<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 14, 1998)
$55,000,000
NORTHWESTERN CAPITAL FINANCING I
7.20% TRUST PREFERRED CAPITAL SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED BY
[LOGO]
-----------------
NORTHWESTERN CAPITAL FINANCING I IS OFFERING PREFERRED SECURITIES GUARANTEED, TO
THE EXTENT DESCRIBED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, BY NORTHWESTERN CORPORATION.
---------------------
FOR A MORE DETAILED DESCRIPTION OF THE PREFERRED SECURITIES, SEE "DESCRIPTION OF
THE PREFERRED SECURITIES" BEGINNING ON PAGE S-16.
THE PREFERRED SECURITIES WILL BE LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE
TRADING
SYMBOL "NOR PRB."
---------------------
INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE S-7.
-----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO TRUST
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER PREFERRED SECURITY............................. $25 SEE BELOW $25
TOTAL.............................................. $55,000,000 SEE BELOW $55,000,000
</TABLE>
NORTHWESTERN CAPITAL FINANCING I WILL NOT PAY ANY UNDERWRITING COMMISSIONS.
NORTHWESTERN CORPORATION WILL PAY UNDERWRITING COMMISSIONS OF $.7875 PER
PREFERRED SECURITY ($.50 PER PREFERRED SECURITY SOLD TO CERTAIN INSTITUTIONS).
ANY ACCUMULATED DISTRIBUTIONS FROM NOVEMBER 18, 1998 SHOULD BE ADDED TO THE
PRICE TO PUBLIC.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE PREFERRED SECURITIES TO
PURCHASERS ON OR ABOUT NOVEMBER 18, 1998.
-------------------
MORGAN STANLEY DEAN WITTER
CIBC OPPENHEIMER
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PIPER JAFFRAY INC.
NOVEMBER 10, 1998
<PAGE>
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this Prospectus Supplement along with the Prospectus that
follows. You should rely only on the information provided or incorporated by
reference in this Prospectus Supplement and the Prospectus. We have not
authorized anyone else to provide you with different information. We are not
making an offer of the Preferred Securities in any state where the offer is not
permitted. You should not assume that the information in this Prospectus
Supplement or the Prospectus is accurate as of any date other than the dates on
the front of these documents.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT PAGE
---------
Prospectus Supplement Summary........ S-3
Risk Factors......................... S-7
NorthWestern Capital Financing I..... S-11
NorthWestern Corporation............. S-12
Recent Developments.................. S-12
Capitalization....................... S-14
Ratio of Earnings to Fixed Charges
and Earnings to Combined Fixed
Charges and Preferred Dividends.... S-14
Selected Financial Data.............. S-15
Use of Proceeds...................... S-15
Accounting Treatment................. S-15
Description of the Preferred
Securities......................... S-16
Description of the Subordinated
Debentures......................... S-28
Description of the Guarantee......... S-34
Effect of Obligations Under the
Subordinated Debentures and the
Guarantee.......................... S-36
United States Federal Income
Taxation........................... S-37
Certain ERISA Considerations......... S-40
Underwriters......................... S-42
Legal Matters........................ S-43
</TABLE>
<TABLE>
<S> <C>
PROSPECTUS PAGE
---------
Available Information................ 2
Documents Incorporated by
Reference.......................... 2
NorthWestern......................... 3
The Trusts........................... 3
Use of Proceeds...................... 4
Ratio of Earnings to Fixed Charges
and Earnings to Combined Fixed
Charges and Preferred Dividends.... 4
Price Range of Common Stock and
Dividends.......................... 5
Description of Mortgage Bonds........ 5
Description of Debt Securities....... 15
Description of Preferred Stock and
Preference Stock................... 23
Description of Common Stock.......... 26
Description of the Trusts' Preferred
Securities......................... 29
Description of the Guarantees........ 30
Plan of Distribution................. 32
Selling Stockholders................. 33
Experts and Legal Opinions........... 34
</TABLE>
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING INFORMATION CONCERNING NORTHWESTERN CORPORATION
("NORTHWESTERN"), NORTHWESTERN CAPITAL FINANCING I ("CAPITAL TRUST I"), THE
7.20% TRUST PREFERRED CAPITAL SECURITIES TO BE ISSUED BY CAPITAL TRUST I (THE
"PREFERRED SECURITIES"), THE GUARANTEE TO BE ISSUED BY NORTHWESTERN WITH RESPECT
TO THE PREFERRED SECURITIES (THE "GUARANTEE") AND THE 7.20% JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES DUE 2038 TO BE ISSUED BY NORTHWESTERN (THE
"SUBORDINATED DEBENTURES") SUPPLEMENTS, AND SHOULD BE READ IN CONJUNCTION WITH,
THE INFORMATION CONTAINED IN THE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS USED
IN THIS PROSPECTUS SUPPLEMENT HAVE THE SAME MEANINGS AS IN THE ACCOMPANYING
PROSPECTUS.
NORTHWESTERN CORPORATION
NorthWestern Corporation is a provider of services and solutions to
customers across America. We provide electric and natural gas service to
Midwestern customers through our energy division, NorthWestern Public Service.
In addition, we hold interests in Cornerstone Propane Partners, L.P. (NYSE:CNO),
the nation's fifth largest retail propane distributor, Communication Systems
USA, Inc., a national provider of integrated communication and data solutions
and network services, and Blue Dot Services Inc., a national provider of
heating, air conditioning, plumbing and related services. We are also engaged in
other service and nonenergy-related businesses.
NorthWestern was incorporated under the laws of the State of Delaware in
1923. Our principal offices have recently moved to 125 S. Dakota Avenue, Suite
1100, Sioux Falls, South Dakota 57104 and our telephone number is now (605)
978-2908. Information about NorthWestern is available on the Internet at
http://www.northwestern.com and as set forth under "Available Information" in
the accompanying Prospectus. NorthWestern has filed with the Securities and
Exchange Commission a Current Report on Form 8-K dated October 26, 1998
summarizing our third quarter financial results. That report is incorporated by
reference in the accompanying Prospectus.
NORTHWESTERN CAPITAL FINANCING I
Capital Trust I is a Delaware business trust. Capital Trust I will exist
solely to:
- issue and sell its Common Securities to us;
- issue and sell its Preferred Securities to the public; and
- use the proceeds from the sale of its Common Securities and Preferred
Securities to purchase our Subordinated Debentures.
Three trustees will manage Capital Trust I. Two of the trustees are our
officers. The third trustee, Wilmington Trust Company, will act as the Property
Trustee of Capital Trust I. The principal offices and telephone number of
Capital Trust I are the same as ours.
THE OFFERING
Capital Trust I is offering the Preferred Securities at a price of $25 for
each security. Capital Trust I will use all of the proceeds from the sale of the
Preferred Securities to purchase Subordinated Debentures from us. The
Subordinated Debentures will be the only assets of Capital Trust I. We will
guarantee the obligations of Capital Trust I under the Preferred Securities to
the extent described in this Prospectus Supplement.
THE PREFERRED SECURITIES
If you purchase Preferred Securities, you will be entitled to receive
cumulative cash distributions at a rate of 7.20% per annum of the liquidation
amount of $25 per security. This is equivalent to $1.80 per Preferred Security
each year. Distributions will accumulate from the date Capital Trust I issues
the Preferred
S-3
<PAGE>
Securities. Capital Trust I will pay the distributions quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, beginning December
31, 1998, subject to deferral. Capital Trust I will only pay distributions when
it has funds available for payment.
If you purchase Preferred Securities, you will have limited voting rights.
You will be entitled to vote only with respect to the modification of the
Preferred Securities, the exercise of Capital Trust I's rights as holder of the
Subordinated Debentures and, under certain circumstances, the appointment,
removal and replacement of the Property Trustee.
THE COMMON SECURITIES
We will acquire all of the Common Securities of Capital Trust I. The Common
Securities will have an aggregate liquidation amount equal to 3% of the total
capital of Capital Trust I. The Common Securities will generally rank on par
with the Preferred Securities. However, in the case of certain defaults, the
Common Securities will rank junior to the Preferred Securities with respect to
distributions, redemption and liquidation. Except in certain limited
circumstances, the Common Securities will have sole voting power with respect to
matters to be voted upon by Capital Trust I's security holders.
THE SUBORDINATED DEBENTURES
Capital Trust I will purchase Subordinated Debentures from us with the
proceeds from the sale of the Preferred Securities and the Common Securities.
The Subordinated Debentures will be issued under an indenture between us and The
Chase Manhattan Bank, as trustee. The Subordinated Debentures will:
- be unsecured and subordinate to all of our senior indebtedness, including
debt we incur after the date you purchase the Preferred Securities;
- have an aggregate principal amount equal to the aggregate liquidation
amount of the Preferred Securities plus the capital contributed by us for
the Common Securities;
- bear interest at a rate of 7.20% per annum; and
- mature on December 31, 2038, subject to earlier redemption.
GUARANTEE OF THE PREFERRED SECURITIES
We will guarantee the Preferred Securities pursuant to the terms of the
Guarantee.
If we do not make a payment on the Subordinated Debentures, Capital Trust I
will not have sufficient funds to make payments on the Preferred Securities. The
Guarantee does not require us to make payments on behalf of Capital Trust I if
Capital Trust I does not have sufficient funds to make payments on the Preferred
Securities. Our obligations under the Guarantee are subordinate to our
obligations to make payments on all of our other liabilities (except our
obligations under similar guarantees).
RANKING
The Preferred Securities will generally rank on a par with the Common
Securities. Capital Trust I will make payments on the Preferred Securities and
the Common Securities on a pro rata basis, except in certain circumstances
(described on page S-20).
The Subordinated Debentures will be unsecured and will rank subordinate and
junior in right of payment to all of our current and future senior indebtedness
and on a par with $33.5 million principal amount of our Junior Subordinated
Deferrable Interest Debentures due 2025. The Subordinated Debentures will also
rank on a par with any other junior subordinated debentures that we may issue
and sell to trusts similar to Capital Trust I that we may establish in the
future.
S-4
<PAGE>
The Guarantee will rank on a par with our most senior preferred or
preference stock and with the guarantee we issued in connection with the $33.5
million principal amount of Junior Subordinated Debentures referred to above.
The Guarantee will also rank on a par with any other guarantees that we may
issue with respect to preferred securities issued by trusts similar to Capital
Trust I that we may establish in the future. The Guarantee will be unsecured and
will rank subordinate and junior in right of payment to all of our other
liabilities. In addition, the Subordinated Debentures and the Guarantee will be
effectively subordinated to all existing and future liabilities of our
subsidiaries and affiliates.
DEFERRAL OF DISTRIBUTIONS
We can defer interest payments on the Subordinated Debentures during a
period of up to 20 consecutive quarters (but not beyond the maturity date)
unless an event of default has occurred and is continuing under the Subordinated
Debenture (see page 18 of the accompanying Prospectus for a list of events of
default). After we make all interest payments that we have deferred, including
accrued interest on the deferred payments, we can again defer interest payments
during new periods of up to 20 consecutive quarters if no event of default under
the Subordinated Indenture has occurred and is continuing.
If we defer interest payments on the Subordinated Debentures, Capital Trust
I will also defer distributions on the Preferred Securities. During any deferral
period, distributions will continue to accumulate on the Preferred Securities at
an annual rate of 7.20% of the liquidation amount of $25 per Preferred Security.
Also, the deferred distributions will themselves accumulate additional
distributions at an annual rate of 7.20%.
During any period in which we defer interest payments on the Subordinated
Debentures, we will generally not be permitted to:
- pay dividends or make any other distributions on our capital stock;
- redeem, purchase or make liquidation payments on any of our capital stock;
or
- make an interest, principal or premium payment, or repurchase or redeem,
any of our debt securities that rank equal with or junior to the
Subordinated Debentures or the Guarantee, including any other similar
junior subordinated debentures and guarantees issued by us.
If we defer payments of interest on the Subordinated Debentures, the
Preferred Securities would at that time be treated as being issued with original
issue discount for United States federal income tax purposes. This means that
you would be required to recognize interest income with respect to deferred
distributions and include such amounts in your gross income for United States
federal income tax purposes before you receive any cash distributions. This is
more fully explained in "United States Federal Income Taxation" beginning on
page S-37.
REDEMPTION OF PREFERRED SECURITIES
Capital Trust I will redeem all of the outstanding Preferred Securities when
we pay the Subordinated Debentures at maturity on December 31, 2038. In
addition, if we redeem any Subordinated Debentures before their maturity,
Capital Trust I will use the cash it receives on the redemption of the
Subordinated Debentures to redeem an equal amount of the Preferred Securities
and Common Securities on a pro rata basis.
We can redeem some or all of the Subordinated Debentures before their
maturity at 100% of their principal amount:
- on one or more occasions any time on or after November 18, 2003; and
- before November 18, 2003, if certain changes in tax or investment company
law occur (as more fully described on page S-18).
In either case, we will pay accrued interest to the date of redemption.
S-5
<PAGE>
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
We have the right to dissolve Capital Trust I at any time. If we decide to
exercise our right to dissolve Capital Trust I, Capital Trust I will redeem the
Preferred Securities by distributing the Subordinated Debentures to holders of
the Preferred Securities and the Common Securities on a pro rata basis.
CONDITIONAL RIGHT TO SHORTEN MATURITY
If certain changes in tax law occur, we will have the right prior to the
dissolution of Capital Trust I to shorten the maturity of the Subordinated
Debentures. We may only shorten the maturity to the extent necessary so that the
interest paid on the Subordinated Debentures will continue to be tax deductible.
The shortened term of the Subordinated Debentures may not be less than 15 years
from the date of their original issuance.
USE OF PROCEEDS
Capital Trust I will invest all of the proceeds from the sale of the
Preferred Securities in the Subordinated Debentures. We intend to use the net
proceeds from the sale of the Subordinated Debentures for general corporate
purposes. Pending such use, we will invest the net proceeds temporarily in our
securities portfolio.
LISTING OF THE PREFERRED SECURITIES
The Preferred Securities have been approved for listing on the New York
Stock Exchange under the symbol "NOR PrB." You should be aware that the listing
of the Preferred Securities will not necessarily ensure that a liquid trading
market will be available for the Preferred Securities.
RISK FACTORS
Your investment in the Preferred Securities will involve certain risks. You
should carefully consider the following discussion of risks, and the other
information in this Prospectus Supplement and the accompanying Prospectus,
before deciding whether an investment in the Preferred Securities is suitable
for you.
S-6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE PREFERRED SECURITIES INVOLVES A NUMBER OF RISKS. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION, TOGETHER WITH THE OTHER
INFORMATION IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE
DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THE PROSPECTUS, ABOUT RISKS
CONCERNING THE PREFERRED SECURITIES, BEFORE BUYING ANY PREFERRED SECURITIES.
BECAUSE CAPITAL TRUST I WILL RELY ON THE PAYMENTS IT RECEIVES ON THE
SUBORDINATED DEBENTURES TO FUND ALL PAYMENTS ON THE PREFERRED SECURITIES, AND
BECAUSE CAPITAL TRUST I MAY DISTRIBUTE THE SUBORDINATED DEBENTURES IN EXCHANGE
FOR THE PREFERRED SECURITIES, YOU ARE MAKING AN INVESTMENT DECISION WITH REGARD
TO THE SUBORDINATED DEBENTURES AS WELL AS THE PREFERRED SECURITIES. YOU SHOULD
CAREFULLY REVIEW THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS ABOUT BOTH OF THESE SECURITIES.
NORTHWESTERN'S OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED DEBENTURES
WILL BE DEEPLY SUBORDINATED
NorthWestern's obligations under the Guarantee are unsecured and rank (i)
subordinate and junior in right of payment to all of its other liabilities other
than its guarantee relating to the $32.5 million outstanding 8 1/8% Trust
Preferred Capital Securities issued by NWPS Capital Financing I (the "1995
Series Trust Preferred Securities") and (ii) on a par with the most senior
preferred or preference stock that it may issue. NorthWestern's obligations
under the Subordinated Debentures are unsecured and rank subordinate and junior
in right of payment to all of its present and future Senior Indebtedness and
rank on a par with NorthWestern's obligations to other general unsecured
creditors and other junior debt securities, including $33.5 million principal
amount of 8 1/8% Junior Subordinated Deferrable Interest Debentures due 2025
issued in connection with the 1995 Series Trust Preferred Securities. As of
September 30, 1998, NorthWestern had approximately $156.4 million of Senior
Indebtedness. In addition, NorthWestern has entered into an underwriting
agreement to issue and sell $105 million principal amount of 6.95% Senior
Debentures due 2028, which will constitute Senior Indebtedness. The Subordinated
Debentures also will be effectively subordinated to all obligations of
NorthWestern's subsidiaries and affiliates. Nothing in the Preferred Securities,
the Subordinated Debentures or the Guarantee limits NorthWestern's ability to
incur additional indebtedness, including indebtedness that ranks senior to the
Subordinated Debentures and the Guarantee. See "Description of the Guarantee"
and "Description of the Subordinated Debentures -- Subordination."
RIGHTS UNDER THE GUARANTEE
The ability of Capital Trust I to timely pay amounts due on the Preferred
Securities is solely dependent upon NorthWestern making the related payments on
the Subordinated Debentures when due. If NorthWestern defaults on its
obligations to pay principal of or interest on the Subordinated Debentures,
Capital Trust I will not have sufficient funds to pay distributions on or the
liquidation amount of the Preferred Securities. As a result, you will not be
able to rely upon the Guarantee for payment of these amounts. Instead, either
the Property Trustee will need to enforce the rights of Capital Trust I under
the Subordinated Debentures directly against NorthWestern, or you will need to
bring an action directly against NorthWestern to enforce payment of an amount of
Subordinated Debentures equal to the liquidation amount of your Preferred
Securities (a "Direct Action"). See "Effect of Obligations under the
Subordinated Debentures and the Guarantee."
DISTRIBUTIONS ON THE PREFERRED SECURITIES COULD BE DEFERRED FOR SUBSTANTIAL
PERIODS, BUT HOLDERS WOULD STILL RECOGNIZE INCOME FOR TAX PURPOSES
As long as no event of default is continuing with respect to the
Subordinated Debentures, NorthWestern has the right under the Subordinated
Indenture to defer interest payments on the Subordinated Debentures for any
period (an "Extension Period") up to 20 consecutive quarters, but not
S-7
<PAGE>
beyond the stated maturity of the Subordinated Debentures. During each Extension
Period, Capital Trust I will defer payments of distributions on the Preferred
Securities in a corresponding amount. There is no limit on the number of
Extension Periods that may begin, as long as no event of default is continuing
with respect to the Subordinated Debentures. See "Description of the Preferred
Securities -- Distributions" and "Description of the Subordinated
Debentures -- Option to Extend Interest Payment Period."
If an Extension Period occurs, each holder of Preferred Securities (even if
it uses the cash method of accounting) will be required to accrue income (in the
form of original issue discount) for United States federal income tax purposes
with respect to its proportionate share of the deferred interest on the
Subordinated Debentures. As a result, you would be required to include such
income in gross income for United States federal income tax purposes before you
actually received any cash attributable to that income. In addition, you would
not receive the cash related to such income from Capital Trust I if you disposed
of your Preferred Securities prior to the record date for any distribution date
on which such deferred distribution is paid, even if you held the Preferred
Securities on the date that the payments would normally be made. See "United
States Federal Income Taxation -- Interest and Original Issue Discount" and
"-- Sales of Preferred Securities."
THE PREFERRED SECURITIES MAY BE REDEEMED IF CERTAIN TAX OR REGULATORY EVENTS
OCCUR
Upon the occurrence and continuation of either a Tax Event or an Investment
Company Event, NorthWestern has the right to redeem the Subordinated Debentures
in whole (but not in part) within 90 days following the occurrence of such
event. If the Subordinated Debentures are redeemed, the Preferred Securities
must be redeemed. Thus, it is possible that the Preferred Securities could be
redeemed before November 18, 2003. Any redemption will be at a redemption price
equal to 100% of the liquidation amount of the Preferred Securities plus
accumulated and unpaid distributions to the redemption date. Under current
United States federal income tax law, such a redemption of the Preferred
Securities would constitute a taxable event to the holders. "Tax Event" refers
to changes in the current tax treatment of the Subordinated Debentures or
Capital Trust I, and "Investment Company Event" refers to changes in regulation
of investment companies from which the Preferred Securities trust structure is
currently exempt. Each of these terms is defined below under "Description of the
Preferred Securities," and some of the possible tax consequences to you are
described below under "United States Federal Income Taxation."
NORTHWESTERN MAY CAUSE CAPITAL TRUST I TO DISTRIBUTE THE SUBORDINATED DEBENTURES
TO THE HOLDERS OF THE PREFERRED SECURITIES
Capital Trust I may be dissolved prior to its expiration, either as a result
of the occurrence of certain events or at NorthWestern's option. In such event,
and subject to the terms of the Trust Declaration, the Subordinated Debentures
will be distributed to the holders of the Preferred Securities and the Common
Securities in liquidation of Capital Trust I. Although NorthWestern has agreed
to use its best efforts to list the Subordinated Debentures on the New York
Stock Exchange if this occurs, there can be no assurance that the Subordinated
Debentures will be approved for listing or that a trading market will exist for
the Subordinated Debentures.
NorthWestern cannot predict the market prices for the Subordinated
Debentures that may be distributed. Accordingly, the Subordinated Debentures
that you receive upon a distribution, or the Preferred Securities you hold
pending such a distribution, may trade at a discount to the price you paid to
purchase the Preferred Securities.
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon dissolution of Capital Trust I would not be a
taxable event to holders of the Preferred Securities. If, however, a liquidating
distribution occurred and it was determined that Capital Trust I was subject to
United States federal income tax with respect to amounts received or accrued on
the Subordinated Debentures at the time of such liquidation, then the
distribution of the Subordinated Debentures would be a taxable event to
S-8
<PAGE>
holders of Preferred Securities. Under current United States federal income tax
law, the redemption of the Subordinated Debentures upon the occurrence of a Tax
Event or Investment Company Event or a liquidation in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Subordinated Debentures or
Cash upon Liquidation of Capital Trust I."
NORTHWESTERN MAY SHORTEN MATURITY OF SUBORDINATED DEBENTURES
Upon the occurrence and continuation of a Tax Event relating to
non-deductibility of interest payments on the Subordinated Debentures, in lieu
of redeeming the Subordinated Debentures, NorthWestern will have the right to
shorten the stated maturity of the Subordinated Debentures -- and therefore
change the mandatory redemption date for the Preferred Securities -- to be as
early as November 18, 2013.
GENERAL MARKET CONDITIONS AND DEFERRAL RIGHTS COULD ADVERSELY AFFECT MARKET
PRICES
There can be no assurance about the market prices for the Preferred
Securities or for the Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if Capital Trust I is dissolved. In
addition, because of NorthWestern's right to defer interest payments and to
shorten the stated maturity of the Subordinated Debentures, the market price of
the Preferred Securities may be more volatile than the market prices of similar
securities that are not subject to these rights. Moreover, any exercise of these
rights could cause the market price of the Preferred Securities to decline.
Accordingly, the Preferred Securities that you purchase, whether in this
offering or in the secondary market, or the Subordinated Debentures that you may
receive on liquidation of Capital Trust I, may trade at a discount to the price
that you paid for the Preferred Securities. Furthermore, if you dispose of any
Preferred Securities or Subordinated Debentures during an Extension Period, when
trading prices are likely to be adversely affected by the deferral, you might
not receive the same return on your investment as a holder that holds its
Preferred Securities until the Extension Period ends.
THE MARKET PRICES OF THE PREFERRED SECURITIES MAY NOT FULLY REFLECT ACCRUED
INTEREST
The Preferred Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying Subordinated
Debentures. A holder of Preferred Securities that disposes of its Preferred
Securities between record dates for any distribution payments will nevertheless
be required to include as ordinary income for United States federal income tax
purposes an amount equal to the accrued but unpaid interest on its proportionate
interest in the Subordinated Debentures through the date of disposition. Such
holder will recognize a capital loss to the extent the selling price (which may
not fully reflect the value of accrued but unpaid interest) is less than its
adjusted tax basis. Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for United States federal income tax
purposes. See "United States Federal Income Taxation -- Sales of Preferred
Securities."
LIMITED VOTING RIGHTS
In general, holders of Preferred Securities will have limited voting rights
relating only to the modification of the Trust Declaration (which establishes
the terms and conditions of the Preferred Securities) and the exercise of
Capital Trust I's rights as the holder of the Subordinated Debentures. Holders
of Preferred Securities will not be entitled to vote to appoint, remove or
replace the trustees of Capital Trust I, which voting rights are vested
exclusively in NorthWestern as the holder of the Common Securities of Capital
Trust I, except that the holders of the Preferred Securities will be entitled to
appoint, remove or replace the Property Trustee during the continuance of an
event of default under the Subordinated Indenture. The Regular Trustees, who are
officers of NorthWestern, and NorthWestern may amend the Trust Declaration
without the consent of holders of Preferred Securities to ensure that (i)
Capital Trust I will be classified for United States federal income tax purposes
as a grantor trust, (ii) the Subordinated Debentures will be treated as
indebtedness of NorthWestern and (iii) Capital Trust I will not be required to
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<PAGE>
register as an "investment company" under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), even if such action adversely affects
the interests of such holders. See "Description of the Preferred
Securities -- Voting Rights."
NO PRIOR MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities constitute a new issue of securities with no
established trading market. Although the Preferred Securities will be listed on
the New York Stock Exchange, a listing does not guarantee that a trading market
for the Preferred Securities will develop or, if a trading market for the
Preferred Securities does develop, the depth of that market and the ability of
holders to sell their Preferred Securities easily.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus Supplement, including
under the caption "Recent Developments," and certain statements incorporated by
reference in the accompanying Prospectus, are forward-looking statements within
the meaning of the securities laws. NorthWestern cautions that, while we believe
such statements to be based on reasonable assumptions and make such statements
in good faith, there can be no assurance that actual results will not differ
materially from such assumptions or that the expectations set forth in the
forward-looking statements derived from such assumptions will be realized.
Investors should be aware of important factors that could have a material impact
on future results. These factors include, but are not limited to: weather; the
federal and state regulatory environment; regional, commercial, industrial and
residential growth in the service territories served by NorthWestern and its
subsidiaries and affiliates; the speed and degree to which competitors enter
NorthWestern's industries; the timing and extent of changes in commodity prices;
risks associated with acquisitions and integration of acquired companies;
fluctuations in operating results; competition; the economic climate; customers'
usage patterns and preferences; changing conditions in the capital and equity
markets; and other uncertainties, all of which are difficult to predict, and
many of which are beyond our control.
S-10
<PAGE>
NORTHWESTERN CAPITAL FINANCING I
Capital Trust I is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust executed by NorthWestern, as sponsor, and
the trustees of Capital Trust I (the "Capital Trustees") and (ii) the filing of
a certificate of trust with the Secretary of State of the State of Delaware. The
declaration will be amended and restated in its entirety (as so amended and
restated, the "Trust Declaration") substantially in the form filed as an exhibit
to the Registration Statement of which the accompanying Prospectus forms a part.
The Trust Declaration will be qualified as an indenture under the Trust
Indenture Act. The Preferred Securities offered hereby will constitute all of
the Preferred Securities, and NorthWestern will acquire Common Securities in an
aggregate liquidation amount equal to 3% of the total capital of Capital Trust
I. Capital Trust I exists for the exclusive purposes of (i) issuing the Common
Securities and the Preferred Securities (collectively, the "Trust Securities")
representing undivided beneficial interests in the assets of Capital Trust I,
(ii) investing the gross proceeds of the Trust Securities in the Subordinated
Debentures and (iii) engaging in only those other activities necessary or
incidental thereto.
The number of Capital Trustees will initially be three. Two of the Capital
Trustees (the "Regular Trustees") will be persons who are employees or officers
of or who are affiliated with NorthWestern. The third trustee will be a
financial institution that maintains its principal place of business in the
State of Delaware and is unaffiliated with NorthWestern, which trustee will
serve as property trustee under the Trust Declaration and as indenture trustee
for the purposes of the Trust Indenture Act (the "Property Trustee"). The
Property Trustee will be the only trustee of Capital Trust I who will be a
trustee for purposes of the Trust Indenture Act and is the only entity that will
perform the functions of a trustee under such Act. The initial Property Trustee
of Capital Trust I is Wilmington Trust Company, a Delaware banking corporation,
which maintains a principal place of business in Delaware. The holder of the
Common Securities will be entitled to appoint, remove or replace any of, or
increase or reduce the number of, the Capital Trustees of Capital Trust I.
Wilmington Trust Company will also act as indenture trustee under the Guarantee
(the "Guarantee Trustee"). See "Description of the Guarantee."
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the holders of the Trust Securities, and the Property Trustee will
have the power to exercise all rights, powers and privileges under the
Subordinated Indenture as the holder of the Subordinated Debentures. In
addition, the Property Trustee will maintain exclusive control of a segregated
non-interest bearing bank account (the "Property Account") to hold all payments
made in respect of the Subordinated Debentures for the benefit of the holders of
the Trust Securities. The Property Trustee will make payments of distributions
and payments on liquidation, redemption and otherwise to the holders of the
Trust Securities out of funds from the Property Account. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Preferred
Securities. NorthWestern, as the direct or indirect holder of all the Common
Securities, will have the right to appoint, remove or replace any Capital
Trustee (except that the holders of the Preferred Securities will be entitled to
appoint, remove or replace the Property Trustee during the continuance of an
event of default under the Subordinated Indenture) and to increase or decrease
the number of Capital Trustees; provided that (i) the number of Capital Trustees
shall be at least three and (ii) a majority shall be Regular Trustees.
NorthWestern will pay all fees and expenses related to Capital Trust I and the
offering of the Trust Securities. See "Description of the Subordinated
Debentures -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Declaration, the Delaware Business Trust Act (the "Business Trust Act") and the
Trust Indenture Act. See "Description of the Preferred Securities."
S-11
<PAGE>
NORTHWESTERN CORPORATION
NorthWestern Corporation is a provider of services and solutions to
customers across America. We provide electric and natural gas service to
Midwestern customers through our energy division, NorthWestern Public Service.
In addition, we hold interests in Cornerstone Propane Partners, L.P. (NYSE:CNO),
the nation's fifth largest retail propane distributor, Communication Systems
USA, Inc., a national provider of integrated communication and data solutions
and network services, and Blue Dot Services Inc., a national provider of
heating, air conditioning, plumbing and related services. We are also engaged in
other service and nonenergy-related businesses.
Weather patterns have a material impact on the operating performance for all
three segments of our energy business -- electric, natural gas and propane. This
impact is particularly relevant for natural gas and propane. Because natural gas
and propane are heavily used for residential and commercial heating, the demand
for these products depends heavily upon weather patterns throughout
NorthWestern's market areas. With a larger proportion of our operations related
to seasonal propane and natural gas sales, a significantly greater portion of
our consolidated operating income is recognized in the first and fourth
quarters, which correspond to the heating season.
NorthWestern was incorporated under the laws of the State of Delaware in
1923. Our principal offices have recently moved to 125 S. Dakota Avenue, Suite
1100, Sioux Falls, South Dakota 57104 and our telephone number is now (605)
978-2908. Information about NorthWestern is available on the Internet at
http://www.northwestern.com and as set forth under "Available Information" in
the accompanying Prospectus. NorthWestern has filed with the Securities and
Exchange Commission a Current Report on Form 8-K dated October 26, 1998
summarizing its third quarter financial results. That report is incorporated by
reference in the accompanying Prospectus.
RECENT DEVELOPMENTS
RECENT COMMON STOCK AND PENDING SENIOR DEBENTURE OFFERINGS
On November 9, 1998, NorthWestern issued and sold 5,000,000 shares of its
Common Stock (excluding 750,000 option shares to cover over-allotments) at a
price of $24.00 per share in a public offering. On November 6, 1998,
NorthWestern entered into an underwriting agreement to issue and sell $105
million principal amount of 6.95% Senior Debentures due 2028. The closing of the
Senior Debenture offering, which is subject to customary conditions, is expected
to occur on November 12, 1998. The net proceeds of such offerings are expected
to be used to repay approximately $113 million of short-term indebtedness and
for general corporate purposes.
Consummation of this offering of Preferred Securities is not conditioned
upon completion of the pending Senior Debenture offering.
ACQUISITION PROGRAMS
NorthWestern's growth strategies are targeted at activities that will
generate earnings growth, expand its customer base and increase value-added
product and service offerings by focusing on customers' expectations for service
and solutions, convenience and value. Strategic acquisitions, particularly in
growth-oriented service and solutions sectors, play a significant role in
NorthWestern's long-term plans to capture a greater share of the growing global
service and solutions marketplace. NorthWestern intends to pursue development
and acquisition opportunities that have long-term growth potential and at any
given time may be engaged in various stages of discussions regarding such
opportunities or the increase of its equity participation in its existing
operations.
Cornerstone Propane Partners' business strategy contemplates growing, both
through internal growth and start-ups of new customer service centers and, more
importantly, through the acquisition of other retail and wholesale propane
distributors. Cornerstone is from time to time engaged in various stages of
S-12
<PAGE>
discussions with respect to acquisitions of various sizes and expects to
continue to pursue acquisition opportunities actively. Cornerstone recently
filed a shelf registration statement with the Securities and Exchange Commission
under which it may issue up to 3,487,500 of its Common Units representing
limited partnership interests from time to time for general purposes, including
expansion of its business through internal growth and acquisitions. Cornerstone
also has available and under negotiation various credit arrangements under which
it may incur indebtedness to fund acquisitions, including a $75 million
revolving acquisition facility. Approximately $52 million was available under
Cornerstone's acquisition facility as of September 30, 1998.
On October 27, 1998, Cornerstone announced that it had entered into a
definitive agreement to acquire Propane Continental, Inc., the nation's 19th
largest propane distributor, for a price expected to be approximately $110-120
million, including debt to be repaid. Cornerstone's announcement stated that the
acquisition is expected to be financed with approximately 50% Common Unit equity
and 50% long-term debt. Closing is expected in 1998, although the transaction is
subject to a number of conditions.
Because the general partner interests in Cornerstone are held by
subsidiaries of NorthWestern, Cornerstone is treated as a consolidated
subsidiary in NorthWestern's financial statements, and any additional
partnership interests or long-term indebtedness issued by Cornerstone will be
reflected on NorthWestern's consolidated balance sheet in "Minority interest in
subsidiaries" and "Long-term debt of subsidiaries," respectively. NorthWestern
has not guaranteed, and does not intend to guarantee, any indebtedness of
Cornerstone.
S-13
<PAGE>
CAPITALIZATION
The following table shows NorthWestern's capitalization on a consolidated
basis at September 30, 1998. The "As Adjusted for Common Stock and Senior
Debenture Offerings" column shows our capitalization at September 30, 1998,
after giving effect to the recent offerings discussed under "Recent
Developments -- Recent Common Stock and Pending Senior Debenture Offerings." The
"As Further Adjusted for Preferred Securities Offering" column shows our
capitalization at September 30, 1998, as further adjusted to give effect to the
sale of the Preferred Securities offered hereby.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------
AS FURTHER
AS ADJUSTED FOR ADJUSTED FOR
COMMON STOCK AND PREFERRED
SENIOR DEBENTURE SECURITIES
ACTUAL OFFERINGS OFFERING
----------- ---------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock equity................................................. $ 170,095 $ 285,895 $ 285,895
Nonredeemable cumulative preferred stock............................ 2,600 2,600 2,600
Redeemable cumulative preferred stock............................... 1,150 1,150 1,150
Company obligated mandatorily redeemable securities of trusts
holding solely parent debentures.................................. 32,500 32,500 87,500
Long-term debt...................................................... 151,350 256,350 256,350
----------- ---------------- -------------
357,695 578,495 633,495
Minority interest in subsidiaries................................... 221,095 221,095 221,095
Long-term debt of subsidiaries...................................... 262,766 262,766 262,766
----------- ---------------- -------------
Total capitalization.............................................. $ 841,556 $ 1,062,356 $ 1,117,356
----------- ---------------- -------------
----------- ---------------- -------------
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred dividends for NorthWestern for
the fiscal years ended December 31, 1993, 1994, 1995, 1996 and 1997, and for the
nine-month periods ended September 30, 1997 and 1998. For the purpose of
calculating such ratios, "earnings" consist of income from continuing operations
before income taxes and minority interest, "fixed charges" consist of interest
on all indebtedness (including preferred securities distribution requirements),
amortization of debt expense and the percentage of rental expense on operating
leases deemed representative of the interest factor, and "preferred dividends"
represent dividends paid on all preferred shares (consisting solely of shares of
cumulative preferred stock) outstanding during the periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............................. 3.5 3.4 3.4 3.2 3.0
Ratio of earnings to combined fixed charges and preferred
dividends.................................................... 3.5 3.4 3.1 2.7 2.6
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1998(1)
----- -------------
<S> <C> <C>
Ratio of earnings to fixed charges............................. 2.7 2.7
Ratio of earnings to combined fixed charges and preferred
dividends.................................................... 2.2 2.5
</TABLE>
- ------------
(1) Results for the nine months ended September 30, 1998 are not necessarily
indicative of results that may be expected for the entire year.
S-14
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The consolidated financial information presented below is derived from, and
should be read in conjunction with, the consolidated audited financial
statements contained in NorthWestern's most recent Annual Report on Form 10-K.
Information for the nine month periods ended September 30, 1997 and 1998 is
derived from NorthWestern's unaudited consolidated financial statements which,
in the opinion of management, have been prepared on the same basis as the
audited financial statements and reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of
NorthWestern's results of operations and financial position. Results for the
nine months ended September 30, 1998 are not necessarily indicative of results
that may be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998(1)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............................... $ 153,257 $ 157,266 $ 204,970 $ 344,009 $ 918,070 $ 634,941 $ 663,811
Operating income....................... 27,273 30,536 38,097 50,418 58,997 36,462 36,361
Net income............................. 15,191 15,440 19,306 26,054 26,264 17,403 18,941
Basic earnings per average common
share................................. 0.98 1.00 1.11 1.28 1.31 0.86 0.94
Diluted earnings per average common
share................................. 0.98 1.00 1.11 1.28 1.31 0.86 0.93(2)
Dividends declared per average common
share................................. 0.82 0.84 0.87 0.89 0.93 0.69 0.73
Weighted average common shares
outstanding........................... 15,354 15,354 16,261 17,840 17,843 17,843 17,848
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998(1)
-------------------------
<S> <C>
BALANCE SHEET DATA:
Total assets..................................................... $ 1,167,248
Long-term debt................................................... 151,350
Long-term debt of subsidiaries................................... 262,766
Common stock equity.............................................. 170,095
</TABLE>
- ---------
(1) Does not reflect the recent common stock and pending senior debt offerings
described under "Recent Developments."
(2) Reflects outstanding warrants to purchase approximately 1.2 million shares
of common stock. See "Selling Stockholders" in the accompanying Prospectus.
USE OF PROCEEDS
Capital Trust I will use all of the proceeds received from the sale of the
Preferred Securities to purchase Subordinated Debentures from NorthWestern.
NorthWestern will use the net proceeds to be received from the sale of the
Subordinated Debentures for general corporate purposes. Pending such use, the
net proceeds will be temporarily invested in NorthWestern's securities
portfolio.
ACCOUNTING TREATMENT
For financial reporting purposes, Capital Trust I will be treated as a
subsidiary of NorthWestern, and, accordingly, the accounts of Capital Trust I
will be included in the consolidated financial statements of NorthWestern. The
Preferred Securities will be included in the consolidated balance sheets of
NorthWestern, and appropriate disclosures about the Preferred Securities, the
Guarantee and the Subordinated Debentures will be included in the notes to
NorthWestern's consolidated financial statements. For financial reporting
purposes, distributions on the Preferred Securities will be recorded in the
consolidated statements of income of NorthWestern.
S-15
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Declaration. The Trust Declaration will be qualified as an indenture under the
Trust Indenture Act, and Wilmington Trust Company, as the Property Trustee, will
act as the indenture trustee for purposes of compliance with the provisions of
the Trust Indenture Act. The terms of the Preferred Securities will include
those stated in the Trust Declaration and the Business Trust Act and those made
part of the Trust Declaration by the Trust Indenture Act. The following summary
of the principal terms and provisions of the Preferred Securities does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Trust Declaration (a copy of which is filed as an exhibit to
the Registration Statement of which the accompanying Prospectus forms a part),
the Business Trust Act and the Trust Indenture Act.
GENERAL
The Preferred Securities will be limited to $56,701,030 aggregate
liquidation amount at any one time outstanding. The Preferred Securities will
rank pari passu with, and payments will be made thereon pro rata with, the
Common Securities, except as described under "-- Subordination of Common
Securities." The Subordinated Debentures will be registered in the name of
Capital Trust I and held by the Property Trustee in trust for the benefit of the
holders of the Preferred Securities and the Common Securities. The Guarantee
will be a guarantee on a subordinated basis with respect to the Preferred
Securities but will not guarantee payment of distributions or amounts payable on
redemption or liquidation of the Preferred Securities when Capital Trust I does
not have funds on hand available to make such payments. In such an event, the
remedy of a holder of the Preferred Securities is to (i) direct the Property
Trustee to enforce the Property Trustee's rights under the Trust Declaration or
the Subordinated Debentures and, if the Property Trustee fails to enforce such
rights, to institute a proceeding directly against NorthWestern or (ii)
institute a Direct Action against NorthWestern to enforce payment of principal
and interest payable with respect to an aggregate principal amount of
Subordinated Debentures equal to the aggregate liquidation amount of such
holder's Preferred Securities. See "-- Voting Rights," "Description of the
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Preferred
Securities" and "Description of the Guarantee."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of 7.20% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears will accumulate additional distributions at the rate
per annum of 7.20% thereof, compounded quarterly. The term "Distribution" as
used herein includes any such additional distributions payable unless otherwise
stated. The amount of Distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will
accumulate from November 18, 1998, the date of initial issuance thereof, and
will be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing December 31, 1998, when, as and if
available and determined to be so payable by the Property Trustee, except as
otherwise described below.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of Capital Trust I on the
relevant record dates, which, as long as the Preferred Securities remain in
book-entry only form, will be one Business Day prior to the relevant payment
dates. Such Distributions will be paid through the Property Trustee, which will
hold amounts received in respect of the Subordinated Debentures in the Property
Account for the benefit of the holders of the Trust Securities. Subject to any
applicable laws and regulations and the provisions of the Trust Declaration,
each such payment will be made as described under "-- Book-Entry Only
Issuance -- The Depository Trust Company" below. In the event that the Preferred
Securities do not continue to remain in book-entry only form, the record dates
shall be 15 Business Days prior to the relevant payment dates. In the event that
any date on which Distributions are to be made on the Preferred Securities is
not a Business Day, then payment of the Distributions payable on such date will
be made on the next succeeding day which is a Business Day
S-16
<PAGE>
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such payment date. A "Business Day" shall mean any day
other than Saturday, Sunday or any other day on which banking institutions in
the City of New York (in the state of New York) are permitted or required by any
applicable law to close.
So long as no event of default under the Subordinated Indenture has occurred
and is continuing, NorthWestern has the right to defer payments of interest on
the Subordinated Debentures from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each Extension Period, provided
that no Extension Period may extend beyond the maturity of the Subordinated
Debentures. As a consequence of any such deferral, quarterly Distributions on
the Preferred Securities by Capital Trust I will be deferred during any such
Extension Period. In the event that NorthWestern exercises this right, then
during such Extension Period (i) NorthWestern may not declare or pay dividends
on, make distributions with respect to, redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock and (ii)
NorthWestern may not make any payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities issued by NorthWestern
(including other junior subordinated deferrable debentures) that rank pari passu
with or junior to the Subordinated Debentures or make any guarantee payments
with respect to the foregoing; provided, however, that the foregoing
restrictions do not apply to (a) repurchases, redemptions or other acquisitions
of shares of capital stock of NorthWestern (1) in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, (2) in connection
with a dividend reinvestment or stockholder stock purchase plan or (3) in
connection with the issuance of capital stock of NorthWestern (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to such Extension Period, (b) an
exchange, redemption or conversion of any class or series of NorthWestern's
capital stock (or any capital stock of a subsidiary of NorthWestern) for any
class or series of NorthWestern's capital stock or of any class or series of
NorthWestern's indebtedness for any class or series of NorthWestern's capital
stock, (c) the purchase of fractional interests in shares of NorthWestern's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock, or (f) payments by NorthWestern under the Guarantee or
under any similar guarantee by NorthWestern with respect to any securities of
its subsidiaries, provided the proceeds from the issuance of such securities
were used to purchase junior subordinated deferrable interest debentures issued
by such subsidiary. Prior to the termination of any Extension Period,
NorthWestern may further defer the payment of interest, provided that the
Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity of
the Subordinated Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, NorthWestern may select a new Extension
Period, subject to the above requirements. See "Description of the Subordinated
Debentures -- Interest" and "-- Option to Extend Interest Payment Period." If
Distributions are deferred, the deferred Distributions, including accumulated
additional Distributions thereon, shall be paid to holders of record of the
Preferred Securities as they appear on the books and records of Capital Trust I
on the record date following the termination of such Extension Period.
NorthWestern has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures.
Capital Trust I's funds available for distribution to the holders of the
Preferred Securities will be limited to payments received from NorthWestern on
the Subordinated Debentures. See "Description of the Subordinated Debentures."
The payment of Distributions out of moneys held by Capital Trust I is guaranteed
by NorthWestern to the extent set forth under "Description of the Guarantee."
S-17
<PAGE>
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Subordinated
Debentures, whether at maturity or upon earlier redemption as provided in the
Subordinated Indenture, the proceeds from such repayment or redemption shall be
applied by the Property Trustee to redeem a Like Amount (as defined below) of
the Trust Securities at a redemption price (the "Redemption Price") equal to
100% of the aggregate Liquidation Amount (as defined below) of such Trust
Securities plus accumulated and unpaid Distributions thereon to the date of
redemption (the "Redemption Date"). See "-- Redemption Procedures." If less than
all the Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
NorthWestern will have the right to redeem the Subordinated Debentures (i) on or
after November 18, 2003, in whole at any time or in part from time to time, or
(ii) prior to November 18, 2003, in whole (but not in part) at any time within
90 days following the occurrence and continuation of a Tax Event or an
Investment Company Event (each as defined below). See "Description of the
Subordinated Debentures -- Optional Redemption." A redemption of the
Subordinated Debentures would cause a mandatory redemption of the Preferred
Securities and the Common Securities.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having an aggregate Liquidation Amount equal to that portion of
the principal amount of Subordinated Debentures to be contemporaneously redeemed
in accordance with the Subordinated Indenture, allocated to the Common
Securities and to the Preferred Securities based upon the relative Liquidation
Amounts of such classes and (ii) with respect to a distribution of Subordinated
Debentures to holders of Trust Securities in connection with a dissolution or
liquidation of Capital Trust I, Subordinated Debentures having an aggregate
principal amount equal to the aggregate Liquidation Amount of the Trust
Securities of the holder to whom such Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by Capital Trust I of an opinion of counsel to
NorthWestern experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) Capital Trust I is, or will be within 90 days of the
delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Subordinated Debentures, (ii)
interest payable by NorthWestern on the Subordinated Debentures is not, or
within 90 days of the delivery of such opinion, will not be, deductible by
NorthWestern, in whole or in part, for United States federal income tax
purposes, or (iii) Capital Trust I is, or will be within 90 days of the delivery
of such opinion, subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
It has been reported that the Internal Revenue Service has challenged the
deductibility, for United States federal income tax purposes, of interest
payments on an instrument similar in some respects to the Subordinated
Debentures, held by an entity similar in some respects to Capital Trust I.
NorthWestern and Capital Trust I do not believe that this challenge will affect
NorthWestern's ability to deduct interest payments on the Subordinated
Debentures. However, prospective investors should be aware that further
developments favoring the Internal Revenue Service's challenge, or other
unrelated developments, could give rise to a Tax Event. See "United States
Federal Income Taxation -- Receipt of Subordinated Debentures or Cash upon
Liquidation of Capital Trust I."
"Investment Company Event" means the receipt by Capital Trust I of an
opinion of counsel to NorthWestern experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
S-18
<PAGE>
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
Capital Trust I is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
If an event described in clause (i) or (iii) of the definition of Tax Event
above has occurred and is continuing and Capital Trust I is the holder of all
the Subordinated Debentures, NorthWestern will pay Additional Sums, if any, on
the Subordinated Debentures. "Additional Sums" means such additional amounts as
may be necessary in order that the Distributions paid by Capital Trust I on its
outstanding Trust Securities will not be reduced as a result of any additional
taxes, duties and other governmental charges to which Capital Trust I has become
subject as a result of a Tax Event.
REDEMPTION PROCEDURES
Capital Trust I may not redeem fewer than all of the outstanding Preferred
Securities unless all accumulated and unpaid Distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the Redemption Date.
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of Subordinated Debentures. Redemptions of the Preferred Securities
shall be made, and the Redemption Price shall be payable, on each Redemption
Date only to the extent that Capital Trust I has funds then on hand and legally
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities." Notice of redemption of the Trust Securities shall be
given not less than 30 nor more than 60 days prior to the date fixed for
redemption. If Capital Trust I gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with the
Depository Trust Company ("DTC") funds sufficient to pay the applicable
Redemption Price and will give DTC irrevocable instructions and authority to pay
the Redemption Price to the holders of the Preferred Securities. With respect to
Preferred Securities not held in book-entry form, the Property Trustee, to the
extent funds are available, will irrevocably deposit with the paying agent for
the Preferred Securities funds sufficient to pay the applicable Redemption Price
and will give such paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders thereof upon surrender of their certificates
evidencing the Preferred Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Preferred
Securities called for redemption shall be payable to the holders of the
Preferred Securities on the relevant record dates.
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit all rights of the holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Preferred Securities will
cease to be outstanding. If any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on the date such payment was originally payable. In the
event that payment of the Redemption Price in respect of Preferred Securities
called for redemption is improperly withheld or refused and not paid either by
Capital Trust I or by NorthWestern pursuant to the Guarantee, Distributions on
such Preferred Securities will continue to accumulate at the then applicable
rate, from the Redemption Date originally established by Capital Trust I for
such Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
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Subject to applicable law (including, without limitation, United States
federal securities laws), NorthWestern or its affiliates may at any time and
from time to time purchase outstanding Preferred Securities, by tender, in the
open market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date from the outstanding Preferred Securities not
previously called for redemption, by such method as the Property Trustee shall
deem fair and appropriate, or if the Preferred Securities are then held in
book-entry form, in accordance with DTC's customary procedures. The Property
Trustee shall promptly notify the securities registrar for the Trust Securities
in writing of the Preferred Securities selected for redemption. For all purposes
of the Trust Declaration, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities shall relate, in the case of
any Preferred Securities redeemed or to be redeemed only in part, to the portion
of the aggregate Liquidation Amount of Preferred Securities which has been or is
to be redeemed. Notice of any redemption of the Trust Securities will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
registered holder of Preferred Securities to be redeemed at its address
appearing on the securities register for the Trust Securities. Unless
NorthWestern defaults in payment of the Redemption Price on the Subordinated
Debentures, on and after the Redemption Date interest will cease to accrue on
the Subordinated Debentures or portions thereof called for redemption and,
unless payment of the Redemption Price in respect of the Preferred Securities is
withheld or refused and not paid either by Capital Trust I or NorthWestern
pursuant to the Guarantee, Distributions will cease to accumulate on the
Preferred Securities or portions thereof called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of such Preferred Securities and Common Securities.
However, if on any date on which a Distribution is to be made, or any Redemption
Date, an event of default under the Subordinated Indenture (an "Indenture Event
of Default") has occurred and is continuing, no payment of any Distribution on,
or Redemption Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of such Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all the outstanding Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price the full amount of such Redemption Price on all the
outstanding Preferred Securities then called for redemption, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or the
Redemption Price of, the Preferred Securities then due and payable. In the case
of any event of default under the Trust Declaration (a "Declaration Event of
Default") resulting from an Indenture Event of Default, the holders of the
Common Securities will be deemed to have waived any right to act with respect to
any such Declaration Event of Default until the effects of all Declaration
Events of Default with respect to such Preferred Securities have been cured,
waived or otherwise eliminated. See "-- Declaration Events of Default" and
"Description of the Subordinated Debentures -- Indenture Events of Default."
Until all Declaration Events of Default with respect to the Preferred Securities
have been so cured, waived or otherwise eliminated, the Property Trustee will
act solely on behalf of the holders of the Preferred Securities and not on
behalf of the holders of the Common Securities, and only the holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Preferred Securities in the event of any
liquidation of Capital Trust I is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Subordinated Debentures. The holders of
all the outstanding Common Securities have the right at any time to dissolve
Capital Trust I and, after satisfaction of liabilities to creditors of Capital
Trust I as provided by applicable law, to cause the Subordinated Debentures to
be distributed to the holders of the Preferred Securities and Common Securities
in liquidation of Capital Trust I. Pursuant to the Trust Declaration, Capital
Trust I will automatically dissolve upon expiration of its term on November 10,
2053, or, if earlier, on the first to occur of: (i) certain events of
bankruptcy, dissolution or liquidation of NorthWestern or the holder of the
Common Securities, (ii) the distribution of a Like Amount of the Subordinated
Debentures to the holders of the Trust Securities, if the holders of Common
Securities have given written direction to the Property Trustee to dissolve
Capital Trust I (which direction, subject to the foregoing restrictions, is
optional and wholly within the discretion of the holders of Common Securities),
(iii) the repayment of all the Preferred Securities in connection with the
redemption of all the Trust Securities as described under "-- Redemption" above,
and (iv) the entry of an order for the dissolution of Capital Trust I by a court
of competent jurisdiction. If dissolution of Capital Trust I occurs as described
in clause (i), (ii) or (iv) above, Capital Trust I will be liquidated by the
Property Trustee as expeditiously as the Property Trustee determines to be
possible by distributing, after satisfaction of liabilities to creditors of
Capital Trust I as provided by applicable law and obtaining any required Federal
Energy Regulatory Commission or state public utility commission approval, to the
holders of such Trust Securities a Like Amount of the Subordinated Debentures,
unless such distribution is not practical, in which event such holders will be
entitled to receive out of the assets of Capital Trust I available for
distribution to holders, after satisfaction of liabilities to creditors of
Capital Trust I as provided by applicable law, an amount equal to, in the case
of holders of Preferred Securities, the aggregate of the Liquidation Amount plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If such Liquidation Distribution can be
paid only in part because Capital Trust I has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by Capital Trust I on its Preferred Securities shall be paid on a pro
rata basis. The holders of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if an Indenture Event of Default has occurred
and is continuing, the Preferred Securities shall have a priority over the
Common Securities. See "-- Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Subordinated
Debentures, (i) the Preferred Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of the Preferred
Securities, will receive a registered global certificate or certificates
representing the Subordinated Debentures to be delivered upon such distribution
with respect to Preferred Securities held by DTC or its nominee, and (iii) any
certificates representing the Preferred Securities not held by DTC or its
nominee will be deemed to represent the Subordinated Debentures having a
principal amount equal to the stated Liquidation Amount of the Preferred
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Preferred Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If NorthWestern does not redeem the Subordinated Debentures prior to
maturity and Capital Trust I is not liquidated and the Subordinated Debentures
are not distributed to holders of the Preferred Securities, the Preferred
Securities will remain outstanding until the repayment of the Subordinated
Debentures and the distribution of the Liquidation Distribution to the holders
of the Preferred Securities. There can be no assurance as to the market prices
for the Preferred Securities or the Subordinated Debentures that may be
distributed in exchange for Preferred Securities if a dissolution and
liquidation of Capital Trust I were to
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occur. Accordingly, the Preferred Securities that an investor may purchase, or
the Subordinated Debentures that the investor may receive on dissolution and
liquidation of Capital Trust I, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default constitutes a Declaration Event of Default,
provided that, pursuant to the Trust Declaration, the holder of the Common
Securities will be deemed to have waived any Declaration Event of Default with
respect to the Common Securities until all Declaration Events of Default with
respect to the Preferred Securities have been cured, waived or otherwise
eliminated. Until all Declaration Events of Default with respect to the
Preferred Securities have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the holders of
the Preferred Securities, and only the holders of the Preferred Securities will
have the right to direct the Property Trustee with respect to certain matters
under the Trust Declaration and, therefore, the Subordinated Indenture.
If the Property Trustee fails to enforce its rights under the Trust
Declaration or the Subordinated Debentures, any holder of Preferred Securities
may institute a legal proceeding against NorthWestern to enforce the Property
Trustee's rights under the Trust Declaration or the Subordinated Debentures
without first instituting any legal proceeding against the Property Trustee or
any other person or entity. In addition, if an Indenture Event of Default has
occurred and is continuing and such event is attributable to the failure of
NorthWestern to pay amounts payable in respect of the Subordinated Debentures,
then a holder of Preferred Securities may institute a Direct Action for
enforcement of payment to such holder of the principal and interest payable on
Subordinated Debentures having an aggregate principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of such holder. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Subordinated Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee
as the sole holder of the Subordinated Debentures will have the right under the
Subordinated Indenture to declare the principal of and interest on the
Subordinated Debentures to be immediately due and payable. NorthWestern and
Capital Trust I are each required to file annually with the Property Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Trust Declaration.
REMOVAL OF CAPITAL TRUSTEES
Unless an Indenture Event of Default has occurred and is continuing, any
Capital Trustee may be removed at any time by the holder of the Common
Securities. If an Indenture Event of Default has occurred and is continuing, the
Property Trustee may only be removed by the holders of a majority in Liquidation
Amount of the outstanding Preferred Securities. In no event will the holders of
the Preferred Securities have the right to vote to appoint, remove or replace
the Regular Trustees, which voting rights are vested exclusively in NorthWestern
as the holder of the Common Securities. No resignation or removal of a Capital
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Declaration.
VOTING RIGHTS
Except as described herein, under the Business Trust Act and the Trust
Indenture Act, under " -- Removal of Capital Trustees," under "Description of
the Guarantee -- Modification of the Guarantee; Assignment" and as otherwise
required by law and the Trust Declaration, the holders of the Preferred
Securities will have no voting rights.
Subject to the requirement that the Property Trustee obtain a tax opinion in
certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate Liquidation Amount of the
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Preferred Securities have the right to (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee, or
direct the exercise of any trust or power conferred upon the Property Trustee
under the Trust Declaration, including the right to direct the Property Trustee,
as holder of the Subordinated Debentures, to exercise the remedies available
under the Subordinated Indenture with respect to the Subordinated Debentures,
(ii) waive any past Indenture Event of Default that is waivable under the
Subordinated Indenture or (iii) exercise any right to rescind or annul a
declaration that the principal of all the Subordinated Debentures shall be due
and payable; provided, however, that, where a consent under the Subordinated
Indenture would require the consent of all holders of the Subordinated
Debentures, no such consent shall be given by the Property Trustee without the
prior direction of all holders of the Preferred Securities. If the Property
Trustee fails to enforce its rights under the Trust Declaration or the
Subordinated Debentures, to the fullest extent permitted by law, a record holder
of Preferred Securities may, after such holder's written request to the Property
Trustee to enforce such rights, institute a legal proceeding directly against
NorthWestern to enforce the Property Trustee's rights under the Subordinated
Debentures without first instituting any legal proceeding against the Property
Trustee or any other person or entity. The Property Trustee shall notify all
holders of the Preferred Securities of any notice of default received from the
Indenture Trustee with respect to the Subordinated Debentures. Such notice shall
state that such Indenture Event of Default also constitutes a Declaration Event
of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Property Trustee shall not take any of
the actions described in clauses (i), (ii) or (iii) above unless the Property
Trustee has obtained an opinion of tax counsel to the effect that, as a result
of such action, Capital Trust I will not fail to be classified as a grantor
trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures, is required under the Subordinated Indenture with
respect to any amendment, modification or termination of the Subordinated
Indenture or the Subordinated Debentures, the Property Trustee shall request the
direction of the holders of the Trust Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in Liquidation Amount of
the Trust Securities voting together as a single class; provided, however, that
where a consent under the Subordinated Indenture would require the consent of
all holders of the Subordinated Debentures, the Property Trustee may only give
such consent at the direction of all holders of the Trust Securities. The
Property Trustee shall be under no obligation to take any such action in
accordance with the directions of the holders of the Trust Securities unless the
Property Trustee has obtained an opinion of tax counsel to the effect that for
the purposes of United States federal income tax Capital Trust I will not be
classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for Capital Trust I to
redeem and cancel Preferred Securities or distribute Subordinated Debentures in
accordance with the Trust Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by NorthWestern
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or any entity directly or indirectly controlling or controlled by, or under
direct or indirect common control
with, NorthWestern shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described under "-- Book-Entry Only Issuance -- The Depository
Trust Company" below.
MODIFICATION OF THE TRUST DECLARATION
The Trust Declaration may be modified and amended if approved by a majority
of the Regular Trustees (and in certain circumstances the Property Trustee),
provided that, if any proposed amendment provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would materially adversely
affect the powers, preferences or special rights of the Trust Securities,
whether by way of amendment to the Trust Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of Capital Trust I other than pursuant to
the terms of the Trust Declaration, then the holders of the Trust Securities
voting together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least 66 2/3% in Liquidation Amount of the Trust Securities
affected thereby; provided that if any amendment or proposal referred to in
clause (i) above would materially adversely affect only the Preferred Securities
or the Common Securities, then only the affected class will be entitled to vote
on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of 66 2/3% in Liquidation Amount of such
class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Trust Declaration if such amendment or modification would (i) cause Capital
Trust I to be classified for purposes of United States federal income taxation
as other than a grantor trust, (ii) affect the powers, rights, duties,
obligations or immunities of the Property Trustee (unless such amendment is
consented to by the Property Trustee), or (iii) cause Capital Trust I to be
deemed an "investment company" which is required to be registered under the
Investment Company Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
Capital Trust I may not consolidate, amalgamate or merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. Capital Trust I may, with the consent of a majority of the
Regular Trustees and without the consent of the holders of the Trust Securities
or the Property Trustee, consolidate, amalgamate or merge with or into, or be
replaced by, a trust organized as such under the laws of any state, provided
that (i) such successor entity either (a) expressly assumes all of the
obligations of Capital Trust I under the Trust Securities or (b) substitutes for
the Preferred Securities other securities (the "Successor Securities"), so long
as the Successor Securities rank the same as the Trust Securities with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
NorthWestern expressly acknowledges a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder of
the Subordinated Debentures, (iii) the Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or with another
organization on which the Preferred Securities are then listed, (iv) such
merger, consolidation, amalgamation or replacement does not cause the Preferred
Securities or any Successor Securities to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities or any Successor
Securities in any material respect under the documents governing the Trust
Securities or the Successor Securities (other than with respect to any dilution
of the holders' interest in the new entity), (vi) such successor entity has a
purpose substantially identical to that of Capital Trust I, (vii) prior to such
merger, consolidation, amalgamation or replacement, NorthWestern has received an
opinion of a nationally recognized independent counsel to Capital Trust I
experienced in such matters to the
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effect that (a) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities or any Successor Securities in any material respect under the
documents governing the Trust Securities or the Successor Securities (other than
with respect to any dilution of the holders' interest in the new entity), and
(b) following such merger, consolidation, amalgamation or replacement, neither
Capital Trust I nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (viii) NorthWestern
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee and the Common
Securities Guarantee. Notwithstanding the foregoing, Capital Trust I shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate or merge with or into, or be replaced by,
any other entity or permit any other entity to consolidate, amalgamate or merge
with or into, or replace, it, if such consolidation, amalgamation, merger or
replacement would cause Capital Trust I or the successor entity to be classified
as other than a grantor trust for United States federal income tax purposes.
There are no provisions which afford the holders of the Preferred Securities
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving NorthWestern. There are
also no provisions which require the repurchase of the Preferred Securities upon
a change in control of NorthWestern.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Preferred Securities. The
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more fully-
registered global Preferred Securities certificates, representing the total
aggregate number of Preferred Securities, will be issued and will be deposited
with DTC or a custodian appointed by DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit with
DTC. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and trust
companies, that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant ("Indirect Participants"). The
rules applicable to DTC and its participants are on file with the Securities and
Exchange Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through a Direct Participant, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
a Preferred Security (a "beneficial owner") will be recorded on the Direct and
Indirect Participants' records. Beneficial owners will not receive written
confirmation from DTC of their purchases, but beneficial owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the beneficial owners purchase Preferred Securities. Transfers of
ownership interests in the Preferred Securities will be accomplished by entries
made on the books of participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing their ownership
interests in the Preferred Securities, except in the event that use of the
book-entry system for the Preferred Securities is
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discontinued. The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in the global
certificate representing the Preferred Securities.
To facilitate subsequent transfers, all the Preferred Securities deposited
by participants with DTC will be registered in the name of DTC's nominee, Cede &
Co. The deposit of Preferred Securities with DTC and their registration in the
name of Cede & Co. will effect no change in beneficial ownership. DTC will have
no knowledge of the actual beneficial owners of the Preferred Securities. DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Preferred Securities will be credited, which may or may not be the
beneficial owners. The participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce each Direct
Participant's holdings of Preferred Securities in accordance with its
procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an omnibus proxy to Capital Trust I as soon as
possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the omnibus proxy). NorthWestern and Capital Trust I believe that
the arrangements among DTC, Direct and Indirect Participants, and beneficial
owners will enable the beneficial owners to exercise rights equivalent in
substance to the rights that can be directly exercised by a holder of a
beneficial interest in Capital Trust I.
Distribution payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "street name," and such
payments will be the responsibility of such participant and not of DTC, Capital
Trust I or NorthWestern, subject to any statutory or regulatory requirements to
the contrary that may be in effect from time to time. Payment of Distributions
to DTC is the responsibility of Capital Trust I, disbursement of such payments
to Direct Participants is the responsibility of DTC, and disbursement of such
payments to the beneficial owners is the responsibility of Direct and Indirect
Participants.
Except as provided herein, a beneficial owner in a global Preferred Security
certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each beneficial owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
Capital Trust I. Under such circumstances, in the event that a successor
securities depositary is not obtained, Preferred Securities certificates are
required to be printed and delivered. Additionally, the Regular Trustees (with
the consent of NorthWestern) may decide to discontinue use of the system of
book-entry transfers through DTC (or any successor depositary) with respect to
the Preferred Securities. In that event, certificates for the Preferred
Securities will be printed and delivered.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that NorthWestern and Capital Trust I believe to
be reliable, but neither NorthWestern nor Capital Trust I takes responsibility
for the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Trust Declaration and, after default, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Trust Declaration at the request
of any holder of Preferred Securities, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred 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 following a Declaration Event of
Default.
PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the following provisions would apply:
The Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of Capital Trust I, but upon payment (with the giving of
such indemnity as Capital Trust I or NorthWestern may require) in respect of any
tax or other government charges that may be imposed in relation to it.
Capital Trust I will not be required to register or cause to be registered
the transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
GOVERNING LAW
The Trust Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate Capital Trust I
in such a way so that Capital Trust I will not be (i) required to register as an
"investment company" under the Investment Company Act or (ii) characterized as
other than a grantor trust for United States federal income tax purposes.
NorthWestern is authorized and directed to conduct its affairs so that the
Subordinated Debentures will be treated as indebtedness of NorthWestern for
United States federal income tax purposes. In this connection, NorthWestern and
the Regular Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of Capital Trust I or the certificate
of incorporation of NorthWestern, that each of NorthWestern and the Regular
Trustees determines in its discretion to be necessary or desirable to achieve
such end, as long as such action does not adversely affect the interests of the
holders of the Preferred Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Subordinated
Debentures in which Capital Trust I will invest the proceeds from the issuance
and sale of the Trust Securities. This description supplements the description
of the general terms and provisions of the Subordinated Debentures set forth in
the accompanying Prospectus under the caption "Description of Debt Securities."
The following description does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the description in the
accompanying Prospectus and the Subordinated Debt Securities Indenture, dated as
of August 1, 1995 between NorthWestern and The Chase Manhattan Bank (as
successor to The Chase Manhattan Bank, N.A.), as Trustee (the "Indenture
Trustee"), as supplemented by a First Supplemental Indenture, dated as of August
1, 1995 and a Second Supplemental Indenture dated as of November 15, 1998 (such
Subordinated Debt Securities Indenture, as so supplemented, is hereinafter
referred to as the "Subordinated Indenture"), the forms of which are
incorporated as exhibits to the Registration Statement of which the accompanying
Prospectus forms a part. Certain capitalized terms used herein are defined in
the Subordinated Indenture.
Under certain circumstances involving the dissolution of Capital Trust I,
the Subordinated Debentures may be distributed to the holders of the Trust
Securities in liquidation of Capital Trust I. See "Description of the Preferred
Securities -- Liquidation Distribution upon Dissolution." If the Subordinated
Debentures are distributed to the holders of the Preferred Securities,
NorthWestern will use its best efforts to have the Subordinated Debentures
listed on the New York Stock Exchange or with another organization on which the
Preferred Securities are then listed.
GENERAL
The Subordinated Debentures will be issued as unsecured debt under the
Subordinated Indenture. The Subordinated Debentures will be limited in aggregate
principal amount to $56,701,030, such amount being the sum of the aggregate
stated Liquidation Amount of the Preferred Securities and the capital
contributed by NorthWestern in exchange for the Common Securities.
The Subordinated Debentures are not subject to a sinking fund provision. The
entire principal amount of the Subordinated Debentures will mature and become
due and payable, together with any accrued and unpaid interest thereon including
Compound Interest (as hereinafter defined) and Additional Sums, if any, on
December 31, 2038.
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in Capital Trust I, such
Subordinated Debentures will initially be issued as a Global Security. As
described herein, under certain limited circumstances, Subordinated Debentures
may be issued in certificated form in exchange for a Global Security. See
"-- Book-Entry and Settlement" below and "Description of Debt
Securities -- Global Securities" in the accompanying Prospectus. In the event
that Subordinated Debentures are issued in certificated form, such Subordinated
Debentures will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices described below. Payments on
Subordinated Debentures issued as a Global Security will be made to DTC, a
successor depositary or, in the event that no depositary is used, a paying agent
for the Subordinated Debentures. In the event Subordinated Debentures are issued
in certificated form, principal and interest will be payable, the transfer of
the Subordinated Debentures will be registrable and Subordinated Debentures will
be exchangeable for Subordinated Debentures of other denominations of a like
aggregate principal amount at the corporate trust office of the Indenture
Trustee in Brooklyn, New York; provided that, at the option of NorthWestern,
payment of interest may be made by check mailed to the address of the persons
entitled thereto.
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SUBORDINATION
The Subordinated Indenture provides that the Subordinated Debentures are
subordinated and junior in right of payment to all Senior Indebtedness of
NorthWestern. No payment of principal (including redemption payments) or
interest on the Subordinated Debentures may be made (i) if any Senior
Indebtedness of NorthWestern is not paid when due, (ii) if any applicable grace
period with respect to such default has ended and such default has not been
cured or waived or ceased to exist, or (iii) if the maturity of any Senior
Indebtedness of NorthWestern has been accelerated because of a default. Upon any
distribution of assets of NorthWestern to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness of
NorthWestern must be paid in full before the holders of Subordinated Debentures
are entitled to receive or retain any payment. Upon satisfaction of all claims
of all Senior Indebtedness then outstanding, the rights of the holders of the
Subordinated Debentures will be subrogated to the rights of the holders of
Senior Indebtedness of NorthWestern to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Subordinated
Debentures are paid in full.
The term "Senior Indebtedness" means (i) the principal, premium, if any, and
interest in respect of (a) indebtedness of NorthWestern for money borrowed and
(b) indebtedness evidenced by securities, debentures, bonds or other similar
instruments issued by NorthWestern including, without limitation, all
obligations under its Mortgage and Senior Indenture (each as defined in the
accompanying Prospectus), (ii) all capital lease obligations of NorthWestern,
(iii) all obligations of NorthWestern issued or assumed as the deferred purchase
price of property, all conditional sale obligations of NorthWestern and all
obligations of NorthWestern under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business), (iv) all
obligations of NorthWestern for reimbursement on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction, (v) all
obligations of the type referred to in clauses (i) through (iv) above of other
persons for the payment of which NorthWestern is responsible or liable as
obligor, guarantor or otherwise, and (vi) all obligations of the type referred
to in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of NorthWestern (whether or not such obligation is assumed by
NorthWestern), except for (a) any such indebtedness that is by its terms
subordinated to or pari passu with the Subordinated Debentures and (b) any
indebtedness between or among such obligor or its affiliates, including all
other debt securities and guarantees in respect of those debt securities, to (x)
any other Trust (as defined in the accompanying Prospectus), or a trustee of
such Trust, and (y) any other trust, or a trustee of such trust, partnership or
other entity affiliated with NorthWestern that is a financing vehicle of
NorthWestern (a "financing entity") in connection with the issuance by such
financing entity of Preferred Securities or other securities that rank pari
passu with, or junior to, the Preferred Securities. Such Senior Indebtedness
shall continue to be Senior Indebtedness and be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness.
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by NorthWestern. As of September 30, 1998,
Senior Indebtedness of NorthWestern aggregated approximately $156.4 million,
including approximately $135.0 million of secured indebtedness issued under the
Mortgage. On November 6, 1998, NorthWestern entered into an underwriting
agreement to issue and sell $105 million principal amount of 6.95% Senior
Debentures due 2028, which will constitute Senior Indebtedness. The Subordinated
Debentures also will be effectively subordinated to all obligations of
NorthWestern's subsidiaries and affiliates.
INTEREST
Each Subordinated Debenture will bear interest at the rate of 7.20% per
annum from the original date of issuance until the principal becomes due and
payable, and on any overdue principal and on any overdue installment of interest
at the same rate, compounded quarterly, payable quarterly in arrears on March
31,
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June 30, September 30 and December 31 of each year (each, an "Interest Payment
Date"), commencing December 31, 1998, to the person in whose name such
Subordinated Debenture is registered at the close of business on the Business
Day preceding such Interest Payment Date. In the event the Subordinated
Debentures do not remain in book-entry only form, the record dates will be 15
Business Days prior to the Interest Payment Date. It is anticipated that Capital
Trust I will be the sole holder of the Subordinated Debentures.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next calendar year, then such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Indenture Event of Default has occurred and is continuing,
NorthWestern shall have the right at any time, and from time to time, during the
term of the Subordinated Debentures to defer payments of interest by extending
the interest payment period for a period not exceeding 20 consecutive quarters
(but not beyond the maturity date of the Subordinated Debentures), at the end of
which Extension Period NorthWestern shall pay all interest then accrued and
unpaid (including any Additional Sums), together with interest thereon
compounded quarterly at the rate specified for the Subordinated Debentures to
the extent permitted by applicable law ("Compound Interest"). During any
Extension Period (i) NorthWestern may not declare or pay any dividends on, make
any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock and (ii)
NorthWestern may not make any payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities issued by NorthWestern
that rank pari passu with or junior to the Subordinated Debentures or make any
guarantee payments with respect to the foregoing; provided, however, that, the
foregoing restrictions do not apply to (a) repurchases, redemptions or other
acquisitions of shares of capital stock of NorthWestern (1) in connection with
any employment contract, benefit plan or other similar arrangement with or for
the benefit of any one or more employees, officers, directors or consultants,
(2) in connection with a dividend reinvestment or stockholder stock purchase
plan or (3) in connection with the issuance of capital stock of NorthWestern (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to such Extension
Period, (b) an exchange, redemption or conversion of any class or series of
NorthWestern's capital stock (or any capital stock of a subsidiary of
NorthWestern) for any class or series of NorthWestern's capital stock or of any
class or series of NorthWestern's indebtedness for any class or series of
NorthWestern's capital stock, (c) the purchase of fractional interests in shares
of NorthWestern's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock, or (f) payments by NorthWestern
under the Guarantee or under any similar guarantee by NorthWestern with respect
to any securities of its subsidiaries, provided the proceeds from the issuance
of such securities were used to purchase junior subordinated deferrable interest
debentures issued by such subsidiary.
Prior to the termination of any Extension Period, NorthWestern may further
defer payments of interest by extending the interest payment period; provided
that the Extension Period, including all such previous
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and further extensions, may not exceed 20 consecutive quarters or extend beyond
the maturity date of the Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, NorthWestern may
commence a new Extension Period, subject to the above requirements. If the
Property Trustee is the sole holder of the Subordinated Debentures, NorthWestern
shall give the Regular Trustees and the Property Trustee notice of its selection
of an Extension Period one Business Day prior to the earlier of (i) the next
date Distributions on the Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice to the New York Stock Exchange (or
other applicable self-regulatory organization) or to the holders of record of
the Preferred Securities. The Regular Trustees shall give notice of
NorthWestern's selection of such Extension Period to the holders of the
Preferred Securities. If the Property Trustee is not the sole holder of the
Subordinated Debentures, NorthWestern shall give the holders of the Subordinated
Debentures notice of its selection of an Extension Period ten Business Days
prior to the earlier of (i) the next interest payment date or (ii) the date upon
which NorthWestern is required to give notice to the New York Stock Exchange (or
other applicable self-regulatory organization) or to holders of the Subordinated
Debentures of the record or payment date of such related interest payment.
NorthWestern has no present intention of exercising its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures.
ADDITIONAL SUMS
If at any time while the Property Trustee is the holder of the Subordinated
Debentures, Capital Trust I shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other taxing authority, then, in any
such case, NorthWestern will pay as additional interest on the Subordinated
Debentures such additional amounts ("Additional Sums") as shall be required so
that the net amounts received and retained by Capital Trust I after paying any
such taxes, duties, assessments or other governmental charges will be not less
than the amounts Capital Trust I would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
OPTIONAL REDEMPTION
NorthWestern shall have the right to redeem the Subordinated Debentures on
or after November 18, 2003, in whole at any time or in part from time to time,
or before November 18, 2003, in whole (but not in part) at any time in certain
circumstances upon the occurrence of a Tax Event or an Investment Company Event
as described under "Description of the Preferred Securities -- Redemption," upon
not less than 30 nor more than 60 days notice, at a redemption price equal to
100% of the principal amount to be redeemed plus any accrued and unpaid
interest, including any Compounded Interest and Additional Sums, if any, to the
redemption date. If a partial redemption of the Preferred Securities resulting
from a partial redemption of the Subordinated Debentures would result in the
delisting of the Preferred Securities, NorthWestern may only redeem the
Subordinated Debentures in whole.
NorthWestern may not redeem fewer than all of the Subordinated Debentures
unless all accrued and unpaid interest has been paid on all Subordinated
Debentures for all quarterly interest payment periods terminating on or prior to
the date of redemption.
OPTION TO ACCELERATE MATURITY DATE
If a Tax Event described in clause (ii) of the definition of "Tax Event"
occurs, NorthWestern will have the right, prior to a dissolution of Capital
Trust I, to accelerate the stated maturity of the Subordinated Debentures to the
minimum extent required so that interest on the Subordinated Debentures will be
deductible for United States federal income tax purposes, but in no event may
the resulting maturity of the Subordinated Debentures be less than 15 years from
the date of original issuance. The stated maturity may be accelerated only if
NorthWestern shall have received an opinion of counsel experienced in such
matters to
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the effect that (i) following such acceleration, interest paid on the
Subordinated Debentures will be deductible for United States federal income tax
purposes and (ii) the holders of Preferred Securities will not recognize income,
gain or loss for United States federal income tax purposes as a result of such
acceleration, and will be subject to United States federal income tax in the
same amount, in the same manner and at the same times as would have been the
case if such acceleration had not occurred.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Debentures, will have the
right to declare the principal of and the interest on the Subordinated
Debentures (including any Compound Interest and Additional Sums, if any) and any
other amounts payable under the Subordinated Indenture to be forthwith due and
payable and to enforce its other rights as a creditor with respect to the
Subordinated Debentures. See "Description of Debt Securities -- Events of
Default" in the accompanying Prospectus for a description of the events of
default. An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Preferred Securities in certain circumstances have the
right to direct the Property Trustee to exercise its rights as the holder of the
Subordinated Debentures. See "Description of the Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an Indenture Event of Default has occurred and is continuing and such
event is attributable to the failure of NorthWestern to pay interest or
principal on the Subordinated Debentures on the date such interest or principal
is due and payable, a holder of Preferred Securities may institute a Direct
Action against NorthWestern for enforcement of payment to such holder of the
principal of or interest (including any Additional Sums) on Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of such holder's Preferred Securities. NorthWestern may not amend the
Subordinated Indenture to remove the right to bring a Direct Action without the
prior written consent of the holders of all the Preferred Securities then
outstanding. NorthWestern shall have the right under the Subordinated Indenture
to set-off any payment made to such holder of Preferred Securities by
NorthWestern in connection with a Direct Action.
Except as set forth in the preceding paragraph, the holders of the Preferred
Securities will not be able to exercise directly any remedies available to the
holders of the Subordinated Debentures. For a description of the rights of the
holders of the Preferred Securities to enforce the rights of the Property
Trustee under certain circumstances, see "Description of the Preferred
Securities -- Voting Rights."
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of Capital Trust
I, the Subordinated Debentures will be issued in the form of one or more global
certificates (each, a "Global Security") registered in the name of the
Depositary or its nominee. Except under the limited circumstances described
below, Subordinated Debentures represented by a Global Security will not be
exchangeable for, and will not otherwise be issuable as, Subordinated Debentures
in definitive form. See "-- Discontinuance of the Depositary's Services." Global
Securities may not be transferred except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such Global Securities.
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Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the holders thereof for
any purpose under the Subordinated Indenture, and no Global Security
representing Subordinated Debentures will be exchangeable, except for another
Global Security of like denomination and tenor to be registered in the name of
the Depositary or its nominee or to a successor depositary or its nominee.
Accordingly, each beneficial owner must rely on the procedures of the Depositary
or, if such person is not a participant, on the procedures of the participant
through which such person owns its interest to exercise any rights of a holder
under the Subordinated Indenture.
THE DEPOSITARY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in Capital Trust I, DTC
will act as securities depositary for the Subordinated Debentures. For a
description of DTC and the specific terms of the depositary arrangements, see
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company." As of the date of this Prospectus Supplement, that
description of DTC's book-entry system and DTC's practices as they relate to
purchases, transfers, notices and payments with respect to the Preferred
Securities apply in all material respects to any debt obligations represented by
one or more Global Securities held by DTC. NorthWestern may appoint a successor
to DTC or any successor depositary in the event DTC or such successor depositary
is unable or unwilling to continue as a depository for the Global Securities.
None of NorthWestern, Capital Trust I, the Indenture Trustee, any paying
agent and any other agent of NorthWestern or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Subordinated Debentures or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies NorthWestern that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934 at a time the Depositary is
required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) NorthWestern, in its sole
discretion, determines that such Global Security shall be so exchangeable, or
(iv) there shall have occurred an Indenture Event of Default. Any Global
Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Subordinated Debentures registered in such names as the
Depositary shall direct. It is expected that such instructions will be based
upon directions received by the Depositary from its participants with respect to
ownership of beneficial interests in such Global Security.
MISCELLANEOUS
The Subordinated Indenture provides that NorthWestern will pay all fees and
expenses related to (i) the offering of the Trust Securities and the
Subordinated Debentures, (ii) the organization, maintenance and dissolution of
Capital Trust I, (iii) the retention of the Capital Trustees and (iv) the
enforcement by the Property Trustee of the rights of the holders of the
Preferred Securities. The payment of such fees and expenses will be fully and
unconditionally guaranteed by NorthWestern.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a description of the specific terms of the Guarantee
relating to Capital Trust I. This description supplements the description of the
general terms and provisions of the Guarantees set forth in the accompanying
Prospectus under the caption "Description of the Guarantees." The following
description does not purport to be complete and is subject to, and is qualified
in its entirety by, the description in the accompanying Prospectus and the
provisions of the Guarantee between NorthWestern and Wilmington Trust Company,
as Guarantee Trustee, which is filed as an exhibit to the Registration Statement
of which the accompanying Prospectus forms a part.
GENERAL
Pursuant to the Guarantee, NorthWestern will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full to the holders of the
Preferred Securities issued by Capital Trust I, the Guarantee Payments (as
defined below), as and when due, regardless of any defense, right of set-off or
counterclaim which Capital Trust I may have or assert. The following payments
with respect to the Preferred Securities (the "Guarantee Payments"), to the
extent not paid by Capital Trust I, will be subject to the Guarantee (without
duplication): (i) any accumulated and unpaid Distributions that are required to
be paid on the Preferred Securities, to the extent NorthWestern has made a
payment of interest or principal on the Subordinated Debentures, (ii) the
Redemption Price, to the extent NorthWestern has made a payment of interest or
principal on the Subordinated Debentures, with respect to any Preferred
Securities called for redemption, (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of Capital Trust I (other than in
connection with the distribution of Subordinated Debentures to the holders of
the Preferred Securities or the redemption of all of the Preferred Securities
upon the maturity or redemption of the Subordinated Debentures) the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions on the Preferred Securities to the date of payment to the extent
Capital Trust I has funds legally available therefor and (b) the amount of
assets of Capital Trust I remaining available for distribution to holders of the
Preferred Securities in liquidation of Capital Trust I. NorthWestern's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by NorthWestern to the holders of the Preferred Securities or
by causing Capital Trust I to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee with respect to the
Preferred Securities from the time of issuance of the Preferred Securities but
will not apply to any payment of Distributions due to the extent Capital Trust I
lacks funds legally available therefor as a result of a failure by NorthWestern
to make payments of interest or principal on the Subordinated Debentures. If
NorthWestern does not make interest payments on the Subordinated Debentures,
Capital Trust I will not pay Distributions on the Preferred Securities and will
not have funds legally available therefor. See "Description of the Preferred
Securities -- Distributions."
NorthWestern has also agreed to irrevocably and unconditionally guarantee
the obligations of Capital Trust I with respect to the Common Securities (the
"Common Securities Guarantee") to the same extent as the Guarantee, except that,
upon an event of default under the Subordinated Indenture, holders of the
Preferred Securities under the Guarantee will have priority over the holder of
the Common Securities under the Common Securities Guarantees with respect to
Distributions and payments on liquidation, redemption or otherwise.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of NorthWestern and
will rank (i) subordinate and junior in right of payment to all other
liabilities of NorthWestern, other than the guarantee issued in connection with
the 1995 Series Trust Preferred Securities, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by NorthWestern and with
any guarantee now or hereafter entered into by NorthWestern in respect of any
preferred or preference stock of any affiliate of NorthWestern, and
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(iii) senior to NorthWestern's Common Stock. The terms of the Preferred
Securities provide that each holder of Preferred Securities by acceptance
thereof agrees to the subordination provisions and other terms of the Guarantee.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of not less than 66 2/3% in Liquidation Amount of the outstanding
Preferred Securities. All guarantees and agreements contained in the Guarantee
will bind the successors, assignees, receivers, trustees and representatives of
NorthWestern and will inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An "Event of Default" under the Guarantee will occur upon the failure of
NorthWestern to make any of its payments or to perform other obligations
thereunder. The holders of a majority in Liquidation Amount of the Preferred
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, any holder of
Preferred Securities may, after such holder's written request to the Guarantee
Trustee to enforce the Guarantee, institute a legal proceeding directly against
NorthWestern to enforce the Guarantee Trustee's rights under the Guarantee
without first instituting a legal proceeding against Capital Trust I, the
Guarantee Trustee or any other person or entity.
NorthWestern is required to file annually with the Guarantee Trustee an
officer's certificate as to NorthWestern's compliance with all conditions under
the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default under the
Guarantee, undertakes to perform only such duties as are specifically set forth
in the Guarantee and, after default with respect to the Guarantee, will exercise
the same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs. Subject to such provision, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by the Guarantee
at the request of any holder of the Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
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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EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Trust Declaration, the sole purpose of Capital Trust I
is to issue the Trust Securities evidencing undivided beneficial interests in
the assets of Capital Trust I and to invest the proceeds from such issuance in
the Subordinated Debentures.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover Distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of the Subordinated Debentures will be equal to
the sum of the aggregate stated Liquidation Amount of the Trust Securities; (ii)
the interest rate and the interest and other payment dates on the Subordinated
Debentures will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) NorthWestern will pay all costs and
expenses of the Trust to the extent not satisfied out of the Trust's assets; and
(iv) the Capital Trustees are prohibited from causing or permitting Capital
Trust I to engage in any activity that is not consistent with the purposes of
Capital Trust I.
Payments of Distributions and other payments due on the Preferred Securities
(in each case, to the extent funds therefor are legally available) are
guaranteed by NorthWestern as and to the extent set forth under "Description of
the Guarantee." If NorthWestern does not make interest payments on the
Subordinated Debentures purchased by Capital Trust I, Capital Trust I will not
have sufficient funds to pay Distributions on the Preferred Securities. The
Guarantee is a full and unconditional guarantee from the time of its issuance
but does not apply to any payment of Distributions unless and until Capital
Trust I has sufficient funds legally available for the payment of such
Distributions.
If an Indenture Event of Default has occurred and is continuing and such
event is attributable to the failure of NorthWestern to pay interest or
principal on the Subordinated Debentures on the date such interest or principal
is due and payable, a holder of Preferred Securities may institute a Direct
Action against NorthWestern for enforcement of payment to such holder of the
principal of or interest (including any Additional Sums) on Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of such holder's Preferred Securities. In addition, if NorthWestern fails to
make interest or other payments on the Subordinated Debentures when due (taking
account of any Extension Period), the Trust Declaration provides a mechanism
whereby the holders of the Preferred Securities, using the procedures described
in "Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company" and "-- Voting Rights," may direct the Property
Trustee to enforce its rights under the Subordinated Debentures. If the Property
Trustee fails to enforce its rights under the Subordinated Debentures, to the
fullest extent permitted by law, a holder of Preferred Securities may, after
such holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against NorthWestern to enforce the
Property Trustee's rights under the Subordinated Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person. NorthWestern, under the Guarantee, acknowledges that the Guarantee
Trustee shall enforce the Guarantee on behalf of the holders of the Preferred
Securities. If NorthWestern fails to make payments under the Guarantee, the
Guarantee provides a mechanism whereby the holders of the Preferred Securities
may direct the Guarantee Trustee to enforce its rights thereunder. If the
Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred
Securities may, after such holder's written request to the Guarantee Trustee to
enforce the Guarantee, institute a legal proceeding directly against
NorthWestern to enforce the Guarantee Trustee's rights under the Guarantee
without first instituting a legal proceeding against Capital Trust I, the
Guarantee Trustee or any other person.
NorthWestern and Capital Trust I believe that the rights of the holders of
the Preferred Securities and the obligations of NorthWestern under the Trust
Declaration, the Guarantee, the Preferred Securities, the Common Securities, the
Subordinated Indenture and the Subordinated Debentures collectively provide the
substantial equivalent of a full and unconditional guarantee by NorthWestern of
payments due on the Preferred Securities. See "Description of the
Guarantee -- General."
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<PAGE>
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Preferred
Securities. Unless otherwise stated, this summary deals only with Preferred
Securities held as capital assets by holders who purchase the Preferred
Securities upon original issuance ("Initial Holders"). It does not deal with
special classes of holders, such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons whose functional currency is other than the U.S.
Dollar or the tax consequences to shareholders, partners or beneficiaries of a
holder of Preferred Securities. Further, it does not include any description of
any alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the Preferred
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
In connection with the issuance of the Subordinated Debentures, Schiff
Hardin & Waite, special tax counsel to NorthWestern and Capital Trust I, will
render its opinion generally to the effect that, under current law and assuming
full compliance with the terms of the Subordinated Indenture (and certain other
documents), and based on certain facts and assumptions contained in such
opinion, the Subordinated Debentures held by Capital Trust I will be classified
for United States federal income tax purposes as indebtedness of NorthWestern.
CLASSIFICATION OF CAPITAL TRUST I
In connection with the issuance of the Preferred Securities, Schiff Hardin &
Waite will render its opinion generally to the effect that, under current law
and assuming full compliance with the terms of the Trust Declaration and the
Subordinated Indenture (and certain other documents), based on certain facts and
assumptions contained in such opinion, Capital Trust I will be classified for
United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Preferred Securities will be considered the
owner of an undivided interest in the Subordinated Debentures, and each holder
will be required to include in its gross income any interest (or original issue
discount ("OID"), if any) paid or accrued with respect to its allocable share of
the Subordinated Debentures.
INTEREST AND ORIGINAL ISSUE DISCOUNT
Under the terms of the Subordinated Debentures, NorthWestern has the ability
to defer payments of interest from time to time by extending the interest
payment period for a period not exceeding 20 consecutive quarterly periods, but
not beyond the maturity of the Subordinated Debentures. Treasury regulations
under Section 1273 of the Code provide that a debt instrument will not be
considered issued with OID by reason of the issuer's ability to defer payments
of interest if the likelihood of such deferral is "remote." NorthWestern has
concluded, and this discussion assumes, that, as of the date of this Prospectus
Supplement, the likelihood of deferring payments of interest under the terms of
the Subordinated Debentures is "remote" within the meaning of the applicable
Treasury regulations, in part because exercising that option would prevent
NorthWestern from declaring dividends on its stock and would prevent
NorthWestern from making any payments with respect to debt securities that rank
pari passu with the
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<PAGE>
Subordinated Debentures. Therefore, the Subordinated Debentures should not be
treated as issued with OID by reason of NorthWestern's deferral option. Rather,
stated interest on the Subordinated Debentures will generally be taxable to a
holder as ordinary interest income when paid or accrued in accordance with that
holder's method of accounting for income tax purposes. It should be noted,
however, that these Treasury regulations have not yet been interpreted by the
Internal Revenue Service. Accordingly, it is possible that the Internal Revenue
Service could take a position contrary to the interpretation described herein.
In the event NorthWestern were to exercise its option to defer payments of
interest, the Subordinated Debentures would be treated as redeemed and reissued
for OID purposes, and the sum of the remaining interest payments (and any de
minimis OID) on the Subordinated Debentures would thereafter be treated as OID,
which would accrue, and be includible in a holder's taxable income, on an
economic accrual basis (regardless of the holder's method of accounting for
income tax purposes) over the remaining term of the Subordinated Debentures
(including any period of interest deferral), without regard to the timing of
payments under the Subordinated Debentures. Subsequent distributions of interest
on the Subordinated Debentures generally would not be taxable. The amount of OID
that would accrue in any period would generally equal the amount of interest
that accrued on the Subordinated Debentures in that period at the stated
interest rate. Consequently, during any period of interest deferral, holders
will include OID in gross income in advance of the receipt of cash, and a holder
that disposes of Preferred Securities prior to the record date for payment of
distributions on the Subordinated Debentures following that period will be
subject to income tax on OID accrued through the date of disposition (and not
previously included in income), but will not receive cash from Capital Trust I
with respect to the OID.
If the possibility of NorthWestern's exercise of its option to defer
payments of interest were not treated as remote, the Subordinated Debentures
would be treated as initially issued with OID in an amount equal to the
aggregate stated interest (plus any de minimis OID) over the term of the
Subordinated Debentures. Such OID would generally be includible in a holder's
taxable income, over the term of the Subordinated Debentures, on an economic
accrual basis.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Preferred Securities other than Initial Holders may be considered
to have acquired their undivided interests in the Subordinated Debentures with
market discount or acquisition premium, as such terms are defined for United
States federal income tax purposes. Such holders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership and
disposition of the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF CAPITAL TRUST I
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Liquidation Distribution upon Dissolution,"
Subordinated Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of Capital Trust I. Under current law,
such a distribution would be treated for United States federal income tax
purposes as a non-taxable event to each holder, and each holder would receive an
aggregate tax basis in the Subordinated Debentures equal to such holder's
aggregate tax basis in its Preferred Securities. A holder's holding period in
the Subordinated Debentures so received in liquidation of Capital Trust I would
include the period during which the Preferred Securities were held by such
holder.
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Redemption," the Subordinated Debentures may be
redeemed for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current law, such a redemption
would constitute a taxable disposition of the redeemed Preferred Securities, and
a holder could recognize gain or loss as if it had sold such redeemed Preferred
Securities for cash. See "-- Sales of Preferred Securities."
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<PAGE>
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities (excluding amounts
attributable to accrued and unpaid interest, which will be taxable as ordinary
income). A holder's adjusted tax basis in the Preferred Securities generally
will be its initial purchase price. Such gain or loss generally will be a
capital gain or loss and generally will be a long-term capital gain or loss if
the Preferred Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder that disposes of its Preferred Securities
between record dates for payments of Distributions thereon will be required to
include accrued but unpaid interest on its proportionate interest in the
Subordinated Debentures through the date of disposition in income as ordinary
income. To the extent the selling price is less than the holder's adjusted tax
basis, 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 any
corporation, individual, partnership, estate or trust that is, for United States
federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign partnership or a non-resident fiduciary of a foreign
estate or trust.
Under present United States federal income tax law: (i) payments by Capital
Trust I or any of its paying agents to any holder of a Preferred Security that
is a United States Alien Holder will not be subject to United States federal
withholding tax; provided that (a) the beneficial owner of the Preferred
Security does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of NorthWestern entitled to vote,
(b) the beneficial owner of the Preferred Security is not a controlled foreign
corporation that is related to NorthWestern through stock ownership, and (c)
either (1) the beneficial owner of the Preferred Security certifies to Capital
Trust I or its agent, under penalties of perjury, that it is not a United States
holder and provides its name and address, or (2) 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 Preferred Security in such capacity, certifies to
Capital Trust I or its agent, under penalties of perjury, that such statement
has been received from the beneficial owner by it or by a Financial Institution
between it and the beneficial owner and furnishes Capital Trust I or its agent
with a copy thereof; and (ii) a United States Alien Holder of a Preferred
Security will generally not be subject to United States federal income or
withholding tax on any gain realized upon the sale or other disposition of a
Preferred Security, except that a United States Alien Holder will be subject to
United States income tax on any gain if such United States Alien Holder (a) is
engaged in a trade or business in the United States and such gain is effectively
connected to the conduct of such trade or business or (b) is an individual
present in the United States for 183 days or more during the taxable year, and
certain other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Preferred Securities will be reported to holders on Forms
1099, which forms should be mailed to holders of Preferred Securities by January
31 following each calendar year. Payments made in respect of, and proceeds from
the sale of, the Preferred Securities, or Subordinated Debentures distributed to
holders of Preferred Securities, may be subject to a "backup" withholding tax of
31% unless the holder complies with certain identification requirements. Any
amounts withheld will generally be allowed as a credit against the holder's
United States federal income tax, provided the required information is provided
to the Internal Revenue Service.
On October 16, 1997, the United States Treasury Department issued
regulations concerning the information reporting and backup withholding rules.
These regulations are generally effective for payments
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<PAGE>
made after December 31, 1999. In general, they do not alter significantly the
substantive reporting requirements of the rules pertaining to information
reporting and backup withholding but, rather, modify certification procedures
and forms and clarify reliance standards. Prospective investors should consult
their tax advisors regarding these regulations.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Preferred Securities, fiduciaries of
pension, profit sharing or other employee benefit plans ("Plans") subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), should consider, among other matters, (i) ERISA's fiduciary standards
(including its prudence and diversification requirements), (ii) whether such
fiduciaries have authority to make such investment in the Preferred Securities
under the applicable Plan investment policies and governing instruments, and
(iii) rules under ERISA and the Code that prohibit Plan fiduciaries from causing
a Plan to engage in a "prohibited transaction." Section 406 of ERISA and Section
4975 of the Code prohibit Plans, as well as individual retirement accounts and
Keogh plans subject to Section 4975 of the Code (also "Plans"), from, among
other things, engaging in certain transactions involving "plan assets" with
persons who are "parties in interest" under ERISA or "disqualified persons"
under the Code ("Parties in Interest") with respect to such Plan. A violation of
these "prohibited transaction" rules may result in an excise tax or other
liabilities under ERISA and/or Section 4975 of the Code for such persons, unless
exemptive relief is available under an applicable statutory or administrative
exemption.
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R.
section 2510.3-101) (the "Plan Assets Regulation") concerning the definition of
what constitutes the assets of a Plan. The Plan Assets Regulation provides that,
as a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply. Pursuant to an exception
contained in the Plan Assets Regulation, the assets of Capital Trust I would not
be deemed to be "plan assets" of investing Plans if the equity interests
acquired by employee benefit plans are "publicly-offered securities"--that is,
they are (i) widely held (i.e., owned by more than 100 investors independent of
NorthWestern and of each other), (ii) freely transferable and (iii) sold as part
of an offering pursuant to an effective registration statement under the
Securities Act and then timely registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). It is expected
that the Preferred Securities will meet the criteria of "publicly-offered
securities" above. The underwriters expect that the Preferred Securities will be
held by at least 100 independent investors at the conclusion of the offering;
there are no restrictions imposed on the transfer of the Preferred Securities
and the Preferred Securities will be sold as part of an offering pursuant to an
effective registration statement under the Securities Act, and then will be
timely registered under the Exchange Act.
There can be no assurance that any of the exceptions set forth in the Plan
Assets Regulation will apply to the purchase of Preferred Securities offered
hereby and, as a result, an investing Plan's assets could be considered to
include an undivided interest in the Subordinated Debentures held by Capital
Trust I. In the event that the assets of Capital Trust I are considered assets
of an investing Plan, the Capital Trustees, NorthWestern and/or other persons,
in providing services with respect to the Subordinated Debentures, could be
considered fiduciaries of such Plan and subject to the fiduciary responsibility
provisions of Title I of ERISA. In addition, certain transactions involving
Capital Trust I and/or the Preferred Securities could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan. For example, if NorthWestern is a Party in Interest
with respect to an investing Plan
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<PAGE>
(either directly or by reason of its ownership of other subsidiaries),
extensions of credit between NorthWestern and Capital Trust I (as represented by
the Subordinated Debentures and the Guarantee) would likely be prohibited by
Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code. The DOL has
issued five prohibited transaction class exemptions ("PTCEs") that may provide
exemptive relief for direct or indirect prohibited transactions resulting from
the purchase or holding of the Preferred Securities, assuming that assets of
Capital Trust I were deemed to be "plan assets" of Plans investing in Capital
Trust I (see above). Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 95-60 (for
certain transactions involving insurance company general accounts), PTCE 90-1
(for certain transactions involving insurance company pooled separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified
asset managers). Because of ERISA's prohibitions and those of Section 4975 of
the Code, the Preferred Securities may not be purchased or held by any Plan, any
entity whose underlying assets include "plan assets" by reason of any Plan's
investment in the entity (a "Plan Asset Entity") or any other person investing
"plan assets" of any Plan, unless such purchase or holding is covered by the
exemptive relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another
applicable exemption. If a purchaser or holder of the Preferred Securities that
is a Plan or a Plan Asset Entity elects to rely on an exemption other than PTCE
96-23, 95-60, 91-38, 90-1 or 84-14, NorthWestern and Capital Trust I may require
a satisfactory opinion of counsel or other evidence with respect to the
availability of such exemption for such purchase and holding. Any purchaser or
holder of the Preferred Securities that is a Plan or a Plan Assets Entity or is
purchasing such securities on behalf of a Plan or with "plan assets" will be
deemed to have represented by its purchase and holding thereof that (i) the
purchase and holding of the Preferred Securities is covered by the exemptive
relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption, (ii) NorthWestern and the Regular Trustees are not "fiduciaries,"
within the meaning of Section 3(21) of ERISA and the regulations thereunder,
with respect to such person's interest in the Preferred Securities, and (iii)
such person approves the purchase of the Subordinated Debentures and the
appointment of the Capital Trustees. Any Plans or other entities whose assets
include Plan assets subject to ERISA or Section 4975 of the Code proposing to
acquire Preferred Securities should consult with their own counsel.
Governmental Plans and certain church plans are not subject to ERISA and are
also not subject to the prohibited transaction provisions of Section 4975 of the
Code. However, state laws or regulations governing the investment and management
of the assets of such plans may contain fiduciary and prohibited transaction
provisions similar to those under ERISA and the Code discussed above.
Accordingly, fiduciaries of governmental and church plans, in consultation with
their advisers, should consider the impact of their respective state laws on
investments in the Preferred Securities and the considerations discussed above
to the extent applicable.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), each of the
underwriters named below has severally agreed to purchase, and NorthWestern has
agreed to sell to them, severally, the respective number of Preferred Securities
set forth opposite the names of such underwriters below:
<TABLE>
<CAPTION>
NUMBER
OF
PREFERRED
NAME SECURITIES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated................................................ 440,000
CIBC Oppenheimer Corp............................................................ 440,000
A.G. Edwards & Sons, Inc......................................................... 440,000
PaineWebber Incorporated......................................................... 440,000
Piper Jaffray Inc................................................................ 440,000
----------
Total.......................................................................... 2,200,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the Preferred Securities are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. In the Underwriting Agreement, the several underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Preferred Securities offered hereby if any of the Preferred Securities are
purchased. In the event of default by an underwriter, the Underwriting Agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the Underwriting Agreement may be
terminated.
The underwriters initially propose to offer part of the Preferred Securities
directly to the public at the initial public offering price set forth on the
cover page hereof and all or part to certain dealers at a price that represents
a concession not in excess of $.50 per Preferred Security under the public
offering price. Any underwriter may allow, and such dealers may reallow, a
concession not in excess of $.40 per Preferred Security to other underwriters or
to certain dealers. After the initial offering of the Preferred Securities, the
offering price and other selling terms may from time to time be varied by the
underwriters.
Because the proceeds of the sale of the Preferred Securities will ultimately
be used to purchase the Subordinated Debentures of NorthWestern, the
Underwriting Agreement provides that NorthWestern will pay to the underwriters
as compensation for their services $.7875 per Preferred Security (or $1,732,500
in the aggregate); provided that such compensation will be $.50 per Preferred
Security sold to certain institutions.
NorthWestern and Capital Trust I have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated, on behalf of the underwriters,
they will not, during the period ending 30 days after the date of this
Prospectus Supplement, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any securities that are substantially similar to the
Preferred Securities or securities convertible into or exercisable or
exchangeable for such securities or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, the economic
consequences of ownership of such securities, whether any such transaction
described in clause (i) or (ii) above is to be settled by such securities, in
cash or otherwise, except in the offering.
Prior to this offering, there has been no public market for the Preferred
Securities. The Preferred Securities have been approved for listing on the New
York Stock Exchange, and trading of the Preferred Securities on the New York
Stock Exchange is expected to commence within a 30-day period after the date of
this Prospectus Supplement. The underwriters have advised Capital Trust I that
they intend to make a market in the Preferred Securities prior to the
commencement of trading on the New York Stock Exchange.
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<PAGE>
The underwriters will have no obligation to make a market in the Preferred
Securities, however, and may cease market making activities, if commenced, at
any time. No assurance can be given as to the liquidity of the trading market
for the Preferred Securities.
In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
Capital Trust I and NorthWestern have agreed to indemnify the underwriters
against, or contribute to payments that the underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
In order to facilitate the offering of the Preferred Securities, the
underwriters and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the price of the Preferred Securities.
Specifically, the underwriters may over-allot in connection with the offering,
creating a short position in the Preferred Securities for their own account. In
addition, to cover over-allotments or to stabilize the price of the Preferred
Securities, the underwriters may bid for, and purchase, Preferred Securities in
the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Preferred
Securities in the offering, if the syndicate repurchases previously distributed
Preferred Securities in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Preferred Securities above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
Certain of the underwriters or their affiliates engage in (or in the future
may engage in) transactions with, and provide services for, NorthWestern or its
affiliates in the ordinary course of business. Canadian Imperial Bank of
Commerce, an affiliate of CIBC Oppenheimer Corp., is the agent and lender under
a $50 million revolving credit facility with NorthWestern.
LEGAL MATTERS
The validity of the Subordinated Debentures and the Guarantee offered hereby
will be passed upon for NorthWestern by Schiff Hardin & Waite, Chicago,
Illinois. Certain legal matters will be passed upon for the underwriters by
Winthrop, Stimson, Putnam & Roberts, New York, New York. Certain matters of
Delaware law relating to the validity of the Preferred Securities, the
enforceability of the Trust Declaration and the creation of Capital Trust I will
be passed upon by Richards, Layton & Finger, PA, Wilmington, Delaware.
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<PAGE>
PROSPECTUS
$500,000,000
NORTHWESTERN CORPORATION
MORTGAGE BONDS
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
CUMULATIVE PREFERRED STOCK
PREFERENCE STOCK
COMMON STOCK
NORTHWESTERN CAPITAL FINANCING I
NORTHWESTERN CAPITAL FINANCING II
NORTHWESTERN CAPITAL FINANCING III
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN
BY NORTHWESTERN CORPORATION
-------------------
1,279,476 SHARES
NORTHWESTERN CORPORATION
COMMON STOCK
OFFERED BY CERTAIN SELLING STOCKHOLDERS
-------------------
NORTHWESTERN CORPORATION, A DELAWARE CORPORATION FORMERLY NAMED NORTHWESTERN
PUBLIC SERVICE COMPANY (THE "COMPANY"), MAY FROM TIME TO TIME OFFER (I) ITS
MORTGAGE BONDS, IN ONE OR MORE SERIES ("MORTGAGE BONDS"); (II) ITS SENIOR DEBT
SECURITIES, WHICH MAY CONSIST OF DEBENTURES, NOTES AND/OR OTHER UNSECURED
EVIDENCES OF INDEBTEDNESS IN ONE OR MORE SERIES ("SENIOR DEBT SECURITIES");
(III) ITS SUBORDINATED DEBT SECURITIES, WHICH MAY CONSIST OF DEBENTURES, NOTES
AND/OR OTHER UNSECURED EVIDENCES OF INDEBTEDNESS, SUBORDINATED TO THE EXTENT SET
FORTH THEREIN, IN ONE OR MORE SERIES ("SUBORDINATED DEBT SECURITIES" AND,
TOGETHER WITH THE SENIOR DEBT SECURITIES, "DEBT SECURITIES"); (IV) SHARES OF ITS
CUMULATIVE PREFERRED STOCK, $100 PAR VALUE, IN ONE OR MORE SERIES ("PREFERRED
STOCK"); (V) SHARES OF ITS PREFERENCE STOCK, $50 PAR VALUE, IN ONE OR MORE
SERIES ("PREFERENCE STOCK"); AND (IV) SHARES OF ITS COMMON STOCK, $1.75 PAR
VALUE (INCLUDING RELATED COMMON STOCK PURCHASE RIGHTS) ("COMMON STOCK") AT AN
AGGREGATE INITIAL OFFERING PRICE NOT TO EXCEED $500,000,000 AT PRICES AND ON
TERMS TO BE DETERMINED AT THE TIME OF SALE.
NORTHWESTERN CAPITAL FINANCING I, NORTHWESTERN CAPITAL FINANCING II AND
NORTHWESTERN CAPITAL FINANCING III, EACH A STATUTORY BUSINESS TRUST FORMED UNDER
THE LAWS OF THE STATE OF DELAWARE (A "TRUST"), MAY OFFER, FROM TIME TO TIME,
PREFERRED SECURITIES REPRESENTING UNDIVIDED BENEFICIAL INTERESTS IN THE ASSETS
OF THE RESPECTIVE TRUSTS ("PREFERRED SECURITIES") AT AN AGGREGATE INITIAL
OFFERING PRICE NOT TO EXCEED $500,000,000 AT PRICES AND ON TERMS TO BE
DETERMINED AT THE TIME OF SALE. THE COMPANY WILL OWN ALL OF THE COMMON
SECURITIES OF EACH TRUST, AND THE SOLE ASSETS OF EACH TRUST WILL BE A SERIES OF
THE COMPANY'S SUBORDINATED DEBT SECURITIES. THE PAYMENT OF PERIODIC CASH
DISTRIBUTIONS WITH RESPECT TO THE PREFERRED SECURITIES AND COMMON SECURITIES
(COLLECTIVELY, "TRUST SECURITIES") OF A TRUST AND PAYMENTS ON REDEMPTION OF THE
TRUST SECURITIES OR LIQUIDATION OF THE TRUST, IN EACH CASE OUT OF FUNDS HELD BY
THE TRUST, WILL BE GUARANTEED BY THE COMPANY TO THE EXTENT DESCRIBED HEREIN (THE
"GUARANTEES").
IN ADDITION, CERTAIN PERSONS (THE "SELLING STOCKHOLDERS") MAY OFFER, FROM
TIME TO TIME, UP TO AN AGGREGATE OF 1,279,476 SHARES OF COMMON STOCK, AT PRICES
AND ON TERMS TO BE DETERMINED AT THE TIME OF SALE.
THE MORTGAGE BONDS, DEBT SECURITIES, PREFERRED STOCK, PREFERENCE STOCK AND
COMMON STOCK OF THE COMPANY, AND THE PREFERRED SECURITIES OF THE TRUSTS
(TOGETHER WITH THE RELATED GUARANTEES OF THE COMPANY), ARE COLLECTIVELY REFERRED
TO AS THE "SECURITIES."
SECURITIES WILL BE OFFERED AT PRICES AND ON TERMS TO BE DETERMINED AND WHICH
WILL BE SET FORTH IN ONE OR MORE SUPPLEMENTS TO THIS PROSPECTUS (EACH, A
"PROSPECTUS SUPPLEMENT"). EACH PROSPECTUS SUPPLEMENT WILL SET FORTH WITH REGARD
TO THE PARTICULAR SECURITIES BEING OFFERED BY THE COMPANY OR A TRUST: (I) IN THE
CASE OF MORTGAGE BONDS AND DEBT SECURITIES, THE TITLE, AGGREGATE OFFERING
AMOUNT, DENOMINATIONS (WHICH MAY BE IN UNITED STATES DOLLARS OR A FOREIGN
CURRENCY OR CURRENCY UNIT), MATURITY, INTEREST RATE, IF ANY (WHICH MAY BE FIXED
OR VARIABLE), OR THE METHOD OF CALCULATION OF INTEREST, INTEREST PAYMENT DATES,
ANY TERMS FOR DEFERRING PAYMENT OF INTEREST AT THE ELECTION OF THE COMPANY, ANY
TERMS FOR REDEMPTION AT THE OPTION OF THE COMPANY OR THE HOLDER, ANY TERMS FOR
SINKING FUND PAYMENTS, ANY CONVERSION OR EXCHANGE RIGHTS, ANY LISTING ON A
SECURITIES EXCHANGE, THE INITIAL OFFERING PRICE AND ANY OTHER TERMS IN
CONNECTION WITH THE OFFERING AND SALE OF SUCH MORTGAGE BONDS OR DEBT SECURITIES;
(II) IN THE CASE OF PREFERRED STOCK OR PREFERENCE STOCK, THE DESIGNATION,
AGGREGATE OFFERING AMOUNT, STATED VALUE AND LIQUIDATION PREFERENCE PER SHARE,
DIVIDEND RATE, OR THE METHOD OF CALCULATION, DIVIDEND PAYMENT DATES, DATES FROM
WHICH DIVIDENDS WILL ACCRUE, ANY REDEMPTION OR SINKING FUND PROVISIONS, ANY
CONVERSION OR EXCHANGE RIGHTS, ANY LISTING OF THE PREFERRED STOCK OR PREFERENCE
STOCK ON A SECURITIES EXCHANGE, THE INITIAL OFFERING PRICE AND ANY OTHER TERMS
IN CONNECTION WITH THE OFFERING AND SALE OF SUCH PREFERRED STOCK OR PREFERENCE
STOCK; (III) IN THE CASE OF COMMON STOCK, THE NUMBER OF SHARES AND THE TERMS OF
OFFERING THEREOF; AND (IV) IN THE CASE OF PREFERRED SECURITIES OF A TRUST, THE
IDENTITY OF THE TRUST, TITLE, AGGREGATE OFFERING AMOUNT, STATED LIQUIDATION
PREFERENCE, DENOMINATIONS, MATURITY, DISTRIBUTION RATE, IF ANY (WHICH MAY BE
FIXED OR VARIABLE), OR THE METHOD OF CALCULATION OF DISTRIBUTIONS, DISTRIBUTION
PAYMENT DATES, ANY TERMS ON WHICH DISTRIBUTIONS MAY BE DEFERRED, ANY TERMS FOR
REDEMPTION AT THE OPTION OF THE COMPANY OR THE HOLDER, ANY TERMS FOR SINKING
FUND PAYMENTS, ANY CONVERSION OR EXCHANGE RIGHTS, ANY LISTING ON A SECURITIES
EXCHANGE, THE INITIAL OFFERING PRICE AND ANY OTHER TERMS IN CONNECTION WITH THE
OFFERING AND SALE OF SUCH PREFERRED SECURITIES. EACH PROSPECTUS SUPPLEMENT
RELATING TO COMMON STOCK BEING OFFERED BY ONE OR MORE SELLING STOCKHOLDERS WILL
SET FORTH THE IDENTITY OF EACH OFFERING SELLING STOCKHOLDER, THE NUMBER OF
SHARES BEING OFFERED AND THE TERMS OF OFFERING THEREOF. THE PROSPECTUS
SUPPLEMENT WILL ALSO CONTAIN INFORMATION, AS APPLICABLE, ABOUT CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PARTICULAR SECURITIES
BEING OFFERED.
THE COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"NOR." ANY COMMON STOCK SOLD PURSUANT TO A PROSPECTUS SUPPLEMENT WILL BE
APPROVED FOR LISTING, SUBJECT TO NOTICE OF ISSUANCE, ON SUCH EXCHANGE.
THE COMPANY, THE TRUSTS AND THE SELLING STOCKHOLDERS MAY SELL SECURITIES TO
OR THROUGH UNDERWRITERS AND MAY ALSO SELL SECURITIES DIRECTLY TO OTHER
PURCHASERS OR THROUGH AGENTS. THE ACCOMPANYING PROSPECTUS SUPPLEMENT SETS FORTH
THE NAMES OF ANY UNDERWRITERS OR AGENTS INVOLVED IN THE SALE OF THE SECURITIES
IN RESPECT OF WHICH THIS PROSPECTUS IS BEING DELIVERED, THE PRINCIPAL AMOUNTS,
IF ANY, TO BE PURCHASED BY EACH UNDERWRITER AND THE COMPENSATION, IF ANY, OF
SUCH UNDERWRITERS OR AGENTS. SEE "PLAN OF DISTRIBUTION."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JULY 14, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the offices of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West Madison Street,
14th Floor, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a site on the World
Wide Web that contains reports, proxy statements and other information regarding
the Company. The address of the Commission's Web site is http://www.sec.gov. In
addition, the Company's reports and proxy statements may be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including any amendments thereto, the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to the Securities
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. For further information about the Company and the Securities,
reference is made to the Registration Statement and the exhibits thereto, which
may be inspected at the public reference facilities maintained by the Commission
at the addresses set forth above or through the Commission's Web site.
No separate financial statements of any Trust have been included herein. The
Company and the Trusts do not consider that such financial statements would be
material to the holders of the Trusts' Preferred Securities because each Trust
is a special purpose entity, with no operating history or independent
operations, which is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Subordinated Debt Securities of
the Company and issuing its Trust Securities as described below. Furthermore,
taken together, the Company's obligations under the Subordinated Debt Securities
held by a Trust, the indenture under which such Subordinated Debt Securities are
issued, the applicable Trust Declaration and the related Guarantee provide, in
the aggregate, a full, irrevocable and unconditional guarantee of payment in
respect of the Preferred Securities. For this same reason, the Company does not
expect that any Trust will file reports with the Commission pursuant to the
Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ending March
31, 1998.
3. The description of the Common Stock contained in the Company's
registration statement on Form S-3 (registration no. 33-60423), and any
document filed which updates such description.
4. The description of the Company's Common Stock Purchase Rights contained
in the Company's registration statement on Form 8-A, dated December 11,
1996, and any document filed which updates such description.
5. All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering made
by this Prospectus also shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a
2
<PAGE>
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on request of such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents. Requests
for copies should be directed to Alan D. Dietrich, Vice President - Law and
Corporate Secretary, Northwestern Corporation, 600 Market Street West, Huron,
South Dakota 57350-1500, telephone number: (605) 353-7606.
NORTHWESTERN
The Company is a nationwide diversified energy, telecommunications and
related services provider. It generates and distributes electric energy to
approximately 56,000 customers in eastern South Dakota. The Company also
purchases, distributes, sells and transports natural gas to approximately 79,000
customers in central Nebraska and eastern South Dakota. The Company, through its
majority-owned subsidiaries, also owns approximately 35% of Cornerstone Propane
Partners, L.P., a publicly traded master limited partnership for which a
subsidiary of the Company serves as managing general partner. Cornerstone serves
more than 380,000 propane customers in 26 states. The Company, through its
consolidated and unconsolidated subsidiaries, is also engaged in certain
non-energy manufacturing industries and owns companies engaged in heating,
ventilation and air conditioning and telecommunications services. The Company
was incorporated under the laws of the State of Delaware in 1923. The Company
has its principal office at 33 Third Street SE, Huron, South Dakota 57350-1605.
Its telephone number is (605) 352-8411.
THE TRUSTS
Each of Northwestern Capital Financing I, Northwestern Capital Financing II
and Northwestern Capital Financing III is a statutory business trust formed
under Delaware law pursuant to (i) a declaration of trust executed by the
Company, as sponsor, and the Capital Financing Trustees (as defined below), as
trustees (as such declaration may be amended from time to time, the "Trust
Declaration"), and (ii) the filing of a certificate of trust with the Secretary
of State of the State of Delaware. Each Trust exists for the exclusive purposes
of (i) issuing the Trust Securities of such Trust, (ii) investing the gross
proceeds from the sale of the Trust Securities in the Subordinated Debt
Securities of the Company and (iii) engaging in only those other activities
necessary or incidental thereto. All of the common securities representing
undivided beneficial interests in the assets of a Trust (the "Common
Securities") will be directly or indirectly owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that, upon an event of default under the
applicable Trust Declaration, the rights of the holders of the Common Securities
to payment in respect of distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Company will directly or indirectly acquire Common Securities in
an aggregate liquidation amount equal to 3% of the total capital of each Trust.
Each Trust has a term of approximately 55 years but may terminate earlier, as
provided in the applicable Trust Declaration. The Company will pay all fees and
expenses related to the Trusts and the offering of the Trust Securities, the
payment of which will be guaranteed by the Company as described under
"Description of the Guarantees." The principal place of business of each Trust
is c/o the Company, 33 Third Street S.E., Huron, South Dakota, 57350-1318,
telephone (605) 352-8411.
The business and affairs of each Trust will be conducted by the trustees
(the "Capital Financing Trustees") appointed by the Company as the direct or
indirect holder of all the Common Securities. A majority of the Capital
Financing Trustees will be persons who are employees or officers of or who are
affiliated with the Company. One Capital Financing Trustee of each Trust will be
a financial institution that is not affiliated with the Company and has
aggregate capital, surplus and undivided profits of not less than
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<PAGE>
$50,000,000, which institution will act as property trustee under the applicable
Trust Declaration (the "Property Trustee") and as an indenture trustee for
purposes of the Trust Indenture Act of 1939 (the "Trust Indenture Act"). In
addition, unless the Property Trustee maintains a principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
one Capital Financing Trustee of each Trust will have a principal place of
business or reside in the State of Delaware (the "Delaware Trustee"). The
initial Property Trustee of each Trust is Wilmington Trust Company, a Delaware
banking corporation, which maintains a principal place of business in Delaware.
The holder of the Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the Capital Financing
Trustees of each Trust. The duties and obligations of the Capital Financing
Trustees for each Trust will be governed by the applicable Trust Declaration.
USE OF PROCEEDS
Except as may be set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of any Securities offered by the Company will be used for
general corporate purposes, which may include the repayment of indebtedness,
capital expenditures, working capital and other investments in, or acquisitions
of, businesses and assets. Pending application of such net proceeds for specific
purposes, such proceeds may be invested in short-term or marketable securities.
Specific allocations of proceeds to a particular purpose that have been made at
the date of any Prospectus Supplement will be described therein.
Each Trust will use all of the proceeds received from the sale of its Trust
Securities to purchase Subordinated Debt Securities from the Company. Unless
otherwise set forth in the applicable Prospectus Supplement, the net proceeds to
the Company from the sale of Subordinated Debt Securities to a Trust will be
added to the Company's general funds and used for general corporate purposes.
Neither the Company nor any Trust will receive any proceeds from Securities
sold by any Selling Stockholder.
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred dividends for the Company for
the fiscal years ended December 31, 1993, 1994, 1995, 1996 and 1997, and for the
three-month period ended March 31, 1998. For the purpose of calculating such
ratios, "earnings" consist of income from continuing operations before income
taxes and minority interest, "fixed charges" consist of interest on all
indebtedness, amortization of debt expense and the percentage of rental expense
on operating leases deemed representative of the interest factor, and "preferred
dividends" represent dividends paid on all preferred shares (consisting solely
of shares of Cumulative Preferred Stock) outstanding during the periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.................................. 3.5 3.4 3.4 3.2
Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends.......................................................... 3.5 3.4 3.1 2.7
<CAPTION>
QUARTER
ENDED
MARCH 31,
1997 1998 (1)
----- -------------
<S> <C> <C>
Ratio of Earnings to Fixed Charges.................................. 3.0 4.3
Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends.......................................................... 2.6 5.2
</TABLE>
- ---------
(1) Results for quarter ended March 31, 1998 are not necessarily indicative of
results for the year ended December 31, 1998.
4
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "NOR." The following table sets forth, for the calendar quarters
shown, the range of high and low composite prices of the Common Stock on the New
York Stock Exchange and the cash dividends declared on the Common Stock, in each
case as adjusted for the two-for-one stock split in May 1997.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---------- ---------- -------
<S> <C> <C> <C>
1996
First quarter..................... $ 15 1/8 $ 13 3/4 $.22
Second quarter.................... 14 13/16 13 3/8 .22
Third quarter..................... 15 9/16 13 7/16 .22
Fourth quarter.................... 18 1/4 15 .23
1997
First quarter..................... 19 3/4 16 15/16 .23
Second quarter.................... 22 1/4 18 5/16 .23
Third quarter..................... 21 1/4 17 3/4 .23
Fourth quarter.................... 23 1/2 18 7/16 .2425
1998
First quarter..................... 24 21 5/16 .2425
Second quarter.................... 25 5/16 20 1/4 .2425
</TABLE>
DESCRIPTION OF MORTGAGE BONDS
The Mortgage Bonds will be bonds, notes or other evidences of indebtedness
authenticated and delivered under a General Mortgage Indenture and Deed of
Trust, dated as of August 1, 1993, between the Company and The Chase Manhattan
Bank (as successor to The Chase Manhattan Bank, N.A.), as trustee (the "Bond
Trustee"). Such General Mortgage and Deed of Trust, as supplemented by various
supplemental indentures, is hereinafter referred to as the "Mortgage." A copy of
the Mortgage, as supplemented to date, has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the
supplemental indenture relating to each series of Mortgage Bonds will be filed
as an exhibit to or incorporated by reference in the Registration Statement at
or prior to the time of issuance of such series of Mortgage Bonds. The following
summary of certain provisions of the Mortgage does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Mortgage, including the definitions set forth therein. Capitalized terms used
under this heading which are not otherwise defined in this Prospectus have the
meanings given them in the Mortgage. References to article and section numbers
in this description of the Mortgage Bonds, unless otherwise indicated, are
references to article and section numbers of the Mortgage.
GENERAL
The maximum principal amount of Mortgage Bonds which may be issued under the
Mortgage is limited to $500,000,000, provided that, without the consent of the
holders of outstanding Mortgage Bonds, the Company and the Bond Trustee may
enter into supplemental indentures to increase such amount. As of June 15, 1998,
there were outstanding $25 million of 6.99% Series Mortgage Bonds due 2002, $60
million of 7.10% Series Mortgage Bonds due 2005 and $55 million of 7% Series
Mortgage Bonds due 2023. Additional Mortgage Bonds may be issued under the
Mortgage on the basis of property additions, retired bonds and cash. See
"Issuance of Additional Mortgage Bonds" below. The Prospectus Supplement
relating to the series of Mortgage Bonds offered thereby (the "Offered Mortgage
Bonds") will describe the following terms of the Offered Mortgage Bonds: (i) the
title (series designation) of the Offered Mortgage Bonds; (ii) any limit upon
the aggregate principal amount of Offered Mortgage Bonds; (iii) the percentage
of the principal amount at which the Offered Mortgage Bonds will be issued and,
if other than the principal amount thereof,
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<PAGE>
the portion of the principal amount thereof payable upon acceleration of the
maturity thereof, or the method by which such portion will be determined; (iv)
the date or dates on which the principal of the Offered Mortgage Bonds will be
payable; (v) the rate or rates at which the Offered Mortgage Bonds will bear
interest, if any, or the method by which such rate or rates will be determined,
the date or dates from which such interest will accrue, or the method by which
such date or dates will be determined; (vi) the dates on which such interest
will be payable and the regular record dates for any interest payment dates and
the basis on which interest will be calculated; (vii) the bases on which the
Offered Mortgage Bonds will be issued; (viii) the option, if any, of the Company
to redeem the Offered Mortgage Bonds and the periods within which or the dates
on which, the prices at which and the terms and conditions upon which the
Offered Mortgage Bonds may be redeemed, in whole or in part, upon the exercise
of such option; (ix) the obligation, if any, of the Company to redeem or
purchase the Offered Mortgage Bonds pursuant to any sinking fund or analogous
provisions or at the option of the holder and the periods within which or the
dates on which, the prices at which and the terms and conditions upon which the
Offered Mortgage Bonds will be redeemed, in whole or in part, pursuant to such
obligation; (x) the denominations in which the Offered Mortgage Bonds will be
issuable and any provision for the Offered Mortgage Bonds to be denominated, and
payments thereon to be made, in currencies other than the United States dollar
or in units based on or relating to such other currencies; and (ix) any other
terms of the Offered Mortgage Bonds not inconsistent with the provisions of the
Mortgage.
While the Mortgage contains provisions for the maintenance of the Mortgaged
Property, it does not contain any provisions for a maintenance or sinking fund
and, except as may be provided in a Supplemental Indenture (and described in the
applicable Prospectus Supplement), there will be no provisions for any such
funds for the Mortgage Bonds.
Mortgage Bonds may be issued as discount bonds, which may be sold at a
discount below their principal amount. These Mortgage Bonds, as well as other
Mortgage Bonds that are not issued at a discount below their principal amount,
may, for United States Federal income tax purposes, be deemed to have been
issued with "original issue discount" because of, among other things, certain
interest payment characteristics. Special United States Federal income tax
considerations applicable to Offered Mortgage Bonds issued with original issue
discount, including discount bonds, will be described in more detail in the
applicable Prospectus Supplement. In addition, special United States Federal
income tax considerations or other restrictions or terms applicable to any
Offered Mortgage Bonds which are issuable in bearer form, offered exclusively to
United States aliens, denominated in a currency other than United States dollars
or having certain other characteristics will be set forth in the Prospectus
Supplement relating thereto.
Other than the security afforded by the lien of the Mortgage and the
restrictions on the issuance of additional Mortgage Bonds, there are no
provisions of the Mortgage which afford the holders of the Offered Mortgage
Bonds protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company. See
"Consolidation, Merger, Conveyance, Transfer or Lease" below.
REDEMPTION OF THE MORTGAGE BONDS
Any terms for the optional or mandatory redemption of the Offered Mortgage
Bonds will be set forth in the applicable Prospectus Supplement. Except as
otherwise be provided in the applicable Prospectus Supplement with respect to
Mortgage Bonds redeemable at the option of the holder, Mortgage Bonds will be
redeemable only upon notice by mail not less than 30 days prior to the date
fixed for redemption, and, if less than all the Mortgage Bonds of a series, or
any tranche thereof, are to be redeemed, the particular Mortgage Bonds to be
redeemed will be selected by such method as shall be provided for the particular
series or tranche, or in the absence of any such provision, by such method as
the Bond Registrar deems fair and appropriate. (See Sections 5.03 and 5.04.)
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<PAGE>
Any notice of redemption at the option of the Company may state that such
redemption will be conditioned upon receipt by the Bond Trustee, on or prior to
the date fixed for such redemption, of money sufficient to pay the principal of
and premium, if any, and interest, if any, on such Mortgage Bonds and that if
such money has not been so received, such notice will be of no force and effect
and the Company will not be required to redeem such Mortgage Bonds. (See Section
5.04.)
SECURITY
Except as discussed below, Mortgage Bonds now or hereafter issued under the
Mortgage will be secured primarily by the lien of the Mortgage on the Company's
properties used in the generation, production, transmission or distribution of
electricity or the distribution of gas in any form and for any purpose in the
States of South Dakota or Nebraska, together with the properties owned by the
Company as of August 1, 1993 located in the States of North Dakota and Iowa
(which consist principally of shared ownership interests in electric generating
facilities), but not, unless the Company otherwise elects, any future acquired
properties in the States of North Dakota and Iowa.
The lien of the Mortgage is subject to permitted liens which include tax
liens and other governmental charges which are not delinquent and which are
being contested, construction and materialmen's liens, certain judgment liens,
easements, reservations and rights of others (including governmental entities)
in, and defects of title in, certain property of the Company, certain leasehold
interests, liens on the Company's pollution control and sewage and solid waste
facilities and certain other liens and encumbrances. (See Section 1.01.)
There are excepted from the lien of the Mortgage, among other things, cash
and securities not paid to, deposited with or held by the Bond Trustee under the
Mortgage; contracts, leases and other agreements of all kinds, contract rights,
bills, notes and other instruments, accounts receivable, claims, certain
intellectual property rights and other general intangibles; permits, licenses
and franchises; automobiles, other vehicles, movable equipment, aircraft and
vessels; all goods, wares and merchandise held for sale in the ordinary course
of business or for use by or for the benefit of the Company; fuel, materials,
supplies and other personal property consumable in the operations of the
Company's business; computers, machinery and equipment; coal, ore, gas, oil,
minerals and timber mined or extracted from the land; gas transmission lines
connecting wells with main or branch trunk lines or field gathering lines
connecting wells with main or branch trunk lines; electric energy, gas, steam,
water and other products generated, produced or purchased; leasehold interests;
and all books and records. (See Granting Clauses.)
Without the consent of the holders of any Mortgage Bonds, the Company and
the Bond Trustee may enter into supplemental indentures to subject to the lien
of the Mortgage additional property, whether or not used in the electric or gas
utility businesses (including property which would otherwise be excepted from
such lien). (See Section 14.01.) Such property, so long as the same would
otherwise constitute Property Additions (as described below), would thereupon
constitute Property Additions and be available as a basis for the issuance of
Mortgage Bonds. See "Issuance of Additional Mortgage Bonds" below.
The Mortgage contains provisions subjecting after-acquired property to the
lien of the Mortgage. These provisions are limited in the case of consolidation
or merger (whether or not the Company is the surviving corporation) or sale of
substantially all of the Company's assets. In the event of the consolidation or
merger of the Company or the transfer of all the Mortgaged Property as or
substantially as an entirety, the Mortgage will not be required to be a lien
upon any of the properties then owned or thereafter acquired by the successor
corporation, except properties acquired from the Company in or as a result of
such transaction and improvements, extensions and additions to such properties
and renewals, replacements and substitutions of or for any part or parts of such
properties. (See Article Thirteen and "Consolidation, Merger, Conveyance,
Transfer or Lease" below.) In addition, after-acquired property may be subject
to vendors' liens, purchase money mortgages and other liens thereon at the time
of acquisition.
7
<PAGE>
The Mortgage provides that the Bond Trustee will have a lien, prior to the
lien on behalf of the holders of Mortgage Bonds, upon Mortgaged Property and any
money collected by the Bond Trustee as proceeds of the Mortgaged Property, for
the payment of its reasonable compensation and expenses and for indemnity
against certain liabilities. (See Section 11.07.)
ISSUANCE OF ADDITIONAL MORTGAGE BONDS
The maximum principal amount of Mortgage Bonds which may be issued under the
Mortgage is limited to $500,000,000, provided that, without the consent of the
holders of any Mortgage Bonds, the Company and the Bond Trustee may enter into
supplemental indentures to increase such amount. (See Sections 3.01 and 14.01.)
Mortgage Bonds of any series may be issued from time to time under Article Four
of the Mortgage on the basis of, and in an aggregate principal amount not
exceeding:
(1) 75% of the cost or fair value (whichever is less) of Property
Additions which do not constitute "bonded" Property Additions (generally,
Property Additions which have been made the basis of the authentication and
delivery of Mortgage Bonds, the release of Mortgaged Property or cash
withdrawals) after certain deductions and additions, primarily including
adjustments to offset property retirements;
(2) the aggregate principal amount of "Retired Bonds" (which consist of
Mortgage Bonds no longer outstanding under the Mortgage (including Mortgage
Bonds deposited under any sinking or analogous funds) which have not been
used for certain other purposes under the Mortgage and which are not to be
paid, redeemed or otherwise retired by the application of funded cash); and
(3) an amount of cash deposited with the Bond Trustee.
In general, the issuance of Mortgage Bonds is subject to Adjusted Net
Earnings of the Company (as described below) for 12 consecutive months within
the preceding 18 months being at least one and three-fourths the Annual Interest
Requirements on all Mortgage Bonds then outstanding or applied for, and all
other indebtedness (with certain exceptions) secured by a lien prior to the lien
of the Mortgage, except that no such net earnings requirement need be met if the
additional Mortgage Bonds to be issued are to have no stated interest rate prior
to maturity. The Company is not required to satisfy the net earnings requirement
prior to issuance of Mortgage Bonds in replacement of Retired Bonds unless (a)
the stated maturity of the Retired Bonds is more than five years after the date
of the Company's order to authenticate and deliver such additional Mortgage
Bonds and (b) the stated interest rate, if any, on such Retired Bonds
immediately prior to maturity is less than the initial stated interest rate, if
any, on such Mortgage Bonds. In general, the interest requirement with respect
to variable interest rate indebtedness, if any, is determined with reference to
the rate or rates in effect on the date immediately preceding such determination
or the rate to be in effect upon initial authentication. (See Section 1.03 and
Article Four.)
Adjusted Net Earnings are calculated before, among other things, provisions
for income taxes; depreciation or amortization of property; interest on any
indebtedness and amortization of debt discount and expense; any non-recurring
charge to income of whatever kind or nature (including without limitation the
recognition of expense or impairment due to the non-recoverability of assets or
expense), whether or not recorded as a non-recurring item in the Company's books
of account; and any refund of revenues previously collected or accrued by the
Company subject to possible refund. With respect to Mortgage Bonds of a series
subject to a periodic offering (such as a medium-term note program), the Bond
Trustee will be entitled to receive a certificate evidencing compliance with the
net earnings requirements only once, at or prior to the time of the first
authentication and delivery of the Mortgage Bonds of such series (unless the
Company's order requesting the authentication and delivery of such Mortgage
Bonds is delivered on or after the date which is two years after the most recent
net earnings certificate was delivered, in which case an updated certificate
would be required to be delivered). (See Sections 1.03 and 4.01.)
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Property Additions generally include any property which is owned by the
Company and is subject to the lien of the Mortgage, except any property the cost
of acquisition or construction of which is properly chargeable to an operating
expense account of the Company. (See Section 1.04.)
RELEASE OF PROPERTY
The Company may obtain the release from the lien of the Mortgage of any
Mortgaged Property if the fair value of all of the Mortgaged Property (excluding
the Mortgaged Property to be released but including any Mortgaged Property to be
acquired by the Company with the proceeds of, or otherwise in connection with,
such release) equals or exceeds an amount equal to twenty-fifteenths (20/15ths)
of the aggregate principal amount of Mortgage Bonds outstanding.
The Mortgage provides simplified procedures for the release of minor
properties and property taken by eminent domain and provides for dispositions of
certain obsolete property and grants of surrender of certain rights without any
release or consent by the Bond Trustee.
If any property released from the lien of the Mortgage continues to be owned
by the Company after such release, the Mortgage will not become a lien on any
improvement, extension or addition to such property or renewals, replacements or
substitutions of or for any part or parts of such property. (See Article Eight.)
WITHDRAWAL OF CASH
Subject to certain limitations, cash held by the Bond Trustee may (1) be
withdrawn by the Company (a) to the extent of the cost or fair value (whichever
is less) of unbonded Property Additions, after certain deductions and additions
primarily including adjustments to offset retirements, or (b) in an amount equal
to twenty-fifteenths (20/15ths) of the aggregate principal amount of Mortgage
Bonds that the Company would be entitled to issue on the basis of Retired Bonds
(with the entitlement to such issuance being waived by operation of such
withdrawal), or (c) in an amount equal to twenty-fifteenths (20/15ths) of the
aggregate principal amount of any outstanding Mortgage Bonds delivered to the
Bond Trustee, or (2) upon the request of the Company, be applied to (a) the
purchase of Mortgage Bonds (at prices not exceeding twenty-fifteenths (20/15ths)
of the principal amount thereof) or (b) the redemption or payment at stated
maturity of Mortgage Bonds (with any Mortgage Bonds received by the Bond Trustee
pursuant to these provisions being canceled by the Bond Trustee) (see Section
8.06); provided, however, that cash deposited with the Bond Trustee as the basis
for authentication and delivery of Mortgage Bonds, may only be withdrawn in an
amount equal to the aggregate principal amount of Mortgage Bonds the Company
would be entitled to issue on any basis (with the entitlement to such issuance
being waived by operation of such withdrawal), or may, upon the request of the
Company, be applied to the purchase, redemption or payment of Mortgage Bonds at
prices not exceeding, in the aggregate, the principal amount thereof (See
Sections 4.05 and 7.02).
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company may not consolidate with or merge into any other corporation or
convey, transfer or lease the Mortgaged Property as or substantially as an
entirety to any person unless (a) such transaction is on such terms as will
fully preserve the lien and security of the Mortgage and the rights and powers
of the Bond Trustee and the holders of Mortgage Bonds, (b) the corporation
formed by such consolidation or into which the Company is merged or the person
which acquires by conveyance or transfer, or which leases, the Mortgaged
Property as or substantially as an entirety is a corporation organized and
existing under the laws of the United States of America or any state or
territory thereof or the District of Columbia, and such corporation executes and
delivers to the Bond Trustee a supplemental indenture, which contains an
assumption by such corporation of the due and punctual payment of the principal
of and premium, if any, and interest, if any, on the Mortgage Bonds and the
performance of all of the covenants of the Company under the Mortgage and which
contains a grant, conveyance, transfer and mortgage by the corporation
confirming
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the lien of the Mortgage on the Mortgaged Property and subjecting to such lien
all property thereafter acquired by the corporation which constitutes an
improvement, extension or addition to the Mortgaged Property or a renewal,
replacement or substitution of or for any part thereof, and, at the election of
the corporation, subjecting to the lien of the Mortgage such other property then
owned or thereafter acquired by the corporation as the corporation may specify,
and (c) in the case of a lease, such lease will be made expressly subject to
termination by the Company or the Bond Trustee at any time during the
continuance of an Event of Default under the Mortgage. (See Section 13.01.)
The Mortgage does not contain provisions requiring the repurchase of the
Offered Mortgage Bonds upon the change in control of the Company.
MODIFICATION OF MORTGAGE
Without the consent of the holders of any Mortgage Bonds, the Company and
the Bond Trustee may enter into one or more supplemental indentures for any of
the following purposes:
(a) to evidence the succession of another person to the Company and the
assumption by any such successor of the covenants of the Company in the
Mortgage and in the Mortgage Bonds; or
(b) to add one or more covenants of the Company or other provisions for
the benefit of all holders of Mortgage Bonds or for the benefit of the
holders of, or to remain in effect only so long as there are outstanding,
Mortgage Bonds of one or more specified series, or one or more tranches
thereof, or to surrender any right or power conferred upon the Company by
the Mortgage; or
(c) to correct or amplify the description of any property at any time
subject to the lien of the Mortgage, or better to assure, convey and confirm
to the Bond Trustee any property subject or required to be subjected to the
lien of the Mortgage, or to subject to the lien of the Mortgage additional
property; or
(d) to convey, transfer and assign to the Bond Trustee and to subject to
the lien of the Mortgage with the same force and effect as if included in
the Mortgage, property of subsidiaries of the Company used or to be used for
one or more purposes which if owned by the Company would constitute property
used or to be used for one or more of the primary purposes of the Company's
business, which property will for all purposes of the Mortgage be deemed to
be property of the Company, together with such other provisions as may be
appropriate to express the respective rights of the Bond Trustee and the
Company in regard thereto; or
(e) to change or eliminate any provision of the Mortgage or to add any
new provision to the Mortgage, provided that if such change, elimination or
addition adversely affects the interests of the holders of the Mortgage
Bonds of any series or tranche in any material respect, such change,
elimination or addition will become effective with respect to such series or
tranche only when no Mortgage Bonds of such series or tranche remain
outstanding under the Mortgage; or
(f) to establish the form or terms of the Mortgage Bonds of any series
or tranche as permitted by the Mortgage; or
(g) to provide for the authentication and delivery of bearer securities
and coupons appertaining thereto representing interest, if any, thereon and
for the procedures for the registration, exchange and replacement thereof
and for the giving of notice to, and the solicitation of the vote or consent
of, the holders thereof, and for any and all other matters incidental
thereto; or
(h) to evidence and provide for the acceptance of appointment by a
successor trustee or by a co-trustee or separate trustee; or
(i) to provide for the procedures required to permit the Company to
utilize, at its option, a noncertificated system of registration for all, or
any series or tranche of, the Mortgage Bonds; or
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(j) to change any place where (1) the principal of and premium, if any,
and interest, if any, on the Mortgage Bonds of any series, or any tranche
thereof, will be payable, (2) any Mortgage Bonds of any series, or any
tranche thereof, may be surrendered for registration of transfer, (3) any
Mortgage Bonds of any series, or any tranche thereof, may be surrendered for
exchange or (4) notices and demands to or upon the Company in respect of the
Mortgage Bonds of any series, or any tranche thereof, and the Mortgage may
be served; or
(k) to cure any ambiguity, to correct or supplement any provision
therein which may be defective or inconsistent with any other provision
therein, or to make any changes to the provisions thereof or to add other
provisions with respect to matters and questions arising under the Mortgage,
so long as such other changes or additions do not adversely affect the
interests of the holders of Mortgage Bonds of any series or tranche in any
material respect; or
(l) to reflect changes in generally accepted accounting principles; or
(m) to provide the terms and conditions of the exchange or conversion,
at the option of the holders of Mortgage Bonds of any series, of the
Mortgage Bonds of such series for or into Mortgage Bonds of other series or
stock or other securities of the Company or any other corporation; or
(n) to change the words "Mortgage Bonds" to "First Mortgage Bonds" in
the descriptive title of all outstanding Mortgage Bonds at any time; or
(o) to comply with the rules or regulations of any national securities
exchange on which any of the Mortgage Bonds may be listed; or
(p) to increase the aggregate principal amount of Mortgage Bonds which
may be authenticated and delivered under the Mortgage. (See Section 14.01.)
Without limiting the generality of the foregoing, if the Trust Indenture Act
is amended after the date of the Mortgage in such a way as to require changes to
the Mortgage or the incorporation therein of additional provisions or so as to
permit changes to, or the elimination of, provisions which, at the date of the
Mortgage or at any time thereafter, were required by the Trust Indenture Act to
be contained in the Mortgage, the Company and the Bond Trustee may, without the
consent of the holders of any Mortgage Bonds, enter into one or more
supplemental indentures to evidence or effect such amendment. (See Sections
14.01.)
Except as provided above, the consent of the holders of not less than a
majority in aggregate principal amount of the Mortgage Bonds of all series then
outstanding, considered as one class, is required for the purpose of adding any
provisions to, or changing in any manner, or eliminating any of the provisions
of, the Mortgage pursuant to one or more supplemental indentures; provided,
however, if less than all of the series of Mortgage Bonds outstanding (or less
than all of the tranches of a particular series) are directly affected by a
proposed supplemental indenture, then the consent only of the holders of a
majority in aggregate principal amount of outstanding Mortgage Bonds of all
series (or tranches) so directly affected, considered as one class, will be
required. Notwithstanding the foregoing, no such amendment or modification may,
without the consent of each holder of the outstanding Mortgage Bonds of each
series or tranche directly affected thereby, (a) change the stated maturity of
the principal of, or any installment of principal of or interest on, any
Mortgage Bond, or reduce the principal amount thereof or the rate of interest
thereon (or the amount of any installment of interest thereon) or change the
method of calculating such rate or reduce any premium payable upon the
redemption thereof, or reduce the amount of the principal of a discount bond
that would be due and payable upon a declaration of acceleration of maturity or
change the coin or currency (or other property) in which any Mortgage Bond or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the stated maturity
thereof (or, in the case of redemption, on or after the redemption date), (b)
permit the creation of any lien ranking prior to the lien of the Mortgage with
respect to all or substantially all of the Mortgaged Property or terminate the
lien of the Mortgage on all or substantially all of the Mortgaged Property, or
deprive such holder of the benefit of the security of the lien of the Mortgage,
(c) reduce the percentage in principal amount of the outstanding
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Mortgage Bonds of such series or tranche, the consent of the holders of which is
required for any such supplemental indenture, or the consent of the holder of
which is required for any waiver of compliance with any provision of the
Mortgage or any default thereunder and its consequences, or reduce the
requirements for quorum or voting, or (d) modify certain of the provisions of
the Mortgage relating to supplemental indentures, waiver of certain covenants
and waivers of past defaults. A supplemental indenture which changes or
eliminates any covenant or other provision of the Mortgage which has expressly
been included solely for the benefit of the holders of, or which is to remain in
effect only so long as there are outstanding, Mortgage Bonds of one or more
specified series, or one or more tranches thereof, or modifies the rights of the
holders of Mortgage Bonds of such series or tranches with respect to such
covenant or other provision, will be deemed not to affect the rights under the
Mortgage of the holders of the Mortgage Bonds of any other series or tranche.
(See Section 14.02.)
WAIVER
The holders of at least a majority in aggregate principal amount of all
Mortgage Bonds may waive the Company's obligations to comply with certain
covenants, including the Company's obligation to maintain its corporate
existence and properties, pay taxes and discharge liens, maintain certain
insurance and to make such recordings and filings as are necessary to protect
the security of the holders of Mortgage Bonds and the rights of the Bond
Trustee, provided that such waiver occurs before the time such compliance is
required. The holders of at least a majority of the aggregate principal amount
of outstanding Mortgage Bonds of all affected series or tranches, considered as
one class, may waive, before the time for such compliance, compliance with the
Company's obligation to maintain an office or agency where the Mortgage Bonds of
such series or tranches may be surrendered for payment, registration, transfer
or exchange, and compliance with any other covenant specified in a supplemental
indenture respecting such series or tranches. (See Section 6.09.)
EVENTS OF DEFAULT
Each of the following events constitutes an "Event of Default" under the
Mortgage:
(1) failure to pay interest on any Mortgage Bond within 60 days after
the same becomes due;
(2) failure to pay principal of or premium, if any, on any Mortgage Bond
within 15 days after its maturity;
(3) failure to perform or breach of any covenant or warranty of the
Company in the Mortgage (other than a covenant to pay interest, principal or
premium with respect to any Mortgage Bond) for a period of 60 days after
there has been given to the Company by the Bond Trustee, or to the Company
and the Bond Trustee by the holders of at least 50% in principal amount of
outstanding Mortgage Bonds, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default," unless the Bond Trustee, or the Bond Trustee and the
holders of a principal amount of Mortgage Bonds not less than the principal
amount of Mortgage Bonds the holders of which gave such notice, as the case
may be, agree in writing to an extension of such period prior to its
expiration; provided, however, that the Bond Trustee, or the Bond Trustee
and such holders, as the case may be, will be deemed to have agreed to an
extension of such period if corrective action has been initiated by the
Company within such period and is being diligently pursued; or
(4) Certain events relating to reorganization, bankruptcy and insolvency
of the Company and appointment of a receiver or trustee for its property.
(See Section 10.01.)
REMEDIES
If an Event of Default occurs and is continuing, then the Bond Trustee or
the holders of not less than a majority in principal amount of Mortgage Bonds
then outstanding may declare the principal amount (or if
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the Mortgage Bonds are discount bonds, such portion of the principal amount as
may be provided for such discount bonds pursuant to the terms of the Mortgage)
of all of the Mortgage Bonds together with premium, if any, and interest
accrued, if any, thereon to be immediately due and payable. At any such time
after such declaration of the maturity of the Mortgage Bonds then outstanding,
but before the sale of any of the Mortgaged Property and before a judgment or
decree for payment of money shall have been obtained by the Bond Trustee as
provided in the Mortgage, the Event or Events of Default giving rise to such
declaration of acceleration will, without further act, be deemed to have been
waived, and such declaration and its consequences will, without further act, be
deemed to have been rescinded and annulled, if:
(a) the Company has paid or deposited with the Bond Trustee a sum
sufficient to pay:
(1) all overdue interest, if any, on all Mortgage Bonds then
outstanding;
(2) the principal of and premium, if any, on any Mortgage Bonds then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Mortgage Bonds; and
(3) all amounts due to the Bond Trustee as compensation and
reimbursement as provided in the Mortgage; and
(b) any other Event or Events of Default other than the non-payment of
the principal of Mortgage Bonds which shall become due solely by such
declaration of acceleration shall have been cured or waived as provided in
the Mortgage. (See Sections 10.02 and 10.17.)
The Mortgage provides that, under certain circumstances and to the extent
permitted by law, if an Event of Default occurs and is continuing, the Bond
Trustee has the power to take possession of, and to hold, operate and manage,
the Mortgaged Property or, with or without entry, sell the Mortgaged Property.
If the Mortgaged Property is sold, whether by the Trustee or pursuant to
judicial proceedings, the principal of the outstanding Mortgage Bonds, if not
previously due, will become immediately due, together with premium, if any, and
any accrued interest. (See Sections 10.03, 10.04 and 10.05.)
If an Event of Default occurs and is continuing, the holders of a majority
in principal amount of the Mortgage Bonds then outstanding will have the right
to direct the time, method and place of conducting any proceedings for any
remedy available to the Bond Trustee or exercising any trust or power conferred
on the Bond Trustee, provided that (a) such direction does not conflict with any
rule of law or with the Mortgage and could not involve the Bond Trustee in
personal liability in circumstances where indemnity would not, in the Bond
Trustee's sole discretion, be adequate, (b) such direction is not unduly
prejudicial to the rights of the nonassenting holders, and (c) the Bond Trustee
may take any other action deemed proper by the Bond Trustee which is not
inconsistent with such discretion. (See Section 10.16.)
The Mortgage provides that no holder of any Mortgage Bond will have any
right to institute any proceeding, judicial or otherwise, with respect the
Mortgage, or for the appointment of a receiver or trustee, or for any other
remedy thereunder, unless (a) such holder has previously given to the Bond
Trustee written notice of a continuing Event of Default; (b) the holders of not
less than a majority in aggregate principal amount of the Mortgage Bonds then
outstanding have made written request to the Bond Trustee to institute
proceedings in respect of such Event of Default and have offered the Bond
Trustee reasonable indemnity against cost and liabilities incurred in complying
with such request; and (c) for 60 days after receipt of such notice, the Bond
Trustee has failed to institute any such proceeding and no direction
inconsistent with such request has been given to the Trustee during such 60-day
period by the holders of a majority in aggregate principal amount of Mortgage
Bonds then outstanding. Furthermore, no holder will be entitled to institute any
such action if and to the extent that such action would disturb or prejudice the
rights of other holders. (See Section 10.11.) Notwithstanding that the right of
a holder to institute a proceeding with respect to the Mortgage is subject to
certain conditions precedent, each holder of a Mortgage Bond has the right,
which is absolute and unconditional, to receive payment of the principal of and
premium, if any, and interest, if any, on such Mortgage Bond when due and to
institute suit for the enforcement of any such payment, and such
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rights may not be impaired without the consent of such holder. (See Section
10.12.) The Mortgage provides that the Bond Trustee will give the holders notice
of any default under the Mortgage to the extent required by the Trust Indenture
Act, unless such default shall have been cured or waived, except that no such
notice to holders of a default of the character described in paragraph (3) under
"Event of Default" may be given until at least 45 days after the occurrence
thereof. (See Section 11.02.) The Trust Indenture Act currently permits the Bond
Trustee to withhold notice of default (except for certain payment defaults) if
the Bond Trustee in good faith determines the withholding of such notice to be
in the interests of the holders.
As a condition precedent to certain actions by the Bond Trustee in the
enforcement of the lien of the Mortgage and institution of action on the
Mortgage Bonds, the Bond Trustee may require adequate indemnity against costs,
expense and liabilities to be incurred in connection therewith. (See Sections
10.11 and 11.01.)
DEFEASANCE
Any Mortgage Bond or Bonds, or any portion of the principal amount thereof,
will be deemed to have been paid for purposes of the Mortgage, and the entire
indebtedness of the Company in respect thereof will be deemed to have been
satisfied and discharged, if there has been irrevocably deposited with the Bond
Trustee, in trust: (a) money in the amount which will be sufficient, or (b)
Eligible Obligations (as described below), which do not contain provisions
permitting the redemption or other prepayment thereof at the option of the
issuer thereof, the principal of and the interest on which when due, without any
regard to reinvestment thereof, will provide monies which will be sufficient, or
(c) a combination of (a) and (b) which will be sufficient, to pay when due the
principal of and premium, if any, and interest, if any, due and to become due on
such Mortgage Bond or Bonds or portions thereof. (See Section 9.01.) For this
purpose, Eligible Obligations include direct obligations of, or obligations
unconditionally guaranteed by, the United States of America, entitled to the
benefit of the full faith and credit thereof, and certificates, depositary
receipts or other instruments which evidence a direct ownership interest in such
obligations or in any specific interest or principal payments due in respect
thereof.
While there is no legal precedent directly on point, it is possible that,
for federal income tax purposes, any deposit contemplated in the preceding
paragraph could be treated as a taxable exchange of the related Mortgage Bonds
for an issue of obligations of the trust or a direct interest in the cash and
securities held in the trust. In that case, holders of such Mortgage Bonds would
recognize gain or loss as if the trust obligations or the cash or securities
deposited, as the case may be, had actually been received by them in exchange
for their Mortgage Bonds. Such holders thereafter would be required to include
in income a share of the income, gain or loss of the trust. The amount so
required to be included in income could be different from the amount that would
be includible in the absence of such deposit. Prospective investors are urged to
consult their own tax advisors as to the specific consequences to them of such
deposit.
RESIGNATION OF THE BOND TRUSTEE
The Bond Trustee may resign at any time by giving written notice thereof to
the Company or may be removed at any time by the holders of a majority in
principal amount of Mortgage Bonds then outstanding delivered to the Trustee and
the Company. No resignation or removal of the Bond Trustee and no appointment of
a successor trustee will become effective until the acceptance of appointment by
a successor trustee in accordance with the requirements of the Mortgage. In
addition, so long as no Event of Default or event which, after notice of lapse
of time, or both, would become an Event of Default has occurred and is
continuing, under certain circumstances, if the Company has delivered to the
Bond Trustee a resolution of its Board of Directors appointing a successor
trustee and such successor has accepted such appointment in accordance with the
terms of the Mortgage, the Bond Trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as trustee in accordance with
the Mortgage. (See Section 11.10.)
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CONCERNING THE BOND TRUSTEE
The Chase Manhattan Bank, the Bond Trustee under the Mortgage, has been a
regular depositary of funds of the Company. There are instances under the Trust
Indenture Act which would require the resignation of the Bond Trustee, such as
an affiliate of the Bond Trustee acting as underwriter with respect to any of
the Mortgage Bonds.
REGISTRATION AND TRANSFER
The transfer of the Mortgage Bonds may be registered, and Mortgage Bonds may
be exchanged for other Mortgage Bonds of the same series and tranche, of
authorized denominations and of like tenor and aggregate principal amount, at
the office of The Chase Manhattan Bank, as Bond Registrar for the Mortgage
Bonds, in Brooklyn, New York. The Company may change the place for registration
of transfer of the Mortgage Bonds, may appoint one or more additional Bond
Registrars (including the Company) and may remove any Bond Registrar, all at its
discretion. (See Section 6.02.) The applicable Prospectus Supplement will
identify any new place for registration of transfer and additional Bond
Registrar appointed, and will disclose the removal of any Bond Registrar
effected, prior to the date of such Prospectus Supplement. Except as otherwise
provided in the applicable Prospectus Supplement, no service charge will be made
for any transfer or exchange of the Mortgage Bonds, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
the Mortgage Bonds. The Company will not be required to issue, and no Bond
Registrar will be required to register, the transfer of or to exchange (a)
Mortgage Bonds of any series (including the Mortgage Bonds) during a period of
15 days prior to giving any notice of redemption, or (b) any Mortgage Bond
selected for redemption in whole or in part, except the unredeemed portion of
any Mortgage Bond being redeemed in part. (See Section 3.05.)
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities may be issued, in one or more series, from time
to time under an Indenture between the Company and The Chase Manhattan Bank, as
trustee. The Subordinated Debt Securities may be issued, in one or more series,
from time to time under a Subordinated Debt Securities Indenture dated as of
August 1, 1995 (the "Subordinated Indenture"), between the Company and The Chase
Manhattan Bank (as successor to The Chase Manhattan Bank, N.A.), as trustee. The
Chase Manhattan Bank, as trustee under the indentures (the "Indenture Trustee"),
will act as indenture trustee for the purposes of the Trust Indenture Act. The
form of the Indenture relating to the Senior Debt Securities and the
Subordinated Indenture relating to the Subordinated Debt Securities (each, an
"Indenture") are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the provisions of the Indentures. Capitalized terms used under
this heading which are not otherwise defined in this Prospectus will have the
meanings given them in the applicable Indenture. References to article and
section numbers in this description of the Debt Securities unless otherwise
indicated are references to article and section numbers of each Indenture.
GENERAL
The Indentures do not limit the amount of Senior Debt Securities or
Subordinated Debt Securities that may be issued thereunder. The Indentures
provide that Senior Debt Securities or Subordinated Debt Securities, as the case
may be, may be issued from time to time in one or more series. As of June 30,
1998, no Senior Debt Securities were outstanding under the Indenture relating to
the Senior Debt Securities, and $32.5 million principal amount of Subordinated
Debt Securities were outstanding under the Subordinated Indenture. The Debt
Securities will be direct, unsecured obligations of the Company. The Senior Debt
Securities will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company,
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and each series of Subordinated Debt Securities will be subordinate and junior
in right of payment to other indebtedness of the Company to the extent set forth
in the resolutions of the Company's Board of Directors or a special committee
thereof (each, a "Board Resolution") establishing such series of Subordinated
Debt Securities.
The Prospectus Supplement relating to the series of Debt Securities offered
thereby (the "Offered Debt Securities") will describe the following terms of the
Offered Debt Securities: (i) the title of the Offered Debt Securities; (ii) any
limit on the aggregate principal amount of the Offered Debt Securities; (iii)
the percentage of the principal amount at which the Offered Debt Securities will
be issued and, if other than the principal amount thereof, the portion of the
principal amount thereof payable upon acceleration of the maturity thereof, or
the method by which such portion will be determined; (iv) the date or dates on
which the principal of the Offered Debt Securities will be payable; (v) the
rights, if any, to defer payments of interest on the Offered Debt Securities by
extending the interest payment period, and the duration of such extensions; (vi)
in the case of Subordinated Debt Securities, the subordination terms of the
Subordinated Debt Securities of such series; (vii) the rate or rates at which
the Offered Debt Securities will bear interest, if any, or the method by which
such rate or rates will be determined, and the date or dates from which such
interest will accrue, or the method by which such date or dates will be
determined; (viii) the dates on which such interest will be payable and the
regular record dates for any interest payment dates and the basis on which
interest will be calculated; (ix) the dates, if any, on which, and the price or
prices at which the Offered Debt Securities may, pursuant to any mandatory or
optional sinking fund provisions, be redeemed by the Company and other detailed
terms and provisions of such sinking funds; (x) the date, if any, after which,
and the price or prices at which, the Offered Debt Securities may, pursuant to
any optional redemption provisions, be redeemed at the option of the Company or
of the holder thereof, and other detailed terms and provisions of such optional
redemption; (xi) the denominations in which the Offered Debt Securities will be
issuable and any provision for the Offered Debt Securities to be denominated,
and payments thereon to be made, in currencies other than the United States
dollar or in units based on or relating to such other currencies; (xii) any
deletions from, modifications of or additions to the events of default or
covenants of the Company with respect to the Offered Debt Securities, whether or
not such events of default or covenants are consistent with the events of
default or covenants set forth herein; and (xiii) any other terms of the Offered
Debt Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Offered Debt Securities will be issued in United States dollars in fully
registered form, without coupons, in denominations of $25 or any integral
multiple thereof. No service charge will be made for any transfer or exchange of
the Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless otherwise indicated in the applicable Prospectus Supplement, the
principal of, and any premium or interest on, the Offered Debt Securities will
be payable, and the Offered Debt Securities will be exchangeable and transfers
thereof will be registrable, at the office of the Indenture Trustee in New York
City; provided that, at the option of the Company, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the security register.
Debt Securities may be issued as discount securities, which may be sold at a
discount below their principal amount. These Debt Securities, as well as other
Debt Securities that are not issued at a discount below their principal amount,
may, for United States Federal income tax purposes, be deemed to have been
issued with "original issue discount" because of, among other things, certain
interest payment characteristics. Special United States Federal income tax
considerations applicable to Offered Debt Securities issued with original issue
discount, including discount securities, will be described in more detail in the
applicable Prospectus Supplement. In addition, special United States Federal
income tax considerations or other restrictions or terms applicable to any
Offered Debt Securities which are issuable in bearer form, offered exclusively
to United States aliens, denominated in a currency other than United States
dollars or having certain other characteristics will be set forth in the
Prospectus Supplement relating thereto.
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The Indentures do not contain any provisions that may afford the holders of
Debt Securities protection in the event of a highly leveraged transaction or
other transaction involving the Company. The Indentures also do not contain any
provisions that would limit the ability of the Company to incur indebtedness or
to declare or pay dividends on its capital stock, except as described under
"Certain Covenants" below.
SUBORDINATION
Offered Debt Securities that are Subordinated Debt Securities will be
subordinated and junior in right of payment to certain other indebtedness of the
Company to the extent set forth in the applicable Prospectus Supplement. (See
Section 301.)
CERTAIN COVENANTS
If Subordinated Debt Securities are issued to a Trust in connection with the
issuance of Trust Securities by such Trust and (i) there shall have occurred any
event that would constitute an Event of Default under the Subordinated Indenture
or (ii) the Company shall be in default with respect to its payment of any
obligations under the related Guarantee, then (a) the Company may not declare or
pay dividends (other than stock dividends paid in the same class of stock as
that on which they are paid) on, or make a distribution with respect to or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock, and (b) the Company may not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank pari passu with or junior to such
Subordinated Debt Securities. The Company is subject to the same limitations if
Subordinated Debt Securities are issued to a Trust in connection with the
issuance of Trust Securities by such Trust, and the Company shall have given
notice of its election to defer payments of interest on such Subordinated Debt
Securities by extending the interest payment period as provided in the
Subordinated Indenture and such period, or any extension thereof, shall be
continuing. (See Section 1009 of the Subordinated Indenture.)
If Subordinated Debt Securities are issued to a Trust in connection with the
issuance of Trust Securities by such Trust, for so long as such Trust Securities
remain outstanding, the Company will covenant (i) to directly or indirectly
maintain 100% ownership of the Common Securities of such Trust; provided,
however, that any permitted successor of the Company under the Subordinated
Indenture may succeed to the Company's ownership of such Common Securities and
(ii) to use its reasonable efforts to cause such Trust (a) to remain a statutory
business trust, except in connection with the distribution of Subordinated Debt
Securities to the holders of Trust Securities in liquidation of such Trust, the
redemption of all of the Trust Securities of such Trust, or certain mergers or
consolidations, each as permitted by the Trust Declaration of such Trust, and
(b) to otherwise continue to be classified as a grantor trust for United States
federal income tax purposes. (See Section 1010 of the Subordinated Indenture.)
CONSOLIDATION, MERGER AND SALE
The Company may not merge or consolidate with or into any other corporation,
or sell or convey all or substantially all of its assets to any person, firm or
corporation unless (i) such corporation or person is organized and validly
existing under the laws of the United States or any state thereof and expressly
assumes the Company's obligations under the Indenture, (ii) after giving effect
to such transaction, no default or Event of Default shall have occurred and be
continuing and (iii) the Company shall have delivered to the Indenture Trustee
an officer's certificate and an opinion of counsel to the effect that such
transaction complies with the Indenture. (See Section 801.)
MODIFICATION OF INDENTURES
Without the consent of the holders of any Debt Securities, the Company and
the Indenture Trustee may modify or amend either Indenture for any of the
following purposes: (i) to evidence the succession of another person to the
Company as obligor under the Indenture; (ii) to add to the covenants of the
Company
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for the benefit of the holders of all or any series of Debt Securities; (iii) to
add Events of Default for the benefit of the holders of all or any series of
Debt Securities; (iv) to change or eliminate any provisions of the Indenture,
provided that any such change or elimination will become effective only when
there are no outstanding Debt Securities of any series created prior thereto
that are entitled to the benefit of such provision; (v) to establish the form or
terms of Debt Securities of any series; (vi) to secure the Debt Securities;
(vii) to provide for the acceptance of appointment by a successor Indenture
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Indenture Trustee; and (viii) to close the Indenture with respect
to the authentication and delivery of additional series of Debt Securities, or
to cure any ambiguity, defect or inconsistency in the Indenture, provided such
action does not adversely affect the interest of holders of Debt Securities of
any series in any material respect. (See Section 901.)
Except as provided above, the consent of the holders of not less than a
majority in principal amount of all outstanding Senior Debt Securities or
Subordinated Debt Securities, as the case may be, of all series affected by a
proposed modification or amendment of the applicable Indenture, considered as
one class, will be required to modify or amend the applicable Indenture;
provided that no such modification or amendment may, without the consent of the
holder of each outstanding Debt Security of such series, among other things, (i)
change the stated maturity of the principal of (or premium, if any, on) or any
installment of principal of or interest on any Debt Security of such series,
(ii) reduce the principal amount or the rate of interest on or any Additional
Amounts payable in respect of, or any premium payable upon the redemption of,
any Debt Security of such series or change the redemption provisions of any Debt
Securities, (iii) change any obligation of the Company to pay Additional Amounts
in respect of any Debt Security of such series, (iv) reduce the amount of
principal of a Debt Security of such series that is a discount security and
would be due and payable upon a declaration of acceleration of the maturity
thereof, (v) adversely affect any right of repayment at the option of the holder
of any Debt Security of such series, (vi) change the place or currency of
payment of principal of, or any premium or interest on, any Debt Security of
such series, (vii) impair the right to institute suit for the enforcement of any
such payment on or after the stated maturity thereof or any redemption date or
repayment date therefor, (viii) reduce the above-stated percentage of holders of
outstanding Debt Securities of such series necessary to modify or amend the
Indenture or to consent to any waiver thereunder or reduce the requirements for
voting or quorum described below, (ix) modify the change of control provisions,
if any, or (x) modify the foregoing requirements or reduce the percentage of
outstanding Debt Securities of such series necessary to waive any past default.
(See Section 902.)
EVENTS OF DEFAULT
Each Indenture provides, with respect to any series of Debt Securities
outstanding thereunder, that any one or more of the following events that has
occurred and is continuing constitutes an "Event of Default": (i) default in the
payment of any interest upon any Debt Security of that series, or of any coupon
appertaining thereto, when the same becomes due and payable and continues for 30
days (10 days in the case of Subordinated Debt Securities issued to a Trust);
(ii) default in the payment of the principal of or any premium on any Debt
Security of that series when due, whether at maturity, upon redemption, by
declaration or otherwise; (iii) default in the deposit of any sinking fund
payment, when and as due by the terms of any Debt Securities of that series;
(iv) default in the performance or breach of any covenant or agreement of the
Company in the Indenture with respect to any Debt Security of that series,
continued for 60 days after written notice to the Company from the Indenture
Trustee or from the holders of at least 25% of the outstanding Debt Securities
of that series; (v) certain events in bankruptcy, insolvency or reorganization
of the Company; (vi) in the case of Subordinated Debt Securities issued to a
Trust, the voluntary or involuntary dissolution, winding-up or termination of
such Trust, except in connection with the distribution of Subordinated Debt
Securities to the holders of Trust Securities in liquidation of such Trust, the
redemption of all of the Trust Securities of such Trust, or certain mergers or
consolidations, each as permitted by the Trust Declaration of such Trust; and
(vii) any other Event of Default provided with respect to Debt Securities of
that series. The Company is required to file annually with the Indenture Trustee
an officer's certificate as to
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the Company's compliance with all conditions and covenants under each Indenture.
Each Indenture provides that the Indenture Trustee may withhold notice to the
holders of Debt Securities of any default, except in the case of a default on
the payment of the principal of (or premium), if any, or interest on any Debt
Securities or the payment of any sinking fund installment with respect to such
Debt Securities, if it considers it in the interest of the holders of Debt
Securities to do so. (See Section 501.)
If an Event of Default under an Indenture, other than certain events with
respect to bankruptcy, insolvency and reorganization of the Company, occurs and
is continuing with respect to Debt Securities of a particular series, the
Indenture Trustee or the holders of not less than 25% in principal amount of
outstanding Debt Securities of that series may declare the outstanding Debt
Securities of that series due and payable immediately. If an Event of Default
with respect to certain events of bankruptcy, insolvency or reorganization of
the Company with respect to Debt Securities of a particular series occurs and is
continuing, then the principal of all the outstanding Debt Securities of that
series, and accrued and unpaid interest thereon, will automatically be due and
payable without any act on the part of the Indenture Trustee or any holder. (See
Section 502.)
Subject to the provisions relating to the duties of the Indenture Trustee,
if an Event of Default with respect to Debt Securities of a particular series
occurs and is continuing, the Indenture Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders of Debt Securities of such series, unless such
holders shall have offered to the Indenture Trustee reasonable indemnity and
security against the costs, expenses and liabilities that might be incurred by
it in compliance with such request. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in principal
amount of the outstanding Debt Securities of such series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee under the applicable Indenture, or exercising
any trust or power conferred on the Indenture Trustee with respect to the Debt
Securities of that series. The Indenture Trustee may refuse to follow directions
in conflict with law or the Indenture that may involve the Indenture Trustee in
personal liability or may be unduly prejudicial to holders not joining therein.
(See Section 512.)
The holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may, on behalf of the holders of all
the Debt Securities of such series and any related coupons, waive any past
default under the applicable Indenture with respect to such series and its
consequences, except a default (i) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration and any applicable
premium has been deposited with the Indenture Trustee) or (ii) in respect of a
covenant or provision that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security of such series affected thereby.
(See Section 513.)
DEFEASANCE
Each Indenture provides that, except as may be provided in respect of any
series of Debt Securities, the Company may elect either to (i) defease and be
discharged from any and all obligations with respect to any series of Debt
Securities (except for the obligation to pay Additional Amounts, if any, to a
holder who is not a United States person upon the occurrence of certain events
of tax, assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities,
and to hold moneys for payment in trust) ("defeasance") or (ii) be released from
its obligations with respect to any series of Debt Securities or, if provided in
the terms of such series of Debt Securities, its obligations with respect to any
other covenant, and any omission to comply with such obligations will not
constitute a default or an Event of Default with respect to such Debt Securities
("covenant defeasance"), in either case, upon the irrevocable deposit by the
Company with the Indenture Trustee (or other qualifying trustee), in trust, of
an amount, in such currency in which such Debt
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Securities are then specified as payable at stated maturity, or Government
Obligations (as defined below), or both, applicable to such Debt Securities
(with such applicability being determined on the basis of the currency, currency
unit or composite currency in which such Debt Securities are then specified as
payable at stated maturity) which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest, if any,
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor. The Company will not have the
right to effect defeasance with respect to any series of Subordinated Debt
Securities issued to a Trust. (See Sections 1401, 1402 and 1403.)
The Company may effect defeasance or covenant defeasance only if, among
other things, the Company has delivered to the Indenture Trustee an opinion of
counsel to the effect that the holders of the affected Debt Securities will not
recognize income, gain or loss for United States Federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred. In the case of full defeasance, such opinion must refer to and
be based on a revenue ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
respective Indenture. (See Section 1404.)
"Government Obligations" means securities that are (i) direct obligations of
the government that issued the currency in which the Debt Securities of a
particular series are payable, or (ii) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the government that
issued the currency in which the Debt Securities of such series are payable, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and also includes certain depository receipts issued by a bank or trust company
as custodian with respect to any such Government Obligation or a specific
payment of interest on or principal of any such Government Obligation held by
such custodian for the account of the holder of a depository receipt. (See
Section 101.)
The Prospectus Supplement relating to the Offered Debt Securities may
further describe the provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions described above, with
respect to the Offered Debt Securities of or within a particular series and any
related coupons.
GOVERNING LAW
The Indentures are, and the Debt Securities will be, governed by the
internal laws of the State of New York. (See Section 112.)
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indentures and, after default, will
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by
either Indenture at the request of any holder of Debt Securities issued
thereunder, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities that might be incurred thereby. The Indenture
Trustee is not required to expand or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Indenture
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (See Section 601.)
REGISTRATION AND TRANSFER
The Offered Debt Securities will be issued as registered securities and
either will be in certificated form or will be represented by Global Securities
(as defined below). Registered Senior Debt Securities will be
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issuable in denominations of $1,000 and integral multiples of $1,000, and
registered Subordinated Debt Securities will be issuable in denominations of $25
and integral multiples of $25, or in such other denominations as may be in the
terms of the Debt Securities. (See Section 302.)
Registered Debt Securities will be exchangeable for other registered Debt
Securities of the same series and of a like aggregate principal amount and tenor
of different authorized denominations. Registered Debt Securities may be
presented for registration of transfer (duly endorsed or accompanied by a
written instrument of transfer), at the corporate trust office of the Indenture
Trustee in New York City or at the office of any transfer agent designated by
the Company for such purpose with respect to any series of Debt Securities and
referred to in any Prospectus Supplement. No service charge will be made for any
transfer or exchange of Debt Securities, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. (See Section 305.)
In the event of any redemption of any series of Debt Securities, the Company
will not be required to: (i) issue, register the transfer of or exchange any
Debt Securities of that series during a period beginning at the opening of
business 15 days before any selection of Debt Securities of that series to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
Debt Securities, or portion thereof, called for redemption, except the
unredeemed portion of any Debt Security being redeemed in part; or (iii) issue,
register the transfer of or exchange any Debt Securities that have been
surrendered for repayment at the option of the holder, except the portion if
any, thereof not to be so repaid. (See Section 305.)
GLOBAL SECURITIES
The Offered Debt Securities may be issued in whole or in part in the form of
one or more Global Securities (as such term is defined below), which will be
deposited with, or on behalf of, a depositary (the "Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a Global Security may not be registered for
transfer or exchange except as (i) a whole by the Depositary for such Global
Security to a nominee of such Depositary, by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary, or
by any nominee to a successor Depositary or a nominee of such successor
Depositary, and (ii) in the circumstances described in the applicable Prospectus
Supplement. The term "Global Security," when used with respect to any series of
Debt Securities, means a Debt Security that is executed by the Company and
authenticated and delivered by the Indenture Trustee to the Depositary or
pursuant to the Depositary's instruction, which will be registered in the name
of the Depositary or its nominee and which will represent, and will be
denominated in an amount equal to the aggregate principal amount of, all of the
outstanding Debt Securities of such series or any portion thereof, in either
case having the same terms, including, without limitation, the same original
issue date, date or dates on which principal is due, and interest rate or method
of determining the interest rate.
The specific terms of the depositary arrangement with respect to any Offered
Debt Securities to be represented by a Global Security will be described in the
applicable Prospectus Supplement. The Company expects that the following
provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Offered
Debt Securities that are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such Depositary or its nominee. Upon the issuance of
such Global Security, and the deposit of such Global Security with or on behalf
of the Depositary for such Global Security, the Depositary will credit on its
book-entry registration and transfer system the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have
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accounts with such Depositary or its nominee ("participants"). The accounts to
be credited will be designated by the underwriters or agents of such Debt
Securities or, if such Debt Securities are offered and sold directly by the
Company, by the Company. Ownership of beneficial interests in such Global
Security will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Depositary or its
nominee for such Global Security. Ownership of beneficial interests in such
Global Security by persons that hold through participants will be shown on, and
the transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Unless otherwise specified in the applicable Prospectus
Supplement, owners of beneficial interests in such Global Security will not be
entitled to have Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated form and
will not be considered the holders thereof for any purposes under the applicable
Indenture. Accordingly, each person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest to exercise any rights of a Holder under the Indenture.
The Company understands that under existing industry practices, if the Company
requests any action of holders, or if an owner of a beneficial interest in such
Global Security desires to give any notice or take any action a holder is
entitled to give or take under the applicable Indenture, then the Depositary
would authorize the participants to give such notice or take such action, and
participants would authorize beneficial owners owning through such participants
to give such notice or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
MISCELLANEOUS
The Company will have the right at all times to assign any of its respective
rights or obligations under either Indenture to a direct or indirect
wholly-owned subsidiary of the Company; provided, that, in the event of any such
assignment, the Company will remain liable for all of its obligations. Subject
to the foregoing, each Indenture will be binding upon and inure to the benefit
of the parties thereto and their respective successors and assigns. Each
Indenture provides that it may not otherwise be assigned by the parties thereto.
(See Section 803.)
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DESCRIPTION OF PREFERRED STOCK AND PREFERENCE STOCK
The Company's Restated Certificate of Incorporation, as amended (the
"Charter"), authorizes three classes of capital stock: Cumulative Preferred
Stock, par value $100 per share; Preference Stock, par value $50 per share; and
Common Stock, par value $1.75 per share. The following is a description of
certain general terms and provisions of the Preferred Stock and the Preference
Stock (collectively, the "Priority Stock"). This description does not purport to
be complete and is subject to, and qualified in its entirety by, the provisions
of the Charter and the certificate of designations relating to each series of
Priority Stock (each a "Certificate of Designations"), which will be filed as an
exhibit to or incorporated by reference in the Registration Statement of which
this Prospectus is a part at or prior to the time of issuance of such series of
Priority Stock.
GENERAL
The Charter authorizes 1,000,000 shares of Preferred Stock, par value $100
per share, and 1,000,000 shares of Preference Stock, par value $50 per share.
The Preference Stock is junior to the Preferred Stock, but senior to the Common
Stock. As of June 30, 1998, there were outstanding 26,000 shares of 4 1/2%
Series Cumulative Preferred Stock, 11,500 shares of 6 1/2% Series Cumulative
Preferred Stock, and no shares of Preference Stock.
The Priority Stock may be issued from time to time in one or more series,
without stockholder approval. Subject to limitations prescribed by law and the
Charter, the Board of Directors of the Company is authorized to determine the
voting power (if any), designation, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, for each series of Priority Stock that may be issued, and
to fix the number of shares of each such series. Thus, the Board of Directors,
without stockholder approval, could authorize the issuance of Priority Stock
with voting, conversion and other rights that could adversely affect the voting
power and other rights of holders of Common Stock or other series of Priority
Stock or that could have the effect of delaying, deferring or preventing a
change in control of the Company. See "Description of Common Stock-- Certain
Effects of Authorized but Unissued Stock."
The Prospectus Supplement relating to the particular Priority Stock offered
thereby (the "Offered Priority Stock") will describe the following terms of the
Offered Priority Stock: (i) the designation and stated value per share of the
Offered Priority Stock and the number of shares offered; (ii) the amount of
liquidation preference per share of the Offered Priority Stock; (iii) the
initial public offering price at which the Offered Priority Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates on which
dividends will be payable and the dates from which dividends will commence to
accrue, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion or exchange rights; and (vii) any additional voting, dividend,
redemption, liquidation, sinking fund and other rights, preferences, privileges,
limitations and restrictions. The Priority Stock will be, upon issuance against
full payment therefor, fully paid and nonassessable. The holders of Priority
Stock will not have any preemptive rights. The applicable Prospectus Supplement
will contain a description of certain United States Federal income tax
consequences relating to the purchase and ownership of the Offered Priority
Stock.
The Priority Stock will have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in the applicable
Prospectus Supplement.
RANK
With respect to dividend rights and rights upon the liquidation, dissolution
or winding up of the Company, each share of Preferred Stock will rank on a
parity with each other share of Preferred Stock, irrespective of series, and
will rank prior to the Common Stock and the Preference Stock and any other class
or series of capital stock of the Company hereafter authorized over which the
Preferred Stock has preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or
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winding up of the Company. With respect to dividend rights and rights upon the
liquidation, dissolution or winding up of the Company, each share of Preference
Stock will rank on a parity with each other share of Preference Stock,
irrespective of series, and will rank junior to the Preferred Stock but prior to
the Common Stock and any other class or series of capital stock of the Company
hereafter authorized over which the Preference Stock has preference or priority
in the payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Company.
The Priority Stock will be junior to all outstanding debt of the Company.
Each series of Priority Stock will be subject to creation of preferred or
preference stock ranking senior to, on a parity with or junior to such Priority
Stock to the extent not expressly prohibited by the Company's Charter.
DIVIDEND RIGHTS
Holders of shares of the Offered Priority Stock will be entitled to receive,
when, as and if declared by the Board of Directors out of funds of the Company
legally available for payment, cash dividends, payable quarterly on the first
day of March, June, September and December in each year and at such rates per
share per annum as set forth in the applicable Prospectus Supplement. Such rate
may be fixed or variable or both. Each declared dividend will be payable to
holders of record as they appear at the close of business on the stock books of
the Company on such record dates, not more than 60 calendar days preceding the
corresponding payment dates, as are determined by the Board of Directors.
Dividends on the Priority Stock will be cumulative. No full dividend will be
declared or paid or set apart for payment on any series of Preferred Stock or
any series of Preference Stock for any dividend period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on all the
outstanding shares of Preferred Stock or Preference Stock, as applicable, for
all dividend periods terminating on or prior to the end of such dividend period.
When dividends are not paid in full as aforesaid on all shares of Preferred
Stock or Preference Stock, as the case may be, any dividend payments (including
accruals, if any) on the Preferred Stock or Preference Stock, as applicable,
will be paid to the holders of the shares of the Preferred Stock or Preference
Stock, as the case may be, ratably in proportion to the respective sums which
such holders would receive if all dividends thereon accrued to the date of
payment were declared and paid in full. Accruals of dividends will not bear
interest. So long as any shares of Preferred Stock or Preference Stock are
outstanding, no dividends, whether in cash or property, will be paid or
declared, nor will any distribution be made, on any class of stock ranking
subordinate to the Preferred Stock or Preference Stock, as the case may be, nor
will any shares of stock ranking subordinate to the Preferred Stock or
Preference Stock, as the case may be, be purchased, redeemed or otherwise
acquired for consideration by the Company or any subsidiary of the Company,
unless all dividends on the Preferred Stock or Preference Stock, as applicable,
for all past quarterly dividend periods have been paid or declared and a sum
sufficient for the payment thereof set apart. The foregoing provisions will not,
however, apply to a dividend payable solely in shares of any stock ranking
subordinate to the Preferred Stock or Preference Stock, as the case may be, or
to the acquisition of shares of any stock ranking subordinate to the Preferred
Stock or Preference Stock, as the case may be, in exchange solely for shares of
any other stock ranking subordinate to the Preferred Stock or Preference Stock,
as applicable.
LIQUIDATION RIGHTS
In the event of a liquidation, dissolution or winding up of the Company, or
any reduction in its capital resulting in any distribution of assets to the
Company's shareholders, the holders of the Offered Priority Stock will be
entitled, subject to the rights of creditors, but before any distribution or
payment to the holders of Common Stock or any other security ranking junior to
the Offered Priority Stock, to receive an amount per share determined by the
Board of Directors and set forth in the applicable Prospectus Supplement plus
accrued and unpaid dividends to the distribution or payment date (whether or not
earned or declared). No payments will be made with respect to the Preference
Stock until the full liquidation rights of the Preferred Stock have been
satisfied. In the event that the assets available for distribution with respect
to the Preferred Stock or Preference Stock, as the case may be, are not
sufficient to satisfy the full liquidation rights of all the
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outstanding Preferred Stock or Preference Stock, as applicable, then such assets
will be distributed to the holders of such Preferred Stock or Preference Stock,
as the case may be, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled. After payment of the full amount of
the liquidation preference, the holders of Priority Stock will not be entitled
to any further participation in any distribution of assets by the Company.
Neither the consolidation, merger, or reorganization, nor the sale or transfer
of all or any part of the assets, of the Company will be deemed a liquidation,
dissolution or winding up of the Company for purposes of this provision.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Offered Priority
Stock may be redeemed by the Company, by action of the Board of Directors, at
the redemption price set forth in the applicable Prospectus Supplement, plus
accrued but unpaid dividends. From and after the date of redemption, all
dividends on the Priority Stock called for redemption will cease to accrue, and
all rights of the holders of such Priority Stock, other than the right to
receive the redemption price, shall terminate.
VOTING RIGHTS
At any time dividends in an amount equal to four quarterly dividend payments
on the Preferred Stock of any series, whether or not consecutive, are unpaid in
whole or in part, holders of the Preferred Stock will have the right to a
separate class vote to elect the smallest number of directors necessary to
constitute a majority of the Company's Board of Directors at the next annual
meeting of stockholders and thereafter until such arrearages in dividends have
been declared and paid (or declared and a sum sufficient for the payment thereof
set apart in trust for the holders entitled thereto), at which time the rights
of the holders of the Preferred Stock to elect such directors will cease and the
terms of the directors elected by the holders of the Preferred Stock will
terminate. In such event, the holders of the Common Stock, voting as a class,
are entitled to elect the remaining directors, subject to the rights of the
holders of the Preference Stock if there is a similar dividend arrearage on the
Preference Stock. While the holders of the Preferred Stock are entitled to elect
a majority of the Board of Directors, payment of dividends on the Preferred
Stock shall not be unreasonably withheld if the financial condition of the
Company permits their payment.
At any time dividends in an amount equal to four quarterly dividend payments
on the Preference Stock of any series, whether or not consecutive, are unpaid in
whole or in part, holders of the Preference Stock will have the right to a
separate class vote to elect two members of the Board of Directors at the next
annual meeting of stockholders and thereafter until such arrearages in dividends
have been declared and paid (or declared and a sum sufficient for the payment
thereof set apart in trust for the holders entitled thereto), at which time the
rights of the holders of the Preference Stock to elect such directors will cease
and the terms of such two directors will terminate.
Without the affirmative vote of the holders of two-thirds of the Preferred
Stock or two-thirds of the Preference Stock, as the case may be, then
outstanding (voting separately as a class, without respect to series), the
Company may not (i) adopt any proposed amendment to the Company's Charter which
authorizes any capital stock (which, in the case of the Preference Stock,
includes any increase in the number of authorized shares of Preferred Stock), or
any security or obligation convertible into any other capital stock, ranking
prior in any respect to the Preferred Stock or the Preference Stock, as the case
may be, (ii) change, by Charter Amendment or otherwise, the terms and provisions
of the Preferred Stock or the Preference Stock, as the case may be, so as to
affect adversely the relative rights, preferences, qualifications, limitations
or restrictions of the outstanding Preferred Stock or Preference Stock, as the
case may be, or the holders thereof, provided, that if any such amendment
affects adversely the relative rights, preferences, qualifications, limitations
or restrictions of less than all series of the Preferred Stock or less than all
series of the Preference Stock, as the case may be, at the time outstanding,
then only the affirmative vote of the holders of at least two-thirds of the
shares of each series so affected is necessary, or (iii) with respect to the
Preferred Stock, issue any shares of Preferred Stock or shares of any stock
ranking pari passu with the Preferred Stock as to dividends or liquidation
rights, or any securities convertible into shares of Preferred Stock or stock
ranking pari passu with the Preferred Stock as to dividend or liquidation rights
(otherwise than in exchange
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for or for the purpose of effecting the redemption or other retirement of not
less than an equal number of shares of Preferred Stock or shares of any stock
ranking pari passu with the Preferred Stock as to dividend or liquidation
rights), unless the Common Stock equity (as defined in the Charter) is not less
than the aggregate par value of all shares of Preferred Stock and the aggregate
par value or stated value of all other shares of stock ranking prior to or pari
passu with the Preferred Stock as to dividends or liquidation rights, which will
be outstanding after the issue of the shares or convertible securities proposed
to be issued.
Without the affirmative vote of the holders of at least a majority of the
shares of the Preferred Stock or a majority of the shares of the Preference
Stock, as the case may be, at the time outstanding (or, if an affirmative vote
of the holders of the shares of the Preferred Stock or the Preference Stock of
each series is required by law, without the affirmative vote of holders of at
least a majority of the shares of the Preferred Stock or the Preference Stock,
as the case may be, of each series at the time outstanding), the Company may not
merge or consolidate with or into another corporation or sell, lease or exchange
all or substantially all of the assets of the Company.
The holders of Priority Stock are entitled to one vote per share on each
matter submitted for their vote, other than the election of directors, which is
subject to cumulative voting rights. In those instances when the holders of
Priority Stock are entitled to elect certain directors, each holder is entitled
to a number of votes equal to the number of shares owned by such holder
multiplied by the number of directors to be elected by the holders of the
Preferred Stock or the holders of the Preference Stock, as the case may be.
None of the foregoing voting requirements will apply if at the time
provision has been made for the redemption of the outstanding Priority Stock.
Except as described above or as required by law, the Offered Priority Stock
will not be entitled to any voting rights unless provided for in the applicable
Certificate of Designations and set forth in the applicable Prospectus
Supplement.
NO OTHER RIGHTS
The Offered Priority Stock will not have any preferences, voting powers or
relative, participating, optional or other special rights except as set forth
above or in the applicable Prospectus Supplement, the Charter and the applicable
Certificate of Designations or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and the registrar for the Offered Priority Stock will be
described in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The following is a description of certain terms of the Common Stock. This
description does not purport to be complete and is subject to, and qualified in
its entirety by, reference to the Charter.
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common Stock.
As of June 30, 1998, there were 17,842,524 shares of Common Stock outstanding
held by approximately 8,900 stockholders of record. Subject to the limitations
described below and the prior rights of the Preferred Stock and Preference
Stock, the Common Stock is entitled to dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock are entitled to one vote per share. There is no provision for cumulative
voting or preemptive rights. The holders of Preferred Stock and the holders of
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Preference Stock are each entitled to elect a certain number of directors of the
Company in the event of a default in the payment of four quarterly dividends on
any series of such stock and have voting rights with respect to amendments of
the Charter affecting certain of their rights and in the case of certain
mergers, consolidations and dispositions of substantially all the Company's
assets. See "Description of Preferred Stock and Preference Stock." Upon any
liquidation, voluntary or involuntary, of the Company, holders of Common Stock
are entitled ratably to all the assets of the Company after payment of the
Company's liabilities and satisfaction of the liquidation preferences of the
Preferred Stock and the Preference Stock. The outstanding shares of Common Stock
are, and any shares of Common Stock offered pursuant to a Prospectus Supplement
(upon issuance against full payment therefor) will be, fully paid and
nonassessable.
The Common Stock is listed on the New York Stock Exchange. The transfer
agents and registrars for the Common Stock are Norwest Bank Minnesota, N.A. and
the Company.
LIMITATIONS ON DIVIDENDS
The Company may not declare or pay cash dividends on the Common Stock unless
full dividends on all shares of Preferred Stock and Preference Stock then
outstanding for the current and all past quarterly dividend periods have been
paid or provided for. Also, dividends on the Common Stock may not be paid unless
the Company has complied with all sinking fund requirements for those series of
Preferred Stock and Preference Stock which have such requirements.
The Company's outstanding Subordinated Debt Securities provide that the
Company may not declare or pay cash dividends on the Common Stock during any
period for which the payment of interest on such Subordinated Debt Securities is
being deferred, or if the Company is in default under the Subordinated Indenture
or the related Guarantee. Any Subordinated Debt Securities issued to a Trust in
connection with the issuance of Trust Securities by such Trust will contain
similar provisions. See "Description of Debt Securities--Certain Covenants."
RIGHTS
The Company has a Stockholder Rights Plan, which it first adopted in 1996,
pursuant to which each share of Common Stock has associated with it one Common
Stock Purchase Right ("Right"). Each Right, when exercisable, entitles the
registered holder to purchase from the Company one share of Common Stock at a
price of $50.00 per share (as adjusted for the two-for-one stock split in May
1997), subject to further adjustments. The Rights are evidenced by the Common
Stock certificates and may not be exercised or transferred separately from the
Common Stock until ten days after a person or group acquires, or announces a
tender offer which would result in its acquiring, beneficial ownership of
securities having 15% or more of the voting power of all outstanding voting
securities of the Company.
In the event that a person or group acquires 15% or more or the Company's
voting power, or if the Company merges or engages in certain self-dealing
transactions with a 15% or more stockholder, each Right will entitle the holder
(other than the 15% or more stockholder) to purchase a number of shares of
Common Stock (or, if the Company is not the surviving corporation, shares of
common stock of the surviving corporation), having a market value of two times
the exercise price of the Right.
The Rights do not have voting rights and are redeemable at the option of the
Company at a price of $.005 per Right at any time before the Rights become
exercisable. Unless earlier redeemed, the Rights will expire on December 10,
2006.
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RESTRICTIONS ON CHANGE OF CONTROL
The Company's Charter contains certain provisions which will make it
difficult for any party to obtain control of the Company through transactions
not approved by the Board of Directors of the Company, including the following:
(i) The Board of Directors is divided into three classes, only one of
which stands for election each year for a three year term of office, thereby
requiring two successive annual elections for a party or group acquiring
control to replace a majority of the incumbent directors.
(ii) Directors may be removed from office before their terms expire only
for cause.
(iii) To authorize certain "business combinations" between the Company
and any person or entity which owns 10% or more of the outstanding Common
Stock, or an affiliate of such a person or entity, the approving vote of the
holders of at least 75% of the outstanding Common Stock must be obtained,
unless certain "fair price" and other financial and procedural conditions
are satisfied, coupled with approval of the transaction by a majority of
"Continuing Directors."
(iv) Amendment of the foregoing Charter provisions must be approved by
the holders of at least 75% of the outstanding shares of the Company's
Common Stock.
In addition, the Company is subject to the "business combination" statute of
the Delaware General Corporation Law (Section 203). In general, this statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless (i) the transaction is approved by the board of directors
prior to the date the interested stockholder obtains such status, (ii) upon
consummation of the transaction in which the interested stockholder obtains such
status, the interested stockholder beneficially owned at least 85% of the
outstanding shares of the corporation's voting stock owned by stockholders other
than (a) persons who are directors and also officers and (b) employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (iii) the "business combination" is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." "Business
combination" includes mergers, asset sales and other transactions resulting in
financial benefit to the "interested stockholder." An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) beneficially 15% or more of a corporation's voting stock.
The overall effect of the above provisions may be to render more difficult
or to discourage a merger, tender offer or proxy contest, the assumption of
control of the Company by a holder of a large block of the Company's stock or
other person, or the removal of incumbent management, even if such actions may
be beneficial to the Company's stockholders generally.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The Company's authorized but unissued shares of Common Stock, Preferred
Stock and Preference Stock may be issued without additional stockholder approval
and may be utilized for a variety of corporate purposes, including future
offerings to raise additional capital or to facilitate corporate acquisitions.
The issuance of Preferred Stock or Preference Stock could have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock or Preference Stock could decrease the amount of earnings and
assets available for distribution to the holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the Common Stock.
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One of the effects of the existence of unissued and unreserved Common Stock,
Preferred Stock or Preference Stock may be to enable the Board to issue shares
to persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of the Company.
LIMITATION OF DIRECTOR LIABILITY
The Charter contains a provision that limits the liability of the Company's
directors for monetary damages for breach of fiduciary duty as a director to the
fullest extent permitted by the Delaware General Corporation Law. Such
limitation does not, however, affect the liability of a director (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or purchases and (iv) for any transaction
from which the director derives an improper personal benefit. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
DESCRIPTION OF THE TRUSTS' PREFERRED SECURITIES
The following is a description of certain general terms and provisions of
the Preferred Securities. This description does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the form of
Trust Declaration, which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Each Trust Declaration will be qualified as
an indenture under the Trust Indenture Act. Wilmington Trust Company will act as
Property Trustee under each Trust Declaration and as an indenture trustee for
purposes of the Trust Indenture Act.
Each Trust may issue only one series of Preferred Securities. The Prospectus
Supplement relating to the particular Preferred Securities offered thereby (the
"Offered Preferred Securities") will describe the following terms of the Offered
Preferred Securities: (i) the designation of the Offered Preferred Securities,
(ii) the number of Offered Preferred Securities, (iii) the annual distribution
rate (or method of determining such rate) for the Offered Preferred Securities
and the date or dates upon which such distributions will be payable, (iv)
whether distributions on the Offered Preferred Securities will be cumulative,
and, in the case of Preferred Securities having cumulative distribution rights,
the date or dates or method of determining the date or dates from which
distributions on such Preferred Securities will accumulate, (v) the amount or
amounts to be paid out of the assets of the applicable Trust to the holders of
the Offered Preferred Securities upon voluntary or involuntary dissolution,
winding-up or termination of such Trust, (vi) the obligation, if any, of the
applicable Trust to purchase or redeem the Offered Preferred Securities and the
price or prices at which, the period or periods within which and the terms and
conditions upon which the Offered Preferred Securities will be purchased or
redeemed, in whole or in part, pursuant to such obligation, (vii) the voting
rights, if any, of the Offered Preferred Securities in addition to those
required by law, including the number of votes per Preferred Security and any
requirement for the approval by the holders of Preferred Securities, or of
Preferred Securities issued by one or more Trusts or of both, as a condition to
specified action or amendments to the Trust Declaration of the applicable Trust,
and (viii) any other relevant rights, preferences, privileges, limitations or
restrictions of the Offered Preferred Securities consistent with the applicable
Trust Declaration or with applicable law. All Offered Preferred Securities will
be guaranteed by the
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Company to the extent set forth below under "Description of the Guarantees."
Certain United States Federal income tax considerations applicable to any
Offered Preferred Securities will be described in the applicable Prospectus
Supplement.
In connection with the issuance of Preferred Securities, each Trust will
issue one series of Common Securities having such terms, including distribution,
redemption, voting and liquidation rights, limitations and restrictions, as
shall be set forth in the applicable Trust Declaration. The terms of the Common
Securities issued by a Trust will be substantially identical to the terms of the
Preferred Securities issued by such Trust and the Common Securities will rank
pari passu with, and payments will be made thereon pro rata with, the Preferred
Securities except that, upon an event of default under the applicable Trust
Declaration, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and otherwise
will be subordinated to the rights of the holders of the Preferred Securities.
Except in certain limited circumstances, the Common Securities will also carry
the right to vote and to appoint, remove or replace any of the Capital Financing
Trustees of a Trust. All of the Common Securities of each Trust will be directly
or indirectly owned by the Company.
DESCRIPTION OF THE GUARANTEES
Set forth below is a description of certain terms and provisions of the
Guarantees that will be executed and delivered by the Company for the benefit of
the holders, from time to time, of Preferred Securities. The description does
not purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the form of Guarantee, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Each Guarantee
will be qualified as an indenture under the Trust Indenture Act. Wilmington
Trust Company will act as trustee under each Guarantee (the "Guarantee Trustee")
and as an indenture trustee for purposes of the Trust Indenture Act. Each
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities of the applicable Trust.
GENERAL
Pursuant to each Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full to the holders of the
Preferred Securities issued by a Trust, the Guarantee Payments (as defined
below), as and when due, regardless of any defense, right of set-off or
counterclaim which such Trust may have or assert. The following payments with
respect to Preferred Securities issued by a Trust (the "Guarantee Payments"), to
the extent not paid by such Trust, will be subject to the Guarantee (without
duplication): (i) any accumulated and unpaid distributions that are required to
be paid on such Preferred Securities, to the extent the Company has made a
payment of interest or principal on the Subordinated Debt Securities, (ii) the
redemption price, including all accumulated and unpaid distributions to the date
of redemption (the "Redemption Price"), to the extent the Company has made a
payment of interest or principal on the Subordinated Debt Securities, with
respect to any Preferred Securities called for redemption by such Trust, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
such Trust (other than in connection with the distribution of Subordinated Debt
Securities to the holders of Preferred Securities or the redemption of all of
the Preferred Securities upon the maturity or redemption of the Subordinated
Debt Securities) the lesser of (a) the aggregate of the liquidation amount and
all accumulated and unpaid distributions on such Preferred Securities to the
date of payment to the extent such Trust has funds legally available therefor
and (b) the amount of assets of such Trust remaining available for distribution
to holders of such Preferred Securities in liquidation of such Trust. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Preferred
Securities or by causing such Trust to pay such amounts to such holders.
Each Guarantee will be a full and unconditional guarantee with respect to
the Preferred Securities issued by the applicable Trust from the time of
issuance of such Preferred Securities but will not apply to any payment of
distributions due to the extent such Trust lacks funds legally available
therefor as a result of a failure by the Company to make payments of interest or
principal on the Subordinated Debt Securities. If the
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Company does not make interest payments on the Subordinated Debt Securities
purchased by a Trust, such Trust will not pay distributions on the Preferred
Securities issued by a Trust and will not have funds legally available therefor.
See "Description of Debt Securities."
The Company and the Trusts believe that the Guarantees, taken together with
the Company's obligations under the Subordinated Indenture and the Subordinated
Debt Securities and the provisions of the Trust Declaration, are substantially
equivalent to a full and unconditional guarantee by the Company of payments due
on the Preferred Securities.
The Company has also agreed to irrevocably and unconditionally guarantee the
obligations of the Trusts with respect to the Common Securities (the "Common
Securities Guarantee") to the same extent as the Guarantees, except that, upon
an event of default under the Subordinated Indenture, holders of Preferred
Securities under the Guarantees will have priority over holders of Common
Securities under the Common Securities Guarantees with respect to distributions
and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In each Guarantee, the Company will covenant that, so long as any Preferred
Securities issued by the applicable Trust remain outstanding, if there shall
have occurred any event that would constitute an event of default under such
Guarantee or the Trust Declaration of such Trust, then (a) the Company will not
declare or pay any dividend (other than stock dividends paid in the same class
of stock as that on which they are paid) on, or make any distribution with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock and (b) the Company will not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company which rank pari passu with or
junior to such Subordinated Debt Securities.
MODIFICATION OF THE GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), each Guarantee may be amended only with the prior approval of the
holders of not less than 66 2/3% in liquidation amount of the outstanding
Preferred Securities issued by the applicable Trust. All guarantees and
agreements contained in a Guarantee will bind the successors, assignees,
receivers, trustees and representatives of the Company and will inure to the
benefit of the holders of the Preferred Securities of the applicable Trust then
outstanding.
EVENTS OF DEFAULT
An "Event of Default" under the Guarantee will occur upon the failure of the
Company to perform any of its payments or other obligations thereunder. The
holders of a majority in liquidation amount of the Preferred Securities of the
applicable Trust 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 such Guarantee, any holder of
Preferred Securities of the applicable Trust may, after such holder's written
request to the Guarantee Trustee to enforce the Guarantee, institute a legal
proceeding directly against the Company to enforce the Guarantee Trustee's
rights under such Guarantee without first instituting a legal proceeding against
the relevant Trust, the Guarantee Trustee or any other person or entity.
The Company will be required to provide annually to the Guarantee Trustee a
statement as to the performance by the Company of certain of its obligations
under each of the Guarantees and as to any default in such performance.
The Company is required to file annually with the Guarantee Trustee an
officer's certificate as to the Company's compliance with all conditions under
each of the Guarantees.
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INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default, undertakes to
perform only such duties as are specifically set forth in the applicable
Guarantee and, after default with respect to a Guarantee, will exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Guarantee at the
request of any holder of Preferred Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate as to the Preferred Securities issued by the
applicable Trust upon full payment of the Redemption Price of all such Preferred
Securities, upon distribution of the Subordinated Debt Securities held by the
Trust to the holders of the Preferred Securities of such Trust, or upon full
payment of the amounts payable in accordance with the applicable Trust
Declaration upon liquidation of such Trust. Each Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities issued by the applicable Trust must restore payment of
any sums paid under such Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Company and with any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock of any affiliate of the Company, and (iii) senior to the
Company's Common Stock. The terms of the Preferred Securities provide that each
holder of Preferred Securities issued by a Trust by acceptance thereof agrees to
the subordination provisions and other terms of the applicable Guarantee.
Each Guarantee will constitute a guarantee of payment and not of collection
(allowing the guaranteed party to institute a legal proceeding directly against
the Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
GOVERNING LAW
Each Guarantee will be governed by the internal laws of the State of New
York.
PLAN OF DISTRIBUTION
The Company, the Trusts (with respect to Preferred Securities) and the
Selling Stockholders (with respect to shares of Common Stock) may sell
Securities to one or more underwriters for public offering and sale by them or
may sell Securities to investors directly or through agents. Any such
underwriter or agent involved in the offer and sale of Securities will be named
in the applicable Prospectus Supplement. Any sale of Securities by the Company
to one or more underwriters may include stand-by call arrangements or other
arrangements whereby an underwriter purchases Securities directly or indirectly
from the Company in connection with a redemption of securities convertible into
Securities.
The distribution of Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, or from time
to time at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Each Prospectus
Supplement will describe the method of distribution of the offered Securities.
In connection with the sale of Securities, underwriters or agents acting on
the Company's behalf may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Securities for whom they may act as
32
<PAGE>
agent. Underwriters may sell Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent.
Any underwriting compensation paid to underwriters or agents in connection
with the offering of Securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
applicable Prospectus Supplement. Underwriters, dealers and agents participating
in the distribution of Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of Securities may be deemed to be underwriting discounts and commissions
under the Securities. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company and the Selling Stockholders, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters acting as the Company's agents to solicit offers by
certain institutions to purchase Securities from the Company pursuant to delayed
delivery contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the amount of Securities sold pursuant to Contracts
will be not less nor more than, the respective amounts stated in such Prospectus
Supplement. Institutions with which Contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investments companies, educational and charitable institutions and other
institutions, but will in all cases be subject to the approval of the Company.
The obligations of any purchaser under any Contract will not be subject to any
conditions except that (i) the purchase by an institution of the Securities
covered by its Contract shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (ii) if the Securities are also being sold to underwriters, the
Company shall have sold to such underwriters the total principal amount of the
Securities less the principal amount thereof covered by the Contracts. The
underwriters and such other persons will not have any responsibility in respect
of the validity or performance of the Contracts.
SELLING STOCKHOLDERS
Up to 1,279,476 shares of Common Stock may be offered by or for the accounts
of the Selling Stockholders listed in the table below. The Selling Stockholders
were stockholders of Empire Energy Corporation ("Empire Energy"), which merged
with a wholly owned subsidiary of the Company in 1996. In connection with that
merger, the Company and the Selling Stockholders entered into a Warrant Issuance
and Exchange Agreement, pursuant to which the Company issued warrants to
purchase Common Stock ("Warrants") to the former stockholders of Empire Energy,
including the Selling Stockholders. The Warrants are exercisable for Common
Stock at an exercise price of $18.225 per share. Except as a result of their
ownership of the Warrants, their stock ownership of Empire Energy prior to its
acquisition by the Company and their positions with Empire Energy, none of the
Selling Stockholders or any of their affiliates, other than Kermit Clay, Charles
Jones and Link Young, has had within the past three years any material
relationship with the Company or any of its affiliates. Messrs. Clay, Jones and
Young are currently employees of Cornerstone Propane, L.P., an affiliate of the
Company.
The Selling Stockholders beneficially own an aggregate of 1,279,476 shares
of Common Stock, all of which represent shares that may be acquired upon
exercise of Warrants held by such persons.
33
<PAGE>
The following table sets forth certain information as of June 15, 1998 with
respect to the Common Stock beneficially owned by each Selling Stockholder:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED(1)
- --------------------------------------------------------------------------- -----------------
<S> <C>
Bill Byrne................................................................. 39,730
Kermit Clay................................................................ 19,866
David Dean................................................................. 27,840
Luther Gill................................................................ 72,936
Charles Jones.............................................................. 50,896
Earl L. Noe................................................................ 79,896
Stephen R. Plaster Trust................................................... 593,764
Floyd J. Waterman.......................................................... 71,776
Larry A. Weis.............................................................. 73,516
Robert W. Wooldridge....................................................... 225,476
Link Young................................................................. 23,780
</TABLE>
- ---------
(1) Issuable upon exercise of Warrants held by such person.
EXPERTS AND LEGAL OPINIONS
The financial statements and schedules included in Form 10-K and
incorporated by reference in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The legality of the Securities of the Company offered hereby will be passed
upon for the Company by Schiff Hardin & Waite, Chicago, Illinois. Certain
matters of Delaware law relating to the validity of the Preferred Securities,
the enforceability of the Trust Declarations and the creation of the Trusts will
be passed upon by Richards, Layton & Finger, PA, Wilmington, Delaware.
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