<PAGE> 1
Filed pursuant to
Rule 424(b)(1)
Registration No. 333-30611;
333-30611-01
PROSPECTUS
K N CAPITAL TRUST I
OFFER TO EXCHANGE
8.56% SERIES B CAPITAL TRUST PASS-THROUGH SECURITIES(SM) (TRUPS(SM))*
FOR ANY AND ALL OUTSTANDING
8.56% SERIES A CAPITAL TRUST PASS-THROUGH SECURITIES(SM) (TRUPS(SM))*
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
K N ENERGY, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON OCTOBER 6, 1997, UNLESS EXTENDED.
K N Capital Trust I, a statutory business trust created under the laws of
the State of Delaware (the "Trust"), and K N Energy, Inc., a Kansas corporation
("K N" or the "Company"), hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange up to
$100,000,000 aggregate Liquidation Amount (as defined herein) of the 8.56%
Series B Capital Trust Pass-through Securities(SM) (the "Exchange Capital
Securities") which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as defined
herein) of which this Prospectus constitutes a part, for a like Liquidation
Amount of the outstanding 8.56% Series A Capital Trust Pass-through
Securities(SM) (the "Old Capital Securities"), of which $100,000,000 aggregate
Liquidation Amount is outstanding. Pursuant to the Exchange Offer, the Company
is also exchanging its guarantee of the payment of Distributions (as defined
herein) and payments on liquidation of the Trust or redemption of the Old
Capital Securities (the "Old Guarantee") for a like guarantee of the Old Capital
Securities and the Exchange Capital Securities (the "Exchange Guarantee"), and
the Company is also exchanging all of its 8.56% Series A Junior Subordinated
Deferrable Interest Debentures due April 15, 2027 (the "Old Subordinated Debt
Securities"), of which $103,100,000 aggregate principal amount is outstanding,
for a like aggregate principal amount of its 8.56% Series B Junior Subordinated
Deferrable Interest Debentures due April 15, 2027 (the "Exchange Subordinated
Debt Securities"), which Exchange Guarantee and Exchange Subordinated Debt
Securities also have been registered under the Securities Act. The Old Capital
Securities, the Old Guarantee and the Old Subordinated Debt Securities are
collectively referred to herein as the "Old Securities" and the Exchange Capital
Securities, the Exchange Guarantee and the Exchange Subordinated Debt Securities
are collectively referred to herein as the "Exchange Securities" and the
exchange of the Old Securities for the Exchange Securities is collectively
referred to herein as the "Exchange."
The terms of the Exchange Securities are identical in all material respects
to the respective terms of the Old Securities, except that (i) the Exchange
Securities have been registered under the Securities Act and therefore will not
be subject to certain restrictions on transfer applicable to the Old Securities,
(ii) the Exchange Capital Securities will not provide for any increase in the
Distribution rate thereon and (iii) the Exchange Subordinated Debt Securities
will not provide for any increase in the interest rate thereon. See "Description
of the Capital Securities" and "Description of the Old Securities."
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Securities received in exchange for Old Securities
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Trust and the Company have agreed that they will make
this Prospectus available to any broker-dealer for use in connection with any
such resale until at least the close of business on the 90th day following the
Expiration Date (as defined herein). See "Plan of Distribution."
(Cover continued on next page.)
SEE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PERSONS WHO TENDER OLD CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
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 ACT.
The Exchange Capital Securities will be issued, and may be transferred, only
in blocks having a Liquidation Amount of not less than $100,000 (100 Exchange
Capital Securities). Any transfer of Exchange Capital Securities in a block
having a Liquidation Amount of less than $100,000 shall be deemed to be void and
of no legal effect whatsoever. Any such transferee shall be deemed not to be the
holder of such Exchange Capital Securities for any purpose, including but not
limited to the receipt of Distributions on such Exchange Capital Securities, and
such transferee shall be deemed to have no interest whatsoever in such Exchange
Capital Securities. See "Description of the Capital Securities -- Restrictions
on Transfer."
- ---------------
* Salomon Brothers Inc has filed applications with the United States Patent and
Trademark Office for the registration of the "Capital Trust Pass-through
Securities" and the "TRUPS" service marks.
The date of this Prospectus is September 2, 1997.
<PAGE> 2
(continued from cover page)
The Exchange Capital Securities, the Exchange Subordinated Debt Securities
and Exchange Guarantee are being offered for exchange in order to satisfy
certain obligations of the Company and the Trust under the Registration Rights
Agreement dated as of April 24, 1997 (the "Registration Agreement") among the
Company, the Trust and Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Initial Purchasers"). In the event that the Exchange
Offer is consummated, any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer and the Exchange Capital Securities issued in
the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain actions or exercised certain
rights under the Declaration (as defined herein).
The Exchange Securities and the Old Capital Securities (together, the
"Capital Securities") represent undivided beneficial interests in the assets of
the Trust. The Company is the owner of all of the common securities of the Trust
(the "Common Securities" and, collectively with the Capital Securities, the
"Trust Securities") representing undivided beneficial interests in the assets of
the Trust. Wilmington Trust Company is the Property Trustee and the Delaware
Trustee of the Trust. The Trust exists for the sole purposes of (i) issuing and
selling the Trust Securities and effecting the Exchange Offer for the Exchange
Capital Securities, (ii) investing the proceeds from the sale of the Old Capital
Securities and the Common Securities in the Old Subordinated Debt Securities,
(iii) exchanging the Old Subordinated Debt Securities for the Exchange
Subordinated Debt Securities and (iv) engaging in other activities necessary,
advisable or incidental thereto.
The Subordinated Debt Securities (as defined herein) will mature on April
15, 2027 (the "Stated Maturity Date"). The Subordinated Debt Securities and the
Guarantee (as defined herein) are unsecured obligations of the Company, and are
subordinate and junior in right of payment to certain other existing and future
indebtedness of the Company that, as of June 30, 1997, aggregated approximately
$632 million. See "Description of the Guarantee -- General" and "Description of
the Subordinated Debt Securities -- Subordination." The Capital Securities will
have a preference over the Common Securities under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption or
otherwise. See "Description of the Capital Securities -- Subordination of Common
Securities."
Except as described herein, the Capital Securities will be represented by
global Capital Securities in fully registered form, deposited with a custodian
for and registered in the name of a nominee of The Depository Trust Company
("DTC"). Beneficial interests in such Capital Securities will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. See "Description of the Capital Securities -- Form, Denomination,
Book-Entry Procedures and Transfers."
Holders of the Trust Securities will be entitled to receive cumulative cash
distributions ("Distributions") at the annual rate of 8.56% of the liquidation
amount of $1,000 per Trust Security (the "Liquidation Amount") accumulating from
the date of original issuance (April 24, 1997) and payable (subject to the
extensions of Distribution payment periods described below) semiannually in
arrears on April 15 and October 15 of each year, commencing October 15, 1997. So
long as no Debenture Event of Default (as defined herein) has occurred and is
continuing, the Company will have the right to defer payments of interest on the
Subordinated Debt Securities at any time and from time to time for a period not
exceeding ten consecutive semiannual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity Date. 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 requirements set forth herein.
There could be multiple Extension Periods of varying lengths, each up to ten
consecutive semiannual periods, throughout the term of the Subordinated Debt
Securities. If and for so long as interest payments on the Subordinated Debt
Securities are so deferred, Distributions on the Trust 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 (which includes common and
2
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(continued from cover page)
preferred stock) or to make any payment with respect to debt securities or
certain guarantees of the Company that rank pari passu with or junior to the
Subordinated Debt Securities. During an Extension Period, interest on the
Subordinated Debt Securities will continue to accrue (and the amount of
Distributions to which holders of the Trust Securities are entitled will
continue to accumulate) at the rate of 8.56% per annum, compounded semiannually,
and holders of Trust Securities will be required to accrue interest income for
United States federal income tax purposes prior to receipt of cash payments
attributable to such interest income. See "Description of the Subordinated Debt
Securities -- Option to Extend Interest Payment Period" and "Material Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
The payment of Distributions on the Capital Securities out of moneys held
by the Trust and payments on liquidation of the Trust or the redemption of
Capital Securities, as set forth below, are guaranteed by the Company as
described herein. The Guarantee, when taken together with the Company's
obligations under the Declaration, the Subordinated Debt Securities and the
Indenture (each as defined herein), including its obligation to pay costs,
expenses, debts and other liabilities of the Trust (other than with respect to
the Trust Securities), provides a full and unconditional guarantee, on a
subordinated basis, by the Company of amounts due on the Capital Securities. See
"Relationship Among the Capital Securities, the Subordinated Debt Securities and
the Guarantee -- Full and Unconditional Guarantee." The Guarantee and the Common
Guarantee (as defined herein) will guarantee payments of Distributions and
payments on liquidation or redemption of the Trust Securities, but in each case
only to the extent that the Trust holds funds on hand legally available therefor
and has failed to make such payments, as described herein. See "Description of
the Guarantee." If the Company fails to make a required payment on the
Subordinated Debt Securities, the Trust will not have sufficient funds to make
the related payments, including Distributions, on the Trust Securities. The
Guarantee and the Common Guarantee will not cover any such payment when the
Trust does not have sufficient funds on hand legally available therefor. In such
event, a holder of Capital Securities may institute a legal proceeding directly
against the Company to enforce payment to such holder of accrued but unpaid
interest on Subordinated Debt Securities with a principal amount equal to the
Liquidation Amount of the Capital Securities held by such holder. See
"Description of the Subordinated Debt Securities -- Enforcement of Certain
Rights by Holders of Capital Securities." The obligations of the Company under
the Guarantee, the Common Guarantee and the Subordinated Debt Securities are
unsecured and subordinated and rank junior in right of payment to all present
and future Senior Indebtedness of the Company to the extent and in the manner
set forth in the Indenture and the Guarantees, respectively (as described in
"Description of the Guarantee -- General" and "Description of the Subordinated
Debt Securities -- Subordination").
The Subordinated Debt Securities are redeemable, in whole or in part, by
the Company at the Call Price (as defined herein), plus accrued and unpaid
interest to the date of redemption, on or after April 15, 2007 (the "Optional
Redemption"). In certain limited circumstances described herein, upon the
occurrence and continuance of a Tax Event or the occurrence of an Investment
Company Event (each as defined herein), the Subordinated Debt Securities also
are redeemable by the Company, in whole or in part at any time, at (i) the
Make-Whole Amount (as defined herein) in the case of a redemption upon the
occurrence of a Tax Event or an Investment Company Event prior to April 15,
2007, or (ii) the Call Price in the case of a redemption upon the occurrence of
a Tax Event or an Investment Company Event on or after April 15, 2007, in each
case together with accrued and unpaid interest thereon to the date of the
redemption (the Call Price payable upon an Optional Redemption and the price
specified in clauses (i) and (ii) being referred to herein as the "Redemption
Price" in relation to the Subordinated Debt Securities). Upon redemption by the
Company or at maturity of the Subordinated Debt Securities, the Trust must
redeem on a pro rata basis its Trust Securities having an aggregate Liquidation
Amount equal to the aggregate principal amount of the Subordinated Debt
Securities so redeemed or matured at a redemption price equal to (i) $1,000 per
Trust Security, if redeemed upon the maturity of the Subordinated Debt
Securities, (ii) in the case of a redemption prior to April 15, 2007 following
the occurrence of a Tax Event or an Investment Company Event, an amount per
Trust Security equal to the
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(continued from cover page)
Make-Whole Amount for a corresponding $1,000 principal amount of the
Subordinated Debt Securities or (iii) in the case of any Optional Redemption of
Subordinated Debt Securities or a redemption on or after April 15, 2007
following the occurrence of a Tax Event or an Investment Company Event, an
amount per Trust Security equal to the product of $1,000 and the applicable
percentage used to determine the Call Price for the Subordinated Debt Securities
being redeemed, plus, in all cases, accrued and unpaid Distributions on such
Trust Securities to the date of redemption (the price specified in clauses (i),
(ii) and (iii) being referred to herein as the "Redemption Price" in relation to
the Trust Securities). See "Description of the Capital
Securities -- Redemption," "Description of the Capital Securities -- Tax Event
and Investment Company Event Redemption" and "Description of the Subordinated
Debt Securities -- Optional Redemption."
The Company, as the holder of all of the outstanding Common Securities, has
the right at any time to dissolve the Trust (including, without limitation, upon
the occurrence of a Tax Event or an Investment Company Event) and, after
satisfaction of liabilities to creditors of the Trust (to the extent not
satisfied by the Company), cause the Subordinated Debt Securities to be
distributed to the holders of the Trust Securities, on a pro rata basis, in
accordance with the aggregate Liquidation Amount thereof, in liquidation of the
Trust.
In the event of the voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust, other than in connection with a
redemption or the maturity of Subordinated Debt Securities (as described above),
after satisfaction of liabilities to creditors of the Trust (to the extent not
satisfied by the Company), the holders of the Capital Securities generally will
be entitled to receive the stated Liquidation Amount thereof plus accrued and
unpaid Distributions thereon to the date of payment, unless, in connection with
such dissolution, the Subordinated Debt Securities held by the Trust are
distributed to the holders of the Trust Securities. The holders of the Common
Securities will be entitled to receive distributions upon any liquidation pro
rata with the holders of the Capital Securities, except that if a Debenture
Event of Default has occurred and is continuing, the Capital Securities shall
have a priority over the Common Securities. See "Description of the Capital
Securities -- Liquidation of the Trust and Distribution of Subordinated Debt
Securities."
Based on existing interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in several no-action letters to
third parties and subject to the two immediately following sentences, the
Company and the Trust believe that the Exchange Capital Securities, the Exchange
Guarantee and the Exchange Subordinated Debt Securities issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act; provided, that, such Exchange Capital Securities are acquired in
the ordinary course of such holder's business and such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of the
Exchange Capital Securities. However, any holder of Old Capital Securities who
is an "affiliate" (as defined in Rule 405 under the Securities Act) of the Trust
or the Company or who intends to participate in the Exchange Offer for the
purpose of distributing Exchange Capital Securities, or any broker-dealer who
purchased Old Capital Securities from the Trust to resell pursuant to Rule 144A
under the Securities Act ("Rule 144A") or any other available exemption under
the Securities Act, (i) will not be able to rely on the interpretations of the
staff of the Commission set forth in the above-mentioned no-action letters, (ii)
will not be permitted or entitled to tender such Old Capital Securities in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Old Capital Securities (including compliance with the selling
security holder prospectus information requirements of Item 507 of Regulation
S-K under the Securities Act) unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for
4
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(continued from cover page)
Exchange Capital Securities, then such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales of
such Exchange Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" (as defined in Rule 405
under the Securities Act) of the Trust or the Company, (ii) any Exchange Capital
Securities to be received by it are being acquired in the ordinary course of its
business and (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of such
Exchange Capital Securities. Each broker-dealer that receives Exchange Capital
Securities for its own account pursuant to the Exchange Offer must acknowledge
that it acquired the Old Capital Securities for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Capital Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Commission in the no-action letters referred to above, the Company and the Trust
believe that broker-dealers who acquired Old Capital Securities for their own
accounts as a result of market-making activities or other trading activities may
fulfill their prospectus delivery requirements with respect to the Exchange
Capital Securities received upon exchange of such Old Capital Securities (other
than Old Capital Securities which represent an unsold allotment from the
original sale of the Old Capital Securities) with the prospectus prepared for
the Exchange Offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Capital Securities.
Accordingly, subject to certain provisions set forth in the Registration
Agreement, the Company and the Trust have agreed that this Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of such Exchange Capital Securities for a period
commencing on the Expiration Date and ending 90 days after the Expiration Date
(subject to extension in certain limited circumstances set forth in the
Registration Agreement) or, if earlier, when all such Exchange Capital
Securities have been disposed of by such broker-dealer. See "Plan of
Distribution." Any broker-dealer who is an "affiliate" (as defined in Rule 405
under the Securities Act) of the Trust or the Company may not rely on such
no-action letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
See "The Exchange Offer -- Resales of Exchange Capital Securities."
Each broker-dealer who surrenders Old Capital Securities pursuant to the
Exchange Offer will be deemed to have agreed, by execution of the Letter of
Transmittal, that, upon receipt of notice from the Company or the Trust of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Agreement, such broker-dealer will suspend the sale of Exchange Capital
Securities (or the Exchange Subordinated Debt Securities, as applicable)
pursuant to this Prospectus until the Company and the Trust have amended or
supplemented this Prospectus to correct such misstatement or omission and have
furnished copies of the amended or supplemented Prospectus to such broker-dealer
or the Company and the Trust have given notice that the sale of the Exchange
Capital Securities (or the Exchange Subordinated Debt Securities, as applicable)
may be resumed.
Neither the Company nor the Trust has sought its own interpretive letter
and there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
no-action letters to third parties.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The Exchange Capital
Securities will be a new issue of securities for which
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(continued from cover page)
there currently is no market. Although each Initial Purchaser has informed the
Company that it currently intends to make a market in the Exchange Capital
Securities, it is 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 Exchange Capital
Securities. The Company and the Trust do not currently intend to apply for
listing of the Exchange Capital Securities on the New York Stock Exchange.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable to the Old Capital Securities under
the Declaration (except for those rights which terminate upon consummation of
the Exchange Offer). Following consummation of the Exchange Offer, the holders
of Old Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Company nor the Trust will
have any further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Capital Securities held by them. To the extent that Old Capital Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Capital Securities could be adversely affected. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange prior to 5:00 p.m., New
York City time, on October 6, 1997 (such time and date being hereinafter called
the "Expiration Date"), unless the Exchange Offer is extended by the Company and
the Trust (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). Tenders of Old Capital
Securities may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Company or the Trust and to the terms and provisions of the
Registration Agreement. Old Capital Securities may be tendered in whole or in
part having a Liquidation Amount of not less than $100,000 (100 Old Capital
Securities) or any integral multiple of $1,000 Liquidation Amount (one Old
Capital Security) in excess thereof. The Company has agreed to pay all expenses
of the Exchange Offer. See "The Exchange Offer -- Fees and Expenses." Each
Exchange Capital Security will pay cumulative Distributions from the most recent
Distribution Date (as defined herein) on the Old Capital Securities surrendered
in exchange for such Exchange Capital Securities or, if no Distribution Date has
occurred, from April 24, 1997. Holders of the Old Capital Securities whose Old
Capital Securities are accepted for exchange will not receive accumulated
Distributions on such Old Capital Securities for any period, and will be deemed
to have waived the right to receive such Distributions. See "Risk
Factors--Consequences of a Failure to Exchange Old Capital Securities." This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders of Old Capital Securities as of the date of this Prospectus.
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds from
Sale of Old Capital Securities" and "Plan of Distribution."
As used herein, (i) the "Indenture" means the Indenture, dated as of April
24, 1997, as amended and supplemented from time to time, between the Company and
Wilmington Trust Company, as trustee (the "Debenture Trustee"), relating to the
Subordinated Debt Securities, (ii) the "Declaration" means the Amended and
Restated Declaration of Trust dated as of April 24, 1997 relating to the Trust
among the Company, as Sponsor, Wilmington Trust Company, as Property Trustee
(the "Property Trustee"),
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(continued from cover page)
Wilmington Trust Company, as Delaware Trustee (the "Delaware Trustee"), the
Administrative Trustees named therein (collectively, with the Property Trustee
and Delaware Trustee, the "Issuer Trustees"), (iii) the "Old Guarantee" means
the Guarantee dated as of April 24, 1997 relating to the Old Capital Securities
between the Company and Wilmington Trust Company, as trustee (the "Guarantee
Trustee"), (iv) the "Common Guarantee" means the Guarantee relating to the
Common Securities by the Company, and (v) "Exchange Guarantee" means the
Guarantee to be entered into between the Company and the Guarantee Trustee in
respect of the Capital Securities. In addition, as the context may require,
unless expressly indicated otherwise, (i) "Capital Securities" includes the Old
Capital Securities and the Exchange Capital Securities, (ii) "Subordinated Debt
Securities" includes the Old Subordinated Debt Securities and the Exchange
Subordinated Debt Securities, (iii) "Guarantee" includes the Old Guarantee and
the Exchange Guarantee and (iv) "Guarantees" includes the Guarantee and the
Common Guarantee.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 9
Incorporation of Certain Documents by Reference............. 9
Summary..................................................... 10
Risk Factors................................................ 18
Use of Proceeds from Sale of Old Capital Securities......... 22
Ratios of Earnings to Fixed Charges......................... 22
Capitalization.............................................. 23
The Company................................................. 24
The Trust................................................... 24
The Exchange Offer.......................................... 25
Description of the Capital Securities....................... 34
Description of the Guarantee................................ 50
Description of the Subordinated Debt Securities............. 53
Description of the Old Securities........................... 61
Relationship Among the Capital Securities, the Subordinated
Debt Securities
and the Guarantee......................................... 62
Material Federal Income Tax Consequences.................... 64
ERISA Considerations........................................ 68
Plan of Distribution........................................ 69
Legal Matters............................................... 70
Experts..................................................... 70
</TABLE>
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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 and other information with the Commission. Such reports
and other information concerning the Company can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other materials that are filed through the
Commission's Electronic Data Gathering Analysis and Retrieval System. The Web
site can be accessed at http://www.sec.gov. In addition, similar information
concerning the Company can be inspected at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of the Capital Securities because (i) all of the voting securities of
the Trust are owned, directly or indirectly, by the Company, a reporting company
under the Exchange Act and (ii) the Trust is a newly formed special purpose
entity that has no independent operations and exists for the sole purpose of
issuing securities representing undivided beneficial interests in the assets of
the Trust and holding as trust assets the Subordinated Debt Securities issued by
the Company. See "Description of the Subordinated Debt Securities." In addition,
the Company does not expect that the Trust will file reports, proxy statements
or other information under the Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Trust with the
Commission under 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, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, the Trust
and the Exchange 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as amended by Amendment No. 1 thereto, filed by the Company with the
Commission (File No. 1-6446) on March 12, 1997, its Quarterly Reports on Form
10-Q for the quarters ended March 31, 1997 and June 30, 1997 and its Current
Reports on Form 8-K filed with the Commission on January 23 and 28, 1997, are
incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be incorporated by reference into
this Prospectus and shall be deemed to be a part of this Prospectus from the
date of filing of such documents. See "Available Information." Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded to the extent that a statement contained in this
Prospectus or any supplement hereto or in any other subsequently filed
incorporated document, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. 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. The Company will provide,
upon written or oral request, without charge, to each person to whom a copy of
this Prospectus has been delivered, a copy of any or all of the documents which
have been or may be incorporated in this Prospectus by reference, other than
certain exhibits to such documents. Requests for such copies should be directed
to: K N Energy, Inc., 370 Van Gordon Street, P.O. Box 281304, Lakewood, CO
80228-8304, Attention: Treasurer. IN ORDER TO ENSURE TIMELY DELIVERY OF
DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY SEPTEMBER 29, 1997.
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<PAGE> 10
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere or incorporated by reference in this
Prospectus.
K N CAPITAL TRUST I
The Trust is a statutory business trust created under Delaware law pursuant
to (i) the Declaration executed by the Company, as Sponsor, Wilmington Trust
Company, as Property Trustee and as Delaware Trustee, and the individual
Administrative Trustees named therein, and (ii) the filing of a certificate of
trust with the Delaware Secretary of State on April 4, 1997. The Trust's
business and affairs are conducted by the Issuer Trustees, the Property Trustee,
the Delaware Trustee and the three individual Administrative Trustees who are
employees and officers of the Company. The Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities and effecting the
Exchange Offer for the Exchange Capital Securities, (ii) using the proceeds from
the sale of the Trust Securities to acquire the Old Subordinated Debt Securities
issued by the Company, (iii) exchanging the Old Subordinated Debt Securities for
the Exchange Subordinated Debt Securities and (iv) engaging in only those other
activities necessary, advisable or incidental thereto. Accordingly, the
Subordinated Debt Securities will be the sole assets of the Trust, and payments
under the Subordinated Debt Securities will be the sole revenues of the Trust.
All of the Common Securities will be owned by the Company. The principal place
of business of the Trust is c/o K N Energy, Inc., 370 Van Gordon Street,
Lakewood, Colorado 80228, and its telephone number is (303) 989-1740.
THE COMPANY
The Company is an integrated energy services company with operations that
include natural gas gathering, processing, marketing, field services, storage,
transportation and energy commodity sales of natural gas and natural gas liquids
("NGLs") and power marketing. The Company also sells innovative products and
services, such as its Simple Choice(SM) menu of products and call center
services designed for consumers, utilities and commercial entities. The Company
has operations in nine states in the Rocky Mountain and Mid-Continent regions.
K N is a Kansas corporation which commenced operations in 1936. Executive
offices of K N are located at 370 Van Gordon Street, Lakewood, Colorado 80228,
and its telephone number is (303) 989-1740. As used herein, and unless the
context otherwise requires, "K N" and the "Company" refer to K N Energy, Inc.
and its subsidiaries.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $100,000,000 aggregate Liquidation Amount of
Exchange Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount of
Old Capital Securities. Old Capital Securities may
be tendered for exchange in whole or in part in a
Liquidation Amount of $100,000 (100 Old Capital
Securities) or any integral multiple of $1,000 in
excess thereof. The Company and the Trust are
making the Exchange Offer in order to satisfy their
obligations under the Registration Agreement
relating to the Old Securities. For a description
of the procedures for tendering Old Capital
Securities, see "The Exchange Offer -- Procedures
for Tendering Old Capital Securities."
Expiration Date............ 5:00 p.m., New York City time, on October 6, 1997
unless the Exchange Offer is extended by the
Company and the Trust, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer -- Expiration Date; Extensions;
Amendments."
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<PAGE> 11
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain
conditions, which may be waived by the Company and
the Trust in their sole discretion. The Exchange
Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being
tendered. See "The Exchange Offer -- Conditions to
the Exchange Offer."
The Company and the Trust reserve the right in
their sole and absolute discretion, subject to
applicable law, at any time and from time to time,
(i) to delay the acceptance of the Old Capital
Securities for exchange, (ii) to terminate the
Exchange Offer if certain specified conditions have
not been satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and to retain all Old
Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw their
tendered Old Capital Securities, or (iv) to waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Withdrawal Rights.......... Tenders of Old Capital Securities may be withdrawn
at any time prior to 5:00 p.m., New York City time,
on the Expiration Date by delivering a written
notice of such withdrawal to the Exchange Agent in
conformity with certain procedures set forth below
under "The Exchange Offer -- Procedures for
Tendering Old Capital Securities -- Withdrawal of
Tenders."
Procedures for Tendering Old
Capital Securities....... Tendering holders of Old Capital Securities must
complete and sign a Letter of Transmittal in
accordance with the instructions contained therein
and forward the same by mail, facsimile or hand
delivery, together with any other required
documents, to the Exchange Agent, either with the
Old Capital Securities to be tendered or in
compliance with the specified procedures for
guaranteed delivery of such Old Capital Securities.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Capital Securities registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person
promptly if they wish to tender Old Capital
Securities pursuant to the Exchange Offer. See "The
Exchange Offer -- Procedures for Tendering Old
Capital Securities."
Letters of Transmittal and certificates
representing Old Capital Securities should not be
sent to the Company or the Trust. Such documents
should only be sent to the Exchange Agent.
Questions regarding how to tender and requests for
information should be directed to the Exchange
Agent. See "The Exchange Offer -- Exchange Agent."
Resales of Exchange
Securities................. Based on existing interpretations by the staff of
the Commission and subject to the two immediately
following sentences, the Company and the Trust
believe that the Exchange Capital Securities, the
Exchange Guarantee and, after the distribution
thereof to the holders of the Capital Securities,
the Exchange Subordinated Debt Securities issued
pursuant to the Exchange Offer may be offered for
resale,
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<PAGE> 12
resold and transferred by a holder thereof (other
than a holder who is a broker-dealer) without
further compliance with the registration and
prospectus requirements of the Securities Act,
provided that such Exchange Capital Securities are
acquired in the ordinary course of such holder's
business and such holder is not participating, and
has no arrangement or understanding with any person
to participate, in a distribution (within the
meaning of the Securities Act) of the Exchange
Capital Securities. However, any holder of Old
Capital Securities who is an "affiliate" (as
defined in Rule 405 under the Securities Act) of
the Trust or the Company or who intends to
participate in the Exchange Offer for the purpose
of distributing the Exchange Capital Securities, or
any broker-dealer who purchased the Old Capital
Securities from the Trust to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act, (i) will not be able to rely on
the interpretations of the staff of the Commission
set forth in the above-mentioned no-action letters,
(ii) will not be permitted or entitled to tender
such Old Capital Securities in the Exchange Offer
and (iii) must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any sale or other transfer
of such Old Capital Securities (including
compliance with the selling security holder
prospectus information requirements of Item 507 of
Regulation S-K under the Securities Act), unless
such sale is made pursuant to an exemption from
such requirements. In addition, as described below,
if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of
market-making or other trading activities and
exchanges such Old Capital Securities for Exchange
Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales
of such Exchange Capital Securities.
Each holder of Old Capital Securities who wishes to
exchange Old Capital Securities for Exchange
Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Trust or the Company, (ii) any
Exchange Capital Securities to be received by it
are being acquired in the ordinary course of its
business and (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such Exchange Capital Securities. Each
broker-dealer that receives Exchange Capital
Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired
the Old Capital Securities for its own account as
the result of market-making activities or other
trading activities and must agree that it will
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of
such Exchange Capital Securities. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on
the position taken by the staff of the Commission
in the no- action letters referred to above, the
Company and the Trust believe that broker-dealers
who acquired Old Capital Securities for their own
accounts as a result of market-making activities or
other trading activities may fulfill their
prospectus delivery requirements with respect to
the Exchange Capital Securities received upon
exchange of
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<PAGE> 13
such Old Capital Securities (other than Old Capital
Securities which represent an unsold allotment from
the original sale of the Old Capital Securities)
with the prospectus prepared for the Exchange Offer
so long as it contains a description of the plan of
distribution with respect to the resale of such
Exchange Capital Securities. Accordingly, subject
to certain provisions set forth in the Registration
Agreement and to the limitations described below
under "The Exchange Offer -- Resales of Exchange
Capital Securities," the Company and the Trust have
agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
broker-dealer in connection with the resales of
such Exchange Capital Securities for a period
commencing on the Expiration Date and ending 90
days after the Expiration Date (subject to
extension as described in the Registration
Agreement) or if earlier, when all such Exchange
Capital Securities have been disposed of by such
broker-dealer. See "Plan of Distribution." Any
broker-dealer who is an "affiliate" of the Company
or the Trust may not rely on such no-action letters
and must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction. See
"The Exchange Offer -- Resales of Exchange Capital
Securities."
Neither the Company nor the Trust has sought its
own interpretive letter and there can be no
assurance that the staff of the Commission would
make a similar determination with respect to the
Exchange Offer as it has in such no-action letters
to third parties.
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is Wilmington Trust Company (the "Exchange
Agent"). The addresses, and telephone and facsimile
numbers, of the Exchange Agent are set forth in
"The Exchange Offer -- Exchange Agent" and in the
Letter of Transmittal.
Use of Proceeds............ Neither the Company nor the Trust will receive any
cash proceeds from the issuance of the Exchange
Capital Securities offered hereby. See "Use of
Proceeds from Sale of Old Capital Securities."
Material Federal Income Tax
Consequences............. Holders of Old Capital Securities should review the
information set forth under "Material Federal
Income Tax Consequences" prior to tendering Old
Capital Securities in the Exchange Offer.
THE EXCHANGE SECURITIES
Securities Offered......... Up to $100,000,000 aggregate Liquidation Amount of
the Trust's 8.56% Series B Capital Trust
Pass-through Securities(SM) which have been
registered under the Securities Act (Liquidation
Amount $1,000 per Capital Security). The Exchange
Capital Securities will be issued, and the Old
Capital Securities were issued, under the
Declaration. The Exchange Capital Securities and
any Old Capital Securities which remain outstanding
after consummation of the Exchange Offer will
constitute a single class of Capital Securities
under the Declaration and, accordingly, will vote
together for purposes of determining whether
holders of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain
actions or exercised certain
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<PAGE> 14
rights under the Declaration. See "Description of
the Capital Securities -- General." The terms of
the Exchange Capital Securities are identical in
all material respects to the terms of the Old
Capital Securities, except that the Exchange
Capital Securities have been registered under the
Securities Act and therefore are not subject to
certain restrictions on transfer applicable to the
Old Capital Securities and will not provide for any
increase in the Distribution rate thereon. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer," "Description of the Capital
Securities" and "Description of the Old
Securities."
General.................... The Exchange Capital Securities will represent
undivided beneficial interests in the Trust's
assets, which consist solely of Subordinated Debt
Securities. The Subordinated Debt Securities mature
on April 15, 2027, unless the Subordinated Debt
Securities are redeemed by the Company prior to
such maturity as described under "Description of
the Capital Securities -- Redemption" and
"Description of the Capital Securities -- Tax Event
and Investment Company Event Redemption."
Distributions.............. The Distributions payable on the Exchange Capital
Securities will be fixed at a rate per annum of
8.56% of the Liquidation Amount of $1,000 per
Capital Security and will accumulate from the date
of original issuance of the Old Capital Securities,
April 24, 1997, and (subject to the extensions of
Distribution payment periods described below) will
be payable semiannually, in arrears, on April 15
and October 15 of each year, commencing October 15,
1997. See "Description of the Capital
Securities -- Distributions."
Option to Extend Interest
Payment Period........... So long as no Debenture Event of Default has
occurred and is continuing, Distributions on the
Trust Securities may be deferred for the duration
of any Extension Period elected by the Company with
respect to the payment of interest on the
Subordinated Debt Securities. No Extension Period
may exceed ten consecutive semiannual periods or
extend beyond the Stated Maturity Date. See
"Description of the Subordinated Debt
Securities -- Option to Extend Interest Payment
Period" and "Material Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
Liquidation................ The Company, as holder of the Common Securities,
will have the right at any time to dissolve the
Trust (including, without limitation, upon the
occurrence of a Tax Event or an Investment Company
Event), and cause the Subordinated Debt Securities
to be distributed to the holders of the Trust
Securities on a pro rata basis in liquidation of
the Trust. In addition, the Trust will be
automatically dissolved under certain other
circumstances. See "Description of the Capital
Securities -- Liquidation of the Trust and
Distribution of Subordinated Debt Securities."
Liquidation Amount......... In the event of the voluntary or involuntary
dissolution of the Trust, the Trust shall be
liquidated by the Administrative Trustees as
expeditiously as possible by distributing, after
satisfaction of liabilities to creditors of the
Trust as provided by applicable law (to the extent
not satisfied by the Company), to the holders of
the Trust Securities a
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<PAGE> 15
Like Amount (as defined herein) of the Subordinated
Debt Securities. In the event such holders do not
receive a Like Amount of Subordinated Debt
Securities, such holders will be entitled to
receive out of the assets of the Trust legally
available for distribution, after satisfaction of
liabilities to creditors of the Trust (to the
extent not satisfied by the Company), an amount
equal to the aggregate of the Liquidation Amount
plus accumulated and unpaid Distributions thereon
to the date of payment (such amount being the
"Liquidation Distribution"). If the Liquidation
Distribution can be paid only in part because the
Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by
the Trust on the Capital Securities and the Common
Securities shall be paid on a pro rata basis,
except that if a Debenture Event of Default has
occurred and is continuing, the Capital Securities
shall have a priority over the Common Securities.
See "Description of the Capital
Securities -- Subordination of Common Securities."
Redemption of Trust
Securities................. Upon the repayment of the Subordinated Debt
Securities, whether at maturity or upon early
redemption as provided in the Indenture, the
proceeds from such repayment will be applied by the
Property Trustee to redeem a Like Amount of Trust
Securities, upon the terms and conditions described
herein. See "Description of the Capital
Securities -- Redemption."
Optional Redemption of
Subordinated Debt
Securities............... K N has the right to redeem the Subordinated Debt
Securities on or after April 15, 2007, in whole at
any time or in part from time to time, subject to
the conditions described in "Description of the
Subordinated Debt Securities -- Optional
Redemption," at the Call Prices described herein,
together with accrued and unpaid interest to the
date of redemption. Upon the redemption of the
Subordinated Debt Securities, the proceeds of such
redemption will be applied by the Property Trustee
to redeem a Like Amount of the Trust Securities pro
rata at the applicable Redemption Price and upon
the terms and conditions described herein. See
"Description of the Capital
Securities -- Redemption."
Tax Event and Investment
Company Event
Redemption............... If at any time a Tax Event occurs and is
continuing, the Company may, within 90 days of the
occurrence of such Tax Event, redeem the
Subordinated Debt Securities in whole or in part at
the Make-Whole Amount, if such event occurs prior
to April 15, 2007, or at the Call Price (as
described herein) if such event occurs on or after
April 15, 2007, in each case together with accrued
and unpaid interest thereon to the date of
redemption. If an Investment Company Event occurs,
the Company may, within 90 days of the occurrence
of such Investment Company Event, redeem the
Subordinated Debt Securities in whole or in part at
the Make-Whole Amount, if such event occurs prior
to April 15, 2007, or at the Call Price, if such
event occurs on or after April 15, 2007, in each
case together with accrued and unpaid
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<PAGE> 16
interest thereon to the date of redemption. See
"Description of the Capital Securities -- Tax Event
and Investment Company Event Redemption." Upon the
redemption of the Subordinated Debt Securities, the
proceeds of such redemption will be applied by the
Property Trustee to redeem a Like Amount of the
Trust Securities pro rata at the applicable
Redemption Price, upon the terms and conditions
described herein. See "Description of the Capital
Securities -- Redemption."
The Guarantee.............. The payment of Distributions out of moneys held by
the Trust, payments upon liquidation of the Trust
and payments upon the redemption of the Capital
Securities are guaranteed by the Company as
described under "Description of the Guarantee." The
Guarantee covers payments of Distributions and
other payments on the Capital Securities only if
and to the extent that the Trust has funds
available therefor, which funds will not be
available except to the extent that the Company has
made payments of interest (or premium, if any) or
principal or other payments on the Subordinated
Debt Securities. The Guarantee, when taken together
with the Company's obligations under the
Subordinated Debt Securities, the Declaration and
the Indenture, including its obligation to pay
costs, expenses, debts and other liabilities of the
Trust (other than with respect to the Trust
Securities), provides a full and unconditional
guarantee, on a subordinated basis, by the Company
of amounts due on the Capital Securities.
Ranking.................... The Exchange Capital Securities will rank pari
passu, and payments thereon will be made pro rata,
with the Old Capital Securities and the Common
Securities except as described under "Description
of the Capital Securities -- Subordination of
Common Securities." The Exchange Subordinated Debt
Securities will be unsecured and subordinate and
rank junior in right of payment to all Senior
Indebtedness to the extent and in the manner set
forth in the Indenture. See "Description of the
Subordinated Debt Securities -- General." The
Exchange Guarantee will constitute an unsecured
obligation of the Company and will be subordinate
and rank junior in right of payment to all Senior
Indebtedness to the extent and in the manner set
forth in the Exchange Guarantee. See "Description
of the Guarantee." As of June 30, 1997, Senior
Indebtedness of the Company aggregated
approximately $632 million.
Voting Rights.............. Holders of Exchange Capital Securities will have
limited voting rights and, so long as no Debenture
Event of Default has occurred and is continuing,
will not be entitled to vote to appoint, remove or
replace, or to increase or decrease the number of,
Issuer Trustees, which voting rights are vested
exclusively in the holder of the Common Securities.
Holders of the Exchange Capital Securities will not
be entitled to appoint, remove or replace the
Administrative Trustees. See "Description of the
Capital Securities -- Voting Rights; Amendment of
the Declaration" and "-- Removal of Issuer
Trustees; Appointment of Successors."
Ratings.................... The Exchange Capital Securities are expected to
retain the "baa1" issued by Moody's Investors
Service, Inc., the "BBB" issued by Standard and
Poor's Rating Services and the "A-" issued by Fitch
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<PAGE> 17
Investors Service, Inc. in respect of the Old
Capital Securities. A security rating is not a
recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any
time by the assigning rating organization.
Absence of Market for the
Exchange Capital
Securities............... The Exchange Capital Securities will be a new issue
of securities for which there currently is no
market. Although each of the Initial Purchasers of
the Old Capital Securities has informed KN that it
currently intends to make a market in the Exchange
Capital Securities, it is 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 Exchange Capital Securities. The
Trust and the Company do not currently intend to
apply for listing of the Exchange Capital
Securities on the New York Stock Exchange.
For additional information with respect to the Exchange Securities, see
"Description of the Capital Securities," "Description of the Subordinated Debt
Securities," "Description of the Guarantee" and "Material Federal Income Tax
Consequences."
RISK FACTORS
Holders tendering Old Capital Securities in the Exchange Offer should
carefully consider the matters set forth under "Risk Factors."
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<PAGE> 18
RISK FACTORS
Holders of Old Capital Securities should carefully review the information
contained elsewhere in this Prospectus and should particularly consider the
following matters in evaluating the Exchange Offer.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND SUBORDINATED DEBT
SECURITIES
The obligations of the Company under the Guarantee and under the
Subordinated Debt Securities are unsecured and subordinate and rank junior in
right of payment to all present and future Senior Indebtedness of the Company to
the extent and in the manner set forth in the Indenture and the Guarantee,
respectively. No payment may be made of the principal of, or premium, if any, or
interest on the Subordinated Debt Securities, or in respect of any redemption,
retirement, purchase or other acquisition of any of the Subordinated Debt
Securities, at any time when (i) there shall have occurred and be continuing a
default in any payment in respect of any Senior Indebtedness, or there has been
an acceleration of the maturity thereof because of a default or (ii) in the
event of the acceleration of the maturity of the Subordinated Debt Securities,
until payment has been made on all Senior Indebtedness. As of June 30, 1997,
Senior Indebtedness of the Company aggregated approximately $632 million. There
are no terms in the Capital Securities, the Subordinated Debt Securities or the
Guarantee that limit the Company's ability to incur additional indebtedness,
including indebtedness which ranks senior to the Subordinated Debt Securities
and the Guarantee. See "Description of the Guarantee -- Status of the Guarantee"
and "Description of the Subordinated Debt Securities -- Subordination."
If the Company fails to make a required payment with respect to the
Subordinated Debt Securities as a result of their subordination provisions, the
Trust will not have sufficient funds to make the related payments, including
Distributions, on the Capital Securities.
LACK OF PROTECTION UPON CHANGE OF CONTROL OF K N
The Indenture does not contain provisions that afford holders of the
Subordinated Debt Securities protection in the event of a highly leveraged
transaction (including such a transaction involving a change of control of the
Company effected through stock ownership changes or changes in the directors of
the Company) or other similar transactions involving the Company that may
adversely affect such holders. See "Description of the Subordinated Debt
Securities -- General."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company shall have the right under the Indenture to defer
payments of interest on the Subordinated Debt Securities at any time or from
time to time for a period not exceeding ten consecutive semiannual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity Date. Upon any such deferral, semiannual
Distributions on the Trust Securities by the Trust will be deferred (and the
amount of Distributions to which holders of the Trust Securities are entitled
will accumulate Distributions thereon at the rate of 8.56% per annum, compounded
semiannually, to the extent permitted by applicable law, from the relevant
payment date for such Distributions) during any such Extension Period.
The Company may extend any existing Extension Period, provided that such
extension does not cause such Extension Period to exceed ten consecutive
semiannual periods or to extend beyond the Stated Maturity Date. Upon the
expiration of any Extension Period and the payment of all interest then accrued
and unpaid on the Subordinated Debt Securities (together with interest thereon
at the annual rate of 8.56%, compounded semiannually, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period, subject
to the above requirements. There is no limitation on the number of times that
the Company may elect to begin an Extension Period. See "Description of the
Capital Securities -- Distributions" and "Description of the Subordinated Debt
Securities -- Option to Extend Interest Payment Period."
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<PAGE> 19
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Capital Securities will be
required to accrue income (as original issue discount ("OID")) in respect of the
deferred stated interest allocable to its Capital Securities for United States
federal income tax purposes, which will be allocated but not distributed to
holders of record of Capital Securities. As a result, each such holder of
Capital Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash from
the Trust related to such income if such holder disposes of its Capital
Securities prior to the record date for the date on which distributions of such
amounts are made. The Company has no current intention of exercising its right
to defer payments of interest by extending the interest payment period on the
Subordinated Debt Securities. However, should the Company determine 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 an undivided beneficial
interest in the Subordinated Debt Securities) may be more volatile than other
securities on which OID accrues that do not have such rights. See "Material
Federal Income Tax Consequences -- Sales of Capital Securities."
PROPOSED TAX LEGISLATION
On February 6, 1997 the Clinton Administration released an explanation of
its Fiscal 1998 Budget Proposal, which would, among other things, generally deny
corporate issuers a deduction for interest in respect of certain types of debt
obligations (the "Administration's Proposal"). The Administration's Proposal
would apply to debt obligations, such as the Subordinated Debt Securities,
issued on or after the date of "first committee action" with respect to the
Administration's Proposal if such debt obligations have a maximum term in excess
of 15 years and are not shown as indebtedness on the issuer's balance sheet or
if such debt obligations have a maximum weighted average maturity of more than
40 years. Under current law, the Company will be able to deduct interest on the
Subordinated Debt Securities, and as currently proposed the Administration's
Proposal would not apply to the Subordinated Debt Securities, because they were
issued prior to the date of "first committee action." Legislative proposals
recently approved by the House Ways and Means Committee and the Senate Finance
Committee did not include the Administration's Proposal. There can be no
assurance, however, that current or future legislative proposals or final
legislation will not adversely affect the ability of the Company to deduct
interest on the Subordinated Debt Securities. Accordingly, there can be no
assurance that a Tax Event will not occur. The occurrence of a Tax Event may
result in the redemption of the Subordinated Debt Securities for cash, in which
event the holders of Capital Securities would receive cash in redemption of
their Capital Securities. See "Description of the Capital Securities -- Tax
Event and Investment Company Event Redemption" and "Description of the
Subordinated Debt Securities -- Optional Redemption."
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence of a Tax Event or an Investment Company Event, the
Company will have the right to redeem the Subordinated Debt Securities, in whole
or in part, subject to the conditions described in "Description of the Capital
Securities -- Tax Event and Investment Company Event Redemption," at the
Redemption Prices described herein, and therefore to cause a mandatory
redemption of a Like Amount of Trust Securities at corresponding Redemption
Prices. See "Description of the Capital Securities -- Redemption" and "-- Tax
Event and Investment Company Event Redemption" and "Description of the
Subordinated Debt Securities -- Optional Redemption."
DISTRIBUTION OF SUBORDINATED DEBT SECURITIES
The Company, as the holder of the Common Securities, will have the right at
any time to dissolve the Trust (including, without limitation, upon the
occurrence of a Tax Event or an Investment Company Event) and, after
satisfaction of liabilities to creditors of the Trust (to the extent not
satisfied by the
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<PAGE> 20
Company), cause the Subordinated Debt Securities to be distributed to the
holders of the Trust Securities in liquidation of the Trust. Such right is
subject to the Company having received an opinion of counsel to the effect that
such distribution will not be a taxable event to holders of Capital Securities.
Under current United States federal income tax law, a distribution of
Subordinated Debt Securities upon the dissolution of the Trust would not be a
taxable event to holders of the Capital Securities. Moreover, upon the
occurrence of a Tax Event or an Investment Company Event, a dissolution of the
Trust in which holders of the Capital Securities receive cash would be a taxable
event to such holders. See "Material Federal Income Tax Consequences -- Receipt
of Subordinated Debt Securities or Cash Upon Liquidation of the Trust."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for the Capital
Securities or the Subordinated Debt Securities that may be distributed in
exchange for Capital Securities if a dissolution or liquidation of the Trust
were to occur. Accordingly, the Capital Securities or the Subordinated Debt
Securities may trade at a discount to the price that the investor paid to
purchase the Capital Securities offered hereby. Because holders of Capital
Securities may receive Subordinated Debt Securities, such holders should
carefully review all the information regarding the Subordinated Debt Securities
contained herein. See "Description of the Capital Securities -- Redemption" and
"-- Liquidation of the Trust and Distribution of the Subordinated Debt
Securities" and "Description of the Subordinated Debt Securities."
RIGHTS UNDER THE GUARANTEE BOTH SUBORDINATED AND LIMITED TO FUNDS AVAILABLE TO
TRUST
Wilmington Trust Company will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of Capital Securities. Wilmington Trust
Company also acts as both Property Trustee and Delaware Trustee under the
Declaration and as Debenture Trustee under the Indenture. The Guarantee will
guarantee to the holders of the Capital Securities the following payments, to
the extent not paid by the Trust: (i) any accumulated and unpaid Distributions
that are required to be paid on the Capital Securities, to the extent the Trust
has funds on hand legally available therefor, (ii) the Redemption Price,
including all accumulated and unpaid Distributions, with respect to Capital
Securities called for redemption by the Trust, to the extent the Trust has funds
on hand legally available therefor, and (iii) upon a voluntary or involuntary
dissolution and liquidation of the Trust (other than in connection with the
distribution of Subordinated Debt Securities to the holders of Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions on the Capital Securities to the date of
the payment, to the extent the Trust has funds on hand legally available
therefor, and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Capital Securities in liquidation of the Trust.
The Guarantee will constitute an unsecured obligation of the Company and will
rank subordinate and junior in right of payment to all Senior Indebtedness in
the same manner as the Subordinated Debt Securities. If the Company were to
default on its obligation to pay amounts payable on the Subordinated Debt
Securities, the Trust would lack available 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, holders of
the Capital Securities would rely on the enforcement (1) by the Property Trustee
of its rights as registered holder of the Subordinated Debt Securities against
the Company pursuant to the terms of the Subordinated Debt Securities or (2) by
such holders of their right against the Company to enforce payments on the
Subordinated Debt Securities. See "Description of the Capital
Securities -- Events of Default; Notice," "Description of the Guarantee" and
"Description of the Subordinated Debt Securities."
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights and, so long
as no Debenture Event of Default has occurred and is continuing, will not be
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, Issuer Trustees, which voting rights are vested exclusively in the
20
<PAGE> 21
holder of the Common Securities. See "Description of the Capital
Securities -- Voting Rights; Amendment of the Declaration."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Agreement (subject to certain limited
exceptions). The Company and the Trust do not intend to register under the
Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
The Registration Agreement provides, under certain circumstances, for
additional interest to become payable in respect of the Old Subordinated Debt
Securities as liquidated damages, and for corresponding additional Distributions
to become payable in respect of the Old Capital Securities. Following
consummation of the Exchange Offer, any outstanding Old Capital Securities will
not be entitled to any increase in the Distribution rate thereon.
To the extent that Old Capital Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Capital Securities
could be adversely affected. In addition, any trading market for Old Capital
Securities which remain outstanding after the Exchange Offer could be adversely
affected.
The Exchange Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
class of Capital Securities under the Declaration and, accordingly, will vote
together for purposes of determining whether holders of the requisite percentage
in outstanding Liquidation Amount thereof have taken certain actions or
exercised certain rights under the Declaration. See "Description of the Capital
Securities -- General."
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes are
currently owned by, a relatively small number of beneficial owners. The Old
Capital Securities have not been registered under the Securities Act and will
remain subject to restrictions on transferability to the extent that they are
not exchanged for the Exchange Capital Securities. Although the Exchange Capital
Securities will generally be permitted to be resold or otherwise transferred by
the holders thereof without compliance with the registration requirements under
the Securities Act, they will constitute a new issue of securities with no
established trading market. Capital Securities may be transferred by the holders
thereof only in blocks having a Liquidation Amount of not less than $100,000
(100 Capital Securities). The Company has been advised by each Initial Purchaser
that it currently intends to make a market in the Exchange Capital Securities
and the Old Capital Securities. However, neither Initial Purchaser is obligated
to do so and any market-making activity with respect to the Exchange Capital
Securities or the Old Capital Securities may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. Accordingly, no assurance
can be given that an active public or other market will develop for the Exchange
Capital Securities or the Old Capital Securities or as to the liquidity of or
the trading market for the Exchange Capital Securities or the Old Capital
Securities. If an active public market does not exist for the Exchange Capital
Securities or the Old Capital Securities, as the case may be, the market price
and liquidity of such Capital Securities may be adversely affected.
21
<PAGE> 22
Future trading prices of the Capital Securities will depend on many
factors, including, among other things, prevailing interest rates, results of
operations of the Company and the market for similar securities. Under certain
circumstances, the Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Company or the Trust may publicly offer for sale or
resell the Exchange Securities only in compliance with the provisions of Rule
144 under the Securities Act.
Each broker-dealer that receives Exchange Capital Securities for its own
account in exchange for Old Capital Securities, where such Old Capital
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Capital Securities.
See "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of Exchange Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after timely receipt
by the Trust of such Old Capital Securities, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore,
holders of Old Capital Securities desiring to tender such Old Capital Securities
in exchange for Exchange Capital Securities should allow sufficient time to
ensure timely delivery. The Trust is under no duty to give notification of
defects or irregularities with respect to the tenders of Old Capital Securities
for exchange.
USE OF PROCEEDS FROM SALE OF OLD CAPITAL SECURITIES
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. In consideration for
issuing the Exchange Capital Securities in exchange for Old Capital Securities
as described in this Prospectus, the Trust will receive Old Capital Securities
in like Liquidation Amount. The Old Capital Securities surrendered in exchange
for the Exchange Capital Securities will be retired and canceled.
The net proceeds to the Trust from the offering of the Old Capital
Securities was $100,000,000 (exclusive of the Initial Purchasers' discount and
other expenses associated with the offering paid by K.N.). All of the proceeds
from the sale of the Common Securities and the Old Capital Securities were
invested by the Trust in the Old Subordinated Debt Securities. The Company
applied the net proceeds from the sale of the Old Subordinated Debt Securities
to reduce short-term indebtedness incurred (i) to provide working capital and
(ii) to fund capital expenditures and acquisitions. The indebtedness repaid had
an approximate weighted average annual interest rate of 5.7%.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown.
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED --------------------------------
JUNE 30, 1997 1996 1995 1994 1993 1992
- -------------- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
2.45 3.21 3.07 1.69 2.41 2.61
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings are the sum of net income, taxes
and fixed charges. Fixed charges are interest, amortization of debt discount,
premium and expense, preferred stock dividends of a subsidiary, and the
estimated interest portion of rental charges. The allowance for borrowed funds
used during construction recognized for gas utility operations has been added to
fixed charges and is included in earnings. A schedule setting forth the
computation of the ratios of earnings to fixed charges is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
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<PAGE> 23
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1997 on an historical basis, which reflects the issuance of
the Capital Securities on April 24, 1997. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and the notes thereto contained in K N's Annual Report on Form 10-K for
the year ended December 31, 1996, as amended, and in its Quarterly Report on
Form 10-Q for the three months ended June 30, 1997, which reports are
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1997
-------------
(UNAUDITED)
(IN MILLIONS)
<S> <C>
Short-Term Debt(1).......................................... $ 219.4
========
Long-Term Debt, Excluding Current Maturities................ $ 412.9
Company-Obligated Mandatorily Redeemable Capital Trust
Pass-through Securities of Subsidiary Trust(2)............ 100.0
--------
Preferred Stock............................................. 7.0
--------
Common Stockholders' Equity:
Common Stock, $5 par value, authorized 50,000,000 shares,
31,343,368 outstanding shares.......................... 156.7
Additional Paid-in Capital................................ 247.4
Retained Earnings......................................... 156.9
Deferred Compensation..................................... (9.0)
Treasury Stock, at Cost (26,533 shares)................... (1.0)
--------
Total Common Stockholders' Equity................. 551.0
--------
Total Capitalization.............................. $1,070.9
========
</TABLE>
- ---------------
(1) Includes $19.1 million of current maturities of long-term debt and $200.3
million of notes payable.
(2) As described herein, the sole assets of the Trust are the Subordinated Debt
Securities with a principal amount of $103.1 million. The Subordinated Debt
Securities bear interest at the rate of 8.56% per annum and will mature on
April 15, 2027. The Company owns all of the Common Securities of the Trust.
Upon redemption of the Subordinated Debt Securities, the Capital Securities
will be mandatorily redeemable.
23
<PAGE> 24
THE COMPANY
The Company is a Kansas corporation which commenced operations in 1936. K N
is an integrated energy services company with operations that include natural
gas gathering, processing, marketing, field services, storage, transportation
and energy commodity sales of natural gas and NGLs and power marketing. The
Company also sells innovative products and services, such as its Simple
Choice(SM) menu of products and call center services designed for consumers,
utilities and commercial entities. The Company has operations in nine states in
the Rocky Mountain and Mid-Continent regions.
The executive offices of K N are located at 370 Van Gordon Street,
Lakewood, Colorado 80228, and its telephone number is (303) 989-1740.
Additional information concerning the Company is included in the Company
reports and other documents incorporated by reference in this Prospectus. See
"Available Information" and "Incorporation of Certain Documents by Reference."
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust, dated as of March 31, 1997, executed by the
Company, as sponsor (the "Sponsor"), the Delaware Trustee and the Administrative
Trustee named therein (the "Initial Declaration"), and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
April 4, 1997. The Initial Declaration was replaced by an amended and restated
declaration of trust executed as of the Issue Date by the Company, as Sponsor,
and the Issuer Trustees (as defined herein) (the "Declaration"). The Trust
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, which represent undivided beneficial interests in the assets of the
Trust, and effecting the Exchange Offer for the Exchange Capital Securities,
(ii) investing the gross proceeds from the sale of the Old Capital Securities
and Common Securities in the Old Subordinated Debt Securities, (iii) exchanging
the Old Subordinated Debt Securities for the Exchange Subordinated Debt
Securities and (iv) engaging in only those other activities necessary, advisable
or incidental thereto. Accordingly, the Subordinated Debt Securities are the
sole assets of the Trust and payments under the Subordinated Debt Securities are
the sole revenues of the Trust. All of the Common Securities are owned directly
by the Company. The Common Securities rank pari passu, and any payments will be
made thereon pro rata, with the Capital Securities except that upon the
occurrence and during the continuance of a Debenture Event of Default, the
rights of the Company as holder of the Common Securities to payments from the
Trust in respect of Distributions and payments upon liquidation, redemption and
otherwise will be subordinated and rank junior to the rights of the holders of
the Capital Securities. See "Description of the Capital
Securities--Subordination of Common Securities." On the Issue Date, the Company
acquired Common Securities in an aggregate Liquidation Amount equal to 3% of the
total capital of the Trust. The Trust has a term of 31 years, but may dissolve
earlier as provided in the Declaration. The Company, as holder of all of the
outstanding Common Securities, has the right at any time to dissolve the Trust
(including, without limitation, upon the occurrence of a Tax Event or an
Investment Company Event) and, after satisfaction of liabilities to creditors of
the Trust (to the extent not satisfied by the Company), cause the Subordinated
Debt Securities to be distributed to holders of the Trust Securities on a pro
rata basis in accordance with the respective liquidation amounts thereof, in
liquidation of the Trust.
The Trust's business and affairs are conducted by trustees (the "Issuer
Trustees") appointed by the Company as the direct holder of the Common
Securities. The Issuer Trustees are Wilmington Trust Company, as the property
trustee (the "Property Trustee"), Wilmington Trust Company, as the Delaware
trustee (the "Delaware Trustee"), and three individual trustees (the
"Administrative Trustees"), each of whom is an employee and officer of K N.
Pursuant to the Declaration, the Delaware Trustee is an entity that maintains
its principal place of business in the State of Delaware. Wilmington Trust
Company, as Property Trustee, acts as sole indenture trustee under the
Declaration. The Property Trustee holds title to the Subordinated Debt
Securities for the benefit of the holders of the Trust Securities and has the
power to exercise all rights, powers and privileges under the Indenture as the
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<PAGE> 25
holder of the Subordinated Debt Securities. In addition, the Property Trustee
maintains exclusive control of a separate, segregated, non-interest bearing
trust account (the "Property Account") to hold all payments made in respect of
the Subordinated Debt Securities for the benefit of the holders of the Trust
Securities. The Property Trustee will make payments of Distributions and
payments on liquidation, redemption and otherwise to the holders of record of
the Trust Securities out of funds from the Property Account. Wilmington Trust
Company also acts as indenture trustee under the Guarantee and the Indenture.
See "Description of the Guarantee" and "Description of the Subordinated Debt
Securities." The holder of the Common Securities or, if an Event of Default
under the Declaration has occurred and is continuing, the holders of a majority
in Liquidation Amount of the Capital Securities, will be entitled to appoint,
remove or replace the Property Trustee and/or the Delaware Trustee. In no event
will the holders of the Capital Securities have the right to vote to appoint,
remove or replace the Administrative Trustees; such voting rights will be vested
exclusively in the holder of the Common Securities. The duties and obligations
of each Issuer Trustee are governed by the Declaration. Pursuant to the expense
provisions under the Indenture, the Company will pay all fees, expenses, debts
and obligations related to the Trust and the offering of the Capital Securities,
including all fees and expenses in connection with the Exchange Offer and all
ongoing costs and expenses of the Trust (other than with respect to the Trust
Securities).
The principal place of business of the Trust is c/o K N Energy, Inc., 370
Van Gordon Street, P.O. Box 281304, Lakewood, Colorado 80228-8304, Attention:
Chief Financial Officer.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Agreement with the Initial Purchasers,
pursuant to which the Company and the Trust agreed, among other things, to use
their best efforts to file and to cause to become effective with the Commission
a registration statement with respect to the exchange of the Old Capital
Securities for capital securities with terms identical in all material respects
to the terms of the Old Capital Securities. A copy of the Registration Agreement
has been filed as an Exhibit to the Registration Statement of which this
Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Trust under the Registration Agreement. The form and terms
of the Exchange Capital Securities are the same as the form and terms of the Old
Capital Securities except that the Exchange Capital Securities have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Capital Securities and will not
provide for any increase in the Distribution rate thereon. In that regard, the
Old Capital Securities provide, among other things, that, if the Exchange Offer
is not consummated within a specified period after the date the Old Capital
Securities were issued, then both the Distribution rate borne by the Old Capital
Securities and the interest rate borne by the Old Subordinated Debt Securities
will increase by 0.25% per annum until the Exchange Offer is consummated. Upon
consummation of the Exchange Offer, holders of Old Capital Securities will not
be entitled to any increase in the Distribution rate thereon or any further
registration rights under the Registration Agreement, except under limited
circumstances. See "Risk Factors -- Consequences of a Failure to Exchange Old
Capital Securities" and "Description of the Old Securities."
The Exchange Offer is not being made to, nor will the Company or the Trust
accept tenders for exchange from, holders of Old Capital Securities in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not be
in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from the registered holder, or any person
25
<PAGE> 26
whose Old Capital Securities are held of record by the nominee of DTC who
desires to deliver such Old Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange, as soon as
practicable after the draft hereof, the Old Guarantee for the Exchange Guarantee
and all of the Old Subordinated Debt Securities, of which $103,100,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of the
Exchange Subordinated Debt Securities. The Exchange Subordinated Debt Securities
and the Exchange Guarantee have been registered under the Securities Act.
TERMS OF THE EXCHANGE
The Company and the Trust hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $100,000,000 aggregate Liquidation Amount of
Exchange Capital Securities for a like aggregate Liquidation Amount of Old
Capital Securities properly tendered prior to 5:00 p.m., New York City time, on
the Expiration Date and not properly withdrawn, in accordance with the
procedures described below. The Trust will issue, promptly after the Expiration
Date, an aggregate Liquidation Amount of up to $100,000,000 of Exchange Capital
Securities in exchange for a like Liquidation Amount of outstanding Old Capital
Securities tendered and accepted in connection with the Exchange Offer. Holders
may tender their Old Capital Securities in whole or in part in a Liquidation
Amount of not less than $100,000 (100 Capital Securities) or any integral
multiple of $1,000 in excess thereof, provided that if any Old Capital
Securities are tendered for exchange in part, the untendered Liquidation Amount
thereof must be $100,000 (100 Capital Securities) or any integral multiple of
$1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$100,000,000 aggregate Liquidation Amount of the Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered or are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of the
Declaration, but will not be entitled to any increase in the Distribution rate
thereon or any further registration rights under the Registration Agreement,
except under limited circumstances. See "Risk Factors -- Consequences of a
Failure to Exchange Old Capital Securities" and "Description of the Old
Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Company will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "-- Fees and
Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE ISSUER TRUSTEES MAKE
ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS TO WHETHER TO TENDER
OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD CAPITAL SECURITIES
PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE
ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL SECURITIES MUST MAKE THEIR OWN
DECISION BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE LIQUIDATION
AMOUNT OF OLD CAPITAL SECURITIES TO TENDER AFTER READING THIS PROSPECTUS AND THE
LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY.
26
<PAGE> 27
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on October
6, 1997 unless the Exchange Offer is extended by the Company and the Trust (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Company and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Capital Securities for exchange,
(ii) to terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Company and the Trust
determine, in their sole and absolute discretion, that any of the events or
conditions referred to under "-- Conditions to the Exchange Offer" has occurred
or exists or has not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Old Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Capital
Securities to withdraw their tendered Old Capital Securities as described under
"-- Procedures for Tendering Old Capital Securities -- Withdrawal of Tenders,"
and (iv) to waive any condition or otherwise amend the terms of the Exchange
Offer in any respect. If the Exchange Offer is amended in a manner determined by
the Company and the Trust to constitute a material change, or if the Company and
the Trust waive a material condition of the Exchange Offer, the Company or the
Trust will promptly disclose such amendment or waiver by means of a prospectus
supplement that will be distributed to the registered holders of the Old Capital
Securities, and the Company and the Trust will extend the Exchange Offer to the
extent required by applicable law.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company or the Trust may choose to make any public
announcement and subject to applicable law, neither the Company nor the Trust
shall have any obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to an appropriate news
agency.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
Valid Tender. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at one of its addresses set forth under
"-- Exchange Agent". In addition, either (i) certificates for such Old Capital
Securities must be received by the Exchange Agent or (ii) a timely confirmation
of a book-entry transfer ("Book-Entry Confirmation") of such Old Capital
Securities, if that procedure is available, into the Exchange Agent's account at
DTC pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent, in each case prior to 5:00 p.m., New York City
time, on the Expiration Date or (iii) the holder must comply with the guaranteed
delivery procedures set forth below.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The tender by a holder of Old Capital Securities that is not withdrawn
before 5:00 p.m., New York City time, on the Expiration Date will constitute an
agreement between such holder and the Company and the Trust in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
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Any beneficial owner whose Old Capital Securities are registered in the
name of a broker, dealer, commercial bank, trust company, or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
such registered holder to tender on the beneficial owner's behalf. If the
beneficial owner wishes to tender on its own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering Old Capital
Securities certificates, either make appropriate arrangements to register
ownership of the Old Capital Securities in such beneficial owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
If fewer than all of the Old Capital Securities held by a holder are
tendered, such tendering holder should fill in the amount of Old Capital
Securities being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Capital Securities delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated.
Signatures. Certificates for the Old Capital Securities need not be
endorsed and signature guarantees on the Letter of Transmittal, or a notice of
withdrawal, as the case may be, are unnecessary unless (i) a certificate for the
Old Capital Securities is registered in a name other than that of the person
surrendering the certificate or (ii) such registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (i) or (ii) above, such certificates
for Old Capital Securities must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and on
the Letter of Transmittal guaranteed by a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution,"
including (as such terms are defined therein): (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker or
dealer; (iii) a credit union; (iv) a national securities exchange, registered
securities association or clearing agency; or (v) a savings association that is
a participant in a Securities Transfer Association (each, an "Eligible
Institution"), unless surrendered on behalf of such Eligible Institution. See
Instruction 1 to the Letter of Transmittal.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by the Company or the Trust, proper evidence
satisfactory to the Company or the Trust, in its sole discretion, of such
person's authority to so act must be submitted.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. The Company and the Trust reserve the absolute right, in their
sole and absolute discretion, to reject any and all tenders determined by them
not to be in proper form or the acceptance of which, or exchange for, may, in
the view of counsel to the Company and the Trust, be unlawful. The Company and
the Trust also reserve the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer as set forth under "-- Conditions to
the Exchange Offer" or any condition or irregularity in any tender of Old
Capital Securities of any particular holder, whether or not similar conditions
or irregularities are waived in the case of other holders.
The Company's and the Trust's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Capital Securities will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. Neither the Company, the Trust, any affiliates
or assigns of the Company, the Exchange Agent nor any other person shall be
under any duty to give any notification of any irregularities in tenders or
incur any liability for failure to give any such notification.
Acceptance of Old Capital Securities for Exchange; Delivery of Exchange
Capital Securities. Upon the terms and subject to the conditions of the Exchange
Offer, the Company and the Trust will exchange, and will issue to the Exchange
Agent, Exchange Capital Securities for Old Capital Securities validly
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<PAGE> 29
tendered and not withdrawn (pursuant to the withdrawal rights described under
"-- Withdrawal of Tenders") promptly after the Expiration Date.
In all cases, delivery of Exchange Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a Book-Entry Confirmation (as defined below), (ii) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and (iii) any other documents
required by the Letter of Transmittal.
Subject to the terms and conditions of the Exchange Offer, the Company and
the Trust will be deemed to have accepted for exchange, and thereby exchanged,
Old Capital Securities validly tendered and not withdrawn as, if and when the
Company or the Trust gives oral or written notice to the Exchange Agent of the
Company's and the Trust's acceptance of such Old Capital Securities for exchange
pursuant to the Exchange Offer. The Exchange Agent will act as agent for the
Company and the Trust for the purpose of receiving tenders of Old Capital
Securities, Letters of Transmittal and related documents, and as agent for
tendering holders for the purpose of receiving Old Capital Securities, Letters
of Transmittal and related documents and transmitting Exchange Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If, for any reason whatsoever, acceptance for
exchange or the exchange of any Old Capital Securities tendered pursuant to the
Exchange Offer is delayed (whether before or after the Company's and the Trust's
acceptance for exchange of Old Capital Securities) or the Company or the Trust
extends the Exchange Offer or is unable to accept for exchange or exchange Old
Capital Securities tendered pursuant to the Exchange Offer, then, without
prejudice to the Company's or the Trust's rights set forth herein, the Exchange
Agent may, nevertheless, on behalf of the Company and the Trust (and subject to
applicable law), retain tendered Old Capital Securities and such Old Capital
Securities may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "-- Withdrawal of Tenders."
Pursuant to the Letter of Transmittal, a holder of Old Capital Securities
will warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Old Capital Securities,
that the Trust will acquire good, marketable and unencumbered title to the
tendered Old Capital Securities, free and clear of all liens, restrictions,
charges and encumbrances, and that the Old Capital Securities tendered for
exchange are not subject to any adverse claims or proxies. The holder also will
warrant and agree that it will, upon request, execute and deliver any additional
documents deemed by the Company, the Trust or the Exchange Agent to be necessary
or desirable to complete the exchange, sale, assignment and transfer of the Old
Capital Securities tendered pursuant to the Exchange Offer.
Notwithstanding any other provision hereof, the delivery of Exchange
Capital Securities in exchange for Old Capital Securities tendered and accepted
for exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities and a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
together with any required signature guarantees and any other documents required
by the Letter of Transmittal, or of a Book-Entry Confirmation with respect to
such Old Capital Securities. Accordingly, the delivery of Exchange Capital
Securities might not be made to all tendering holders at the same time, and will
depend upon when Old Capital Securities, Book-Entry Confirmations with respect
to Old Capital Securities and other required documents are received by the
Exchange Agent.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Old Capital Securities at DTC for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Old Capital Securities by
causing DTC to transfer such Old Capital Securities into the Exchange Agent's
account at DTC in accordance with DTC's procedures for transfers. However,
although delivery of Old Capital Securities may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other
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<PAGE> 30
required documents, must, in any case other than as set forth in the following
paragraph, be transmitted to and received by the Exchange Agent at its address
set forth under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date, or the guaranteed delivery procedure set forth below must
be complied with in order for such Old Capital Securities to be properly
tendered.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place for sending a signed, hard copy of the Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Capital Securities through ATOP, the
electronic instructions sent to DTC and transmitted by DTC to the Exchange Agent
must contain the character by which the participant acknowledges its receipt of
and agrees to be bound by the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent before 5:00 p.m., New York City time, on
the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, such Old Capital Securities may nevertheless be
tendered, provided that all of the following guaranteed delivery procedures are
complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent prior to 5:00 p.m., New York City time,
on the Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five New York Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail, to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Withdrawal of Tenders. Tenders of Old Capital Securities may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For withdrawal to be effective, a written electronic ATOP transmission
notice of withdrawal (for DTC participants) must be received by the Exchange
Agent at one of its addresses set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having tendered the Old Capital Securities to be withdrawn,
(ii) identify the Old Capital Securities to be withdrawn (including the
certificate number or numbers and Liquidation Amount of such Old Capital
Securities) and (iii) where physical certificates for Old Capital Securities
have been transmitted, specify the name in which any such Old Capital Securities
are registered, if different from that of the withdrawing holder. If physical
certificates for Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed, as necessary. If Old Capital Securities have been
tendered pursuant to the procedure for book-entry transfer described above, any
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Old Capital Securities and otherwise comply with
DTC's procedures. All questions as to validity, form, and eligibility (including
time of receipt) of such notices will be determined by the Company or the Trust,
whose determination shall be final and binding on all parties. Any Old Capital
Securities so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old
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<PAGE> 31
Capital Securities which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Old Capital Securities tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the book-entry
transfer procedures described above, such Old Capital Securities will be
credited to an account maintained with DTC for the Old Capital Securities) as
soon as practicable after withdrawal, rejection of tender, or termination of the
Exchange Offer. Properly withdrawn Old Capital Securities may be retendered by
following one of the procedures described above at an time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
RESALES OF EXCHANGE CAPITAL SECURITIES
Based on existing interpretations by the staff of the Commission and
subject to the two immediately following sentences, the Company and the Trust
believe that the Exchange Capital Securities, the Exchange Guarantee and, after
distribution thereof to the holders of Capital Securities, the Exchange
Subordinated Debt Securities issued pursuant to this Exchange Offer may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act;
provided, that, such Exchange Capital Securities are acquired in the ordinary
course of such holder's business and such holder is not participating, and has
no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of the Exchange Capital
Securities. However, any holder of Old Capital Securities who is an "affiliate"
of the Trust or the Company (within the meaning of Rule 405 under the Securities
Act) or who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange Capital Securities, or any broker-dealer who purchased
the Old Capital Securities from the Trust to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (i) will not be able to rely
on the interpretations of the staff of the Commission set forth in the
above-mentioned no-action letters, (ii) will not be permitted or entitled to
tender such Old Capital Securities in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Capital Securities for Exchange Capital
Securities, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such
Exchange Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Trust or the
Company, (ii) any Exchange Capital Securities to be received by it are being
acquired in the ordinary course of its business and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities. Each
broker-dealer that receives Exchange Capital Securities for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Commission in the no-action
letters referred to above, the Company and the Trust believe that broker-dealers
who acquired Old Capital Securities for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the Exchange Capital Securities
received upon exchange of such Old Capital Securities (other than Old Capital
Securities which represent an unsold allotment from the original sale of the Old
Capital Securities) with the prospectus prepared for the Exchange Offer so long
as it contains a description of the plan of distribution with respect to the
resale of such Exchange Capital Securities. Accordingly, subject to certain
provisions set forth in the Registration Agreement and to the limitations set
out herein, the Company and the Trust have agreed that this
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Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of such Exchange Capital
Securities for a period commencing on the Expiration Date and ending 90 days
after the Expiration Date (subject to extension in certain limited circumstances
set forth in the Registration Agreement) or, if earlier, when all such Exchange
Capital Securities have been disposed of by such broker-dealer. See "Plan of
Distribution." Any broker-dealer who is an "affiliate" of the Trust or the
Company, within the meaning of such term under Rule 405 of the Securities Act,
may not rely on such no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction including compliance with the selling security holder
prospectus information requirements of Item 507 of Regulation S-K under the
Securities Act.
In that regard, each broker-dealer who surrenders Old Capital Securities
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company or the
Trust of the occurrence of any event or the discovery of any fact which makes
any statement contained or incorporated by reference in this Prospectus untrue
in any material respect or which causes this Prospectus to omit to state a
material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which they
were made, not misleading or of the occurrence of certain other events specified
in the Registration Agreement, such broker-dealer will suspend the sale of
Exchange Capital Securities (or the Exchange Subordinated Debt Securities, as
applicable) pursuant to this Prospectus until the Company and the Trust have
amended or supplemented this Prospectus to correct such misstatement or omission
and have furnished copies of the amended or supplemented Prospectus to such
broker-dealer or the Company and the Trust have given notice that the sale of
the Exchange Capital Securities (or the Exchange Subordinated Debt Securities,
as applicable) may be resumed. If the Company or the Trust gives such notice to
suspend the sale of the Exchange Capital Securities (or the Exchange
Subordinated Debt Securities, as applicable) it shall extend the 90 day period
referred to in the immediately preceding paragraph during which such broker-
dealers are entitled to use this Prospectus in connection with the resale of
Exchange Capital Securities (or the Exchange Subordinated Debt Securities, as
applicable) by the number of days during the period from and including the date
of the giving of such notice to and including the date when such broker-dealers
shall have received copies of the supplemented or amended Prospectus necessary
to permit such resales or to and including the date on which the Company and the
Trust give notice that the sale of Exchange Capital Securities (or the Exchange
Subordinated Debt Securities, as applicable) may be resumed.
Neither the Company nor the Trust has sought its own interpretive letter
and there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
no-action letters to third parties.
DISTRIBUTIONS ON THE EXCHANGE CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from the Distribution Date with respect to such Old
Capital Securities immediately preceding the original issue date of the Exchange
Capital Securities or, if no such Distribution Date has occurred, from the
original issue date of such Old Capital Securities (April 24, 1997), and such
tendering holders will be deemed to have waived the right to receive any such
Distributions. However, because Distributions on the Exchange Capital Securities
will accumulate from the later of the Distribution Date of the Old Capital
Securities immediately preceding the original issue date of the Exchange Capital
Securities and the original issue date of the Old Capital Securities, the amount
of the Distributions received by holders whose Old Capital Securities are
accepted for exchange will not be affected by the exchange.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Trust will not be required to accept for
exchange, or to exchange, any Old Capital Securities for any
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Exchange Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Old Capital Securities have theretofore been accepted
for exchange) or may waive any conditions to or amend the Exchange Offer, if any
of the following conditions has occurred or exists or has not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Capital Securities
issued pursuant to the Exchange Offer in exchange for Old Capital
Securities to be offered for resale, resold and otherwise transferred by
holders thereof (other than broker-dealers and any such holder which is an
"affiliate" of the Trust or the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Capital Securities are acquired in the ordinary course of such
holder's business and such holders have no arrangement or understanding
with any person to participate in the distribution of such Exchange Capital
Securities; or
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Company's and the Trust's judgment,
would reasonably be expected to impair the ability of the Company or the
Trust to proceed with the Exchange Offer; or
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's and the Trust's judgment, would reasonably
be expected to impair the ability of the Company or the Trust to proceed
with the Exchange Offer; or
(d) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company or the Trust, threatened for that purpose; or
(e) there is a reasonable likelihood in the Company's judgment that,
or a material uncertainty exists in the Company's judgment as to whether,
consummation of the Exchange Offer would result in an adverse tax
consequence to the Company.
If the Company and the Trust determine in their sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, the Company and the Trust may, subject to applicable
law, terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the Company
and the Trust will promptly disclose such waiver or amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
Old Capital Securities, and the Company and the Trust will extend the Exchange
Offer to the extent required by applicable law.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
Inquiries by Telephone: (302) 651-8869
By Facsimile: (302) 651-1079
<TABLE>
<S> <C>
By mail/overnight delivery: By hand:
Wilmington Trust Company Wilmington Trust Company
1100 North Market Street 1105 North Market Street, 1st Floor
Wilmington, Delaware 19890-0001 Wilmington, Delaware 19890
Attn: Jill Rylee Attn: Corporate Trust Operations
</TABLE>
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Delivery to other than the above addresses in the manner prescribed for
such address or facsimile number will not constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Capital Securities, and in tendering for their
customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Old Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Old Capital Securities in connection with the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
Neither the Company nor the Trust will make any payment to brokers, dealers
or others soliciting acceptances of the Exchange Offer.
DESCRIPTION OF THE CAPITAL SECURITIES
Pursuant to the terms of the Declaration, the Issuer Trustees have issued
the Old Capital Securities and the Common Securities and will issue the Exchange
Capital Securities. The Exchange Capital Securities will represent undivided
beneficial interests in the assets of the Trust and the holders thereof will be
entitled to a preference over the Common Securities in certain circumstances
with respect to Distributions and amounts payable on redemption of the Trust
Securities or liquidation of the Trust. See "-- Subordination of Common
Securities" below. The Declaration has been qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The following description
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Declaration, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, the
Delaware Business Trust Act and the Trust Indenture Act. Certain capitalized
terms used herein are defined in the Declaration.
GENERAL
The Capital Securities (including the Old Capital Securities and the
Exchange Capital Securities) will be limited to $100 million aggregate
Liquidation Amount at any time outstanding. The Capital Securities will have
equivalent terms to and will rank pari passu, and payments will be made thereon
pro rata, with the Common Securities except as described under "-- Subordination
of Common Securities" below. Legal title to the Old Subordinated Debt Securities
is, and legal title to the Exchange Subordinated Debt Securities will be, held
by the Property Trustee in trust for the benefit of the Trust and the holders of
the Capital Securities and the Common Securities. The payment of Distributions
out of money held by the Trust, and payments upon redemption of the Capital
Securities upon liquidation of the Trust, are guaranteed by the Company as
described under "Description of the Guarantee." The Guarantee will not guarantee
payment of Distributions or amounts payable on redemption of the Capital
Securities or liquidation of the Trust when the Trust does not have funds on
hand legally available for such payments. In such event, the remedy of holders
of the Capital Securities would be, through the vote of holders of a majority in
Liquidation Amount of the Capital Securities, to direct the Property Trustee to
enforce the Property Trustee's rights under the Subordinated Debt Securities
except in the circumstances in which a holder of such Capital Securities may
take Direct Action or otherwise enforce the Property Trustee's rights. See
"-- Events of Default; Notice."
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The Exchange Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
class of Capital Securities under the Declaration and, accordingly, will vote
together for purposes of determining whether holders of the requisite percentage
in outstanding Liquidation Amount thereof have taken certain actions or
exercised certain rights under the Declaration. The terms of the Exchange
Capital Securities are identical in all material respects to the terms of the
Old Capital Securities, except that the Exchange Capital Securities have been
registered under the Securities Act and therefore are not subject to certain
restrictions on transfer applicable to the Old Capital Securities and will not
provide for any increase in the Distribution rate thereon. See "Description of
the Old Securities."
DISTRIBUTIONS
Distributions on the Capital Securities will be payable semiannually in
arrears on April 15 and October 15 of each year, commencing October 15, 1997, at
the annual rate of 8.56% of the Liquidation Amount to the holders of the Capital
Securities on the relevant record dates. The record dates will be the first day
of the month in which the relevant Distribution Date (as defined herein) falls.
Distributions on the Old Capital Securities accumulate from the date of original
issuance, April 24, 1997, and the first Distribution Date thereon is October 15,
1997. Holders of Old Capital Securities whose Old Capital Securities are
accepted for exchange will not receive accumulated Distributions on such Old
Capital Securities for any period from the Distribution Date with respect to
such Old Capital Securities immediately preceding the original issue date of the
Exchange Capital Securities or, if no such Distribution Date has occurred, from
the original issue date of such Old Capital Securities, and such tendering
holders will be deemed to have waived the right to receive any such
Distributions. However, because Distributions on the Exchange Capital Securities
will accumulate from the later of the Distribution Date of the Old Capital
Securities immediately preceding the original issue date of the Exchange Capital
Securities and the original issue date of the Old Capital Securities, the amount
of the Distributions received by holders whose Old Capital Securities are
accepted for exchange will not be affected by the exchange. The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which Distributions
are payable on the Capital Securities is not a Business Day (as defined herein),
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable (each date on which Distributions are
payable in accordance with the foregoing, a "Distribution Date"). A "Business
Day" shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in New York, New York or Wilmington, Delaware are
authorized or required by law or executive order to close.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to elect to
defer the payment of interest on the Subordinated Debt Securities at any time
and from time to time for a period not exceeding ten consecutive semiannual
periods with respect to each Extension Period; provided that no Extension Period
may end on a day other than an Interest Payment Date (as defined herein) or may
extend beyond the Stated Maturity Date and no Extension Period may be initiated
while accrued interest from a prior, completed Extension Period is unpaid. Upon
any such election, semiannual Distributions on the Capital Securities will be
also deferred by the Trust during such Extension Period. Distributions to which
holders of the Capital Securities are entitled during any such Extension Period
will continue to accumulate additional Distributions thereon at the rate of
8.56% per annum, compounded semiannually, to the extent permitted by applicable
law, from the relevant Distribution Date. The term "Distributions," as used
herein, shall include any such additional Distributions.
During any Extension Period, pursuant to the Indenture, 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 (which includes common and preferred stock), (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of
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<PAGE> 36
the Company (including any Other Debentures (as defined in the Indenture)) that
rank pari passu with or junior in right of payment to the Subordinated Debt
Securities or (iii) make any guarantee payments with respect to any guarantee by
the Company of any securities of any subsidiary of the Company (including Other
Guarantees (as defined in the Indenture)) if such guarantee ranks pari passu
with or junior in right of payment to the Subordinated Debt Securities (other
than (a) dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, capital stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a direct result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, (e) 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 or pursuant to
an acquisition in which fractional shares of the Company's capital stock would
otherwise be issued and (f) purchases of common stock related to the issuance of
common stock or rights under any benefit plan for directors, officers, agents or
employees of the Company or its subsidiaries or any of the Company's dividend
reinvestment or director, officer, agent or employee stock purchase plans).
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed ten consecutive semiannual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company must give the Property Trustee,
the Administrative Trustees and the Debenture Trustee notice of its election to
begin or extend any Extension Period at least five Business Days prior to the
earlier of (i) the date the Distributions on the Trust Securities would have
been payable except for the election to begin or extend such Extension Period or
(ii) the date the Administrative Trustees are required to give to any securities
exchange or to holders of Capital Securities notice of the record date or the
date such Distributions are payable, but in any event not less than five
Business Days prior to such record date. The Company shall give notice of its
election to begin or extend 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.
Although the Company may in the future exercise its option to defer
payments of interest on the Subordinated Debt Securities, the Company has no
such current intention.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments received from the Company under
the Subordinated Debt Securities. See "Description of the Subordinated Debt
Securities -- General." If the Company does not make interest payments on the
Subordinated Debt Securities, the Property Trustee will not have funds available
to pay Distributions on the Capital Securities. The payment of Distributions (if
and to the extent the Trust has funds on hand legally available for the payment
of such Distributions) will be guaranteed by the Company on a limited basis as
set forth herein under "Description of the Guarantee."
REDEMPTION
The Subordinated Debt Securities will mature on April 15, 2027. As
described in more detail below, the Subordinated Debt Securities may be redeemed
by K N in whole or in part, at any time and from time to time, at a Redemption
Price equal to (i) the Make-Whole Amount in the case of a redemption upon the
occurrence of a Tax Event or an Investment Company Event prior to April 15,
2007, or (ii) the Call Price in the case of a redemption upon the occurrence of
a Tax Event or an Investment Company Event on or after April 15, 2007, in each
case together with accrued and unpaid interest thereon to the date of the
redemption. K N will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other applicable securities laws in connection with any
redemption of the Subordinated Debt Securities by K N.
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<PAGE> 37
In addition, the Subordinated Debt Securities may be redeemed by the
Company, in whole or in part, at any time and from time to time on or after
April 15, 2007, at the Redemption Prices (expressed as a percentage of the
principal amount) specified below for the indicated Stated Maturity Date:
<TABLE>
<CAPTION>
IF REDEEMED DURING THE
12-MONTH PERIOD BEGINNING
APRIL 15, CALL PRICE
- ------------------------- ----------
<S> <C>
2007.......................................................... 104.280%
2008.......................................................... 103.852
2009.......................................................... 103.424
2010.......................................................... 102.996
2011.......................................................... 102.568
2012.......................................................... 102.140
2013.......................................................... 101.712
2014.......................................................... 101.284
2015.......................................................... 100.856
2016.......................................................... 100.428
</TABLE>
and thereafter at 100% of the principal amount (each a "Call Price"), in each
case together with accrued and unpaid interest thereon to the date of
redemption.
Upon the repayment in full at maturity or redemption in whole or in part of
the Subordinated Debt Securities (other than following the distribution of the
Subordinated Debt Securities to the holders of the Trust Securities), the
proceeds from such repayment or redemption shall concurrently be applied to
redeem on a pro rata basis (i) at $1,000 per Trust Security, plus accumulated
and unpaid Distributions to the date of redemption (in the case of repayment at
maturity) or (ii) at the applicable Redemption Price (in the case of payment on
redemption), plus accumulated and unpaid Distributions to the date of
redemption, Trust Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of the Subordinated Debt Securities so repaid or
redeemed; provided, however, that holders of such Trust Securities shall be
given not less than 30 nor more than 60 days' notice of such redemption (other
than at the scheduled maturity of the Subordinated Debt Securities). See
"Description of the Subordinated Debt Securities -- Optional Redemption." In the
event that fewer than all of the outstanding Capital Securities are to be
redeemed, Capital Securities held in book-entry form will be redeemed in
accordance with the procedures of DTC as described under "-- Form, Denomination,
Book-Entry Procedures and Transfer."
TAX EVENT AND INVESTMENT COMPANY EVENT REDEMPTION
As described in more detail below, upon the occurrence of a Tax Event or an
Investment Company Event, the Company will be entitled, under certain
circumstances, to redeem the Subordinated Debt Securities and cause the
redemption of the Trust Securities. For purposes of a Tax Event or an Investment
Company Event and the redemption procedures applicable thereto, reference to
Subordinated Debt Securities shall include any Exchange Securities issued in
exchange therefor.
Upon the occurrence and continuance of a Tax Event or the occurrence of an
Investment Company Event, the Company will have the right, within 90 days
following the occurrence of such event, upon (a) not less than 30 days' notice
to the Debenture Trustee, which notice shall be accompanied by an Officers'
Certificate certifying that such event has occurred and (b) not less than 30 nor
more than 60 days' notice, to redeem the Subordinated Debt Securities in whole
or in part, for cash, at (i) the Make-Whole Amount, in the case of a redemption
upon the occurrence of a Tax Event or an Investment Company Event prior to April
15, 2007 or (ii) the Call Price, in the case of a redemption upon the occurrence
of a Tax Event or an Investment Company Event on or after April 15, 2007, in
each case together with accrued and unpaid interest thereon to the date of
redemption. Following such redemption, Trust Securities with an aggregate
Liquidation Amount equal to the aggregate principal amount of the Subordinated
Debt Securities so redeemed shall be redeemed by the Trust at the corresponding
37
<PAGE> 38
Redemption Price, together with accumulated and unpaid Distributions thereon to
the date of redemption.
"Tax Event" means the receipt by the Administrative Trustees of an opinion
of a nationally recognized independent tax counsel experienced in such matters
to the effect that, as a result of (a) any amendment to, clarification of 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, (b) any judicial decision or official
administrative pronouncement, ruling, regulatory procedure, notice or
announcement, including any notice or announcement or intent to adopt such
procedures or regulations (an "Administrative Action") or (c) any amendment to,
clarification of or change in the administrative position or interpretation of
any Administrative Action or judicial decision that differs from the theretofore
generally accepted position, in each case, by any legislative body, court,
governmental agency or regulatory body, irrespective of the manner in which such
amendment, clarification or change is made known, which amendment, clarification
or change is effective or such Administrative Action or decision is announced,
in each case, on or after the date of this Offering Memorandum, there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date thereof, subject to United States federal income tax with respect to
interest accrued or received on the Subordinated Debt Securities or subject to
more than a de minimis amount of other taxes, duties or other governmental
charges, (ii) any portion of interest payable by the Company on the Subordinated
Debt Securities is not, or within 90 days of the date thereof will not be,
deductible by the Company for United States federal income tax purposes, or
(iii) the Company could become liable to pay, on the next date on which any
amount would be payable with respect to the Subordinated Debt Securities, any
Additional Amounts (as defined herein).
"Investment Company Event" means the receipt by the Administrative Trustees
of an opinion of counsel rendered by a law firm having a nationally recognized
securities practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority ("Change in Investment Company Law"), there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act"), which Change in Investment Company Law
becomes effective or is announced, enacted or promulgated on or after the date
of this Offering Memorandum.
The "Make-Whole Amount" will be equal to the greater of (i) 100% of the
principal amount of the Subordinated Debt Securities to be redeemed or (ii) as
determined by the Quotation Agent (as defined herein), (a) the sum of the
present values of the principal amount and premium payable as part of the Call
Price with respect to a redemption of such Subordinated Debt Securities on April
15, 2007, together with the present values of all scheduled payments of interest
on such Subordinated Debt Securities from the redemption date to April 15, 2007
(the "Remaining Life"), in each case discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate (as defined herein) less (b) accrued and unpaid interest
on such Subordinated Debt Securities to the redemption date.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15 (519)" or any successor publication which
is published weekly by the Federal Reserve Board and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity date
corresponding to the Remaining Life (if no maturity date is within three months
before or after the Remaining Life, yields for the two published maturity dates
most closely corresponding to the Remaining Life shall be interpolated and the
Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue
38
<PAGE> 39
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, in each case calculated on the third
Business Day preceding the redemption date, plus in each case (a) 1.25% if such
redemption date occurs on or prior to April 24, 1998 and (b) 0.50% in all other
cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity date comparable to the
Remaining Life that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the Remaining Life. If no United
States Treasury security has a maturity date which is within a period from three
months before to three months after the Remaining Life, the two most closely
corresponding United States Treasury securities shall be used as the Comparable
Treasury Issue, and the Adjusted Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Quotation Agent" means Salomon Brothers Inc and its successors; provided,
however, that if the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer. "Reference Treasury
Dealer" means: (i) the Quotation Agent and (ii) any other Primary Treasury
Dealer selected by the Debenture Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of five Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (ii) if the Debenture Trustee obtains fewer than five such
Reference Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption due to each holder of Subordinated Debentures to
be prepaid at its registered address. Unless the Company defaults in payment of
the applicable Redemption Price, on and after the redemption date interest will
cease to accrue on such Subordinated Debt Securities called for redemption.
The rights of the Company described above if a Tax Event or an Investment
Company Event occurs are in addition to the right of the Company, as the holder
of the Common Securities, to dissolve the Trust at any time and, after
satisfaction of liabilities to creditors of the Trust (to the extent not
satisfied by the Company), cause the Subordinated Debt Securities to be
distributed to holders of the Trust Securities. See "-- Liquidation of the Trust
and Distribution of Subordinated Debt Securities."
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Capital
Securities unless all accumulated and unpaid Distributions have been paid on all
such Capital Securities for all semiannual distribution periods terminating on
or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the redemption date, to
the extent funds are legally available, with respect to the Capital Securities
held by DTC or its nominees, the Property Trustee will pay or cause the Paying
Agent (as defined herein) to pay the Redemption Price to DTC. See "-- Form,
Denomination, Book-Entry Procedures and Transfer" below. With respect to the
Capital Securities held in certificated form, the Property Trustee, to the
extent funds are legally available, will give irrevocable instructions and
authority to the Paying Agent and will irrevocably deposit with the Paying Agent
for the Capital Securities funds sufficient to pay or cause the Paying Agent to
pay the applicable Redemption Price to the holders thereof
39
<PAGE> 40
upon surrender of their certificates evidencing the Capital Securities. See
"-- Payment and Paying Agent" below. Distributions payable on or prior to the
redemption date shall be payable to the holders of such Capital Securities on
the relevant record dates for the related Distribution Dates occurring on or
prior to such redemption date. If notice of redemption shall have been given and
funds deposited with the Property Trustee to pay the Redemption Price for the
Capital Securities called for redemption, then all rights of the holders of such
Capital Securities will cease, except the right of the holders of such Capital
Securities to receive the applicable Redemption Price, but without interest on
such Redemption Price, and such Capital Securities will cease to be outstanding.
In the event that any redemption date is not a Business Day, then the applicable
Redemption Price payable on such date will be paid on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day 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 such date fixed for
redemption. In the event that payment of the applicable Redemption Price is
improperly withheld or refused and not paid either by the Trust or by the
Company pursuant to the Guarantee as described under "Description of the
Guarantee," (i) Distributions on Capital Securities called for redemption will
accumulate on the Redemption Price at the then applicable rate, from the
redemption date originally established by the Trust to the date such applicable
Redemption Price is actually paid, and (ii) the actual payment date will be the
redemption date for purposes of calculating the applicable Redemption Price.
In the event that fewer than all of the outstanding Capital Securities are
to be redeemed, Capital Securities will be redeemed on a pro rata basis as
described under "-- Form, Denomination, Book-Entry Procedures and Transfer."
The Trust shall not be required to (i) issue, register the transfer of or
exchange any Capital Security in registered certificated form during a period
beginning at the opening of business 15 days before the mailing of any notice of
redemption of Capital Securities and ending at the close of business on the date
of such mailing or (ii) register the transfer of or exchange any Capital
Security in registered certificated form so selected for redemption, in whole or
in part, except for the unredeemed portion of any Certificated Securities being
redeemed in part.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws) the Company or its subsidiaries may at
any time and from time to time purchase outstanding Capital Securities by
tender, in the open market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the redemption date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Redemption Price, on and after the redemption date Distributions will cease to
accrue on the Trust Securities called for redemption.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF SUBORDINATED DEBT SECURITIES
The Liquidation Amount payable on the Capital Securities in the event of
any liquidation of the Trust is $1,000 per Capital Security plus accumulated and
unpaid Distributions, which may be in the form of a distribution of such amount
in Subordinated Debt Securities, subject to certain exceptions.
The Company will have the right at any time to dissolve the Trust
(including, without limitation, upon the occurrence of a Tax Event or an
Investment Company Event) and cause the Subordinated Debt Securities to be
distributed to the holders of the Trust Securities on a pro rata basis in
liquidation of the Trust. Such right is subject to the Company having received
an opinion of counsel to the effect that such distribution will not be a taxable
event to holders of Capital Securities.
The Trust shall automatically dissolve upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the Subordinated Debt Securities to the
holders of the Trust Securities, if the Company, as Sponsor, has given written
direction to the Property Trustee to dissolve the Trust (which direction is
optional and, except as described above,
40
<PAGE> 41
wholly within the discretion of the Company, as holder of the Common
Securities); (iii) redemption of all of the Trust Securities as described under
"-- Redemption" and "-- Tax Event and Investment Company Event Redemption above;
(iv) April 15, 2028, the expiration of the term of the Trust; (v) upon repayment
of the Subordinated Debt Securities or at such time as no Subordinated Debt
Securities are outstanding; or (vi) the entry of an order for the dissolution of
the Trust by a court of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv) or (vi) of
the preceding paragraph, the Trust shall be liquidated by the Administrative
Trustees as expeditiously as the Administrative Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law (to the extent not satisfied by the
Company), to the holders of the Trust Securities a Like Amount of the
Subordinated Debt Securities, unless such distribution is determined by the
Property Trustee not to be practicable, in which event such holders will be
entitled to receive out of the assets of the Trust legally available for
distribution to holders, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law (to the extent not satisfied by the
Company), an amount equal to the aggregate of the Liquidation Amount plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Capital Securities and the Common
Securities shall be paid on a pro rata basis, except that if a Debenture Event
of Default has occurred and is continuing, the Capital Securities shall have a
priority over the Common Securities. See "-- Subordination of Common Securities"
below.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Subordinated Debt Securities to be paid in accordance with their terms
and (ii) with respect to a distribution of Subordinated Debt Securities upon the
liquidation of the Trust, Subordinated Debt Securities having a principal amount
equal to the Liquidation Amount of the Trust Securities of the holder to whom
such Subordinated Debt Securities are distributed.
After the liquidation date is fixed for any distribution of Subordinated
Debt Securities to holders of the Trust Securities, (i) the Trust Securities
will no longer be deemed to be outstanding, (ii) DTC or its nominee, as the
record holder of Trust Securities issued in book-entry form, will receive a
registered global certificate or certificates representing the Subordinated Debt
Securities to be delivered upon such distribution and (iii) any certificates
representing Trust Securities not held by DTC or its nominee will be deemed to
represent undivided beneficial interests in the Subordinated Debt Securities
having a principal amount equal to the Liquidation Amount of such Trust
Securities, and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on such Trust Securities, until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Company will issue to such holder, and the Debenture
Trustee will authenticate, a certificate representing such Subordinated Debt
Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Subordinated Debt Securities that may be distributed in
exchange for the Trust Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Subordinated Debt Securities that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Capital Securities.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and the Common Securities, as applicable, shall be made pro rata
based on the Liquidation Amount of the Capital Securities and Common Securities;
provided, however, that if any Debenture Event of Default shall have occurred
and be continuing, no payments in respect of any Distribution on, or payments
upon liquidation, redemption, repurchase or otherwise with respect to, the
Common Securities, shall be made until the
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<PAGE> 42
holders of the Capital Securities shall be paid in full in cash the
Distributions, Redemption Price, Liquidation Distribution and other payments to
which they are entitled at such time.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default in respect of the
Subordinated Debt Securities (see "Description of the Subordinated Debt
Securities -- Debenture Events of Default, Waiver and Notice") constitutes an
"Event of Default" under the Declaration. In the case of any Event of Default,
the Company as holder of the Common Securities will be deemed to have waived any
right to act with respect to such Event of Default until the effect of such
Event of Default with respect to the Trust Securities shall have been cured,
waived or otherwise eliminated. Until any such Event of Default has been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of the Capital Securities and not on behalf of the Company
as holder 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, including the right to direct the Property Trustee to exercise the
remedies available to it as holder of the Subordinated Debt Securities. If the
Property Trustee fails to enforce its rights under the Subordinated Debt
Securities after the holders of a majority in Liquidation Amount of such Capital
Securities have so directed the Property Trustee, a holder of record of such
Capital Securities may, to the fullest extent permitted by law, institute a
legal proceeding against the Company to enforce the Property Trustee's rights
under the Subordinated Debt Securities without first instituting any legal
proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal (or premium, if any) on the Subordinated Debt Securities
on the respective dates such interest or principal (or premium, if any) is
payable (or in the case of redemption, the redemption date), then a holder of
record of such Capital Securities may institute a legal proceeding (a "Direct
Action") against the Company for payment, on or after the respective due dates
specified in the Subordinated Debt Securities, to such holder directly of the
principal of (or premium, if any) or interest on Subordinated Debt Securities
having an aggregate principal amount equal to the aggregate Liquidation Amount
of the Capital Securities of such holder. In connection with such Direct Action,
the Company will be subrogated to the rights of such holder of Capital
Securities under the Declaration to the extent of any payment made by the
Company to such holder of Capital Securities in such Direct Action. The holders
of Capital Securities will not be able to exercise directly any other remedy
available to the holders of the Subordinated Debt Securities.
Subject to certain limitations, within 30 Business Days after the
occurrence of any Event of Default which is actually known to the Property
Trustee, the Property Trustee shall transmit notice of such Event of Default to
the holders of the Capital Securities, the Administrative Trustees and the
Company, as Sponsor, unless such Event of Default shall have been cured or
waived. The Company, as Sponsor, and the Administrative Trustees 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 Declaration.
Upon the occurrence of an Event of Default, the Property Trustee, so long
as it is the sole holder of the Subordinated Debt Securities, will have the
right under the Indenture to declare the principal of (or premium, if any) and
interest on the Subordinated Debt Securities to be immediately due and payable.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"-- Liquidation of the Trust and Distribution of Subordinated Debt Securities"
and "-- Subordination of Common Securities" above.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided under "-- Mergers, Conversions, Consolidations,
Amalgamations or Replacements of the Trust" below and "Description of the
Guarantee -- Modification of the Guarantee;
42
<PAGE> 43
Assignment" and as otherwise required by law and the Declaration, the holders of
the Capital Securities will have no voting rights.
The Declaration may be amended from time to time by the Company and the
Issuer Trustees, without the consent of the holders of the Trust Securities (i)
to cure any ambiguity, correct or supplement any provisions in the Declaration
that may be inconsistent with any other provision, to make any other provisions
with respect to matters or questions arising under the Declaration, which shall
not be inconsistent with the other provisions of the Declaration, or to add to
the covenants, restrictions or obligations of the Company or (ii) to modify,
eliminate or add to any provisions of the Declaration to such extent as shall be
necessary to ensure that the Trust will be classified for United States federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding or to ensure that the Trust will not be required to register as
an "investment company" under the Investment Company Act; provided, however,
that in the case of clauses (i) and (ii), such action shall not materially
adversely affect the interests of the holders of the Trust Securities. Any
amendment of the Declaration pursuant to the foregoing shall become effective
when notice thereof is given to the holders of the Trust Securities. The
Declaration may be amended by the Issuer Trustees and the Company (i) with the
consent of holders representing a majority (based upon Liquidation Amount) of
the outstanding Trust Securities and (ii) upon 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 Trust's status as a grantor trust for United States federal income
tax purposes or the Trust's exemption from status as an "investment company"
under the Investment Company Act; provided that, (A) without the consent of each
holder of Trust Securities, the Declaration may not be amended to (i) change the
amount or timing of any Distribution or other payment 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 and (B) without the consent of each
holder of Capital Securities, the Declaration may not be amended to restrict the
right of a holder of Capital Securities to bring a Direct Action.
If the Property Trustee fails to enforce its rights under the Subordinated
Debt Securities after the holders of a majority in Liquidation Amount of the
Capital Securities have so directed the Property Trustee, a holder of record of
the Capital Securities may, to the fullest extent permitted by law, institute a
legal proceeding directly against the Company to enforce the Property Trustee's
rights under the Subordinated Debt Securities without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Debenture Event of Default has occurred and
is continuing and such event is attributable to the failure of the Company to
pay interest or principal (or premium, if any) on the Subordinated Debt
Securities on the respective dates such interest or principal (or premium, if
any) is payable (or in the case of redemption, the redemption date), then a
holder of record of Capital Securities may institute a Direct Action against the
Company for payment, on or after the respective due dates specified in the
Subordinated Debt Securities, to such holder directly of the principal of (or
premium, if any) or interest on the Subordinated Debt Securities having an
aggregate principal amount equal to the aggregate Liquidation Amount of the
Capital Securities of such holder. The Property Trustee shall notify all holders
of the Capital Securities of any default actually known to the Property Trustee
with respect to the Subordinated Debt Securities unless (x) such default has
been cured prior to the giving of such notice or (y) the Property Trustee
determines in good faith that the withholding of such notice is in the interest
of the holders of such Capital Securities, except where the default relates to
the payment of interest or principal of (or premium, if any) on any of the
Subordinated Debt Securities.
So long as any Subordinated Debt Securities are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Debenture Trustee with respect to
the Subordinated Debt Securities, (ii) waive certain past defaults under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the
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Subordinated Debt Securities or (iv) consent to any amendment, modification or
termination of the Indenture or the Subordinated Debt Securities, where such
consent shall be required to be made by the holders of a majority in aggregate
principal amount of the Subordinated Debt Securities then outstanding, without,
in each case, obtaining the prior approval of the holders of a majority in
Liquidation Amount of all outstanding Trust Securities; provided, however, that
where a consent under the Indenture would require the consent of each holder of
Subordinated Debt Securities affected thereby, no such consent shall be given by
the Property Trustee without the prior approval of each holder of Trust
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Trust Securities except
by subsequent vote of such holders. In addition to obtaining the foregoing
approvals of such holders of the Trust Securities, prior to taking any of the
foregoing actions, the Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be classified
as an association taxable as a corporation for United States federal income tax
purposes on account of such action.
A waiver of a Debenture Event of Default will constitute a waiver of the
corresponding Event of Default under the Declaration.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Administrative Trustees will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of Capital Securities will be required
for the Trust to redeem and cancel the Capital Securities in accordance with the
Declaration.
Notwithstanding that holders of the 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 or any affiliate of the Company shall,
for purposes of such vote or consent, be treated as if they were not
outstanding.
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
Unless an Event of Default under the Declaration shall have occurred and be
continuing, any Issuer Trustee may be removed at any time by the holder of a
majority in Liquidation Amount of the Common Securities. If an Event of Default
under the Declaration has occurred and is continuing, the Property Trustee and
the Delaware Trustee may be removed at such time by the holders of a majority in
Liquidation Amount of the outstanding Capital Securities. In no event will the
holders of the Capital Securities have the right to vote to appoint, remove or
replace the Administrative Trustees, which voting rights are vested exclusively
in the Company as the holder of the Common Securities. 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 Issuer Trustee in
accordance with the provisions of the Declaration.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default under the Declaration shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust's property may at the time be located, the Company, as the holder
of a majority in Liquidation Amount of the Common Securities, and the
Administrative Trustees shall have power to appoint one or more persons either
to act as a co-trustee, jointly with the Property Trustee, of all or any part of
such Trust's property, or to act as a separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Declaration. In case such an Event of Default has occurred and
is continuing, the Property Trustee alone shall have power to make such
appointment.
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MERGERS, CONVERSIONS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge or convert with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below or as otherwise described above under "-- Liquidation
of the Trust and Distribution of Subordinated Debt Securities." The Trust may,
at the request of the Company, as Sponsor, with the consent of the
Administrative Trustees but without the consent of the holders of the Capital
Securities, the Property Trustee or the Delaware Trustee, merge or convert with
or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to a
trust organized as such under the laws of any State; provided that (i) if the
Trust is not the survivor, such successor entity either (a) expressly assumes
all of the obligations of the Trust with respect to the Trust Securities or (b)
substitutes for the Trust Securities other securities having substantially the
same terms as the Trust Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Trust Securities rank in priority with
respect to Distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee with
respect to the Subordinated Debt Securities, (iii) the Capital Securities or any
Successor Securities issued in place of the Capital Securities are listed, or
any such Successor Securities will be listed upon notification of issuance, on
any national securities exchange or other organization on which the Capital
Securities are then listed or quoted, if any, (iv) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, conversion, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than any dilution of such holders'
interests in the new entity), (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
conversion, consolidation, amalgamation, replacement, conveyance transfer or
lease, the Company has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (A) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than any dilution of such holders' interests in the new entity), (B)
following such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the 1940 Act and (C)
following such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be classified as other than a grantor trust for U.S. federal income tax
purposes, and (viii) the Company or any permitted successor or assignee owns all
of the common securities of such successor entity and guarantees the obligations
of such successor entity under the Successor Securities at least to the extent
provided by the Guarantee and the Common Guarantee. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100% in
Liquidation Amount of the Trust Securities, consolidate, amalgamate, merge or
convert with or into, or be replaced by or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge or
convert with or into, or replace it if such consolidation, amalgamation, merger,
conversion, replacement, conveyance, transfer or lease would cause the Trust or
the successor entity not to be classified as a grantor trust for the United
States federal income tax purposes.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
In the event that Exchange Capital Securities are issued in certificated
(i.e., non-global form), such Exchange Capital Securities will be in blocks
having a Liquidation Amount of not less than $100,000 (100 Exchange Capital
Securities) and may be transferred or exchanged only in such blocks and in the
manner and at the offices described below.
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The Exchange Capital Securities will be initially represented by one or
more Capital Securities in registered, global form (collectively, the "Global
Exchange Capital Securities"). The Global Exchange Capital Securities will be
deposited upon issuance with the Property Trustee as custodian for DTC and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Exchange Capital Securities may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee and only in amounts that would not cause a
holder to own fewer than 100 Exchange Capitals Securities. Beneficial interests
in the Global Exchange Capital Securities may not be exchanged for Exchange
Capital Securities in certificated forms except in the limited circumstances
described under "-- Exchange of Book-Entry Exchange Capital Securities for
Certificated Exchange Capital Securities" below. In addition, transfer of
beneficial interests in the Global Exchange Capital Securities will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
Depositary Procedures
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of the Participants. The Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchase of each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Exchange Capital Securities,
DTC will credit the accounts of Participants designated by the Exchange Agent
with portions of the Liquidation Amount of the Global Exchange Capital
Securities and (ii) ownership of such interests in the Global Exchange Capital
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Exchange Capital
Securities).
Investors in the Global Exchange Capital Securities may hold their
interests therein directly through DTC if they are Participants in such system,
or indirectly through organizations which are Participants in such system. All
interests in a Global Exchange Capital Security will be subject to the
procedures and requirements of DTC. The laws of some states require that certain
persons take physical delivery in certificated form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Exchange
Capital Security to such persons will be limited to that extent. Because DTC can
act only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Exchange Capital Security to pledge such interest to
persons that do not participate in the DTC system, or otherwise take actions in
respect of such interest, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the transferability
of the Capital Securities, see "-- Exchange of Book-Entry Exchange Capital
Securities for Certificated Exchange Capital Securities" below.
Except as described below, owners of interests in the Global Exchange
Capital Securities will not have Exchange Capital Securities registered in their
names, will not receive physical delivery of Exchange Capital Securities in
certificated form and will not be considered the registered owners or holders
thereof under the Declaration for any purpose.
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Payments in respect of each Global Exchange Capital Security registered in
the name of DTC or its nominee will be payable by the Property Trustee to DTC in
its capacity as the registered holder under the Declaration. Under the terms of
the Declaration, the Property Trustee will treat the persons in whose names the
Exchange Capital Securities, including the Global Exchange Capital Securities,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Exchange Capital Securities, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Exchange Capital Securities or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Trust and the Company that its current
practice, upon receipt of any payment in respect of securities such as the
Exchange Capital Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Capital Securities represented by Global Exchange Capital Securities will be
governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not be
the responsibility of DTC, the Property Trustee, the Trust or the Company.
Neither the Trust nor the Company or the Property Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners of
the Exchange Capital Securities, and the Trust, the Company and the Property
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the Global Exchange Capital Securities will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Exchange Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global Exchange Capital Securities are credited and only in respect of such
portion of the Liquidation Amount of the Exchange Capital Securities as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Declaration, DTC reserves the right to
exchange the Global Exchange Capital Securities for Exchange Capital Securities
in certificated form and to distribute such Exchange Capital Securities to its
Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof. Neither the Trust nor the Company or the Property Trustee will
have any responsibility for the performance by DTC or its Participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Exchange Capital Securities for Certificated Exchange
Capital Securities
A Global Exchange Capital Security is exchangeable for Exchange Capital
Securities in certificated form if (i) DTC notifies the Trust that it is
unwilling or unable to continue as clearing agency for the Global Capital
Security or has ceased to be a clearing agency registered under the Exchange Act
and the Company thereupon falls to appoint a successor clearing agency within 90
days, (ii) the Trust in its sole discretion elects to cause the issuance of
definitive certificated Capital Securities or (iii) there has occurred and is
continuing an Event of Default or any event which after notice or lapse of time
or both would be an Event of Default under the Declaration. In addition,
beneficial interests in a Global Exchange
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Capital Security may be exchanged for certificated Exchange Capital Securities
upon request but only upon at least 20 days' prior written notice given to the
Property Trustee by or on behalf of DTC in accordance with customary procedures.
In all cases certificated Exchange Capital Securities delivered in exchange for
any Global Exchange Capital Security or beneficial interests therein will be
registered in the names, and issued in any approved denominations, in blocks of
at least $100,000, requested by or on behalf of the clearing agency (in
accordance with its customary procedures).
RESTRICTIONS ON TRANSFER
The Exchange Capital Securities will be issued, and may be transferred,
whether before or after registration under the Securities Act, only in blocks
having a Liquidation Amount of not less than $100,000 (100 Exchange Capital
Securities). Any such transfer of Exchange Capital Securities in a block having
a Liquidation Amount of less than $100,000 shall be deemed to be void and of no
legal effect whatsoever. Any such transferee shall be deemed not to be the
holder of such Exchange Capital Securities for any purpose, including but not
limited to the receipt of Distributions on such Exchange Capital Securities, and
such transferee shall be deemed to have no interest whatsoever in such Exchange
Capital Securities.
PAYMENT AND PAYING AGENT
Payments in respect of the Exchange Capital Securities held in global form
shall be made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates. Payments in respect of the
Exchange Capital Securities that are not held by the Depositary shall be made by
check mailed to the address of the holder entitled thereto as such address shall
appear on the register. The paying agent for the Trust Securities (the "Paying
Agent") shall initially be the Property Trustee. The Trust may appoint one or
more additional paying agents acceptable to the Administrative Trustees and the
Company. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Administrative Trustees. In the event that the
Property Trustee shall no longer be the Paying Agent, the Trust shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will initially serve as Registrar for the Exchange
Capital Securities. Registration of transfers of Exchange Capital Securities
will be effected without charge by the Registrar, but upon payment (with the
giving of such indemnity as the Administrative Trustees may require) in respect
of any tax or other government charges which may be imposed in relation to it.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after an Event of Default thereunder, shall exercise
such rights and powers vested in it by the Declaration and use the same degree
of care and skill as a prudent person would exercise under the circumstances in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Capital Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of Capital Securities will not be
required to offer such indemnity in the event such holders, by exercising their
voting rights, direct the Property Trustee to take any action it is empowered to
take under the Declaration following an Event of Default thereunder. The
Property Trustee also serves as trustee under the Guarantee and the Indenture.
Whenever in the exercise of its rights or powers or the performance of its
duties under the Declaration the Property Trustee shall deem it desirable to
receive instructions with respect to enforcing
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any remedy or right or taking any other action thereunder, the Property Trustee
(i) may request instructions from the holders of the Capital Securities, which
instructions may only be given by the holders of a majority, or such other
proportion, in Liquidation Amount of the Capital Securities as would be entitled
to direct the Property Trustee under the terms of such Capital Securities in
respect of such remedy, right or action, (ii) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received, and (iii) shall be protected in conclusively relying on or acting on
or in accordance with such instructions.
The Company and certain of its subsidiaries may, from time to time, conduct
certain banking transactions with the Property Trustee in the ordinary course of
their business.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Declaration, provided such Person shall be otherwise qualified and eligible.
GOVERNING LAW
The Declaration and the Capital Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the
Trust in such a way so that the Trust will not be required to register as an
"investment company" under the 1940 Act or characterized as other than a grantor
trust for United States federal income tax purposes. In this connection, the
Company and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust, the
Declaration or the articles of incorporation of the Company, that each of the
Company and the Administrative Trustees determine in their discretion to be
necessary or desirable to achieve such end.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
The Exchange Capital Securities are expected to retain the "BBB" rating
issued by Standard & Poor's Rating Services, the "baa1" rating issued by Moody's
Investors Service, Inc. and the "A-" issued by Fitch Investors Service, Inc. in
respect of the Old Capital Securities. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency.
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DESCRIPTION OF THE GUARANTEE
The Old Guarantee was executed and delivered by the Company concurrently
with the issuance by the Trust of the Old Capital Securities for the benefit of
the holders from time to time of the Old Capital Securities. Wilmington Trust
Company acts as trustee ("Guarantee Trustee") under the Old Guarantee, and it
will also act as trustee under the Exchange Guarantee. As soon as practicable
after the date hereof, the Old Guarantee will be exchanged by the Company for
the Exchange Guarantee. The Old Guarantee shall be of no further force or effect
after such exchange. Unless otherwise expressly indicated, references in this
section of the Prospectus to the "Guarantee" refer only to the Exchange
Guarantee.
The Guarantee has been qualified under the Trust Indenture Act. This
summary of material provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee, including the definitions therein of certain terms,
and those provisions made a part of the Guarantee by the Trust Indenture Act.
Copies of both the Old Guarantee and the Exchange Guarantee are filed as
exhibits to the Registration Statement of which this Prospectus is a part. 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 Trust may have or assert other than
the defense of payment. The following payments with respect to the Capital
Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on Capital Securities, to the extent the Trust
has funds on hand legally available therefor, (ii) the Redemption Price with
respect to any Capital Securities called for redemption, and any accumulated and
unpaid Distributions to the date of redemption, to the extent that the Trust has
funds on hand legally available therefor, or (iii) upon a voluntary or
involuntary dissolution and liquidation of the Trust (unless the Subordinated
Debt Securities are distributed to holders of the Capital Securities), the
lesser of (a) the Liquidation Distribution, to the extent that the Trust has
funds on hand legally available therefor, and (b) the amount of assets of the
Trust remaining available for distribution to holders of Capital Securities. 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 Trust to pay such amounts to such holders.
The Guarantee will rank subordinate and junior in right of payment to all
Senior Indebtedness to the extent provided therein. See "-- Status of the
Guarantee" below. The Company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. See "Description of the Subordinated Debt
Securities -- General." The Guarantee does not limit the incurrence or issuance
of other secured or unsecured debt of the Company, including Senior
Indebtedness, whether under the Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company will, through the Guarantee, the Declaration, the Subordinated
Debt Securities and the Indenture, taken together, fully, irrevocably and
unconditionally guarantee all of the Trust's obligations under the Capital
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Capital Securities. See "Relationship Among the Capital Securities, the
Subordinated Debt Securities and the Guarantee."
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to Common Securities (the
"Common Securities Guarantee" or the
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"Common Guarantee") to the same extent as the Guarantee, except that upon the
occurrence and continuance of a Debenture Event of Default, holders of Capital
Securities shall have priority over holders of Common Securities with respect to
any payments made by the Company on or in respect of the Trust Securities under
the Guarantee and the Common Securities Guarantee. A copy of the Common
Securities Guarantee is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
CERTAIN COVENANTS OF THE COMPANY UNDER THE GUARANTEE
In the Guarantee, the Company will covenant that, so long as any Capital
Securities remain outstanding, if (1) a Debenture Event of Default shall have
occurred and be continuing or would occur upon the taking of any action
specified in clauses (i)-(iii) below, (2) there shall have occurred any event of
which the Company has actual knowledge that (A) is, or with the giving of notice
or the lapse of time, or both, would be, a Debenture Event of Default and (B) in
respect of which the Company shall not have taken reasonable steps to cure, (3)
the Company shall be in default under the Guarantee or (4) the Company shall
have elected to exercise its right to extend the interest payment period under
the Indenture and such extension shall be continuing, then the Company shall 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 (which includes common and preferred stock), (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company (including any Other Debentures) that rank pari
passu with or junior in right of payment to the Subordinated Debt Securities or
(iii) make any guarantee payments with respect to any guarantee by the Company
of any securities of any subsidiary of the Company (including Other Guarantees)
if such guarantee ranks pari passu with or junior in right of payment to the
Subordinated Debt Securities (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, capital stock of the Company, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, (d) as a direct result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (e)
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 or pursuant to an acquisition in which
fractional shares of the Company's capital stock would otherwise be issued, and
(f) purchases of common stock related to the issuance of common stock or rights
under any benefit plan for directors, officers, agents or employees of the
Company or its subsidiaries or any of the Company's dividend reinvestment or
director, officer, agent or employee stock purchase plans).
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Capital Securities (in which case no consent will
be required), the Guarantee may not be amended without the prior approval of the
holders of a majority of the 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 the
Declaration." All guarantees and agreements contained in the Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Capital Securities
then outstanding.
TERMINATION
The Guarantee will terminate (a) upon full payment of the applicable
Redemption Price of the Capital Securities or (b) upon liquidation of the Trust,
the full payment of amounts payable in accordance with the Declaration or
distribution of the Subordinated Debt Securities to the holders of the Capital
Securities. Notwithstanding the foregoing, the Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Capital Securities must restore payment of any sums paid under the Capital
Securities or the Guarantee.
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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. Subject
to certain limited exceptions, the holders of a majority in Liquidation Amount
of the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee after the holders
of a majority in Liquidation Amount of the Capital Securities have so requested,
any holder of Capital Securities may institute a legal proceeding directly
against the Company to enforce the Guarantee Trustee's rights and the
obligations of the Company under the Guarantee, without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity.
The Company, as guarantor, will be 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.
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 Subordinated Debt Securities. The
Guarantee will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, and claimants should look only to the
assets of the Company for payments thereunder.
The Guarantee will rank pari passu with the Subordinated Debt Securities
and with all other guarantees (if any) issued by the Company after the Issue
Date with respect to capital securities (if any) similar to the Capital
Securities issued by other trusts that the Company may establish similar to the
Trust. The Guarantee will constitute a guarantee of payment and not of
collection. Therefore, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against any other person or entity. The
Guarantee does not place a 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 GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default and after the
curing or waiving of all defaults that may have occurred with respect to the
Guarantee, undertakes to perform only such duties as are specifically set forth
in the Guarantee and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the 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 Capital Securities, unless offered reasonable indemnity against the
costs, expenses and liabilities which might be incurred thereby.
The Company and certain of its subsidiaries may, from time to time, conduct
certain banking transactions with the Guarantee Trustee in the ordinary course
of business.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
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DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
The Old Subordinated Debt Securities were issued, and the Exchange
Subordinated Debt Securities will be issued, under an Indenture dated as of
April 24, 1997 (the "Indenture"), between the Company and Wilmington Trust
Company, as trustee (the "Debenture Trustee"). The Indenture has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of material terms and provisions of the Subordinated Debt
Securities and the Indenture does not purport to be complete and, where
reference is made to particular provisions of the Indenture, such provisions,
including the definitions of certain terms, some of which are not otherwise
defined herein, are qualified in their entirety by reference to all of the
provisions of the Indenture and those terms made a part of the Indenture by the
Trust Indenture Act. A copy of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
In certain circumstances, Subordinated Debt Securities may be distributed
to the holders of the Trust Securities in liquidation of the Trust. See
"Description of the Capital Securities -- Liquidation of the Trust and
Distribution of Subordinated Debt Securities." Until the liquidation of the
Trust, each Subordinated Debt Security will be registered in the name of the
Property Trustee and held by it in trust for the benefit of the holders of the
Trust Securities. Notwithstanding the registration of the Exchange Subordinated
Debt Securities under the Securities Act, the Exchange Subordinated Debt
Securities may not be offered for resale, resold or otherwise transferred on
behalf of the Trust without further compliance with the registration and
prospectus delivery requirements of the Securities Act. If the Exchange
Subordinated Debt Securities are distributed to the holders of Capital
Securities, however, the Trust and the Company believe (based on existing
interpretations by the staff of the Commission) such holders would be permitted,
subject to certain limitations, to offer for resale, resell or transfer the
Exchange Subordinated Debt Securities without further compliance with the
registration and prospectus delivery requirements of the Securities Act. See
"The Exchange Offer--Resales of Exchange Capital Securities."
GENERAL
Concurrently with the issuance of the Old Capital Securities, the Trust
invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Old Subordinated Debt Securities
issued by the Company. Pursuant to the Exchange Offer, the Company will exchange
the Old Subordinated Debt Securities for the Exchange Subordinated Debt
Securities as soon as practicable after the date hereof. No Old Subordinated
Debt Securities will remain outstanding after such exchange.
The Subordinated Debt Securities will be issued in denominations of $1,000
and integral multiples thereof. The Subordinated Debt Securities will mature on
April 15, 2027 (the "Stated Maturity Date").
The Subordinated Debt Securities are not subject to a sinking fund
provision. The entire principal amount of the Subordinated Debt Securities will
mature and become due and payable, together with any accrued and unpaid interest
thereon, including additional interest on the amount thereof (to the extent
permitted by law), compounded semiannually, and Additional Amounts (as defined
herein), if any, on the Stated Maturity Date.
The Subordinated Debt Securities will rank pari passu with all Other
Debentures and will be unsecured and subordinate and rank junior in right of
payment to the extent and in the manner set forth in the Indenture to all Senior
Indebtedness of the Company. See "-- Subordination" below. The Subordinated Debt
Securities will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, and holders of Subordinated Debt
Securities should look only to the assets of the Company for payments on the
Subordinated Debt Securities. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness. See "-- Subordination" below and "Risk Factors -- Ranking of
Subordinate Obligations Under the Guarantee and Subordinated Debt Securities."
The Indenture does not contain provisions that afford holders of the
Subordinated Debt Securities protection in the event of a highly leveraged
transaction (including such a transaction involving a change
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of control of the Company effected through stock ownership changes or changes in
the directors of the Company) or other similar transactions involving the
Company that may adversely affect such holders.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any
Subordinated Debt Securities issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshalling of assets or any bankruptcy, insolvency, or similar
proceedings, the holders of Senior Indebtedness will first be entitled to
receive payment in full in cash or other satisfactory consideration of all
amounts due or to become due on or in respect of such Senior Indebtedness before
the holders of Subordinated Debt Securities will be entitled to receive or
retain any payment in respect thereof.
In the event of the acceleration of the maturity of Subordinated Debt
Securities, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full in cash or
other satisfactory consideration of all such Senior Indebtedness before the
holders of Subordinated Debt Securities will be entitled to receive or retain
any payment in respect of the Subordinated Debt Securities.
No payments on account of principal or premium, if any, or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Indebtedness, or in the event the acceleration of the maturity thereof has been
or would be permitted with notice or the passage of time, or if any judicial
proceeding shall be pending with respect to any such default, until all amounts
due or to become due on the Senior Indebtedness are paid in full in cash or
other satisfactory consideration.
"Indebtedness" shall mean (i) any obligation of, or any obligation
guaranteed by, the Company for which the Company is responsible or liable as
obligor or otherwise including principal, premium, and interest (whether
accruing before or after filing of any petition in bankruptcy or any similar
proceedings by or against the Company and whether or not allowed as a claim in
bankruptcy or similar proceedings) for (A) indebtedness of the Company for money
borrowed, (B) indebtedness evidenced by securities, bonds, debentures, notes or
other similar written instruments, (C) any deferred obligation for the payment
of the purchase price or conditional sale obligation of property or assets
acquired other than in the ordinary course of business, but excluding trade
account payables arising in the ordinary course of business, (D) all obligations
of the Company for the reimbursement of any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction or (E) any
obligation referred to in (A) through (D) above of other persons secured by any
lien on any property or asset of the Company and (ii) all indebtedness of the
Company for obligations of the Company to make payments in respect of derivative
products such as interest and foreign exchange rate contracts, commodity
contracts (including future or options contracts), swap agreements, cap
agreements, repurchase and reverse repurchase agreements and similar
arrangements, whether outstanding on the date of execution of the Indenture or
thereafter created, assumed or incurred.
"Indebtedness Ranking on a Parity with the Subordinated Debt Securities"
shall mean Indebtedness, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, which specifically by its
terms ranks equally with and not prior to the Subordinated Debt Securities in
the right of payment upon the happening of the dissolution or winding-up or
liquidation or reorganization of the Company. The securing of any Indebtedness,
otherwise constituting Indebtedness Ranking on a Parity with the Subordinated
Debt Securities, shall not be deemed to prevent such Indebtedness from
constituting Indebtedness Ranking on a Parity with the Subordinated Debt
Securities.
"Indebtedness Ranking Junior to the Subordinated Debt Securities" shall
mean any Indebtedness, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, which specifically by its
terms ranks junior to and not equally with or prior to the Subordinated Debt
Securities (and any other Indebtedness Ranking on a Parity with the Subordinated
Debt Securities) in
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right of payment upon the happening of the dissolution or winding-up or
liquidation or reorganization of the Company. The securing of any Indebtedness,
otherwise constituting Indebtedness Ranking Junior to the Subordinated Debt
Securities, shall not be deemed to prevent such Indebtedness from constituting
Indebtedness Ranking Junior to the Subordinated Debt Securities.
"Senior Indebtedness" shall mean all Indebtedness, whether outstanding on
the date of execution of the Indenture or thereafter created, assumed, incurred
or guaranteed, except Indebtedness Ranking on a Parity with the Subordinated
Debt Securities or Indebtedness Ranking Junior to the Subordinated Debt
Securities, and any deferrals, renewals or extensions of such Senior
Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued or entered into by the Company. As of June 30, 1997, Senior
Indebtedness of the Company aggregated approximately $632 million.
OPTIONAL REDEMPTION
The Company may redeem the Subordinated Debt Securities, in whole or in
part, at any time and from time to time, on or after April 15, 2007, upon not
less than 30 nor more than 60 days' notice, at the Call Price described under
"Description of the Capital Securities -- Redemption," plus accrued and unpaid
interest to the redemption date. In certain limited circumstances described
herein, the Subordinated Debt Securities also are redeemable by the Company, in
whole or in part at any time at (i) the Make-Whole Amount in the case of a
redemption upon the occurrence of a Tax Event or an Investment Company Event
prior to April 15, 2007, or (ii) the Call Price in the case of a redemption upon
the occurrence of a Tax Event or an Investment Company Event on or after April
15, 2007, in each case together with accrued and unpaid interest thereon to the
date of the redemption. See "Description of the Capital Securities -- Tax Event
and Investment Company Event Redemption."
INTEREST
The Subordinated Debt Securities will bear interest at the rate of 8.56%
per annum of the principal amount thereof, payable semiannually in arrears on
April 15 and October 15 of each year (each, an "Interest Payment Date"),
commencing October 15, 1997, to the Person in whose name each Subordinated Debt
Security is registered, subject to certain exceptions, at the close of business
on the first day of the month in which the relevant payment date falls. It is
anticipated that, until the liquidation, if any, of the Trust, each Subordinated
Debt Security will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Trust Securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any Interest
Payment Date 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 or, in the
case of a redemption payment, on the immediately preceding Business Day if such
succeeding Business Day would otherwise fall in the next calendar year (and
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 of 8.56% per annum, compounded semiannually. The
term "interest," as used herein, includes any semiannual interest payments,
interest on semiannual interest payments not paid on the applicable Interest
Payment Date and Additional Amounts (as defined herein), as applicable.
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 under the Indenture at any time or from time to
time during the term of the Subordinated Debt Securities to defer the payment of
interest for a period not exceeding ten consecutive semiannual periods with
respect to each Extension Period; provided that no Extension Period may end on a
day other than an Interest Payment Date or may extend beyond the Stated Maturity
Date. At the end of an Extension Period,
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the Company must pay all interest then accrued and unpaid (together with
interest thereon accrued at the annual rate of 8.56%, compounded semiannually,
to the extent permitted by applicable law). During an Extension Period, interest
will continue to accrue and, if the Subordinated Debt Securities have been
distributed to holders of the Trust Securities, holders of Subordinated Debt
Securities (or holders of the Trust Securities while Trust Securities are
outstanding) will be required to accrue interest income for United States
federal income tax purposes prior to the receipt of cash attributable to such
income. See "Certain Federal Income Tax Considerations -- Interest Income and
Original Issue Discount."
During any such Extension Period, pursuant to the Indenture, 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 (which includes common and preferred stock), (ii) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company (including any Other Debentures)
that rank pari passu with or junior in right of payment to the Subordinated Debt
Securities or (iii) make any guarantee payments with respect to any guarantee by
the Company of any securities of any subsidiary of the Company (including Other
Guarantees) if such guarantee ranks pari passu with or junior in right of
payment to the Subordinated Debt Securities (other than (a) dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase shares of, capital stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, (d) as a direct result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (e)
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 or pursuant to an acquisition in which
fractional shares of the Company's capital stock would otherwise be issued, and
(f) purchases of common stock related to the issuance of common stock or rights
under any benefit plan for directors, officers, agents or employees of the
Company or its subsidiaries or any of the Company's dividend reinvestment or
director, officer, agent or employee stock purchase plans).
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause the Extension Period to exceed ten consecutive semiannual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company must give the Property Trustee,
the Administrative Trustees and the Debenture Trustee notice of its election of
any Extension Period (or an extension thereof) at least five Business Days prior
to the earlier of (i) the date the Distributions on the Trust Securities would
have been payable except for the election to begin or extend such Extension
Period or (ii) the date the Administrative Trustees are required to give notice
to any securities exchange or to holders of Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
five Business Days prior to such record date. The Property Trustee shall give
notice of the Company's election to begin or extend an 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.
ADDITIONAL AMOUNTS
If at any time the Trust shall be required to pay any taxes, duties and
other governmental charges of whatever nature (other than withholding taxes)
imposed by the United States, or any other taxing authority, then, in any such
case, the Company will pay as additional interest ("Additional Amounts") on the
Subordinated Debt Securities such additional amounts as shall be required in
order that the net amounts received and retained by the Trust after paying any
such taxes, duties and other governmental
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charges will equal the amounts the Trust and the Property Trustee would have
received had no such taxes, duties and other governmental charges been imposed.
CERTAIN COVENANTS OF THE COMPANY
The Company covenants in the Indenture 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 (which
includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company (including any Other Debentures) that rank pari passu
with or junior in right of payment to the Subordinated Debt Securities or (iii)
make any guarantee payments with respect to any guarantee by the Company of any
securities of any subsidiary of the Company (including Other Guarantees) if such
guarantee ranks pari passu with or junior in right of payment to the
Subordinated Debt Securities (other than (a) dividends or distributions in
shares of or options, warrants or rights to subscribe for or purchase shares of,
capital stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee or the Exchange
Guarantee, (d) as a direct result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (e)
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 or pursuant to an acquisition in which
fractional shares of the Company's capital stock would otherwise be issued, and
(f) purchases of common stock related to the issuance of common stock or rights
under any benefit plan for directors, officers, agents or employees of the
Company or its subsidiaries or any of the Company's dividend reinvestment or
director, officer, agent or employee stock purchase plans) if at such time (1) a
Debenture Event of Default shall have occurred and be continuing, or would occur
upon the taking of any action specified in clauses (i) through (iii) above, (2)
there shall have occurred any event of which the Company has actual knowledge
that (a) with the giving of notice or the lapse of time, or both, would
constitute a Debenture Event of Default and (b) in respect of which the Company
shall not have taken reasonable steps to cure, (3) the Company shall be in
default with respect to its payment of any obligations under the Guarantee or
(4) the Company shall have given notice of its election of an Extension Period
or any extension thereof, as provided in the Indenture, or an extension period
with respect to any Other Debentures, and shall not have rescinded such notice,
or such Extension Period, or any extension thereof, or extension period with
respect to Other Debentures, shall be continuing.
The Company also covenants (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of the Common Securities, (ii) to use its reasonable efforts
to cause the Trust (a) to remain a statutory business trust, except in
connection with the distribution of Subordinated Debt Securities to the holders
of Trust Securities in liquidation of the Trust, the redemption of all of the
Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (b) to otherwise
continue not to be treated as an association taxable as a corporation or a
partnership for United States federal income tax purposes and (iii) to use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an undivided beneficial interest in the Subordinated Debt Securities.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
with or into any other Person or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as an
entirety to any Person, unless: (i) the Person formed by such consolidation or
into which the Company is merged or the Person which acquires such properties
and assets by sale, conveyance, assignment, transfer, lease or disposition is a
corporation, trust or partnership organized
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under the laws of the United States or any State or the District of Columbia,
and such successor expressly assumes the Company's obligations on the
Subordinated Debt Securities; (ii) immediately before and immediately after
giving effect thereto, no Debenture Event of Default, and no event which, after
notice or lapse of time or both, would become a Debenture Event of Default,
shall have occurred and be continuing; and (iii) certain other conditions as
prescribed in the Indenture are met. This provision shall only apply to a merger
or consolidation in which the Company is not the surviving corporation and to
dispositions by the Company of all or substantially all of the consolidated
properties and assets of the Company to any Person.
Upon any consolidation by the Company with or merger by the Company into
any other Person or any sale, conveyance, assignment, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company as an entirety to any Person in accordance with the conditions listed in
the immediately preceding paragraph, the successor Person formed by such
consolidation or into which the Company is merged or to which such disposition
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under the Indenture, and in the event of any such
disposition, the Company, except in the case of a lease, shall be discharged of
all obligations and covenants under the Indenture and the Subordinated Debt
Securities and may be dissolved and liquidated.
The general provisions of the Indenture do not afford holders of the
Subordinated Debt Securities protection in the event of a highly leveraged or
similar transaction involving the Company that may adversely affect holders of
the Subordinated Debt Securities.
DEBENTURE EVENTS OF DEFAULT, WAIVER AND NOTICE
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debt Securities constitutes a "Debenture
Event of Default":
(a) default for 30 days in payment of any interest on the Subordinated
Debt Securities, including any interest on accrued and unpaid interest (to
the extent permitted by applicable law) or any Additional Amounts, when
due, provided, however, that a valid extension of an interest payment
period by the Company in accordance with the terms of the Indenture shall
not constitute a default in the payment of interest for this purpose;
(b) default in payment of principal and premium, if any, on the
Subordinated Debt Securities when due either at maturity, upon redemption,
by declaration or otherwise;
(c) default by the Company in the performance of any other of the
covenants or agreements in the Indenture which shall not have been remedied
for a period of 90 days after written notice to the Company by the
Debenture Trustee or to the Company and the Debenture Trustee by the
holders of 25% in aggregate principal amount of the Subordinated Debt
Securities then outstanding;
(d) certain events of bankruptcy, insolvency or reorganization of the
Company; or
(e) the liquidation of the Trust, except in connection with the
distribution of the Subordinated Debt Securities to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities, or certain mergers, consolidations or amalgamation, each as
permitted by the Declaration.
The Indenture provides that the Debenture Trustee may, under certain
circumstances, withhold from the notice of default with respect to the
Subordinated Debt Securities (except for any default in payment of principal of
or interest or premium, if any, on the Subordinated Debt Securities) if the
Debenture Trustee considers it in the interest of such holders to do so.
The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Subordinated Debt Securities may declare the
principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the
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Subordinated Debt Securities may annul such declaration and waive the default if
the default (other than the nonpayment of the principal of the Subordinated Debt
Securities which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Prior to any declaration accelerating the maturity of the Subordinated Debt
Securities, the holders of a majority in aggregate principal amount of the
outstanding Subordinated Debt Securities may, on behalf of the holders of all
the Subordinated Debt Securities, waive any past default except a default in the
payment of principal of or premium, if any, on or interest or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Subordinated
Debt Security.
No holder of any Subordinated Debt Security shall have any right to
institute any suit, action or proceeding for any remedy under the Indenture,
unless such holder previously shall have given to the Debenture Trustee written
notice of a continuing Debenture Event of Default and unless the holders of not
less than 25% in aggregate principal amount of the Subordinated Debt Securities
then outstanding shall have given the Debenture Trustee a written request to
institute such action, suit or proceeding and shall have offered to the
Debenture Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred thereby, and the Debenture Trustee for
60 days after its receipt of such notice, request and offer of indemnity shall
have failed to institute any such action, suit or proceeding; provided, however,
that no holder of Subordinated Debt Securities shall have any right to prejudice
the rights of any other holder of Subordinated Debt Securities, obtain priority
or preference over any other such holder or enforce any right under the
Indenture except as provided in the Indenture and for the equal, ratable and
common benefit of all holders of Subordinated Debt Securities. Notwithstanding
the foregoing, the right of any holder of any Subordinated Debt Security to
receive payment of the principal of, premium, if any, and interest, on such
Subordinated Debt Security when due, or to institute suit for the enforcement of
any such payment, shall not be impaired or affected without the consent of such
holder.
The Indenture provides that the holders of a majority in aggregate
outstanding principal amount of the Subordinated Debt Securities have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee; provided, however, that, except under
certain circumstances, the Debenture Trustee may decline to follow any such
direction if the Debenture Trustee determines that the action so directed would
be unjustly prejudicial to holders not taking part in such direction or would be
unlawful or would involve the Debenture Trustee in personal liability.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
MODIFICATION OF THE INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of Subordinated Debt Securities, amend or supplement the
Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such action does not
materially adversely affect the interest of the holders of Subordinated Debt
Securities). The Indenture contains provisions permitting the Company and the
Debenture Trustee, with the consent of the holders of a majority in aggregate
principal amount of the Subordinated Debt Securities then outstanding, to modify
the Indenture in a manner affecting the rights of the holders of Subordinated
Debt Securities; provided that no such modification may, without the consent of
the holders of each outstanding Subordinated Debt Security so affected, (i)
change the Stated Maturity Date or reduce the principal amount of the
Subordinated Debt Securities or reduce the rate or extend the time of payment of
interest thereon or (ii) reduce the percentage of principal amount of
Subordinated Debt Securities the holders of which are required to consent to any
such modification of the Indenture.
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SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Subordinated Debt
Securities not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at maturity
or upon redemption within one year, and the Company deposits with the Debenture
Trustee funds, in trust, for the purpose and in amount sufficient to pay and
discharge the entire indebtedness on the Subordinated Debt Securities not
previously delivered to the Debenture Trustee for cancellation, for the
principal and premium, if any, and interest to the Stated Maturity Date or the
date of redemption, as the case may be, then the Indenture will cease to be of
further effect (except as to the Company's obligations to pay all other sums due
pursuant to the 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 Indenture.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to such provisions, the Debenture Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the request of any
holder of Subordinated Debt Securities, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which 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.
The Company and certain of its subsidiaries may, from time to time, conduct
certain banking transactions with the Debenture Trustee in the ordinary course
of business.
FORM, REGISTRATION AND TRANSFER
If the Subordinated Debt Securities are distributed to the holders of the
Trust Securities, the Subordinated Debt Securities may be represented by one or
more global certificates registered in the name of Cede & Co. as the nominee of
DTC. The depositary arrangements for such Subordinated Debt Securities are
expected to be substantially similar to those in effect for the Capital
Securities. For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Description of the Capital Securities --
Form, Denomination, Book-Entry Procedures and Transfer."
RESTRICTIONS ON TRANSFER
The Subordinated Debt Securities will be issued, and, if distributed to the
holders of the Trust Securities in liquidation of the Trust, may be transferred,
only in blocks having an aggregate principal amount of not less than $100,000.
Any such transfer of Subordinated Debt Securities in a block having an aggregate
principal amount of less than $100,000 shall be deemed to be void and of no
legal effect whatsoever. Any such transferee shall be deemed not to be holder of
such Subordinated Debt Securities for any purpose, including but not limited to
the receipt of payments on such Subordinated Debt Securities, and such
transferee shall be deemed to have no interest whatsoever in such Subordinated
Debt Securities.
GOVERNING LAW
The Indenture and the Subordinated Debt Securities will be governed by, and
construed in accordance with, the internal laws of the State of New York.
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PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, and any interest on
Subordinated Debt Securities will be made at the office of the Debenture Trustee
in Wilmington, Delaware, or at the office of such Paying Agent or Paying Agents
as the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the register for
Subordinated Debt Securities or (ii) by transfer to an account maintained by the
Person entitled thereto as specified in such register, provided that proper
transfer instructions have been received by the relevant record date. Payment of
any interest on any Subordinated Debt Security will be made to the Person in
whose name such Subordinated Debt Security is registered at the close of
business on the record date for such interest, except in the case of defaulted
interest. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however, the Company will at all
times be required to maintain a Paying Agent in each place of payment for the
Subordinated Debt Securities.
Any moneys 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 Subordinated Debt Security 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 Subordinated Debt Security shall thereafter
look, as a general unsecured creditor, only to the Company for payment thereof.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
Pursuant to the Declaration and the Indenture, if a Debenture Event of
Default shall have occurred and be continuing and shall be attributable to the
failure of the Company to pay interest or premium, if any, on or principal of
the Subordinated Debt Securities on the due date, a holder of Capital Securities
may institute a Direct Action. The Company may not amend the Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all of the Capital Securities. Notwithstanding any payments
made to a holder of Capital Securities by the Company in connection with a
Direct Action, the Company shall remain obligated to pay the principal of or
premium, if any, or interest on the Subordinated Debt Securities, and the
Company shall be subrogated to the rights of the holder of such Capital
Securities with respect to payments on the Capital Securities to the extent of
any payments made by the Company to such holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph or as
otherwise described under "Description of the Capital Securities -- Events of
Default; Notice," available to the holders of the Subordinated Debt Securities.
DESCRIPTION OF THE OLD SECURITIES
The terms of the Old Securities are identical in all material respects to
the Exchange Securities, except that (i) the Old Securities have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the Registration Agreement
(which rights will terminate upon consummation of the Exchange Offer, except
under limited circumstances), (ii) the Exchange Capital Securities will not
provide for any increase in the Distribution rate thereon and (iii) the Exchange
Subordinated Debt Securities will not provide for any increase in the interest
rate thereon. The Registration Agreement provides that, under certain
circumstances specified therein, interest on the principal amount of the Old
Subordinated Debt Securities and Distributions on the Liquidation Amount of the
Old Capital Securities will accrue or accumulate at an increased rate. The
Exchange Securities are not, and upon consummation of the Exchange Offer any Old
Capital Securities that remain outstanding will not be, entitled to any such
additional interest or Distributions.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE
SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
LIMITED PURPOSE OF THE TRUST
The Capital Securities represent undivided beneficial interests in the
assets of the Trust, and the Trust exists for the sole purposes of (i) issuing
and selling the Trust Securities and effecting the Exchange Offer for the
Exchange Capital Securities, (ii) investing the gross proceeds from the sale of
the Old Capital Securities and Common Securities in the Old Subordinated Debt
Securities, (iii) exchanging the Old Subordinated Debt Securities for the
Exchange Subordinated Debt Securities and (iv) engaging in only those other
activities necessary, advisable or incidental thereto.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
Distributions and other payments due on the Trust Securities, primarily because:
(i) the aggregate principal amount or Redemption Price of the Subordinated Debt
Securities is equal to the sum of the Liquidation Amount or Redemption Price, as
applicable, of the Trust Securities; (ii) the interest rate and interest and
other payment dates on the Subordinated Debt Securities will match the
Distribution rate and Distribution and other payment dates for the Trust
Securities; (iii) the Company shall pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations to holders of Trust
Securities under such Trust Securities; and (iv) the Declaration will provide
that the Trust is not authorized to engage in any activity that is not
consistent with the limited purposes thereof.
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Trust has funds on hand legally available for the payment of
such Distributions) are irrevocably guaranteed by the Company as and to the
extent set forth under "Description of the Guarantee." Taken together, the
Company's obligations under the Subordinated Debt Securities, the Indenture, the
Declaration and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payment of Distributions and other amounts due on the
Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Capital Securities. If and to the extent that the
Company does not make the required payments on the Subordinated Debt Securities,
the Trust will not have sufficient funds to make the related payments, including
Distributions, on the Capital Securities. The Guarantee will not cover any such
payment when the Trust does not have sufficient funds on hand legally available
therefor. In such event, the remedy of a holder of Capital Securities is to
institute a Direct Action. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Indebtedness.
ENFORCEMENT OF RIGHTS OF HOLDERS OF CAPITAL SECURITIES
If the Guarantee Trustee fails to enforce the Guarantee after the holders
of a majority in Liquidation Amount of the Capital Securities have so requested,
a holder of any Capital Security may institute a legal proceeding against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Guarantee Trustee, the Trust or any other person or
entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Declaration. However, in the
event of payment defaults under, or acceleration of, Senior Indebtedness, the
subordination provisions of the Indenture will provide that no payments may be
made in respect of the Subordinated Debt Securities until such Senior
Indebtedness has been paid in full
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or any payment default thereunder has been cured or waived. Failure to make
required payments on Subordinated Debt Securities would constitute an Event of
Default under the Declaration.
RIGHTS UPON DISSOLUTION
Unless the Subordinated Debt Securities are distributed to holders of the
Trust Securities, upon any voluntary or involuntary dissolution and liquidation
of the Trust after satisfaction of liabilities to creditors of the Trust (to the
extent not satisfied by the Company), the holders of the Trust Securities will
be entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. See "Description of Capital Securities -- Liquidation of
the Trust and Distribution of Subordinated Debt Securities." Upon any voluntary
or involuntary liquidation or bankruptcy of the Company, the Property Trustee,
as holder of the Subordinated Debt Securities, would be a subordinated creditor
of the Company, subordinated in right of payment to all Senior Indebtedness, as
set forth in the Indenture, but entitled to receive payment in full of principal
(and premium, if any) and interest, before any stockholders of the Company
receive payments or distributions. Since the Company will be the guarantor under
the Guarantee and will agree to pay for all costs, expenses and liabilities of
the Trust (other than the Trust's obligations to the holders of its Trust
Securities), the positions of a holder of Capital Securities and a holder of
Subordinated Debt Securities 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.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Vinson & Elkins L.L.P., special United States federal
income tax counsel to the Company and the Trust ("Tax Counsel"), the following
are the material United States federal income tax consequences of the exchange
of Old Capital Securities for Exchange Capital Securities pursuant to the
Exchange Offer and the ownership and disposition of Capital Securities. Except
as otherwise noted, Tax Counsel's opinion only addresses the tax consequences to
a person that acquired Old Capital Securities on their original issue at their
original offering price and that is, for United States federal income tax
purposes, (i) a citizen or individual resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States
or any state thereof or the District of Columbia or (iii) an estate or trust
which is not treated as a foreign estate or foreign trust for United States
federal tax purposes (a "United States Person"). Tax Counsel's opinion does not
address all tax consequences that may be applicable to a United States Person
that is a beneficial owner of Capital Securities, nor does it address the tax
consequences to (i) persons that are subject to special treatment under United
States federal income tax law, such as banks, insurance companies, thrift
institutions, regulated investment companies, real estate investment trusts,
tax-exempt organizations and dealers in securities or currencies, (ii) persons
that hold Capital Securities as part of a position in a "straddle" or as part of
a "hedging," "conversion" or other integrated investment transaction for federal
income tax purposes, (iii) United States Persons whose functional currency is
not the United States dollar or (iv) persons that do not hold Capital Securities
as capital assets.
Tax Counsel's opinion assumes that the Trust was formed and is maintained
in compliance with the terms of the Declaration, that the transactions related
to the original issuance of the Old Securities were consummated in accordance
with the documents described in this Prospectus and that the Exchange will be
effected in accordance with such documents. Further, Tax Counsel's opinion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions, all as of the date hereof and all of which are subject to change at
any time. Such changes may be retroactive and could result in tax consequences
that vary substantially from the consequences described below, possibly
adversely affecting a beneficial owner of Capital Securities. An opinion of
counsel is not binding on the Internal Revenue Service ("IRS") or the courts,
and the authorities on which Tax Counsel's opinion is based are subject to
various interpretations. It is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of Capital Securities may
differ from the treatment described below.
HOLDERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS THE EFFECT
OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF CAPITAL SECURITIES
The Exchange will not be a taxable event for United States federal income
tax purposes. Consequently, no taxable gain or loss will be recognized by a
holder upon the receipt of Exchange Capital Securities in exchange for its Old
Capital Securities, and such holder will have the same adjusted tax basis and
holding period in the Exchange Capital Securities as the holder had in its Old
Capital Securities immediately before such exchange.
CLASSIFICATION OF THE SUBORDINATED DEBT SECURITIES
Tax Counsel is of the opinion that under then current law and assuming full
compliance with the terms of the Indenture (and certain other documents), the
Subordinated Debt Securities will be classified for United States federal income
tax purposes as indebtedness of the Company.
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CLASSIFICATION OF THE TRUST
Tax Counsel is of the opinion that, under then current law and assuming
full compliance with the terms of the Declaration and the Indenture (and certain
other documents), the Trust will be classified for United States federal income
tax purposes as a grantor trust and not as a partnership or an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Capital Securities will be considered the owner of an
undivided interest in the Subordinated Debt Securities, and each holder will be
required to include in its gross income any interest and original issue discount
("OID") accrued with respect to its allocable share of those Subordinated Debt
Securities.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury regulations (the "Regulations"), a "remote" contingency that
stated interest will not be timely paid on the Subordinated Debt Securities will
be ignored in determining whether the Subordinated Debt Securities are issued
with OID. The Company believes that the likelihood of its exercising its option
to defer payments of interest on the Subordinated Debt Securities is "remote"
since, among other things, exercising that option would prevent the Company from
declaring dividends on any class of its equity securities. Accordingly, the
Company intends to take the position that the Subordinated Debt Securities will
not be considered to have been issued with OID and, accordingly, stated interest
on the Subordinated Debt Securities generally will be taxable to a holder of
Capital Securities as ordinary income at the time it is paid or accrued in
accordance with such holder's method of accounting. Tax Counsel believes that
this position is correct, but is unable to express an unqualified opinion
because neither the Regulations nor any other authorities directly address the
remoteness issue.
If the Company were to exercise its option to defer payments of interest on
the Subordinated Debt Securities, the Subordinated Debt Securities would at that
time be treated for purposes of the OID rules as having been retired and
reissued with OID equal to the sum of all future payments of stated interest on
the Subordinated Debt Securities. If the Subordinated Debt Securities are
treated as having been reissued with OID (either because the Company exercises
its right to defer interest payments or because the likelihood of such exercise
was not remote at the time of issuance), holders must include that OID in income
on an economic accrual basis regardless of their method of tax accounting and
regardless of the amount of interest received. Thus, the amount of income
required to be recognized by a holder of Capital Securities with respect to a
taxable period may exceed the Distributions received by such holder in such
period. The amount of OID that accrues in any semiannual period will
approximately equal the amount of interest that accrues in that semiannual
period at the stated interest rate (including compounding). Accordingly, if the
interest payment period is extended, holders will accrue OID approximately equal
to the amount of the interest payment due at the end of the Extension Period on
an economic accrual basis over the length of the Extension Period. A holder of
Capital Securities that disposes of the Capital Securities during an Extension
Period may suffer a loss because the market value of the Capital Securities
likely will fall if the Company exercises its option to defer payments of
interest on the Subordinated Debt Securities. To the extent the selling price is
less than the holder's adjusted tax basis (which effectively will include all
accrued but unpaid interest and OID), the holder will recognize a capital loss,
which generally may not be used to offset ordinary income (including interest
income or OID on the Subordinated Debt Securities).
The Regulations have not yet been addressed in any court decisions or
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a position contrary to Tax Counsel's interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
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RECEIPT OF SUBORDINATED DEBT SECURITIES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and
cause the Subordinated Debt Securities to be distributed to the holders of the
Trust Securities. Under current law, such a distribution would, for United
States federal income tax purposes, be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the Subordinated
Debt Securities equal to such holder's aggregate tax basis in its Capital
Securities. A holder's holding period in the Subordinated Debt Securities so
received in liquidation of the Trust would include the period during which the
Capital Securities were held by such holder.
Under certain circumstances described herein (see "Description of the
Capital Securities"), the Subordinated Debt Securities may be redeemed for cash
and the proceeds of such redemption distributed to holders in redemption of
their Capital Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold such redeemed Capital Securities for cash. See "-- Sales of Capital
Securities" below.
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities (including upon a redemption) will
recognize gain or loss equal to the difference between its adjusted tax basis in
the Capital Securities and the amount realized on the sale of such Capital
Securities (for this purpose, the amount realized on the sale of a Capital
Security does not include any amount attributable to accrued and unpaid interest
not previously included in income, which will be taxable as ordinary income). A
holder's adjusted tax basis in the Capital Securities generally will be the
initial purchase price therefor increased by any OID accrued to the date of
disposition and decreased by payments (other than stated interest that
constitutes ordinary income at the time it is paid or accrued) received on the
Capital Securities. Such gain or loss generally will be a capital gain or loss
and generally will be mid-term capital gain or loss if the Capital Securities
have been held more than one year, but not more than 18 months, and generally
will be long-term capital gain or loss if the Capital Securities have been held
more than 18 months. Under certain circumstances, mid-term capital gains and
long-term capital gains of individuals are taxed at lower rates than ordinary
income. Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States federal income tax purposes.
The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Subordinated
Debt Securities. For United States federal income tax purposes, a holder who
uses the accrual method of accounting for tax purposes (and a cash method
holder, if the Subordinated Debt Securities are treated as issued with OID) and
who disposes of its Capital Securities between record dates for payments of
Distributions thereon will be required to include accrued but unpaid interest on
the Subordinated Debt Securities through the date of disposition in income as
ordinary income (i.e., interest or, possibly, OID), and to add such amount to
its adjusted tax basis in its pro rata share of the underlying Subordinated Debt
Securities deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include all accrued but unpaid
interest), 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.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is a
beneficial owner of a Capital Security that is not a United States Person and is
not engaged in the conduct of a trade or business within the United States.
Under present United States federal income tax law: (i) payments by the
Trust or any of its paying agents to a United States Alien Holder will not be
subject to United States federal withholding tax; provided that, (a) such United
States Alien Holder does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of the Company
entitled to vote, (b) such
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United States Alien Holder is not a controlled foreign corporation that is
related to the Company through stock ownership, within the meaning of the Code,
and (c) either (A) such United States Alien Holder certifies to the Trust or its
agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) 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 Trust or its agent, under
penalties of perjury, that such statement has been received from such United
States Alien Holder by it or by a Financial Institution between it and such
United States Alien Holder and furnishes the Trust or its agent with a copy
thereof; and (ii) a United States Alien Holder of a Capital Security generally
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Capital Security.
PROPOSED TAX LEGISLATION
On February 6, 1997, the Clinton Administration released an explanation of
its Fiscal 1998 Budget Proposal, which would, among other things, generally deny
corporate issuers a deduction for interest in respect of certain types of debt
obligations (the "Administration's Proposal"). The Administration's Proposal
would apply to debt obligations, such as the Subordinated Debt Securities,
issued on or after the date of "first committee action" with respect to the
Administration's Proposal if such debt obligations have a maximum term in excess
of 15 years and are not shown as indebtedness on the issuer's balance sheet or
if such debt obligations have a maximum weighted average maturity of more than
40 years. Under current law, the Company will be able to deduct interest on the
Subordinated Debt Securities, and as currently proposed the Administration's
Proposal would not apply to the Subordinated Debt Securities, because they were
issued prior to the date of "first committee action." Legislative proposals
recently approved by the House Ways and Means Committee and the Senate Finance
Committee did not include the Administration's Proposal. There can be no
assurance, however, that current or future legislative proposals or final
legislation will not adversely affect the ability of the Company to deduct
interest on the Subordinated Debt Securities. Accordingly, there can be no
assurance that a Tax Event will not occur. The occurrence of a Tax Event may
result in the redemption of the Subordinated Debt Securities for cash, in which
event the holders of Capital Securities would receive cash in redemption of
their Capital Securities. See "Description of the Capital Securities -- Tax
Event and Investment Company Event Redemption" and "Description of the
Subordinated Debt Securities -- Optional Redemption."
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099-INT, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
ADDITIONAL INTEREST
The Company does not anticipate that Additional Interest, Additional
Amounts or Additional Distributions will be paid. However, if Additional
Interest, Additional Amounts or Additional Distributions are paid, they will be
taxable to the holder as ordinary income (possibly as interest income) in
accordance with the holder's method of accounting for tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
"Backup" withholding at a rate of 31% will apply to payments of interest to
a nonexempt holder unless the holder furnishes its taxpayer identification
number in the manner prescribed in applicable Treasury regulations, certifies
that such number is correct, certifies as to no loss of exemption from backup
withholding and meets certain other conditions or otherwise establishes an
exemption. Any amounts withheld from a holder of Capital Securities under the
backup withholding rules will be allowed as a refund or a credit against such
holder's United States federal income tax liability, provided the required
information is furnished to the Internal Revenue Service.
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The amount of interest paid or OID accrued on the Capital Securities by
United States Persons (other than corporations and other exempt holders) will be
reported to the IRS. In addition, payment of the proceeds from the disposition
of Capital Securities to or through the United States office of a broker is
subject to information reporting and backup withholding unless the holder or
beneficial owner establishes an exemption from information reporting and backup
withholding.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an investment
in the Exchange Capital Securities, whether pursuant to the Exchange Offer or
otherwise. Accordingly, among other factors, the fiduciary should consider
whether the investment would satisfy the prudence and diversification
requirements of ERISA, whether the investment would constitute an improper
delegation of fiduciary authority, and whether the investment would be
consistent with the documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan.
Unless exemptive relief is available, a violation of these "prohibited
transaction" rules may result in an excise tax or other liabilities for such
Parties in Interest. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are
not subject to the requirements of ERISA or Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Trust may be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire Exchange Capital Securities.
If the Exchange Capital Securities were acquired and held by a Plan (or
with the "plan assets" of such Plan) and the assets of the Trust were deemed to
be "plan assets" of such Plan under the Plan Assets Regulation, certain
transactions involving the Trust could be deemed to constitute direct or
indirect prohibited transactions under Section 406 of ERISA and Section 4975 of
the Code with respect to such Plan. For example, if the Company is a Party in
Interest with respect to an investing Plan, extensions of credit between the
Company and the Trust (as represented by the Subordinated Debt Securities and
the Guarantees) would likely be prohibited by Section 406(a)(1)(B) of ERISA and
Section 4975(c)(1)(B) of the Code, unless exemptive relief were available (see
below). Because the assets of the Trust may be considered "plan assets" for
ERISA purposes as a result of a Plan's acquisition and holding of Exchange
Capital Securities, a Plan fiduciary should consider (a) whether powers which
potentially may be exercised by any person or entity with respect to the Trust
or its assets would result in such person or entity being potentially deemed to
be a fiduciary and, therefore, a Party in Interest with respect to a Plan
acquiring or holding Exchange Capital Securities and (b) if so, whether such
acquisition and holding could result in a delegation of fiduciary authority
which is impermissible under the Plan's governing instruments or any investment
management agreement with the Plan. In making such determinations, a Plan
fiduciary should note that prior to a Debenture Event of Default, the Issuer
Trustees will have only limited custodial and ministerial authority with respect
to the assets of the Trust.
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 Exchange Capital Securities,
assuming that assets of the Trust were deemed to be "plan assets" of Plans
investing in the Trust. Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment
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funds), 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 the prohibited transaction exposures described above, the
Exchange Capital Securities may not be purchased or held by any Plan, any entity
whose underlying assets include "plan assets" by reason of any Plan's investment
in the entity (a "Plan Asset Entity") or any person investing "plan assets" of
any Plan, unless such purchaser or holder is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. Any purchaser or holder
of the Exchange Capital Securities will be deemed to have represented by its
purchase and holding thereof that it either (a) is not a Plan or a Plan Asset
Entity and is not purchasing such securities on behalf of or with "plan assets"
of any Plan or (b) is eligible for the exemptive relief available under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14, with respect to such purchase or holding.
See "Notice to Investors" herein. Further, the fiduciaries of any Plan or Plan
Asset Entity which may purchase or hold any Exchange Capital Securities will be
deemed as a result of such acquisition or holding to have (a) directed the Trust
to invest in the Exchange Subordinated Debt Securities and (b) authorized and
directed any of the actions taken or which may be taken with respect to the
Trust, the Exchange Capital Securities by any of the Company, the Issuer
Trustees, the Debenture Trustee or the Guarantee Trustee as contemplated by the
Indenture, the Declaration, the Guarantee or the Common Guarantee.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing Exchange
Capital Securities on behalf of a Plan or with "plan assets" of any Plan consult
with their counsel regarding the potential consequences if the assets of the
Trust were deemed to be "plan assets" and the availability of exemptive relief
under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Old Capital Securities where such Old Capital Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Trust and the Company have agreed that, starting on the
Expiration Date and ending on the close of business on the 90th day following
the Expiration Date (subject to extension in the circumstances described in the
Registration Agreement), they will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until October 1, 1997, all dealers effecting transactions
in the Exchange Securities may be required to deliver a prospectus.
The Company and the Trust will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Securities may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit of any such resale of Exchange Securities
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Exchange
Capital Securities and the formation of the Trust will be passed upon on behalf
of the Trust and the Company by Richards, Layton & Finger, P.A., special
Delaware counsel to the Trust and the Company. The validity of the Exchange
Subordinated Debt Securities and the Exchange Guarantee will be passed upon on
behalf of the Company by Vinson & Elkins L.L.P. Certain United States federal
income taxation matters will be passed upon for the Company and the Trust by
Vinson & Elkins L.L.P.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, incorporated herein by reference to its Annual Report on Form 10-K for the
year ended December 31, 1996, as amended, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
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