<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-47919
PROSPECTUS
$125,000,000
Equitable Resources Capital Trust I
7.35% CAPITAL SECURITIES
(Liquidation Amount $25 Per Capital Security)
Fully and Unconditionally Guaranteed, to the Extent Described Herein, By
Equitable Resources, Inc.
----------------
The 7.35% Capital Securities (the "Capital Securities") offered hereby will
represent preferred undivided beneficial interests in the assets of Equitable
Resources Capital Trust I, a statutory business trust created under the laws
of the State of Delaware (the "Issuer Trust"). Equitable Resources, Inc., a
Pennsylvania corporation (the "Company"), will initially be the owner,
directly or indirectly, of all of the beneficial interests represented by
common securities of the Issuer Trust (the "Common Securities", and together
with the Capital Securities, the "Trust Securities"). The Issuer Trust exists
for the sole purpose of issuing the Trust Securities and investing the
proceeds thereof in the 7.35% Junior Subordinated Deferrable Interest
Debentures (the "Junior Subordinated Debentures," and together with the Trust
Securities, the "Securities") to be issued by the Company. The Junior
Subordinated Debentures will mature on April 15, 2038 (such date, as it may be
advanced, under certain circumstances, as hereinafter described, the "Stated
Maturity"), which may be advanced to a date not earlier than April 15, 2013.
The Capital Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption
or otherwise over the Common Securities. See "Description of Capital
Securities--Subordination of Common Securities."
(CONTINUED ON NEXT PAGE)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN
EVALUATING AN INVESTMENT IN THE CAPITAL SECURITIES.
----------------
The Capital Securities have been approved for listing on the New York Stock
Exchange (the "NYSE"), subject to official notice of issuance, and trading of
the Capital Securities on the NYSE is expected to commence within a 30-day
period after the initial delivery of the Capital Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO COMMISSIONS AND PROCEEDS TO THE
PUBLIC(1) DISCOUNTS(2) ISSUER TRUST(3)(4)
--------- --------------- ------------------
<S> <C> <C> <C>
Per Capital Security............ $25 (4) $25
Total........................... $125,000,000 (4) $125,000,000
</TABLE>
- --------
(1) Plus accumulated Distributions, if any, from April 23, 1998.
(2) The Company and the Issuer Trust have each agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of $172,000 payable by the Company.
(4) In view of the fact that the proceeds of the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures,
the Company has agreed to pay to the Underwriters, as compensation for
their arranging the investment therein of such proceeds, $.7875 per
Capital Security (or $3,937,500 in the aggregate). See "Underwriting."
----------------
The Capital Securities are offered subject to prior sale, when, as and if
issued to and accepted by the Underwriters and subject to approval of certain
legal matters by Brown & Wood LLP, counsel for the Underwriters, and to
certain other conditions. It is expected that delivery of the Capital
Securities will be made in book-entry form through the book-entry facilities
of DTC on or about April 23, 1998, against payment therefor in immediately
available funds.
MORGAN STANLEY DEAN WITTER
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
April 16, 1998
<PAGE>
(Continued from the previous page)
The Capital Securities will be represented by one or more global Securities
in fully registered form, deposited with a custodian for and registered in the
name of a nominee of The Depository Trust Company (the "Depository" or "DTC").
Beneficial interests in such global Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Except as described under "Description of Capital
Securities," Capital Securities in definitive form will not be issued and
owners of beneficial interests in the global Securities will not be considered
holders of the Capital Securities.
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accumulating from and including April 23, 1998
and payable quarterly in arrears on the 15th day of April, July, October and
January of each year, commencing July 15, 1998, at the annual rate of 7.35% of
the liquidation amount of $25 per Capital Security ("Distributions"). The
Company will have the right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity. No interest shall be due and payable during
any Extension Period, except at the end thereof, but the Company may prepay at
any time all or any portion of the interest accrued during an Extension
Period. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Capital
Securities will also be deferred and the Company will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to the Company's capital stock or with respect to
debt securities of the Company that rank pari passu in all respects with or
junior to the Junior Subordinated Debentures. During an Extension Period,
interest on the Junior Subordinated Debentures will continue to accrue (and
the amount of distributions to which holders of the Capital Securities are
entitled will accumulate) at the rate of 7.35% per annum, compounded
quarterly, and holders of Capital Securities will be required to accrue such
amounts as interest income for United States federal income tax purposes. See
"Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
The Company will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guarantee all
the Issuer Trust's obligations under the Capital Securities as described
below. See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee--Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Capital Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust will have insufficient funds to pay Distributions on and other
amounts payable under the Capital Securities. In such event, a holder of
Capital Securities may institute a legal proceeding directly against the
Company to enforce payment of such Distributions to such holder. See
"Description of Junior Subordinated Debentures--Enforcement of Certain Rights
by Holders of Capital Securities." The Guarantee does not cover payment of
Distributions when the Issuer Trust does not have sufficient funds to pay such
Distributions. The obligations of the Company under the Guarantee and the
Junior Subordinated Debentures are subordinate and junior in right of payment
to all Senior Indebtedness (as defined herein) of the Company. As of December
31, 1997, there was approximately $704,008,000 of outstanding Senior
Indebtedness of the Company, which includes long-term debt payable within one
year, short-term loans and long-term debt. See "Description of Junior
Subordinated Debentures--Subordination."
The Capital Securities will be subject to mandatory redemption in whole, but
not in part, upon repayment of the Junior Subordinated Debentures at the
Stated Maturity or their earlier redemption. The Junior Subordinated
Debentures are redeemable prior to the Stated Maturity at the option of the
Company (i) on or after April 23, 2003, in whole at any time or in part from
time to time, and (ii) prior to April 23, 2003, in whole (but not in part) at
any time within 90 days following the occurrence and continuation of a Tax
Event or an Investment Company Event (each as defined herein), in each case at
a redemption price equal to 100% of the principal amount of the Junior
Subordinated Debentures so redeemed plus accrued and unpaid interest thereon
to the date fixed for redemption. See "Description of Junior Subordinated
Debentures--Redemption" and "Description of Capital Securities--Liquidation
Distribution Upon Dissolution."
2
<PAGE>
The holders of the outstanding Common Securities have the right at any time
to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the
Junior Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. See
"Description of Capital Securities--Liquidation Distribution Upon
Dissolution."
The Capital Securities have been approved for listing on the NYSE, subject
to official notice of issuance. If the Junior Subordinated Debentures are
distributed to the holders of Capital Securities upon the liquidation of the
Issuer Trust, the Company will use all reasonable efforts to list the Junior
Subordinated Debentures on the NYSE or such other securities exchange or
automated quotation system, if any, on which the Capital Securities may then
be listed or traded.
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Capital Securities will be entitled to receive a
liquidation amount of $25 per Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior
Subordinated Debentures. See "Description of Capital Securities--Liquidation
Distribution Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures--Subordination."
If the purchaser is using for its purchase of the Capital Securities the
assets of an Employee Benefit Plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or of a plan or
individual retirement account subject to section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code"), the purchase shall constitute a
representation by such person that its purchase and holding of Capital
Securities will not result in a non-exempt prohibited transaction under ERISA
or the Code. See "Certain ERISA Considerations."
As used herein, (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
the Company and Bankers Trust Company, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are issued, (ii) the
"Trust Agreement" means the Amended and Restated Trust Agreement relating to
the Issuer Trust, as amended and supplemented from time to time, among the
Company, as Depositor, Bankers Trust Company, as Property Trustee (the
"Property Trustee"), Bankers Trust (Delaware), as Delaware Trustee (the
"Delaware Trustee") (collectively, the "Issuer Trustees"), two individuals
selected by the holders of the Common Securities to act as administrators with
respect to the Issuer Trust (the "Administrators") and the holders, from time
to time, of undivided beneficial interests in the assets of the Issuer Trust
and (iii) the "Guarantee" means the Guarantee Agreement relating to the
Capital Securities, as amended and supplemented from time to time, between the
Company and Bankers Trust Company, as Guarantee Trustee (the "Guarantee
Trustee").
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES OFFERED HEREBY. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT
CAPITAL SECURITIES AND BID FOR, AND PURCHASE, THE CAPITAL SECURITIES IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE ISSUER
TRUST OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE ISSUER TRUST
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 5
Incorporation of Certain Documents by Reference........................... 6
Summary................................................................... 7
Risk Factors.............................................................. 9
Equitable Resources Capital Trust I....................................... 13
Equitable Resources, Inc. ................................................ 14
Ratio of Earnings to Fixed Charges........................................ 15
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Selected Consolidated Financial Data and Other Information................ 17
Accounting Treatment...................................................... 18
Description of Capital Securities......................................... 18
Description of Junior Subordinated Debentures............................. 30
Description of Guarantee.................................................. 38
Relationship Among the Capital Securities, the Junior Subordinated Deben-
tures and the Guarantee.................................................. 40
Certain Federal Income Tax Consequences................................... 41
Certain ERISA Considerations.............................................. 46
Underwriting.............................................................. 48
Validity of Securities.................................................... 50
Experts................................................................... 50
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Such material also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. In addition, such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and the
Philadelphia Stock Exchange, 1900 Market Street, Philadelphia, Pennsylvania
19103, on which exchanges certain securities of the Company are listed.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Capital Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged
in and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities.
See "Equitable Resources Capital Trust I," "Description of Capital
Securities," "Description of Junior Subordinated Debentures" and "Description
of Guarantee." In addition, the Company does not expect that the Issuer Trust
will be filing reports under the Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-3
(the "Registration Statement") filed by the Company and the Issuer Trust with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company, the Issuer Trust and the Trust
Securities. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
5
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1997, as filed by the Company with the Commission is incorporated into this
Prospectus by reference.
In addition, all reports and definitive proxy or information statements
filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such documents. Any statement contained herein, or in any
document all or a portion of which is incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
the Registration Statement or this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein do not purport to be
complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document. The
Company will provide without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, on the written or oral request of
any such person, a copy of any or all of the foregoing documents incorporated
herein by reference (other than exhibits to such documents). Written requests
should be directed to Audrey C. Moeller, Vice President and Corporate
Secretary, Equitable Resources, Inc., 420 Boulevard of the Allies, Pittsburgh,
Pennsylvania 15219.
6
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
EQUITABLE RESOURCES, INC.
The Company is a Pennsylvania corporation. The Company and its subsidiary
companies engage primarily in the exploration for, development, production,
purchase, transmission, storage, distribution and marketing of natural gas and
electricity, the extraction of natural gas liquids, the exploration for,
development, production and sale of oil, cogeneration development, water
efficiency and program development, central facility plant operations and
performance contracting for commercial, industrial and institutional customers
and various government facilities. See "Equitable Resources, Inc."
EQUITABLE RESOURCES CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under Delaware law on
January 7, 1998. The Issuer Trust will be governed by the Trust Agreement. The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
THE OFFERING
Securities Offered...... $125,000,000 aggregate Liquidation Amount of
7.35% Capital Securities (Liquidation Amount $25
per Capital Security).
Offering Price.......... $25 per Capital Security, plus accumulated
Distributions, if any, from April 23, 1998.
Distributions........... Distributions on each Capital Security will be
payable at the annual rate of 7.35% of the
stated Liquidation Amount of $25, payable
quarterly in arrears on the 15th day of April,
July, October and January of each year (each, a
"Distribution Date"), to the holders of the
Capital Securities at the close of business on
the 1st day of April, July, October and January
(whether or not a Business Day) next preceding
the relevant Distribution Date. Distributions on
the Capital Securities will be cumulative.
Distributions will accumulate from and including
April 23, 1998.
Extension Periods....... Distributions on Capital Securities may be
deferred for the duration of any Extension
Period selected by the Company with respect to
the payment of interest on the Junior
Subordinated Debentures. No Extension Period
will exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity. See
"Description of Junior Subordinated Debentures--
Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
Ranking................. The Capital Securities will rank pari passu and
payments thereon will be made pro rata, with the
Common Securities except as described under
"Description of Capital Securities--
Subordination of Common Securities." The Junior
Subordinated Debentures will be unsecured and
7
<PAGE>
subordinate and junior in right of payment to
the extent and in the manner set forth in the
Junior Subordinated Indenture to all Senior
Indebtedness (as defined herein) of the Company.
See "Description of Junior Subordinated
Debentures." The Guarantee will constitute an
unsecured obligation of the Company and will
rank subordinate and junior in right of payment
to the extent and in the manner set forth in the
Guarantee to all Senior Indebtedness. As of
December 31, 1997, there was approximately
$704,008,000 of outstanding Senior Indebtedness
of the Company, which includes long-term debt
payable within one year, short-term loans and
long-term debt. See "Description of Guarantee."
Redemption.............. The Capital Securities will be subject to
mandatory redemption (i) in whole, but not in
part, upon repayment of the Junior Subordinated
Debentures at the Stated Maturity or their
earlier redemption. The Junior Subordinated
Debentures are redeemable prior to the Stated
Maturity at the option of the Company (i) on or
after April 23, 2003, in whole at any time or in
part from time to time, and (ii) prior to
April 23, 2003, in whole (but not in part) at
any time within 90 days following the occurrence
and continuation of a Tax Event or an Investment
Company Event, in each case at a redemption
price equal to 100% of the principal amount of
the Junior Subordinated Debentures so redeemed
plus accrued and unpaid interest thereon to the
dated fixed for redemption. See "Description of
Junior Subordinated Debentures--Redemption."
ERISA Considerations.... Prospective purchasers must carefully consider
the information set forth under "Certain ERISA
Considerations."
Absence of Market for
the Capital
Securities.............
The Capital Securities will be a new issue of
securities for which there currently is no
market. Although the Underwriters have informed
the Issuer Trust and the Company that they each
currently intend to make a market in the Capital
Securities, the Underwriters are not obligated
to do so, and any such market making may be
discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Securities. See "Underwriting."
Use of Proceeds......... All the proceeds to the Issuer Trust from the
sale of the Capital Securities will be invested
by the Issuer Trust in the Junior Subordinated
Debentures. All the net proceeds to be received
by the Company from the sale of the Junior
Subordinated Debentures will be used for general
corporate purposes, including, initially the
repayment of short-term indebtedness. See "Use
of Proceeds."
For additional information regarding the Capital Securities, see "Description
of Capital Securities," "Description of Junior Subordinated Debentures,"
"Description of Guarantee," "Relationship Among the Capital Securities, the
Junior Subordinated Debentures and the Guarantee" and "Certain Federal Income
Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 9.
8
<PAGE>
RISK FACTORS
Prospective purchasers of the Capital Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness. As of December 31, 1997, there was approximately
$704,008,000 of outstanding Senior Indebtedness of the Company, which includes
long-term debt payable within one year, short-term loans and long-term debt.
None of the Junior Subordinated Indenture, the Guarantee or the Trust
Agreement places any limitation on the amount of secured or unsecured debt,
including Senior Indebtedness, that may be incurred by the Company. See
"Description of Guarantee--Status of the Guarantee" and "Description of Junior
Subordinated Debentures--Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital Securities
is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company will
have the right under the Junior Subordinated Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarterly periods with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Debenture Events of Default." As a consequence
of any such deferral, quarterly Distributions on the Capital Securities by the
Issuer Trust will be deferred during any such Extension Period. Distributions
to which holders of the Capital Securities are entitled will accumulate
additional Distributions thereon during any Extension Period at the rate of
7.35% per annum, compounded quarterly from the most recent date to which
Distributions were paid, computed on the basis of a 360-day year of twelve 30-
day months and the actual days elapsed in a partial month in such period.
Additional Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by four. The term "Distribution" as
used herein shall include any such additional Distributions. During any such
Extension Period, the Company is subject to restrictions. See "Description of
Junior Subordinated Debentures--Restrictions on Certain Payments." Prior to
the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the
Junior Subordinated Debentures.
Upon the termination of any Extension Period and the payment of all interest
then accrued and unpaid (together with interest thereon at the annual rate of
7.35%, compounded quarterly, to the extent permitted by applicable law) on the
Junior Subordinated Debentures, the Company may elect to begin a new Extension
Period subject to the above conditions. No interest shall be due and payable
during an Extension Period, except at the end thereof, but the Company may
prepay at any time all or any portion of the interest accrued during an
Extension Period. The Company must give the Issuer Trustees notice of its
election of such Extension Period at least one Business Day (as defined
herein) prior to the earlier of (i) the date the Distributions on the Capital
Securities would have been payable but for the election to begin such
Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Capital Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business
Day prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Capital Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to
9
<PAGE>
begin an Extension Period. See "Description of Capital Securities--
Distributions" and "Description of Junior Subordinated Debentures--Option to
Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect
of its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust for United States federal income tax purposes. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales of Capital Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Capital Securities is likely to
be affected. A holder that disposes of its Capital Securities during an
Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Capital Securities. In
addition, as a result of the existence of the Company's right to defer
interest payments, the market price of the Capital Securities (which represent
preferred undivided beneficial interests in the assets of the Issuer Trust)
may be more volatile than the market prices of other securities on which
original issue discount or interest accrues that are not subject to such
deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and continuation of a Tax Event or an Investment Company
Event, the Company will have the right to redeem the Junior Subordinated
Debentures in whole, but not in part, at any time within 90 days following the
occurrence and continuation of such Tax Event or Investment Company Event and
thereby cause a mandatory redemption of the Capital Securities. If the Company
redeems the Junior Subordinated Debentures, it will thereby cause a mandatory
redemption of the Capital Securities. Any such redemption will be a price
equal to 100% of the Liquidation Amount on such Capital Securities plus
accumulated and unpaid Distributions to but excluding the date fixed for
redemption. See "Description of Junior Subordinated Debentures--Redemption"
and "Description of Capital Securities--Liquidation Distribution Upon
Dissolution."
CONDITIONAL RIGHT TO ADVANCE STATED MATURITY
If a Tax Event occurs, then the Company will have the right, prior to the
dissolution of the Issuer Trust, to advance the Stated Maturity of the Junior
Subordinated Debentures to the minimum extent required in order to allow for
the payments of interest in respect of the Junior Subordinated Debentures to
continue to be tax deductible, but in no event shall the resulting maturity of
the Junior Subordinated Debentures be less than 15 years from the date of
original issuance thereof. The Stated Maturity shall be advanced only if, in
the opinion of counsel to the Company experienced in such matters, (a) after
advancing the Stated Maturity, interest paid on the Junior Subordinated
Debentures will be deductible for United States federal income tax purposes
and (b) advancing the Stated Maturity will not result in a taxable event to
holders of the Capital Securities.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. See
"Description of Capital Securities--Liquidation Distribution Upon
Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Capital Securities. However, if a Tax
10
<PAGE>
Event were to occur that would cause the Issuer Trust to be subject to United
States federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures, a distribution of the Junior Subordinated
Debentures by the Issuer Trust would likely constitute a taxable event to the
holders of the Capital Securities. See "Certain Federal Income Tax
Consequences."
RIGHTS UNDER THE GUARANTEE
Bankers Trust Company will act as the trustee under the Guarantee and will
hold the Guarantee for the benefit of the holders of the Capital Securities.
Bankers Trust Company will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee under the Trust Agreement.
Bankers Trust (Delaware) will act as Delaware Trustee under the Trust
Agreement. The Guarantee guarantees to the holders of the Capital Securities
the following payments, to the extent not paid by or on behalf of the Issuer
Trust: (i) any accumulated and unpaid Distributions required to be paid on the
Capital Securities, to the extent that the Issuer Trust has funds legally
available therefor at such time, (ii) the applicable Redemption Price with
respect to any Capital Securities called for redemption, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding up or liquidation of the
Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, and (b) the amount of assets of the Issuer Trust remaining available
for distribution to holders of the Capital Securities on liquidation of the
Issuer Trust.
The Guarantee is subordinated as described under "--Ranking of Subordinated
Obligations Under the Guarantee and the Junior Subordinated Debentures" and
"Description of Guarantee--Status of the Guarantee." The holders of not less
than a majority in aggregate Liquidation Amount of the outstanding Capital
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer Trust, the Guarantee Trustee or any other
person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust would lack funds
for the payment of Distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in such event, holders of the Capital
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, if a Debenture Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
any amounts payable in respect of the Junior Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of
Capital Securities may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of any amounts payable in
respect of such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Capital Securities of such holder
(a "Direct Action").
In connection with such Direct Action, the Company will have a right of set-
off under the Junior Subordinated Indenture to the extent of any payment made
by the Company to such holder of Capital Securities in the Direct Action.
Except as described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities,"
"--Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement will provide that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
11
<PAGE>
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement and described
herein. The Property Trustee and the holders of all the Common Securities may,
subject to certain conditions, amend the Trust Agreement without the consent
of holders of Capital Securities to cure any ambiguity or make other
provisions not inconsistent with other provisions under the Trust Agreement or
to ensure that the Issuer Trust (i) will not be taxable as a corporation for
United States federal income tax purposes, or (ii) will not be required to
register as an "investment company" under the Investment Company Act. See
"Description of Capital Securities--Voting Rights; Amendment of Trust
Agreement" and "--Removal of Issuer Trustees; Appointment of Successors."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities, or
the market prices for Junior Subordinated Debentures that may be distributed
in exchange for Capital Securities if a liquidation of the Issuer Trust
occurs. Accordingly, the Capital Securities or the Junior Subordinated
Debentures that a holder of Capital Securities may receive on liquidation of
the Issuer Trust may trade at a discount to the price that the investor paid
to purchase the Capital Securities offered hereby. As a result of the
existence of the Company's right to defer interest payments, the market price
of the Capital Securities may be more volatile than the market prices of other
securities on which original issue discount accrues that are not subject to
such deferrals. Because holders of Capital Securities may receive Junior
Subordinated Debentures on dissolution of the Issuer Trust, prospective
purchasers of Capital Securities are also making an investment decision with
regard to the Junior Subordinated Debentures and should carefully review all
the information regarding the Junior Subordinated Debentures contained herein.
In addition, because the Company has the right to advance the Stated Maturity
of the Junior Subordinated Debentures, there can be no assurance that the
Company will not exercise its option to shorten the maturity of the Junior
Subordinated Debentures as permitted by the terms thereof. If the Company does
exercise such option, there can be no assurance that the shortening of the
Stated Maturity of the Junior Subordinated Debentures will not have an effect
on the market price of the Capital Securities. See "Description of Junior
Subordinated Debentures."
TRADING CHARACTERISTICS OF CAPITAL SECURITIES
The Capital Securities have been approved for listing on the NYSE, subject
to official notice of issuance. The Capital Securities may trade at prices
that do not fully reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. A holder of Capital
Securities that disposes of its Capital Securities between record dates for
payments of Distributions (and consequently does not receive a Distribution
for the period prior to such disposition) will nevertheless be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income and to add such
amount to its adjusted tax basis in the Capital Securities disposed of. Such
holder will recognize a capital loss to the extent that the selling price
(which may not fully reflect the value of accrued but unpaid interest) is less
than its adjusted tax basis (which will include accrued but unpaid interest).
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences--Sales of Capital Securities."
The Capital Securities have been approved for listing on the NYSE, subject
to official notice of issuance. If the Capital Securities are not listed on a
national securities exchange or the Nasdaq National Market and the
Underwriters do not make a market for the securities, the liquidity of the
Capital Securities could be adversely affected.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, President Clinton proposed certain tax law changes (the
"Tax Proposal") that would have, among other things, generally denied
corporate issuers a deduction for interest on certain debt obligations that
had a maximum term in excess of 15 years and were not shown as indebtedness on
the separate balance
12
<PAGE>
sheet of the issuer or, where the instrument was issued to a related party
(other than a corporation), where the holder or some other related party
issued a related instrument that was not shown as indebtedness on the issuer's
consolidated balance sheet. The Tax Proposal would have been effective
generally for instruments issued on or after the date of first Congressional
committee action. The Tax Proposal was not included in the recently enacted
Taxpayer Relief Act of 1997. In addition, the Tax Proposal was not included in
President Clinton's 1999 Budget proposal, which was released on February 2,
1998. However, if similar legislation to the Tax Proposal is enacted in the
future with retroactive effect with respect to the Junior Subordinated
Debentures, the Company would not be entitled to an interest deduction with
respect to the Junior Subordinated Debentures even if it subsequently advances
the maturity to less than 15 years. There can be no assurance that future
legislation similar to the Tax Proposal enacted after the date hereof, if any,
will not otherwise adversely affect the ability of the Company to deduct the
interest payable on the Junior Subordinated Debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of the
Capital Securities--Redemption."
CERTAIN FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and documents incorporated herein by
reference are forward-looking and are identified by the use of forward-looking
words or phrases such as "intended," "will be positioned," "expects," is or
are "expected," "anticipates," and "anticipated." Additionally, from time to
time the Company may communicate in oral or written form forward-looking
statements related to such matters as anticipated financial performance,
business prospects, capital projects, new products, and operational matters.
The Company notes that a variety of factors could cause the Company's actual
results to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Company's business include, but are not limited to, the
following: weather conditions, the pace of deregulation of retail natural gas
and electricity markets, the timing and extent of changes in commodity prices
for gas and oil, changes in interest rates, the extent of the Company's
success in acquiring gas and oil properties and in discovering, developing and
producing reserves and the impact of competitive factors on profit margins in
various markets in which the Company competes.
EQUITABLE RESOURCES CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary
of State on January 7, 1998. The Issuer Trust will be governed by the Trust
Agreement. The Company, as holder, directly or indirectly, of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as the Administrators. See
"Description of Capital Securities--Miscellaneous." The Issuer Trust exists
for the exclusive purposes of (i) issuing and selling the Trust Securities,
(ii) using the proceeds from the sale of the Trust Securities to acquire the
Junior Subordinated Debentures and (iii) engaging in only those other
activities necessary, convenient or incidental thereto (such as registering
the transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Issuer Trust, and payments under the
Junior Subordinated Debentures will be the sole source of revenue of the
Issuer Trust.
All of the Common Securities will initially be owned, directly or
indirectly, by the Company. The Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Capital Securities, except
that upon the occurrence and during the continuation of a Debenture Event of
Default arising as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, the rights of the
holders of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Capital Securities. See "Description of Capital
Securities--Subordination of Common Securities." The Company will acquire
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of the Issuer Trust. The Issuer Trust has a term of 41 years, but may
dissolve earlier as provided in the Trust Agreement. The address of the
Delaware Trustee is Bankers Trust (Delaware), E.A. Delle Donne Corporate
Center, Montgomery Bldg.,
13
<PAGE>
Suite 200, Wilmington, Delaware 19805-1266, telephone number (302) 576-3301.
The address of the Property Trustee, the Guarantee Trustee and the Debenture
Trustee is Four Albany Street, 4th Floor, New York, New York 10006, Bankers
Trust Company, telephone number (212) 250-2500.
It is anticipated that the Issuer Trust will not be subject to the reporting
requirements under the Exchange Act.
EQUITABLE RESOURCES, INC.
GENERAL
The Company is a Pennsylvania corporation. The Company and its subsidiary
companies (the "Companies") engage primarily in the exploration for,
development, production, purchase, transmission, storage, distribution and
marketing of natural gas and electricity, the extraction of natural gas
liquids, the exploration for, development, production and sale of oil,
cogeneration development, water efficiency and program development, central
facility plant operations and performance contracting for commercial,
industrial and institutional customers and various government facilities.
In order to more accurately reflect the Company's lines of business, the
Company began the reporting of its business operations in three business
segments; supply and logistics, utilities, and services.
The supply and logistics segment's activities include exploration and
production of natural gas and oil, trading of natural gas and electricity,
extraction and sale of natural gas liquids, underground storage, and
intrastate transportation. Its exploration and production activities are
principally in the Appalachian area where it explores for, develops, produces
and sells natural gas and oil, and extracts and markets natural gas liquids.
In the Gulf Coast offshore areas, the segment participates in exploration and
development of gas and oil projects. In Louisiana, the Company provides
intrastate transportation of gas and extracts and markets natural gas liquids
and the Company provides underground gas storage services. The supply and
logistics segment's operations also include nationwide natural gas marketing,
supply, peak shaving and transportation arrangements, and electricity
marketing.
In March 1998, the Company's Board of Directors authorized management to
develop a plan to sell its natural gas midstream operations located in
Louisiana and Texas. These operations include a fully-integrated gas
gathering, processing and storage system onshore Louisiana and a natural gas
and electric marketing business based in Houston. During 1997, these
operations had revenues of approximately $1.4 billion and operating income of
approximately $11.4 million, and at December 31, 1997 had total assets of
$615.8 million. A transaction resulting in the sale of the midstream assets
could take place as early as the third quarter of 1998.
The utilities segment's activities are comprised of distribution operations
by the Company's state-regulated local distribution company, and transmission
operations conducted by three Federal Energy Regulatory Commission regulated
gas pipelines. The distribution operations are regulated by state public
utility commissions in Pennsylvania, West Virginia and Kentucky and are
engaged in the purchase, distribution, marketing and transportation of natural
gas principally the city of Pittsburgh and surrounding municipalities in
southwestern Pennsylvania, a few municipalities in northern West Virginia and
field line sales in eastern Kentucky. Transmission operations include gas
transportation, gathering, storage, and marketing activities.
The services segment was created in 1996 and functions in a non-regulated
environment. Its focus is to create and deliver customized energy solutions to
improve overall energy efficiency. Activities include natural gas brokering,
resource management, energy consulting and engineering services such as energy
use analysis, customized energy systems, financing management and energy
procurement and management, risk management and customer services. This
segment has operations in a number of states and in Latin America.
14
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratio of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
3.28x 2.82x .46x 2.37x 3.09x
</TABLE>
Earnings used to compute the ratio of earnings to fixed charges represent
the aggregate of net income, income taxes and fixed charges. Income taxes
include current and deferred income taxes and amortization of deferred
investment tax credits. Fixed charges consist of interest, including
amortization of debt expense less premium, and one-third of all rental
expenses. Reference is made to Exhibit 12 to the Registration Statement of
which this Prospectus is a part for the detailed calculation of the above
ratios.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Capital Securities
will be invested by the Issuer Trust in the Junior Subordinated Debentures.
All the net proceeds to be received by the Company from the sale of the Junior
Subordinated Debentures will be used for general corporate purposes,
including, initially the repayment of short-term indebtedness. Pending such
use, the net proceeds may be temporarily invested. The precise amounts and
timing of the application of proceeds will depend upon the funding
requirements of the Company and its subsidiaries and the availability of other
funds.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997 and as adjusted to give effect to the
consummation of the offering of the Capital Securities offered hereby. The
following data should be read in conjunction with the Company's reports filed
with the Commission under the Exchange Act. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
AS
ACTUAL ADJUSTED
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term debt and current maturities of long-term
debt................................................... $ 286.4 $ 161.4
Common shareholders' equity:
Common stock (authorized 80,000,000 shares, issued and
outstanding $ 823.5 $ 823.5
36,782,230 shares)................................... ---------- ----------
Guaranteed preferred beneficial interests in Company's
7.35% junior subordinated debentures held by Equitable - 0 - 125.0
Resources Capital Trust I (1) ---------- ----------
Long-term debt
Debentures and other unsecured indebtedness:
7 1/2% Debentures, due July 1, 1999................. 73.2 73.2
9.9% Debentures, due April 15, 2013................. 5.9 5.9
7 3/4% Debentures, due July 15, 2026................ 150.0 150.0
Medium-Term Notes:
7.2% to 9.0% Series A, due 1998 through 2021........ 95.0 95.0
5.1% to 7.6% Series B, due 2003 through 2023........ 75.5 75.5
6.8% to 7.6% Series C, due 2007 through 2018........ 18.0 18.0
Total long-term debt.............................. 417.6 417.6
---------- ----------
Total capitalization.................................... $1,241.1 $1,366.1
========== ==========
</TABLE>
- --------
(1) As described herein, the sole assets of the Issuer Trust will be
$128,866,000 principal amount of Junior Subordinated Debentures issued by
the Company to the Issuer Trust. The Junior Subordinated Debentures will
bear interest at a fixed rate of 7.35% and will mature on April 15, 2038,
subject to the right of the Company to advance the Stated Maturity. The
Company will own all the Common Securities of the Issuer Trust.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
Presented below is selected audited consolidated financial information for
the Company for the years ended December 31, 1993 through 1997. The
consolidated financial information is not necessarily indicative of the
results for any future period and is qualified in its entirety by the detailed
information available in the Company's reports as described under
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenues...... $2,151.0 $1,861.8 $1,426.0(4) $1,397.3 $1,094.8
Purchased energy........ 1,636.3 1,373.4 911.4 926.9 644.2
-------- -------- -------- -------- --------
Net operating revenues.. 514.7 488.4 514.6 470.4 450.6
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Operation and mainte-
nance.................. 253.0 242.4 225.1 224.5 203.4
Depreciation and deple-
tion................... 87.1 82.4 104.6 93.4 76.9
Impairment of assets and
non recurring items.... 23.7(1) (7.3)(2) 121.1(3) -- --
Taxes other than income. 38.4 42.2 41.8 42.3 39.8
-------- -------- -------- -------- --------
Total operating ex-
penses................. 402.2 359.6 492.6 360.2 320.1
-------- -------- -------- -------- --------
Operating income......... 112.4 128.8 22.0 110.2 130.5
Other income............. 57.4(6) 3.0 0.3 3.2 1.7
Interest charges......... 45.7 41.8 50.1 43.9 38.7
-------- -------- -------- -------- --------
Income (loss) before in-
come taxes.............. 124.2 90.0 (27.8) 69.5 93.5
Income taxes (benefits).. 46.1 30.6 (29.3) 8.8 20.0
-------- -------- -------- -------- --------
Net income............... $ 78.0 $ 59.4 $ 1.5 $ 60.7 $ 73.5
======== ======== ======== ======== ========
Average common shares
outstanding (in thou-
sands).................. 36,003 35,188 34,793 34,509 32,359
EARNINGS PER SHARE OF
COMMON STOCK(5)
Basic................... $ 2.17 $ 1.69 $ 0.04 $ 1.76 $ 2.27
Assuming dilution....... $ 2.16 $ 1.69 $ 0.04 $ 1.75 $ 2.25
Dividends paid per share
of common stock......... $ 1.18 $ 1.18 $ 1.18 $ 1.15 $ 1.10
BALANCE SHEET DATA
Net property, plant and
equipment............... $1,506.5 $1,479.7 $1,457.6 $1,595.7 $1,548.4
Total assets............. 2,411.0 2,096.3 1,963.3 2,019.1 1,946.9
Common shareholders' eq-
uity.................... 823.5 742.3 715.1 750.0 728.0
Long-term debt (excluding
current maturities)..... 417.6 422.1 415.5 398.3 378.8
Short-term debt and cur-
rent maturities of long-
term debt............... 286.4 204.9 135.0 293.8 255.9
OTHER FINANCIAL DATA
Net cash flow from opera-
tions (excluding changes
in working capital)..... $ 159.2 $ 167.9 $ 152.9 $ 150.6 $ 152.4
Capital expenditures..... 252.9 110.3 118.1 146.2 339.4
Long-term debt to total
capitalization.......... 33.7% 36.3% 36.8% 34.7% 34.2%
</TABLE>
- -------
(1) Expenses for 1997 include $10.7 million for costs related to evaluation
and reduction of corporate office and non-core business functions and a
$13.0 million charge for the writedown of the Company's investment in the
AVOCA natural gas project.
(2) A gain of $7.4 million related to the curtailment of the Company's defined
benefit pension plan for non-utility employees was recorded in the fourth
quarter of 1996.
(3) Earnings for 1995 include an after-tax charge of $74.2 million or $2.12
per share due to the recognition of impairment of assets of $121.1 million
pursuant to the methodology of Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," as more fully described in Note B to the
Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
(4) Earnings for 1995 include a non-recurring after-tax gain of $29.1 million
or $.83 per share related to the $45 million Columbia Gas Transmission
bankruptcy settlement and $6.6 million or $.19 per share resulting from
regulatory approval of $11 million of accelerated recovery of future gas
costs, as more fully described in Notes D and C, respectively, to the
consolidated financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
(5) The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share". This statement
establishes standards for computing and presenting basic and diluted
earnings per share. As required, all previously reported earnings per
share amounts have been replaced with the presentation of basic and
diluted earnings per share.
(6) Includes $52 million gain from sale of western oil and gas properties and
contract drilling operations of which $25.6 million and $26.6 million were
recorded in the third and fourth quarters of 1997, respectively.
17
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Capital Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Capital Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial
reporting purposes, Distributions on the Capital Securities will be recorded
in the consolidated statements of income of the Company.
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trust will issue
the Capital Securities and the Common Securities. This summary of certain
provisions of the Capital Securities and the Trust Agreement does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, all the provisions of the Trust Agreement, including the definitions
therein of certain terms. Wherever particular defined terms of the Trust
Agreement are referred to herein, such defined terms are incorporated herein
by reference. A copy of the form of the Trust Agreement is available upon
request from the Issuer Trustees.
GENERAL
The Capital Securities will be limited to $125,000,000 aggregate Liquidation
Amount at any one time outstanding. The Capital Securities will rank pari
passu, and payments will be made thereon pro rata, with the Common Securities
except as described under "--Subordination of Common Securities." The Junior
Subordinated Debentures will be registered in the name of the Issuer Trust and
held by the Property Trustee in trust for the benefit of the holders of the
Capital Securities and Common Securities. The Guarantee will be a guarantee on
a subordinated basis with respect to the Capital Securities but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Capital Securities when the Issuer Trust does not have
funds on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests in
the assets of the Issuer Trust, and Distributions on each Capital Security
will be payable at the annual rate of 7.35% of the stated Liquidation Amount
of $25, payable quarterly in arrears on the 15th day of April, July, October
and January of each year (each, a "Distribution Date"), to the holders of the
Capital Securities at the close of business on the 1st day of April, July,
October and January (whether or not a Business Day) next preceding the
relevant Distribution Date. Distributions on the Capital Securities will be
cumulative. Distributions will accumulate from and including April 23, 1998.
The first Distribution Date for the Capital Securities will be July 15, 1998.
The amount of Distributions payable for any period less than a full
Distribution period will be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. If any date on which Distributions are
payable on the Capital Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day
that is a Business Day (without any additional Distributions or other payment
in respect of any such delay), with the same force and effect as if made on
the date such payment was originally payable.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on
which banking institutions in The City of New York or the City of Pittsburgh,
Pennsylvania are authorized or required by law or executive order to remain
closed, or (c) a day on which the corporate trust office of the Property
Trustee or the Debenture Trustee is closed for business.
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So long as no Debenture Event of Default has occurred and is continuing, the
Company will have the right under the Junior Subordinated Indenture to defer
the payment of interest on the Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarterly periods
with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Capital
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the rate of 7.35% per
annum, compounded quarterly from the most recent date to which Distributions
were paid, computed on the basis of a 360-day year of twelve 30-day months and
the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distributions" as used herein
shall include any such additional Distributions.
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company (1) in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, (2) in
connection with a dividend reinvestment or stockholder stock purchase plan or
(3) in connection with the issuance of capital stock of the Company (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to such
Extension Period, (b) as a result of an exchange, redemption or conversion of
any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, (e) payments under the Guarantee, or (f) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or
the stock issuable upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid or ranks pari passu
with or junior to such stock). Prior to the termination of an Extension
Period, the Company may further defer the payment of interest, provided that
no Extension Period may exceed 20 consecutive quarterly periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all
amounts then due, the Company may elect to begin a new Extension Period. No
interest shall be due and payable during an Extension Period, except at the
end thereof, but the Company may prepay at any time all or a portion of the
interest accrued during an Extension Period. The Company must give the Issuer
Trustees notice of its election of an Extension Period at least one Business
Day prior to the earlier of (i) the date the Distributions on the Capital
Securities would have been payable but for the election to begin such
Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Capital Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business
Day prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Capital Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Junior Subordinated Debentures--Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer Trust will invest the proceeds from
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the issuance and sale of the Capital Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Capital Securities. The payment
of Distributions and other amounts payable on the Capital Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a
subordinated basis as set forth herein under "Description of Guarantee."
REDEMPTION
Notice of redemption of the Trust Securities shall be given not less than 30
nor more than 60 days immediately prior to the date fixed for repayment or
redemption. Upon the repayment or redemption, in whole or in part, of the
Junior Subordinated Debentures, whether at the Stated Maturity or upon earlier
redemption as provided in the Junior Subordinated Indenture, the proceeds from
such repayment or redemption shall be applied by the Property Trustee to
redeem a Like Amount (as defined below) of the Trust Securities at a
redemption price (the "Redemption Price") equal to 100% of the aggregate
Liquidation Amount of such Trust Securities plus accumulated and unpaid
Distributions thereon to the date of redemption (the "Redemption Date"). See
"Description of Junior Subordinated Debentures--Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities.
The Company will have the right to redeem the Junior Subordinated Debentures
(i) on or after April 23, 2003, in whole at any time or in part from time to
time, or (ii) prior to April 23, 2003 in whole (but not in part) at any time
within 90 days following the occurrence and continuation of a Tax Event or an
Investment Company Event (each as defined below). See "--Liquidation
Distribution Upon Dissolution." A redemption of the Junior Subordinated
Debentures would cause a mandatory redemption of the Capital Securities and
Common Securities.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Junior Subordinated Indenture, allocated to
the Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and (ii) with respect to a distribution of
Junior Subordinated Debentures to holders of Trust Securities in connection
with a dissolution or liquidation of the Issuer Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters, to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or which pronouncement, action or decision is announced on or
after the date of issuance of the Capital Securities, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the delivery of such opinion, will not be,
deductible by the Company, in whole or in part, for United States federal
income tax purposes or (iii) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters, to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than
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an insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change or prospective change becomes effective or would
become effective, as the case may be, on or after the date of the issuance of
the Capital Securities.
Payment of Additional Sums. If an event described in clause (i) or (iii) of
the definition of Tax Event above has occurred and is continuing and the
Issuer Trust is the holder of all the Junior Subordinated Debentures, the
Company will pay Additional Sums (as defined below), if any, on the Junior
Subordinated Debentures.
"Additional Sums" means such additional amounts as may be necessary in order
that the Distributions paid by the Issuer Trust on its outstanding Trust
Securities will not be reduced as a result of any additional taxes, duties and
other governmental charges to which the Issuer Trust has become subject as a
result of a Tax Event.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds then on
hand and legally available for the payment of such Redemption Price. See also
"--Subordination of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Capital Securities. With respect to Capital Securities not held
in book-entry form, the Property Trustee, to the extent funds are available,
will irrevocably deposit with the paying agent for the Capital Securities
funds sufficient to pay the applicable Redemption Price and will give such
paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
the Capital Securities. Notwithstanding the foregoing, Distributions payable
on or prior to the Redemption Date for any Capital Securities called for
redemption shall be payable to the holders of the Capital Securities on the
relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit all rights of the holders of such Capital Securities
so called for redemption will cease, except the right of the holders of such
Capital Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Capital Securities will cease to be
outstanding. If any date fixed for redemption of Capital Securities is not a
Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding day which is a Business Day (without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case, with the same force and
effect as if made on the date such payment was originally payable. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer Trust or by the Company pursuant to the Guarantee, Distributions on
such Capital Securities will continue to accumulate at the then applicable
rate, from the Redemption Date originally established by the Issuer Trust for
such Capital Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the
relative Liquidation
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Amounts of such classes. The particular Capital Securities to be redeemed
shall be selected on a pro rata basis not more than 60 days prior to the
Redemption Date from the outstanding Capital Securities not previously called
for redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
Liquidation Amount of Capital Securities of a denomination larger than $25, or
if the Capital Securities are then held in the form of a Global Capital
Security (as defined below), in accordance with DTC's customary procedures.
The Property Trustee shall promptly notify the securities registrar for the
Trust Securities in writing of the Capital Securities selected for redemption
and, in the case of any Capital Securities selected for partial redemption,
the Liquidation Amount thereof to be redeemed. For all purposes of the Trust
Agreement, unless the context otherwise requires, all provisions relating to
the redemption of Capital Securities shall relate, in the case of any Capital
Securities redeemed or to be redeemed only in part, to the portion of the
aggregate Liquidation Amount of Capital Securities which has been or is to be
redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof called for redemption and, unless payment of
the Redemption Price in respect of the Capital Securities is withheld or
refused and not paid either by the Issuer Trust or the Company pursuant to the
Guarantee, Distributions will cease to accumulate on the Capital Securities or
portions thereof called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amount of such Capital Securities and Common Securities.
However, if on any Distribution Date, or Redemption Date, a Debenture Event of
Default has occurred and is continuing as a result of any failure by the
Company to pay any amounts in respect of the Junior Subordinated Debentures
when due, no payment of any Distribution on, or Redemption Price of, any of
the Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions on
all the outstanding Capital Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Capital
Securities then called for redemption, shall have been made or provided for,
and all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Capital Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be
deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effects of all such Events of
Default with respect to such Capital Securities have been cured, waived or
otherwise eliminated. See "--Events of Default; Notice" and "Description of
Junior Subordinated Debentures--Debenture Events of Default." Until all such
Events of Default under the Trust Agreement with respect to the Capital
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee will act solely on behalf of the holders of the Capital Securities and
not on behalf of the holders of the Common Securities, and only the holders of
the Capital Securities will have the right to direct the Property Trustee to
act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any liquidation
of the Issuer Trust is $25 per Capital Security plus accumulated and unpaid
Distributions, subject to certain exceptions, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures.
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The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) the
distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of the Trust Securities, if the holders of Common Securities have
given written direction to the Property Trustee to dissolve the Issuer Trust
(which direction, subject to the foregoing restrictions, is optional and
wholly within the discretion of the holders of Common Securities), (iii) the
repayment of all the Capital Securities in connection with the redemption of
all the Trust Securities as described under "--Redemption" and (iv) the entry
of an order for the dissolution of the Issuer Trust by a court of competent
jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, to the holders of such Trust Securities a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
not practical, in which event such holders will be entitled to receive out of
the assets of the Issuer Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate of the Liquidation Amount plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer Trust on its Capital Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Capital Securities, except that if a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, the Capital
Securities shall have a priority over the Common Securities. See "--
Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Capital Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Capital Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
the Stated Maturity and the Issuer Trust is not liquidated and the Junior
Subordinated Debentures are not distributed to holders of the Capital
Securities, the Capital Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures and the distribution of the Liquidation
Distribution to the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a dissolution and liquidation of the Issuer Trust were
to occur. Accordingly, the Capital Securities that an investor may purchase,
or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to
the price that the investor paid to purchase the Capital Securities offered
hereby.
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EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Issuer Trust or Property Trustee in the payment of
any Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Issuer Trust or Property Trustee in the payment of
any Redemption Price of any Trust Security when it becomes due and payable;
or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Company by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding Capital Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually
with the Property Trustee a certificate as to whether or not they are in
compliance with all the conditions and covenants applicable to them under the
Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a
preference over the Common Securities with respect to payments of any amounts
in respect of the Capital Securities as described above. See "--Subordination
of Common Securities," "--Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures--Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee if a Debenture
Event of Default has occurred and is continuing. If an Issuer Trustee is
removed at a time when a Debenture Event of Default has occurred and is
continuing, the holders of at least a majority in aggregate Liquidation Amount
of Capital Securities may appoint a successor Issuer Trustee. If no Debenture
Event of Default has occurred and is continuing at such time, the Company, as
holder of the Common Securities, may remove the Issuer Trustee and appoint a
successor. If an Administrative Trustee is removed, resigns or otherwise
vacates office, the Company, as holder of the Common Securities, shall
promptly appoint a successor. In no event will the holders of Capital
Securities have the right to vote to remove the Administrative Trustees, which
voting rights are vested exclusively in the Company, as holder of the Common
Securities. If a successor has not been appointed to fill a vacancy in
accordance with the Trust Agreement, any holder of Trust Securities (who has
been a holder for at least six months), or a resigning or removed Trustee (in
the case of the failure to appoint its successor) may petition a court of
competent jurisdiction to appoint a successor. Any Delaware Trustee must meet
the applicable requirements of Delaware law. Any Property Trustee must be a
national or state-chartered bank and at the time of appointment have
securities rated in one of the three highest rating categories by a nationally
recognized statistical rating organization and have capital and
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surplus of at least $50,000,000. Each Administrative Trustee shall be an
officer of the Company or an affiliate. No resignation or removal of an Issuer
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the
request of the holders of the Common Securities and with the consent of the
holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities, merge with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State, so long as (i) such successor entity either (a) expressly assumes
all the obligations of the Issuer Trust with respect to the Capital Securities
or (b) substitutes for the Capital Securities other securities having
substantially the same terms as the Capital Securities (the "Successor
Securities") so long as the Successor Securities have the same priority as the
Capital Securities with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) a trustee of such successor
entity, possessing the same powers and duties as the Property Trustee, is
appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Issuer Trust has received an opinion from counsel experienced in such matters
to the effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect and (b) following such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Issuer Trust nor such successor entity will be required to
register as an investment company under the Investment Company Act, and (vii)
the Company or any permitted successor or assignee owns, directly or
indirectly, all the common securities of such successor entity and guarantees
the obligations of such successor entity under the Successor Securities at
least to the extent provided by the Guarantee. Notwithstanding the foregoing,
the Issuer Trust may not, except with the consent of holders of 100% in
aggregate Liquidation Amount of the Capital Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to, any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
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The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Capital Securities, (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, provided
that any such amendment does not adversely affect in any material respect the
interests of any holder of Trust Securities, or (ii) to modify, eliminate or
add to any provisions of the Trust Agreement to such extent as may be
necessary to ensure that the Issuer Trust will not be taxable as a corporation
for United States federal income tax purposes at any time that any Trust
Securities are outstanding or to ensure that the Issuer Trust will not be
required to register as an "investment company" under the Investment Company
Act, and any such amendments of the Trust Agreement will become effective when
notice of such amendment is given to the holders of Trust Securities. The
Trust Agreement may be amended by the holders of a majority of the Common
Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will
not affect the Issuer Trust's not being taxable as a corporation for United
States federal income tax purposes or the Issuer Trust's exemption from status
as an "investment company" under the Investment Company Act, except that,
without the consent of each holder of Trust Securities affected thereby, the
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such
date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee,
or execute any trust or power conferred on the Property Trustee with respect
to the Junior Subordinated Debentures, (ii) waive any past default that is
available under Section 5.13 of the Junior Subordinated Indenture, (iii)
exercise any right to rescind or annul a declaration that the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Junior Subordinated Indenture or
the Junior Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of at least
a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, except that, if a consent under the Junior Subordinated Indenture
would require the consent of each holder of Junior Subordinated Debentures
affected thereby, no such consent will be given by the Property Trustee
without the prior consent of each holder of the Capital Securities. The
Property Trustee may not revoke any action previously authorized or approved
by a vote of the holders of the Capital Securities except by subsequent vote
of the holders of the Capital Securities. The Property Trustee will notify
each holder of Capital Securities of any notice of default with respect to the
Junior Subordinated Debentures. In addition to obtaining the foregoing
approvals of the holders of the Capital Securities, before taking any of the
foregoing actions, the Property Trustee will obtain an opinion of counsel
experienced in such matters to the effect that the Issuer Trust will not be
taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each registered holder of Capital Securities in the manner set forth
in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees will, for purposes of such vote or
consent, be treated as if they were not outstanding.
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EXPENSES AND TAXES
In the Junior Subordinated Indenture, the Company, as borrower, will agree
to pay all debts and other obligations (other than with respect to the Capital
Securities) and all costs and expenses of the Issuer Trust (including costs
and expenses relating to the organization of the Issuer Trust, the fees and
expenses of the Issuer Trustees and the costs and expenses relating to the
operation of the Issuer Trust) and to pay any and all taxes and all costs and
expenses with respect thereto (other than United States withholding taxes) to
which the Issuer Trust might become subject. The foregoing obligations of the
Company under the Junior Subordinated Indenture are for the benefit of, and
shall be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company will irrevocably
waive any right or remedy to require that any such Creditor take any action
against the Issuer Trust or any other person before proceeding against the
Company. The Company will also agree in the Junior Subordinated Indenture to
execute such additional agreements as may be necessary or desirable to give
full effect to the foregoing.
BOOK-ENTRY PROCEDURES, DELIVERY AND FORM
The Capital Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of,
the Depository and registered in the name of the Depository's nominee. Unless
and until it is exchangeable in whole or in part for the Capital Securities in
definitive form, a global security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor of such Depository or a nominee
of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with the Depository or its nominee ("Participants")
or persons that may hold interests through Participants. The Company expects
that, upon the issuance of a global security, the Depository will credit, on
its book-entry registration and transfer system, the Participants' accounts
with their respective principal amounts of the Capital Securities represented
by such global security. Ownership of beneficial interests in such global
security will be shown on, and the transfer of such ownership interests will
be effected only through, records maintained by the Depository (with respect
to interests of Participants) and on the records of Participants (with respect
to interests of Persons held through Participants). Beneficial owners will not
receive written confirmation from the Depository of their purchase, but are
expected to receive written confirmations from the Participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests will be accomplished by entries on the books of Participants acting
on behalf of the beneficial owners.
So long as the Depository, or its nominee, is the registered owner of a
global security, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the Capital Securities represented by
such global security for all purposes under the Junior Subordinated Indenture.
Except as provided below, owners of beneficial interests in a global security
will not be entitled to receive physical delivery of the Capital Securities in
definitive form and will not be considered the owners or holders thereof under
the Junior Subordinated Indenture. Accordingly, each person owning a
beneficial interest in such a global security must rely on the procedures of
the Depository and, if such person is not a Participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder under the Junior Subordinated Indenture. The Company
understands that, under the Depository's existing practices, in the event that
the Company requests any action of holders, or an owner of a beneficial
interest in such a global security desires to take any action which a holder
is entitled to take under the Junior Subordinated Indenture, the Depository
would authorize the Participants holding the relevant beneficial interests to
take such action, and such Participants would authorize beneficial owners
owning through such Participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them. Redemption
notices will also be sent to the Depository. If less than all of the Capital
Securities are being redeemed, the Company understands that it is the
Depository's existing practice to determine by lot the amount of the interest
of each Participant to be redeemed.
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Distributions on the Capital Securities registered in the name of the
Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the global security representing
such Capital Securities. None of the Company, the Trustees, any Paying Agent
or any other agent of the Company or the Issuer Trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Capital Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
the Depository. The Depository's practice is to credit Participants' accounts
on a payable date in accordance with their respective holdings shown on the
Depository's records unless the Depository has reason to believe that it will
not receive payment on such payable date. Payments by Participants to
beneficial owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the responsibility
of such Participant and not of the Depository, the Company, the Trustees, the
Paying Agent or any other agent of the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time.
The Depository may discontinue providing its services as securities
depository with respect to the Capital Securities at any time by giving
reasonable notice to the Company or the Property Trustee. If the Depository
notifies the Company that it is unwilling to continue as such, or if it is
unable to continue or ceases to be a clearing agency registered under the
Exchange Act and a successor depository is not appointed by the Company within
ninety days after receiving such notice or becoming aware that the Depository
is no longer so registered, the Company will issue the Capital Securities in
definitive form upon registration of transfer of, or in exchange for, such
global security. In addition, the Company may at any time and in its sole
discretion determine not to have the Capital Securities represented by one or
more global securities and, in such event, will issue Capital Securities in
definitive form in exchange for all of the global securities representing such
Capital Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations such as the Underwriters. Certain of such
Participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with a Participant, either directly or indirectly.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
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Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Capital Securities after the Capital Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any holder of Capital
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures--Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Issuer Trust
or the Trust Agreement, that the Property Trustee and the holders of Common
Securities determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially adversely affect the
interests of the holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with the
laws of the State of Delaware.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as
Debenture Trustee. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Junior Subordinated Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Junior Subordinated Indenture,
including the definitions therein of certain terms. Whenever particular
defined terms of the Junior Subordinated Indenture (as amended or supplemented
from time to time) are referred to herein, such defined terms are incorporated
herein by reference. A copy of the form of Junior Subordinated Indenture is
available from the Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from April 23, 1998, at the annual rate of 7.35% of the principal
amount thereof, payable quarterly in arrears on the 15th day of April, July,
October and January of each year (each, an "Interest Payment Date"),
commencing July 15, 1998, to the person in whose name each Junior Subordinated
Debenture is registered at the close of business on the 1st day of April,
July, October or January (whether or not a Business Day) next preceding such
Interest Payment Date. It is anticipated that, until the liquidation, if any,
of the Issuer Trust, each Junior Subordinated Debenture will be registered in
the name of the Issuer Trust and held by the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period less than a full interest period will be computed on the basis
of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of interest payable for any full
interest period will be computed by dividing the rate per annum by four. If
any date on which interest is payable on the Junior Subordinated Debentures is
not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day that is a Business Day (without any interest
or other payment in respect of any such delay), with the same force and effect
as if made on the date such payment was originally payable. Accrued interest
that is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate
per annum of 7.35%, compounded quarterly and computed on the basis of a 360-
day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of additional interest payable for any full
interest period will be computed by dividing the rate per annum by four. The
term "interest" as used herein includes quarterly interest payments, interest
on quarterly interest payments not paid on the applicable Interest Payment
Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will be issued pursuant to the Junior
Subordinated Indenture. The Junior Subordinated Debentures will mature on
April 15, 2038 (such date, as it may be advanced, under certain circumstances
as hereinafter described, the "Stated Maturity"). If a Tax Event occurs, then
the Company will have the right prior to the termination of the Issuer Trust,
to advance the Stated Maturity of the Junior Subordinated Debentures to the
minimum extent required in order to allow for the payments of interest in
respect of the Junior Subordinated Debentures to continue to be tax
deductible, but in no event shall the resulting maturity of the Junior
Subordinated Debentures be less than 15 years from the date of original
issuance thereof. The Stated Maturity shall be advanced only if, in the
opinion of counsel to the Company experienced in such matters, (a) after
advancing the Stated Maturity, interest paid on the Junior Subordinated
Debentures will be deductible for United States federal income tax purposes
and (b) advancing the Stated Maturity will not result in a taxable event to
holders of the Capital Securities.
If the Company elects to advance the Stated Maturity of the Junior
Subordinated Debentures, it will give notice to the Debenture Trustee, and the
Debenture Trustee will give notice of such change to the holders of the Junior
Subordinated Debentures not less than 30 and not more than 60 days prior to
the effectiveness thereof.
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The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the occurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing
or other indenture that the Company may enter into in the future or otherwise.
See "--Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company will have the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. At the end
of an Extension Period, the Company must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of 7.35%, compounded
quarterly and computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period, to the extent
permitted by applicable law). The amount of additional interest payable for
any full interest period will be computed by dividing the rate per annum by
four. During an Extension Period, interest will continue to accrue and holders
of Junior Subordinated Debentures (or holders of Capital Securities while
outstanding) will be required to accrue interest income for United States
federal income tax purposes. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
During any such Extension Period, the Company will be subject to certain
restrictions. See "--Restrictions on Certain Payments; Certain Covenants of
the Company." Prior to the termination of an Extension Period, the Company may
further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. In the event that the Stated Maturity
is advanced to a date prior to the end of an Extension Period, such Extension
Period shall be deemed to end on such date or such earlier date as may be
determined by the Company. In the event that any Junior Subordinated
Debentures are called for redemption on the date prior to the end of an
Extension Period, with respect to such Junior Subordinated Debentures, such
Extension Period shall be deemed to end on such date or such earlier date as
may be determined by the Company. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin
a new Extension Period subject to the above conditions. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Issuer Trustees notice of its election of such Extension
Period at least one Business Day prior to the earlier of (i) the date the
Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less
than one Business Day prior to such record date. The Property Trustee will
give notice of the Company's election to begin a new Extension Period to the
holders of the Capital Securities. There is no limitation on the number of
times that the Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to the Stated
Maturity at the option of the Company (i) on or after April 23, 2003, in whole
at any time or in part from time to time, and (ii) prior to April 23, 2003, in
whole (but not in part) at any time within 90 days following the occurrence
and continuation of a Tax Event or an Investment Company Event (each as
defined under "Description of Capital Securities-- Redemption") (the "90-Day
Period"), in each case at a Redemption Price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption, plus 100% of the principal amount thereof. See "Description of
Capital Securities--Redemption."
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The Company's right to redeem the Junior Subordinated Debentures under the
preceding paragraph shall be subject to the condition that if at the time
there is available to the Company or the Issuer Trust the opportunity to
eliminate, within the 90-Day Period, the Tax Event or Investment Company Event
by taking some ministerial action ("Ministerial Action"), such as filing a
form or making an election, or pursuing some other similar reasonable measure
that will have no adverse effect on the Company, the Issuer Trust or the
holders of the Trust Securities and will involve no material cost, the Company
shall pursue such measures in lieu of redemption; provided further, that the
Company shall have no right to redeem the Junior Subordinated Debentures while
the Issuer Trust is pursuing any Ministerial Action pursuant to the Trust
Agreement.
ADDITIONAL SUMS
The Company will covenant in the Junior Subordinated Indenture that, if and
for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Capital Securities--Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Capital Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
Capital Securities--Book-Entry Procedures, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days of receipt of notice from DTC to such effect,
the Company will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of
the Junior Subordinated Debentures, as described under "Description of the
Capital Securities--Book-Entry Procedures, Delivery and Form." If Junior
Subordinated Debentures are issued in certificated form, principal and
interest will be payable, the transfer of the Junior Subordinated Debentures
will be registrable, and Junior Subordinated Debentures will be exchangeable
for Junior Subordinated Debentures of other authorized denominations of a like
aggregate principal amount, at the corporate trust office of the Debenture
Trustee in New York, New York or at the offices of any Paying Agent or
transfer agent appointed by the Company, provided that payment of interest may
be made at the option of the Company by check mailed to the address of the
persons entitled thereto. However, a holder of $1 million or more in aggregate
principal amount of Junior Subordinated Debentures may receive payments of
interest (other than interest payable at the Stated Maturity) by wire transfer
of immediately available funds upon written request to the Debenture Trustee
not later than 15 calendar days prior to the date on which the interest is
payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of
a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Indenture or at the office of any transfer agent
designated by the Company for such purpose without service charge and upon
payment of any taxes and other governmental charges as described in the Junior
Subordinated Indenture. The Company will appoint the Debenture Trustee as
securities registrar under the Junior Subordinated Indenture. The Company may
at any time designate additional transfer agents with respect to the Junior
Subordinated Debentures.
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In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption,
except, in the case of any Junior Subordinated Debentures being redeemed in
part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company will covenant that it will not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company's capital stock or (ii) make any
payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company (1) in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, (2) in
connection with a dividend reinvestment or stockholder stock purchase plan or
(3) in connection with the issuance of capital stock of the Company (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the
applicable Extension Period or other event referred to below, (b) as a result
of an exchange, redemption or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or
series of the Company's indebtedness for any class or series of the Company's
capital stock, (c) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, (e) payments
under the Guarantee, or (f) any dividend in the form of stock, warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that
on which the dividend is being paid or ranks pari passu with or junior to such
stock), if at such time (i) there has occurred any event (A) of which the
Company has actual knowledge that with the giving of notice or the lapse of
time, or both, would constitute a Debenture Event of Default and (B) that the
Company has not taken reasonable steps to cure, (ii) if the Junior
Subordinated Debentures are held by the Issuer Trust, the Company is in
default with respect to its payment of any obligations under the Guarantee or
(iii) the Company has given notice of its election of an Extension Period as
provided in the Junior Subordinated Indenture and has not rescinded such
notice, or such Extension Period, or any extension thereof, is continuing.
The Company will covenant (i) to continue to hold, directly or indirectly,
100% of the Common Securities, provided that certain successors that are
permitted pursuant to the Junior Subordinated Indenture may succeed to the
Company's ownership of the Common Securities, (ii) as holder of the Common
Securities, not to voluntarily dissolve, windup or liquidate the Issuer Trust,
other than (a) in connection with a distribution of Junior Subordinated
Debentures to the holders of the Capital Securities in liquidation of the
Issuer Trust or (b) in connection with certain mergers, consolidations or
amalgamations permitted by the Trust Agreement and (iii) to use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause the Issuer Trust to continue not to be taxable as a corporation for
United States federal income tax purposes.
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MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the provisions of the Junior
Subordinated Indenture to: (1) evidence succession of another corporation or
association to the Company and the assumption by such person of the
obligations of the Company under the Junior Subordinated Debentures, (2) add
further covenants, restrictions or conditions for the protection of holders of
the Junior Subordinated Debentures, (3) cure ambiguities or correct the Junior
Subordinated Debentures in the case of defects or inconsistencies in the
provisions thereof, so long as any such cure or correction does not adversely
affect the interest of the holders of the Junior Subordinated Debentures in
any material respect, (4) change the terms of the Junior Subordinated
Debentures to facilitate the issuance of the Junior Subordinated Debentures in
certificated or other definitive form, (5) evidence or provide for the
appointment of a successor Debenture Trustee, or (6) qualify, or maintain the
qualification of, the Junior Subordinated Indentures under the Trust Indenture
Act.
The Junior Subordinated Indenture contains provisions permitting the Company
and the Debenture Trustee, with the consent of the holders of not less than a
majority in principal amount of the Junior Subordinated Debentures, to modify
the Junior Subordinated Indenture in a manner affecting the rights of the
holders of the Junior Subordinated Debentures, except that no such
modification may, without the consent of the holder of each outstanding Junior
Subordinated Debenture so affected, (i) change the Stated Maturity of the
Junior Subordinated Debentures other than shortening the maturity in
accordance with the terms of the Junior Subordinated Indenture, or reduce the
principal amount thereof, the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or the
currency in which, any such amount is payable or impair the right to institute
suit for the enforcement of any Junior Subordinated Debenture or (ii) reduce
the percentage of principal amount of Junior Subordinated Debentures, the
holders of which are required to consent to any such modification of the
Junior Subordinated Indenture. Furthermore, so long as any of the Capital
Securities remain outstanding, no such modification may be made that adversely
affects the holders of such Capital Securities in any material respect, and no
termination of the Junior Subordinated Indenture may occur, and no waiver of
any Debenture Event of Default or compliance with any covenant under the
Junior Subordinated Indenture may be effective, without the prior consent of
the holders of at least a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities unless and until the principal of (and premium,
if any, on) the Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other conditions are
satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Junior Subordinated Indenture for 90 days after
written notice to the Company from the Debenture Trustee or the holders of
at least 25% in aggregate outstanding principal amount of the outstanding
Junior Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Capital Securities--Events
of Default; Notice," the occurrence of a Debenture Event of Default will also
constitute an Event of Default in respect of the Trust Securities.
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The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25%
in aggregate principal amount of outstanding Junior Subordinated Debentures
may declare the principal due and payable immediately upon a Debenture Event
of Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Capital Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Junior Subordinated Indenture cannot be
modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture affected thereby. See "--Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on
the Junior Subordinated Debentures, and any other amounts payable under the
Junior Subordinated Indenture, to be forthwith due and payable and to enforce
its other rights as a creditor with respect to the Junior Subordinated
Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to
such holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder. The Company
may not amend the Junior Subordinated Indenture to remove the foregoing right
to bring a Direct Action without the prior written consent of the holders of
all the Capital Securities. The Company will have the right under the Junior
Subordinated Indenture to set-off any payment made to such holder of Capital
Securities by the Company in connection with a Direct Action.
The holders of the Capital Securities would not be able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
except under the circumstances described in the preceding paragraph. See
"Description of Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease
its properties and assets substantially as an entirety to any Person, and no
Person may consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless (i) if the Company consolidates with or merges into another Person or
conveys or transfers its properties and assets substantially as an entirety to
any Person, the successor
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Person is organized under the laws of the United States or any state or the
District of Columbia, and such successor Person expressly assumes the
Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a
Debenture Event of Default, has occurred and is continuing; and (iii) certain
other conditions as prescribed in the Junior Subordinated Indenture are
satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders of
the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable or (ii) will become
due and payable at the Stated Maturity within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if
any) and interest to the date of the deposit or to the Stated Maturity, as the
case may be, then the Junior Subordinated Indenture will cease to be of
further effect (except as to the Company's obligations to pay all other sums
due pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will
be deemed to have satisfied and discharged the Junior Subordinated Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to
all Senior Indebtedness (as defined below) of the Company. If the Company
defaults in the payment of any principal, premium, if any, or interest, if
any, or any other amount payable on any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for redemption
or by declaration of acceleration or otherwise, then, unless and until such
default has been cured or waived or has ceased to exist or all Senior
Indebtedness has been paid, no direct or indirect payment (in cash, property,
securities, by setoff or otherwise) may be made or agreed to be made on the
Junior Subordinated Debentures, or in respect of any redemption, repayment,
retirement, purchase or other acquisition of any of the Junior Subordinated
Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of the Company; (iv) every obligation of the Company
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of the
Company; (vi) every obligation of the Company for claims (as defined in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended) in
respect of derivative products such as interest and foreign exchange rate
contracts, commodity contracts and similar arrangements; and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another
person and all dividends of another person the payment of which, in either
case, the Company has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise; provided that "Senior Indebtedness" shall
not include (i) any obligations which, by their terms, are expressly stated to
rank pari passu in right of payment with, or to not be superior in right of
payment to, the Junior Subordinated Debentures, (ii) any Senior Indebtedness
of the Company which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (iii) any indebtedness of the Company to any
of its subsidiaries, (iv) indebtedness to any employee of the Company, or (v)
any indebtedness in respect of debt securities issued to any trust, or a
trustee of such trust, partnership or other entity affiliated with the Company
that is a financing entity of the Company in connection with the issuance of
such financing entity of securities that are similar to the Capital
Securities.
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In the event of (i) certain events of bankruptcy, dissolution or liquidation
of the Company or the holder of the Common Securities, (ii) any proceeding for
the liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will
be paid or delivered directly to the holders of Senior Indebtedness in
accordance with the priorities then existing among such holders until all
Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company
ranking on a parity with the Junior Subordinated Debentures, will be entitled
to be paid from the remaining assets of the Company the amounts at the time
due and owing on the Junior Subordinated Debentures and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, will be made on account of any capital stock or obligations of the
Company ranking junior to the Junior Subordinated Debentures and such other
obligations. If any payment or distribution on account of the Junior
Subordinated Debentures of any character or any security, whether in cash,
securities or other property is received by any holder of any Junior
Subordinated Debentures in contravention of any of the terms hereof and before
all the Senior Indebtedness has been paid in full, such payment or
distribution or security will be received in trust for the benefit of, and
must be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. By reason of such subordination, in the event of the
insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of a
default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture 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 Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time as
trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships
with Bankers Trust Company and its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
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DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Capital Securities by the Issuer Trust for the benefit of
the holders from time to time of the Capital Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of the Guarantee is available upon request from the Guarantee Trustee.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders
of the Capital Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
assert other than the defense of payment. The following payments with respect
to the Capital Securities, to the extent not paid by or on behalf of the
Issuer Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on such Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Issuer Trust (unless
the Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment, to the extent
that the Issuer Trust has funds on hand available therefor at such time, and
(b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Capital Securities on liquidation of the Issuer
Trust. The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the holders of the
Capital Securities or by causing the Issuer Trust to pay such amounts to such
holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Capital Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "--Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness,
whether under the Junior Subordinated Indenture, any other indenture that the
Company may enter into in the future or otherwise.
The Company will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guarantee all the Issuer Trust's
obligations under the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Capital Securities. See
"Relationship Among the Capital Securities, the Junior Subordinated Debentures
and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as the Junior Subordinated
Debentures.
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The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Capital Securities--Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders
of the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct
the exercise of any trust or power conferred upon the Guarantee Trustee under
the Guarantee.
Any registered holder of Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Issuer Trust, the Guarantee
Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested
in it by the Guarantee at the request of any holder of the Capital Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Company, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Capital Securities, upon full payment
of the amounts payable with respect to the Capital Securities upon liquidation
of the Issuer Trust or upon distribution of Junior Subordinated Debentures to
the holders of the Capital Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Capital Securities must restore payment of any sums paid under the
Capital Securities or the Guarantee.
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GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under
the Junior Subordinated Debentures, the Junior Subordinated Indenture, the
Trust Agreement and the Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Capital Securities. If and to the
extent that the Company does not make payments on the Junior Subordinated
Debentures, the Issuer Trust will not have sufficient funds to pay
Distributions or other amounts due on the Capital Securities. The Guarantee
does not cover payment of amounts payable with respect to the Capital
Securities when the Issuer Trust does not have sufficient funds to pay such
amounts. In such event, one remedy of a holder of the Capital Securities would
be to institute a legal proceeding directly against the Company for
enforcement of payment of the Company's obligations under Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Capital Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated Debentures,
such payments will be sufficient to cover Distributions and other payments
distributable on the Capital Securities, primarily because (i) the aggregate
principal amount of the Junior Subordinated Debentures will be equal to the
sum of the aggregate stated Liquidation Amount of the Capital Securities and
Common Securities; (ii) the interest rate and interest and other payment dates
on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Capital Securities; (iii)
the Company will pay for all and any costs, expenses and liabilities of the
Issuer Trust except withholding taxes and the Issuer Trust's obligations to
holders of the Trust Securities; and (iv) the Trust Agreement further provides
that the Issuer Trust will not engage in any activity that is not consistent
with the limited purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Capital
Securities. However, in the event of payment defaults under, or acceleration
of, Senior Indebtedness of the Company, the subordination provisions of the
Junior Subordinated Indenture provide that no payments may be made in respect
of the Junior Subordinated Debentures until such Senior Indebtedness has been
paid in full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures--Subordination."
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LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent preferred undivided beneficial interests in
the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Capital Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated
Debentures held, while a holder of Capital Securities is entitled to receive
Distributions or other amounts distributable with respect to the Capital
Securities from the Issuer Trust (or from the Company under the Guarantee)
only if and to the extent the Issuer Trust has funds available for the payment
of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Issuer Trust, other than any such dissolution, winding-up or liquidation
involving the distribution of the Junior Subordinated Debentures, after
satisfaction of liabilities to creditors of the Issuer Trust as required by
applicable law, the holders of the Capital Securities will be entitled to
receive, out of assets held by the Issuer Trust, the Liquidation Distribution
in cash. See "Description of Capital Securities--Liquidation Distribution Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of
the Company, the Issuer Trust, as registered holder of the Junior Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated and
junior in right of payment to all Senior Indebtedness as set forth in the
Junior Subordinated Indenture, but entitled to receive payment in full of all
amounts payable with respect to the Junior Subordinated Debentures before any
stockholders of the Company receive payments or distributions. Since the
Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than withholding taxes and the Issuer Trust's obligations
to the holders of the Trust Securities), the positions of a holder of the
Capital Securities and a holder of such Junior Subordinated Debentures
relative to other creditors and to stockholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes the material United States federal
income tax consequences of the purchase, ownership and disposition of the
Capital Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject
to change, possibly on a retroactive basis. The authorities on which this
summary is based are subject to various interpretations, and this summary is
not binding on the Internal Revenue Service (the "IRS") or the courts, either
of which could take a contrary position. Moreover, no rulings have been or
will be sought from the IRS with respect to the transactions described herein.
Accordingly, there can be no assurance that the IRS will not challenge the
opinions expressed herein or that a court would not sustain such a challenge.
Except as otherwise stated, this summary deals only with the Capital
Securities held as a capital asset by a holder who or which (i) purchased the
Capital Securities upon original issuance (an "Initial Holder") at their
original offering price and (ii) is a US Holder (as defined below). This
summary does not address all the tax consequences that may be relevant to a US
Holder, nor does it address the tax consequences, except as stated below, to
holders that are not US Holders ("Non- US Holders") or to holders that may be
subject to special tax treatment (such as banks, thrift institutions, real
estate investment trusts, regulated investment companies, insurance companies,
brokers and dealers in securities or currencies, other financial institutions,
tax-exempt organizations, persons holding the Capital Securities as a position
in a "straddle," as part of a "synthetic security," "hedging," "conversion" or
other integrated investment, persons having a functional currency other than
the U.S. Dollar and certain United States expatriates). Further, this summary
does not address:
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(a) the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the Capital Securities,
(b) the United States federal alternative minimum tax consequences of the
purchase, ownership or disposition of the Capital Securities, or
(c) any state, local or foreign tax consequences of the purchase,
ownership and disposition of Capital Securities.
A "US Holder" is a holder of the Capital Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for
income tax purposes) in or under the laws of the United States or any
political subdivision thereof (other than a partnership that is not treated as
a United States person under any applicable Treasury regulations), (iii) an
estate the income of which is includible in its gross income for United States
federal income tax purposes without regard to its source, or (iv) a trust if
(a) a court within the United States is able to exercise primary supervision
over the administration of the trust and (b) one or more United States persons
have the authority to control all substantial decisions of the trust.
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 will also be a US Holder.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS.
US HOLDERS
Characterization of the Issuer Trust. Under current law and based on the
representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Trust Agreement (and other
relevant documents), the Issuer Trust will be characterized for United States
federal income tax purposes as a grantor trust and will not be characterized
as an association taxable as a corporation. Accordingly, for United States
federal income tax purposes, each holder of the Capital Securities generally
will be considered the owner of an undivided interest in the Junior
Subordinated Debentures owned by the Issuer Trust, and each US Holder will be
required to include all income or gain recognized for United States federal
income tax purposes with respect to its allocable share of the Junior
Subordinated Debentures on its own income tax return.
Characterization of the Junior Subordinated Debentures. The Company and the
Issuer Trust will agree to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. The following
discussion assumes that the Junior Subordinated Debentures will be
characterized for United States federal income tax purposes as debt of the
Company.
Interest Income and Original Issue Discount. Under the terms of the Junior
Subordinated Debentures the Company has the ability to defer payments of
interest from time to time by extending the interest payment period for a
period not exceeding 20 consecutive quarterly periods, but not beyond the
maturity of the Junior Subordinated Debentures. Recently issued Treasury
regulations under Section 1273 of the Code provide that debt instruments like
the Junior Subordinated Debentures will not be considered issued with original
issue discount ("OID") by reason of the Company's ability to defer payments of
interest if the likelihood of such deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the date
of this Prospectus, the likelihood of deferring payments of interest under the
terms of the Junior Subordinated Debentures is "remote"
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within the meaning of the applicable Treasury regulations, in part because
exercising that option would prevent the Company from declaring dividends on
its stock and would prevent the Company from making any payments with respect
to debt securities that rank pari passu with or junior to the Junior
Subordinated Debentures. Therefore, the Junior Subordinated Debentures should
not be treated as issued with OID by reason of the Company's deferral option.
Rather, stated interest on the Junior Subordinated Debentures will generally
be taxable to a US Holder as ordinary income when paid or accrued in
accordance with that holder's method of accounting for income tax purposes. It
should be noted, however, that these Treasury regulations have not yet been
interpreted in any rulings or any other published authorities of the IRS.
Accordingly, it is possible that the IRS could take a position contrary to the
interpretation described herein.
In the event the Company exercises its option to defer payments of interest,
the Junior Subordinated Debentures would be treated as redeemed and reissued
for OID purposes and the sum of the remaining interest payments (and any de
minimis OID) on the Junior Subordinated Debentures would thereafter be treated
as OID, which would accrue, and be includible in a US Holder's taxable income,
on an economic accrual basis (regardless of the US Holder's method of
accounting for income tax purposes) over the remaining term of the Junior
Subordinated Debentures (including any period of interest deferral), without
regard to the timing of payments under the Junior Subordinated Debentures.
Subsequent distributions of interest on the Junior Subordinated Debentures
generally would not be taxable. The amount of OID that would accrue in any
period would generally equal the amount of interest that accrued on the Junior
Subordinated Debentures in that period at the stated interest rate.
Consequently, during any period of interest deferral, US Holders will include
OID in gross income in advance of the receipt of cash, and a US Holder which
disposes of a Capital Security prior to the record date for payment of
distributions on the Junior Subordinated Debentures following that period will
be subject to income tax on OID accrued through the date of disposition (and
not previously included in income), but will not receive cash from the Issuer
Trust with respect to the OID.
If the possibility of the Company's exercise of its option to defer payments
of interest is not treated as remote, the Junior Subordinated Debentures would
be treated as initially issued with OID in an amount equal to the aggregate
stated interest (plus any de minimis OID) over the term of the Junior
Subordinated Debentures. That OID would generally be includible in a US
Holder's taxable income, over the term of the Junior Subordinated Debentures,
on an economic accrual basis.
Characterization of Income. Because the income underlying the Capital
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Capital Securities.
Market Discount and Bond Premium. Holders of the Capital Securities other
than Initial Holders may be considered to have acquired their undivided
interests in the Junior Subordinated Debentures with market discount or
acquisition premium (as each phrase is defined for United States federal
income tax purposes).
Receipt of Junior Subordinated Debentures or Cash upon Liquidation of the
Issuer Trust. Under certain circumstances described herein, the Issuer Trust
may distribute the Junior Subordinated Debentures to holders in exchange for
the Capital Securities and in liquidation of the Issuer Trust. See
"Description of the Capital Securities--Liquidation Distribution Upon
Dissolution." Except as discussed below, such a distribution would not be a
taxable event for United States federal income tax purposes, and each US
Holder would have an aggregate adjusted basis in its Junior Subordinated
Debentures for United States federal income tax purposes equal to such
holder's aggregate adjusted basis in its Capital Securities. For United States
federal income tax purposes, a US Holder's holding period in the Junior
Subordinated Debentures received in such a liquidation of the Issuer Trust
would include the period during which the Capital Securities were held by the
holder. If, however, the relevant event is a Tax Event which results in the
Issuer Trust being treated as an association taxable as a corporation, the
distribution would likely constitute a taxable event to US Holders of the
Capital Securities for United States federal income tax purposes.
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Under certain circumstances described herein, the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. See
"Description of the Capital Securities." Such a redemption would be taxable
for United States federal income tax purposes, and a US Holder would recognize
gain or loss as if it had sold the Capital Securities for cash. See "--Sales
of Capital Securities" below.
Sales of Capital Securities. A US Holder that sells Capital Securities will
recognize gain or loss equal to the difference between its adjusted basis in
the Capital Securities and the amount realized on the sale of such Capital
Securities. A US Holder's adjusted basis in the Capital Securities generally
will be its initial purchase price, increased by OID previously included (or
currently includible) in such holder's gross income to the date of
disposition, and decreased by payments received on the Capital Securities
(other than any interest received with respect to the period prior to the
effective date of the Company's first exercise of its option to defer payments
of interest). Any such gain or loss generally will be capital gain or loss,
and generally will be long-term capital gain or loss if the Capital Securities
have been held for more than one year prior to the date of disposition.
A holder who disposes of its Capital Securities between record dates for
payments of Distributions thereon will be required to include accrued but
unpaid interest (or OID) on the Junior Subordinated Debentures through the
date of disposition in its taxable income for United States federal income tax
purposes (notwithstanding that the holder may receive a separate payment from
the purchaser with respect to accrued interest), and to deduct that amount
from the sales proceeds received (including the separate payment, if any, with
respect to accrued interest) for the Capital Securities (or as to OID only, to
add such amount to such holder's adjusted tax basis in its Capital
Securities). To the extent the selling price is less than the holder's
adjusted tax basis (which will include accrued but unpaid OID, if any), a
holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
PROPOSED TAX LAW CHANGES
On February 6, 1997, President Clinton proposed certain tax law changes (the
"Tax Proposal") that would have, among other things, generally denied
corporate issuers a deduction for interest on certain debt obligations that
had a maximum term in excess of 15 years and were not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument was issued
to a related party (other than a corporation), where the holder or some other
related party issued a related instrument that was not shown as indebtedness
on the issuer's consolidated balance sheet. The Tax Proposal would have been
effective generally for instruments issued on or after the date of first
Congressional committee action. The Tax Proposal was not included in the
recently enacted Taxpayer Relief Act of 1997. In addition, the Tax Proposal
was not included in President Clinton's 1999 Budget proposal, which was
released on February 2, 1998. However, if similar legislation to the Tax
Proposal is enacted in the future with retroactive effect with respect to the
Junior Subordinated Debentures, the Company may not be entitled to an interest
deduction with respect to the Junior Subordinated Debentures even if it
subsequently shortens the maturity to less than 15 years. There can be no
assurance that future legislation similar to the Tax Proposal enacted after
the date hereof, if any, will not otherwise adversely affect the ability of
the Company to deduct the interest payable on the Junior Subordinated
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. See "Description of the Capital Securities--Redemption."
TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, the Taxpayer Relief Act of 1997 (the "Tax Act") was
enacted into law. The Tax Act reduces the maximum rates on long-term capital
gains recognized on capital assets held by individual taxpayers for more than
eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
taxpayers who meet specified conditions). Prospective investors should consult
their own tax advisors concerning these tax law changes.
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NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Capital Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Capital Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Capital Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Capital Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution"), and holds the
Capital Security in such capacity, certifies to the Issuer Trust or its agent,
under penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes the Issuer Trust or
its agent with a copy thereof.
As discussed above (see "--Proposed Tax Law Changes"), changes in
legislation affecting the income tax consequences of the Junior Subordinated
Debentures are possible, and could adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures.
Moreover, any such legislation could adversely affect Non-US Holders by
characterizing income derived from the Junior Subordinated Debentures as
dividends, generally subject to a 30% income tax (on a withholding basis) when
paid to a Non-US Holder, rather than as interest which, as discussed above, is
generally exempt from income tax in the hands of a Non-US Holder.
A Non-US Holder of a Capital Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Capital Security.
A Non-US Holder which holds the Capital Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Capital Securities held by a
noncorporate US Holder within the United States. In addition, payments made
on, and payments of the proceeds from the sale of, the Capital Securities to
or through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States
status or otherwise establishes an exemption from information reporting and
backup withholding. See "--Backup Withholding." Taxable income on the Capital
Securities for a calendar year should be reported to US Holders on the
appropriate form by the following January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to verify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE CAPITAL SECURITIES. POTENTIAL HOLDERS OF THE CAPITAL SECURITIES ARE
URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Capital Securities, fiduciaries of
pension, profit sharing or other employee benefit plans subject to ERISA
("Plans") should consider, among other matters, (a) ERISA's fiduciary
standards (including its prudence and diversification requirements), (b)
whether such fiduciaries have authority to make such investment in the Capital
Securities under the applicable Plan investment policies and governing
instruments, and (c) rules under ERISA and the Code that prohibit Plan
fiduciaries from causing a Plan to engage in a "prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from, among other things, engaging in certain
transactions involving "plan assets" with persons who are "parties in
interest" under ERISA or "disqualified persons" under the Code ("Parties in
Interest") with respect to such Plan. A violation of these "prohibited
transaction" rules may result in an excise tax or other liabilities under
ERISA and/or Section 4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R.
section 2510.3-101) (the "Plan Assets Regulation") concerning the definition
of what constitutes the assets of a Plan. The Plan Assets Regulation provides
that, as a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Trust would not be deemed to be "plan assets" of investing Plans if the
equity interests acquired by employee benefit plans are "publicly-offered
securities"---that is, they are (1) widely held (i.e., owned by more than 100
investors independent of the Company and of each other), (2) freely
transferable and (3) sold as part of an offering pursuant to an effective
registration statement under the Securities Act and then timely registered
under Section 12(b) or 12(g) of the Exchange Act. It is expected that the
Capital Securities will meet the criteria of "publicly-offered securities"
above. The Underwriters expect that the Capital Securities will be held by at
least 100 independent investors at the conclusion of the offering; there are
no restrictions imposed on the transfer of the Capital Securities and the
Capital Securities will be sold as part of an offering pursuant to an
effective registration statement under the Securities Act, and then will be
timely registered under the Exchange Act.
There can be no assurance that any of the exceptions set forth in the Plan
Assets Regulation will apply to the purchase of Capital Securities offered
hereby and, as a result, an investing Plan's assets could be considered to
include an undivided interest in the Junior Subordinated Debentures held by
the Trust. In the event that assets of the Trust are considered assets of an
investing Plan, the Trustees, the Company and/or other persons, in providing
services with respect to the Junior Subordinated Debentures, could be
considered fiduciaries of such Plan and subject to the fiduciary
responsibility provisions of Title I of ERISA. In addition, certain
transactions involving the Trust and/or the Capital Securities could be deemed
to constitute direct or indirect prohibited transactions under ERISA and
Section 4975 of the Code with respect to a Plan. For example, if the Company
is a Party in Interest with respect to an investing Plan (either directly or
by reason of its ownership of other subsidiaries), extensions of credit
between the Company and the Trust (as represented by the Junior Subordinated
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Debentures and the Guarantee) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited
transactions resulting from the purchase or holding of the Capital Securities,
assuming that assets of the Trust were deemed to be "plan assets" of Plans
investing in the Trust (see above). Those class exemptions are PTCE 96-23 (for
certain transactions determined by in-house asset managers), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 95-60
(for certain transactions involving insurance company general accounts), PTCE
90-1 (for certain transactions involving insurance company pooled separate
accounts), and PTCE 84-14 (for certain transactions determined by independent
qualified asset managers).
Because of ERISA's prohibitions and those of Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any other person investing "plan assets"
of any Plan, unless such purchase or holding is covered by the exemptive
relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another
applicable exemption. If a purchaser or holder of the Capital Securities that
is a Plan or a Plan Asset Entity elects to rely on an exemption other than
PTCE 96-23, 95-60, 91-38, 90-1 or 84-14, the Company and the Trust may require
a satisfactory opinion of counsel or other evidence with respect to the
availability of such exemption for such purchase and holding. Any purchaser or
holder of the Capital Securities that is a Plan or a Plan Assets Entity or is
purchasing such securities on behalf of a Plan or with "plan assets" will be
deemed to have represented by its purchase and holding thereof that (a) the
purchase and holding of the Capital Securities is covered by the exemptive
relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another
applicable exemption, (b) the Company and the Administrators are not
"fiduciaries," within the meaning of Section 3(21) of ERISA and the
regulations thereunder, with respect to such person's interest in the Capital
Securities, and (c) such person approves the purchase of the Junior
Subordinated Debentures and the appointment of the Issuer Trustees.
Any Plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities
should consult with their own counsel.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975
of the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with their advisers, should consider the impact of their
respective state laws on investments in the Capital Securities and the
considerations discussed above to the extent applicable.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated April 16, 1998 (the "Underwriting Agreement") among the Company, the
Issuer Trust, and each of the underwriters named therein (the "Underwriters"),
the Issuer Trust has agreed to sell to the Underwriters, and the Underwriters
have agreed to purchase, severally but not jointly, the Liquidation Amount of
the Capital Securities set forth opposite their names below:
AMOUNT OF
UNDERWRITERS CAPITAL SECURITIES
------------ ------------------
Morgan Stanley & Co. Incorporated............... $ 20,000,000
J.P. Morgan Securities Inc. .................... 20,000,000
PaineWebber Incorporated........................ 20,000,000
Prudential Securities Incorporated.............. 20,000,000
Robert W. Baird & Co. Incorporated.............. 20,000,000
BT Alex. Brown Incorporated..................... 1,250,000
Bear, Stearns & Co. Inc......................... 1,250,000
CIBC Oppenheimer Corp........................... 1,250,000
A.G. Edwards & Sons, Inc. ...................... 1,250,000
Goldman, Sachs & Co............................. 1,250,000
Arthurs, Lestrange & Company Incorporated....... 625,000
J.C. Bradford & Co. ............................ 625,000
Cowen & Co. International Tranches.............. 625,000
Craigie Incorporated............................ 625,000
Dain Rauscher Incorporated...................... 625,000
Davenport & Company LLC......................... 625,000
Fahnestock & Co. Inc. .......................... 625,000
Fidelity Capital Markets
A Division of National Financial Services
Corporation.................................... 625,000
First Albany Corporation........................ 625,000
Gibraltar Securities Co......................... 625,000
Interstate/Johnson Lane Corporation............. 625,000
Janney Montgomery Scott Inc. ................... 625,000
J.J.B. Hilliard, W.L. Lyons, Inc. .............. 625,000
Legg Mason Wood Walker, Incorporated............ 625,000
McDonald & Company Securities, Inc. ............ 625,000
McGinn, Smith & Co., Inc. ...................... 625,000
Morgan Keegan & Company, Inc. .................. 625,000
Olde Discount Corporation....................... 625,000
The Ohio Company................................ 625,000
Parker/Hunter Incorporated...................... 625,000
Pershing Division of Donaldson, Lufkin &
Jenrette....................................... 625,000
Piper Jaffray Inc. ............................. 625,000
Raymond James & Associates, Inc. ............... 625,000
The Robinson-Humphrey Company, LLC.............. 625,000
Roney & Co., L.L.C. ............................ 625,000
Stifel, Nicolaus & Company, Incorporated........ 625,000
Sutro & Co. Incorporated........................ 625,000
Tucker Anthony Incorporated..................... 625,000
U.S. Clearing Corp. ............................ 625,000
Wheat First Securities, Inc. ................... 625,000
-------------
Total......................................... $ 125,000,000
=============
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The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Capital Securities are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are committed to take and pay for
all the Capital Securities if any are taken.
The initial purchase price for the Capital Securities will be the initial
offering price set forth on the cover page of this Prospectus (the "Capital
Securities Offering Price"). The Underwriters propose to offer the Capital
Securities at the Capital Securities Offering Price, and all or part to
certain dealers at a price that represents a concession not in excess of $.50
per Capital Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.40 per Capital Security to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed by the Underwriters named on the cover
page hereof.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures issued
by the Company, the Underwriting Agreement provides that the Company will pay
as compensation for the Underwriters arranging the investment therein of such
proceeds an amount of $.7875 per Capital Security (or $3,937,500 in the
aggregate) for the accounts of the Underwriters.
In connection with the offering of the Capital Securities, the Underwriters
and any selling group members and their respective affiliates may engage in
transactions to stabilize, maintain or otherwise affect the market price of
the Capital Securities. Specifically, the Underwriters may overallot by
selling more Capital Securities than they are committed to purchase from the
Issuer Trust. In such a case, to cover all or part of the short position, the
Underwriters may purchase Capital Securities in the open market following
completion of the initial offering of the Capital Securities. The Underwriters
also may engage in stabilizing transactions in which they bid for, and
purchase, Capital Securities at a level above that which might otherwise
prevail in the open market for the purpose of preventing or retarding a
decline in the market price of the Capital Securities. The Underwriters also
may reclaim any selling concessions allowed to an Underwriter or a dealer if
an Underwriter repurchases shares distributed by that dealer. Any of the
foregoing transactions may result in the maintenance of a price for the
Capital Securities at a level above that which might otherwise prevail in the
open market. Neither the Company nor any Underwriter makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Capital Securities.
The Underwriters are not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
The Company and the Issuer Trust have agreed that, during the period
beginning on the date of the Underwriting Agreement and continuing to and
including the closing under the Underwriting Agreement, neither will offer,
sell, contract to sell or otherwise dispose of any securities of the Company
or the Issuer Trust that are substantially similar to the Capital Securities,
or that are convertible into or exchangeable for, or otherwise represent a
right to acquire, any such securities, except in the offering or with the
prior written consent of the Underwriters.
Prior to this offering, there has been no public market for the Capital
Securities. The Capital Securities have been approved for listing on the NYSE,
subject to official notice of issuance, and trading of the Capital Securities
on the NYSE is expected to commence within a 30-day period after the initial
delivery of the Capital Securities. The Underwriters have advised the Company
that they intend to make a market in the Capital Securities prior to
commencement of trading on the NYSE, but they are not obligated to do so and
may discontinue market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Capital Securities.
In order to meet one of the requirements for listing the Capital Securities
on the NYSE, the Underwriters will undertake to sell lots of 100 or more
Capital Securities to a minimum of 400 beneficial holders.
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The Company and the Issuer Trust have agreed to indemnify the Underwriters
and certain other persons against certain liabilities, including liabilities
under the Securities Act and to contribute to payments the Underwriters may be
required to make in respect thereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or financial services to
the Company and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special Delaware counsel to the Company and the Issuer
Trust. The validity of the Guarantee and the Junior Subordinated Debentures
and certain matters relating thereto will be passed upon for the Company by
Reed Smith Shaw & McClay LLP, Pittsburgh, Pennsylvania. Certain tax matters
will be passed upon by Brown & Wood LLP, New York, New York, special tax
counsel to the Company and the Issuer Trust. Certain legal matters will be
passed upon for the Underwriters by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company contained
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report, given upon the authority of said firm
as experts in accounting and auditing.
Audited financial statements to be included in subsequently filed documents
will be incorporated herein by reference in reliance upon the reports of Ernst
& Young LLP, independent auditors, or such other auditing firm which may have
audited such financial statements (to the extent covered by consents filed
with the Commission), and upon the authority of said firm as experts in
auditing and accounting.
The information incorporated by reference herein regarding the total proved
reserves of the Company was prepared by the Company and audited by Netherland,
Sewell & Associates, Inc., as stated in their letter reports with respect
thereto, and is incorporated by reference in reliance upon the authority of
said firm as experts in such matters.
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