemption"
below. We may also redeem all of the ROARS, on any Remarketing Date, as
described in "Optional Redemption" below. The ROARS may also be purchased by the
Remarketing Dealer as described in "Mandatory Tender" below.
The ROARS rank equally in right of payment with all of our existing and
future unsecured senior indebtedness. The ROARS rank senior to all of our
existing and future subordinated indebtedness.
The ROARS are unsecured and are not entitled to any sinking fund.
The ROARS will initially be issued only in registered, book-entry form, in
denominations of $1,000 and any integral multiple of $1,000 as described under
"Book-Entry, Delivery and Form." We will issue a global security in a
denomination equal to the total principal amount of the outstanding ROARS.
If any interest, principal or other payment date of the ROARS (including
any payment in connection with the mandatory tender or any mandatory redemption
as described below) does not fall on a Business Day, a payment otherwise payable
on that day will be made on the next succeeding Business Day. It will have the
same effect as if made on the actual payment date, and no interest will accrue
for the period from and after such Interest Payment Date, Maturity Date or other
payment date, except in the case of an Interest Payment Date or other payment
date occurring during the Floating Rate Period.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in New York City are authorized or obligated by law
or executive order to close.
We have agreed with the Remarketing Dealer that we will not cause or permit
the terms or provisions of the ROARS (or the indenture, as it relates to the
ROARS) to be modified in any way, and may not make open market or other
purchases of the ROARS except under the mandatory redemption or in other limited
circumstances, without the prior written consent of the Remarketing Dealer.
INTEREST AND INTEREST PAYMENT DATES
The ROARS will bear interest at 8.95% per year, from June 29, 2000 to but
excluding July 1, 2003 which is the first Remarketing Date. We will pay interest
semi-annually until the first Remarketing Date on January 1 and July 1 beginning
on January 1, 2001.
"Remarketing Date(s)" means July 1, 2003, assuming the Remarketing Dealer
has elected to purchase the ROARS and we have not elected to exercise our
Floating Period Option (as defined under "Floating Rate Period" below) or July
1, 2003 and one of the first days of each month thereafter until July 1, 2004,
if we have elected to exercise our Floating Period Option.
We will pay interest on the ROARS, accruing from the Fixed Rate Remarketing
Date (as defined below), semi-annually on each day that is a six-month
anniversary of such date. Interest on the ROARS from the Fixed Rate Remarketing
Date will be computed on the basis of a 360-day year consisting of twelve 30-day
months.
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Interest on the ROARS accruing during any Floating Rate Reset Period (as
defined under "Floating Rate Period" below) will be payable on the next
following Reference Rate Reset Date if such date is a Business Day or on the
next following Business Day. Interest on the ROARS during the Floating Rate
Period (as defined below) will be computed on the basis of the actual number of
days in such Floating Rate Reset Period over a 360-day year.
Interest payable on any Interest Payment Date will be payable to the
persons in whose names the ROARS are registered on the fifteenth calendar day
(whether or not a Business Day) immediately preceding the related Interest
Payment Date.
"Fixed Rate Remarketing Date" means July 1, 2003, assuming the Remarketing
Dealer has elected to purchase the ROARS and we have not elected to exercise our
Floating Period Option, or the subsequent Remarketing Date in the event that we
have elected to exercise our Floating Period Option.
Interest payments will be in the amount of interest accrued from and
including the next preceding Interest Payment Date (or from and including June
29, 2000 if no interest has been paid or duly provided with respect to the
ROARS) to but excluding the relevant Interest Payment Date, Remarketing Date or
Maturity Date, as the case may be.
INTEREST RATE TO MATURITY
If the Remarketing Dealer elects to purchase the ROARS, then by 3:30 p.m.,
New York City time, on the third Business Day immediately preceding any
Remarketing Date (a "Floating Rate Spread Determination Date" or the "Fixed Rate
Determination Date", depending on the following election, each, a "Determination
Date"), the Remarketing Dealer will determine either (a) the Floating Rate
Spread (as defined below) in the case where we have elected to exercise the
Floating Period Option or (b) the Interest Rate to Maturity (as defined below)
to the nearest one hundredth (0.01) of one percent per annum, unless we have
chosen to redeem, or are required to redeem, the ROARS. Each Floating Period
Interest Rate (as defined below) will equal the sum of a Reference Rate and a
Floating Rate Spread. The Interest Rate to Maturity shall be equal to the sum of
6.50% (the "Base Rate") and the Applicable Spread (as defined below), which will
be based on the Dollar Price (as defined below) of the ROARS. The Interest Rate
to Maturity for the ROARS announced by the Remarketing Dealer, absent manifest
error, shall be binding and conclusive upon the beneficial owners, SEMCO and the
trustee.
For this purpose, the following terms have the following meanings:
"Applicable Spread" shall be the lowest Bid, expressed as a spread (in the
form of a percentage or in basis points) above the Base Rate for the ROARS,
obtained by the Remarketing Dealer by 3:30 p.m., New York City time, on the
Fixed Rate Determination Date, from the Bids quoted to the Remarketing Dealer by
five Reference Corporate Dealers. If fewer than five Reference Corporate Dealers
submit Bids, then the Applicable Spread shall be the lowest such Bid obtained.
A "Fixed Rate Bid" will be an irrevocable offer to purchase the total
aggregate outstanding principal amount of the ROARS at the Dollar Price, but
assuming:
(1) a settlement date that is the Fixed Rate Remarketing Date
applicable to such ROARS, with settlement on such date without accrued
interest,
(2) a maturity date that is the fifth anniversary of the Fixed Rate
Remarketing Date, and
(3) a stated annual interest rate equal to the Base Rate plus the
spread bid by the applicable Reference Corporate Dealer.
"Comparable Treasury Issues" for the ROARS means the U.S. Treasury security
or securities selected by the Remarketing Dealer, as of the first Remarketing
Date, as having an actual or interpolated maturity or maturities comparable to
the remaining term of the ROARS being purchased by the Remarketing Dealer.
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"Comparable Treasury Price" means, with respect to the first Remarketing
Date:
(1) the offer prices for the Comparable Treasury Issues (expressed, in
each case, as a percentage of its principal amount) at 12:00 noon, New York
City time, on the first Determination Date, as set forth on "Telerate Page
500" (or such other page as may replace "Telerate Page 500"), or
(2) if such page (or any successor page) is not displayed or does not
contain such offer prices on the first Determination Date, the average of
the Reference Treasury Dealer Quotations for the first Remarketing Date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or if the Remarketing Dealer obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Reference
Treasury Dealer Quotations.
"Telerate Page 500" means the display designated as "Telerate Page 500" on
Dow Jones Markets (or such other page as may replace "Telerate Page 500" on such
service) or such other service displaying the offer prices, as may replace Dow
Jones Markets.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and the Fixed Rate Remarketing Date, the offer prices
for the Comparable Treasury Issues (expressed in each case as a percentage of
its principal amount) quoted in writing to the Remarketing Dealer by such
Reference Treasury Dealer, by 3:30 p.m., New York City time, on the first
Determination Date.
"Dollar Price" means, with respect to the ROARS, the present value, as of
the first Remarketing Date, of the Remaining Scheduled Payments for such ROARS,
discounted to the first Remarketing Date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate.
"Fixed Rate Determination Date" means the third Business Day prior to the
Fixed Rate Remarketing Date.
"Reference Corporate Dealer" means each of up to five leading dealers of
publicly traded debt securities, including our debt securities, which shall be
selected by us. We will advise the Remarketing Dealer of our selection of
Reference Corporate Dealers no later than five Business Days prior to the Fixed
Rate Remarketing Date. One of the Reference Corporate Dealers we select will be
Banc of America Securities LLC, if it is then the Remarketing Dealer.
"Reference Treasury Dealer" means each of up to five dealers to be selected
by us, and their respective successors; provided that if any of the foregoing or
their affiliates ceases to be a primary U.S. Government securities dealer (a
"Primary Treasury Dealer"), we will substitute for it another Primary Treasury
Dealer. One of the Reference Treasury Dealers we select will be Banc of America
Securities LLC, if it is then the Remarketing Dealer.
"Remaining Scheduled Payments" means, with respect to the ROARS, the
remaining scheduled payments of the principal and interest thereon, calculated
at the Base Rate applicable to such ROARS, that would be due after the first
Remarketing Date to and including the Stated Maturity Date; provided that if
such Remarketing Date is not an Interest Payment Date, the amount of the next
succeeding scheduled interest payment, calculated at the Base Rate, will be
reduced by the amount of interest accrued, calculated at the Base Rate only, to
the first Remarketing Date.
"Treasury Rate" for the ROARS means, with respect to the first Remarketing
Date, the rate per annum equal to the semi-annual equivalent yield to maturity
or interpolated (on a day count basis) yield to maturity of the Comparable
Treasury Issues, assuming a price for the Comparable Treasury Issues (expressed
as a percentage of their principal amounts) equal to the Comparable Treasury
Price for such Remarketing Date.
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FLOATING RATE PERIOD
Following the Remarketing Dealer's election to purchase the ROARS, but
prior to the fourth Business Day prior to the first Remarketing Date (the
"Floating Period Notification Date"), we may elect to exercise our Floating
Period Option. Under these circumstances, the ROARS will be remarketed at a
floating rate for a period of one year, or until such date which otherwise would
be the Reference Rate Reset Date following the date on which we elect to
terminate such Floating Rate Period (the "Floating Rate Period Termination
Notification Date"), whichever is sooner (the "Floating Period Termination
Date"). In the event that we exercise our Floating Period Option, the maturity
of the ROARS will be extended to the fifth anniversary of the Fixed Rate
Remarketing Date, not to exceed July 1, 2009.
The amount of the interest for each day that the ROARS are outstanding
during the Floating Rate Period will be calculated by dividing the Floating
Period Interest Rate in effect for such day by 360 and multiplying the result by
the Dollar Price. The amount of interest to be paid for any Floating Rate Reset
Period (as defined below) will be calculated by adding the daily interest
amounts for each day in the Floating Rate Reset Period. The Floating Period
Interest Rate announced by the Remarketing Dealer, absent manifest error, will
be binding and conclusive upon the beneficial owners, SEMCO and the trustee.
For this purpose, the following terms have the following meanings:
"Floating Period Interest Rate" means the sum of the Reference Rate and the
Floating Rate Spread.
"Floating Rate Spread Determination Date" means the third Business Day
prior to the Floating Rate Remarketing Date.
"Floating Rate Remarketing Date" means July 1, 2003 in the event we have
elected to exercise our Floating Period Option.
"Floating Period Option" means our right, on any date subsequent to the
Remarketing Dealer's election to purchase the ROARS, but prior to the fourth
Business Day prior to the first Remarketing Date, to require the Remarketing
Dealer to remarket the ROARS at the Floating Period Interest Rate.
"Floating Rate Period" means the period from (and including) the Floating
Rate Remarketing Date to (but excluding) the Floating Period Termination Date.
"Floating Rate Spread" shall be the lowest Bid expressed as a spread (in
the form of a percentage or in basis points) above the Reference Rate for the
ROARS obtained by the Remarketing Dealer at 3:30 p.m., New York City time, on
the third Business Day prior to the Floating Rate Remarketing Date, from the
Bids quoted to the Remarketing Dealer by five Reference Money Market Dealers. If
fewer than five Reference Money Market Dealers submit Bids as described above,
then the Floating Rate Spread will be the lowest such Bid obtained as described
above.
A "Floating Rate Bid" will be an irrevocable offer to purchase the total
aggregate outstanding principal amount of the ROARS at the Dollar Price, but
assuming:
(1) a settlement date that is the Floating Rate Remarketing Date
without accrued interest,
(2) a maturity date equal to the Floating Period Termination Date,
(3) a stated annual interest rate equal to the Reference Rate plus the
Floating Rate Spread,
(4) that the ROARS are callable by the Remarketing Dealer, at the
Dollar Price, on any Reference Rate Reset Date after the first Remarketing
Date or on the Floating Period Termination Date and
(5) that we will purchase the ROARS at the Dollar Price on the
Floating Period Termination Date, if not previously called by the
Remarketing Dealer.
"Floating Rate Reset Period" means the period from (and including) the
first Reference Rate Reset Date, to (but excluding) the next following Reference
Rate Reset Date, and thereafter the period from (and including) a Reference Rate
Reset Date to (but excluding) the next following Reference Rate Reset
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Date; provided that the final Floating Rate Reset Period will run to (but
exclude) the Floating Period Termination Date.
"Reference Money Market Dealer" means each of up to five leading dealers of
publicly traded debt securities, including our debt securities, which we shall
select, who are also leading dealers in money market instruments. We will advise
the Remarketing Dealer of our selection of Reference Money Market Dealers no
later than five Business Days prior to the Floating Rate Remarketing Date. One
of the Reference Money Market Dealers we select will be Banc of America
Securities LLC, if it is then the Remarketing Dealer.
"Reference Rate" means:
(1) The rate for each Floating Rate Reset Period which will be the
rate for deposits in U.S. Dollars for a period of one month which appears
on the Telerate Page 3750 (or any successor page) as of 11:00 a.m., London
time, on the applicable Reference Rate Determination Date.
(2) If no rate appears on Telerate Page 3750 on the Reference Rate
Determination Date, the Remarketing Dealer will request the principal
London offices of four major reference banks in the London Inter-Bank
Market, to provide it with its offered quotation for deposits in U.S.
Dollars for the period of one month, commencing on the first day of the
Floating Rate Reset Period, to prime banks in the London Inter-Bank Market
at approximately 11:00 a.m., London time, on that Reference Rate
Determination Date and in a principal amount that is representative for a
single transaction in U.S. Dollars in that market at that time. If at least
two quotations are provided, then the Reference Rate will be the average of
those quotations. If fewer than two quotations are provided, then the
Reference Rate will be the average (rounded, if necessary, to the nearest
one hundredth of a percent) of the rates quoted at approximately 11:00
a.m., New York City time, on the Reference Rate Determination Date by three
major banks in New York City selected by the Remarketing Dealer for loans
in U.S. dollars to leading European banks, having a one-month maturity and
in a principal amount that is representative for a single transaction in
U.S. dollars in that market at that time. If the banks selected by the
Remarketing Dealer are not providing quotations in the manner described by
this paragraph, the rate for the Floating Rate Reset Period following the
Reference Rate Determination Date will be the rate in effect on that
Reference Rate Determination Date.
"Reference Rate Determination Date" will be the second day preceding each
Reference Rate Reset Date. In the event the Reference Rate Determination Date
falls on a non-Business Day in London, the interest rate will reset on the
following Business Day unless such Business Day would move the Reference Rate
Determination Date into the next calendar month, in which case it will be the
immediately preceding Business Day.
"Reference Rate Reset Date" means July 1, 2003 and the first day of each
month thereafter until but excluding the Floating Period Termination Date.
MANDATORY TENDER
On a Business Day not earlier than 20 Business Days prior to the first
Remarketing Date, and not later than 4:00 p.m., New York City time, on the 15th
Business Day prior to the first Remarketing Date, the Remarketing Dealer will
notify SEMCO and the trustee as to whether it elects to purchase the ROARS on
such Remarketing Date (the "Notification Date").
If the Remarketing Dealer so elects, such ROARS will be subject to
mandatory tender to the Remarketing Dealer for purchase and remarketing on such
Remarketing Date, in accordance with the terms and subject to the conditions
described in this prospectus supplement.
The ROARS will be remarketed at a fixed rate of interest, unless, we have
elected to exercise our Floating Period Option. Under these circumstances, the
ROARS will be remarketed at a floating rate for a period of one year, or until
such a date which is the Remarketing Date following the date on which we elect
to terminate such Floating Rate Period, whichever is sooner, at which time the
ROARS will be
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remarketed at a fixed rate of interest unless we have chosen to redeem, or are
required to redeem, the ROARS.
The purchase price of such tendered ROARS will be equal to 100% of the
aggregate principal amount thereof on the first Remarketing Date, and the Dollar
Price on any subsequent Remarketing Date.
Subject to the Remarketing Dealer's election to remarket the ROARS, on the
first Remarketing Date the Remarketing Dealer will sell the total aggregate
principal amount of the ROARS at the Dollar Price to the Reference Money Market
Dealer, or to the Reference Corporate Dealer, whichever is applicable, providing
the lowest Bid. If the lowest Bid is submitted by two or more of the applicable
Reference Dealers, the Remarketing Dealer may sell such ROARS to one or more of
such Reference Dealers, as it will determine in its sole discretion.
If the Remarketing Dealer elects to remarket the ROARS, the obligation of
the Remarketing Dealer to purchase the ROARS on any Remarketing Date is subject
to certain conditions set forth in the Remarketing Agreement.
If for any reason the Remarketing Dealer does not purchase all of the ROARS
on the first Remarketing Date, we will be required to redeem the ROARS at a
price equal to 100% of the aggregate principal amount of the ROARS, plus all
accrued and unpaid interest, if any, if such Remarketing Date is the first
Remarketing Date, or at the Dollar Price plus accrued and unpaid interest, if
any, on any such subsequent Remarketing Date.
NOTIFICATION OF INTEREST RATE TO MATURITY
Subject to the Remarketing Dealer's election to remarket the ROARS, and to
our election not to exercise our Floating Period Option, the Remarketing Dealer
shall notify us, the trustee and The Depository Trust Company, or DTC, by
telephone, confirmed in writing (which may include facsimile or other electronic
transmission), by 4:00 p.m., New York City time, on the Fixed Rate Determination
Date of the Interest Rate to Maturity effective from and including the Fixed
Rate Remarketing Date.
MANDATORY REDEMPTION
We will be required to redeem the ROARS in whole on the applicable
Remarketing Date at a price equal to 100% of the aggregate principal amount of
the ROARS, if such Remarketing Date is the first Remarketing Date, or at the
Dollar Price on any subsequent Remarketing Date, plus all accrued and unpaid
interest, if any, to the applicable Remarketing Date in the event that:
(1) the Remarketing Dealer for any reason does not elect, by notice to
us and the trustee not later than such Notification Date, to purchase the
ROARS for remarketing on such Remarketing Date,
(2) prior to any Remarketing Date, the Remarketing Dealer resigns and
no successor has been appointed on or before the applicable Determination
Date,
(3) at any time after the Remarketing Dealer elects on the
Notification Date to remarket the ROARS, the Remarketing Dealer elects to
terminate the Remarketing Agreement in accordance with its terms,
(4) the Remarketing Dealer for any reason does not notify us of the
Floating Period Interest Rate or of the Interest Rate to Maturity by 4:00
p.m. New York City time, on the applicable Determination Date,
(5) the Remarketing Dealer for any reason does not deliver the
purchase price of the ROARS to the trustee on the Business Day immediately
preceding such Remarketing Date, or does not purchase all tendered ROARS on
such Remarketing Date, or
(6) we for any reason fail to redeem the ROARS from the Remarketing
Dealer following our election to effect such redemption.
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OPTIONAL REDEMPTION
If the Remarketing Dealer elects to remarket the ROARS, we will notify the
Remarketing Dealer and the trustee, not later than 4:00 p.m., New York City
time, on the Business Day immediately preceding any Determination Date, if we
irrevocably elect to exercise our right to redeem the ROARS, in whole, on the
first Remarketing Date or on the Floating Period Termination Date immediately
following such Determination Date.
If we so elect to redeem the ROARS, we will redeem the ROARS in whole on
the first Remarketing Date or the subsequent Remarketing Date at the Dollar
Price, in each case, plus all accrued and unpaid interest, if any, to such
Remarketing Date. In any case, we will make payment to each beneficial owner of
the ROARS by book-entry through DTC. Other than as set forth above, we will have
no option to redeem the ROARS.
BOOK-ENTRY, DELIVERY AND FORM
The indenture provides that the ROARS will initially be issued in the form
of one or more securities in global form (the "Global Securities"). Each Global
Security will be deposited on the date of the closing of the sale of the ROARS
with, or on behalf of, DTC, as depositary, and registered in the name of Cede &
Co., as DTC's nominee.
DTC is a limited-purpose trust company created to hold securities for its
participants and to facilitate the clearance and settlement of transactions in
those securities between those participants through electronic book-entry
changes in accounts of the participants. DTC participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Access to DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly (referred to as the "indirect participants"). Persons who are not
participants may beneficially own securities held by or on behalf of DTC only
through the participants or the indirect participants. The ownership interest
and transfer or ownership interest of each actual purchase of each security held
by or on behalf of DTC are recorded on the records of the participants and
indirect participants.
We expect that pursuant to procedures established by DTC, (1) upon deposit
of the Global Securities, DTC will credit the accounts of participants
designated by the underwriters with portions of the principal amount of the
Global Securities and (2) ownership of such interests in the Global Securities
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the participants) or by the
participants and the indirect participants (with respect to other owners of
beneficial interests in the Global Securities).
Investors in the Global Securities may hold their interests directly
through DTC if they are participants in that system, or indirectly through
organizations which are participants in that system. All interests in a Global
Security may be subject to the procedures and requirements of DTC. The laws of
some states require that certain persons take physical delivery in certificated
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a Global Security to such persons will be limited to
that extent. Because DTC can act only on behalf of participants, which in turn
act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a Global Security to pledge such interest
to persons that do not participate in the DTC system, or otherwise take actions
in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interests.
Except as described below, owners of interests in the Global Securities
will not have ROARS registered in their name, will not receive physical delivery
of ROARS in certificated form and will not be considered the registered owners
or holders thereof under the indenture for any purpose.
Payments in respect of the Global Securities registered in the name of DTC
or its nominee will be payable by the trustee to DTC in its capacity as the
registered holder under the indenture. Under the terms of the indenture, the
trustee will treat the persons in whose names the debt securities, including the
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Global Securities, are registered, as the owners thereof for the purpose of
receiving such payments and for any and all purposes whatsoever. Consequently,
neither the trustee nor any agent thereof has or will have any responsibility or
liability for (1) any aspect of DTC's records or any participant's or indirect
participant's records relating to, or payments made on account of beneficial
ownership interests in the, Global Security or for maintaining, supervising or
reviewing any of DTC's records or any participant's or indirect participant's
records relating to the beneficial ownership interests in the Global Security or
(2) any other matter relating to the actions and practices of DTC or any of its
participants or indirect participants. DTC's current practice, upon receipt of
any payment in respect of securities such as the ROARS, is to credit the
accounts of the relevant participants with the payment on the payment date, in
amounts proportionate to their respective holdings in principal amounts of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the participants and the indirect participants to the
beneficial owners of ROARS will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the trustee or
us. Neither we nor the trustee will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the ROARS, and we and the
trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
DTC will take any action permitted to be taken by a holder of the ROARS
only at the direction of one or more participants to whose account with DTC
interests in the Global Securities are credited and only in respect of such
portion of the ROARS as to which such participant or participants has or have
given such direction. However, if there is an Event of Default, DTC reserves the
right to exchange the Global Securities for ROARS in certificated form and to
distribute such ROARS to its participants.
A Global Security is exchangeable for ROARS in registered certificated form
if (1) DTC notifies us that it is unwilling or unable to continue as clearing
agency for the Global Securities or has ceased to be a clearing agency
registered under the Exchange Act and we thereupon fail to appoint a successor
clearing agency within 90 days, (ii) we in our sole discretion elect to cause
the issuance of definitive certificated ROARS or (iii) there has occurred and is
continuing an Event of Default or any event which after notice or lapse of time
or both would be an Event of Default under the indenture.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we have not
independently determined the accuracy thereof. We will not have any
responsibility for the performance by DTC or its participants of their
respective obligations under the rules and procedures governing their
operations.
SETTLEMENT
In the event that the ROARS are remarketed, the Remarketing Dealer will pay
to the trustee, not later than 12:00 noon, New York City time, on the first
Remarketing Date, an amount equal to 100% of the aggregate principal amount of
the ROARS or on any subsequent Remarketing Date, an amount equal to the Dollar
Price.
On any such Remarketing Date, the Remarketing Dealer will cause the trustee
to make payment of the purchase price for such tendered ROARS that have been
purchased for remarketing by the Remarketing Dealer to the DTC participant of
each tendering beneficial owner of ROARS . This payment will be made against
delivery through DTC of such beneficial owner's tendered ROARS by book-entry
through DTC by the close of business on such Remarketing Date.
The purchase price of such tendered ROARS shall be equal to 100% of the
aggregate principal amount thereof, on the first Remarketing Date and at the
Dollar Price on any subsequent Remarketing Date. We will make, or cause the
trustee to make, payment of interest to each beneficial owner of ROARS, due on a
Remarketing Date by book-entry through DTC, by the close of business on such
Remarketing Date.
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The transactions described above will be executed on each Remarketing Date
through DTC in accordance with the procedures of DTC, and the accounts of the
respective Participants will be debited and credited, and the ROARS delivered by
book-entry as necessary to effect the purchases and sales thereof.
Settlement for the ROARS will be made by the underwriters in immediately
available funds. All payments of principal and interest in respect of the ROARS
in book-entry form will be made in immediately available funds. The ROARS will
trade in DTC's Same-Day Funds Settlement System until the Maturity Date or
Remarketing Date, as the case may be, or until the ROARS are issued in
definitive form. Secondary market trading activity in the ROARS will be required
by DTC to settle in immediately available funds.
The tender and settlement procedures described above, including the
provisions for payment to selling beneficial owners of tendered ROARS, or for
payment by the purchasers of ROARS, in a remarketing, may be modified to the
extent required by DTC or, if the book-entry system is no longer available for
the ROARS at the time of a remarketing, to the extent required to facilitate the
tendering and remarketing of ROARS in certificated form. In addition, the
Remarketing Dealer may modify the settlement procedures set forth above in order
to facilitate the settlement process.
As long as DTC or its nominee holds a certificate representing the ROARS in
the book-entry system of DTC, no certificates for such ROARS will be delivered
to any beneficial owner. In addition, under the terms of the ROARS and the
Remarketing Agreement, we have agreed that (1) we will use our best efforts to
maintain the ROARS in book-entry form with DTC or any successor thereto, and to
appoint a successor depository to the extent necessary to maintain the ROARS in
book-entry form and (2) we will waive any discretionary right we otherwise have
under the indenture to cause the ROARS to be issued in certificated form.
REMARKETING DEALER
On or prior to the date of original issuance of the ROARS, we will enter
into a Remarketing Agreement with the Remarketing Dealer. The Remarketing Dealer
will not receive any fees or reimbursement of expenses from us in connection
with the remarketing, except under certain circumstances. The aggregate price
paid to us by the underwriters for the purchase of the ROARS will include an
amount paid by the Remarketing Dealer for its right to remarket the ROARS.
We will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act, arising out of or
in connection with its duties under the Remarketing Agreement.
If the Remarketing Dealer elects to remarket the ROARS, the obligation of
the Remarketing Dealer to purchase the ROARS will be subject to several
conditions set forth in the Remarketing Agreement. In addition, upon the
occurrence of certain events after the Remarketing Dealer elects to remarket the
ROARS, the Remarketing Dealer will have the right to terminate the Remarketing
Agreement or terminate its obligation to purchase the ROARS, or, until 3:30
p.m., New York City time, on the Business Day immediately preceding the
applicable Remarketing Date, to redetermine the applicable Interest Rate.
No beneficial owner of the ROARS will have any rights or claims under the
Remarketing Agreement or against us or the Remarketing Dealer, as a result of
the Remarketing Dealer not purchasing the ROARS.
The Remarketing Agreement will provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer, such resignation to be effective ten
Business Days after the delivery to us and the trustee of notice of such
resignation. In such case, we have no obligation to appoint a successor
Remarketing Dealer. After it purchases the ROARS, the Remarketing Dealer may
exercise any vote or join in any action that any beneficial owner of ROARS may
be entitled to exercise, or take, as if it did not act in any capacity under the
Remarketing Agreement. The Remarketing Dealer, in its individual capacity,
either as principal or agent, may engage in or have an interest in any financial
or other transaction with us, as freely as if it did not act in any capacity
under the Remarketing Agreement.
S-17
<PAGE> 20
As long as the Remarketing Agreement is in effect, we will not acquire any
of the ROARS prior to any remarketing by the Remarketing Dealer, other than in
connection with the fulfillment of our obligation to redeem the ROARS, or the
exercise of our right to redeem the ROARS, on a Remarketing Date. After all
Remarketing Dates or termination of the Remarketing Agreement prior thereto, we
may at any time purchase any ROARS at any price in the open market or otherwise.
The ROARS so purchased by us may, at our discretion, be held, resold or
surrendered to the trustee for cancellation.
RECENT ACCOUNTING DEVELOPMENTS
For purposes of financial accounting and reporting for publicly held
companies, the SEC may require prospective investors to separately account for
the Remarketing Dealer's option to purchase and to remarket the ROARS on the
first Remarketing Date. Persons considering investing in the ROARS, who are
required to file financial reports with the Securities and Exchange Commission
pursuant to the Exchange Act, should consult their own accounting advisors
concerning potential reporting requirements.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the ROARS is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service ("IRS") rulings and pronouncements and
administrative and judicial decisions currently in effect, all of which are
subject to change (possibly with retroactive effect) or possible differing
interpretations. This summary deals only with ROARS held as capital assets
(within the meaning of section 1221 of the Code) and does not purport to deal
with persons in special tax situations, such as financial institutions,
insurance companies, regulated investment companies, real estate investment
trusts, dealers in securities or currencies, persons holding ROARS as a hedge
against currency risk or as a position in a "straddle", or conversion
transaction, or person whose functional currency is not the U.S. dollar.
PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF THE ROARS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE ROARS ARISING UNDER THE LAWS OF
ANY OTHER TAXING JURISDICTION.
As used herein, the term "U.S. Holder" means a beneficial owner of ROARS
that is for United States Federal income tax purposes (1) a citizen or resident
of the United States, (2) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (3) an estate whose
income is subject to United States Federal income tax regardless of its source,
(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust, or
(5) any other person whose income or gain in respect of a ROARS is effectively
connected with the conduct of a United States trade or business. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons also will be U.S. Holders. As used herein, the term "non-U.S. Holder"
means a beneficial owner of a ROARS that is not a U.S. Holder.
The United States Federal income tax treatment of debt obligations such as
ROARS is not entirely certain. Because the ROARS are subject to mandatory tender
on the Remarketing Date, SEMCO intends to treat the ROARS as maturing on the
Remarketing Date for United States Federal income tax purposes. By purchasing
the ROARS, the U.S. Holder agrees to follow such treatment for United States
Federal income tax purposes. Based on such treatment, interest on the ROARS
should constitute "qualified stated interest" and generally should be taxable to
a U.S. Holder as ordinary interest income at the time such payments are accrued
or received (in accordance with the U.S. Holder's regular method of accounting).
S-18
<PAGE> 21
Under the foregoing, if the ROARS are issued to the U.S. Holder at par value or
alternatively, the excess of par value over the issue price does not exceed the
statutory de minimis amount (generally 1/4 of 1% of the ROARS' stated redemption
price at the Remarketing Date multiplied by the number of complete years to the
Remarketing Date from its issue date), the ROARS will not be treated as having
original issue discount.
If the ROARS are issued at a discount greater that the statutory de minimis
amount, a Holder must include original issue discount in income as ordinary
interest for United States Federal income tax purposes as it accrues under a
constant yield method in advance of receipt of the cash payments attributable to
such income, regardless of the U.S. Holder's regular method of accounting. In
general, the amount of original issue discount included in income by the initial
U.S. Holder of ROARS would be the sum of the daily portions of original issue
discount with respect to such ROARS for each day during the taxable year (or
portion of the taxable year) on which such U.S. Holder held such ROARS. The
"daily portion" of original issue discount on any ROARS is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the
ROARS, provided that each accrual period is not longer than one year and each
scheduled payment of principal or interest occurs either on the final day of an
accrual period or on the first day of an accrual period. The amount of original
issued discount allocable to each accrual period is generally equal to the
difference between (i) the product of the ROARS' adjusted issue price at the
beginning of such accrual period and its yield to maturity (appropriately
adjusted to take into account the length of the particular accrual period) and
(ii) the amount of any qualified stated interest payments allocable to such
accrual period. The "adjusted issue price" of a ROARS at the beginning of any
accrual period is the sum of the issue price of the ROARS plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the ROARS that were not qualified stated interest
payments. Under these rules, U.S. Holders generally will have to include in
income increasingly greater amounts of original issue discount in successive
accrual periods.
Under the foregoing treatment, upon the sale, exchange or retirement of a
ROARS, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the ROARS. A U.S. Holder's adjusted tax basis in
a ROARS generally will equal such U.S. Holder's initial investment in the ROARS
increased by an original issue discount included in income and decreased by the
amount of any payments, other than qualified stated interest payments, received
and amortizable bond premium taken with respect to such ROARS.
The highest marginal individual Federal income tax rate (which applies to
ordinary income and gain from sales or exchanges of capital assets held for one
year or less) is 39.6%. The maximum regular Federal income tax rate on capital
gains derived by individual taxpayers is 28% for sales and exchanges of capital
assets held for more than one year but not more than eighteen months, and 20%
for sales and exchanges of capital assets held for more than eighteen months.
All net capital gains of a corporate taxpayer is subject to tax at ordinary
corporate income tax rates of up to 35%.
There can be no assurance that the IRS will agree with SEMCO's treatment of
the ROARS and it is possible that the IRS could assert another treatment. For
instance, it is possible that the IRS could seek to treat the ROARS as maturing
on their stated maturity date.
In the event the ROARS were treated as maturing on their stated maturity
date for United States Federal income tax purposes, because the Floating Rate
Spread or the Interest Rate to Maturity will not be determined until the
Floating Rate Spread Determination Date or the Fixed Rate Determination Date,
the ROARS would be treated as having contingent interest under the Code. In such
event, under Treasury regulations governing debt instruments that provide for
contingent payments (the "Contingent Payment Regulations"), SEMCO would be
required to construct a projected payment schedule for the ROARS, based upon
SEMCO's current borrowing costs for comparable debt instruments of SEMCO, from
which an estimated yield on the ROARS would be calculated. A U.S. Holder would
be required to include in
S-19
<PAGE> 22
income original issue discount in an amount equal to the product of the adjusted
issue price of the ROARS at the beginning of each interest accrual period and
the estimated yield of the ROARS. In general, for these purposes, a ROARS'
adjusted issue price would equal the ROARS' issue price increased by the
interest previously accrued on the ROARS, and reduced by all payments made on
the ROARS. As a result of the application of the Contingent Payment Regulations,
it is possible that a U.S. Holder would be required to include interest in
income in excess of actual cash payments received for certain taxable years.
In addition, the character of any gain or loss, upon the sale or exchange
of a ROARS (including a sale pursuant to the mandatory tender on the Remarketing
Date) by a U.S. Holder, will likely differ if the ROARS were treated as
contingent payment obligations. Any such taxable gain generally would be treated
as ordinary income. Any such taxable loss generally would be ordinary to the
extent of previously accrued original issue discount, and any excess would
generally be treated as capital loss.
NON-U.S. HOLDERS
A non-U.S. holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a ROARS, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of SEMCO, a controlled foreign corporation
related to SEMCO or a bank receiving interest described in section 881(c)(3)(A)
of the Code. To qualify for the exemption from taxation, the last United States
payor in the chain of payment prior to payment to a non-U.S. Holder (the
"Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar years,
a statement that (1) is signed by the beneficial owner of the ROARS under
penalties of perjury, (2) certifies that such owner is not a U.S. Holder and (3)
provides the name and address of the beneficial owner. The statement may be made
on an IRS Form W-8 or a substantially similar form, and the beneficial owner
must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a ROARS is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the substitute form provided by the beneficial owner to the organization
or institution. The Treasury Department is considering implementation of further
certification requirements aimed at determining whether the issuer of a debt
obligation is related to holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes gain upon retirement or disposition
of a ROARS, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The ROARS will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of SEMCO or,
at the time of such individual's death, payments in respect of the ROARS would
have been effectively connected with the conduct by such individual of a trade
or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the ROARS to registered owners who are not
"exempt recipients" and who fail to provided certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the ROARS to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
S-20
<PAGE> 23
In addition, upon the sale of ROARS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
FINAL WITHHOLDING REGULATIONS
The Treasury Department recently issued final Treasury regulations (the
"Final Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The Final
Regulations attempt to unify certification requirements and modify reliance
standards. The Final Regulations will generally be effective for payments made
after January 1, 2001 subject to certain transition rules. Prospective investors
are urged to consult their own tax advisors regarding the Final Regulations.
S-21
<PAGE> 24
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated June 26, 2000 among us and the underwriters named below, we have agreed to
sell to each of the underwriters and each of the underwriters has severally
agreed to purchase, the principal amount of ROARS set forth opposite the name of
such underwriter:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF ROARS
------------ ----------------
<S> <C>
Banc of America Securities LLC.............................. $ 73,500,000
Banc One Capital Markets, Inc............................... 15,750,000
First Union Securities, Inc................................. 15,750,000
------------
Total.................................................. $105,000,000
============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the ROARS included in this offering are subject to
approval of a number of legal matters by counsel and to some other conditions.
The underwriters are obligated to purchase all of the ROARS if they purchase any
of the ROARS.
The underwriters, for whom Banc of America Securities LLC, Banc One Capital
Markets, Inc. and First Union Securities, Inc. are acting as representatives,
propose to offer some of the ROARS directly to the public at the public offering
price set forth on the cover page of this supplement and some of the ROARS to
certain dealers at the public offering price less a concession not in excess of
0.250% of the principal amount of the ROARS. The underwriters may allow, and
such dealers may reallow, a discount not in excess of 0.125% of the principal
amount of the ROARS on sales to certain other dealers. After the initial
offering of the ROARS to the public, the public offering price and such
concessions may be changed by the representatives.
We have agreed that, without the prior written consent of Banc of America
Securities LLC, we will not offer, sell or otherwise dispose of any debt
securities issued or guaranteed by us (other than the ROARS), or publicly
announce an intention to effect any such transaction, within 30 days after the
closing of this offering.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
The ROARS are a new issue of securities with no established trading market.
We do not intend to apply for listing of the ROARS on any securities exchange or
for quotation through any inter-dealer quotation system. We have been advised by
the underwriters that they intend to make a market in the ROARS as permitted by
applicable laws and regulations. The underwriters are not obligated, however, to
make a market in the ROARS and any market making may be discontinued at any time
without notice. No assurances can be given as to the liquidity of, or trading
market for, the ROARS.
In connection with the offering, Banc of America Securities LLC, on behalf
of the underwriters, may purchase and sell ROARS in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of ROARS in
excess of the principal amount of the ROARS to be purchased by the underwriters
in the offering, which creates a syndicate short position. Syndicate covering
transactions involves purchases of the ROARS in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of ROARS made for
the purpose of preventing or retarding a decline in the market price of the
ROARS while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when Banc
of America Securities LLC, in covering syndicate
S-22
<PAGE> 25
short positions or making stabilizing purchases, repurchases ROARS originally
sold by that syndicate member.
Any of these activities may cause the price of the ROARS to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $280,000.
The Remarketing Dealer will pay to us 2.40% of the aggregate principal
amount of the ROARS as consideration for the right to purchase the ROARS at 100%
of their aggregate principal amount on the first Remarketing Date.
If the Remarketing Dealer purchases the ROARS on the first Remarketing Date
and subsequently offers the ROARS for resale, the resale of the ROARS may have
to be registered with the SEC under the Securities Act. If the resale of the
ROARS has to be registered, we have agreed to pay the expenses incident to such
a registration.
The representatives and their affiliates, may have performed certain
investment banking and advisory services on our behalf from time to time for
which they have received customary fees and expenses. The representatives and
their affiliates may, from time to time, engage in transactions with and perform
services on our behalf in the ordinary course of their business. In particular,
Bank One, NA, an affiliate of Banc One Capital Markets, Inc., is a lender under
the short-term loan obtained to finance our 1999 acquisition of ENSTAR Natural
Gas Company and Alaska Pipeline Company, and will receive a portion of the
amounts repaid under the loan with the net proceeds of the offering. Banc of
America Securities LLC and its affiliate, Bank of America, N.A., are also
parties to that loan and will receive a portion of the amounts repaid under the
loan with the net proceeds of the offering. Because more than 10% of the net
proceeds of the offering will be paid to affiliates of the underwriters, the
offering is being made in accordance with Rule 2710(c)(8) of the Conduct Rules
of the National Association of Securities Dealers, Inc. Banc One Capital
Markets, Inc. is an affiliate of Bank One Trust Company, National Association,
the trustee under the indenture.
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 supplement and the accompanying 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 supplement and
the accompanying 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 supplement and the accompanying 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 consolidated 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 consolidated financial statements
and consented to the use of their reports thereon.
LEGAL OPINIONS
The legality of the ROARS will be passed upon for SEMCO by Dickinson Wright
PLLC, Detroit, Michigan. Certain matters will be passed upon for the
underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability
partnership including professional corporations, New York, New York. LeBoeuf,
Lamb, Greene & MacRae, L.L.P. from time to time renders legal services to SEMCO.
S-23
<PAGE> 26
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> 27
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> 28
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
3
<PAGE> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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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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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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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$105,000,000
[SEMCO ENERGY LOGO]
8.95% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS(SM))
DUE 2008 (REMARKETING DATE JULY 1, 2003)
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PROSPECTUS SUPPLEMENT
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BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
FIRST UNION SECURITIES, INC.
JUNE 26, 2000
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