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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1998
REGISTRATION NO. 333-57359
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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PIONEER-STANDARD ELECTRONICS, INC.
PIONEER-STANDARD FINANCIAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(State or other jurisdiction of incorporation or organization)
4800 EAST 131ST STREET
CLEVELAND, OHIO 44105
(440) 587 -- 3600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
JAMES L. BAYMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
4800 EAST 131ST STREET
CLEVELAND, OHIO 44105
(440) 587 -- 3600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
Edward W. Moore, Esq.
Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
(216) 622-8200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If the only
securities being registered on this form are being offered pursuant to dividend
or interest reinvestment plans, check the following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1998
PROSPECTUS
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2,875,000 PREFERRED SECURITIES
PIONEER-STANDARD FINANCIAL TRUST
6 3/4% CONVERTIBLE TRUST PREFERRED SECURITIES
(LIQUIDATION PREFERENCE $50 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON SHARES
OF,
PIONEER-STANDARD
PIONEER-STANDARD ELECTRONICS, INC.
------------------------------------
This Prospectus relates to the resale of 6 3/4% Convertible Trust Preferred
Securities (the "Preferred Securities") which represent undivided beneficial
interests in the assets of Pioneer-Standard Financial Trust, a statutory
business trust created under the laws of the State of Delaware (the "Issuer")
and the common shares, without par value (the "Common Shares"), of
Pioneer-Standard Electronics, Inc., an Ohio corporation (the "Company"),
issuable upon conversion of the Preferred Securities. 2,500,000 of the Preferred
Securities were issued and sold on March 23, 1998 (the "Original Offering Date")
and 375,000 of the Preferred Securities were issued and sold on April 3, 1998
(the issuance and sale of the total of 2,875,000 of the Preferred Securities is
referred to herein as the "Original Offering") to Lazard Freres & Co., LLC,
Cleary Gull Reiland & McDevitt Inc. and McDonald & Company Securities, Inc. (the
"Initial Purchasers") and were simultaneously sold by the Initial Purchasers in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), in the United States to persons
reasonably believed by the Initial Purchasers to be qualified institutional
buyers as defined in Rule 144A under the Securities Act. All of the undivided
beneficial interests in the assets of the Issuer represented by common
securities of the Issuer (the "Common Securities") are owned by the Company. The
Issuer exists for the sole purpose of issuing the Preferred Securities and the
Common Securities and investing the proceeds from the issuance thereof in 6 3/4%
Convertible Subordinated Debentures, due March 31, 2028 (the "Debentures"),
issued by the Company. The Preferred Securities have a preference over the
Common Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise under certain circumstances. See
"Description of the Preferred Securities -- Subordination of Common Securities."
The Preferred Securities and the Common Shares issuable upon conversion of
the Preferred Securities (collectively the "Offered Securities") may be offered
and sold from time to time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling Holders")
pursuant to this Prospectus. The Offered Securities may be sold by the Selling
Holders from time to time directly to purchasers or through agents, underwriters
or dealers. See "Selling Holders" and "Plan of Distribution." If required, the
names of any such agents or underwriters involved in the sale of the Offered
Securities and the applicable agent's commission, dealer's purchase price or
underwriter's discount, if any, will be set forth in the accompanying supplement
to this Prospectus (the "Prospectus Supplement"). The Selling Holders will
receive all of the net proceeds from the sale of the Offered Securities and will
pay all underwriting discounts, selling commissions and transfer taxes, if any,
applicable to any such sale. The Company is responsible for the payment of all
other expenses incident to the registration of the Offered Securities. The
Selling Holders and any broker-dealers, agents or underwriters that participate
in the distribution of the Offered Securities may be deemed to be "underwriters'
within the meaning of the Securities Act, and any commission received by them
and any profit on the resale of the Offered Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. See
"Plan of Distribution" for a description of certain indemnification
arrangements.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions from the Issuer at an annual rate of
6 3/4% of the liquidation preference of $50 per Preferred Security accruing from
the date of original issuance and payable, unless deferred, quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year (the
"Distributions"). Payment of the Distributions commenced on June 30, 1998. The
distribution rate and the distribution and other payment dates for the Preferred
Securities will correspond to the interest rate and the interest and other
payment dates for the Debentures, which are the sole assets of the Issuer. As a
result, if principal or interest is not paid on the Debentures, no amounts will
be paid with respect to the Preferred Securities.
(Cover page continues)
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SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS TO
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE OFFERED SECURITIES.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1998
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(Cover page continued)
Each Preferred Security is convertible in the manner described herein at
the option of the holder at any time into Common Shares at the rate of 3.1746
Common Shares for each Preferred Security (equivalent to a conversion price of
$15.75 per Common Share), subject to adjustment in certain circumstances. See
"Description of the Preferred Securities -- Conversion Rights" and "Description
of Capital Stock." On September 14, 1998, the last reported sale price of the
Common Shares, which is quoted under the symbol "PIOS" on the Nasdaq National
Market, was $7.00 per share.
The Company has the right to defer payment of interest on the Debentures at
any time and from time to time for a period not exceeding 20 consecutive
quarters with respect to each deferral period (each an "Extension Period"),
provided that no Extension Period may extend beyond the stated maturity of the
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due on any Interest Payment Date (as defined herein), the
Company may elect to begin a new Extension Period subject to the requirements
described herein. If interest payments on the Debentures are so deferred,
Distributions on the Preferred Securities will also be deferred and the Company
will not be permitted, among other restrictions and subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to the Company's capital stock or debt securities that rank pari passu
with or junior to the Debentures. See "Description of the Debentures -- Option
to Extend Interest Payment Period."
During an Extension Period, interest on the Debentures will continue to
accrue (and the amount of Distributions to which holders of the Preferred
Securities are entitled will accumulate at the stated rate per annum, compounded
quarterly) and holders of Preferred Securities will be required to recognize
interest income for United States Federal income tax purposes. See "Certain
United States Federal Income Tax Consequences -- Interest Income and Original
Issue Discount."
Except as provided below, the Preferred Securities may not be redeemed by
the Issuer prior to March 31, 2002. The Preferred Securities are subject to
redemption, in whole or in part, on or after such date, at the redemption prices
set forth herein, upon any redemption by the Company of Debentures. See
"Description of the Preferred Securities -- Optional Redemption." In addition,
the Preferred Securities are subject to mandatory redemption upon the repayment
at maturity or as a result of acceleration of the Debentures. See "Description
of the Preferred Securities -- Mandatory Redemption."
Following the occurrence of a Special Event (as herein defined), the
Preferred Securities are also subject to (i) exchange, in the manner described
herein, for Debentures (see "Description of the Preferred Securities -- Special
Event Exchange or Redemption") and (ii) redemption, in whole or in part, on or
after March 31, 2002 at 100% of the liquidation preference thereof, plus
accumulated and unpaid Distributions thereon, if such Special Event constitutes
a Tax Event (as defined herein). See "Description of Preferred
Securities -- Special Event Exchange or Redemption." At any time the Company has
the right to dissolve the Issuer and, after satisfaction of the liabilities of
creditors of the Issuer as provided by applicable law, cause the Debentures to
be distributed to the holders of the Preferred Securities in liquidation of the
Issuer. See "Description of the Preferred Securities -- Distribution of
Debentures."
The Company has, through the Guarantee, the Trust Agreement, the Debentures
and the Indenture (each, as defined herein), taken together, fully, irrevocably
and unconditionally guaranteed all of the Issuer's obligations under the
Preferred Securities. See "Description of the Guarantee," "Pioneer Standard
Financial Trust" and "Description of the Debentures," respectively. The
Guarantee of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer, as described herein (the "Guarantee").
See "Description of the Guarantee." If the Company does not make interest
payments on the Debentures held by the Issuer as a result of the Company's
election to defer payment of interest during an Extension Period, or otherwise,
the Issuer will have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer does not have sufficient funds to pay such Distributions. In such event,
a holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce the Company's obligation to make payment under
the Debentures of such Distributions to such holder. The obligations of the
Company under the Guarantee are subordinate and junior in right of payment to
all other liabilities of the Company and will rank pari passu
2
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(Cover page continued)
with the most senior preferred shares, if any, issued from time to time by the
Company and any guarantee now or hereafter entered into by the Company in
respect of any preferred or preference stock of any affiliate of the Company.
See "Description of the Debentures -- Subordination."
The Debentures are subordinate and junior in right of payment to all Senior
Debt (as defined herein) of the Company. The terms of the Debentures place no
limitation on the amount of Senior Debt that may be incurred by the Company or
the amount of indebtedness that may be incurred by its subsidiaries. As of June
30, 1998, the Company had aggregate indebtedness of approximately $344 million,
all of which comprised Senior Debt of the Company. The Company's obligations
under the Debentures will also be effectively subordinated to all existing and
future obligations of the Company's subsidiaries.
In the event of the dissolution of the Issuer, after satisfaction of the
creditors of the Issuer as provided by applicable law, the holders of the
Preferred Securities will be entitled to receive a liquidation preference of $50
per Preferred Security plus accumulated and unpaid Distributions thereon to the
date of payment, which may be in the form of a distribution of such amount in
Debentures, subject to certain exceptions. See "Description of the Preferred
Securities -- Liquidation Distribution upon Dissolution."
Whenever the Company issues Common Shares upon conversion of the
Debentures, the Company will, subject to certain conditions, issue, together
with each Common Share, such number (which number may be a fraction) of Rights
(as defined herein) as shall at that time be issuable with a Common Share
pursuant to the Rights Agreement (as defined herein). See "Description of
Capital Stock -- Other Matters; Rights Plan."
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Securities and Exchange Commission
(the "Commission") by the Company pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended March 31,
1998 as amended by the Company's Form 10-K/A filed on June 19, 1998;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998; and
3. The Company's Current Reports on Form 8-K dated February 27, 1998, April
13, 1998 and June 19, 1998.
All documents filed by the Company pursuant to Section 13, 14 or 15(d) of
the Exchange Act after the date of this Prospectus shall be deemed to be
incorporated by reference in this Prospectus 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 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 is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated herein or therein by reference into such documents.
Requests for such documents should be directed to the Vice President, Treasurer
and Assistant Secretary, 4800 East 131st Street, Cleveland, Ohio 44105.
Telephone requests for such copies should be directed to the Vice President,
Treasurer and Assistant Secretary at (440) 587-3600.
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FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL POSITION, BUSINESS AND
FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN
THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS."
ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON THE COMPANY'S OR ITS
SUBSIDIARIES' BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
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THE COMPANY
Pioneer-Standard Electronics, Inc. (together with its subsidiaries, the
"Company" or "Pioneer-Standard") is a leading distributor of a broad range of
industrial and end-user electronic components and computer systems products
supplied by more than 100 manufacturers to original equipment manufacturers
("OEMs"), value-added resellers, research laboratories, government agencies and
other organizations, primarily in the United States and Canada. The Company
distributes products to over 24,000 customers, including Abbott Laboratories,
AlliedSignal, Hewlett-Packard, IBM, Intel, Northern Telecom and United
Technologies. The Company also develops and offers innovative value-added
services to enable its customers to reduce costs and deliver their products to
market faster. For the twelve months ended March 31, 1998, the Company recorded
net sales of approximately $1.7 billion.
Pursuant to a January 15, 1998 Agreement and Plan of Merger (the "Merger
Agreement") between the Company and Dickens Data Systems, Inc. ("Dickens Data"),
the Company acquired, on March 31, 1998, all the outstanding capital stock of
Dickens Data, a leading reseller, distributor and systems integrator of products
and services for mid-range computer systems based in Roswell, Georgia.
The Company's products are classified into three broad categories:
semiconductors, computer systems products, and interconnect, passive and
electromechanical products. Semiconductors are the building blocks of computer
chips and include microprocessors, memory devices, programmable logic devices,
and analog and digital integrated circuits. Computer systems products include
mid-range computer systems and high-end platforms, storage subsystems, software,
servers, personal computers, display terminals and networking products.
Interconnect, passive and electromechanical products are devices that move or
use an electrical signal and include capacitors, connectors, resistors,
potentiometers, switches and power conditioning equipment.
The Company markets products supplied by many of the largest and best-known
manufacturers in the industry. The Company's two largest suppliers are Digital
Equipment and Intel. Other major suppliers include Actel, Analog Devices, BAAN,
Bourns, Cisco Systems, Compaq, IBM, Kemet Electronics, Lucent Technologies,
National Semiconductor, Oracle, Power-One, Siemens, SGS-Thomson, 3Com and Thomas
& Betts. Through the acquisition of Dickens Data, IBM became one of the
Company's largest suppliers.
The Company has more than 1,200 sales personnel, sales support personnel
and technical experts throughout North America who work closely together to
provide customers with individualized services and solutions. The Company has
approximately one field application engineer for every three salespersons, which
the Company believes is one of the highest ratios of technical to sales
personnel in the industry. The Company's 106,000 square foot Corporate
Distribution Center near Cleveland, Ohio, is a state-of-the-art facility that
serves as the hub of the distribution system. The Company provides its customers
with same-day shipment of substantially all orders received by 5:00 p.m.
Fiscal 1998 was the twelfth consecutive year of record sales and the 26th
year in the 27 full fiscal years the Company has been public in which sales have
increased. The Company's business strategy has resulted in average annual
compound growth rates between fiscal years 1993 and 1998 of 31.4% and 14.1% for
sales and earnings per share, respectively. The Company believes that its growth
has benefited from substantial increases in sales in North America of industrial
electronic components and the percentage of such products sold through
distributors, as well as from an increase in the Company's share of the
industrial electronics components distribution market.
The Company employs a number of strategies to maintain and enhance its
growth and profitability, including:
- Expanded Market Coverage and Acquisitions. The Company plans to expand
its extensive North American coverage primarily through internal growth,
focusing on providing additional value-added services to its customers. The
Company's strategy to gain entry into new markets includes pursuing acquisitions
and, where appropriate, joint ventures, as well as acquiring majority and
minority interests in other businesses. In recent years, the Company has
utilized acquisitions as a means to achieve economies of scale and capitalize on
consolidation opportunities. In furtherance of this strategy, pursuant to the
Merger Agreement the Company acquired, on March 31, 1998, all the outstanding
capital stock of Dickens Data. In addition, in 1997, the
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Company purchased a minority equity interest in World Peace Industries Co., Ltd.
("WPI") of Taiwan, a distributor of electronic components and computer products,
and in April 1998, the Company purchased a minority equity interest in Eurodis
Electron PLC ("Eurodis"), a pan-European distributor of electronic components.
See "Recent Developments."
- Enhanced Breadth of Product Lines. Over the years, the Company has
established strong relationships with many leading electronic components
suppliers. The Company continues to add new suppliers of state-of-the-art
technologies, such as Cisco Systems, Compaq, IBM and Lucent Technologies, to
further strengthen its core business of semiconductors, computer systems
products and interconnect, passive and electromechanical products.
- Innovation in Value-added Services. The Company is continuing to expand
its value-added services to provide more complete solutions for customers who
are increasingly seeking to outsource non-core functions. The Company develops
and offers innovative value-added services to enable its customers to reduce
costs and deliver their products to market faster. The Company believes it is
well positioned to leverage its substantial purchasing and distribution
strengths by providing value-added services emphasizing the Company's logistics,
marketing and on-line information expertise. The Company utilizes its strong
sales and technical organization, efficient and effective distribution system,
including same-day shipment of substantially all orders, and attention to
quality control to strengthen the effectiveness and marketability of its
value-added services.
- Continued Realization of Operating Efficiencies. The Company is focused
on further improving operating efficiencies through continued cost reduction
initiatives and economies of scale. In the twelve month periods ended March 31,
1998 and 1997, the Company's operating expenses as a percentage of sales
improved to 13.4% from 13.6% for the twelve months ended March 31, 1996.
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RECENT DEVELOPMENTS
DICKENS DATA SYSTEMS, INC.
In 1995, the Company made a strategic decision to expand the number of
brands of computer systems that it distributes. To accomplish this goal, the
Company developed relationships with new suppliers, including IBM and Compaq.
The Company has experienced significant growth in its distribution of IBM
products.
In furtherance of this goal, pursuant to the Merger Agreement the Company
acquired, on March 31, 1998, all the outstanding capital stock of Dickens Data.
Dickens Data is a leading reseller, distributor and systems integrator of
products and services for mid-range computer systems. Over its 15-year history,
Dickens Data has directly served various Fortune 1000 customers including IBM,
Eastman Kodak, Coca Cola Company and Equifax. Dickens Data differentiates itself
from other mid-range systems distributors by combining value-added services with
its products. Dickens Data believes it has one of the largest networks of
independent software vendors and value-added resellers nationwide within the
mid-range computer systems market.
Dickens Data is currently one of IBM's largest distributors of mid-range
computer systems, and had total sales of approximately $346 million in calendar
year 1997. IBM recognized Dickens Data with the 1997 Business Partner Leadership
Award for Distributor of the Year. The Company believes the acquisition of
Dickens Data will expand the Company's customer base as well as the Company's
product offerings in the mid-range computer systems market. Through its
distribution arrangements with Digital, Oracle, BAAN, Intel and Compaq, the
Company believes that its ability to take advantage of growth opportunities in
the mid-range computer systems market will be enhanced by the acquisition of
Dickens Data.
WORLD PEACE INDUSTRIES CO., LTD.
As part of the Company's strategy to gain entry into new markets, in
December 1997 the Company purchased a minority equity interest in WPI of Taiwan.
The Company believes that its investment in WPI will provide the Company with
access to an extensive distribution network in the Asia-Pacific region.
Headquartered in Taipei, WPI has offices in countries throughout the region,
including Singapore, South Korea, Thailand, Malaysia, mainland China and Hong
Kong.
EURODIS ELECTRON PLC
In April 1998, the Company purchased a minority equity interest in Eurodis,
a pan-European distributor of electronic components. This purchase furthers the
Company's growth strategy by offering it access to what the Company believes is
a very broad industrial electronics components market as well as one of the
world's largest telecommunications markets. Headquartered near London, Eurodis
employs 1,100 people in 13 countries and has operating centers in the United
Kingdom, Austria, the Netherlands, Belgium, France, Germany, Italy, Switzerland
and Eastern Europe.
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PIONEER STANDARD FINANCIAL TRUST
Pioneer Standard Financial Trust (the "Issuer" or the "Trust") is a
statutory business trust created under Delaware law pursuant to (i) a trust
agreement executed by the Company (as Depositor), the Delaware Trustee (as
defined herein) and one of the Administrative Trustees (as defined herein) and
(ii) the filing of a certificate of trust with the Delaware Secretary of State
on February 27, 1998. In connection with the Original Offering, the trust
agreement was amended and restated in its entirety (as so amended and restated,
the "Trust Agreement"). The Issuer exists for the sole purposes of (i) issuing
and selling the Preferred Securities and Common Securities, (ii) using the
proceeds from the sale of the Preferred Securities and Common Securities to
acquire the Debentures issued by the Company, (iii) distributing the Issuer's
income as provided in the Trust Agreement and (iv) engaging in only those other
activities necessary (as described herein) or incidental thereto. Accordingly,
the Debentures are the sole assets of the Issuer, and payments under the
Debentures are the sole revenue of the Issuer. The Issuer has a term of
approximately 30 years, but may dissolve earlier as provided in the Trust
Agreement.
All of the Common Securities are owned by the Company. The Common
Securities rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities, except that upon the occurrence and continuance of a
Declaration Event of Default (as defined herein) resulting from a Debenture
Event of Default (as defined herein), the rights of the Company as holder of the
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Preferred Securities. See "Description of the Preferred
Securities -- Subordination of Common Securities." The Company owns Common
Securities in an aggregate liquidation amount equal to not less than 3% of the
total capitalization of the Issuer.
The Issuer's business and affairs are conducted by its trustees, which were
appointed by the Company as holder of the Common Securities. Pursuant to the
Trust Agreement, the number of trustees initially is five. Three of the trustees
(the "Administrative Trustees") are persons who are employees or officers of, or
affiliated with, the Company. A fourth trustee is a financial institution
unaffiliated with the Company that serves as property trustee (the "Property
Trustee") under the Trust Agreement. The Wilmington Trust Company ("Wilmington
Trust") is acting as the Property Trustee until removed or replaced by the
holder of the Common Securities. See "Description of the Preferred Securities."
The fifth trustee is a financial institution or an affiliate thereof which
maintains a principal place of business or residence in the State of Delaware
(the "Delaware Trustee"). Wilmington Trust is acting as Delaware Trustee until
removed or replaced by the holder of the Common Securities. The Administrative
Trustees, the Property Trustee and the Delaware Trustee are referred to herein
as the "Issuer Trustees." Wilmington Trust is also acting as the indenture
trustee under the Guarantee (the "Guarantee Trustee") and as the indenture
trustee under the Indenture relating to the Debentures. See "Description of the
Guarantee" and "Description of the Debentures."
The Property Trustee holds the title to the Debentures for the benefit of
the Issuer and holders of the Preferred Securities and the Common Securities and
has the power to exercise all of the rights, powers and privileges as the holder
of the Debentures. In addition, the Property Trustee maintains exclusive control
of a segregated non-interest bearing bank account (the "Property Account") to
hold all payments made in respect of the Debentures for the benefit of the
Issuer and holders of the Preferred Securities and the Common Securities. The
Property Trustee will make payments of Distributions and payments on
liquidation, redemption and otherwise to the holders of the Preferred Securities
and the Common Securities out of funds from the Property Account. The Guarantee
Trustee holds the Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the holder of the Common Securities, will have the
right to appoint, remove or replace any Issuer Trustee and to increase or
decrease the number of Administrative Trustees. The duties and obligations of
the Issuer Trustees are governed by the Trust Agreement. The rights of the
holders of the Preferred Securities, including economic rights, right to
information and voting rights, are as set forth in the Trust Agreement and the
Delaware Business Trust Act, as amended (the "Trust Act").
The Company will pay, directly or indirectly, all ongoing costs and
expenses of the Issuer. See "Description of the Debentures -- Expenses of the
Issuer." The principal offices of the Issuer are located at 4800 East 131st
Street, Cleveland, Ohio 44105, and its telephone number is (440) 587-3600.
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. See "Forward-Looking Statements." Prospective investors should
consider, in addition to the information set forth elsewhere in this Prospectus,
the following matters in evaluating the Company and the Offered Securities.
RISK FACTORS RELATING TO THE COMPANY
Competition
The electronic components and computer products industry is highly
competitive. The Company competes with many local, regional and national
distributors for both supplier and customer relationships. The Company competes
for customer relationships with semiconductor and computer systems product
manufacturers, including some of its own suppliers. Although the Company is one
of the leading distributors in the North American markets in terms of sales,
certain of its competitors are larger, more established and have greater
financial and other resources than the Company. Furthermore, decreased prices,
as a result of increasing competition, may have a negative impact on gross
margins. There can be no assurance that the Company will be able to compete
successfully with existing or new competitors, and failure to do so would have a
material adverse effect on the Company's results of operations.
Dependence on the Computer Network and Platform Market
Many of the products sold by the Company are used in the manufacture or
configuration of mid-range computer systems and high-end platforms. These
products are characterized by rapid technological change, short product life
cycles and intense competition. The mid-range computer systems and high-end
platforms industry has experienced significant unit volume growth in recent
years that has, in turn, increased demand for many of the products distributed
by the Company. Slowdown in the growth of this market could adversely affect the
Company's ability to continue its recent revenue growth.
Cyclical Nature of the Semiconductor Market
Semiconductors have represented 36%, 41% and 38% of the Company's sales in
fiscal years 1998, 1997 and 1996, respectively. The semiconductor market has
historically been characterized by fluctuations in product supply and demand
and, consequently, significant variations in price. While the Company's
distribution arrangements are intended to protect the Company from price
erosion, there can be no assurance that price erosion will not occur. In the
event of an excess supply of semiconductors, the Company's gross margins may be
adversely affected. In the event of a shortage of supply of semiconductors, the
Company's results of operations will depend on the amount of product allocated
to the Company by its suppliers and the timely receipt of such allocations.
Moreover, technological changes that affect the demand for and prices of the
products distributed by the Company may further affect the Company's gross
margins.
Inventory Obsolescence and Technology Change
The markets for electronic components and computer products are
characterized by rapidly changing technology and evolving industry standards,
often resulting in product obsolescence or short product life cycles.
Accordingly, the Company's success is dependent upon its ability to anticipate
technological changes in the industry and to continually identify, obtain and
successfully market new products that satisfy evolving industry and customer
requirements. While the Company's distribution arrangements are intended to
protect the Company from obsolescence, there can be no assurance that product
obsolescence will not occur. Additional concentrations of capital in inventory
increase the risk of loss from possible inventory obsolescence. There can be no
assurance that competitors or manufacturers of electronic components and
computer products will not market products which have perceived advantages over
products distributed by the Company or which render the products currently sold
by the Company obsolete or less marketable. There can be no assurance that the
Company's existing customers or consumers will be willing, for financial or
other reasons, to purchase the new equipment necessary to utilize these new
technologies or that product obsolescence will not result in significantly
increased inventories of unsold products.
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Dependence on Key Suppliers
During fiscal year 1998, products purchased from the Company's five largest
suppliers accounted for 68% of total sales, with Digital Equipment and Intel
representing 29% and 18% of sales, respectively. In addition, adjusting for the
acquisition of Dickens Data on a pro forma basis, IBM would have represented
21.5% of the Company's sales for the fiscal year ended March 31, 1998 and 98.6%
of the sales of Dickens Data for the fiscal year ended December 31, 1997.
Although the Company believes it has good relationships with its suppliers,
there can be no assurance that these relationships will continue. The loss of
any one of the top five suppliers and/or a combination of certain other
suppliers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Industry Concentration
The electronic components and computer products distribution industry has
become increasingly concentrated in recent years as a result of consolidations,
acquisitions and strategic alliances. It is possible that new competitors or
alliances among competitors could emerge and rapidly acquire significant market
share. Such new competitors or alliances may have greater financial, technical,
marketing and other resources than the Company and, therefore, may be able to
negotiate more favorable relationships with the Company's existing and potential
suppliers than the Company. Increased competition from these competitors could
result in price reductions, reduced gross margins and loss of market share.
Therefore, there can be no assurance that continued industry consolidation among
the Company's competitors will not have a material adverse effect on the
Company's business, results of operations and financial condition. In January
1998, Compaq and Digital Equipment, both of which are major suppliers to the
Company, announced that they entered into a definitive merger agreement. At the
current time, the Company is unable to predict the effect of this merger on the
Company's operations.
Impact of Acquisitions
An important element of the Company's business strategy is to review
acquisition prospects that would complement its existing business, augment its
market coverage or provide expansion opportunities. To the extent that industry
consolidation becomes more prevalent, future acquisitions by the Company could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, any of which could materially adversely affect the
Company's financial condition and results of operations and/or the price of
Common Shares. Acquisitions entail inherent risks and uncertainties. There can
be no assurance that the Company will be able to successfully integrate and
manage the significantly larger operations resulting from new businesses
recently acquired or to be acquired in the future, including Dickens Data, and
the failure of the Company to do so could have a material adverse effect on the
Company.
Volatility in Asian Markets
Although in 1998 the Company's sales to Asian markets constituted less than
0.5% of the Company's total sales, the recent instability in Asian financial
markets could have a negative impact on the Company's business. Economic
uncertainty may cause the Company's existing global customers to postpone
purchases of electronic components and computer products intended for their
Asian operations. Additionally, if the region's currencies remain weak, the
Company's Asian competitors may be able to attract sales away from U.S.
distributors due to their competitive pricing advantage. Either of these factors
may reduce the Company's sales, which could have a material adverse effect on
the Company's results of operations and financial condition.
Covenant Restrictions
In connection with the acquisition of Dickens Data, the Company entered a
new credit facility with National City Bank, Cleveland, Ohio ("NCB") and other
leading banks (the "Revolving Credit Facility"). The Revolving Credit Facility
replenished the previous $165,000,000 credit facilities and provides that NCB
will act as agent and, with the other lenders in the bank syndicate, provides
the Company with loans of up to $260,000,000 on a revolving credit basis. Also,
in August 1996, the Company issued $150 million principal amount of 8 1/2%
Senior Notes due 2006 (the "Notes"). As of June 30, 1998, the Company was in
compliance with the terms of the
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indenture agreement ("Indenture Agreement") under which the Notes were issued
and the Revolving Credit Facility. See "Description of Certain Indebtedness."
There can be no assurance that the Company will continue to be able to comply
with the terms of its Revolving Credit Facility and the Indenture Agreement in
the future.
Shares Eligible for Future Sale
The Company established the Benefits Trust, pursuant to which Wachovia
Bank, N.A., as trustee, subscribed for 5,000,000 Common Shares of the Company to
be paid for over the 15-year term of the Benefits Trust. As of March 31, 1998,
the Benefits Trust had sold 220,000 Common Shares. The Company anticipates that
the Benefits Trust will sell at least an additional 155,000 Common Shares by the
end of fiscal 1999. Sales of substantial amounts of Common Shares by the
Benefits Trust, or the perception that such sales may occur, may adversely
affect the trading price of the Common Shares. See "Description of Capital
Stock -- Benefits Trust."
Anti-Takeover Provisions and State Anti-Takeover Laws
Certain provisions of the Company's Articles of Incorporation and Code of
Regulations, as well as provisions of Ohio law may, together or separately, have
the effect of discouraging potential acquisition proposals or delaying or
preventing changes in control of the Company or the management of the Company.
In addition, the Company has adopted a shareholders' rights plan that includes
certain provisions which could have similar anti-takeover effects. See
"Description of Capital Stock -- Other Matters."
RISK FACTORS RELATING TO THE OFFERED SECURITIES
Ranking of Subordinated Obligations Under the Guarantee and the Debentures
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of Preferred Securities are unsecured and rank
subordinate and junior in right of payment to all other liabilities of the
Company and pari passu with the most senior preferred stock, if any, issued from
time to time by the Company and any guarantee now or hereafter entered into by
the Company in respect of any preferred or preference stock of any affiliate of
the Company. The obligations of the Company under the Debentures are subordinate
and junior in right of payment to all present and future Senior Debt of the
Company. As of June 30, 1998, the Company had indebtedness of approximately $344
million, all of which comprised Senior Debt of the Company. The ability of the
Issuer to pay amounts due on the Preferred Securities is solely dependent upon
the Company making payments on the Debentures as and when required. None of the
Indenture, the Guarantee nor the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Debt, that may be incurred
by the Company and its subsidiaries. See "Description of the Guarantee -- Status
of the Guarantee" and "Description of the Debentures -- Subordination."
Option to Extend Interest Payment Period; Tax Consequences
The Company has the right under the Indenture to defer the payment of
interest on the Debentures at any time and from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the stated maturity of the
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may select a new Extension Period subject to the
requirements described herein. As a consequence of any such deferral, quarterly
Distributions on the Preferred Securities by the Issuer will be deferred (and
the amount of Distributions to which holders of the Preferred Securities are
entitled will accumulate additional Distributions) during any such Extension
Period.
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount ("OID")) in
respect of its pro rata share of the deferred interest allocable to the
Debentures held by the Issuer for United States Federal income tax purposes. As
a result, a holder of Preferred Securities will include such income in gross
income for United States Federal income tax purposes in advance of the receipt
of cash, and will not receive the cash related to such income from the Issuer if
the holder disposes of the Preferred Securities prior to the record date for the
payment of Distributions. See "Certain United States Federal Income Tax
Consequences -- Interest Income and Original Issue Discount." Moreover, if a
holder of
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Preferred Securities converts its Preferred Securities into Common Shares during
an Extension Period, the holder will not receive any cash related to the
deferred distribution. Additionally, during the pendency of any Extension
Period, the Company will not be permitted, among other restrictions and subject
to certain exceptions set forth herein, to declare or pay any cash distribution
on any of its capital stock, including Common Shares or debt securities
(including guarantees of indebtedness for money borrowed) that rank pari passu
with or junior to the Debentures. See "Description of the Preferred
Securities -- Distributions."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Debentures.
However, should the Company elect to exercise such right in the future, the
market price of the Preferred Securities is likely to be affected. A holder that
disposes of its Preferred Securities during an Extension Period, therefore,
might not receive the same return on its investment as a holder that continues
to hold its Preferred Securities. In addition, as a result of the existence of
the Company's right to defer interest payments, the market price of the
Preferred Securities (which represent preferred undivided beneficial interests
in the Debentures) may be more volatile than the market prices of other
securities on which original issue discount accrues that are not subject to such
deferrals.
Special Event Exchange or Redemption; Distribution of Debentures
Upon certain circumstances following the occurrence and continuation of a
Special Event, the Preferred Securities are also subject to (i) exchange in
whole or, in the case of a Tax Event (as defined herein) that has occurred and
is continuing, in whole or in part, in the manner described herein, for the
Debentures or (ii) redemption, in whole or in part, on or after March 31, 2002,
at the liquidation preference thereof plus accumulated and unpaid Distributions,
in the case of a Tax Event. See "Description of the Preferred Securities --
Special Event Exchange or Redemption." In addition, at any time, the Company
will have the right to dissolve the Issuer and, after satisfaction of the
liabilities of creditors of the Issuer as provided by applicable law, cause the
Debentures to be distributed to the holders of the Preferred Securities in
liquidation of the Issuer. See "Description of the Preferred
Securities -- Distribution of Debentures."
There can be no assurance as to the market prices for Preferred Securities
or Debentures that may be distributed in exchange for Preferred Securities if a
dissolution of the Issuer occurs or if the Preferred Securities are exchanged
for Debentures in connection with a Special Event. Accordingly, the Preferred
Securities that an investor may purchase, or the Debentures that a holder of
Preferred Securities may receive on dissolution of the Issuer, may trade at a
discount to the price that the investor paid to purchase the Offerred
Securities. Because holders of Preferred Securities may receive Debentures on
dissolution of the Issuer or if the Preferred Securities are exchanged for
Debentures in connection with a Special Event, prospective purchasers of
Preferred Securities are also making an investment decision with regard to the
Debentures and should carefully review all the information regarding the
Debentures contained herein. See "Description of the Preferred
Securities -- Special Event Exchange or Redemption" and "Description of the
Debentures -- General."
Rights Under the Guarantee
The Guarantee guarantees to the holders of the Preferred Securities on a
subordinated basis the following payments, to the extent not paid by the Issuer:
(i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Issuer has funds on hand available
therefor at such time, (ii) the redemption price with respect to any Preferred
Securities called for redemption, to the extent that the Issuer has funds on
hand available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution of the Issuer (unless the Debentures are distributed to holders of
the Preferred Securities), the lesser of (a) the aggregate of the liquidation
preference and all accumulated and unpaid Distributions to the date of payment
to the extent that the Issuer has funds on hand available therefor at such time
and (b) the amount of assets of the Issuer remaining available for distribution
to holders of the Preferred Securities in dissolution of the Issuer.
As part of the Guarantee, the Company agreed that it will honor all
obligations provided therein relating to the conversion or exchange of the
Preferred Securities into or for Common Shares or Debentures.
The holders of not less than a majority in aggregate liquidation preference
of the Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the
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<PAGE> 15
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Guarantee. If the
Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred
Securities may institute a proceeding directly against the Company to enforce
its rights under the Guarantee without first instituting a proceeding against
the Issuer, the Guarantee Trustee or any other person or entity. If the Company
were to default on its obligation to pay amounts payable under the Debentures,
the Issuer would lack funds for the payment of Distributions or amounts payable
on redemption of the Preferred Securities or otherwise, and, in such event,
holders of the Preferred Securities would not be able to rely upon the Guarantee
for payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing, a holder of Preferred Securities would be
required to rely on the enforcement by the Property Trustee of its rights as
registered holder of the Debentures against the Company pursuant to the terms of
the Debentures. If, however, such event is attributable to the failure of the
Company to pay interest on or principal of the Debentures on the payment date on
which such payment is due and payable, then a holder of Preferred Securities may
directly institute a proceeding against the Company for enforcement of payment
to such holder of the interest on or principal of such Debentures having a
principal amount equal to the aggregate liquidation preference of the Preferred
Securities of such holder (a "Direct Action"). In connection with such Direct
Action, the Company will be subrogated to the rights of such holder of Preferred
Securities under the Trust Agreement to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action. Except as
set forth herein, holders of Preferred Securities are not able to exercise
directly any other remedy available to the holders of Debentures or assert
directly any other rights in respect of the Debentures. See "Description of the
Preferred Securities -- Enforcement of Certain Rights by Holders of Preferred
Securities," "Description of the Guarantee" and "Description of the
Debentures -- Debenture Events of Default." The Trust Agreement provides that
each holder of Preferred Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture.
Enforcement of Certain Rights by Holders of Preferred Securities
If a Declaration Event of Default (as defined herein) occurs and is
continuing, the holders of Preferred Securities would rely on the enforcement by
the Property Trustee of its rights as the holder of the Debentures against the
Company. In addition, the holders of a majority in aggregate liquidation
preference of the Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Trust Agreement, including the right to direct the
Property Trustee to exercise the remedies available to it as a holder of the
Debentures. If the Property Trustee fails to enforce its rights as holder of the
Debentures after a request therefor by a holder of Preferred Securities, such
holder may, to the fullest extent permitted by law, proceed to enforce such
rights directly against the Company. Notwithstanding the following, if a
Declaration Event of Default occurs that results from the failure of the Company
to pay principal of or interest on the Debentures when due (or in the case of a
redemption, on the redemption date), during the continuance of such an event of
default a holder of Preferred Securities may institute a legal proceeding
directly against the Company to obtain payment to such holder of such principal
or interest on Debentures having a principal amount equal to the aggregate
liquidation preference of the Preferred Securities owned of record by such
holder. See "Description of the Preferred Securities -- Declaration Events of
Default; Notice" and "Description of the Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement."
Limited Voting Rights
Holders of Preferred Securities generally have limited voting rights
primarily in connection with directing the activities of the Property Trustee as
the holder of the Debentures. Holders of Preferred Securities are not entitled
to vote to appoint, remove or replace the Issuer Trustees (as defined herein),
which voting rights are vested exclusively in the holder of the Common
Securities. The Issuer Trustees and the Company may amend the Trust Agreement
without the consent of holders of Preferred Securities to ensure that the Issuer
will be classified for United States Federal income tax purposes as a grantor
trust even if such action adversely affects the interests of such holders. See
"Description of the Preferred Securities -- Voting Rights; Amendment of the
Trust Agreement."
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Future Tax Legislation
Prospective investors should be aware that future tax legislation could
adversely affect the tax treatment of the Debentures and could result in the
exchange of the Preferred Securities for Debentures or, in certain limited
circumstances, the redemption of the Debentures by the Company and the
distribution of the resulting cash in redemption of the Preferred Securities.
See "Description of the Preferred Securities -- Special Event Exchange or
Redemption."
Potential Reduction of Payments to Non-United States Holders for United States
Tax Withholding Requirements
In the event that any United States taxes, duties or other governmental
charges are required to be deducted or withheld from any payments by the Company
to holders of Preferred Securities that are not United States persons, neither
the Company nor the Issuer would be required to pay any additional amounts to
such holders and, therefore, any such taxes, duties or charges would reduce the
amounts received by such holders. See "Certain United States Federal Income Tax
Consequences -- United States Alien Holders."
Absence of Public Market for the Preferred Securities
There can be no assurance that any market for the Preferred Securities will
develop or, if one does develop, that it will be maintained. If an active market
for the Preferred Securities fails to develop or be sustained, the trading price
of the Preferred Securities could be adversely affected. The Preferred
Securities could trade at prices that may be higher or lower than the price of
any Preferred Securities purchased hereunder depending on many factors,
including prevailing interest rates, the price of the Common Shares, the
Company's operating results, any election by the Company to extend interest
payment periods and the market for similar securities.
Trading Price of Preferred Securities
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Debentures. A holder disposing of Preferred Securities between record dates for
payments of distributions thereon are required for United States Federal income
tax purposes to include in gross income the OID on the Debentures through the
date of disposition, and to add such amount to the adjusted basis on its pro
rata share of the underlying Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (so determined), 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. See "Certain United States Federal Income Tax
Consequences -- Sales of Preferred Securities."
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USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from any sale of the
Offered Securities. Neither the Company nor the Issuer will receive any proceeds
from the sale of the Offered Securities.
ACCOUNTING TREATMENT
The financial statements of the Issuer are reflected in the Company's
consolidated financial statements, with the $143,750,000 of Preferred Securities
shown as Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely 6 3/4% convertible subordinated
debentures of the Company. The notes to the Company's consolidated financial
statement reflect that the sole assets of the Issuer are approximately
$148,200,000 principal amount of the Debentures.
DESCRIPTION OF THE PREFERRED SECURITIES
This summary of certain provisions of the Preferred Securities and the
Trust Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Trust
Agreement (a copy of which is available for inspection at the corporate trust
office of the Property Trustee in Wilmington, Delaware) and the Trust Act. The
Preferred Securities were issued in the Original Offering pursuant to the terms
of the Trust Agreement. Wherever particular defined terms of the Trust Agreement
are referred to herein, such defined terms are incorporated herein by reference.
GENERAL
Pursuant to the terms of the Trust Agreement, the Issuer issued the
Preferred Securities and the Common Securities in the Original Offering in fully
registered form without interest coupons. The Preferred Securities represent
preferred, undivided beneficial interests in the assets of the Issuer, and the
Common Securities represent common, undivided beneficial interests in the assets
of the Issuer. All of the Common Securities are directly owned by the Company.
The Preferred Securities rank pari passu, and payments are made thereon pro rata
with the Common Securities except as described under "-- Subordination of Common
Securities." Legal title to the Debentures is held by the Property Trustee in
trust for the benefit of the holders of the Preferred Securities and Common
Securities. The Trust Agreement does not permit the issuance by the Issuer of
any securities other than the Preferred Securities and the Common Securities or
the incurrence of any indebtedness by the Issuer. The payment of Distributions
out of money held by the Issuer, and payments upon redemption of the Preferred
Securities or dissolution of the Issuer, are guaranteed by the Company to the
extent described under "Description of the Guarantee." The Guarantee is held by
the Guarantee Trustee for the benefit of the holders of the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer does not have sufficient available funds to pay such Distributions. The
remedy of a holder of Preferred Securities in such an event is as described
herein in "-- Enforcement of Certain Rights by Holders of Preferred Securities"
and "-- Voting Rights; Amendment of the Trust Agreement."
DISTRIBUTIONS
Distributions on each Preferred Security are payable at the annual rate of
6 3/4% of the liquidation preference of $50 per Preferred Security.
Distributions accumulate from the date of original issuance and are payable,
unless deferred, quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year when, as and if available for payment by the Property
Trustee, except as otherwise described below. Payments of the Distributions
commenced on June 30, 1998. The amount of Distributions payable for any period
is computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which Distributions are payable on the Preferred Securities is
not a Business Day (as defined below), then payment of the Distributions payable
on such date will be made on the next succeeding day that is a Business Day and
without any additional Distributions or other payment in respect of any such
delay (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in the City
of New York are authorized or required
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by law or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee is closed for business.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Indenture to defer the payment of interest
(including any Liquidated Damages) on the Debentures at any time and from time
to time for a period not exceeding 20 consecutive quarters with respect to each
deferral period (each an "Extension Period"), provided that no Extension Period
may extend beyond the stated maturity of the Debentures. As a consequence of any
such election, quarterly Distributions on the Preferred Securities will be
deferred by the Issuer during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon at the rate per annum set forth herein, compounded
quarterly from the relevant payment date for such Distributions. The term
"Distributions" as used herein shall include any such additional Distributions.
During any such Extension Period, the Company may not, and may not cause any of
its subsidiaries to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
shares of the Company's capital stock, or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees of indebtedness for money borrowed) of the
Company that rank pari passu with or junior to the Debentures (other than (a)
any dividend, redemption, liquidation, interest, principal or guarantee payment
by the Company where the payment is made by way of securities (including capital
stock) that rank pari passu with or junior to the securities on which such
dividend, redemption, interest, principal or guarantee payment is being made,
(b) redemptions or purchases of any Rights (as defined in the Rights Agreement)
pursuant to the Company's Rights Agreement (as defined herein), and the
declaration of a dividend of such Rights or the issuance of Common Shares under
such agreement in the future, (c) payments under the Guarantee and any similar
guarantees issued by the Company on behalf of the holders of preferred
securities issued by any trust or other issuer holding debentures of any series,
(d) purchases of Common Shares related to the issuance of Common Shares under
the Benefits Trust (as defined herein) or any of the Company's benefit plans for
its directors, officers or employees, (e) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one series or class
of the Company's capital stock for another series or class of the Company's
capital stock, and (f) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged). Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the stated maturity of the Debentures.
Upon the termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period. See "Description of the Debentures -- Option to Extend
Interest Payment Period" and "Certain United States Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
The Company has no current intention to exercise its right to defer
payments of interest by extending the interest payment period on the Debentures.
Distributions with respect to the Preferred Securities must be paid on the
dates payable to the extent that the Issuer has funds available for the payment
of such Distributions in the Property Account. The funds of the Issuer available
for distribution to holders of the Preferred Securities are limited to payments
under the Debentures. See "Description of the Debentures." If the Company does
not make interest payments on such Debentures, the Property Trustee will not
have funds available to pay Distributions on the Preferred Securities. The
payment of Distributions (if and to the extent the Issuer has funds available
for the payment of such Distributions) is guaranteed by the Company on a limited
basis as set forth herein under "Description of the Guarantee."
Distributions on the Preferred Securities are payable to the holders
thereof as they appear on the register of the Issuer on the relevant record
dates, which shall be the fifteenth day (whether or not a Business Day) next
preceding the relevant Distribution Date. As long as the Preferred Securities
remain in book-entry form, subject to any applicable laws and regulations and
the provisions of the Trust Agreement, each such payment will be made as
described under "-- Form, Transfer, Exchange and Book-Entry Procedures."
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CONVERSION RIGHTS
General
The Preferred Securities are convertible at any time through the close of
business on the maturity date of the Debentures (or, in the case of Preferred
Securities called for redemption, through the close of business on the
Redemption Date), at the option of the holder thereof and in the manner
described below, into Common Shares at an initial conversion rate of 3.1746
Common Shares for each Preferred Security (equivalent to a purchase price of
$15.75 per Common Share), subject to adjustment as described under
"-- Conversion Price Adjustments" below. Whenever the Company issues Common
Shares upon conversion of Preferred Securities and the Company has in effect at
such time a stock purchase rights agreement under which holders of Common Shares
are issued rights entitling the holders under certain circumstances to purchase
additional Common Shares or other capital stock of the Company, the Company will
issue, together with each such Common Share, an appropriate number of rights.
For a description of the Company's Rights Agreement, see "Description of Capital
Stock -- Other Matters; Rights Plan."
A holder of Preferred Securities wishing to exercise its conversion right
shall surrender such Preferred Securities, together with an irrevocable
conversion notice, to the Property Trustee, as conversion agent or to such other
agent appointed for such purpose (the "Conversion Agent"), which shall, on
behalf of such holder, exchange the Preferred Securities for a portion of the
Debentures and immediately convert such Debentures into Common Shares. So long
as a book-entry system for the Preferred Securities is in effect, however, the
procedures for converting the Preferred Stock that are in the form of Global
Certificates into Common Shares will be as described under "-- Form, Transfer,
Exchange and Book-Entry Procedures." The Company's delivery upon conversion of
the fixed number of Common Shares into which the Debentures are convertible
(together with the cash payment, if any, in lieu of any fractional share) shall
be deemed to satisfy the Company's obligation to pay the principal amount at
maturity of the portion of the Debentures so converted and any unpaid interest
accrued on such Debentures at the time of such conversion. For a discussion of
the taxation of such an exchange to holders, see "Certain United States Federal
Income Tax Consequences -- Conversion of Preferred Securities into Common
Shares." Holders may obtain copies of the required form of the conversion notice
from the Conversion Agent.
Accumulated Distributions will not be paid on Preferred Securities that are
converted, provided that holders of Preferred Securities at the close of
business on a Distribution payment record date will be entitled to receive the
Distribution payable on such Preferred Securities on the corresponding
Distribution Date notwithstanding the conversion of such Preferred Securities on
or subsequent to such Distribution record date but prior to such Distribution
Date. Except as provided in the immediately preceding sentence, the Issuer will
make no payment or allowance for accumulated and unpaid Distributions, whether
or not in arrears, on converted Preferred Securities. The Company will make no
payment or allowance for any accrued and unpaid dividends on Common Shares
issued upon such conversion. Each conversion will be deemed to have been
effected immediately prior to the close of business on the day on which proper
notice was received by the Conversion Agent.
Common Shares issued upon conversion of Preferred Securities will be
validly issued, fully paid and non-assessable. No fractional Common Shares will
be issued as a result of conversion, but in lieu thereof such fractional
interest will be paid in cash.
Conversion Price Adjustments
General. The conversion price is subject to adjustment in certain events
including, without duplication: (i) the payment of dividends (and other
distributions) payable exclusively in Common Shares on Common Shares; (ii) the
issuance to all holders of Common Shares of rights or warrants entitling holders
of such rights or warrants (for a period not exceeding 45 days) to subscribe for
or purchase Common Shares at less than the then Current Market Price (as defined
below); (iii) subdivisions and combinations of Common Shares; (iv) the payment
of dividends (and other distributions) to all holders of Common Shares
consisting of evidences of indebtedness of the Company, capital stock, cash or
assets (including securities, but excluding those rights or warrants referred to
above in clause (ii), any dividends or distributions paid exclusively in cash
and any dividend or distribution referred to above in clause (i)); (v) the
payment of dividends (and other distributions) on Common
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<PAGE> 20
Shares paid exclusively in cash, excluding (A) cash dividends that do not exceed
the per share amount of the immediately preceding regular cash dividend (as
adjusted to reflect any of the events referred to in clauses (i) through (vi) of
this sentence), and (B) cash dividends if the annualized per Common Share amount
thereof does not exceed 12.5% of the Current Market Price per Common Share on
the trading day immediately preceding the date of declaration of such dividend
(such adjustment being limited to the amount in excess of 12.5% of such Current
Market Price); and (vi) payment in respect of a tender or exchange offer (other
than an odd-lot offer) by the Company or any subsidiary of the Company for
Common Shares in excess of the Current Market Price of Common Shares on the
trading day next succeeding the last date tenders or exchanges may be made
pursuant to such tender or exchange offer.
If the distribution date for the Rights of the Company provided in the
Rights Agreement (see "Description of Capital Stock -- Other Matters; Rights
Plan"), occurs prior to the date a Preferred Security is converted and holders
of the Preferred Securities who convert such Preferred Securities after such
distribution date are not entitled to receive the Rights that would otherwise be
attached (but for the date of conversion) to Common Shares received upon such
conversion, an adjustment of the conversion price shall be made under clause
(ii) of the preceding paragraph as if the Rights were being distributed to the
common shareholders of the Company immediately prior to such conversion. If such
an adjustment is made and the Rights are later redeemed, invalidated or
terminated, then a corresponding reversing adjustment shall be made to the
conversion price, on an equitable basis, to take account of such event.
The Company from time to time may reduce the conversion price of the
Debentures (and thus the conversion price of the Preferred Securities) by any
amount selected by the Company for any period of at least 30 days, in which case
the Company shall give at least 15 days' notice of such reduction to the
Debenture Trustee (as defined herein) and the Property Trustee. The Company may,
at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors of the Company deems advisable
to avoid or diminish any income tax to holders of Common Shares resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. See "Certain United States
Federal Income Tax Consequences -- Adjustment of Conversion Price."
There will be no adjustment of the conversion price in case of the issuance
of any Common Shares (or securities convertible into or exchangeable for Common
Shares), except as specifically described above. For example, no adjustment of
the conversion price will be made upon the issuance of any Common Shares
pursuant to any present or future plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in Common Shares under any such plan, or the
issuance of any Common Shares or options or rights to purchase such shares
pursuant to any present or future employee benefit plan or program of the
Company or pursuant to any option, warrant, right, or exercisable, exchangeable
or convertible security which does not constitute an issuance to all holders of
Common Shares of rights or warrants entitling holders of such rights or warrants
to subscribe for or purchase Common Shares at less than the Current Market
Price. If any action would require adjustment of the conversion price pursuant
to more than one of the anti-dilution provisions, only one adjustment shall be
made and such adjustment shall be the amount of adjustment that has the highest
absolute value to holders of the Preferred Securities. No adjustment in the
conversion price will be required unless such adjustment would require an
increase or decrease of at least 1% of the conversion price, but any adjustment
that would otherwise be required to be made shall be carried forward and taken
into account in a subsequent adjustment.
The term "Current Market Price" of Common Shares for any day means the last
reported sale price, regular way, on such day, or, if no sale takes place on
such day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on Nasdaq, or, if Common Shares are not
quoted or admitted to trading on Nasdaq on such day, on the principal national
securities exchange on which Common Shares are listed or admitted to trading, if
Common Shares are listed on a national securities exchange, or, if Common Shares
are not listed or admitted to trading on any such national securities exchange,
on the principal quotation system on which Common Shares may be listed or
admitted to trading or quoted, or, if not listed or admitted to trading or
quoted on any national securities exchange or quotation system, the average of
the closing bid and asked prices of Common Shares in the over-the-counter market
on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or, if not so
available in such
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<PAGE> 21
manner, as furnished by any New York Stock Exchange ("NYSE") member firm
selected from time to time by the Board of Directors of the Company for that
purpose or, if not so available in such manner, as otherwise determined in good
faith by the Board of Directors of the Company.
Merger, Consolidation or Sale of Assets of the Company. In the event that
the Company is party to any transaction (including, without limitation, a merger
other than a merger that does not result in a reclassification, conversion,
exchange or cancellation of Common Shares), consolidation, sale of all or
substantially all of the assets of the Company, recapitalization or
reclassification of Common Shares (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of a
subdivision or combination of Common Shares) or any compulsory share exchange
(each of the foregoing being referred to as a "Transaction"), in each case, as a
result of which Common Shares shall be converted into the right to receive, or
shall be exchanged for, (i) in the case of any Transaction other than a
Transaction involving a Common Stock Fundamental Change (as defined below) (and
subject to funds being legally available for such purpose under applicable law
at the time of such conversion), securities, cash or other property, each
Preferred Security shall thereafter be convertible into the kind and, in the
case of a Transaction which does not involve a Fundamental Change (as defined
below), amount of securities, cash and other property receivable upon the
consummation of such Transaction by a holder of that number of Common Shares
into which a Preferred Security was convertible immediately prior to such
Transaction, or (ii) in the case of a Transaction involving a Common Stock
Fundamental Change or shares of common stock, each Preferred Security shall
thereafter be convertible (in the manner described therein) into shares of
common stock of the kind received by holders of Common Shares (but in each case
after giving effect to any adjustment discussed below relating to a Fundamental
Change if such Transaction constitutes a Fundamental Change). The holders of
Preferred Securities have no voting rights with respect to any Transaction.
If any Fundamental Change occurs, then the conversion price in effect will
be adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Preferred
Security shall be convertible solely into shares of common stock of the kind
received by holders of Common Shares as a result of such Common Stock
Fundamental Change.
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below),
the conversion price of the Preferred Securities will thereupon become the
lower of (A) the conversion price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, and (B) the
result obtained by multiplying the greater of the Applicable Price (as
defined below) or the then applicable Reference Market Price (as defined
below) by a fraction, the numerator of which is $50 and the denominator of
which is (x) the amount of the redemption price for one Preferred Security
if the redemption date were the date of such Non-Stock Fundamental Change
(or, for the period commencing on the first date of original issuance of
the Preferred Securities and through March 30, 1999, and the twelve-month
periods commencing March 31, 1999, March 31, 2000 and March 31, 2001, the
product of 106.750%, 106.075%, 105.400% and 104.725%, respectively,
multiplied by $50) plus (y) any then-accumulated and unpaid Distributions
on one Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Preferred Securities in effect immediately prior to such
Common Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, will thereupon
be adjusted by multiplying such conversion price by a fraction of which the
numerator will be the Purchaser Share Price (as defined below) and the
denominator will be the Applicable Price; provided, however, that in the
event of a Common Stock Fundamental Change in which (A) 100% of the value
of the consideration received by a holder of Common Shares is common stock
of the successor, acquiror, or other third party (and cash, if any, is paid
only with respect to any fractional interests in such common stock
resulting from such Common Stock Fundamental Change) and (B) all Common
Shares will have been exchanged for, converted into, or acquired for common
stock (and cash with respect to fractional interests) of the successor,
acquiror, or other third party, the conversion price of the Preferred
Securities in effect immediately prior to such Common
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<PAGE> 22
Stock Fundamental Change will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be one and the
denominator will be the number of shares of common stock of the successor,
acquiror, or other third party received by a holder of one Common Share as
a result of such Common Stock Fundamental Change.
The foregoing conversion price adjustments are designed, in certain
circumstances, to reduce the conversion price that would be applicable in
"Fundamental Change" Transactions where all or substantially all Common Shares
are converted into securities, cash, or property and with respect to a Non-Stock
Fundamental Change, not more than 50% of the value received by the holders of
Common Shares consists of common stock listed or admitted for listing subject to
notice of issuance on a national securities exchange or quoted on Nasdaq. Such
reduction would result in an increase in the amount of the securities, cash or
property into which each Preferred Security is convertible over that which would
have been obtained in the absence of such conversion price adjustments.
In a Non-Stock Fundamental Change Transaction where the initial value
received per Common Share (measured as described in the definition of Applicable
Price below) is lower than the then applicable conversion price of a Preferred
Security but greater than or equal to the Reference Market Price (as defined
below), the conversion price will be adjusted as described above with the effect
that each Preferred Security will be convertible into securities, cash or
property of the same type received by the holders of Common Shares in the
Transaction but in an amount per Preferred Security that would at the time of
the Transaction have had a value equal to the then applicable redemption price
per Preferred Security set forth below under "-- Optional Redemption."
In a Non-Stock Fundamental Change Transaction where the initial value
received per Common Share (measured as described in the definition of Applicable
Price) is lower than both the conversion price of a Preferred Security in effect
prior to any adjustment described above and the Reference Market Price, the
conversion price will be adjusted as described above but calculated as though
such initial value had been the Reference Market Price.
In a Fundamental Change Transaction where all or substantially all Common
Shares are converted into securities, cash, or property and more than 50% of the
value received by the holders of Common Shares consists of listed or Nasdaq
traded common stock (a Common Stock Fundamental Change, as defined below), the
foregoing adjustments are designed to provide in effect that (a) where Common
Shares are converted partly into such shares of common stock and partly into
other securities, cash, or property, each Preferred Security will be convertible
solely into a number of such shares of common stock determined so that the
initial value of such shares (measured as described in the definition of
"Purchaser Stock Price" below) equals the value of the Common Shares into which
such Preferred Security was convertible immediately before the Transaction
(measured as aforesaid) and (b) where Common Shares are converted solely into
such shares of common stock, each Preferred Security will be convertible into
the same number of such shares of common stock receivable by a holder of the
number of Common Shares into which such Preferred Security was convertible
immediately before such Transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock
Fundamental Change in which the holders of Common Shares receive only cash, the
amount of cash received by the holder of one Common Share and (ii) in the event
of any other Non-Stock Fundamental Change or any Common Stock Fundamental
Change, the average of the Closing Prices (as defined below) for the Common
Shares during the ten trading days prior to and including the record date for
the determination of the holders of Common Shares entitled to receive such
securities, cash, or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change or, if there is no such
record date, the date upon which the holders of Common Shares shall have the
right to receive such securities, cash, or other property (such record date or
distribution date being hereinafter referred to as the "Entitlement Date"), in
each case as adjusted in good faith by the Company to appropriately reflect any
of the events referred to in clauses (i) through (vi) of the first paragraph
under "-- Conversion Price Adjustments; General."
The term "Closing Price" means on any day the reported last sale price on
such day or in case no sale takes place on such day, the average of the reported
closing bid and asked prices in each case on the Nasdaq or, if the
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<PAGE> 23
stock is not quoted or admitted to trading on Nasdaq, on the principal national
securities exchange on which such stock is listed or admitted to trading or, if
not listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices as furnished by any NYSE member
firm, selected by the Debenture Trustee for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Common
Shares consists of shares of common stock that for each of the ten consecutive
trading days prior to the Entitlement Date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on Nasdaq; provided, however, that a Fundamental Change shall
not be a Common Stock Fundamental Change unless either (i) the Company continues
to exist after the occurrence of such Fundamental Change and the outstanding
Preferred Securities continue to exist as outstanding Preferred Securities or
(ii) not later than the occurrence of such Fundamental Change, the outstanding
Preferred Securities are converted into or exchanged for shares of convertible
preferred stock of an entity succeeding to the business of the Company or a
subsidiary thereof, which convertible preferred stock has powers, preferences,
and relative, participating, optional, or other rights, and qualifications,
limitations, and restrictions, substantially similar to those of the Preferred
Securities.
The term "Fundamental Change" means the occurrence of any Transaction or
event in connection with a plan pursuant to which all or substantially all
Common Shares shall be exchanged for, converted into, acquired for, or
constitute solely the right to receive securities, cash, or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise); provided, that, in the case of a plan involving more than one such
Transaction or event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when substantially all
Common Shares shall be exchanged for, converted into, or acquired for or
constitute solely the right to receive securities, cash, or other property, but
the adjustment shall be based upon the consideration that a holder of Common
Shares received in such Transaction or event as a result of which more than 50%
of the Common Shares shall have been exchanged for, converted into, or acquired
for or constitute solely the right to receive securities, cash, or other
property. The term "Non-Stock Fundamental Change" means any Fundamental Change
other than a Common Stock Fundamental Change.
The term "Purchaser Share Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for shares of common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date, as adjusted in good faith by
the Company to appropriately reflect any of the events referred to in clauses
(i) through (vi) of the first paragraph under "-- Conversion Price Adjustments;
General."
The term "Reference Market Price" shall initially mean $8.33 (which is an
amount equal to 66 2/3% of the reported last sales price for Common Shares on
Nasdaq on March 17, 1998) and in the event of any adjustment of the conversion
price other than as a result of a Non-Stock Fundamental Change, the Reference
Market Price shall also be adjusted so that the ratio of the Reference Market
Price to the conversion price after giving effect to any such adjustment shall
always be the same as the ratio of the initial Reference Market Price to the
initial conversion price of the Preferred Securities.
SPECIAL EVENT EXCHANGE OR REDEMPTION
At any time following the occurrence and the continuation of a Tax Event or
an Investment Company Event, the Property Trustee shall direct the Conversion
Agent to exchange all outstanding Preferred Securities for Debentures, provided
that, in the case of a Tax Event that shall occur and be continuing, the Company
has the right to (a) direct that less than all, or none, of the Preferred
Securities be so exchanged if and for so long as the Company shall have elected
to pay any Additional Sums (as defined below) such that the net amounts received
by the holders of Preferred Securities not so exchanged in respect of
Distributions and other distributions are not reduced as a result of such Tax
Event, and shall not have revoked any such election or failed to make such
payments or (b) redeem the Preferred Securities in the manner set forth below.
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<PAGE> 24
If a Tax Event shall occur or be continuing, the Company has the right,
upon not less than 30 nor more than 60 days' notice, to redeem the Debentures at
the principal amount thereof plus accrued and unpaid interest, in whole or in
part, for cash upon the later of (i) 90 days following the occurrence of such
Tax Event or (ii) March 31, 2002. Promptly following such redemption, Preferred
Securities and Common Securities with an aggregate liquidation preference equal
to the aggregate principal amount of the Debentures so redeemed will be redeemed
by the Issuer at the liquidation preference thereof plus accumulated and unpaid
Distributions thereon to the redemption date on a pro rata basis. The Common
Securities will be redeemed on a pro rata basis with the Preferred Securities,
except that if a Declaration Event of Default has occurred and is continuing,
the Preferred Securities will have a priority over the Common Securities with
respect to such redemption price.
A "Special Event" means a Tax Event or an Investment Company Event. A "Tax
Event" means the receipt by the Property Trustee, on behalf of the Issuer, of an
opinion of counsel, rendered by a law firm having a national tax and securities
practice (which opinion shall not have been rescinded by such law firm), 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
affecting taxation, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is announced
on or after the date of issuance of the Preferred Securities under the Trust
Agreement and does not pertain to the use of the proceeds of the issuance of the
Debentures, there is more than an insubstantial risk in each case after the date
hereof that (i) the Issuer is, or will be within 90 days of the date thereof,
subject to United States Federal income tax with respect to income received or
accrued on the Debentures; (ii) interest payable by the Company on such
Debentures (other than interest payable by delivery of Common Shares pursuant to
exercise of a conversion right by a holder of Preferred Securities), is not, or
within 90 days of the date thereof will not be, deductible by the Company, in
whole or in part, for United States Federal income tax purposes; or (iii) the
Issuer is, or will be within 90 days of the date thereof, subject to more than a
de minimis amount of other taxes, duties, assessments, or other governmental
charges. "Investment Company Event" means the receipt by the Property Trustee,
on behalf of the Issuer, of an opinion of counsel, rendered by a law firm having
a national tax and securities practice (which opinion shall not have been
rescinded by such law firm), to the effect that, as a result of the occurrence
of a change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Issuer is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities.
There can be no assurance that future tax legislation or other developments
occurring after the date hereof will not adversely affect the tax treatment of
the Debentures and constitute a Tax Event, which would permit the Issuer to
exchange the Preferred Securities, in whole or in part, for the Debentures or
redeem, in whole or in part, the Preferred Securities and corresponding
Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer on the
outstanding Preferred Securities and Common Securities of the Issuer shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which the Issuer has become subject from time to time as a result of
a Tax Event.
Holders of Preferred Securities, by purchasing such Preferred Securities,
are deemed to have agreed to be bound by these exchange provisions in regard to
the exchange of such Preferred Securities for Debentures on the terms described
above.
DISTRIBUTION OF DEBENTURES
At any time, the Company has the right to dissolve the Issuer and, after
satisfaction of the liabilities of creditors of the Issuer as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Issuer. Under current United States
Federal income tax law and interpretations and assuming, as expected, the Issuer
is treated as a grantor trust, a distribution of the Debentures
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<PAGE> 25
should not be a taxable event to the Issuer and holders of the Preferred
Securities. Should there be a change in law, a change in legal interpretation, a
Special Event or other circumstances, however, the distribution could be a
taxable event to holders of the Preferred Securities. See "Certain United States
Federal Income Tax Consequences -- Redemption of Preferred Securities for
Debentures or Cash Upon Dissolution of the Issuer."
After the liquidation date fixed for any distribution of Debentures for
Preferred Securities (i) such Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the record holder of such Preferred
Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution and (iii) any
certificates representing such Preferred Securities not held by DTC or its
nominee will be deemed to represent Debentures having a principal amount equal
to the liquidation amount of such Preferred Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
such Preferred Securities until such certificates are presented to the Property
Trustee for transfer or reissuance.
OPTIONAL REDEMPTION
Except as provided under "-- Mandatory Redemption" below, the Preferred
Securities may not be redeemed by the Issuer prior to March 31, 2002.
On and after such date, upon any redemption by the Company of Debentures,
the Preferred Securities are subject to redemption, in whole or in part, at the
following percentages of the liquidation preference thereof plus accumulated and
unpaid Distributions, if any, to the date fixed for redemption if redeemed
during the twelve-month period commencing March 31 in each of the following
years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002............................... 104.050%
2003............................... 103.375%
2004............................... 102.700%
2005............................... 102.025%
2006............................... 101.350%
2007............................... 100.675%
2008 and thereafter................ 100.000%
</TABLE>
The aggregate liquidation preference of the Preferred Securities and Common
Securities so redeemed will equal the aggregate principal amount of Debentures
redeemed by the Company. The Issuer may not redeem the Preferred Securities in
part unless all accumulated and unpaid Distributions have been paid in full on
all outstanding Preferred Securities. If fewer than all the outstanding
Preferred Securities are to be redeemed, the Preferred Securities to be so
redeemed will be selected as described under "-- Form, Transfer, Exchange and
Book-Entry Procedures."
In the event the Company redeems the Debentures in certain circumstances
upon the occurrence and continuation of a Tax Event as described under
"-- Special Event Exchange or Redemption," the appropriate amount of the
Preferred Securities will be redeemed at 100% of the liquidation preference
thereof together with accumulated and unpaid Distributions to the redemption
date.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of the acceleration of the
Debentures upon the occurrence of a Debenture Event of Default described under
"Description of the Debentures -- Debenture Events of Default," the Debentures
shall be subject to mandatory redemption, in whole but not in part, by the
Company, and the proceeds from such repayment will be applied to redeem
Preferred Securities and Common Securities having an aggregate liquidation
preference equal to the aggregate principal amount of Debentures so repaid or
redeemed at a redemption price equal to the respective liquidation preference of
the Preferred Securities and Common Securities or, in the case of a redemption
of the Debentures, at the redemption price paid with respect to the Debentures,
as described below, together with accumulated and unpaid distributions on the
Preferred Securities and Common Securities to the date of redemption. Upon
acceleration of the Debentures, the Preferred Securities will be redeemed only
when repayment of the Debentures has actually been received by the Issuer. In
addition, as
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<PAGE> 26
described above under "-- Special Event Exchange or Redemption," upon the
occurrence of a Special Event, Preferred Securities shall be exchanged for
Debentures unless, in the case of a Tax Event that has occurred and is
continuing, the Company shall have elected to (a) pay any Additional Sums such
that the net amounts of Distributions received by the holders of any Preferred
Securities not so exchanged are not reduced as a result of such Tax Event and
shall not have revoked any such election or failed to make such payments or (b)
redeem the Preferred Securities as further set forth in "-- Special Event
Exchange or Redemption."
REDEMPTION PROCEDURES
Preferred Securities redeemed on the date fixed for redemption shall be
redeemed at the redemption price with the applicable proceeds from the
contemporaneous redemption of the Debentures. Redemptions of the Preferred
Securities shall be made and the redemption price shall be payable on the
redemption date only to the extent that the Issuer has funds on hand available
for the payment of such redemption price. See also "-- Subordination of Common
Securities."
Notice of any redemption (optional or mandatory) of Preferred Securities
(which notice will be irrevocable) will be given by the Property Trustee to each
record holder of Preferred Securities that are being redeemed not fewer than 30
nor more than 60 days prior to the redemption date. If the Property Trustee
gives a notice of redemption in respect of the Preferred Securities, then, by
12:00 noon, Eastern Standard Time, on the redemption date, to the extent funds
are available, 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 or credit
pursuant to its procedures, the redemption price to the beneficial owners of
such Preferred Securities. See "-- Form, Transfer, Exchange and Book-Entry
Procedures." If such Preferred Securities are no longer in book-entry form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the Paying Agent funds sufficient to pay the applicable redemption price
and will give the Paying Agent irrevocable instructions and authority to pay the
redemption price to the holders thereof upon surrender of their certificates
evidencing such 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 such
Preferred Securities as of the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of such Preferred Securities so called for redemption will cease, except
(i) the right of the holders of such Preferred Securities to receive the
redemption price, but without interest on such redemption price, and (ii) the
right to convert such Preferred Securities into Common Shares in the manner
described herein through the close of business on the redemption date; and such
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is not a Business Day, then payment
of the redemption price on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the redemption price in respect of Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by the Issuer or by the Company pursuant to the Guarantee as described
under "Description of the Guarantee," Distributions on such Preferred Securities
will continue to accumulate at the then applicable rate, from the redemption
date originally established by the Issuer to the date such redemption price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the redemption price.
Subject to applicable law (including, without limitation, United States
Federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the redemption price on the Preferred Securities and any
distribution or exchange of Debentures to holders of Preferred Securities shall
be made to the applicable record holders thereof as they appear on the register
for such Preferred Securities on the relevant record date, which shall be the
fifteenth day (whether or not a Business Day) prior to the redemption date or
liquidation date, as applicable.
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If less than all of the Preferred Securities and Common Securities issued
by the Issuer are to be redeemed on a redemption date, then the aggregate
liquidation preference of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata among the Preferred Securities and the
Common Securities. The particular Preferred Securities to be redeemed shall be
selected not more than 60 days prior to the redemption date by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by lot or by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $50 or an integral multiple of $50 in excess thereof) of the
liquidation preference of the Preferred Securities. The Property Trustee shall
promptly notify the Conversion Agent in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities selected
for partial redemption, the liquidation preference thereof to be redeemed; it
being understood that, in the case of Preferred Securities held by DTC (or any
successor) or its nominee, the distribution of the proceeds of such redemption
will be made in accordance with the procedures of DTC or its nominee. For all
purposes of the Trust Agreement, 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 preference of Preferred Securities
which has been or is to be redeemed.
Notice of any redemption of Debentures will be mailed at least 30 days but
not more than 60 days before the redemption date to each holder of Debentures to
be redeemed at its registered address. Unless the Company defaults in payment of
the redemption price, on and after the redemption date interest shall cease to
accrue on such Debentures 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, shall be made pro rata based on
the liquidation preference of such Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or redemption date a
Declaration Event of Default shall have occurred and be 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 Common Securities, shall be made unless payment in full in cash
of all accumulated and unpaid Distributions on all of 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 of 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 redemption price of, the Preferred Securities then due and
payable.
In the case of any Declaration Event of Default, the Company as holder of
the Common Securities will be deemed to have waived any right to act with
respect to any such Declaration Event of Default until all such Declaration
Events of Default with respect to the Preferred Securities have been cured,
waived or otherwise eliminated. Until any such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the holders of
the Preferred Securities and not on behalf of the Company as holder 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.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Issuer
(each, a "Liquidation"), the holders of the Preferred Securities at that time
will be entitled to receive out of the assets of the Issuer, after satisfaction
of liabilities to creditors, distributions in an amount equal to the aggregate
of the stated liquidation preference of $50 per Preferred Security plus
accumulated and unpaid Distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation,
Debentures in an aggregate principal amount equal to the aggregate stated
liquidation preference of, with an interest rate identical to the distribution
rate of, and accrued and unpaid interest equal to accumulated and unpaid
Distributions on, the Preferred Securities, have been distributed on a pro rata
basis to the holders of Preferred Securities in exchange for such Preferred
Securities. See "-- Distribution of Debentures."
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If such Liquidation Distribution can be paid only in part because the
Issuer has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Issuer on the
Preferred Securities shall be paid on a pro rata basis. The holder of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
Liquidation pro rata with the holders of the Preferred Securities, except that
if a Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities.
Pursuant to the Trust Agreement, the Issuer shall automatically dissolve
upon expiration of its term and shall dissolve on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
receipt by the Property Trustee of written notice from the Company, as
Depositor, of its intention to distribute the Debentures to the holders of the
Preferred Securities and Common Securities (which direction is optional and
wholly within the discretion of the Company, as Depositor); (iii) the
redemption, conversion, or exchange of all of the Preferred Securities and
Common Securities; (iv) the entry by a court of competent jurisdiction of an
order for the dissolution of the Issuer; and (v) the occurrence of a Special
Event, except in the case of a Tax Event that has occurred and is continuing
following which the Company has elected (i) to pay any Additional Sums such that
the net amount received by holders of Preferred Securities in respect of
Distributions is not reduced as a result of such Tax Event and the Company has
not revoked any such election or failed to make such payments or (ii) to redeem
all or some of the Debentures as provided herein.
DECLARATION EVENTS OF DEFAULT; NOTICE
A Debenture Event of Default constitutes an event of default under the
Trust Agreement with respect to the Preferred Securities and the Common
Securities (a "Declaration Event of Default"), whatever the reason for such
Debenture Event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body.
Within ten days after the occurrence of any Declaration Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Declaration Event of Default to the holders of the Preferred
Securities, the Administrative Trustees and the Company, as Depositor, unless
such Declaration Event of Default shall have been cured or waived. The Company,
as Depositor, and the Administrative Trustees, on behalf of the Issuer, are
required to file annually with the Property Trustee a certificate as to whether
or not they are in compliance with all the conditions and covenants applicable
to them under the Trust Agreement.
If a Declaration Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities as to
any Distribution or redemption payment and upon dissolution of the Issuer as
described above. See "-- Subordination of Common Securities" and "-- Liquidation
Distribution upon Dissolution." The existence of a Declaration Event of Default
does not entitle the holders of Preferred Securities to accelerate the maturity
thereof.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default has occurred and is continuing, then the
holders of Preferred Securities will rely on the enforcement by the Property
Trustee of its rights as a holder of the Debentures against the Company. In
addition, the holders of a majority in aggregate liquidation preference of the
Preferred Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or to
direct the exercise of any trust or power conferred upon the Property Trustee
under the Trust Agreement, including the right to direct the Property Trustee to
exercise the remedies available to it as a holder of the Debentures. If the
Property Trustee fails to enforce its rights as the holder of the Debentures
after a request therefor by a holder of Preferred Securities, such holder may,
to the fullest extent permitted by law, proceed to enforce such rights directly
against the Company. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Preferred Securities may
institute a proceeding directly against the Company for enforcement of payment
to such holder of the principal of or interest on Debentures
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having a principal amount equal to the aggregate liquidation preference of the
Preferred Securities of such holder after the respective due date specified in
the Debentures (a "Direct Action"). In connection with any such Direct Action,
the Company will be subrogated to the rights of such holder of Preferred
Securities under the Trust Agreement to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action. The
holders of Preferred Securities will not be able to exercise directly against
the Company any other remedy available to the Property Trustee unless the
Property Trustee first fails to do so.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any entity succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Trust Agreement, provided such entity shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATION OR REPLACEMENTS OF THE ISSUER
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person (as defined in
the Trust Agreement), except as described below or as described in
"-- Liquidation Distribution upon Dissolution." The Issuer may, at the request
of the Company, with the consent of the Administrative Trustees and without the
consent of the Property Trustee, the Delaware Trustee or the holders of the
Preferred Securities, merge with or into, consolidate, amalgamate, be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to a trust organized as such under the laws of any State; provided that
(i) such successor entity either (a) expressly assumes all of the obligations of
the Issuer with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank in priority with
respect to Distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed, if any, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially identical to
that of the Issuer, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an opinion
of counsel to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect (other than with respect to
any dilution of the holder's interest in the new entity), (b) following such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither the Issuer nor such successor entity will be required to register as an
investment company under the Investment Company Act and (c) following such
merger, consolidation, amalgamation or replacement, the Issuer or such successor
will be treated as a grantor trust for United States Federal income tax
purposes, and (viii) the Company or any permitted successor or assignee owns all
of the common securities of such successor entity and guarantees the obligations
of such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Issuer shall not,
except with the consent of holders of 100% in aggregate liquidation preference
of the Preferred Securities, consolidate, amalgamate, merge with or into, be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer or the successor entity to be classified as other than a grantor trust
for United States Federal income tax purposes.
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VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Preferred Securities have no voting rights.
The Trust Agreement may be amended from time to time by the Company and the
Issuer Trustees, without the consent of the holders of the Preferred Securities,
(i) to cure any ambiguity, correct or supplement any provisions in the Trust
Agreement that may be inconsistent with any other provision, or to make any
other provisions with respect to matters or questions arising under the Trust
Agreement that shall not be inconsistent with the other provisions of the Trust
Agreement, (ii) to modify, eliminate or add to any provisions of the Trust
Agreement to such extent as shall be necessary to ensure that the Issuer will be
classified for United States Federal income tax purposes as a grantor trust at
all times that any Preferred Securities and Common Securities are outstanding or
to ensure that the Issuer will not be required to register as an "investment
company" under the Investment Company Act or be classified as other than a
grantor trust for United States Federal income tax purposes or (iii) to qualify
or maintain the qualification of the Trust Agreement under the Trust Indenture
Act; provided, however, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of any holder of
Preferred Securities or Common Securities, and any such amendments of the Trust
Agreement shall become effective when notice thereof is given to the holders of
Preferred Securities and Common Securities. The Trust Agreement may be amended
by the Issuer Trustees and the Company with (i) the consent of holders
representing not less than a majority (based upon liquidation preference) of the
outstanding Preferred Securities and Common Securities, acting as a single
class, and (ii) receipt by the Issuer Trustees of an opinion of counsel to the
effect that such amendment or the exercise of any power granted to the Issuer
Trustees in accordance with such amendment will not affect the Issuer's status
as a grantor trust for United States Federal income tax purposes or the Issuer's
exemption from the status of an "investment company" under the Investment
Company Act; provided, however, that if any amendment or proposal would
adversely affect the powers, preferences or special rights of only the Preferred
Securities or only the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal; provided further that without
the consent of each holder of Preferred Securities and Common Securities, the
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Preferred Securities and Common Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Preferred Securities and Common Securities as of a specified date or (ii)
restrict the right of a holder of Preferred Securities and Common Securities to
institute suit for the enforcement of any such payment on or after such date.
If any proposed amendment of the Trust Agreement provides for, or the
Issuer Trustees otherwise propose to effect, the dissolution of the Issuer,
other than pursuant to the terms of the Trust Agreement, then the holders of the
then outstanding Preferred Securities, as a 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 the holders of the majority in aggregate liquidation
preference of the Preferred Securities.
The holders of a majority in aggregate liquidation preference of Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Trust Agreement, including the right to direct the Property Trustee to exercise
the remedies available to it as the holder of the Debentures. So long as any
Debentures are held by the Property Trustee, the Issuer Trustees shall not (i)
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee or executing any trust or power conferred on
the Debenture Trustee with respect to such Debentures, (ii) waive any past
default that is waivable under Section 5.13 of the Indenture, (iii) exercise any
right to rescind or annul a declaration that the principal of all the Debentures
shall be due and payable, or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures where such consent shall be
required, without in each case obtaining the prior approval of the holders of a
majority in aggregate liquidation preference of all outstanding Preferred
Securities (except in the case of clause (iv), which consent, in the event that
no Declaration Event of Default shall occur and be continuing, shall be of the
holders of a majority in aggregate in liquidation preference of all Preferred
Securities and Common Securities voting together as a single class); provided,
however, that where a consent under the Indenture would require the consent of
each holder of Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior written consent of each
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holder of the Preferred Securities. The Issuer Trustees shall not revoke any
action previously authorized or approved by a vote of the holders of the
Preferred Securities except by subsequent vote of the holders of the Preferred
Securities. The Property Trustee shall notify each holder of record of the
Preferred Securities of any notice of default with respect to the Debentures.
A waiver of a Debenture Event of Default by the Property Trustee at the
direction of the holders of Preferred Securities 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 the Preferred Securities and
the Common Securities or pursuant to written consent. The Property Trustee 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 given to each holder of record of Preferred
Securities in the manner set forth in the Trust Agreement.
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 the Company, the Issuer Trustees or
any affiliate of the Company or any Issuer Trustee are, for purposes of such
vote or consent, treated as if such Preferred Securities were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Form, Transfer, Exchange and
Book-Entry Procedures."
Holders of the Preferred Securities have no rights to appoint or remove the
Issuer Trustees, who may be appointed, removed or replaced solely by the
Company, as the direct or indirect holder of all the Common Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable distribution dates
or, if the Preferred Securities are not held by DTC, such payments shall be made
by check mailed to the address of the holder entitled thereto as such address
shall appear on the Securities Register (as defined in the Trust Agreement). The
paying agent (the "Paying Agent") is initially the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The Paying Agent is permitted to resign
as Paying Agent upon 30 days' written notice to the Property Trustee and the
Company. In the event that the Property Trustee shall no longer be the Paying
Agent, the Administrative Trustees shall appoint a successor (which shall be a
bank or trust Company acceptable to the Property Trustee and the Company) to act
as Paying Agent.
FORM, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The Preferred Securities were initially issued as fully registered
securities registered in the name of Cede & Co. (as nominee for DTC). Fully
registered global Preferred Securities Certificates (the "Global Certificates")
were issued, representing the Preferred Securities initially sold to QIBs in
reliance on Rule 144A under the Securities Act (the "Restricted Global
Certificates") and were deposited with the Property Trustee as custodian for
DTC. One or more unrestricted Global Certificates will be issued representing,
in the aggregate, Preferred Securities sold pursuant to this Prospectus, and
will be deposited with DTC. The description of book-entry procedures in this
Prospectus includes summaries of certain rules and operating procedures of DTC
that affect transfers of interests in the Global Certificate or Certificates
issued in connection with sales of Preferred Securities made pursuant to this
Prospectus.
Exchanges of Book-Entry Certificates for Certificated Preferred Securities
A beneficial interest in a Global Certificate may not be exchanged for a
certificated Preferred Security unless (i) DTC (a) notifies the Issuer and the
Company that it is unwilling or unable to continue as depositary for the Global
Certificate or (b) has ceased to be a clearing agency registered under the
Exchange Act and in either case the Issuer and the Company thereupon fail to
appoint a successor depositary, (ii) the Issuer and the Company, at
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their option, notify the Property Trustee in writing that they elect to cause
the issuance of the Preferred Securities in certificated form or (iii) there
shall have occurred and be continuing a Declaration Event of Default or any
event which after notice or lapse of time or both would be a Declaration Event
of Default. In all cases, certificated Preferred Securities delivered in
exchange for any Global Certificate or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of DTC (in accordance with its customary procedures). Any
certificated Preferred Security issued in exchange for an interest in a Global
Certificate will bear any legend restricting transfers that is borne by such
Global Certificate. Any such exchange will be effected through the DTC
Deposit/Withdraw at Custodian system and an appropriate adjustment will be made
in the records of the Security Registrar to reflect a decrease in the
liquidation preference or number of Preferred Securities of the relevant Global
Certificate.
Certain Book-Entry Procedures for Global Certificates
The description of the operations and procedures of DTC that follows is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Issuer and the Company take no
responsibility for these operations and procedures and urge investors to contact
the system or their participants directly to discuss these matters.
DTC has advised the Issuer and the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants ("participants") and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Issuer and the Company that its current practice is to
credit, on its internal system, the respective liquidation preference or number
of Preferred Securities of the individual beneficial interests represented by
such Global Certificates to the accounts with DTC of the participants through
which such interests are to be held. Ownership of beneficial interests in the
Global Certificates will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominees (with respect
to interests of participants) and the records of participants and indirect
participants (with respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered holder of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the Preferred Securities represented by such Global
Certificate for all purposes under the Trust Agreement and the Preferred
Securities.
Except in the limited circumstances described above under "-- Exchanges of
Book-Entry Certificates for Certificated Preferred Securities," owners of
beneficial interests in a Global Certificate are not entitled to have any
portions of such Global Certificate registered in their names, will not receive
or be entitled to receive physical delivery of Preferred Securities in
definitive form and are not considered the owners or holders of the Global
Certificate (or any Preferred Securities represented thereby) under the Trust
Agreement or the Preferred Securities.
Investors may hold their interests in the Restricted Global Certificate
directly through DTC, if they are participants in such system, or indirectly
through organizations which are participants in such system. All interests in a
Global Certificate are subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Certificate to such persons may be
limited to that extent. Because DTC can act only on behalf of its participants,
which in turn act on behalf of
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indirect participants and certain banks, the ability of a person having
beneficial interests in a Global Certificate to pledge such interest to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Payments of Distributions on Global Certificates will be made to DTC or its
nominee as the registered owner thereof. Neither the Issuer, the Company, the
Property Trustee nor any of their respective agents have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Certificates or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Issuer and the Company expect that DTC or its nominee, upon receipt of
any payment of Distributions in respect of a Global Certificate representing any
Preferred Securities held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the liquidation preference or number of
Preferred Securities represented by such Global Certificate for such Preferred
Securities as shown on the records of DTC or its nominee. The Issuer and the
Company also expect that payments by participants to owners of beneficial
interests in such Global Certificate held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in "street name."
Such payments are the responsibility of such participants.
Interests in the Global Certificates trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between participants
in DTC are effected in accordance with DTC's procedures, and are settled in
same-day funds.
DTC has advised the Issuer and the Company that it will take any action
permitted to be taken by a holder of certificates for Preferred Securities
(including the presentation of Preferred Securities for exchange as described
below and the conversion of Preferred Securities) only at the direction of one
or more participants to whose account with DTC interests in the Global
Certificates are credited and only in respect of such portion of the aggregate
liquidation preference of the Preferred Securities as to which such participant
or participants has or have given such direction. However, if there is a
Declaration Event of Default, DTC reserves the right to exchange the Global
Certificates for legended Preferred Securities in certificated form, and to
distribute such Preferred Securities to its participants.
None of the Issuer, the Company, the Initial Purchasers, the Property
Trustee nor any of their respective agents has any responsibility for the
performance by DTC, its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Certificates.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of the Preferred Securities are being
redeemed, DTC will determine the amount of interest of each participant to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited to the
holders of record of the Preferred Securities, in those instances in which 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 (the "Omnibus Proxy") to the Property Trustee as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those participants to whose accounts such Preferred Securities
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants, and by participants and indirect
participants to beneficial owners of the Preferred Securities and the voting
rights of participants, indirect participants and beneficial owners of Preferred
Securities are governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
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DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Property Trustee and the Company. In the event that a successor securities
depositary is not obtained, definitive Preferred Securities certificates
representing such Preferred Securities are required to be printed and delivered.
The Issuer and the Company, at their option, may decide to discontinue use of
the system of book-entry transfers through DTC (or a successor depositary).
After a Debenture Event of Default, the holders of a majority in liquidation
preference of Preferred Securities may determine to discontinue the system of
book-entry transfers through DTC. In any such event, definitive certificates for
the Preferred Securities will be printed and delivered.
Transfer Agent, Registrar and Paying, Conversion and Exchange Agent
The Property Trustee acts as transfer agent, securities registrar and
paying, conversion and exchange agent for the Preferred Securities.
Registration of transfers or exchanges of Preferred Securities will be
effected without charge by or on behalf of the Issuer, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer is not required to register or cause to be
registered the transfer of the Preferred Securities during the 15 days before
any redemption date for such Preferred Securities.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of a
Declaration Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Declaration Event
of Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no
Declaration Event of Default has occurred and is continuing and the Property
Trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the Trust Agreement or is unsure of the application of
any provision of the Trust Agreement, and the matter is not one on which holders
of Preferred Securities are entitled under the Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by the Company and, if
not so directed, shall take such action as it deems advisable and in the best
interests of the holders of the Preferred Securities and the Common Securities
and will have no liability except for its own bad faith, negligence or willful
misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States Federal income tax purposes and so that the Debentures will be
treated as indebtedness of the Company for United States Federal income tax
purposes. In this connection, the Company and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Issuer or the Trust Agreement, that the Company and
the Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer may not borrow money or issue debt or mortgage or pledge any of
its assets.
REGISTRATION RIGHTS
In connection with the Original Offering, the Issuer and the Company
entered into a registration rights agreement with the Initial Purchasers, dated
March 23, 1998 (the "Registration Rights Agreement"), pursuant to which the
Issuer and the Company agreed, at the Company's expense, for the benefit of the
holders of the Preferred Securities, the Debentures issuable in respect of the
Preferred Securities, the Common Shares issuable
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upon conversion of the Preferred Securities and the Debentures and the Guarantee
(together, the "Registrable Securities") to file with the Commission on or prior
to the date 90 days after the Original Offering Date a shelf registration
statement (the "Shelf Registration Statement") on such form as the Company deems
appropriate covering resales by holders of Registrable Securities. The Issuer
and the Company have agreed to use their best efforts (i) to cause the Shelf
Registration Statement to be declared effective as promptly as practicable and
in no event later than 180 days after the Original Offering Date and (ii) to
keep effective the Shelf Registration Statement until two years after the latest
date of original issuance of the Preferred Securities (or such earlier date as
the holders of Registrable Securities are able to sell all Registrable
Securities immediately without restriction, whether pursuant to Rule 144(k)
(other than "affiliates" of the Company) under the Securities Act or any
successor rule thereto or otherwise) (such period, the "Effectiveness Period").
The Issuer and the Company are permitted to suspend the use of the prospectus
(which is a part of the Shelf Registration Statement) in connection with sales
of Registrable Securities by holders during certain periods of time under
certain circumstances relating to pending corporate developments relating to the
Company and public filings with the Commission and similar events. The Issuer
and the Company will provide to each registered holder copies of such
prospectus, notify each registered holder when the Shelf Registration Statement
has become effective, and take certain other actions as are required to permit
unrestricted sales of the Registrable Securities.
In the Registration Rights Agreement, the Issuer and the Company agreed to
indemnify the holders of Registrable Securities against certain liabilities,
including liabilities under the Securities Act, subject to certain customary
limitations, and each holder of Registrable Securities included in the Shelf
Registration Statement will be obligated to indemnify the Issuer and the
Company, its directors, trustees, agents and officers who sign any Shelf
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, any other holder and any underwriters participating in the
offering of Registrable Securities against any liability with respect to
information furnished by such holder in writing to the Issuer or the Company
(including the information in a Selling Securityholder's Questionnaire)
expressly for use in the Shelf Registration Statement.
The Shelf Registration Statement was filed with the Commission on June 19,
1998. If on or prior to the date 180 days after the Original Offering Date such
Shelf Registration Statement has not been declared effective (such event, a
"Registration Default"), additional interest ("Liquidated Damages") will accrue
on the Debentures, and, accordingly, additional distributions will accumulate on
the Preferred Securities, from and including the day following such Registration
Default until such date as the Shelf Registration Statement is declared
effective. Liquidated Damages will be paid quarterly in arrears, with the first
quarterly payment due on the first interest or distribution payment date, as
applicable, following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount or liquidation preference, as
applicable, to and including the 90th day following such Registration Default
and one-half of one percent (0.50%) thereof from and after the 91st day
following such Registration Default. In the event that the Shelf Registration
Statement ceases to be effective during the Effectiveness Period for more than
90 days, whether or not consecutive, during any 12-month period, then the
interest rate borne by the Debentures and the distribution rate borne by the
Preferred Securities will each increase by an additional one-half of one percent
(0.50%) per annum from the 91st day of the applicable 12-month period such Shelf
Registration Statement ceases to be effective until such time as the earlier of
the Shelf Registration Statement again becoming effective and the end of the
Effectiveness Period.
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Registration Rights Agreement, a copy
of the form of which is incorporated by reference herein as an exhibit to the
Registration Statement.
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DESCRIPTION OF THE GUARANTEE
The Guarantee was executed and delivered by the Company concurrently with
the issuance by the Issuer of the Preferred Securities for the benefit of the
holders from time to time of such Preferred Securities. Wilmington Trust is the
Guarantee Trustee under the Guarantee. This summary of certain provisions of the
Guarantee does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Guarantee (a copy of
which is available at the corporate trust offices of the Guarantee Trustee in
Wilmington, Delaware). The Guarantee Trustee holds the Guarantee for the benefit
of the holders of the Preferred Securities.
GENERAL
The Company irrevocably agreed to pay in full on a subordinated basis, to
the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any defense,
right of set off or counterclaim that the Issuer may have or assert other than
the defense of payment. The following payments with respect to the Preferred
Securities, to the extent not paid by or on behalf of the Issuer (the "Guarantee
Payments"), are subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the Preferred Securities, to the extent
that the Issuer has funds on hand available therefor at such time, (ii) the
redemption price with respect to any Preferred Securities called for redemption
to the extent that the Issuer has funds on hand available therefor at such time,
or (iii) upon a voluntary or involuntary dissolution of the Issuer (unless the
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the Liquidation Distribution, to the extent that the Issuer has funds on
hand available therefor at such time, and (b) the amount of assets of the Issuer
remaining available for distribution to holders of Preferred Securities. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of the Preferred
Securities or by causing the Issuer to pay such amounts to such holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of the
Issuer's obligations under the Preferred Securities, but applies only to the
extent that the Issuer has funds sufficient to make such payments, and is not a
guarantee of collection. If the Company does not make interest payments on the
Debentures held by the Issuer, the Issuer will not be able to pay Distributions
on the Preferred Securities and will not have funds legally available therefor.
The Company has, through the Guarantee, the Trust Agreement, the Debentures
and the Indenture, taken together, fully, irrevocably and unconditionally
guaranteed all of the Issuer's obligations under the Preferred Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of the Company and ranks
subordinate and junior in right of payment to all other liabilities of the
Company and ranks pari passu with the most senior preferred stock, if any, 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.
The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee is held for the benefit of the holders of the Preferred Securities.
The Guarantee will not be discharged except by payment of the Guarantee Payments
in full to the extent not paid by the Issuer or upon distribution of the
Debentures to the holders of the Preferred Securities. The Guarantee does not
place a limitation on the amount of additional indebtedness that may be incurred
by the Company or any of its subsidiaries.
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AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority in aggregate liquidation preference of such
outstanding Preferred Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement." All guarantees and agreements contained in
the Guarantee bind the successors, assigns, receivers, trustees and
representatives of the Company and inure to the benefit of the holders of the
Preferred Securities then outstanding.
CERTAIN COVENANTS OF THE COMPANY
The Company covenanted in the Guarantee that if and so long as (i) the
Issuer is the holder of all the Debentures, (ii) a Tax Event in respect of the
Issuer has occurred and is continuing and (iii) the Company has elected, and has
not revoked such election, to pay Additional Sums in respect of the Preferred
Securities and Common Securities, the Company will pay to the Issuer such
Additional Sums. The Company also covenanted that it will not, and it will not
cause any of its subsidiaries to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities (including guarantees of indebtedness for money borrowed) of the
Company that rank pari passu with or junior to the Debentures (other than (a)
any dividend, redemption, liquidation, interest, principal or guarantee payment
by the Company where the payment is made by way of securities (including capital
stock) that rank pari passu with or junior to the securities on which such
dividend, redemption, interest, principal or guarantee payment is being made,
(b) redemptions or purchases of any Rights pursuant to the Company's Rights
Agreement and the declaration of a dividend of such Rights or the issuance of
Common Shares under such agreement in the future, (c) payments under the
Guarantee and any similar guarantees issued by the Company on behalf of the
holders of the preferred securities issued by any trust or other issuer holding
debentures of any series, (d) purchases of Common Shares related to the issuance
of Common Shares under the Benefits Trust or any of the Company's benefit plans
for its directors, officers or employees, (e) as a result of a reclassification
of the Company's capital stock or the exchange or conversion of one series or
class of the Company's capital stock for another series or class of the
Company's capital stock and (f) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged), if at such
time (i) there shall have occurred any event of which the Company has actual
knowledge that (a) with the giving of notice or the lapse of time, or both,
would constitute a Debenture Event of Default and (b) in respect of which the
Company shall not have taken reasonable steps to cure, (ii) the Company shall be
in default with respect to its payment of any obligations under the Guarantee or
(iii) the Company shall have given notice of its selection of an Extension
Period as provided in the Indenture with respect to the Debentures and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing. The Company also covenanted (i) for so long as Preferred
Securities are outstanding, not to convert Debentures except pursuant to a
notice of conversion delivered to the Conversion Agent by a holder of Preferred
Securities, (ii) to maintain directly or indirectly 100% ownership of the Common
Securities, provided that certain successors which are permitted pursuant to the
Indenture may succeed to the Company's ownership of the Common Securities, (iii)
not to voluntarily dissolve the Issuer, except (a) in connection with a
distribution of the Debentures to the holders of the Preferred Securities in
dissolution of the Issuer or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, (iv) to
maintain the reservation for issuance of the number of Common Shares that would
be required from time to time upon the conversion of all the Debentures then
outstanding, (v) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer to remain classified as a
grantor trust and not as an association taxable as a corporation for United
States Federal income tax purposes and (vi) to deliver Common Shares upon an
election by the holders of the Preferred Securities to convert such Preferred
Securities into Common Shares.
As part of the Guarantee, the Company agreed that it will honor all
obligations described therein relating to the conversion or exchange of the
Preferred Securities into or for Common Shares or Debentures.
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EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder; provided,
however, that except with respect to a default payment of any Guarantee
Payments, the Guarantor is entitled to a 60 day cure period. The holders of a
majority in aggregate liquidation preference 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 the
Preferred Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. The Company has waived any right or remedy to require that any action
be brought against the Guarantee Trustee, the Issuer, or any other person or
entity, before proceeding directly against the Company.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the Preferred Securities, upon full
payment of the amounts payable upon dissolution of the Issuer, upon the
distribution, if any, of Common Shares to the holders of Preferred Securities in
respect of the conversion of all such holders' Preferred Securities into Common
Shares or upon distribution of Debentures to the holders of the Preferred
Securities in exchange for all of the Preferred Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of Preferred Securities must restore payment of any sums paid
under such Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee is governed by and construed in accordance with the laws of
the State of New York.
DESCRIPTION OF THE DEBENTURES
Set forth below is a description of the specific terms of the Debentures in
which the Issuer invested the proceeds from the issuance and sale of the Trust
Securities. The Debentures were issued under a Junior Subordinated Indenture and
a First Supplemental Indenture (collectively, the "Indenture") between the
Company and Wilmington Trust, as trustee (the "Debenture Trustee"), copies of
which are available for inspection at the corporate trust office of the
Debenture Trustee in Wilmington, Delaware. This summary of certain terms and
provisions of the Debentures and the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture. Whenever particular defined terms of the Indenture are referred to
herein, such defined terms are incorporated herein by reference.
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GENERAL
The Debentures are unsecured and rank junior and are subordinate in right
of payment to all Senior Debt of the Company. The Debentures are limited in
aggregate principal amount to $148.2 million, such amount being the sum of the
aggregate stated liquidation preference of the Preferred Securities and capital
contributed by the Company in exchange for the Common Securities. The Indenture
does not limit the incurrence or issuance of other secured or unsecured debt of
the Company, whether under the Indenture or any existing or other indenture that
the Company may enter into in the future or otherwise. See "-- Subordination."
Concurrently with the issuance of the Preferred Securities, the Issuer
invested the proceeds thereof and the consideration paid by the Company for the
Common Securities in the Debentures. The Debentures are in principal amount
equal to the aggregate stated liquidation preference of the Preferred Securities
plus the Company's concurrent investment in the Common Securities.
The Debentures are not subject to any sinking fund provision. The entire
principal amount of the Debentures will mature, and become due and payable,
together with any accrued and unpaid interest thereon, on March 31, 2028.
INTEREST
The Debentures bear interest at the annual rate of 6 3/4% per annum,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, an "Interest Payment Date"), to the person in whose name
each Debenture is registered at the close of business on the Regular Record Date
(as defined herein), subject to certain exceptions. Payment of the Distributions
commenced on June 30, 1998. Each Debenture will be held, until the liquidation,
if any, of the Issuer, in the name of the Property Trustee in trust for the
benefit of the holders of the Preferred Securities and the Common Securities.
The amount of interest payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay). Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the stated rate per annum, compounded quarterly. The term
"interest" as used herein includes quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date and
Additional Sums, as applicable.
GLOBAL SECURITIES
If the Debentures are distributed to holders of the Preferred Securities in
connection with the involuntary or voluntary dissolution of the Issuer,
including a dissolution following the occurrence of a Special Event, the
Debentures will be issued in the same form as the Preferred Securities which
such Debentures replace. Any Global Certificate will be replaced by 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, the Debentures represented by the Global Securities will not be
exchangeable for, and will not otherwise be issuable as, Debentures in
definitive form. The Global Securities described above 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 a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Debentures in
definitive form and will not be considered the holders thereof for any purpose
under the Indenture, and no Global Security representing Debentures shall 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 of Preferred
Securities
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must rely on the procedures of DTC 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 Indenture.
If Debentures are distributed to holders of Preferred Securities in
liquidation of such holders' interests in the Issuer and a Global Security is
issued, DTC will act as securities depositary for the Debentures represented by
such Global Security. For a description of DTC and the specific terms of the
depositary arrangements, see "Description of the Preferred Securities -- Form,
Transfer, Exchange and Book-Entry Procedures." As of the date of this
Prospectus, the description therein 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. The
Company may appoint a successor to DTC or any successor depositary in the event
DTC or such depositary is unable or unwilling to continue as a depositary for
the Global Securities.
None of the Company, the Initial Purchasers, the Debenture Trustee, any
Paying Agent or the Securities Registrar have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of the Global Security representing such
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
A Global Security shall be exchangeable for Debentures registered in the
names of persons other than DTC or its nominee only if (i) DTC notifies the
Company that it is unwilling or unable to continue as a depositary for such
Global Debenture and no successor depositary shall have been appointed by the
Company within 90 days, (ii) if at any time DTC ceases to be a clearing agency
registered under the Exchange Act at a time when DTC is required to be so
registered to act as such depositary and no successor depositary shall have been
appointed by the Company within 90 days, (iii) the Company in its sole
discretion determines that such Global Security shall be so exchangeable, or
(iv) there shall have occurred and be continuing an Event of Default with
respect to such Global Security. Any Global Security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for definitive
certificates registered in such names as DTC shall direct. It is expected that
such instructions will be based upon directions received by DTC from its
participants with respect to ownership of beneficial interests in such Global
Security. In the event that Debentures are issued in definitive form, such
Debentures will be in denominations of $50 and integral multiples thereof and
may be transferred or exchanged at the offices described in "-- Payment and
Paying Agents" below.
PAYMENT AND PAYING AGENTS
Payments on Debentures represented by a Global Security will be made to
DTC, as the depositary for the Debentures. In the event Debentures are issued in
definitive form, principal of and premium, if any, and any interest on
Debentures will be payable, the transfer of the Debentures will be registrable,
and the Debentures will be exchangeable for Debentures of other denominations of
a like aggregate principal amount at the corporate office of the Debenture
Trustee in Wilmington, Delaware or at the office of such Paying Agent or Paying
Agents as the Company may designate, except that at the option of the Company
payment of any interest may be made (i) by check mailed to the address of the
Person (as defined in the Indenture) entitled thereto as such address shall
appear in the securities register or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the securities
register, provided that proper transfer instructions have been received by the
Regular Record Date. Payment of any interest on Debentures will be made to the
Person in whose name such Debentures are registered at the close of business on
the Regular Record Date for such interest, except in the case of Defaulted
Interest. The "Regular Record Date" for the interest payable on any Interest
Payment Date shall be the fifteenth day (whether or not a Business Day) next
preceding such Interest Payment Date. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent.
Any monies deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, or interest on any Debentures and remaining unclaimed for two
years after such principal and premium, if any, or interest has become due and
payable shall, at the request of the Company, be repaid to the Company and the
holder of such Debentures shall thereafter look, as a general unsecured
creditor, only to the Company for payment thereof.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default under the Indenture has occurred
and is continuing, the Company has the right under the Indenture to defer the
payment of interest (including any Liquidated Damages) on the Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarters
with respect to each Extension Period, provided that no Extension Period may
extend beyond the stated maturity of the Debentures. At the end of such
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the stated annual rate, compounded quarterly,
to the extent permitted by applicable law). During an Extension Period, interest
will continue to accrue and holders of Debentures (or holders of Preferred
Securities while the Preferred Securities are outstanding) will be required to
recognize interest income for United States Federal income tax purposes. See
"Certain United States Federal Income Tax Consequences -- Interest Income and
Original Issue Discount."
During any such Extension Period, the Company may not, and may not cause
any subsidiary to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
shares of the Company's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees of indebtedness for money borrowed) of the
Company that rank pari passu with or junior to the Debentures (other than (a)
any dividend, redemption, liquidation, interest, principal or guarantee payment
by the Company where the payment is made by way of securities (including capital
stock) that rank pari passu with or junior to the securities on which such
dividend, redemption, interest, principal or guarantee payment is being made,
(b) redemptions or purchases of any Rights pursuant to the Company's Rights
Agreement and the declaration of a dividend of such Rights or the issuance of
Common Shares under such agreement in the future, (c) payments under the
Guarantee and any similar guarantees issued by the Company on behalf of the
holders of preferred securities issued by any trust or other issuer holding
debentures of any series, (d) purchases of Common Shares related to the issuance
of Common Shares under the Benefits Trust or any of the Company's benefit plans
for its directors, officers or employees, (e) as a result of a reclassification
of the Company's capital stock or the exchange or conversion of one series or
class of the Company's capital stock for another series or class of the
Company's capital stock, and (f) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged). Prior to
the termination of any such Extension Period, the Company may further extend the
interest payment period, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the stated maturity of the Debentures.
Upon the termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period subject to the above requirements. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company shall
give the Property Trustee, the Administrative Trustees and the Debenture Trustee
notice of its election to begin any Extension Period at least one Business Day
prior to the earlier of (i) the record date for the date Distributions on the
Preferred Securities (or, if no Preferred Securities are outstanding, for the
date interest on the Debentures) would have been payable except for the election
to begin such Extension Period and (ii) the date the Property Trustee is (or, if
no Preferred Securities are outstanding, the Debenture Trustee is) required to
give notice Nasdaq or other applicable self-regulatory organization or to
holders of such Preferred Securities (or, if no Preferred Securities are
outstanding, to the holders of such Debentures) of such record date. The
Debenture Trustee and the Property Trustee shall give notice of the Company's
election to begin an Extension Period to the holders of the Debentures and the
Preferred Securities, respectively.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of acceleration upon the
occurrence of a Debenture Event of Default, the Company will redeem the
Debentures, in whole but not in part, at a redemption price equal to 100% of the
principal amount thereof, together with any accrued and unpaid interest thereon.
Any payment pursuant to this provision shall be made prior to 12:00 noon,
Eastern Standard Time, on the date of such repayment or acceleration. The
Debentures are not entitled to the benefit of any sinking fund or, except as set
forth above or as a result of acceleration, any other provision for mandatory
prepayment.
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OPTIONAL REDEMPTION
On and after March 31, 2002, and subject to the next succeeding sentence,
the Company will have the right, at any time and from time to time, to redeem
the Debentures, in whole or in part, upon notice given as provided below, during
the twelve month periods beginning on March 31 in each of the following years
and at the indicated redemption prices (expressed as a percentage of the
principal amount of the Debentures being redeemed), together with any accrued
but unpaid interest on the portion being redeemed:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002............................... 104.050%
2003............................... 103.375%
2004............................... 102.700%
2005............................... 102.025%
2006............................... 101.350%
2007............................... 100.675%
2008 and thereafter................ 100.000%
</TABLE>
For so long as the Issuer is the holder of all the outstanding Debentures,
the proceeds of any such redemption will be used by the Issuer to redeem
Preferred Securities and Common Securities in accordance with their terms. The
Company may not redeem the Debentures in part unless all accrued and unpaid
interest has been paid in full on all outstanding Debentures. See "Description
of the Preferred Securities -- Optional Redemption."
The Company also has the right to redeem the Debentures, at the principal
amount thereof plus accrued and unpaid interest, at any time after March 31,
2002 if a Tax Event shall occur and be continuing as described in "Description
of the Preferred Securities -- Special Event Exchange or Redemption."
REDEMPTION PROCEDURES
Notices of any redemption of the Debentures and the procedures for such
redemption shall be as provided with respect to the Preferred Securities under
"Description of the Preferred Securities -- Redemption Procedures." Notice of
any redemption will be mailed at least 30 days but not more than 60 days before
the redemption date to each holder of Debentures to be redeemed at its
registered address. Unless the Company defaults in payment of the redemption
price, on and after the redemption date interest shall cease to accrue on such
Debentures or portions thereof called for redemption.
DISTRIBUTION OF DEBENTURES
At any time, the Company has the right to dissolve the Issuer and, after
satisfaction of the liabilities of creditors of the Issuer as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Issuer. If distributed to holders of
Preferred Securities in liquidation, the Debentures will initially be issued in
the form of one or more Global Securities and DTC, or any successor depositary
for the Preferred Securities, will act as depositary for the Debentures. It is
anticipated that the depositary arrangements for the Debentures would be
substantially identical to those in effect for the Preferred Securities. There
can be no assurance as to the market price of any Debentures that may be
distributed to the holders of Preferred Securities. For a description of DTC and
the terms of the depositary matters, see " -- Global Securities."
CONVERSION OF THE DEBENTURES
The Debentures are convertible at the option of the holders of the
Debentures into Common Shares, at any time prior to redemption or maturity,
initially at the rate of 3.1746 Common Shares for each $50 in principal amount
of Debentures (equivalent to a conversion price of $15.75 per Common Share),
subject to the conversion price adjustments described under "Description of the
Preferred Securities -- Conversion Rights." The Issuer has covenanted, for so
long as the Preferred Securities are outstanding, not to convert Debentures
except pursuant
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<PAGE> 43
to a notice of conversion delivered to the Conversion Agent by a holder of
Preferred Securities. Upon surrender of such Preferred Securities to the
Conversion Agent for conversion, the Issuer will distribute the commensurate
principal amount of the Debentures to the Conversion Agent on behalf of the
holder of every Preferred Security so converted, whereupon the Conversion Agent
will convert such Debentures into Common Shares on behalf of such holder. The
Company's delivery to the holders of the Debentures (through the Conversion
Agent) of the fixed number of shares of Common Shares into which the Debentures
are convertible (together with the cash payment, if any, in lieu of fractional
shares) will be deemed to satisfy the Company's obligation to pay the principal
amount of the Debentures, and the accrued and unpaid interest attributable to
the period from the last date to which interest has been paid or duly provided
for.
MODIFICATION OF INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of the holders of Debentures, amend, waive or supplement the Indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies (provided that any such action does not materially
adversely affect the interests of the holders of the Debentures, or the holders
of the Preferred Securities so long as they remain outstanding) and qualifying,
or maintaining the qualification of, the Indenture under the Trust Indenture
Act. The Indenture contains provisions permitting the Company and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the outstanding Debentures, to modify the Indenture in a
manner affecting the rights of the holders of the Debentures; provided that no
such modification may, without the consent of the holder of each outstanding
Debenture so affected, (i) change the stated maturity of the Debentures, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon (other than deferrals of the payments of interest as
described under "-- Option to Extend Interest Payment Period") or reduce the
premium payable upon termination thereof, or impair any right to institute suit
for the enforcement of any such payment, or adversely affect the subordination
provisions of the Indenture or any right to convert any Debentures or (ii)
reduce the percentage of principal amount of Debentures, the holders of which
are required to consent to any such modification of the Indenture, provided
that, so long as any of the Preferred Securities remain outstanding, (a) no such
modification may be made that adversely affects the holders of such Preferred
Securities in any material respect, and no termination of the Indenture may
occur, and no waiver of any Debenture Event of Default or compliance with any
covenant under the Indenture may be effective, without the prior consent of the
holders of at least a majority in aggregate liquidation preference of the
Preferred Securities then outstanding unless and until the principal and any
premium on the Debentures and all accrued and unpaid interest thereon has been
paid in full and (b) where a consent under the Indenture would require the
consent of each holder of Debentures, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Preferred
Securities.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events that has occurred and is continuing constitutes an event of default with
respect to such Debentures (a "Debenture Event of Default"):
(i) failure for 30 days to pay any interest on the Debentures, when
due (subject to the deferral of any due date in the case of an Extension
Period);
(ii) failure to pay any principal or premium, if any, on the
Debentures when due whether at maturity, upon redemption by declaration or
otherwise;
(iii) failure by the company to deliver Common Shares upon an
appropriate election by holders of Debentures to convert such Debentures;
(iv) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or to the Debenture Trustee and
the Company from the holders of at least 25% in aggregate outstanding
principal amount of such Debentures; or
(v) certain events of bankruptcy, insolvency or reorganization of the
Company.
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<PAGE> 44
The holders of a majority in aggregate outstanding principal amount of the
Debentures have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee or exercising any
trust or power conferred on the Trustee consistent with the Indenture. The
Debenture Trustee or the holders of not less than 25% in aggregate principal
amount of the Debentures then outstanding may declare the principal due and
payable immediately upon a Debenture Event of Default, and, should the Debenture
Trustee or the holders of the Debentures fail to make such declaration, the
holders of at least 25% in aggregate liquidation preference of the Preferred
Securities then outstanding shall have such right. The holders of a majority in
aggregate outstanding principal amount of the Debentures may annul and rescind
such declaration if the default (other than the non-payment of the principal of
the Debentures which has become due solely by such acceleration) has been cured
or waived and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee and, should the holders of the Debentures fail to annul and
rescind such declaration, the holders of a majority in aggregate liquidation
preference of the Preferred Securities then outstanding shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Debentures affected thereby may, on behalf of the holders of all the Debentures,
waive any past default, except a default in the payment of principal or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Indenture cannot be modified or amended without the
consent of the holder of each outstanding Debenture and, should the holders of
the Debentures fail to annul such declaration and waive such default, the
holders of a majority in aggregate liquidation preference of the Preferred
Securities shall have such right. The Company is required to file annually with
the Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Indenture.
In case a Debenture Event of Default shall occur and be continuing as to
the Debentures, the Property Trustee will have the right to declare the
principal of and the interest on the Debentures and any other amounts payable
under the Indenture to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the Debentures on the date such interest or principal is otherwise payable, a
holder of Preferred Securities may institute a Direct Action for payment after
the respective due date specified in the Debentures. The Company may not amend
the Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities.
Notwithstanding any payment made to such holder of Preferred Securities by the
Company in connection with a Direct Action, the Company shall remain obligated
to pay the principal of or interest on the Debentures held by the Issuer or the
Property Trustee, and the Company shall be subrogated to the rights of the
holder of such Preferred Securities with respect to payments on the Preferred
Securities to the extent of any payments made by the Company to such holder in
any Direct Action.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless (i) in case the Company
consolidates with or merges into another Person or conveys, transfers or leases
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any state
or the District of Columbia, and such successor Person expressly assumes, by a
supplemental indenture, the Company's obligations on the Debentures and under
the Indenture; (ii) immediately after giving effect thereto, no Debenture Event
of Default, and no event which, after notice or lapse of time or both, would
become a Debenture Event of Default, shall have happened and be continuing;
(iii) such transaction is permitted under the Trust Agreement and the Guarantee
and does not
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<PAGE> 45
give rise to any breach or violation of the Trust Agreement or the Guarantee;
and (iv) certain other conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Debentures protection in the event of a highly leveraged or other transaction
involving the Company that may adversely affect holders of the Debentures.
EXPENSES OF ISSUER
Pursuant to the Indenture, the Company pays and will pay all of the costs,
expenses or liabilities of the Issuer, other than obligations of the Issuer to
pay to the holders of any Preferred Securities the amounts due such holders
pursuant to the terms of the Preferred Securities.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Debentures not
previously delivered to the Debenture Trustee for cancellation (i) have become
due and payable or (ii) will become due and payable at their stated maturity
within one year or are to be properly called for redemption within one year, and
the Company deposits or causes to be deposited with the Debenture Trustee trust
funds, in trust, for the purpose and in an amount in the currency or currencies
in which the Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Debentures not previously delivered to the Debenture Trustee
for cancellation, for the principal and premium, if any, and interest to the
date of the deposit or to the stated maturity, as the case may be, then the
Indenture will cease to be of further effect (except as to the Company's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company covenanted and agreed that any Debentures
issued thereunder are subordinate and junior in right of payment to all Senior
Debt (as defined below) of the Company whether now existing or hereinafter
incurred. Upon any payment or distribution of assets of the Company to creditors
upon any liquidation, dissolution, winding-up, reorganization, assignment for
the benefit of creditors, marshaling of assets or any bankruptcy, insolvency,
debt restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt are first
entitled to receive payment in full of principal of and premium, if any, and
interest, if any, on such Senior Debt before the Property Trustee, on behalf of
the holders of the Debentures, are entitled to receive or retain any payment in
respect of the principal of and premium, if any, or interest, if any, on the
Debentures.
In the event of the acceleration of the maturity of any Debentures, the
holders of all Senior Debt outstanding at the time of such acceleration are
first entitled to receive payment in full of all amounts due thereon (including
any amounts due upon acceleration) before the holders of Debentures are entitled
to receive or retain any payment in respect of the principal of or premium, if
any, or interest, if any, on the Debentures.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Debentures may be made if there shall have occurred and
be continuing a default in any payment with respect to Senior Debt, or an event
of default with respect to any Senior Debt resulting in the acceleration of the
maturity thereof, or if any judicial proceeding shall be pending with respect to
any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case,
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<PAGE> 46
such Person has guaranteed or for which such Person is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt of the
Company, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with or subordinated to the Debentures, provided, however, that Senior
Debt is not deemed to include:
(i) any Debt of the Company which, when incurred and without respect
to any election under Section 1111(b) of the Bankruptcy Reform Act of 1978,
was without recourse to the Company,
(ii) any Debt of the Company to any of its subsidiaries,
(iii) Debt to any employee of the Company,
(iv) any liability for taxes,
(v) Debt or other monetary obligations to trade creditors or assumed
by the Company or any of its subsidiaries in the ordinary course of
business in connection with the obtaining of goods, materials or services,
and
(vi) the Debentures.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by the Company.
GOVERNING LAW
The Indenture and the Debentures are governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE DEBENTURES
AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." Taken together, the Company's
obligations under the Debentures, the Indenture, the Trust Agreement and the
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of Distributions and other amounts due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
Preferred Securities. If and to the extent that the Company does not make
payments on the Debentures, the Issuer will not pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment of
Distributions when the Issuer does not have sufficient funds to pay such
Distributions. In such event, then the holders of Preferred Securities shall
rely on the Property Trustee to enforce its rights as a holder of the Debentures
against the Company. If the Property Trustee fails to exercise its rights as a
holder of the Debentures after a request therefor by a holder of Preferred
Securities, such holder may institute a Direct Action directly against the
Company to enforce payment of such Distributions to such holder after the
respective due dates. The obligations of the Company under the Guarantee are
subordinate and junior in right of payment to all other liabilities of the
Company and will rank pari passu with the most senior preferred stock, if any,
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.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover Distributions and other
payments due on the Preferred Securities, primarily because (i) the aggregate
principal amount of the Debentures is equal to the sum of the aggregate stated
liquidation preference of the Preferred Securities and Common Securities; (ii)
the interest rate and interest and other payment dates on the Debentures matches
the Distribution rate and Distribution and other payment dates for the Preferred
Securities; (iii) the Company pays for all and any costs, expenses and
liabilities of the Issuer except the Issuer's obligations to holders of the
Preferred Securities under such Preferred Securities; and (iv) the Trust
Agreement further provides that the Issuer will not engage in any activity that
is not consistent with the limited purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
or any other person or entity.
A default or event of default under any Senior Debt of the Company will not
constitute a default under the Indenture or a Debenture Event of Default.
However, in the event of payment defaults under, or acceleration of, Senior Debt
of the Company, the subordination provisions of the Indenture provide that no
payments may be made in respect of the Debentures, until such Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Debentures would constitute a Debenture
Event of Default.
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LIMITED PURPOSE OF ISSUER
The Preferred Securities evidence a beneficial interest in the Issuer, and
the Issuer exists for the sole purposes of issuing the Preferred Securities and
Common Securities, investing the proceeds thereof in the Debentures and
distributing the Issuer's income as provided in the Trust Agreement. A principal
difference between the rights of a holder of Preferred Securities and a holder
of Debentures is that a holder of Debentures is entitled to receive from the
Company the principal amount of and interest accrued on Debentures held, while a
holder of Preferred Securities is entitled to receive Distributions from the
Issuer (or from the Company under the Guarantee) if and to the extent the Issuer
has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer involving the
liquidation of the Debentures, after satisfaction of the liabilities of
creditors of the Issuer as provided by applicable law, the holders of the
Preferred Securities are entitled to receive, out of assets held by the Issuer,
the Liquidation Distribution in cash. See "Description of the Preferred
Securities -- Liquidation Distribution upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Debt, but entitled to receive
payment in full of principal and interest before any stockholders of the Company
receive payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed to pay for all costs, expenses and liabilities of the
Issuer (other than the Issuer's obligations to the holders of the Preferred
Securities), the positions of a holder of such Preferred Securities and a holder
of such Debentures relative to other creditors and to stockholders of the
Company in the event of liquidation or bankruptcy of the Company is
substantially the same.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 80,000,000 Common
Shares, without par value, and 5,000,000 preferred shares, without par value
(the "Preferred Shares"). The following summary description of the capital stock
of the Company does not purport to be complete and is qualified in its entirety
by reference to the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation" or the "Articles").
COMMON SHARES
The holders of Common Shares are entitled to receive dividends when, as and
if declared from time to time by the Board of Directors out of funds legally
available therefor. The Common Shares have no preemptive rights or conversion
rights and are not subject to further calls or assessments by the Company. There
are no redemption or sinking fund provisions applicable to the Common Shares.
All currently outstanding Common Shares are, and the Common Shares being sold by
the Company will be, duly authorized, validly issued, fully paid and
nonassessable. The holders of Common Shares, upon proper notice, have the right
to vote cumulatively in the election of directors. The Board of Directors
consists of ten members divided into three classes of three, four and three
members, respectively. The directors of the class elected at each Annual Meeting
of Shareholders hold office for a term of three years. The Articles can be
amended by the affirmative vote of the holders of at least two-thirds of the
Company's then outstanding shares having voting power thereon.
PREFERRED SHARES
The Articles of Incorporation of the Company authorize 5,000,000 Preferred
Shares, without par value. The Board of Directors has the authority to issue
Preferred Shares in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, dividend rate,
conversion rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further
action by the shareholders. The holders of Preferred Shares are entitled to one
vote per Preferred Share upon all matters presented the shareholders and vote
together with the holders of Common Shares as one class on all matters, except
as otherwise provided by the Articles of Incorporation or required by law. The
Board of Directors has
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<PAGE> 49
represented that Preferred Shares will not be issued (i) for any defensive or
antitakeover purpose, (ii) to implement any shareholder rights plan, or (iii)
with features intended to make any attempted acquisition of the Company more
difficult or costly. Furthermore, the Board of Directors has represented that no
Preferred Shares will be issued to any individual or group for the purpose of
creating a block of voting power to support management on a controversial issue.
BENEFITS TRUST
The Company has established the Benefits Trust pursuant to which Wachovia
Bank, N.A., as Trustee, has subscribed for 5,000,000 Common Shares of the
Company to be paid for over the 15-year term of the Benefits Trust. The proceeds
from the sale of the Common Shares will be used to fund Company obligations
under various employee benefit plans and to pay cash bonuses and other similar
employee related Company obligations. Under Ohio law, the subscribed for Common
Shares are deemed to be issued and outstanding for voting and dividend purposes,
but will not be fully paid and nonassessable until payment for such Common
Shares is received as provided in the Benefits Trust. According to generally
accepted accounting principles, none of the 5,000,000 Common Shares will be
deemed outstanding for purposes of calculating earnings per share until payment
is received for the Common Shares as provided in the Benefits Trust. As of March
31, 1998, 220,000 of the Common Shares had been released from the Benefits
Trust.
OTHER MATTERS
Code of Regulations. The Company's Code of Regulations, as amended (the
"Code of Regulations"), provides that the Board of Directors shall be divided
into three classes and requires that any proposal to increase or decrease the
number of directors be approved by the vote of the holders of a majority of
shares entitled to vote on the proposal; provided, however, that the number of
directors of any class shall not consist of less than three directors. Moreover,
the Code of Regulations provides that directors may be removed from office by
the vote of the holders of two-thirds of the voting power entitled to elect
directors in place of those removed; provided, however, that unless all the
directors of a particular class are removed, no individual director may be
removed without cause if a sufficient number of shares are cast against such
removal, such number being that which, if cumulatively voted at an election for
all the directors, or all the directors of a particular class, as the case may
be, would be sufficient to elect at least one director. The purpose of these
provisions is to prevent directors from being removed from office prior to the
expiration of their respective terms, thus protecting the safeguards inherent in
the classified Board structure unless dissatisfaction with the performance of
one or more directors is widely shared by the Company's shareholders. These
provisions could also have the effect of increasing the amount of time required
for an acquiror to obtain control of the Company by electing a majority of the
Board of Directors and may also make the removal of incumbent management more
difficult and discourage or render more difficult certain mergers, tender
offers, proxy contests, or other potential takeover proposals. To the extent
that these provisions have the effect of giving management more bargaining power
in negotiations with a potential acquiror, they could result in management using
the bargaining power not only to try to negotiate a favorable price for an
acquisition, but also to negotiate favorable terms for management.
Business Combinations. Under the Articles, the affirmative vote of not less
than 80% of the outstanding Common Shares is required for the approval or
authorization of any Business Combination (as hereinafter defined) involving the
Company and an Interested Party (as hereinafter defined). This provision does
not apply to Business Combinations with Interested Parties which have been
approved by a majority of Continuing Directors (as hereinafter defined) or which
satisfy certain provisions of the Articles relating to the consideration to be
paid to the holders of Common Shares by the Interested Party. For purposes of
the Articles, the term "Business Combination" means (i) any merger or
consolidation involving both the Company and the Interested Party, or a
subsidiary of either of them, (ii) any sale, lease, transfer or other
disposition of assets of the Interested Party, (iii) adoption of a plan of
liquidation or dissolution, (iv) issuance or transfer by the Company or a
subsidiary to an Interested Party of any securities with a market value of $2
million or more, or (v) any recapitalization, reclassification or other
transaction which would have the effect of increasing the Interested Party's
voting power in the Company. The term "Interested Party" means (i) any
individual, corporation, partnership or other person or entity which, together
with its affiliates or associates, is a beneficial owner of 10% or more of the
aggregate
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voting power of any class of capital stock of the Company entitled to vote
generally in the election of directors, and (ii) any affiliate or associate of
such individual, corporation, partnership or other person or entity. The term
"Continuing Director" means any director who is not an affiliate of an
Interested Party and who was a member of the Board of Directors of the Company
immediately prior to the time that the Interested Party involved in a Business
Combination became an Interested Party, and any successor to a Continuing
Director who is not such an affiliate and who is nominated to succeed a
Continuing Director by a majority of the Continuing Directors in office at the
time of such nomination.
Certain Provisions of Ohio Law. The Company is subject to certain
provisions of Ohio law which may discourage or render more difficult an
unsolicited takeover of the Company. Among these are provisions that (i)
prohibit certain mergers, sales of assets, issuance or purchases of securities,
liquidation or dissolution, or reclassification of the then outstanding shares
of an Ohio corporation involving certain holders or stock representing 10% or
more of the voting power (other than present shareholders), unless (a) such
transactions are approved by the directors prior to the 10% shareholder becoming
such, (b) the acquisition of 10% of the voting power is approved by the
directors prior to the 10% shareholders becoming such, or (c) such transactions
involve a 10% shareholder which has been such for at least three years and the
transaction is approved by holders of two-thirds of the voting power of the
Company and the holders of a majority of the voting power not owned by the 10%
shareholders or certain minimum price and form of consideration requirements are
met; and (ii) provide Ohio corporations, or in certain circumstances the
shareholders of an Ohio corporation, a cause of action to recover profits
realized under certain circumstances by persons who dispose of securities of a
corporation within 18 months of proposing to acquire such corporation.
In addition, the acquisition of shares entitling the holder to execute
certain levels of voting power of the Company (one-fifth or more, one-third or
more, or a majority) can be made only with the prior authorization of (i) the
holders of at least a majority of the total voting power and (ii) the holders of
at least a majority of the total voting power held by shareholders other than
the proposed acquiror, officers of the Company elected or appointed by the
directors, and directors who are also employees and excluding certain shares
that are transferred after the announcement of the proposed acquisition and
prior to the vote with respect to the proposed acquisition.
Rights Plan. On April 25, 1989, the Board of Directors of the Company
adopted a Shareholder Rights Plan pursuant to a Rights Agreement (as amended
from time to time, or any successor to, or replacement of, such agreement being
hereinto referred to as the "Rights Agreement"), entered into by and between the
Company and a Cleveland, Ohio bank, and declared a dividend distribution of one
Right (as defined in the Rights Agreement) for each outstanding Common Share,
which was paid to shareholders on May 10, 1989. The Rights are also issuable to
all holders of Common Shares issued after May 10, 1989. The Rights are not
exercisable until the earlier to occur of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding Common Shares of the Company or (ii) ten business days following the
commencement of, or announcement of an intention to make a tender offer or
exchange offer for 20% or more of the outstanding Common Shares of the Company
(the earlier of such dates being called the "Distribution Date"). Once
exercisable, each Right entitles the registered holder to purchase from the
Company one Common Share at the then-current exercise price per Common Share,
which currently is $11.85.
In the event that the Company is acquired in a merger or other business
combination transaction, or 50% or more of its consolidated assets or earning
power are sold, proper provision shall be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the Right. In the event that (i) any
person becomes an Acquiring Person (unless such person first acquires 20% or
more of the outstanding Common Shares by a purchase pursuant to a tender offer
for all of the Common Shares for cash, which purchase increases such person's
beneficial ownership to 80% or more of the outstanding Common Shares) or (ii)
during such time as there is an Acquiring Person, there shall be a
reclassification of securities or a recapitalization or reorganization of the
Company or other transaction or series of transactions involving the Company
which has the effect of increasing by more than 1% the proportionate share of
the outstanding shares of any class of equity securities of
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the Company or any of its subsidiaries beneficially owned by the Acquiring
Person, proper provision shall be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the
Right.
In addition, if a bidder who does not beneficially own more than 1% of the
Common Shares (and who has not within the past year owned in excess of 1% of the
Common Shares and, at a time he held such greater than 1% stake, disclosed, or
caused the disclosure of, an intention which relates to or would result in the
acquisition or influence of control of the Company) proposes to acquire all of
the Common Shares (and all other shares of capital stock of the Company entitled
to vote with the Common Shares in the election of directors or on mergers,
consolidations, sales of all or substantially all of the Company's assets,
liquidations, dissolutions or windings up) for cash at a price which a
nationally recognized investment banker selected by such bidder states in
writing is fair, and such bidder has obtained written financing commitments (or
otherwise has financing) and complies with certain procedural requirements, then
the Company, upon the request of the bidder, will hold a special shareholders
meeting to vote on a resolution requesting the Board of Directors to accept the
bidder's proposal. If a majority of the outstanding shares entitled to vote on
the proposal vote in favor of such resolution, then for a period of 60 days
after such meeting the Rights will be automatically redeemed at the Redemption
Price (as defined in the Rights Agreement) immediately prior to the consummation
of any tender offer for all of such shares at a price per share in cash equal to
or greater than the price offered by such bidder; provided, however, that no
redemption will be permitted or required after the acquisition by any person or
group of affiliated or associated persons of beneficial ownership of 20% or more
of the outstanding Common Shares. The Rights, which have no voting power, will
expire on May 10, 1999 unless earlier redeemed by the Company as described
above.
Director and Officer Indemnification. The Company's Code of Regulations
contains provisions indemnifying directors and officers of the Company to the
fullest extent permitted by law and providing for the advancement of expenses
incurred in connection with an action upon the receipt of an appropriate
undertaking to repay said amount if it is determined that the individual in
question is not entitled to indemnification. The Company has also entered into
indemnity agreements pursuant to which it has agreed, among other things, to
indemnify its directors for settlement in derivative actions. The Company also
has purchased a Director and Officer liability insurance policy (the "D & O
Insurance"), a copy of which is an exhibit to the Company's Annual Report on
Form 10-K.
General. It is possible that the division of the Board of Directors of the
Company into classes provided for in the Code of Regulations and the other
provisions of the Code of Regulations discussed above, the heightened
shareholder voting requirements applicable to certain proposed business
combination transactions, the provisions of Ohio law, and the Rights Plan may
discourage other persons from making a tender offer for or acquisitions of
substantial amounts of Common Shares. This could have an incidental effect of
inhibiting changes in management and may also prevent temporary fluctuations in
the market price of Common Shares which often result from actual or rumored
takeover attempts. In addition, the indemnification provisions of the Code of
Regulations, certain indemnity agreements between directors and officers and the
Company and the D & O Insurance may have the effect of reducing the likelihood
of derivative litigation against directors and deterring shareholders from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited the Company
and the shareholders.
Transfer Agent and Registrar. The Transfer Agent and Registrar for Common
Shares is National City Bank, Cleveland, Ohio.
DESCRIPTION OF CERTAIN INDEBTEDNESS
REVOLVING CREDIT FACILITY
In connection with the acquisition of Dickens Data, the Company entered a
new credit facility with National City Bank, Cleveland, Ohio ("NCB") and other
leading banks (the "Revolving Credit Facility"). The Revolving
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Credit Facility replenished the previous $165,000,000 credit facilities and
provides that NCB will act as agent and, with the other lenders in the bank
syndicate, provides the Company with loans of up to $260,000,000 on a revolving
credit basis. The Revolving Credit Facility expires on March 27, 2003. The
Company pays a facility fee ranging from .250% to .375% on the total commitment.
The interest rate available to the Company is, at its option, (i) the higher of
the federal funds rate plus .50% or the rate per annum equal to NCB's base rate,
or (ii) a rate per annum ranging from the LIBOR rate plus .50% to the LIBOR rate
plus 1.125% depending on the Company's performance with respect to certain
financial tests. Advances under the Revolving Credit Facility are conditioned
upon the absence of any defaults under the Revolving Credit Facility and other
customary conditions.
The Revolving Credit Facility contains customary restrictive covenants
imposing limitations on the Company and its subsidiaries with respect to, among
other things, incurring future indebtedness or liens, acquiring or conveying
certain assets, changing the nature of the Company's business or failing to
satisfy certain financial tests or maintaining certain financial ratios on a
consolidated basis, including ratios with respect to minimum consolidated worth,
fixed charge coverage ratio, interest coverage ratio and total funded debt to
EBITDA and, on a Company only basis, with respect to interest coverage ratio.
8 1/2% SENIOR NOTES DUE 2006
On August 7, 1996, the Company issued $150,000,000 of Notes under an
indenture agreement ("Indenture Agreement"), dated as of August 1, 1996 between
the Company and StarBank, N.A. Interest on the Notes, accruing from August 12,
1996, is payable at 8 1/2% per annum, subject to certain adjustments as provided
for in the Indenture Agreement, on February 1 and August 1 of each year
beginning February 1, 1997. The indebtedness evidenced by the Notes ranks pari
passu in right of payment with all other unsubordinated indebtedness of the
Company. The Notes were issued only in fully registered form, without coupons,
are not redeemable prior to maturity and are subject to defeasance of certain
covenants and certain events of default. Interest on the Notes may be subject to
an increase to 9 1/2% under certain circumstances. This description of the Notes
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Trust Indenture Act of 1939 and the provisions of the Notes
and the Indenture Agreement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States Federal
income tax consequences of the purchase, ownership, disposition and conversion
of the Preferred Securities. Unless otherwise stated, this summary deals only
with Preferred Securities held as capital assets. This summary 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, foreign taxpayers (except to the
extent discussed under the heading "-- United States Alien Holders") 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 that have a functional currency
other than the U.S. dollar. Further, it does not include any description of any
alternate 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.
INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF
ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
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CLASSIFICATION OF THE DEBENTURES
The Company has taken the position that the Debentures will be classified
for United States Federal income tax purposes as indebtedness of the Company
under current law and, by acceptance of Preferred Securities, each holder
covenants to treat the Debentures as indebtedness and the Preferred Securities
as evidence of an indirect beneficial ownership interest in the Debentures. No
assurance can be given, however, that such position of the Company will not be
challenged by the Internal Revenue Service or, if challenged, that such a
challenge will not be successful. The remainder of this discussion assumes that
the Debentures are classified as indebtedness of the Company for United States
Federal income tax purposes.
CLASSIFICATION OF THE ISSUER
In the opinion of Calfee, Halter & Griswold LLP, counsel to the Issuer and
the Company, the Issuer will not be classified as an association taxable as a
corporation for United States Federal income tax purposes. Accordingly, for
United States Federal income tax purposes, each holder of Preferred Securities
generally will be considered the owner of an undivided interest in the
Debentures, and each holder is required to include in its gross income any
interest (in the form of OID as defined below under the heading "-- Interest
Income and Original Issue Discount") with respect to its allocable share of
those Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the Indenture, the Company has the option to defer the payment of
interest on the Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the stated maturity of the
Debentures. The Company's option to extend the interest period will cause the
Debentures to be subject to the "original issue discount" ("OID") rules for
United States Federal income tax purposes. Accordingly, regardless of a holder's
regular method of accounting, a holder will recognize interest income (in the
form of OID) on a daily basis under a constant yield method over the term of the
Debentures (including during any Extension Period), regardless of the receipt of
cash with respect to the period to which such income is attributable and
regardless of whether the Company exercises its option to extend any interest
payment period. The amount of OID that will be recognized in any quarter will
approximately equal the amount of income that accrues on the Debentures in that
quarter at the stated interest rate.
As a result, holders will include interest (in the form of OID) in gross
income in advance of the receipt of cash (which may be particularly significant
during any Extension Period), and any such holders who dispose of Preferred
Securities or convert Preferred Securities into Common Shares prior to the
record date for the payment of distributions following such Extension Period
will include interest in gross income but will not receive any cash related
thereto from the Issuer.
Because income on the Debentures constitutes interest, corporate holders
are not entitled to a dividends-received deduction with respect to any income
recognized with respect to the Debentures.
REDEMPTION OF PREFERRED SECURITIES FOR DEBENTURES OR CASH UPON DISSOLUTION OF
THE ISSUER
Under certain circumstances, the Debentures may be distributed to holders
in exchange for the Preferred Securities. Under current law, such a distribution
to holders, for United States Federal income tax purposes, would be treated as a
nontaxable event to each holder, and each holder would receive an aggregate tax
basis in the Debentures distributed equal to such holder's aggregate tax basis
in its Preferred Securities exchanged therefor. A holder's holding period in the
Debentures so received would include the period during which the Preferred
Securities were held by such holder. If, however, the exchange is caused by a
Tax Event which results in the Issuer being treated as an association taxable as
a corporation, the distribution would likely constitute a taxable event to the
Issuer and holders of the Preferred Securities.
Under certain circumstances described herein (see "Description of the
Preferred Securities -- Special Event Exchange or Redemption"), the 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,
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for United States Federal income tax purposes, constitute a taxable disposition
of the redeemed Preferred Securities, and a holder would recognize gain or loss
in the same manner as if it sold such redeemed Preferred Securities for cash.
See "-- Sales of Preferred Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the Preferred
Securities and the holder's adjusted tax basis in such Preferred Securities. The
tax basis of a Preferred Security will be increased by the amount of any
interest (in the form of OID) that is included in income, and will be decreased
by the amount of any payment made by the Company on the Debentures. In general,
such gain or loss will be a capital gain or loss and will be a long-term capital
gain or loss if the Preferred Securities have been held for more than one year
at the time of sale. Long-term capital gain of a noncorporate holder is subject
to a maximum tax rate of 28% in respect of capital assets held for more than one
year. The maximum tax rate is reduced to 20% for capital assets held for more
than 18 months. Capital gain on the disposition of assets held for not more than
one year is taxed at the rate applicable for ordinary income (i.e., up to 39.6%
for noncorporate holders). There is no preferential United States Federal income
tax rate for capital gains realized by corporations.
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
Debentures. A holder that disposes of its Preferred Securities between record
dates for payments of distributions thereon will be required to include in
income as ordinary income any accrued but unpaid interest (in the form of OID)
on the Debentures to the date of disposition and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Debentures deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis, such 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.
CONVERSION OF PREFERRED SECURITIES INTO COMMON SHARES
A holder of Preferred Securities generally will not recognize income, gain
or loss upon the conversion of the Preferred Securities into Common Shares
through the Conversion Agent. A holder of Preferred Securities will, however,
recognize gain upon the receipt of cash in lieu of a fractional Common Share
generally equal to the amount of cash received less such holder's tax basis in
such fractional share. Such holder's tax basis in Common Shares received upon
conversion should generally be equal to such holder's tax basis in the Preferred
Securities delivered to the Conversion Agent for exchange (which will include
any accrued but unpaid OID) less the basis allocated to any fractional share for
which cash is received, and such holder's holding period in Common Shares
received upon conversion should generally begin on the date such holder acquired
the Preferred Securities that are subsequently delivered to the Conversion Agent
for exchange.
Holders of Preferred Securities should not recognize gain or loss upon
expiration of the conversion rights. Such expiration should not effect a
significant modification of the underlying Debentures within the meaning of
applicable Treasury Regulations, and thus will not be considered a sale or
exchange for purposes of United States Federal income taxation.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the conversion ratio of the Debentures were
adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Common Shares into or for which the Debentures are
convertible or exchangeable) of the holders of the Preferred Securities in the
assets or earnings and profits of the Company were increased and (ii) the
adjustment were not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment in the conversion ratio would not be considered made
pursuant to such a formula if the adjustment were made to compensate for certain
taxable distributions with respect to Common Shares. Thus, under certain
circumstances, a reduction in the conversion price for the holders may result in
deemed dividend income to holders to the extent
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of the current or accumulated earnings and profits of the Company. Holders of
the Preferred Securities would be required to include their allocable share of
such deemed dividend income in gross income but would not receive any cash
related thereto.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, 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:
(a) payments by the Trust or any of its paying agents to any holder of
a Preferred Security who or which is a United States Alien Holder will not
be subject to United States Federal withholding tax; provided, that (i) 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 the Company entitled to vote, (ii) the beneficial owner
of the Preferred Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (iii) either (A) the
beneficial owner of the Preferred Security certifies its status as a United
States Alien Holder to the Trust or its agent, under penalties of perjury,
and provides its name and address or (B)(x) 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 the Trust or its agent, under penalties of perjury, that such statement
has been received from the beneficial owner by it or by a Financial
Institution holding such security for the beneficial owner and furnishes
the Trust or its agent with a copy thereof; or (y) with respect to payments
after December 31, 1998, a "qualified intermediary" (which includes certain
foreign financial institutions or clearing organizations which have entered
into withholding agreements with the Internal Revenue Service and have
received appropriate certification from the beneficial owner) provides the
Trust or any of its paying agents with an intermediary withholding
certificate;
(b) dividends paid with respect to Common Shares to a United States
Alien Holder generally will be subject to withholding of United States
Federal income tax at a 30% rate (or such lower rate as may be specified by
an applicable income tax treaty), unless the dividend (i) is effectively
connected with the conduct of a trade or business of the United States
Alien Holder within the United States or (ii) if an income tax treaty
applies, is attributable to a United States permanent establishment of the
United States Alien Holder.
(c) except to the extent that an applicable treaty otherwise provides,
a United States Alien Holder generally will be taxed in the same manner as
other holders with respect to interest (in the form of OID) or dividends if
the income is effectively connected with a United States trade or business
of the United States Alien Holder (effectively connected interest (in the
form of OID) or dividends received by a corporate United States Alien
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty);
(d) a United States Alien Holder of a Preferred Security or Common
Share generally will not be subject to United States Federal income or
withholding tax on any gain (other than that attributable to accrued but
unpaid interest (in the form of OID), which is taxable in the manner
described above) realized upon the sale or other disposition of a Preferred
Security or Common Share (including the receipt of cash in lieu of
fractional shares upon conversion of Preferred Securities into Common
Shares), unless (i)(A) the gain is effectively connected with the conduct
of a trade or business of the United States Alien Holder in the United
States or (B) if a tax treaty applies, the gain is attributable to a United
States permanent establishment of the United States Alien Holder; (ii) in
the case of the United States Alien Holder who is an individual and holds
the Preferred Securities or Common Shares as a capital asset, such holder
is present in the United States for 183 or more days in the taxable year of
the disposition and certain other conditions are met; (iii) the United
States Alien Holder is subject to tax pursuant to the provisions of United
States Federal income tax laws applicable to certain United States
expatriates; or (iv)(A) the Company is or has been a "U.S. real property
holding corporation" for United States Federal income tax purposes at any
time during
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the five-year period ending on the date of disposition, or, if shorter, the
period during which the United States Alien Holder held the Preferred
Securities or Common Shares and (B) if the interest sold is considered
stock that is "regularly traded on an established securities market" at any
time during the year of disposition, the United States Alien Holder meets
certain minimum ownership requirements; and
(e) except to the extent that an applicable treaty otherwise provides,
a United States Alien Holder generally will be taxed in the same manner as
other holders with respect to gain on the sale or disposition of Preferred
Securities or Common Shares if the gain is effectively connected with a
United States trade or business of the United States Alien Holder
(effectively connected gain realized by a corporate United States Alien
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty).
A United States Alien Holder who sells or otherwise disposes of Preferred
Securities or Common Shares generally will recognize gain or loss that is
subject to United States Federal income tax if (i) the Company is or has been a
"U.S. real property holding corporation" during the period described in
(d)(iv)(A) above, and (ii) if the interest sold is considered stock that is
"regularly traded on an established securities market" at any time during the
calendar year of disposition, the United States Alien Holder meets certain
minimum ownership requirements. The Company does not believe that it is a U.S.
real property holding corporation as of the date hereof, although it has not
determined or established whether it is now or will be a U.S. real property
holding corporation.
Under current United States Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of such
regulations, for purposes of determining the applicability of an income tax
treaty rate. Recently published final Treasury Regulations (the "1997
Withholding Regulations"), generally effective for payments after December 31,
1998, provide certain presumptions which differ from the presumption described
above. Under the 1997 Withholding Regulations, a United States Alien Holder of
Common Shares who wishes to claim the benefit of a treaty rate is required to
satisfy applicable certification requirements. In addition, the 1997 Withholding
Regulations provide that dividends paid to a United States Alien Holder of
Common Shares, other than dividends paid outside the United States to certain
offshore accounts, will generally be subject to "backup" withholding (see
"-- Backup Withholding" below) if the holder is not an "exempt recipient" and
fails to satisfy applicable certification requirements.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Preferred Securities will be reported to
noncorporate holders on Forms 1099, which forms will be mailed to holders of
record prior to January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities may
be subject to a "backup" withholding tax of 31% unless the holder is an "exempt
recipient" or complies with certain identification requirements. Any withheld
amounts will generally be allowed as a credit against the holder's United States
Federal income tax, provided the required information is timely filed with the
Internal Revenue Service.
FUTURE TAX LEGISLATION
Prospective investors should be aware that future tax legislation could
adversely affect the tax treatment of the Debentures and could result in the
exchange of the Preferred Securities for Debentures or, in certain limited
circumstances, the redemption of the Debentures by the Company and the
distribution of the resulting cash in redemption of the Preferred Securities.
See "Description of the Preferred Securities -- Special Event Exchange or
Redemption."
55
<PAGE> 57
SELLING HOLDERS
The Preferred Securities were originally issued by the Issuer and sold by
the Initial Purchasers in transactions exempt from the registration requirements
of the Securities Act either (i) to persons reasonably believed by the Initial
Purchasers to be "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act) or (ii) upon the terms and conditions set forth in
Regulation S under the Securities Act. The Selling Holders may from time to time
offer and sell pursuant to this Prospectus any or all of the Offered Securities.
The term Selling Holder includes the holders listed below and the beneficial
owners of the Preferred Securities and their transferees, pledgees, donees or
other successors.
The Company will from time to time supplement or amend this Prospectus to
reflect the required information concerning any new or additional Selling
Holders.
The following table sets forth information with respect to the Selling
Holders of the Offered Securities and the respective number of Preferred
Securities beneficially owned by each Selling Holder, and the Common Shares
issuable upon conversion of the Preferred Securities, that may be offered
pursuant to this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PREFERRED COMMON SHARES NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION OF SECURITIES
OWNED PREFERRED PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
NAME OF AUGUST 17, OFFERED OFFERED AFTER THE
SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
-------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
AAM/ZaZove Institutional Income Fund L.P........ 79,700 79,700 253,015 0
ABN-AMRO Incorporated........................... 28,000 28,000 88,888 0
Alpine Associates............................... 110,200 110,200 349,840 0
Alpine Partners, L.P............................ 4,800 4,800 15,238 0
Argent Classic Convertible Arbitrage Fund 79,400 79,400 252,063 0
(Bermuda) L.P.................................
Associated Electric & Gas Insurance Services 7,500 7,500 23,809 0
Limited.......................................
AT&T Investment Management Corporation.......... 9,000 9,000 28,571 0
Benson Associates, LLC, for:
Ahmanson Foundation........................... 900 900 2,857 0
Boys & Girls Club of America.................. 200 200 634 0
The Morris & Gwendolyn Cafritz Foundation..... 300 300 952 0
Common Trust Fund............................. 100 100 317 0
Consolidated Freightways...................... 1,400 1,400 4,444 0
CNF Transportation............................ 1,400 1,400 4,444 0
The Cullen Foundation......................... 600 600 1,904 0
Davidson College.............................. 500 500 1,587 0
Eisenhower Exchange Fellowship, Inc........... 100 100 317 0
Elks Youth Eye Service........................ 1,000 1,000 3,174 0
The Erickson Group, Ltd....................... 100 100 317 0
Everett Clinic Profit Sharing Plan............ 400 400 1,269 0
Furman University............................. 900 900 2,857 0
Hollybrook.................................... 100 100 317 0
Legacy Health Systems......................... 600 600 1,904 0
Lewis & Clark College......................... 300 300 952 0
The Lurie Company............................. 200 200 634 0
Virginia Mason Master Trust................... 100 100 317 0
The University of Michigan.................... 4,500 4,500 14,285 0
National Endowment for Financial Education.... 400 400 1,269 0
OHS Foundation................................ 1,500 1,500 4,761 0
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PREFERRED COMMON SHARES NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION OF SECURITIES
OWNED PREFERRED PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
NAME OF AUGUST 17, OFFERED OFFERED AFTER THE
SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
-------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Regence Group................................. 1,000 1,000 3,174 0
Retirement Trust Fund......................... 100 100 317 0
Texas A&M University Foundation............... 400 400 1,269 0
Triple K Partnership.......................... 100 100 317 0
Virginia Mason Retirement Plan................ 100 100 317 0
George Washington University.................. 1,400 1,400 4,444 0
WCFS, Inc..................................... 800 800 2,539 0
WCR Family Limited Partnership................ 200 200 634 0
Wenatchee Valley Clinic Profit Sharing Plan... 200 200 634 0
Whitehead Trust............................... 100 100 317 0
Black Diamond Partners, L.P..................... 26,335 26,335 83,603 0
Black Diamond, Ltd.............................. 29,585 29,585 93,920 0
Bone and Joint Clinic S.C....................... 700 700 2,222 0
Bradley Corporation Pension Trust............... 600 600 1,904 0
Carlson Capital, L.P., for:
Highbridge Capital Corp....................... 2,000 2,000 6,349 0
Carrigaholt Capital (Bermuda) L.P............... 13,500 13,500 42,857 0
Chrysler Insurance Company Total Return......... 700 700 2,222 0
City of New Haven City Employees Retirement 1,300 1,300 4,126 0
Fund..........................................
Deutsche Bank A.G............................... 278,900 278,900 885,395 0
Double Black Diamond Offshore, LDC.............. 27,480 27,480 87,238 0
Equi-Select SER TR-Growth & Income Portfolio.... 45,500 45,500 144,444 0
Evergreen American Retirement Fund.............. 50,000 50,000 158,730 0
Evergreen Income & Growth Fund.................. 115,000 115,000 365,079 0
Evergreen SmallCap Equity Income Fund........... 110,000 110,000 349,206 0
Evergreen SmallCap Equity Income Variable 1,000 1,000 3,174 0
Annuity Fund..................................
Forest Alternative Strategies Fund 2A5M......... 3,516 3,516 11,161 0
Forest Alternative Strategies Fund A-5.......... 61,699 61,699 195,869 0
Forest Alternative Strategies Fund A-5I......... 9,551 9,551 30,320 0
Forest Alternative Strategies Fund Series B-3... 3,500 3,500 11,111 0
Forest Global Convertible Fund A-5.............. 62,541 62,541 198,542 0
Forest Global Convertible Fund B-1.............. 2,000 2,000 6,349 0
Forest Global Convertible Fund B-2.............. 2,000 2,000 6,349 0
Forest Global Convertible Fund B-3.............. 2,000 2,000 6,349 0
Forest Global Convertible Fund B-5.............. 3,500 3,500 11,111 0
Forest Greyhound................................ 2,000 2,000 6,349 0
Forest Performance Fund......................... 3,300 3,300 10,476 0
Fort Dearborn Life Insurance Company............ 3,500 3,500 11,111 0
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PREFERRED COMMON SHARES NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION OF SECURITIES
OWNED PREFERRED PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
NAME OF AUGUST 17, OFFERED OFFERED AFTER THE
SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
-------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Fox Family Portfolio Partnership c/o Forest 4,800 4,800 15,238 0
Investment Management.........................
G. Robert Sheetz................................ 700 700 2,222 0
Generac Corporation Employees Pension Plan...... 800 800 2,539 0
General Motors Investment Management
Corporation, for:
General Motors Employee Domestic Group Pension 157,800 157,800 500,951 0
Trust......................................
General Motors Foundation..................... 5,800 5,800 18,412 0
Motors Insurance Corporation.................. 36,400 36,400 115,555 0
Highbridge Capital Corp......................... 38,300 38,300 121,587 0
KA Management Ltd............................... 17,920 17,920 56,888 0
KA Trading L.P.................................. 7,680 7,680 24,380 0
The Common Fund................................. 7,550 7,550 23,968 0
Kenosha Beef/Birchwood Profit Sharing Plan...... 600 600 1,904 0
Key Asset Management Inc., Custodian for the 2,500 2,500 7,936 0
Parker Putnam Convertible Fund................
Laterman & Co................................... 6,000 6,000 19,047 0
Laterman Strategies 90s LLC..................... 12,000 12,000 38,095 0
LLT Limited..................................... 6,593 6,593 20,930 0
McDonald & Company Securities, Inc.............. 1,500 1,500 4,761 0
McMahan Securities Company, L.P................. 16,500 16,500 52,380 0
Merrill Lynch International, Ltd................ 30,000 30,000 95,238 0
Metropolitan Anesthesia Network Pension and 1,000 1,000 3,174 0
Profit Sharing Plan...........................
Morgan Stanley Dean Witter Convertible 50,000 50,000 158,730 0
Securities Trust..............................
National Union Fire Insurance Co. of 19,800 19,800 62,857 0
Pittsburgh....................................
Offshore Strategies Ltd......................... 12,000 12,000 38,095 0
Ohio National Fund, Inc. Growth & Income 10,000 10,000 31,746 0
Portfolio.....................................
Orrington International Fund Ltd................ 3,700 3,700 11,746 0
Orrington Investments Limited Partnership....... 6,300 6,300 20,000 0
Paloma Securities L.L.C......................... 304,200 304,200 965,713 0
Paloma Strategic Securities Limited............. 30,000 30,000 95,238 0
Phoenix Convertible Fund........................ 18,500 18,500 58,730 0
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PREFERRED COMMON SHARES NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION OF SECURITIES
OWNED PREFERRED PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
NAME OF AUGUST 17, OFFERED OFFERED AFTER THE
SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
-------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
The Putnam Advisory Company, Inc., on behalf of:
Museum of Fine Arts, Boston................... 2,400 2,400 7,619 0
Boston College Endowment Fund................. 2,200 2,200 6,984 0
Promutual..................................... 10,300 10,300 32,698 0
Employers' Reinsurance Corporation............ 19,700 19,700 62,539 0
Rhone-Poulanc Rorer, Inc. Pension Plan........ 4,000 4,000 12,698 0
Parker-Hannifin Corporation................... 2,500 2,500 7,936 0
New Hampshire State Retirement System......... 12,400 12,400 39,365 0
Putnam Investment Management, Inc., on behalf
of:
Putnam Balanced Retirement Fund............... 6,300 6,300 20,000 0
Putnam Convertible Income-Growth Trust........ 102,100 102,100 324,126 0
Putnam Funds Trust-Putnam High Yield Total 600 600 1,904 0
Return Fund................................
R(2) Investments, LDC........................... 46,000 46,000 146,031 0
Schwan's Family of Business Profit Sharing 6,550 6,550 20,793 0
Plan..........................................
Shepherd Investments International Ltd.......... 219,900 219,900 698,094 0
SoundShore Partners, L.P........................ 70,000 70,000 222,222 0
St. Louis University............................ 4,600 4,600 14,603 0
The Cincinnati Insurance Company................ 100,000 100,000 317,460 0
The Class 1C Company, Ltd....................... 13,500 13,500 42,857 0
The Northwestern Mutual Life Insurance 140,000 140,000 444,444 0
Company.......................................
TQA Leverage Fund, L.P.......................... 27,000 27,000 85,714 0
TQA Vantage Fund, Ltd........................... 25,000 25,000 79,365 0
TQA Vantage Plus Fund, Ltd...................... 18,000 18,000 57,142 0
Tribeca Investments............................. 65,000 65,000 206,349 0
Triton Capital Investments, Ltd................. 20,000 20,000 63,492 0
University of South Florida..................... 1,500 1,500 4,761 0
Value Line Convertible Fund, Inc................ 40,000 40,000 126,984 0
Vogue Tyre and Rubber 600 Company Profit Sharing 600 600 1,904 0
Plan..........................................
Worldwide Transactions, Ltd..................... 4,600 4,600 14,603 0
--------- --------- --------- --
TOTALS(3):............................ 2,875,000 2,875,000 9,126,975 0
========= ========= ========= ==
</TABLE>
- ---------------
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of securities over which such person, directly or indirectly
through any contract, arrangement, understanding, relationship or otherwise,
has or shares (x) voting power (which includes the power to vote or to
direct the voting of such securities) or (y) investment power (which
includes the power to dispose or direct the disposition of such securities).
A person is also deemed to be the beneficial owner of securities: (i) the
beneficial ownership of which the person has the right, at any time within
60 days from August 17, 1998 (or such later date as noted in the above
table), to acquire, including but not limited to any right to acquire
through the exercise of options, warrants or rights, the conversion of a
convertible security or the revocation or automatic termination of a
59
<PAGE> 61
trust or discretionary account or similar arrangement; (ii) the beneficial
ownership of which such person has the right to acquire (as specified in
(i)) at any time, where such right is acquired for the purpose, or with the
effect, of changing or influencing control of the Company, or in connection
with or as a participant in any transaction having such purposes or effect;
or (iii) with respect to such person, directly or indirectly, through the
creation or use of a trust, a proxy, a power of attorney, pooling
arrangement or any other contract, arrangement or device purports to have
divested himself of beneficial ownership or to have prevented the vesting of
beneficial ownership as part of a scheme to evade the reporting requirements
of Section 13(d) or (g) of the Securities Exchange Act of 1934. Beneficial
ownership is given as of August 17, 1998 unless noted otherwise.
(2) No fractional Common Shares will be issued as a result of conversion, but,
in lieu thereof, such fractional interest will be paid in cash.
(3) The Initial Purchasers acquired 2,875,000 Preferred Securities from the
Company, and subsequently sold these shares to qualified institutional
buyers. When tallied, actual column totals exceed 2,875,000 shares due to
duplicative responses to Selling Holder questionnaires submitted to the
Company by indeterminate registered and beneficial owners of Preferred
Securities. The Company has used the column totals displayed because no more
than 2,875,000 Preferred Securities could possibly be outstanding and
available for resale.
60
<PAGE> 62
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act. The Offered Securities may be sold from
time to time in one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the time of sale or
at negotiated prices. The sale of the Offered Securities may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the Offered
Securities may be listed or quoted at the time of sale, (ii) in the
over-the-counter market, (iii) in transactions otherwise than on such exchanges
or in the over-the-counter market or (iv) through the writing of options. At the
time the particular offering of the Offered Securities is made, a Prospectus
Supplement, if required, will be distributed which will set forth the aggregate
amount and type of Offered Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, the Company and the Issuer
shall each bear all reasonable fees and expenses customarily borne by issuers in
a non-underwritten secondary offering by selling security holders or in an
underwritten offering, as the case may be, incurred in connection with the
performance of its obligations under the Registration Rights Agreement;
provided, however, that the Selling Holders will pay all underwriting discounts
and selling commissions, if any. The Selling Holders will be indemnified by the
Company and the Issuer, jointly and severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company and the Issuer will be
indemnified by the Selling Holders severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities have been passed upon on behalf of the Issuer by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Issuer,
Wilmington Trust and the Company. The validity of the Debentures, the Guarantee,
and certain matters relating thereto have been passed upon on behalf of the
Company by Calfee, Halter & Griswold LLP, Cleveland, Ohio. William A.
Papenbrock, Esq., a partner of Calfee, Halter & Griswold LLP, is the Secretary
of the Company. Certain legal matters have been passed upon for the Initial
Purchasers by Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedule of the Company
incorporated by reference and included in the Company's Annual Report (Form
10-K), as amended, for the year ended March 31, 1998, have been
61
<PAGE> 63
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated by reference and included therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Dickens Data for the year ended
December 31, 1997, have been audited by Arthur Andersen LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission, all of which may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained from the Commission at prescribed
rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site, located at
http://www.sec.gov, that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission. Common Shares are traded on Nasdaq, and
reports, proxy statements and other information concerning the Company may be
inspected at the office of Nasdaq at 1735 K Street, N.W., Washington, D.C.
20006.
62
<PAGE> 64
- ---------------------------------------------------------------
- ---------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon. Neither this Prospectus nor any Prospectus Supplement
constitutes an offer to sell or a solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus or any Prospectus Supplement nor any sale made hereunder shall,
under any circumstances, create any implication that the information contained
herein is correct as of any time subsequent to the date hereof or that there has
been no change in the affairs of the Company since the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents By
Reference.................................. 4
Forward-Looking Statements................... 5
Risk Factors................................. 10
Use of Proceeds.............................. 16
Accounting Treatment......................... 16
Description of the Preferred Securities...... 16
Description of the Guarantee................. 35
Description of the Debentures................ 37
Relationship Among the Preferred Securities,
the Debentures and the Guarantee........... 46
Description of Capital Stock................. 47
Description of Certain Indebtedness.......... 50
Certain United States Federal Income Tax
Consequences............................... 51
Selling Holders.............................. 56
Plan of Distribution......................... 61
Validity of Securities....................... 61
Experts...................................... 61
Available Information........................ 62
</TABLE>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
2,875,000 PREFERRED SECURITIES
PIONEER-STANDARD FINANCIAL TRUST
6 3/4% CONVERTIBLE TRUST PREFERRED SECURITIES
(LIQUIDATION PREFERENCE $50 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON SHARES
OF,
PIONEER-STANDARD
PIONEER-STANDARD ELECTRONICS, INC.
------------------------------------
PROSPECTUS
------------------------------------
SEPTEMBER , 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
<PAGE> 65
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities registered hereby. Except for
the SEC registration fee, all amounts provided are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 42,407
Printing and engraving expenses............................. 20,000
Legal fees and expenses..................................... 50,000
Accounting fees and expenses................................ 71,800
Transfer agent and trustee fees............................. 15,000
Miscellaneous............................................... 10,793
--------
Total............................................. $210,000
</TABLE>
- ---------------
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1701.13 of the Ohio Revised Code sets forth the conditions and
limitations governing the indemnification of officers, directors and other
persons. Section 1701.13 provides that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or contemplated action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation in a similar capacity with another corporation or
other entity, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement incurred in connection therewith if he acted in good
faith and in a manner that he reasonably believed to be in the best interests of
the corporation and, with respect to a criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. With respect to a suit by
or in the right of the corporation, indemnity may be provided to the foregoing
persons under Section 1701.13 on a basis similar to that set forth above, except
that no indemnity may be provided in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless and
to the extent that the Court of Common Pleas or the court in which such action,
suit or proceeding was brought determines that despite the adjudication of
liability but in view of all the circumstances of the case such person is
entitled to indemnity for such expenses as the court deems proper. Moreover,
Section 1701.13 provides for mandatory indemnification of a director, officer,
employee or agent of the corporation to the extent that such person has been
successful in defense of any such action, suit or proceeding and provides that a
corporation shall pay the expenses of an officer or director in defending an
action, suit or proceeding upon receipt of an undertaking to repay such amounts
if it is ultimately determined that such person is not entitled to be
indemnified. Section 1701.13 establishes provisions for determining whether a
given person is entitled to indemnification, and also provides that the
indemnification provided by or granted under Section 1701.13 is not exclusive of
any rights to indemnity or advancement of expenses to which such person may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
Under certain circumstances provided in Article V of the Company's Code of
Regulations, as amended, and subject to Section 1701.13 of the Ohio Revised Code
(which sets forth the conditions and limitations governing the indemnification
of officers, directors and other persons), the Company will indemnify any
director or officer or any former director or officer of the Company against
expenses, including attorney's fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him by reason of the fact that
he is or was such director or officer in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative. A copy of Article V of the Company's Code of Regulations, as
amended, is included herein in Exhibit 3.2.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with the current directors and executive officers of the Company
and expects to enter into similar agreements with any director or executive
officer elected or appointed in the future at the time of their election or
appointment. Pursuant to the
II-1
<PAGE> 66
Indemnity Agreements, the Company will indemnify a director or executive officer
of the Company (the "Indemnitee") if the Indemnitee is a party to or otherwise
involved in any legal proceeding by reason of the fact that the Indemnitee is or
was a director or executive officer of the Company, or is or was serving at the
request of the Company in certain capacities with another entity, against all
expenses, judgments, settlements, fines and penalties, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of such
proceeding. Indemnity is only available if the Indemnitee acted in good faith
and in a manner which he reasonably believed to be in, or not opposed to, the
best interests of the Company. The same coverage is provided whether or not the
suit or proceeding is a derivative action. Derivative actions may be defined as
actions brought by one or more shareholders of a corporation to enforce a
corporate right or to prevent or remedy a wrong to the corporation in cases
where the corporation, because it is controlled by the wrongdoers or for other
reasons, fails or refuses to take appropriate action for its own protection. The
Indemnity Agreements mandate advancement of expenses to the Indemnitee if the
Indemnitee provides the Company with a written promise to repay the advanced
amounts in the event that it is determined that the conduct of the Indemnitee
has not met the applicable standard of conduct. In addition, the Indemnity
Agreements provide various procedures and presumptions in favor of the
Indemnitee's right to receive indemnification under the Indemnity Agreement.
Under the Trust Agreement, the Company agreed to indemnify and hold
harmless, to the fullest extent permitted by applicable law, each Trustee, any
affiliate of any Trustee, any officer, director, shareholder, employee,
representative or agent of any Trustee, and any employee or agent of the Issuer
or its affiliates (each an "Indemnified Person") from and against any loss,
damage, liability, tax, penalty, expense or claim incurred by such Indemnified
Person by reason of the creation, operation, dissolution or termination of the
Issuer or in connection with the administration of the Issuer or any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Issuer and in a manner such Indemnified Person reasonably believed to be
within the scope of authority conferred on such Indemnified Person by the Trust
Agreement, except that no Indemnified Person is entitled to be indemnified in
respect of any loss, damage or claim incurred by such Indemnified Person by
reason of negligence or willful misconduct with respect to such acts or
omissions.
Pursuant to the registration rights agreement among the Company, the Issuer
and the Initial Purchasers, dated March 23, 1998 (the "Registration Rights
Agreement"), the Company and the Trust have agreed to indemnify the holders of
Registrable Securities against certain liabilities, including liabilities under
the Securities Act. Also pursuant to the Registration Rights Agreement, under
certain circumstances, the Company and the Trust have agreed to indemnify
certain broker-dealers, including certain persons associated with such broker-
dealers, against certain liabilities, including liabilities under the Securities
Act.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.1 Certificate of Trust of Pioneer-Standard Financial Trust.*
4.2 Amended and Restated Trust Agreement among Pioneer-Standard
Electronics, Inc., as Depositor, Wilmington Trust Company,
as Property Trustee and Delaware Trustee, and the
Administrative Trustees named therein, dated as of March 23,
1998.*
4.3 Junior Subordinated Indenture, dated March 23, 1998, between
the Company and Wilmington Trust, as trustee.*
4.4 First Supplemental Indenture, dated March 23, 1998, between
the Company and Wilmington Trust, as trustee.*
4.5 Form of 6 3/4% Preferred Securities (Included in Exhibit
4.2).*
4.6 Form of 6 3/4% Junior Convertible Subordinated Debentures
(Included in Exhibit 4.4).*
4.7 Guarantee Agreement, dated March 23, 1998, between the
Company and Wilmington Trust, as trustee.*
</TABLE>
II-2
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
5.1 Opinion of Calfee, Halter & Griswold LLP as to the legality
of the Debentures, the Guarantee and the Common Shares
issuable upon conversion of the Preferred Securities being
registered hereby.**
5.2 Opinion of Richards, Layton & Finger, P.A., special Delaware
counsel to Pioneer-Standard Electronics, Inc. and
Pioneer-Standard Financial Trust as to the legality of the
Preferred Securities being registered hereby.**
8.1 Opinion of Calfee, Halter & Griswold LLP, counsel to
Pioneer-Standard Financial Trust, as to certain tax
matters.**
23.1 Consent of Calfee, Halter & Griswold LLP (Included in
Exhibit 8.1).**
23.2 Consent of Calfee, Halter & Griswold LLP (Included in
Exhibit 5.1).**
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Richards, Layton & Finger, P.A. (Included in
Exhibit 5.2).**
24.1 Power of Attorney (see page II-5).**
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act for the Convertible Subordinated Debentures of
Pioneer-Standard Electronics, Inc., dated June 11, 1998.**
25.2 Form T-1 Statement of Eligibility under the Trust Indenture
Act for the Convertible Trust Preferred Securities of
Pioneer-Standard Financial Trust, dated June 11, 1998.**
25.3 Form T-1 Statement of Eligibility under the Trust Indenture
Act for the Preferred Securities Guarantee of
Pioneer-Standard Electronics, Inc., dated June 11, 1998.**
99.1 Registration Rights Agreement, dated March 23, 1998, among
the Company, Wilmington Trust, Lazard Freres & Co. LLC,
Cleary Gull Reiland & McDevitt Inc., and McDonald & Company
Securities, Inc. as initial purchasers.*
</TABLE>
- ---------------
* These documents were previously filed with the Company's Annual Report on
Form 10-K for the year ended March 31, 1998.
** Previously filed.
ITEM 17. UNDERTAKINGS
1. The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing a
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
referring to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended (the "Securities Act") and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE> 68
3. The undersigned registrants hereby undertake:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement;
(ii) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be initial bona fide offering thereof; and
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unexchanged
at the termination of the offering.
4. The undersigned registrants hereby undertake that:
(i) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) of 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Pioneer-Standard Electronics, Inc. has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, September 15, 1998.
PIONEER-STANDARD ELECTRONICS, INC.
By: /s/ JOHN V. GOODGER
-------------------------------------
John V. Goodger
Its Vice President, Treasurer and
Assistant Secretary
-----------------------------------
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on September 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JAMES L. BAYMAN Chairman, Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
James L. Bayman
/s/ ARTHUR RHEIN President, Chief Operating Officer and Director
- ---------------------------------------------
Arthur Rhein
/s/ JOHN V. GOODGER Vice President, Treasurer and Assistant Secretary
- --------------------------------------------- (Principal Financial and Accounting Officer)
John V. Goodger
CHARLES F. CHRIST* Director
- ---------------------------------------------
Charles F. Christ
FREDERICK A. DOWNEY* Director
- ---------------------------------------------
Frederick A. Downey
VICTOR GELB* Director
- ---------------------------------------------
Victor Gelb
GORDON E. HEFFERN* Director
- ---------------------------------------------
Gordon E. Heffern
EDWIN Z. SINGER* Director
- ---------------------------------------------
Edwin Z. Singer
THOMAS C. SULLIVAN* Director
- ---------------------------------------------
Thomas C. Sullivan
KARL E. WARE* Director
- ---------------------------------------------
Karl E. Ware
</TABLE>
* The undersigned, by signing his name hereto, does sign this amendment to this
Registration Statement on behalf of the above Directors and Officers of
Pioneer-Standard Electronics, Inc. pursuant to a Power of Attorney executed on
behalf of each such Director and Officer and which has been filed with the
Securities and Exchange Commission.
By: /s/ EDWARD W. MOORE
------------------------------------
Edward W. Moore,
As Attorney-in-Fact
II-5
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act, Pioneer-Standard
Financial Trust has duly caused this amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on September 15, 1998.
By: Pioneer-Standard Electronics,
Inc.,
as Depositor
By: /s/ JOHN V. GOODGER
------------------------------------
John V. Goodger
Vice President, Treasurer
and Assistant Secretary
II-6
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.1 Certificate of Trust of Pioneer-Standard Financial Trust.*
4.2 Amended and Restated Trust Agreement among Pioneer-Standard
Electronics, Inc., as Depositor, Wilmington Trust Company,
as Property Trustee and Delaware Trustee, and the
Administrative Trustees named therein, dated as of March 23,
1998.*
4.3 Junior Subordinated Indenture, dated March 23, 1998, between
the Company and Wilmington Trust, as trustee.*
4.4 First Supplemental Indenture, dated March 23, 1998, between
the Company and Wilmington Trust, as trustee.*
4.5 Form of 6 3/4% Preferred Securities (Included in Exhibit
4.2).*
4.6 Form of 6 3/4% Junior Convertible Subordinated Debentures
(Included in Exhibit 4.4).*
4.7 Guarantee Agreement, dated March 23, 1998, between the
Company and Wilmington Trust, as trustee.*
5.1 Opinion of Calfee, Halter & Griswold LLP as to the legality
of the Debentures, the Guarantee and the Common Shares
issuable upon conversion of the Preferred Securities being
registered hereby.**
5.2 Opinion of Richards, Layton & Finger, P.A., special Delaware
counsel to Pioneer-Standard Electronics, Inc. and
Pioneer-Standard Financial Trust as to the legality of the
Preferred Securities being registered hereby.**
8.1 Opinion of Calfee, Halter & Griswold LLP, counsel to
Pioneer-Standard Financial Trust, as to certain tax
matters.**
23.1 Consent of Calfee, Halter & Griswold LLP (Included in
Exhibit 8.1).**
23.2 Consent of Calfee, Halter & Griswold LLP (Included in
Exhibit 5.1).**
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Richards, Layton & Finger, P.A. (Included in
Exhibit 5.2).**
24.1 Power of Attorney (see page II-5).**
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act for the Convertible Subordinated Debentures of
Pioneer-Standard Electronics, Inc., dated June 11, 1998.**
25.2 Form T-1 Statement of Eligibility under the Trust Indenture
Act for the Convertible Trust Preferred Securities of
Pioneer-Standard Financial Trust, dated June 11, 1998.**
25.3 Form T-1 Statement of Eligibility under the Trust Indenture
Act for the Preferred Securities Guarantee of
Pioneer-Standard Electronics, Inc., dated June 11, 1998.**
99.1 Registration Rights Agreement, dated March 23, 1998, among
the Company, Wilmington Trust, Lazard Freres & Co. LLC,
Cleary Gull Reiland & McDevitt Inc., and McDonald & Company
Securities, Inc. as initial purchasers.*
</TABLE>
- ---------------
* These documents were previously filed with the Company's Annual Report on
Form 10-K for the year ended March 31, 1998.
** Previously filed.
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3, No. 333-57359) and
related Prospectus of Pioneer-Standard Electronics, Inc. and Pioneer-Standard
Financial Trust for the registration of 2,875,000 Convertible Trust Preferred
Securities of Pioneer-Standard Financial Trust, $143,750,000 Convertible
Subordinated Debentures of Pioneer-Standard Electronics, Inc. and 9,126,975
Common Shares of Pioneer-Standard Electronics, Inc. and to the incorporation by
reference of our reports dated May 5, 1998, with respect to the consolidated
financial statements and schedule of Pioneer-Standard Electronics, Inc.
incorporated by reference and included in its Annual Report (Form 10-K), as
amended, for the year ended March 31, 1998, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Cleveland, Ohio
September 14, 1998
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3 of Pioneer-Standard
Electronics, Inc. of our report dated February 6, 1998, with respect to the
consolidated financial statements of Dickens Data Systems, Inc. as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997, included in the Form 8-K of Pioneer-Standard Electronics, Inc. dated
February 27, 1998, and to all references to our firm, included in this amendment
to the Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 11, 1998
