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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION FILE NO. 333-38793
PROSPECTUS
[P.S.E. LOGO]
PUGET SOUND ENERGY CAPITAL TRUST I
OFFER TO EXCHANGE
ITS 8.231% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY) WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS
OUTSTANDING 8.231% ORIGINAL CAPITAL SECURITIES (LIQUIDATION AMOUNT $1,000
PER ORIGINAL CAPITAL SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED, TO
THE EXTENT DESCRIBED HEREIN, BY PUGET SOUND ENERGY, INC.
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY 6, 1998 UNLESS EXTENDED.
Puget Sound Energy Capital Trust I, a trust formed under the laws of the
State of Delaware (the "Trust"), hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, this "Prospectus") and in the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange up to $100,000,000 aggregate Liquidation Amount of its 8.231% Series
B Capital Securities (the "Exchange Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its
outstanding 8.231% Series A Capital Securities (the "Original Capital
Securities"), of which $100,000,000 aggregate Liquidation Amount are issued
and outstanding. Pursuant to the Exchange Offer, Puget Sound Energy, a
Washington corporation (the "Corporation"), is also offering to exchange (i)
its guarantee of payments of cash distributions and payments on liquidation of
the Trust or redemption of the Original Capital Securities (the "Original
Guarantee") for a like guarantee in respect of the Exchange Capital Securities
(the "Exchange Guarantee") and (ii) $100,000,000 aggregate principal amount of
its 8.231% Series A Junior Subordinated Deferrable Interest Debentures due
June 1, 2027 (the "Original Junior Subordinated Debentures") for a like
aggregate principal amount of its 8.231% Series B Junior Subordinated
Deferrable Interest Debentures due June 1, 2027 (the "Exchange Junior
Subordinated Debentures"), which Exchange Guarantee and Exchange Junior
Subordinated Debentures also have been registered under the Securities Act.
(continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of the Original Capital Securities on December 5, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 1 , 1997
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(continued from the previous page).
The Original Capital Securities, the Original Guarantee and the Original
Junior Subordinated Debentures are collectively referred to herein as the
"Original Securities," and the Exchange Capital Securities, the Exchange
Guarantee and the Exchange Junior Subordinated Debentures are collectively
referred to herein as the "Exchange Securities."
The Trust sold the Original Capital Securities in an offering exempt from
the registration requirements of the Securities Act, which was consummated on
June 6, 1997 (the "Closing Date").
The terms of the Exchange Securities are identical in all material respects
to the respective terms of the Original Securities, except that (i) the
Exchange Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Original Securities, (ii) the Exchange Capital Securities will not
contain the $100,000 minimum Liquidation Amount transfer restriction, (iii)
the Exchange Capital Securities will not provide for any increase in the
Distribution rate thereon and (iv) the Exchange Junior Subordinated Debentures
will not provide for any increase in the interest rate thereon. See
"Description of Exchange Securities." The Exchange Capital Securities are
being offered for exchange in order to satisfy certain obligations of the
Corporation and the Trust under the Registration Rights Agreement dated as of
June 6, 1997 (the "Registration Rights Agreement") among the Corporation, the
Trust and the Initial Purchasers (as defined herein). In the event that the
Exchange Offer is consummated, any Original Capital Securities which remain
outstanding after consummation of the Exchange Offer and the Exchange Capital
Securities issued in the Exchange Offer will vote together as a single class
for purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement.
The Exchange Capital Securities and the Original Capital Securities
(collectively, the "Capital Securities") represent beneficial interests in the
assets of the Trust. The Corporation is the owner of all of the beneficial
interests represented by common securities of the Trust (the "Common
Securities" and, together with the Capital Securities, the "Trust
Securities"). The First National Bank of Chicago is the Property Trustee (the
"Property Trustee") of the Trust. The Trust exists for the sole purpose of
issuing the Trust Securities and investing the proceeds thereof in the Junior
Subordinated Debentures (as defined herein). The Junior Subordinated
Debentures will mature on June 1, 2027 (the "Stated Maturity Date"). The
Capital Securities will have a preference over the Common Securities under
certain circumstances with respect to cash distributions and amounts payable
on liquidation, redemption or otherwise. See "Description of Exchange
Securities--Description of Exchange Capital Securities--Subordination of
Common Securities."
As used herein, (i) the "Indenture" means the Indenture, dated as of June 6,
1997, as amended and supplemented from time to time, between the Corporation
and The First National Bank of Chicago, as trustee (the "Debenture Trustee"),
relating to the Junior Subordinated Debentures, (ii) the "Trust Agreement"
means the Amended and Restated Declaration of Trust relating to the Trust
among the Corporation, as Sponsor, The First National Bank of Chicago, as
Property Trustee, First Chicago Delaware Inc., an affiliate of the Property
Trustee, as Delaware Trustee (the "Delaware Trustee"), and the Administrative
Trustees named therein (collectively, with the Property Trustee and Delaware
Trustee, the "Issuer Trustees"), (iii) the "Guarantee" means the Guarantee
Agreement relating to the Capital Securities between the Corporation and The
First National Bank of Chicago, as trustee (the "Guarantee Trustee") and (iv)
the "Common Guarantee" means the Guarantee Agreement relating to the Common
Securities between the Corporation and The First National Bank of Chicago, as
trustee. In addition, as the context may require, (i) "Junior Subordinated
Debentures" includes the Original Junior Subordinated Debentures and the
Exchange Junior Subordinated Debentures and (ii) "Guarantee" includes the
Original Guarantee and the Exchange Guarantee.
Holders of the Capital Securities and the Common Securities will be entitled
to receive preferential cumulative cash distributions arising from the payment
of interest on the Junior Subordinated Debentures, accruing from the date of
original issuance and payable semi-annually in arrears on June 1 and December
1 of
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each year, commencing December 1, 1997, at the annual rate of 8.231% of the
Liquidation Amount of $1,000 per Trust Security ("Distributions"). So long as
no Debenture Event of Default (as defined herein) has occurred and is
continuing, the Corporation will have the right to defer payments of interest
on the Junior Subordinated Debentures at any time and from time to time for a
period not exceeding 10 consecutive semi-annual periods with respect to each
deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity Date. Upon the termination of any
such Extension Period and the payment of all amounts then due, the Corporation
may elect to begin a new Extension Period, subject to the requirements set
forth herein. If and for so long as interest payments on the Junior
Subordinated Debentures are so deferred, Distributions on the Trust Securities
will also be deferred and the Corporation will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to the Corporation's capital stock (which includes common and
preferred stock) or to make any payment with respect to debt securities of the
Corporation that rank pari passu with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Trust Securities are entitled will continue to accumulate) at
the rate of 8.231% per annum, compounded semi-annually, and holders of Trust
Securities will be required to accrue interest income for United States
federal income tax purposes prior to the receipt of the cash attributable to
such income. See "Description of Exchange Securities--Description of Exchange
Junior Subordinated Debentures--Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Corporation will, through the Guarantee, the Common Guarantee, the Trust
Agreement, the Junior Subordinated Debentures and the Indenture, taken
together, fully, irrevocably and unconditionally guarantee all of the Trust's
obligations under the Trust Securities. See "Relationship Among the Exchange
Capital Securities, the Exchange Junior Subordinated Debentures and the
Exchange Guarantee--Full and Unconditional Guarantee." The Guarantee and the
Common Guarantee will guarantee payments of Distributions and payments on
liquidation or redemption of the Trust Securities, but in each case only to
the extent that the Trust holds funds on hand legally available therefor and
has failed to make such payments, as described herein. See "Description of
Exchange Securities--Description of Exchange Guarantee." If the Corporation
fails to make a required payment on the Junior Subordinated Debentures, the
Trust will not have sufficient funds to make the related payments, including
Distributions, on the Trust Securities. The Guarantee and the Common Guarantee
will not cover any such payment when the Trust does not have sufficient funds
on hand legally available therefor. In such event, a holder of Capital
Securities may institute a legal proceeding directly against the Corporation
to enforce its rights in respect of such payment. See "Description of Exchange
Securities--Description of Exchange Junior Subordinated Debentures--
Enforcement of Certain Rights by Holders of Capital Securities." The
obligations of the Corporation under the Guarantee, the Common Guarantee and
the Junior Subordinated Debentures will be unsecured and subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Exchange Securities--Description of Exchange Junior
Subordinated Debentures--Subordination"), which aggregated approximately $1.5
billion as of September 30, 1997.
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated
Maturity Date upon repayment of the Junior Subordinated Debentures at a
redemption price equal to the principal amount of, plus accrued and unpaid
interest on, the Junior Subordinated Debentures (the "Maturity Redemption
Price"), (ii) in whole but not in part, contemporaneously with the optional
prepayment of the Junior Subordinated Debentures at any time prior to June 1,
2007 upon the occurrence and continuation of a Tax Event (as defined herein)
at a redemption price equal to the Tax Event Prepayment Price (as defined
below), and (iii) in whole or in part, on or after June 1, 2007,
contemporaneously with the optional prepayment by the Corporation of the
Junior Subordinated Debentures, at a redemption price equal to the Optional
Prepayment Price (as defined below). Any of the Maturity Redemption Price, the
Tax Event Redemption Price and the Optional Redemption Price may be referred
to herein as the "Redemption Price." See "Description of Exchange Securities--
Description of Exchange Capital Securities--Redemption."
The Junior Subordinated Debentures will be prepayable prior to the Stated
Maturity Date at the option of the Corporation (i) on or after June 1, 2007,
in whole or in part, at a prepayment price (the "Optional Prepayment
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Price") equal to 104.116% of the principal amount thereof on June 1, 2007,
declining ratably on each June 1 thereafter to 100% on or after June 1, 2017,
plus accrued and unpaid interest thereon to the date of prepayment, or (ii) in
whole but not in part, at any time prior to June 1, 2007, in whole but not in
part, upon the occurrence and continuation of a Tax Event, at a prepayment
price (the "Tax Event Prepayment Price") equal to the greater of (a) 100% of
the principal amount thereof or (b) the sum, as determined by a Quotation
Agent (as defined hereinafter), of the present values of the remaining
scheduled payments of principal and interest on the Junior Subordinated
Debentures to the Stated Maturity Date, discounted to the prepayment date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate (as defined herein) plus, in either case,
accrued and unpaid interest thereon to the date of prepayment. Either of the
Optional Prepayment Price or the Tax Event Prepayment Price may be referred to
herein as the "Prepayment Price." See "Description of Exchange Securities--
Description of Exchange Junior Subordinated Debentures--Optional Prepayment"
and "--Tax Event Prepayment."
The Corporation will have the right at any time to terminate the Trust and
cause a Like Amount of the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust, subject to
the Corporation having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities.
Unless the Junior Subordinated Debentures are distributed to the holders of
the Trust Securities, in the event of a liquidation of the Trust as described
herein, after satisfaction of liabilities to creditors of the Trust as
required by applicable law, the holders of the Trust Securities generally will
be entitled to receive a Liquidation Amount of $1,000 per Trust Security plus
accumulated and unpaid Distributions thereon to the date of payment. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures."
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Original Capital Securities. The Exchange Capital
Securities will be a new issue of securities for which there currently is no
market. Although Smith Barney Inc., Goldman, Sachs & Co. and Salomon Brothers
Inc, the initial purchasers of the Original Capital Securities (the "Initial
Purchasers"), have informed the Corporation and the Trust that they each
currently intend to make a market in the Exchange Capital Securities, they are
not obligated to do so, and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Capital Securities.
The Corporation and the Trust currently do not intend to apply for listing of
the Exchange Capital Securities on any securities exchange or for quotation
through the NASD Automated Quotation System.
Any Original Capital Securities not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the same rights and
will be subject to the same limitations applicable thereto under the
Declaration (except for those rights which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Original Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Corporation nor the Trust
will have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act of
the Original Capital Securities held by them. To the extent that Original
Capital Securities are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Original Capital Securities could be adversely
affected. See "Risk Factors--Consequences of a Failure to Exchange Original
Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER.
Original Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on January 6, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Corporation or the Trust (in which case the term "Expiration
Date" shall mean the
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latest date and time to which the Exchange Offer is extended). Tenders of
Original Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Original Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Trust and to the terms and provisions
of the Registration Rights Agreement. Original Capital Securities may be
tendered in whole or in part having an aggregate Liquidation Amount of not
less than $100,000 (100 Capital Securities) or any integral multiple of $1,000
Liquidation Amount (one Capital Security) in excess thereof. The Corporation
has agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer--Fees and Expenses." Holders of the Original Capital Securities as of
November 15, 1997 will receive the Distribution to be paid on December 1,
1997. Holders of the Original Capital Securities whose Original Capital
Securities are accepted for exchange will not receive any other Distributions
on such Original Capital Securities and will be deemed to have waived the
right to receive any Distributions on such Original Capital Securities
accumulated from and after December 1, 1997. Accordingly, holders of Exchange
Capital Securities as of the record date for the payment of Distributions on
June 1, 1998 will be entitled to receive Distributions accumulated from and
after December 1, 1997. See "The Exchange Offer--Description of Exchange
Capital Securities--Distributions."
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the Exchange Capital Securities offered hereby. No dealer-
manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements
other than statements of historical fact made in this Prospectus or
incorporated by reference are forward-looking. Forward-looking statements
represent management's current expectations and are inherently uncertain.
Investors are warned that the Corporation's actual results may differ
significantly from management's expectations and, therefore, from the results
discussed in such forward-looking statements. Factors that might cause such
differences include, but are not limited to, the "Risk Factors" described
herein.
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such information may also be
accessed electronically by means of the Commission's home page on the Internet
(http://www.sec.gov). In addition, such reports, proxy statements and other
information concerning the Corporation may be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on
which certain securities of the Corporation are listed.
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No separate financial statements of the Trust have been included herein. The
Corporation and the Trust do not consider that such financial statements would
be material to holders of the Capital Securities because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Junior Subordinated
Debentures, issuing the Trust Securities and engaging in incidental
activities. See "Puget Sound Energy Capital Trust I" and "Description of
Exchange Securities." In addition, the Corporation does not expect that the
Trust will file reports, proxy statements and other information under the
Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Corporation and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission,
and reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Corporation, the
Trust and the Exchange Securities. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated into this
Prospectus by reference:
1. The Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-4393);
2. The Corporation's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 1997 (File No. 1-4393);
3. The Corporation's amendments on Form 10-Q/A, each filed with the
Commission on November 14, 1997, to its Quarterly Reports on Form 10-Q for
the quarters ended March 31 and June 30, 1977; and
4. The Corporation's Current Reports on Form 8-K filed with the
Commission on February 13, February 26 and October 24, 1997 (File No. 1-
4393).
All documents subsequently filed by the Corporation pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of any offering of securities made by
this Prospectus shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from their respective dates of filing. Any
statement made in this Prospectus or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that another
statement contained in this Prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any modified or superseded statement
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Unless otherwise indicated, all references in this Prospectus to
documents "incorporated by reference" are to documents incorporated by
reference into this Prospectus. The Corporation will provide without charge to
any person to whom this Prospectus is delivered, on such person's request, a
copy of any or all of the documents incorporated by reference (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to Investor
Relations, Puget Sound Energy, Inc., 411-108th Avenue N.E., 15th Floor,
Bellevue, Washington 98004-5515. Telephone requests may be directed to
Investor Relations at (425) 454-6363.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein
See "Risk Factors," immediately following this Prospectus Summary, for
certain information that should be considered by holders in deciding whether to
tender Original Capital Securities in the Exchange Offer.
PUGET SOUND ENERGY, INC.
Puget Sound Energy, Inc., formerly Puget Sound Power & Light Company (the
"Corporation"), is an investor-owned public utility incorporated in the state
of Washington furnishing electric and, since February 10, 1997, gas service in
a territory covering approximately 6,000 square miles, principally in the Puget
Sound region of Washington state. On February 10, 1997, the Corporation
completed a merger (the "Merger") with the Washington Energy Company ("WECo")
and its principal subsidiary, Washington Natural Gas Company ("WNG"). Seattle-
based WNG provided natural gas distribution service to more than 500,000
customers in an areas east of Puget Sound that included Seattle, Tacoma,
Everett, Bellevue and Olympia. The Corporation changed its name to Puget Sound
Energy, Inc. effective with the Merger.
The Corporation's executive office is located at 411-108th Avenue N.E.,
Bellevue, Washington 98004-5515, and its telephone number is (425) 454-6363.
PUGET SOUND ENERGY CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant to
(i) a trust agreement executed by the Corporation, as Sponsor, The First
National Bank of Chicago, as Property Trustee, and First Chicago Delaware Inc.,
as Delaware Trustee and the three individual Administrative Trustees named
therein, and (ii) the filing of a certificate of trust with the Delaware
Secretary of State on June 3, 1997. The Trust's activities are conducted by the
Issuer Trustees: the Property Trustee, the Delaware Trustee, and the three
individual Administrative Trustees who are employees or officers of or
affiliated with the Corporation. The Trust exists for the exclusive purposes of
(i) issuing and selling the Trust Securities, (ii) using the proceeds from the
sale of the Trust Securities to acquire the Junior Subordinated Debentures
issued by the Corporation and (iii) engaging in only those other activities
necessary, advisable or incidental thereto. Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust, and payments
under the Junior Subordinated Debentures will be the sole revenue of the Trust.
All of the Common Securities will be owned by the Corporation.
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THE EXCHANGE OFFER
The Exchange Offer.......... Up to $100 million aggregate Liquidation Amount
of Exchange Capital Securities are being offered
in exchange for a like aggregate Liquidation
Amount of Original Capital Securities. Original
Capital Securities may be tendered for exchange
in whole or in part in a Liquidation Amount of
$100,000 (100 Capital Securities) or any integral
multiple of $1,000 (one Capital Security) in
excess thereof. The Corporation and the Trust are
making the Exchange Offer in order to satisfy
their obligations under the Registration Rights
Agreement relating to the Original Capital
Securities. For a description of the procedures
for tendering Original Capital Securities, see
"The Exchange Offer--Procedures for Tendering
Original Capital Securities."
Expiration Date............. 5:00 p.m., New York time, on January 6, 1998,
unless the Exchange Offer is extended by the
Corporation (in which case the Expiration Date
will be the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer--Terms of the Exchange Offer."
Conditions to the Exchange
Offer....................... The Exchange Offer is subject to certain
conditions, which may be waived by the
Corporation and the Trust in their sole
discretion. The Exchange Offer is not conditioned
upon any minimum Liquidation Amount of Original
Capital Securities being tendered. See "The
Exchange Offer--Conditions to the Exchange
Offer."
Offer....................... The Corporation and the Trust reserve the right
in their sole and absolute discretion, subject to
applicable law, at any time and from time to
time, (i) to delay the acceptance of the Original
Capital Securities for exchange, (ii) to
terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer
and retain all Original Capital Securities
tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Original
Capital Securities to withdraw their tendered
Original Capital Securities, or (iv) to waive any
condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights........... Tenders of Original Capital Securities may be
withdrawn at any time on or prior to the
Expiration Date by delivering a written notice of
such withdrawal to the Exchange Agent (as defined
herein) in conformity with certain procedures set
forth in "The Exchange Offer--Withdrawal Rights."
Procedures for Tendering
Original Capital
Securities.................. Brokers, dealers, commercial banks, trust
companies and other nominees who hold Original
Capital Securities through The Depository Trust
Company ("DTC") may effect tenders by book-entry
transfer in accordance with DTC's Automated
Tender Offer Program ("ATOP"). Holders of such
Original Capital Securities registered in the
name of a broker, dealer, commercial bank, trust
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company or other nominee are urged to contact
such person promptly if they wish to tender
Original Capital Securities. In order for
Original Capital Securities to be tendered by a
means other than by book-entry transfer, a Letter
of Transmittal must be completed and signed in
accordance with the instructions contained
therein. The Letter of Transmittal and any other
documents required by the Letter of Transmittal
must be delivered to The First National Bank of
Chicago (the "Exchange Agent") by mail,
facsimile, hand delivery or overnight courier and
either such Original Capital Securities must be
delivered to the Exchange Agent or specified
procedures for guaranteed delivery must be
complied with. See "The Exchange Offer--
Procedures for Tendering Original Capital
Securities."
Letters of Transmittal and certificates
representing Original Capital Securities should
not be sent to the Corporation. Such documents
should be sent only to the Exchange Agent.
Resales of Exchange Capital
Securities.................. The Trust is making the Exchange Offer of the
Exchange Capital Securities in reliance on the
position of the staff of the Division of
Corporation Finance of the Commission as set
forth in certain interpretive letters addressed
to third parties in other transactions. However,
neither the Corporation nor the Trust has sought
its own interpretive letter and there can be no
assurance that the staff of the Division of
Corporation Finance of the Commission would make
a similar determination with respect to the
Exchange Offer as it has in such interpretive
letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance of the Commission, and
subject to the two immediately following
sentences, the Corporation and the Trust believe
that Exchange Capital Securities issued pursuant
to this Exchange Offer in exchange for Original
Capital Securities may be offered for resale,
resold and otherwise transferred by a holder
thereof (other than a holder who is a broker-
dealer) without further compliance with the
registration and prospectus delivery requirements
of the Securities Act, provided that such
Exchange Capital Securities are acquired in the
ordinary course of such holder's business and
that such holder is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution (within the
meaning of the Securities Act) of such Exchange
Capital Securities. However, any holder of
Original Capital Securities who is an "affiliate"
of the Corporation or the Trust or who intends to
participate in the Exchange Offer for the purpose
of distributing Exchange Capital Securities, or
any broker-dealer who purchased Original Capital
Securities from the Trust to resell pursuant to
Rule 144A under the Securities Act ("Rule 144A")
or any other available exemption under the
Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division
of Corporation Finance of the Commission set
forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to
tender such Original Capital
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<PAGE>
Securities in the Exchange Offer and (c) must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or other transfer of
such Original Capital Securities unless such sale
is made pursuant to an exemption from such
requirements. In addition, as described below, if
any broker-dealer holds Original Capital
Securities acquired for its own account as a
result of market-making or other trading
activities and exchanges such Original Capital
Securities for Exchange Capital Securities, then
such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resales of such Exchange
Capital Securities.
Each holder of Original Capital Securities who
wishes to exchange Original Capital Securities
for Exchange Capital Securities in the Exchange
Offer will be required to represent that (i) it
is not an "affiliate" of the Corporation or the
Trust, (ii) any Exchange Capital Securities to be
received by it are being acquired in the ordinary
course of its business, (iii) it has no
arrangement or understanding with any person to
participate in a distribution (within the meaning
of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and
does not intend to engage in, a distribution
(within the meaning of the Securities Act) of
such Exchange Capital Securities. In addition,
the Corporation and the Trust may require such
holder, as a condition to such holder's
eligibility to participate in the Exchange Offer,
to furnish to the Corporation and the Trust (or
an agent thereof) in writing information as to
the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Capital
Securities to be exchanged in the Exchange Offer.
Each broker-dealer that receives Exchange Capital
Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired
the Original Capital Securities for its own
account as the result of market-making activities
or other trading activities and must agree that
it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of such Exchange Capital
Securities. The Letter of Transmittal states that
by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act.
Based on the position taken by the staff of the
Division of Corporation Finance of the Commission
in the interpretive letters referred to above,
the Corporation and the Trust believe that
broker-dealers who acquired Original Capital
Securities for their own accounts, as a result of
market-making activities or other trading
activities ("Participating Broker-Dealers"), may
fulfill their prospectus delivery requirements
with respect to the Exchange Capital Securities
received upon exchange of such Original Capital
Securities (other than Original Capital
Securities which represent an unsold allotment
from the initial sale of the Original Capital
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<PAGE>
Securities) with a prospectus meeting the
requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so
long as it contains a description of the plan of
distribution with respect to the resale of such
Exchange Capital Securities. Each broker-dealer
that receives Exchange Capital Securities for its
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange
Capital Securities. The Letter of Transmittal
states that by so acknowledging and by delivery
of a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Capital
Securities received in exchange for Original
Capital Securities acquired by such broker-dealer
as a result of market-making activities or other
trading activities. The Trust and the Corporation
have agreed that, ending on the close of business
on the 180th day following the Expiration Date
(as defined herein), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution." However, a Participating Broker-
Dealer who intends to use this Prospectus in
connection with the resale of Exchange Capital
Securities received in exchange for Original
Capital Securities pursuant to the Exchange Offer
must notify the Corporation or the Trust, or
cause the Corporation or the Trust to be
notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for
that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the
addresses set forth in "The Exchange Offer--
Exchange Agent." Any Participating Broker-Dealer
who is an "affiliate" of the Corporation or the
Trust may not rely on such interpretive letters
and must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of
Exchange Capital Securities."
In that regard, each Participating Broker-Dealer
who surrenders Original Capital Securities
pursuant to the Exchange Offer will be deemed to
have agreed, by execution of the Letter of
Transmittal, that upon receipt of notice from the
Corporation or the Trust of the occurrence of any
event or the discovery of any fact which makes
any statement contained or incorporated by
reference in this Prospectus untrue in any
material respect or which causes this Prospectus
to omit to state a material fact necessary in
order to make the statements contained or
incorporated by reference herein, in light of the
circumstances under which they were made, not
misleading or of the occurrence of certain other
events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will
suspend the sale of Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior
Subordinated
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<PAGE>
Debentures, as applicable) pursuant to this
Prospectus until the Corporation or the Trust has
amended or supplemented this Prospectus to
correct such misstatement or omission and has
furnished copies of the amended or supplemented
Prospectus to such Participating Broker-Dealer,
or the Corporation or the Trust has given notice
that the sale of the Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) may be
resumed, as the case may be. If the Corporation
or the Trust gives such notice to suspend the
sale of the Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable), it shall
extend the 180-day period referred to above
during which Participating Broker-Dealers are
entitled to use this Prospectus in connection
with the resale of Exchange Capital Securities by
the number of days during the period from and
including the date of the giving of such notice
to and including the date when Participating
Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to
permit resales of the Exchange Capital Securities
or to and including the date on which the
Corporation or the Trust has given notice that
the sale of Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) may be
resumed, as the case may be.
Exchange Agent.............. The exchange agent with respect to the Exchange
Offer is The First National Bank of Chicago. The
addresses, and telephone and facsimile numbers,
of the Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent" and in the Letter
of Transmittal.
Use of Proceeds............. Neither the Corporation nor the Trust will
receive any cash proceeds from the issuance of
the Exchange Capital Securities offered hereby.
See "Use of Proceeds."
Certain United States
Federal Income Tax
Consequences; ERISA
Considerations.............. Holders of Original Capital Securities should
review the information set forth in "Certain
Federal Income Tax Consequences" and "ERISA
Considerations" prior to tendering Original
Capital Securities in the Exchange Offer.
12
<PAGE>
THE EXCHANGE CAPITAL SECURITIES
Securities Offered.......... Up to $100 million aggregate principal
Liquidation Amount of the Trust's Exchange
Capital Securities which have been registered
under the Securities Act (Liquidation Amount
$1,000 per Exchange Capital Security). The
Exchange Capital Securities will be issued, and
the Original Capital Securities were issued,
under the Trust Agreement. The Exchange Capital
Securities and any Original Capital Securities
which remain outstanding after consummation of
the Exchange Offer will vote together as a single
class for purposes of determining whether holders
of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain
actions or exercised certain rights under the
Declaration. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust
Agreement." The terms of the Exchange Capital
Securities are identical in all material respects
to the terms of the Original Capital Securities,
except that the Exchange Capital Securities have
been registered under the Securities Act and will
not be subject to certain restrictions on
transfer applicable to the Original Capital
Securities and will not provide for any increase
in the Distribution rate thereon. See "The
Exchange Offer--Purpose of the Exchange Offer"
and "Description of Exchange Securities."
Distribution Dates.......... June 1 and December 1 of each year, commencing
June 1, 1998. The Distribution payable December
1, 1997 will be paid to the holders as of
November 15, 1997 of the Original Capital
Securities.
Extension Periods........... Distributions on Exchange Capital Securities will
be deferred for the duration of any Extension
Period elected by the Corporation with respect to
the payment of interest on the Exchange Junior
Subordinated Debentures. No Extension Period will
exceed 10 consecutive semi-annual periods or
extend beyond the Stated Maturity Date. See
"Description of Exchange Securities--Description
of Exchange Junior Subordinated Debentures--
Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
Ranking..................... The Exchange Capital Securities will rank pari
passu, and payments thereon will be made pro
rata, with the Original Capital Securities and
the Common Securities except as described in
"Description of Exchange Securities--Description
of Exchange Capital Securities--Subordination of
Common Securities." The Exchange Junior
Subordinated Debentures will rank pari passu with
the Original Junior Subordinated Debentures and
all other junior subordinated debentures to be
issued by the Corporation ("Other Debentures"),
which will be issued and sold (if at all) to
other trusts to be established by the Corporation
(if any), in each case similar to the Trust
("Other Trusts"), and will be unsecured and
subordinate and junior in right of payment to all
Senior Indebtedness to the extent and in the
manner set forth in the Indenture. See
"Description of Exchange Securities--Description
of Exchange Junior Subordinated Debentures." The
Exchange Guarantee will rank pari passu with
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<PAGE>
the Original Guarantee and all other guarantees
(if any) to be issued by the Corporation with
respect to capital or preferred securities (if
any) issued by Other Trusts ("Other Guarantees")
and will constitute an unsecured obligation of
the Corporation and will rank subordinate and
junior in right of payment to all Senior
Indebtedness to the extent and in the manner set
forth in the Guarantee Agreement. See
"Description of Exchange Securities--Description
of Exchange Guarantee."
Redemption.................. The Trust Securities will be subject to mandatory
redemption in a Like Amount, (i) in whole but not
in part, on the Stated Maturity Date upon
repayment of the Junior Subordinated Debentures,
(ii) in whole but not in part, contemporaneously
with the optional prepayment of the Junior
Subordinated Debentures by the Corporation, at
any time prior to June 1, 2007, upon the
occurrence and continuation of a Tax Event and
(iii) in whole or in part, on or after June 1,
2007 contemporaneously with the optional
prepayment by the Corporation of the Junior
Subordinated Debentures, in each case at the
applicable Redemption Price. See "Description of
Exchange Securities--Description of Exchange
Capital Securities--Redemption."
Ratings..................... The Exchange Capital Securities are expected to
be rated baa2 by Moody's Investors Service, Inc.
and "BBB" by Standard & Poor's Rating Services.
Transfer Restrictions....... The Exchange Capital Securities will be issued,
and may be transferred, only in minimum
denominations of not less than $1,000. See
"Description of Exchange Securities--Description
of Exchange Capital Securities--Restrictions on
Transfer." Any such transfer of Exchange Capital
Securities in denominations of less than $1,000
shall be deemed to be void and of no legal effect
whatsoever.
Absence of Market for the
Capital Securities.......... The Exchange Capital Securities will be a new
issue of securities for which there currently is
no market. Although the Initial Purchasers have
informed the Trust and the Corporation that they
each currently intend to make a market in the
Capital Securities, the Initial Purchasers are
not obligated to do so, and any such market-
making may be discontinued at any time without
notice. Accordingly, there can be no assurance as
to the development or liquidity of any market for
the Capital Securities. The Trust and the
Corporation do not intend to apply for listing of
the Capital Securities on any securities exchange
or for quotation through the NASD Automated
Quotation System. See "Plan of Distribution."
For additional information regarding the Capital Securities, see "Description
of Exchange Securities" and "Certain Federal Income Tax Consequences."
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<PAGE>
RISK FACTORS
The Corporation identifies the following important factors which could cause
actual results to differ materially from any results that might be projected,
forecast, estimated or budgeted by the Corporation as forward-looking
information. All such factors are difficult to predict and the majority are
beyond the control of the Corporation. Holders of Original Capital Securities
should carefully review the information contained elsewhere in this Prospectus
and should particularly consider the information stated below. See "Forward-
Looking Information."
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Corporation under the Guarantee issued by it for the
benefit of the holders of Capital Securities, as well as under the Junior
Subordinated Debentures, will be unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness. In addition, in the case of a
bankruptcy or insolvency proceeding, the Corporation's obligations under the
Guarantee will also rank subordinate and junior in right of payment to all
liabilities (other than Other Guarantees) of the Corporation. At September 30,
1997, the aggregate principal amount of outstanding Senior Indebtedness was
approximately $1.5 billion. None of the Indenture, the Guarantee or the Trust
Agreement places any limitation on the amount of secured or unsecured debt,
including Senior Indebtedness, that may be incurred by the Corporation or by
any subsidiary. See "Description of Exchange Securities--Description of
Exchange Guarantee--Status of the Exchange Guarantee" and "Description of
Exchange Securities--Description of Exchange Junior Subordinated Debentures--
Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Corporation's making payments on the Junior
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default (as defined in "Description of
Exchange Securities--Description of Exchange Junior Subordinated Debentures--
Debenture Events of Default") shall have occurred and be continuing, the
Corporation will have the right under the Indenture to defer payments of
interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity Date. As a consequence of any such deferral, semi-
annual Distributions on the Capital Securities by the Trust will be deferred
(and the amount of Distributions to which holders of the Capital Securities
are entitled will accumulate additional Distributions thereon at the rate of
8.231% per annum, compounded semi-annually), from the relevant payment date
for such Distributions during any such Extension Period.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid on the Junior
Subordinated Debentures (together with interest thereon at the annual rate of
8.231%, compounded semi-annually, to the extent permitted by applicable law),
the Corporation may elect to begin a new Extension Period, subject to the
above requirements. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period. See "Description of
Exchange Securities--Description of Exchange Capital Securities--
Distributions" and "Description of Exchange Securities--Description of
Exchange Junior Subordinated Debentures--Option to Extend Interest Payment
Date."
Should the Corporation exercise its right to defer payments of interest on
the Junior Subordinated Debentures, each holder of Trust Securities will be
required to accrue income (as original issue discount ("OID")) in respect of
the deferred stated interest allocable to its Trust Securities for United
States federal income tax purposes, which will be allocated but not
distributed to holders of Trust Securities. As a result, each
15
<PAGE>
such holder of Capital Securities will recognize income for United States
federal income tax purposes in advance of the receipt of cash and will not
receive the cash related to such income from the Trust if the holder disposes
of the Capital Securities prior to the record date for the payment of
Distributions thereafter. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount" and "--Sales of Capital
Securities."
Should the Corporation elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures in the future, the market price
of the Capital Securities is likely to be affected. A holder that disposes of
its Capital Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continues to hold
its Capital Securities. In addition, merely as a result of the existence of
the Corporation's right to defer payments of interest on the Junior
Subordinated Debentures, the market price of the Capital Securities may be
more volatile than the market prices of other securities that are not subject
to such deferrals.
Although the Corporation has the right to exercise its option to defer
payments of interest on the Junior Subordinated Debentures, the Corporation
has no current intention to defer payments of interest on such debentures.
TAX EVENT REDEMPTION; POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL
SECURITIES
Upon the occurrence and continuation of a Tax Event (as defined in
"Description of Exchange Securities--Description of Exchange Junior
Subordinated Debentures--Tax Event Prepayment"), the Corporation will have the
right to prepay the Junior Subordinated Debentures in whole (but not in part)
at the Tax Event Prepayment Price prior to June 1, 2007 and within 90 days
following the occurrence of such Tax Event and therefore cause a mandatory
redemption of the Trust Securities at the Tax Event Redemption Price. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Redemption."
The Taxpayer Relief Act of 1997, enacted on August 7, 1997, did not contain
certain provisions of President Clinton's Fiscal Budget Proposal (the
"Proposed Legislation") that, among other things, would have denied an issuer
a deduction for United States federal income tax purposes for the payment of
interest on instruments with characteristics similar to the Junior
Subordinated Debentures. There can be no assurance, however, that the Proposed
Legislation or other legislation enacted after the date hereof would not
adversely affect the tax treatment of the Junior Subordinated Debentures or
that any legislation enacted after the date hereof would not cause a Tax Event
that may result in the redemption of the Junior Subordinated Debentures and,
consequently, the Trust Securities. See "Description of Exchange Securities--
Description of Exchange Capital Securities--Redemption" and "Description of
Exchange Securities--Description of Exchange Junior Subordinated Debentures--
Tax Event Prepayment." See also "Certain Federal Income Tax Consequences--
Proposed Tax Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures distributed to the holders of Capital
Securities if a termination of the Trust were to occur. Accordingly, the
Capital Securities or the Junior Subordinated Debentures may trade at a
discount from the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Junior Subordinated
Debentures, prospective purchasers of Exchange Capital Securities are also
making an investment decision with regard to the Exchange Junior Subordinated
Debentures and should carefully review all the information regarding the
Exchange Junior Subordinated Debentures contained herein. See "Description of
Exchange Securities--Description of Exchange Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The First National Bank of Chicago will act as Guarantee Trustee and will
hold the Guarantee for the benefit of the holders of the Capital Securities.
The First National Bank of Chicago will also act as Property Trustee and
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<PAGE>
as Debenture Trustee under the Indenture. First Chicago Delaware Inc. will act
as Delaware Trustee under the Trust Agreement. The Guarantee will guarantee to
the holders of the Capital Securities the following payments, to the extent
not paid by the Trust: (i) any accumulated and unpaid Distributions required
to be paid on the Capital Securities, to the extent that the Trust has funds
on hand legally available therefor at such time, (ii) the applicable
Redemption Price with respect to any Capital Securities called for redemption,
to the extent that the Trust has funds on hand legally available therefor at
such time, and (iii) upon a voluntary or involuntary termination and
liquidation of the Trust (unless the Junior Subordinated Debentures are
distributed to holders of the Capital Securities), the lesser of (a) the
aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust has funds
on hand legally available therefor at such time and (b) the amount of assets
of the Trust remaining available for distribution to holders of the Capital
Securities upon a termination and liquidation of the Trust. The holders of a
majority in Liquidation Amount of the Capital Securities will have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of the Guarantee or to
direct the exercise of any trust power conferred upon the Guarantee Trustee.
Any holder of the Capital Securities may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity. If the Corporation defaults on its obligation
to pay amounts payable under the Junior Subordinated Debentures, the Trust
will not have sufficient funds for the payment of Distributions or amounts
payable on redemption of the Capital Securities or otherwise, and, in such
event, holders of the Capital Securities will 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 and such event is
attributable to the failure of the Corporation to pay principal of (or
premium, if any) or interest on the Junior Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of
Capital Securities may institute a legal proceeding directly against the
Corporation for enforcement of payment to such holder of the principal of (or
premium, if any) or interest on such Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Capital Securities of
such holder (a "Direct Action"). Notwithstanding any payments made to a holder
of Capital Securities by the Corporation in connection with a Direct Action,
the Corporation shall remain obligated to pay the principal of (and premium,
if any) and interest on the Junior Subordinated Debentures, and the
Corporation shall be subrogated to the rights of the holder of such Capital
Securities with respect to payments on the Capital Securities to the extent of
any payments made by the Corporation to such holder in any Direct Action.
Except as described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or to assert directly any other rights in respect of
the Junior Subordinated Debentures. See "Description of Exchange Securities--
Description of Exchange Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of Capital Securities," "--Description of Exchange Junior
Subordinated Debentures--Debenture Events of Default" and "--Description of
Exchange Guarantee." The Trust Agreement will provide that each holder of
Capital Securities by acceptance thereof agrees to the provisions of the
Indenture.
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction, including a change of control, or other similar transactions
involving the Corporation that may adversely affect such holders.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have voting rights relating
only to the modification of the Capital Securities, the termination or
liquidation of the Trust, and the exercise of the Trust's rights as holder of
Junior Subordinated Debentures. Holders of Capital Securities will not be
entitled to vote to appoint, remove or replace the Property Trustee or the
Delaware Trustee, and such voting rights are vested exclusively in the holder
of the Common Securities except upon the occurrence of certain events
described herein. See "Description of Exchange Securities--Description of
Exchange Capital Securities--Voting Rights; Amendment of the Trust Agreement"
and "--Removal of Issuer Trustees."
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CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL CAPITAL SECURITIES
The Original Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws,
or pursuant to an exemption therefrom or in a transaction not subject thereto,
and in each case in compliance with certain other conditions and restrictions.
Original Capital Securities which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of
Original Capital Securities which remain outstanding will not be entitled to
any rights to have such Original Capital Securities registered under the
Securities Act or to any similar rights under the Registration Rights
Agreement (subject to certain limited exceptions). The Corporation and the
Trust do not intend to register under the Securities Act any Original Capital
Securities which remain outstanding after consummation of the Exchange Offer
(subject to such limited exceptions, if applicable). To the extent that
Original Capital Securities are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Original Capital Securities could be
adversely affected.
The Exchange Capital Securities and any Original Capital Securities which
remain outstanding after consummation of the Exchange Offer will vote together
as a single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount of Capital Securities have taken
certain actions or exercised certain rights under the Declaration. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement."
The Original Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
November 3, 1997 and declared effective by December 3, 1997, the Distribution
rate borne by the Original Capital Securities will increase by 0.25% per annum
until such registration statement has been filed or declared effective, as the
case may be. Upon consummation of the Exchange Offer, holders of Original
Capital Securities will not be entitled to any increase in the Distribution
rate thereon or any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Description of Exchange
Securities."
ABSENCE OF PUBLIC MARKET
The Original Capital Securities were issued to, and the Corporation believes
such securities are currently owned by, a relatively small number of
beneficial owners. The Original Capital Securities have not been registered
under the Securities Act and will be subject to restrictions on
transferability if they are not exchanged for the Exchange Capital Securities.
Although the Exchange Capital Securities may be resold or otherwise
transferred by the holders (who are not affiliates of the Corporation or the
Trust) without compliance with the registration requirements under the
Securities Act, they will constitute a new issue of securities with no
established trading market. Original Capital Securities may be transferred by
the holders thereof only in blocks having a Liquidation Amount of not less
than $100,000 (100 Capital Securities). The Corporation and the Trust have
been advised by the Initial Purchasers that the Initial Purchasers presently
intend to make a market in the Exchange Capital Securities. However, the
Initial Purchasers are not obligated to do so and any market-making activity
with respect to the Exchange Capital Securities may be discontinued at any
time without notice. In addition, such market-making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act and may be
limited during the Exchange Offer. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Capital
Securities or the Original Capital Securities, or as to the liquidity of or
the trading market for the Exchange Capital Securities or the Original Capital
Securities. If an active public market does not develop, the market price and
liquidity of the Exchange Capital Securities may be adversely affected.
If a public trading market develops for the Exchange Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the financial condition of the
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<PAGE>
Corporation and the market for similar securities. Depending on these and
other factors, the Exchange Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Corporation or the Trust may publicly offer for sale or
resell the Exchange Capital Securities only in compliance with the provisions
of Rule 144 under the Securities Act. Each broker-dealer that receives
Exchange Capital Securities for its own account in exchange for Original
Capital Securities, where such Original Capital Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Capital Securities. See "Plan of
Distribution."
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth in "The Exchange Offer--Conditions to
the Exchange Offer," delivery of Exchange Capital Securities in exchange for
Original Capital Securities tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
(i) certificates for Original Capital Securities or a book-entry confirmation
of a book-entry transfer of Original Capital Securities into the Exchange
Agent's account at DTC, including an Agent's Message (as defined in "The
Exchange Offer--Acceptance for Exchange and Issuance of Exchange Capital
Securities") if the tendering holder does not deliver a Letter of Transmittal,
(ii) a completed and signed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, or, in the case of a book-entry transfer,
an Agent's Message in lieu of the Letter of Transmittal, and (iii) any other
documents required by the Letter of Transmittal. Therefore, holders of
Original Capital Securities desiring to tender such Original Capital
Securities in exchange for Exchange Capital Securities should allow sufficient
time to ensure timely delivery. Neither the Corporation nor the Trust is under
a duty to give notification of defects or irregularities with respect to the
tenders of Original Capital Securities for exchange.
19
<PAGE>
PUGET SOUND ENERGY, INC.
Puget Sound Energy, Inc., formerly Puget Sound Power & Light Company (the
"Corporation"), is an investor-owned public utility incorporated in the state
of Washington furnishing electric and, since February 10, 1997, gas service in
a territory covering approximately 6,000 square miles, principally in the
Puget Sound region of Washington state. On February 10, 1997, the Corporation
completed a merger (the "Merger") with the Washington Energy Company ("WECo")
and its principal subsidiary, Washington Natural Gas Company ("WNG"). Seattle-
based WNG provided natural gas distribution service to more than 500,000
customers in an areas east of Puget Sound that included Seattle, Tacoma,
Everett, Bellevue and Olympia. The Corporation changed its name to Puget Sound
Energy, Inc. effective with the Merger.
As of September 30, 1997, the Corporation had approximately 867,200 electric
customers, consisting of 769,400 residential, 92,300 commercial, 4,100
industrial and 1,400 other customers and approximately 512,200 gas customers,
consisting of 467,300 residential, 41,800 commercial, 3,000 industrial and 100
other customers. For the first nine months of 1997, the Corporation added
approximately 9,900 electric customers and approximately 12,500 gas customers,
representing annual growth rates of 1.2% and 2.5%, respectively. During the
first nine months of 1997, the Corporation's billed revenues from electric
utility operations were derived 44% from residential customers, 33% from
commercial customers, 13% from industrial customers and 10% from sales to
other utilities and others, and the Corporation's billed revenues from gas
utility operations were derived 59% from residential customers, 29% from
commercial customers, 9% from industrial customers and 3% from other
customers. During this period, the largest single electric customer accounted
for 2.4% of the Corporation's electric utility operating revenues, and the
largest single gas customer accounted for 0.5% of the Corporation's gas
utility operating revenues.
Gross electric utility plant at September 30, 1997, was approximately $3.6
billion, which consisted of 46% distribution, 26% generation, 15% transmission
and 13% general plant and other. Gross gas utility plant at September 30,
1997, was approximately $1.2 billion, which consisted of 80% distribution, 4%
transmission and 16% general plant and other.
The Corporation and its subsidiaries had approximately 3,044 aggregate full-
time equivalent employees at September 30, 1997. The Corporation's executive
office is located at 411-108th Avenue N.E., Bellevue, Washington 98004-5515,
and its telephone number is (425) 454-6363.
The Corporation is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. For further information regarding the
Corporation, holders of Original Capital Securities may refer to such reports,
proxy statements and other information which are available as described in
"Available Information" and "Incorporation of Certain Documents by Reference."
20
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Corporation under the Registration Rights Agreement. Neither the Corporation
nor the Trust will receive any proceeds from the issuance of the Exchange
Capital Securities and the Exchange Guarantee offered hereby and has agreed to
pay the expenses of the Exchange Offer. In consideration for issuing the
Exchange Capital Securities as contemplated in this Prospectus, the Trust will
receive, in exchange, Original Capital Securities in like Liquidation Amount.
The Original Capital Securities surrendered in exchange for the Exchange
Capital Securities will be retired and canceled and cannot be re-issued.
The proceeds to the Trust (without giving effect to expenses of the offering
payable by the Corporation) from the offering of the Original Capital
Securities was $100,000,000. All of the proceeds from the sale of the Original
Capital Securities were invested by the Trust in the Original Junior
Subordinated Debentures. The net proceeds from the sale of the Original Junior
Subordinated Debentures were used initially to reduce the Corporation's short-
term debt and ultimately to fund a portion of the redemption and repurchase of
certain of the Corporation's preferred stock, as well as other general
corporate purposes, including working capital. The form and terms of the
Exchange Junior Subordinated Debentures are identical in all material respects
to the form and terms of the Original Junior Subordinated Debentures, except
as otherwise described in "Description of Exchange Securities--Description of
Exchange Junior Subordinated Debentures." Accordingly, issuance of the
Exchange Junior Subordinated Debentures will not result in any increase in the
outstanding debt of the Corporation.
RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Corporation's ratios of earnings to fixed
charges and ratios of earnings to combined fixed charges and preferred stock
dividends for the respective periods indicated:
<TABLE>
<CAPTION>
TWELVE TWELVE
MONTHS MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------
1997(1) 1996 1996 1995 1994 1993 1992
------------- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(2)(3)............ 2.6x 3.1x 3.1x 2.6x 2.3x 3.0x 2.6x
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(2)(4).......... 2.1x 2.4x 2.4x 2.0x 1.7x 2.4x 2.2x
</TABLE>
- --------
(1) The ratios for the twelve months ended September 30, 1997 include charges
incurred in connection with the Merger. Had such charges been excluded
from earnings, the ratio of earnings to fixed charges for such period
would have been 3.1x, and the ratio of earnings to combined fixed charges
and preferred stock dividends would have been 2.5x.
(2) As a result of the Merger, each of the Corporation's ratios reflects the
combined operations of the Corporation and WECo. Because WECo's fiscal
year ended September 30, the combined ratios for the five years ended
December 31, 1996 reflect the fiscal years ended December 31 for the
Corporation and September 30 for WECo. September 30 ratios are comprised
of the results of the Corporation and WECo for the twelve months ended
September 30.
(3) For purposes of computing the ratios of earnings to fixed charges,
earnings represent income from continuing operations before extraordinary
items and cumulative effect of changes in accounting principles plus
applicable income taxes and fixed charges. Fixed charges include all
interest expense and the proportion deemed representative of the interest
factor of rent expense.
(4) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, earnings represent income from continuing
operations before extraordinary items and cumulative effect of changes in
accounting principles plus applicable income taxes and fixed charges.
Fixed charges include all interest expense, the proportion deemed
representative of the interest factor of rent expense and the equivalent
of pretax preferred dividend requirements.
21
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated short-term debt,
current maturities of long-term debt and capitalization of the Corporation as
of September 30, 1997. The issuance of the Exchange Capital Securities in the
Exchange Offer will have no effect on the capitalization of the Corporation.
The following data should be read in conjunction with the financial
information included in the Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN MILLIONS)
<S> <C>
Total short-term debt..................................... $ 257
Current maturities of long-term debt...................... 103
Capitalization:
Long-term debt(1)....................................... 1,163
Corporation obligated, mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures of the Corporation(2).......... 100
Preferred stock subject to mandatory redemption......... 78
Preferred stock not subject to mandatory redemption..... 96
Common equity........................................... 1,338
------
Total short-term debt, current maturities of long-term
debt and capitalization.............................. $3,135
======
</TABLE>
- --------
(1) Excludes current maturities of long-term debt.
(2) The Trust is a subsidiary of the Corporation and holds the $103,093,000
aggregate principal amount of 8.231% Junior Subordinated Debentures as its
sole asset.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below is derived from the consolidated
financial statements of the Corporation and its subsidiaries. On February 10,
1997, WECo and WNG were merged into the Corporation. The consolidated
financial statements of the Corporation and its subsidiaries as of December
31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, have been restated to include the combined results of
operations and financial position of the Corporation and WECo, accounting for
the Merger as a pooling of interests. Such restated financial statements have
been audited by Coopers & Lybrand L.L.P., independent accountants, and are
incorporated herein by reference to the Corporation's Current Report on Form
8-K filed with the Commission on October 24, 1997. The information set forth
below should be read in conjunction with such consolidated financial
statements and the notes thereto. See "Incorporation of Certain Documents by
Reference." The selected financial data as of December 31, 1994, 1993 and 1992
and for each of the two years in the period ended December 31, 1993 and the
selected financial data as of and for each of the nine months ended September
30, 1997 and 1996 are derived from unaudited consolidated financial statements
of the Corporation (including the combined results of the Corporation and
WECo) which, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
such financial information. The results for the nine months ended September
30, 1997 do not necessarily indicate the results for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------- ------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(1)(2)(3)
Operating revenue....... $ 1,157,056 $ 1,154,916 $ 1,649,279 $ 1,631,118 $ 1,632,485 $ 1,586,935 $ 1,402,198
Operating income........ 137,702 194,270 284,474 270,344 $ 224,772 268,390 261,744
Income from continuing
operations............. 78,047 107,995 167,351 128,381 79,312 162,974 152,323
Income for common stock
from continuing
operations............. 61,416 89,828 145,170 105,727 58,929 143,819 135,712
BALANCE SHEET
DATA(1)(2)(3)
Total assets............ $ 4,122,661 $ 4,200,033 $ 4,227,470 $ 4,244,568 $ 4,496,770 $ 4,386,678 $ 3,907,265
Long-term
obligations(4)......... 1,162,696 1,265,469 1,165,584 1,230,499 1,253,498 1,389,479 1,321,672
Redeemable preferred
stock.................. 78,139 87,839 87,839 89,039 91,242 115,724 126,570
PER SHARE DATA (1)(2)(3)
Common shares
outstanding-weighted
average................ 84,559,948 84,440,261 84,417,601 84,188,841 83,830,017 80,707,419 73,190,689
Earnings per common
share from continuing
operations............. $ 0.76 $ 1.08 $ 1.72 $ 1.26 $ 0.70 $ 1.78 $ 1.85
Dividends per common
share.................. 1.32 1.25 1.67 1.67 1.67 1.78 1.75
Book value per common
share.................. 15.83 15.29 16.33 16.13 17.01 18.04 17.39
</TABLE>
- --------
(1) The Corporation's fiscal year ends on December 31. WECo's fiscal year
ended on September 30. The selected financial data for each of the five
years ended December 31, 1996 reflect fiscal years ended December 31 for
the Corporation and September 30 for WECo. September 30 data are comprised
of the results of the Corporation and WECo for the nine months ended
September 30.
(2) For comparative purposes, certain historical amounts have been
reclassified to conform to the format of the Corporation's restated
financial statements.
(3) The data assume that the Merger was consummated prior to the periods
presented. Per share amounts give effect to the conversion of each share
of WECo common stock outstanding into .860 share of the Corporation's
common stock.
(4) Excludes long-term debt maturities due within one year.
23
<PAGE>
PUGET SOUND ENERGY CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by the Corporation, as Sponsor, The First
National Bank of Chicago, as Property Trustee, First Chicago Delaware Inc., as
Delaware Trustee, and the Administrative Trustees named therein, and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on June
3, 1997. The Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of Trust
Securities to acquire the Junior Subordinated Debentures and (iii) engaging in
only those other activities incidental thereto. Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust, and payments
under the Junior Subordinated Debentures will be the sole revenues of the
Trust. All of the Common Securities will be owned by the Corporation. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Capital Securities, except that upon the occurrence and
continuance of an event of default under the Trust Agreement, the rights of
the Corporation as holder of the Common Securities to payments in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Capital Securities. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Subordination of Common Securities." The Corporation has acquired
Common Securities in a Liquidation Amount equal to approximately 3% of the
total capital of the Trust. The Trust has a term of 31 years, but may
terminate earlier as provided in the Trust Agreement. The Trust's business and
affairs are conducted by its trustees, each appointed by the Corporation as
holder of the Common Securities. The trustees for the Trust are The First
National Bank of Chicago, as the Property Trustee (the "Property Trustee"),
First Chicago Delaware Inc., as the Delaware Trustee (the "Delaware Trustee"),
and three individual trustees (the "Administrative Trustees") who are
employees or officers of or affiliated with the Corporation (collectively, the
"Issuer Trustees"). The First National Bank of Chicago, as Property Trustee,
will act as sole indenture trustee under the Trust Agreement. First Chicago
Delaware Inc., will also act as indenture trustee under the Guarantee and the
Indenture. See "Description of Exchange Securities--Description of Exchange
Guarantee" and "--Description of Exchange Junior Subordinated Debentures."
The holder of the Common Securities of the Trust or, if an Event of Default
under the Trust Agreement has occurred and is continuing, the holders of a
majority in Liquidation Amount of the Capital Securities, will be entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee.
In no event will the holders of the Capital Securities have the right to vote
to appoint, remove or replace the Administrative Trustees; such voting rights
will be vested exclusively in the holder of the Common Securities. The duties
and obligations of each Issuer Trustee are governed by the Trust Agreement.
The Corporation has and will continue to pay all fees, expenses, debts and
obligations (other than the Trust Securities) related to the Trust and the
offering of the Capital Securities and has and will continue to pay, directly
or indirectly, all ongoing costs, expenses and liabilities of the Trust. The
principal executive office of the Trust is c/o Puget Sound Energy, Inc., 411--
108th Avenue N.E., Bellevue, Washington 98004-5515.
24
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Capital Securities, the
Corporation and the Trust entered into the Registration Rights Agreement with
the Initial Purchasers, pursuant to which the Corporation and the Trust agreed
to file and to use their reasonable efforts to cause to become effective with
the Commission a registration statement with respect to the exchange of the
Original Capital Securities for capital securities with terms identical in all
material respects to the terms of the Original Capital Securities. A copy of
the Registration Rights Agreement has been filed as an Exhibit to the
Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Trust under the Registration Rights Agreement. The
form and terms of the Exchange Capital Securities are the same as the form and
terms of the Original Capital Securities except that the Exchange Capital
Securities have been registered under the Securities Act and will not be
subject to certain restrictions on transfer applicable to the Original Capital
Securities, and will not provide for any increase in the Distribution rate
thereon. In that regard, the Original Capital Securities provide, among other
things, that, if a registration statement relating to the Exchange Offer has
not been filed by November 3, 1997 and declared effective by December 3, 1997,
the Distribution rate borne by the Original Capital Securities will increase
by 0.25% per annum until such registration statement is filed or declared
effective, as the case may be. Upon consummation of the Exchange Offer,
holders of Original Capital Securities will not be entitled to any increase in
the Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Original Capital Securities"
and "Description of Exchange Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Original Capital Securities in any jurisdiction
in which the Exchange Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Original Capital Securities
are registered on the books of the Trust or any other person who has obtained
a properly completed bond power from the registered holder, or any person
whose Original Capital Securities are held of record by The Depository Trust
Company ("DTC") who desires to deliver such Original Capital Securities by
book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon as
practicable after the date hereof, the Original Guarantee for the Exchange
Guarantee and the Original Junior Subordinated Debentures, in an amount
corresponding to the Original Capital Securities accepted for exchange, for a
like aggregate principal amount of the Exchange Junior Subordinated
Debentures. The Exchange Guarantee and Exchange Junior Subordinated Debentures
have been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100 million aggregate Liquidation Amount of Exchange Capital
Securities for a like aggregate Liquidation Amount of Original Capital
Securities properly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described below. The
Trust will issue, promptly after the Expiration Date, an aggregate Liquidation
Amount of up to $100 million of Exchange Capital Securities in exchange for a
like principal amount of outstanding Original Capital Securities tendered and
accepted in connection with the Exchange Offer. Holders may tender their
Original Capital Securities in whole or in part in a Liquidation Amount of not
less than $100,000 (100 Capital Securities) or any integral multiple of $1,000
Liquidation Amount (one Capital Security) in excess thereof.
25
<PAGE>
The Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Original Capital Securities being tendered. As of the date of this Prospectus,
$100 million aggregate Liquidation Amount of the Original Capital Securities
is outstanding.
Holders of Original Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Original Capital
Securities which are not tendered for or are tendered but not accepted in
connection with the Exchange Offer will remain outstanding and be entitled to
the benefits of the Declaration, but will not be entitled to any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors--Consequences of a Failure to
Exchange Original Capital Securities" and "Description of Exchange
Securities."
If any tendered Original Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Capital
Securities will be returned, without expense, to the tendering holder thereof
promptly after the Expiration Date.
Holders who tender Original Capital Securities in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Original Capital Securities in connection with the
Exchange Offer. The Corporation will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange
Offer. See "--Fees and Expenses."
NEITHER THE CORPORATION, THE BOARD OF DIRECTORS OF THE CORPORATION NOR ANY
ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL
CAPITAL SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR
ANY PORTION OF THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES MUST MAKE THEIR OWN
DECISIONS WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE
AGGREGATE AMOUNT OF ORIGINAL CAPITAL SECURITIES TO TENDER BASED ON SUCH
HOLDERS' OWN FINANCIAL POSITIONS AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on January
6, 1998 unless the Exchange Offer is extended by the Corporation or the Trust
(in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Original Capital Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any Original
Capital Securities have theretofore been accepted for exchange) if the Trust
determines, in its sole and absolute discretion, that any of the events or
conditions referred to in "--Conditions to the Exchange Offer" have occurred
or exist or have not been satisfied, (iii) to extend the Expiration Date of
the Exchange Offer and retain all Original Capital Securities tendered
pursuant to the Exchange Offer, subject, however, to the right of holders of
Original Capital Securities to withdraw their tendered Original Capital
Securities as described under "--Withdrawal Rights," and (iv) to waive any
condition or otherwise amend the terms of the Exchange Offer in any respect.
If the Exchange Offer is amended in a manner determined by the Corporation
and the Trust to constitute a material change, or if the Corporation and the
Trust waive a material condition of the Exchange Offer, the Corporation and
the Trust will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the holders of the Original Capital
Securities, and the Corporation and the Trust will extend the Exchange Offer
to the extent required by Rule 14e-1 under the Exchange Act.
26
<PAGE>
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Corporation and the Trust may choose to make
any public announcement and subject to applicable law, the Corporation and the
Trust shall have no obligation to publish, advertise or otherwise communicate
any such public announcement other than by issuing a release to an appropriate
news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange Exchange Capital Securities for Original Capital
Securities validly tendered and not withdrawn (pursuant to the withdrawal
rights described in "--Withdrawal Rights") promptly after the Expiration Date.
Subject to the conditions set forth in "--Conditions to the Exchange Offer,"
delivery of Exchange Capital Securities in exchange for Original Capital
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i)
certificates for Original Capital Securities or a book-entry confirmation of a
book-entry transfer of Original Capital Securities into the Exchange Agent's
account at DTC, including an Agent's Message if the tendering holder does not
deliver a Letter of Transmittal, (ii) a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message in lieu of the
Letter of Transmittal, and (iii) any other documents required by the Letter of
Transmittal. Accordingly, the delivery of Exchange Capital Securities might
not be made to all tendering holders at the same time, and will depend upon
when certificates for Original Capital Securities, book-entry confirmations
with respect to Original Capital Securities and other required documents are
received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Original Capital Securities into the Exchange Agent's
account at DTC. See "--Procedures for Tendering Original Capital Securities--
Book-Entry Transfer." The term "Agent's Message" means a message, transmitted
by DTC to and received by the Exchange Agent and forming a part of a book-
entry confirmation, which states that DTC has received an express
acknowledgment from the tendering participant, which acknowledgment states
that such participant has received and agrees to be bound by the Letter of
Transmittal and that the Trust and the Corporation may enforce such Letter of
Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Corporation
and the Trust will be deemed to have accepted for exchange, and thereby
exchanged, Original Capital Securities validly tendered and not withdrawn as,
if and when the Trust gives oral or written notice to the Exchange Agent of
the Corporation's and the Trust's acceptance of such Original Capital
Securities for exchange pursuant to the Exchange Offer. The Exchange Agent
will act as agent for the Corporation and the Trust for the purpose of
receiving tenders of Original Capital Securities, Letters of Transmittal and
related documents, and as agent for tendering holders for the purpose of
receiving Original Capital Securities, Letters of Transmittal and related
documents and transmitting Exchange Capital Securities which will not be held
in global form by DTC or a nominee of DTC to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Original Capital
Securities tendered pursuant to the Exchange Offer is delayed (whether before
or after the Corporation's and the Trust's acceptance for exchange of Original
Capital Securities) or the Corporation and the Trust extend the Exchange Offer
or are unable to accept for exchange or exchange Original Capital Securities
tendered pursuant to the Exchange Offer, then, without prejudice to the
Corporation's and the Trust's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Corporation and the Trust and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Original Capital Securities
and such Original Capital Securities may not be withdrawn except to the extent
tendering holders are entitled to withdrawal rights as described in "--
Withdrawal Rights."
27
<PAGE>
Pursuant to an Agent's Message or a Letter of Transmittal, a holder of
Original Capital Securities will represent, warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Original Capital Securities, that the Trust will acquire
good, marketable and unencumbered title to the tendered Original Capital
Securities, free and clear of all liens, restrictions, charges and
encumbrances, and the Original Capital Securities tendered for exchange are
not subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional documents
deemed by the Trust or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment, and transfer of the Original Capital
Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL CAPITAL SECURITIES
Valid Tender
Except as set forth below, in order for Original Capital Securities to be
validly tendered by book-entry transfer, an Agent's Message or a completed and
signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and in either case any other documents required by the
Letter of Transmittal, must be delivered to the Exchange Agent by mail,
facsimile, hand delivery or overnight courier at one of the Exchange Agent's
addresses set forth in "--Exchange Agent" on or prior to the Expiration Date
and either (i) such Original Capital Securities must be tendered pursuant to
the procedures for book-entry transfer set forth below or (ii) the guaranteed
delivery procedures set forth below must be complied with.
Except as set forth below, in order for Original Capital Securities to be
validly tendered by a means other than by book-entry transfer, a completed and
signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal must be delivered to the Exchange Agent by mail, facsimile, hand
delivery or overnight courier at one of the Exchange Agent's addresses set
forth in "--Exchange Agent" on or prior to the Expiration Date and either (i)
such Original Capital Securities must be delivered to the Exchange Agent on or
prior to the Expiration Date or (ii) the guaranteed delivery procedures set
forth below must be complied with.
If less than all Original Capital Securities are tendered, a tendering
holder should fill in the amount of Original Capital Securities being tendered
in the appropriate box on the Letter of Transmittal. The entire amount of
Original Capital Securities delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL,
RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE
IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
Book-Entry Transfer
The Exchange Agent and DTC have confirmed that any Participant (as defined
in "Description of Exchange Securities--Description of Exchange Capital
Securities--Depositary Procedures") in DTC's book-entry transfer facility
system may utilize DTC's ATOP procedures to tender Original Capital
Securities. The Exchange Agent will establish an account with respect to the
Original Capital Securities at DTC for purposes of the Exchange Offer within
two business days after the date of this Prospectus. Any Participant may make
a book-entry delivery of the Original Capital Securities by causing DTC to
transfer such Original Capital Securities into the Exchange Agent's account at
DTC in accordance with DTC's ATOP procedures for transfer. However, although
delivery of Original Capital Securities may be effected through book-entry
transfer into the Exchange Agent's account at
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DTC, an Agent's Message or a completed and signed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
documents required by the Letter of Transmittal, must in any case be delivered
to and received by the Exchange Agent at one of its addresses set forth in "--
Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees
Certificates for the Original Capital Securities need not be endorsed and
signature guarantees on the Letter of Transmittal are unnecessary unless (a) a
certificate for the Original Capital Securities is registered in a name other
than that of the person surrendering the certificate or (b) such holder
completes the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b)
above, such certificates for Original Capital Securities must be duly endorsed
or accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association (an "Eligible Institution"), unless surrendered on behalf
of such Eligible Institution. See Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery
If a holder desires to tender Original Capital Securities pursuant to the
Exchange Offer and the certificates for such Original Capital Securities are
not immediately available or time will not permit all required documents to
reach the Exchange Agent on or prior to the Expiration Date, or the procedure
for book-entry transfer cannot be completed on a timely basis, such Original
Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Original Capital Securities, in proper form for transfer, together
with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Capital
Securities in exchange for Original Capital Securities tendered and accepted
for exchange pursuant to the Exchange Offer will in all cases be made only
after timely receipt by the Exchange Agent of Original Capital Securities, or
of a book-entry confirmation with respect to such Original Capital Securities,
and a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), together with any required signature guarantees and any other
documents required by the Letter of Transmittal. Accordingly, the delivery of
Exchange Capital Securities might not be made to all tendering holders at the
same time, and will depend upon when Original Capital Securities, book-entry
confirmations with respect to Original Capital Securities and other required
documents are received by the Exchange Agent.
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The Trust's acceptance for exchange of Original Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and
subject to the conditions of the Exchange Offer.
Determination of Validity
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered Original Capital
Securities will be determined by the Corporation and the Trust, in their sole
discretion, whose determination shall be final and binding on all parties. The
Corporation and the Trust reserve the absolute right, in their sole and
absolute discretion, to reject any and all tenders determined by them not to
be in proper form or the acceptance of which, or exchange for, may, in the
opinion of counsel to the Corporation and the Trust, be unlawful. The
Corporation and the Trust also reserve the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth in "--Conditions to the Exchange Offer" or any condition or irregularity
in any tender of Original Capital Securities of any particular holder whether
or not similar conditions or irregularities are waived in the case of other
holders.
The interpretation by the Corporation and the Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Original Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the
Corporation, the Trust, any affiliates or assigns of the Corporation or the
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the
Corporation and the Trust, proper evidence satisfactory to the Corporation and
the Trust, in their sole discretion, of such person's authority to so act must
be submitted.
A beneficial owner of Original Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE CAPITAL SECURITIES
The Trust is making the Exchange Offer for the Exchange Capital Securities
in reliance on the position of the staff of the Division of Corporation
Finance of the Commission as set forth in certain interpretive letters
addressed to third parties in other transactions. However, neither the
Corporation nor the Trust sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately following sentences, the
Corporation and the Trust believe that Exchange Capital Securities issued
pursuant to this Exchange Offer in exchange for Original Capital Securities
may be offered for resale, resold and otherwise transferred by a holder
thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Capital Securities are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Capital Securities. However, any holder of Original Capital
Securities who is an "affiliate" of the Corporation or the Trust or who
intends to participate in the Exchange Offer for the purpose of distributing
Exchange Capital Securities, or any broker-dealer who purchased Original
Capital Securities from the Trust to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-
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mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Original Capital Securities in the Exchange Offer and (c) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Original
Capital Securities unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds
Original Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Original Capital
Securities for Exchange Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Capital Securities.
Each holder of Original Capital Securities who wishes to exchange Original
Capital Securities for Exchange Capital Securities in the Exchange Offer will
be required to represent that (i) it is not an "affiliate" of the Corporation
or the Trust, (ii) any Exchange Capital Securities to be received by it are
being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities. In
addition, the Corporation and the Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer,
to furnish to the Corporation and the Trust (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of
Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the
Capital Securities to be exchanged in the Exchange Offer. Each broker-dealer
that receives Exchange Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Original Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such Exchange Capital Securities. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Corporation and the Trust believe that Participating Broker-Dealers
who acquired Original Capital Securities for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the Exchange Capital
Securities received upon exchange of such Original Capital Securities (other
than Original Capital Securities which represent an unsold allotment from the
initial sale of the Original Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for
an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Capital Securities.
Accordingly, this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer during the period
referred to below in connection with resales of Exchange Capital Securities
received in exchange for Original Capital Securities where such Original
Capital Securities were acquired by such Participating Broker-Dealer for its
own account as a result of market-making or other trading activities. Subject
to certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Trust have agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Capital Securities
for a period ending 180 days after the Expiration Date (subject to extension
under certain limited circumstances described below) or, if earlier, when all
such Exchange Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution."
However, a Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of Exchange Capital Securities received in exchange
for Original Capital Securities pursuant to the Exchange Offer must notify the
Corporation or the Trust, or cause the Corporation or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one
of the addresses set forth in "--Exchange Agent." Any Participating Broker-
Dealer who is an "affiliate" of the Corporation or the Trust may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
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In that regard, each Participating Broker-Dealer who surrenders Original
Capital Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal, that upon receipt of notice
from the Corporation or the Trust of the occurrence of any event or the
discovery of (i) any fact which makes any statement contained or incorporated
by reference in this Prospectus untrue in any material respect or (ii) any
fact which causes this Prospectus to omit to state a material fact necessary
in order to make the statements contained or incorporated by reference herein,
in light of the circumstances under which they were made, not misleading, or
(iii) of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of
Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) pursuant to this Prospectus until the
Corporation or the Trust has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemented Prospectus to such Participating Broker-Dealer, or the
Corporation or the Trust has given notice that the sale of the Exchange
Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) may be resumed, as the case may be. If
the Corporation or the Trust gives such notice to suspend the sale of the
Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable), it shall extend the 180-day period
referred to above during which Participating Broker-Dealers are entitled to
use this Prospectus in connection with the resale of Exchange Capital
Securities by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Capital Securities or
to and including the date on which the Corporation or the Trust has given
notice that the sale of Exchange Capital Securities (or the Exchange Guarantee
or the Exchange Junior Subordinated Debentures, as applicable) may be resumed,
as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Capital Securities
may be withdrawn at any time on or prior to the Expiration Date. In order for
a withdrawal to be effective a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth in "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Capital Securities to be
withdrawn, the aggregate principal amount of Original Capital Securities to be
withdrawn, and (if certificates for such Original Capital Securities have been
tendered) the name of the registered holder of the Original Capital Securities
as set forth on the Original Capital Securities, if different from that of the
person who tendered such Original Capital Securities. If Original Capital
Securities have been delivered or otherwise identified to the Exchange Agent,
then, prior to the physical release of such Original Capital Securities, the
tendering holder must submit the serial numbers shown on the particular
Original Capital Securities to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case
of Original Capital Securities tendered for the account of an Eligible
Institution. If Original Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering
Original Capital Securities," the notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawal of
Original Capital Securities, in which case a notice of withdrawal will be
effective if delivered to the Exchange Agent by written, telegraphic, telex or
facsimile transmission. Withdrawals of tenders of Original Capital Securities
may not be rescinded. Original Capital Securities properly withdrawn will not
be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above in "--Procedures for Tendering
Original Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Corporation, the Trust, any affiliates or assigns of the
Corporation or the Trust, the Exchange Agent nor any other person shall be
under any duty to give any notification of any irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
Any Original Capital Securities which
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have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
DISTRIBUTION ON EXCHANGE CAPITAL SECURITIES
Holders of the Original Capital Securities as of November 15, 1997 will
receive the Distribution to be paid on December 1, 1997. Holders of Original
Capital Securities whose Original Capital Securities are accepted for exchange
will not receive any other Distributions on such Original Capital Securities
and will be deemed to have waived the right to receive any Distributions on
such Original Capital Securities accumulated from and after December 1, 1997.
Accordingly, holders of Exchange Capital Securities as of the record date for
the payment of Distributions on June 1, 1998 will be entitled to receive
Distributions accumulated from and after December 1, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Corporation and the Trust will not be required to
accept for exchange, or to exchange, any Original Capital Securities for any
Exchange Capital Securities, and, as described below, may terminate the
Exchange Offer (whether or not any Original Capital Securities have
theretofore been accepted for exchange) or may waive any conditions to or
amend the Exchange Offer, if any of the following conditions have occurred or
exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Exchange Capital Securities issued
pursuant to the Exchange Offer in exchange for Original Capital Securities
to be offered for resale, resold and otherwise transferred by holders
thereof (other than broker-dealers and any such holder which is an
"affiliate" of the Corporation or the Trust within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Capital Securities are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such Exchange Capital
Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Corporation or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Corporation or the Trust, threatened for that purpose, or any
governmental approval has not been obtained, which approval the Corporation
or the Trust shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
(d) the Corporation shall receive an opinion of counsel experienced in
such matters to the effect that there is more than an insubstantial risk
that consummation of the Exchange Offer would result in interest payable to
the Trust on the Junior Subordinated Debentures being not deductible by the
Corporation for United States federal income tax purposes.
If the Corporation or the Trust determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or
exists or has not been satisfied, it may, subject to applicable law, terminate
the Exchange Offer (whether or not any Original Capital Securities have
theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the
Corporation or the Trust will promptly disclose such waiver or amendment by
means of a prospectus supplement that will be distributed to the registered
holders of the Original Capital Securities and will extend the Exchange Offer
to the extent required by Rule 14e-1 under the Exchange Act.
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EXCHANGE AGENT
The First National Bank of Chicago has been appointed as Exchange Agent for
the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight
(Registered or Certified (Eligible Institutions Only) Delivery:
Mail recommended)
The First National Bank (212) 240-8938 The First National Bank of
of Chicago Chicago
c/o First Chicago Trust c/o First Chicago Trust
Company of New York Company of New York
14 Wall Street To Confirm by Telephone or for 14 Wall Street
8th Floor, Window 2 Information Call: 8th Floor, Window 2
New York, New York 10005 (212) 240-8801 New York, New York 10005
</TABLE>
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable out-
of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus and related documents to the beneficial owners of Original Capital
Securities, and in handling or tendering for their customers.
Holders who tender their Original Capital Securities for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Original Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Original Capital Securities in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
Neither the Corporation nor the Trust will make any payment to brokers,
dealers or other nominees soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF EXCHANGE SECURITIES
The terms of the Original Securities are identical in all materials respects
to the Exchange Securities, except that (i) the Original Securities have not
been registered under the Securities Act, are subject to certain restrictions
on transfer and are entitled to certain rights under the applicable
Registration Rights Agreement (which rights will terminate upon consummation
of the Exchange Offer, except under limited circumstances), (ii) the Exchange
Capital Securities will not contain the $100,000 minimum Liquidation Amount
transfer restriction and certain other restrictions on transfer applicable to
Original Capital Securities, (iii) the Exchange Capital Securities will not
provide for any increase in the Distribution rate thereon and (iv) the
Exchange Junior Subordinated Debentures will not provide for any increase in
the interest rate thereon. The Original Securities provide that, in the event
that a registration statement relating to the Exchange Offer has not been
filed by November 3, 1997 and been declared effective by December 3, 1997, or,
in certain limited circumstances, in the event a shelf registration statement
with respect to the resale of the Original Capital Securities is not declared
effective by the time required by the Registration Rights Agreement, then
liquidated damages will accrue at the rate of 0.25% per annum on the principal
amount of the Original Junior Subordinated Debentures and Distributions will
accrue at the rate of 0.25% per annum on the Liquidation Amount of the
Original Capital Securities, for the period from the occurrence of such event
until such time as such registration statement has been filed or declared
effective, as the case may be. The Exchange Securities are not, and upon
consummation of the Exchange Offer the Original Securities will not be,
entitled to any such additional interest or Distributions. Accordingly,
holders of Original Capital Securities should review the information set forth
in "Risk Factors--Consequences of a Failure to Exchange Original Capital
Securities" and "Description of Exchange Securities."
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
The Exchange Capital Securities will represent preferred beneficial
interests in the Trust and the holders thereof will be entitled to a
preference over the Common Securities in certain circumstances with respect to
Distributions and amounts payable on redemption of the Trust Securities or
liquidation of the Trust. See "--Subordination of Common Securities." The
Trust Agreement has been qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). This summary of certain provisions of the
Exchange Capital Securities, the Common 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, including
the definitions therein of certain terms.
General
The Exchange Capital Securities will be limited to $100 million aggregate
Liquidation Amount at any one time outstanding. The Exchange Capital
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described in "--Subordination of Common
Securities." Legal title to the Junior Subordinated Debentures will be held by
the Property Trustee in trust for the benefit of the holders of the Trust
Securities. The Exchange Guarantee will not guarantee payment of Distributions
or amounts payable on redemption of the Exchange Capital Securities or
liquidation of the Trust when the Trust does not have funds on hand legally
available for such payments. See "--Description of Exchange Guarantee."
Distributions
Distributions on the Exchange Capital Securities will be cumulative, will
accumulate from December 1, 1997 and will be payable semi-annually in arrears
on June 1 and December 1 of each year, commencing June 1, 1998, at the annual
rate of 8.231% of the Liquidation Amount to the holders of record of the
Exchange Capital Securities on the May 15 or November 15 immediately preceding
such date. The amount of Distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which Distributions are payable on the Exchange Capital Securities is
not a Business Day (as defined below), payment of the Distribution 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 to any such delay), in each
case with the
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<PAGE>
same force and effect as if made on such date (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 by law or executive order to remain closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Corporation will have the right under the Indenture to defer
the payment of interest on the Exchange Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-
annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity Date. Upon any such
election, semi-annual Distributions on the Exchange Capital Securities will be
deferred by the Trust during any such Extension Period. Distributions to which
holders of the Exchange Capital Securities are entitled during any such
Extension Period will accumulate additional Distributions thereon at the rate
per annum of 8.231% thereof, compounded semi-annually from the relevant
Distribution Date. The term "Distributions," as used herein, shall include any
such additional Distributions.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due, and subject to the
foregoing limitations, the Corporation may elect to begin a new Extension
Period. The Corporation must give the Property Trustee, the Administrative
Trustees and the Debenture Trustee notice of its election of any such
Extension Period at least five Business Days prior to the earlier of (i) the
date the Distributions on the Exchange Capital Securities would have been
payable except for the election to begin such Extension Period or (ii) the
date the Administrative Trustees are required to give notice to any securities
exchange or to holders of such Exchange Capital Securities of the record date
or the date such Distributions are payable but in any event not less than five
Business Days prior to such record date. There is no limitation on the number
of times that the Corporation may elect to begin an Extension Period. See "--
Description of Exchange Junior Subordinated Debentures--Option to Extend
Interest Payment Date" and "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal of or premium, if any, or interest on or repay, repurchase or redeem
any debt securities of the Corporation (including Other Debentures) that rank
pari passu with or junior in right of payment to the Exchange Junior
Subordinated Debentures or (iii) make any guarantee payments with respect to
any guarantee by the Corporation of the debt securities of any subsidiary of
the Corporation (including Other Guarantees) if such guarantee ranks pari
passu with or junior in right of payment to the Exchange Junior Subordinated
Debentures (other than (a) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, common
stock of the Corporation, (b) any declaration of a dividend in connection with
the implementation of a shareholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee, (d) the purchase of
fractional shares resulting from a reclassification of the Corporation's
capital stock or the exchange or conversion of one class, or series of the
Corporation's capital stock for another class or series of the Corporation's
capital stock, and (e) the purchase of fractional interests in shares of the
Corporation's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged).
Although the Corporation has the right in the future to exercise its option
to defer payments of interest on the Exchange Junior Subordinated Debentures,
the Corporation has no current intention to defer payments of interest on such
Exchange Junior Subordinated Debentures.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust has invested the proceeds from the issuance and
sale of the Trust Securities. See "--Description of Exchange Junior
Subordinated
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Debentures--General." If the Corporation does not make interest payments on
the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities. The payment of
Distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such Distributions) will be guaranteed by the
Corporation on a limited basis as set forth in "--Description of Exchange
Guarantee."
Redemption
Upon the repayment on the Stated Maturity Date or prepayment prior to the
Stated Maturity Date of the Junior Subordinated Debentures, the proceeds from
such repayment or prepayment shall be applied by the Property Trustee to
redeem a Like Amount (as defined below) of the Trust Securities, upon not less
than 30 nor more than 60 days' notice of a date of redemption (the "Redemption
Date"), at the applicable Redemption Price, which shall be equal to (i) in the
case of the repayment of the Junior Subordinated Debentures on the Stated
Maturity Date, the Maturity Redemption Price (equal to the principal of, and
accrued interest on, the Junior Subordinated Debentures), (ii) in the case of
the optional prepayment of the Junior Subordinated Debentures prior to June 1,
2007 upon the occurrence and continuation of a Tax Event, the Tax Event
Redemption Price (equal to the Tax Event Prepayment Price in respect of the
Junior Subordinated Debentures) and (iii) in the case of the optional
prepayment of the Junior Subordinated Debentures on or after June 1, 2007, the
Optional Redemption Price (equal to the Optional Prepayment Price in respect
of the Junior Subordinated Debentures). See "--Description of Exchange Junior
Subordinated Debentures--Optional Prepayment" and "--Tax Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be paid in accordance
with their terms and (ii) with respect to a distribution of Junior
Subordinated Debentures upon the liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
Redemption Procedures
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous payment of the
Exchange Junior Subordinated Debentures. Any redemption of Trust Securities
shall be made and the applicable Redemption Price shall be payable on the
Redemption Date only to the extent that the Trust has funds legally available
for the payment of such applicable Redemption Price.
If the Trust gives a notice of redemption in respect of the Exchange Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are legally available, with respect to the Exchange
Capital Securities held by DTC or its nominees, the Property Trustee will
deposit irrevocably with DTC funds sufficient to pay the applicable Redemption
Price. See "--Form, Denomination, Book-Entry Procedures and Transfer." With
respect to the Exchange Capital Securities held in certificated form, the
Property Trustee, to the extent funds are legally available, will irrevocably
deposit with the paying agent for the Exchange Capital Securities funds
sufficient to pay the applicable Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the applicable Redemption
Price to the holders thereof upon surrender of their certificates evidencing
the Exchange Capital Securities. See "--Payment and Paying Agency."
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date shall be payable to the holders of such Exchange Capital
Securities on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds deposited as required,
then upon the date of such deposit, all rights of the holders of the Exchange
Capital Securities will cease, except the right of the holders of the Exchange
Capital Securities to receive the applicable Redemption Price, but without
interest on such Redemption Price, and the Exchange Capital Securities will
cease to be outstanding. In the event that any Redemption Date of Exchange
Capital Securities is not a Business Day, then the applicable Redemption Price
payable on such date will be paid on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year,
such payment
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will be made on the immediately preceding Business Day. In the event that
payment of the applicable Redemption Price is improperly withheld or refused
and not paid either by the Trust or by the Corporation pursuant to the
Exchange Guarantee as described in "--Description of Exchange Guarantee,"
Distributions on Exchange Capital Securities will continue to accumulate at
the then applicable rate, from the Redemption Date originally established by
the Trust to the date such applicable Redemption Price is actually paid, in
which case the actual payment date will be the Redemption Date for purposes of
calculating the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding Capital Securities by tender, in
the open market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Corporation defaults in payment of the
applicable Redemption Price on, or in the repayment of, the Junior
Subordinated Debentures, on and after the Redemption Date, Distributions will
cease to accrue on the Trust Securities called for redemption.
Liquidation of the Trust and Distribution of Junior Subordinated Debentures
The Corporation will have the right at any time to terminate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities in liquidation of the Trust. Such right is subject to the
Corporation having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities.
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures
to the holders of the Trust Securities, if the Corporation, as Sponsor, has
given written direction to the Property Trustee to terminate the Trust (which
direction and distribution is optional and, except as described above, wholly
within the discretion of the Corporation, as Depositor); (iii) redemption of
all of the Trust Securities as described in "--Redemption"; (iv) expiration of
the term of the Trust; or (v) the entry of an order for the dissolution of the
Trust by a court of competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Issuer Trustees as expeditiously
as the Issuer Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of the Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practicable, in which event such holders will be
entitled to receive out of the assets of the Trust legally available for
distribution to holders, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, an amount equal to the aggregate of the
Liquidation Amount plus accumulated and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets on hand legally available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on
the Capital Securities and the Common Securities shall be paid on a pro rata
basis, except that if a Debenture Event of Default has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities. See "--Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each registered
global certificate, if any, representing Trust Securities and held by DTC or
its nominee will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Trust Securities not held
by DTC or its nominee will be deemed to represent Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid
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Distributions on such Trust Securities until such certificates are presented
to the Administrative Trustees or their agent for cancellation, whereupon the
Corporation will issue to such holder, and the Debenture Trustee will
authenticate, a certificate representing such Junior Subordinated Debentures.
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
the Trust Securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the Capital Securities that an investor may purchase, or
the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Capital Securities offered hereby.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amount of the Trust Securities; provided, however, that if
on any Distribution Date or Redemption Date an Event of Default shall have
occurred and be continuing, no payment of any Distribution on, or applicable
Redemption Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of the Common
Securities, shall be made unless payment in full in cash of all accumulated
and unpaid Distributions on all of the outstanding Capital Securities for all
Distribution periods terminating on or prior thereto, or in the case of
payment of the applicable Redemption Price the full amount of such Redemption
Price, shall have been made or provided for, and all funds available to the
Property Trustee shall first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Capital Securities then due and
payable.
In the case of any Event of Default, the Corporation as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Capital Securities and not on behalf of
the Corporation as holder of the Common Securities, and only the holders of
the Capital Securities will have the right to direct the Property Trustee to
act on their behalf.
Events of Default; Notice
The occurrence of a Debenture Event of Default (see "--Description of
Exchange Junior Subordinated Debentures--Debenture Events of Default")
constitutes an "Event of Default" under the Trust Agreement.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Corporation, as Sponsor, unless such Event of
Default shall have been cured or waived. The Corporation, as Sponsor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described in
"--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures" and "--Subordination of Common Securities."
Removal of Issuer Trustees
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Corporation as the holder of the
Common Securities. No resignation or removal of
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an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance
with the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any corporation 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 corporation resulting from any
merger, conversion or consolidation to which such Issuer Trustee shall be a
party, or any corporation 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 corporation shall be
otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below. The Trust may, at the request of the Corporation,
as Sponsor, with the consent of the Administrative Trustees but without the
consent of the holders of the Capital Securities, merge with or into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the
Capital Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Capital Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Corporation expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee with
respect to the Junior Subordinated 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 Capital Securities are then listed, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (vi) such successor entity has a purpose identical to that
of the Trust, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Corporation has received an
opinion from independent counsel to the Trust experienced in such matters to
the effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect, and (b) following such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Trust nor such successor entity will be required to
register as an investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and (viii) the Corporation 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 Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to
any other entity or permit any other entity to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity not to be classified as a grantor trust for United States
federal income tax purposes.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and in "--Mergers, Consolidations, Amalgamations or
Replacements of the Trust" and "--Description of Exchange Guarantee--
Amendments and Assignment" and as otherwise required by law and the Trust
Agreement, the holders of the Capital Securities will have no voting rights.
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The Trust Agreement may be amended from time to time by the Corporation, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust 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, which shall not be
inconsistent with the other provisions of the Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Trust will be classified for
United States federal income tax purposes as a grantor trust at all times that
any Trust Securities are outstanding or to ensure that the Trust will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that such action shall not adversely affect in any
material respect the interests of the holders of the Trust Securities, and any
amendments of the Trust Agreement shall become effective when notice thereof
is given to the holders of the Trust Securities. The Trust Agreement may be
amended by the Issuer Trustees and the Corporation (i) with the consent of
holders representing a majority (based upon Liquidation Amount) of the
outstanding Trust Securities, and (ii) upon receipt by the Issuer Trustees of
an opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will
not affect the Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status as an "investment
company" under the Investment Company Act, provided that, without the consent
of each holder of Trust Securities, the Trust Agreement may not be amended to
(i) change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be made
in respect of the Trust Securities as of a specified date or (ii) restrict the
right of a holder of Trust Securities to institute suit for the enforcement of
any such payment on or after such date. The Exchange Capital Securities and
any Original Capital Securities which remain outstanding after consummation of
the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain actions or exercised certain
rights under the Trust Agreement.
So long as any Junior Subordinated 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 such Property Trustee
with respect to the Junior Subordinated Debentures, (ii) waive certain past
defaults under the Indenture, (iii) exercise any right to rescind or annul a
declaration of acceleration of the maturity of the principal of the Junior
Subordinated Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of a majority in Liquidation Amount of all outstanding Capital
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior approval of each holder of the Capital Securities. The Issuer Trustees
shall not revoke any action previously authorized or approved by a vote of the
holders of the Capital Securities except by subsequent vote of such holders.
The Property Trustee shall notify each holder of Capital Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of such holders of the Capital
Securities, prior to taking any of the foregoing actions, the Issuer Trustees
shall obtain an opinion of counsel experienced in such matters to the effect
that the Trust will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
Any required approval of holders of Exchange Capital Securities may be given
at a meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Exchange Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each holder of record of Exchange Capital Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required for
the Trust to redeem and cancel the Capital Securities in accordance with the
Trust Agreement.
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Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustees, shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
Form, Denomination, Book-Entry Procedures and Transfer
The Exchange Capital Securities initially will be represented by one or more
Capital Securities in registered, global form (collectively, the "Global
Capital Securities"). The Global Capital Securities will be deposited upon
issuance with the Property Trustee as custodian for DTC, in New York, New
York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
Except as set forth below, the Global Capital Securities may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee, and such transfer shall be effective only when reflected
in the securities register maintained by or on behalf of the Trust. Beneficial
interests in the Global Capital Securities may not be exchanged for Capital
Securities in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Capital Securities for Certificated
Capital Securities."
Other Capital Securities will be issued only in registered, certificated
(i.e., non-global) form. Other Capital Securities may not be exchanged for
beneficial interests in any Global Capital Securities except in the limited
circumstances described below. See "--Exchange of Certificated Capital
Securities for Book-Entry Capital Securities."
Depositary Procedures
DTC has advised the Trust and the Corporation that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital
Securities, DTC will credit the accounts of Participants designated by the
Initial Purchasers with portions of the Liquidation Amount of the Global
Capital Securities and (ii) ownership of such interests in the Global Capital
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system. All interests in
a Global Capital Security may be subject to the procedures and requirements of
DTC. The laws of some states require that certain persons take physical
delivery in certificated form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Capital Security to such
persons will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Capital
Security to
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pledge such interests 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. For
certain other restrictions on the transferability of the Capital Securities,
see "--Exchange of Book-Entry Capital Securities for Certificated Capital
Securities" and "--Exchange of Certificated Capital Securities for Book-Entry
Capital Securities."
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Capital Securities in certificated form and will
not be considered the registered owners or holders thereof under the Trust
Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms
of the Trust Agreement, the Property Trustee will treat the persons in whose
names the Capital Securities, including the Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Trust and the Corporation that its current practice, upon receipt
of any payment in respect of securities such as the Capital Securities, is to
credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
Liquidation Amount of beneficial interests in the relevant security as shown
on the records of DTC unless DTC has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Capital Securities will be governed
by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Property Trustee, the Trust or the
Corporation. Neither the Trust or the Corporation nor the Property Trustee
will be liable for any delay by DTC or any of its Participants in identifying
the beneficial owners of the Capital Securities, and the Trust or the
Corporation and the Property Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Secondary market trading activity in interests in the Global Capital
Securities will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Corporation that it will take any action
permitted to be taken by a holder of Capital Securities only at the direction
of one or more Participants to whose account with DTC interests in the Global
Capital Securities are credited and only in respect of such portion of the
Liquidation Amount of the Capital Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Trust Agreement, DTC reserves the right to exchange the
Global Capital Securities for legended Capital Securities in certificated form
and to distribute such Capital Securities to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Trust and the Corporation believe to
be reliable, but neither the Trust nor the Corporation takes responsibility
for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Capital Securities among participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trust or the
Corporation nor the Property Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
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Exchange of Book-Entry Capital Securities for Certificated Capital Securities
A Global Capital Security is exchangeable for Exchange Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depositary within 90 days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Corporation in its sole discretion elects to cause the issuance of
the Exchange Capital Securities in certificated form or (iii) there shall have
occurred and be continuing an Event of Default or any event which after notice
or lapse of time or both would be an Event of Default under the Trust
Agreement. In all cases, certificated Capital Securities delivered in exchange
for any Global Capital Security or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested
by or on behalf of the Depositary (in accordance with its customary
procedures).
Exchange of Certificated Capital Securities for Book-Entry Capital Securities
Other Capital Securities, which will be issued in certificated form, may not
be exchanged for beneficial interests in any Global Capital Security unless
such exchange occurs in connection with a transfer of such Other Capital
Securities and the transferor first delivers to the Property Trustee a written
certificate (in the form provided in the Trust Agreement) to the effect that
such transfer will comply with the appropriate transfer restrictions
applicable to such Capital Securities.
Payment and Paying Agency
Payments in respect of the Exchange Capital Securities held in global form
shall be made to the Depositary, which shall credit the relevant accounts at
the Depositary on the applicable Distribution Dates or in respect of the
Exchange Capital Securities that are not held by the Depositary, such payments
shall be made by check mailed to the address of the holder entitled thereto as
such address shall appear on the register. The paying agent (the "Paying
Agent") shall initially be the Property Trustee and any co-paying agent chosen
by the Property Trustee and acceptable to the Administrative Trustees and the
Corporation. The Paying Agent shall be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Corporation. 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 Administrative Trustees and the Corporation)
to act as Paying Agent.
Restrictions on Transfer
The Exchange Capital Securities will be issued, and may be transferred only,
in minimum denominations of not less than $1,000 and multiples of $1,000 in
excess thereof. Any transfer, sale or other disposition of Exchange Capital
Securities in a denomination of less than $1,000 shall be deemed to be void
and of no legal effect whatsoever. Any such transferee shall be deemed not to
be the holder of such Exchange Capital Securities for any purpose, including
but not limited to the receipt of Distributions on such Exchange Capital
Securities, and such transferee shall be deemed to have no interest whatsoever
in such Exchange Capital Securities.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Exchange Capital Securities. Registration of transfers of the Exchange Capital
Securities will be effected without charge by or on behalf of the Trust, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The Trust will not be required to
register or cause to be registered the transfer of the Exchange Capital
Securities after they have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default,
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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
Trust Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. If no 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 the Capital
Securities or the Common Securities are entitled under the Trust Agreement to
vote, then the Property Trustee shall take such action as is directed by the
Corporation and if not so directed, shall take such action as it deems
advisable and in the best interests of the holders of the Trust 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 Trust in such a way that the Trust 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
Junior Subordinated Debentures will be treated as indebtedness of the
Corporation for United States federal income tax purposes. In this connection,
the Corporation and the Administrative Trustees are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of the
Trust or the Trust Agreement, that the Corporation 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 Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The Original Junior Subordinated Debentures were issued and the Exchange
Junior Subordinated Debentures will be issued under an Indenture, as
supplemented from time to time (as so supplemented, the "Indenture"), between
the Corporation and The First National Bank of Chicago, as trustee (the
"Debenture Trustee"). The Indenture has been qualified under the Trust
Indenture Act. This summary of certain terms and provisions of the Exchange
Junior Subordinated Debentures and the Indenture does not purport to be
complete, and where reference is made to particular provisions of the
Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a
part of the Indenture by the Trust Indenture Act.
General
Concurrently with the issuance of the Trust Securities, the Trust invested
the proceeds thereof in the Original Junior Subordinated Debentures issued by
the Corporation. The Exchange Junior Subordinated Debentures will bear
interest at the annual rate of 8.231% of the principal amount thereof, payable
semi-annually in arrears on June 1 and December 1 of each year (each, an
"Interest Payment Date"), commencing June 1, 1998, to the person in whose name
each Exchange Junior Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the May 15 or November 15 immediately
preceding the relevant payment date. It is anticipated that, until the
liquidation, if any, of the Trust, each Exchange Junior Subordinated Debenture
will be held in the name of the Property Trustee in trust for the benefit of
the holders of the Trust Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the
Exchange Junior Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
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such delay) with the same force and effect as if made on the date such payment
was originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of 8.231% thereof,
compounded semi-annually. The term "interest," as used herein, shall include
semi-annual interest payments, interest on semi-annual interest payments not
paid on the applicable Interest Payment Date and Additional Interest (as
defined below), as applicable.
The Exchange Junior Subordinated Debentures will be issued in denominations
of $1,000 and integral multiples thereof. The Exchange Junior Subordinated
Debentures will mature on June 1, 2027 (the "Stated Maturity Date").
The Exchange Junior Subordinated Debentures will rank pari passu with the
Original Junior Subordinated Debentures and all Other Debentures and will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the Indenture to all Senior Indebtedness. See "--
Subordination." The Indenture does not limit the incurrence or issuance of
other secured or unsecured debt of the Corporation, including Senior
Indebtedness. See "--Subordination."
Form, Registration and Transfer
If the Exchange Junior Subordinated Debentures are distributed to the
holders of the Trust Securities, the Exchange Junior Subordinated Debentures
may be represented by one or more global certificates registered in the name
of Cede & Co. as the nominee of DTC. The depositary arrangements for such
Exchange Junior Subordinated Debentures are expected to be substantially
similar to those in effect for the Capital Securities. For a description of
DTC and the terms of the depositary arrangements relating to payments,
transfers, voting rights, redemptions and other notices and other matters, see
"--Description of Exchange Capital Securities--Form, Denomination, Book-Entry
Procedures and Transfer."
Payment and Paying Agents
Payment of principal of (and premium, if any) and any interest on Exchange
Junior Subordinated Debentures will be made at the office of the Debenture
Trustee in The City of New York or at the office of such Paying Agent or
Paying Agents as the Corporation may designate from time to time, except that
at the option of the Corporation payment of any interest may be made except in
the case of Exchange Junior Subordinated Debentures in global form, (i) by
check mailed to the address of the Person entitled thereto as such address
shall appear in the register for Exchange Junior Subordinated Debentures or
(ii) by transfer to an account maintained by the Person entitled thereto as
specified in such register, provided that proper transfer instructions have
been received by the relevant record date. Payment of any interest on any
Exchange Junior Subordinated Debenture will be made to the Person in whose
name such Exchange Junior Subordinated Debenture is registered at the close of
business on the record date for such interest, except in the case of defaulted
interest. The Corporation may at any time designate additional Paying Agents
or rescind the designation of any Paying Agent; however the Corporation will
at all times be required to maintain a Paying Agent in each Place of Payment
for the Exchange Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Corporation in trust, for the payment of the principal of (and
premium, if any) or interest on any Exchange Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the
Corporation, be repaid to the Corporation and the holder of such Exchange
Junior Subordinated Debenture shall thereafter look, as a general unsecured
creditor, only to the Corporation for payment thereof.
Option to Extend Interest Payment Date
So long as no Debenture Event of Default has occurred and is continuing, the
Corporation will have the right under the Indenture at any time during the
term of the Exchange Junior Subordinated Debentures to defer
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the payment of interest at any time or from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated
Maturity Date. At the end of such Extension Period, the Corporation must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 8.231%, compounded semi-annually, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Exchange Junior Subordinated Debentures (and holders of the
Trust Securities while Trust Securities are outstanding) will be required to
accrue interest income for United States federal income tax purposes prior to
the receipt of cash attributable to such income. See "Certain Federal Income
Tax Consequences--Interest Income and Original Issue Discount."
Option to Extend Interest Payment Date
So long as no Debenture Event of Default has occurred and is continuing, the
Corporation will have the right under the Indenture at any time during the
term of the Junior Subordinated Debentures to defer the payment of interest at
any time or from time to time for a period not exceeding 10 consecutive semi-
annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity Date. At the end of
such Extension Period, the Corporation must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of 8.231%,
compounded semi-annually, to the extent permitted by applicable law). During
an Extension Period, interest will continue to accrue and holders of Junior
Subordinated Debentures (and holders of the Trust Securities while Trust
Securities are outstanding) will be required to accrue interest income for
United States federal income tax purposes prior to the receipt of cash
attributable to such income. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Corporation (including any Other Debentures) that rank
pari passu with or junior in right of payment to the Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee
by the Corporation of the debt securities of any subsidiary of the Corporation
(including any Other Guarantees) if such guarantee ranks pari passu with or
junior in right of payment to the Junior Subordinated Debentures (other than
(a) dividends or distributions in shares of or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee, (d) the purchase of fractional shares
resulting from a reclassification of the Corporation's capital stock or the
exchange or conversion of one class or series of the Corporation's capital
stock for another class or series of the Corporation's capital stock, and (e)
the purchase of fractional interests in shares of the Corporation'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 Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest
Payment Date, the Corporation 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 Corporation must give the
Property Trustee, the Administrative Trustees and the Debenture Trustee notice
of its election of any Extension Period (or an extension thereof) at least
five Business Days prior to the earlier of (i) the date the Distributions on
the Trust Securities would have been payable except for the election to begin
or extend such Extension Period or (ii) the date the Administrative Trustees
are required to give notice to any securities exchange or to holders of
Capital Securities of the record date or the date such Distributions are
payable, but in any event not less than five Business Days prior to such
record date. The Debenture Trustee shall give notice of the Corporation's
election to begin or extend a new
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Extension Period to the holders of the Capital Securities. There is no
limitation on the number of times that the Corporation may elect to begin an
Extension Period.
Optional Prepayment
The Exchange Junior Subordinated Debentures will be prepayable, in whole or
in part, at the option of the Corporation on or after June 1, 2007, at a
prepayment price (the "Optional Prepayment Price") equal to the percentage of
the outstanding principal amount of the Exchange Junior Subordinated
Debentures specified below, plus, in each case, accrued interest thereon to
the date of prepayment if redeemed during the 12-month period beginning June 1
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2007.............................................................. 104.116%
2008.............................................................. 103.704
2009.............................................................. 103.292
2010.............................................................. 102.881
2011.............................................................. 102.469
2012.............................................................. 102.058
2013.............................................................. 101.646
2014.............................................................. 101.235
2015.............................................................. 100.823
2016.............................................................. 100.412
2017 and thereafter............................................... 100.000%
</TABLE>
Tax Event Prepayment
If a Tax Event shall occur and be continuing, the Corporation may, at its
option, prepay the Junior Subordinated Debentures in whole (but not in part)
at any time prior to June 1, 2007 and within 90 days of the occurrence of such
Tax Event, at a prepayment price (the "Tax Event Prepayment Price") equal to
the greater of (i) 100% of the principal amount of such Junior Subordinated
Debentures or (ii) the sum, as determined by a Quotation Agent, of the present
values of the remaining scheduled payments of principal and interest on the
Junior Subordinated Debentures to the Stated Maturity Date, discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case,
accrued interest thereon to the date of prepayment.
A "Tax Event" means the receipt by the Corporation and the Trust of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change)
in, the laws or any regulations thereunder of the United States or any
political subdivision or taxing authority thereof or therein, or any amendment
to or change in an interpretation or application of such laws or regulations,
which amendment or change is effective or is announced on or after the Issue
Date, there is more than an insubstantial risk that (i) the Trust would be
subject to United States federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures, (ii) interest payable by the
Corporation on the Junior Subordinated Debentures would not be deductible by
the Corporation, in whole or in part, for United States federal income tax
purposes, or (iii) the Trust would be subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
established yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity date corresponding to the Stated Maturity Date
(if no maturity date is within three months before or after the Stated
Maturity Date, yields for the first two published maturities most closely
corresponding to the Stated Maturity
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Date shall be interpolated and the Adjusted Treasury Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the calculation date or
does not contain such yields, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue, assuming a
price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for such prepayment
date plus, in either case (A) 1.05% if such prepayment date occurs on or prior
to June 1, 1998 and (B) 0.50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity date corresponding to the
Stated Maturity Date that would be utilized at the time of selection and in
accordance with customary financial practice, in pricing new issues of
corporate debt securities with a maturity date corresponding to the Stated
Maturity Date. If no United States Treasury security has a maturity date which
is within three months before or after the Stated Maturity Date, the two most
closely corresponding United States Treasury securities shall be used as the
Comparable Treasury Issue, and the calculation of the Adjusted Treasury Rate
pursuant to clause (ii) of the definition thereof shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means: (i) Smith Barney Inc. and its
successors; provided, however, that if the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Corporation shall substitute therefor another Primary
Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by the
Corporation.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such Business Day, (A) the
average of the Reference Treasury Dealer Quotations for such prepayment date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Debenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any prepayment date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted
in writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such prepayment
date.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Corporation
defaults in payment of the prepayment price, on and after the prepayment date
interest ceases to accrue on such Junior Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount available to pay Distributions then due and payable by the
Trust on the outstanding Capital Securities and Common Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust has become subject as a result of a Tax Event.
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Restrictions on Certain Payments
The Corporation will also covenant that it will not, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem
any debt securities of the Corporation (including Other Debentures) that rank
pari passu with or junior in right of payment to the Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee
by the Corporation of the debt securities of any subsidiary of the Corporation
(including under Other Guarantees) if such guarantee ranks pari passu or
junior in right of payment to the Junior Subordinated Debentures (other than
(a) dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee, (d) the purchase of fractional shares
resulting from a reclassification of the Corporation's capital stock or the
exchange or conversion of one class or series of the Corporation's capital
stock for another class or series of the Corporation's capital stock and (e)
the purchase of fractional interests in shares of the Corporation'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 (1) there shall
have occurred and be continuing a Declaration Event of Default, (2) there
shall have occurred and be continuing a Debenture Event of Default, (3) there
shall have occurred and be continuing a payment default under the Declaration
or the Indenture, (4) if such Junior Subordinated Debentures are held by the
Trust, the Corporation shall be in default with respect to its payment of any
obligations under the Guarantee or (5) the Corporation shall have given notice
of its election of an Extension Period as provided in the Indenture and shall
not have rescinded such notice, and such Extension Period, or any extension
thereof, shall have commenced.
Modification of Indenture
From time to time the Corporation and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated 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 interest of the holders of
Junior Subordinated Debentures) and qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Corporation and the Debenture Trustee, with
the consent of the holders of a majority in principal amount of Junior
Subordinated Debentures, to modify the Indenture in a manner affecting the
rights of the holders of Junior Subordinated Debentures; provided, that no
such modification may, without the consent of the holders of each outstanding
Junior Subordinated Debenture so affected, (i) extend the Stated Maturity
Date, or reduce the principal amount of the Junior Subordinated Debentures or
reduce the rate or extend the time of payment of interest thereon or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures
the holders of which are required to consent to any such modification of the
Indenture.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture 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):
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures or any Other Debentures, when due (subject to the deferral of
any due date in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon redemption, by declaration of acceleration of maturity or
otherwise; or
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(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
the Corporation from the Debenture Trustee or the holders of at least 25%
in aggregate outstanding principal amount of Junior Subordinated
Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the Junior Subordinated Debentures
may declare the principal due and payable immediately upon a Debenture Event
of Default. The holders of a majority in aggregate outstanding principal
amount of the Junior Subordinated Debentures may annul such declaration and
waive the default if the default (other than the nonpayment of the principal
of the Junior Subordinated Debentures which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal (or premium, if any) on or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest (and premium, if any) 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
Junior Subordinated Debenture.
Enforcement of Certain Rights by Holders of Capital Securities
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Corporation to pay interest (or
premium, if any) on or principal of the Junior Subordinated Debentures on the
due date, a holder of Capital Securities may institute a Direct Action. The
Corporation may not amend the Indenture to remove the foregoing right to bring
a Direct Action without the prior written consent of the holders of all of the
Capital Securities. If the right to bring a Direct Action is removed following
the Exchange Offer, the Trust may become subject to the reporting obligations
under the Exchange Act. Notwithstanding any payments made to a holder of
Capital Securities by the Corporation in connection with a Direct Action, the
Corporation shall remain obligated to pay the principal of (or premium, if
any) or interest on the Junior Subordinated Debentures, and the Corporation
shall be subrogated to the rights of the holder of such Capital Securities
with respect to payments on the Capital Securities to the extent of any
payments made by the Corporation to such holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Junior Subordinated Debentures unless there shall have
been an Event of Default under the Trust Agreement. See "--Description of
Exchange Capital Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Corporation shall not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any Person, and no
Person shall consolidate with or merge into the Corporation or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to the Corporation, unless: (i) in case the Corporation
consolidates with or merges into another Person or conveys or transfers 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 the
Corporation's obligations on the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and
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no event which, after notice or lapse of time or both, would become a
Debenture Event of Default, shall have occurred and be continuing; and (iii)
certain other conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
Satisfaction and Discharge
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at maturity within one year, and the Corporation deposits or causes to
be deposited with the Debenture Trustee funds, in trust, for the purpose and
in an amount sufficient to pay and discharge the entire indebtedness on the
Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity Date, as the case may be,
then the Indenture will cease to be of further effect (except as to the
Corporation'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 Corporation will be deemed to have satisfied and discharged
the Indenture.
Subordination
The Indenture provides that the Junior Subordinated Debentures issued
thereunder will be subordinate and junior in right of payment to all Senior
Indebtedness. No payment of principal (including redemption payments),
premium, if any, or interest on the Junior Subordinated Debentures may be made
at any time when (i) any Senior Indebtedness is not paid when due, (ii) any
applicable grace period with respect to such default has ended and such
default has not been cured or waived or ceased to exist, or (iii) the maturity
of any Senior Indebtedness has been accelerated because of a default.
Upon any distribution of assets 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 Corporation, all Senior Indebtedness must be paid
in full before the holders of the Junior Subordinated Debentures are entitled
to receive or retain any payment in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full before the
holders of Junior Subordinated Debentures will be entitled to receive or
retain any payment in respect of the Junior Subordinated Debentures.
"Senior Indebtedness" shall mean all Indebtedness for Money Borrowed,
whether outstanding on the date of execution of the Indenture or thereafter
created, assumed or incurred, unless the terms thereof specifically provide
that it is not superior in right of payment to the Junior Subordinated
Debentures, and any deferrals, renewals or extensions of such Senior
Indebtedness.
"Indebtedness for Money Borrowed" shall mean any obligation of, or any
obligation guaranteed by, the Corporation for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, but shall not include (i) any trade accounts payable in the
ordinary course of business, (ii) any such indebtedness that by its terms
ranks pari passu with or junior in right of payment to the Junior Subordinated
Debentures, (iii) all other debt securities, and guarantees in respect of
those debt securities, issued to any other trust, or a trustee of such trust,
partnership or other entity affiliated with the Corporation that is a
financing vehicle of the Corporation (a "financing entity") in connection with
the issuance by such financing entity of equity securities or other securities
guaranteed by the Corporation pursuant to an instrument that ranks pari passu
with or junior in right of payment to the Guarantee, and (iv) any other
indebtedness that would
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otherwise qualify as "Indebtedness for Money Borrowed" to the extent that such
indebtedness by its terms ranks pari passu with or junior in right of payment
to any of the indebtedness described in (i), (ii) or (iii).
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation expects
from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Restrictions on Transfer
The Exchange Junior Subordinated Debentures will be issued, and may be
transferred only, in blocks having an aggregate principal amount of not less
than $1,000. Any such transfer of Exchange Junior Subordinated Debentures in a
block having an aggregate principal amount of less than $1,000 shall be deemed
to be void and of no legal effect whatsoever. Any such transferee shall be
deemed not to be the holder of such Exchange Junior Subordinated Debentures
for any purpose, including but not limited to the receipt of payments on such
Exchange Junior Subordinated Debentures, and such transferee shall be deemed
to have no interest whatsoever in such Exchange Junior Subordinated
Debentures.
Governing Law
The Indenture and the Exchange Junior Subordinated Debentures will be
governed by and construed in accordance with the laws of the State of New
York.
Information Concerning the Debenture Trustee
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to
all the duties and responsibilities specified with respect to an indenture
trustee under the Trust Indenture Act. Subject to such provisions, the
Debenture Trustee is under no obligation to exercise any of the powers vested
in it by the Indenture at the request of any holder of Junior Subordinated
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.
DESCRIPTION OF EXCHANGE GUARANTEE
The Exchange Guarantee will be executed and delivered by the Corporation
concurrently with the issuance by the Trust of the Exchange Capital Securities
for the benefit of the holders from time to time of the Exchange Capital
Securities. The First National Bank of Chicago will act as Guarantee Trustee
under the Exchange Guarantee. The Exchange Guarantee has been qualified under
the Trust Indenture Act. This summary of certain provisions of the Exchange
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 Exchange Guarantee,
including the definitions therein of certain terms, and the Trust Indenture
Act. The Guarantee Trustee will hold the Exchange Guarantee for the benefit of
the holders of the Exchange Capital Securities.
General
The Corporation will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined
below) to the holders of the Exchange Capital Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert other than the defense of payment. The following payments with
respect to the Exchange Capital Securities, to the extent not paid by or on
behalf of the Trust (the "Guarantee Payments"), will be subject to the
Exchange Guarantee: (i) any accumulated and unpaid Distributions required to
be paid on Exchange Capital Securities, to the extent that the Trust has funds
on hand legally available therefor at such time, (ii) the applicable
Redemption Price with respect to Exchange Capital Securities called for
redemption, to the extent that the Trust has funds on hand legally
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available therefor at such time, or (iii) upon a voluntary or involuntary
termination and liquidation of the Trust, the lesser of (a) the Liquidation
Distribution and (b) the amount of assets of the Trust remaining available for
distribution to holders of Exchange Capital Securities. The Corporation's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Corporation to the holders of the Exchange Capital
Securities or by causing the Trust to pay such amounts to such holders.
The Exchange Guarantee will rank subordinate and junior in right of payment
to all Senior Indebtedness to the extent provided therein. See "--Status of
the Exchange Guarantee." The Exchange Guarantee does not limit the incurrence
or issuance of other secured or unsecured debt of the Corporation, including
Senior Indebtedness, whether under the Indenture, any other indenture that the
Corporation may enter into in the future or otherwise.
The Corporation will, through the Exchange Guarantee, the Trust Agreement,
the Exchange Junior Subordinated Debentures and the Indenture, taken together,
fully, irrevocably and unconditionally guarantee all of the Trust's
obligations under the Exchange Capital Securities.
Status of the Exchange Guarantee
The Exchange Guarantee will constitute an unsecured obligation of the
Corporation and will rank subordinate and junior in right of payment to all
Senior Indebtedness in the same manner as Exchange Junior Subordinated
Debentures.
The Exchange Guarantee will rank pari passu with the Original Guarantee and
all Other Guarantees issued by the Corporation. The Exchange Guarantee will
constitute a guarantee of payment and not of collection (i.e., the guaranteed
party may institute a legal proceeding directly against the Corporation to
enforce its rights under the Exchange Guarantee without first instituting a
legal proceeding against any other person or entity). The Exchange Guarantee
will be held for the benefit of the holders of the Exchange Capital
Securities. The Exchange Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by the Trust or upon
distribution to the holders of the Exchange Capital Securities of the Exchange
Junior Subordinated Debentures. The Exchange Guarantee does not place a
limitation on the amount of additional Senior Indebtedness that may be
incurred by the Corporation. The Corporation expects from time to time to
incur additional indebtedness constituting Senior Indebtedness.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Exchange Capital Securities (in which case no
vote will be required), the Exchange Guarantee may not be amended without the
prior approval of the holders of a majority of the Liquidation Amount of such
outstanding Exchange Capital Securities. The manner of obtaining any such
approval will be as set forth in "--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement." All guarantees
and agreements contained in the Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of the Corporation and shall
inure to the benefit of the holders of the Exchange Capital Securities then
outstanding.
Events of Default
An event of default under the Exchange Guarantee will occur upon the failure
of the Corporation to perform any of its payment or other obligations
thereunder. The holders of a majority in Liquidation Amount of the Exchange
Capital Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Exchange Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Exchange Guarantee.
Any holder of the Exchange Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Exchange Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity.
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The Corporation, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Exchange Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Corporation in performance of the Exchange Guarantee, will
undertake to perform only such duties as are specifically set forth in the
Exchange Guarantee and, after default with respect to the Exchange Guarantee,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee will be under no obligation to exercise any
of the powers vested in it by the Exchange Guarantee at the request of any
holder of the Exchange Capital Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
Termination of the Exchange Guarantee
The Exchange Guarantee will terminate and be of no further force and effect
upon full payment of the applicable Redemption Price of the Exchange Capital
Securities, upon full payment of the Liquidation Amount payable upon
liquidation of the Trust or upon distribution of Exchange Junior Subordinated
Debentures to the holders of the Exchange Capital Securities. The Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any holder of the Exchange Capital Securities must restore payment of
any sums paid under the Exchange Capital Securities or the Exchange Guarantee.
Governing Law
The Exchange Guarantee will be governed by and construed in accordance with
the laws of the State of New York.
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RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE
EXCHANGE JUNIOR SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Exchange Capital
Securities (to the extent the Trust has funds on hand legally available for
the payment of such Distributions) will be irrevocably guaranteed by the
Corporation as and to the extent set forth in "Description of Exchange
Securities--Description of Exchange Guarantee." Taken together, the
Corporation's obligations under the Exchange Junior Subordinated Debentures,
the Indenture, the Trust Agreement and the Exchange Guarantee will provide, in
the aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Exchange Capital Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Exchange Capital Securities. If and to the extent that the Corporation does
not make the required payments on the Exchange Junior Subordinated Debentures,
the Trust will not have sufficient funds to make the related payments,
including Distributions, on the Exchange Capital Securities. The Exchange
Guarantee will not cover any such payment when the Trust does not have
sufficient funds on hand legally available therefor. In such event, the remedy
of a holder of Exchange Capital Securities is to institute a Direct Action.
The obligations of the Corporation under the Exchange Guarantee will be
subordinate and junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Exchange Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Exchange Capital Securities,
primarily because: (i) the aggregate principal amount or Prepayment Price of
the Exchange Junior Subordinated Debentures will be equal to the sum of the
Liquidation Amount or Redemption Price, as applicable, of the Exchange Capital
Securities and Common Securities; (ii) the interest rate and interest and
other payment dates on the Exchange Junior Subordinated Debentures will match
the Distribution rate and Distribution and other payment dates for the Trust
Securities; (iii) the Corporation shall pay for all and any costs, expenses
and liabilities of the Trust except the Trust's obligations to holders of
Trust Securities under such Trust Securities; and (iv) the Trust Agreement
provides that the Trust is not authorized to engage in any activity that is
not consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Exchange Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the Trust or any other person or entity. A default or event of
default under any Senior Indebtedness would not constitute a default or Event
of Default under the Trust Agreement. However, in the event of payment
defaults under, or acceleration of, Senior Indebtedness, the subordination
provisions of the Indenture will provide that no payments may be made in
respect of the Exchange Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Exchange Junior
Subordinated Debentures would constitute an Event of Default under the Trust
Agreement.
LIMITED PURPOSE OF THE TRUST
The Exchange Capital Securities will represent preferred beneficial
interests in the Trust, and the Trust exists for the sole purpose of issuing
and selling the Trust Securities, using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures and engaging in
only those other activities incidental thereto.
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RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary termination and
liquidation of the Trust, the holders of the Trust Securities will be entitled
to receive, out of assets held by the Trust, the Liquidation Distribution in
cash. See "Description of Exchange Securities--Description of Exchange Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of
the Corporation, the Property Trustee, as holder of the Exchange Junior
Subordinated Debentures, would be a subordinated creditor of the Corporation,
subordinated in right of payment to all Senior Indebtedness as set forth in
the Indenture, but entitled to receive payment in full of principal (and
premium, if any) and interest, before any stockholders of the Corporation
receive payments or distributions. Since the Corporation will be the guarantor
under the Exchange Guarantee and will agree to pay for all costs, expenses and
liabilities of the Trust (other than the Trust's obligations to the holders of
its Trust Securities), the positions of a holder of Exchange Capital
Securities and a holder of Exchange Junior Subordinated Debentures relative to
other creditors and to stockholders of the Corporation in the event of
liquidation or bankruptcy of the Corporation are expected to be substantially
the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Perkins Coie, counsel to the Corporation and the Trust
("Tax Counsel"), the following is a summary of certain of the material United
States federal income tax consequences of the exchange of Original Capital
Securities fog Exchange Capital Securities and the ownership and disposition
of Exchange Capital Securities held as capital assets by a holder who
purchased such Original Capital Securities upon initial issuance. It does not
deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, Non-U.S. Holder's (as
defined below) engaged in a trade or business within the United States,
insurance companies, dealers in securities or currencies, tax-exempt investors
(including pension funds), or persons that will hold the Capital 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 or the
tax consequences to shareholders, partners or beneficiaries of a holder of
Capital Securities. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the Capital
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations thereunder (the "Regulations") and
the administrative and judicial interpretations thereof, as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Original Securities for Exchange Securities should not be a
taxable event to holders for United States federal income tax purposes. The
exchange of Original Securities for Exchange Securities pursuant to the
Exchange Offer should not be treated as an "exchange" for United States
federal income tax purposes because the Exchange Securities should not be
considered to differ materially in kind or extent from the Original Securities
and because the exchange will occur by operation of the terms of the Original
Securities. Accordingly, the Exchange Capital Securities should have the same
issue price as the Original Capital Securities, and a holder should have the
same adjusted tax basis and holding period in the Exchange Capital Securities
as the holder had in the Original Capital Securities immediately before the
exchange. Moreover, a holder which had acquired Original Capital Securities
with either market discount or bond premium will be treated as holding
Exchange Capital Securities with the same amount of market discount or bond
premium and will be required to include such market discount in or deduct such
bond premium from their income in the same manner as on the Original Capital
Securities. Holders are urged to consult their tax advisors regarding the
applicability of the market discount and bond premium rules.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Corporation intends to, and by acceptance of an Original Capital
Security each holder covenanted to, treat the Junior Subordinated Debentures
as debt for U.S. federal income tax purposes. In connection with the issuance
of the Original Junior Subordinated Debentures, Tax Counsel rendered its
opinion generally to the effect that, under the law in effect at the time of
issuance of the Original Junior Subordinated Debentures and assuming full
compliance with the terms of the Indenture (and the related documents), and
based on certain facts and assumptions contained in such opinion and certain
representations of the Corporation to Tax Counsel, the Original Junior
Subordinated Debentures will be classified for United States federal income
tax purposes as indebtedness of the Corporation. An opinion of Tax Counsel,
however, is not binding on the Internal Revenue Service (the "IRS") or the
courts. Prospective investors should note that no rulings have been or are
expected to be sought from the IRS with respect to any of these issues and no
assurance can be given that the IRS will not take contrary positions.
Moreover, no assurance can be given that any of the opinions expressed herein
will not be challenged by the IRS or, if challenged, that such a challenge
would not be successful.
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CLASSIFICATION OF THE TRUST
In connection with the issuance of the Original Capital Securities, Tax
Counsel rendered its opinion generally to the effect that, under the law then
in effect and assuming full compliance with the terms of the Trust Agreement
and the Indenture (and the related documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Capital Securities (and not the Trust)
generally will be considered the owner of an undivided interest in the Junior
Subordinated Debentures, and each holder will be required to include in its
gross income any interest (or OID accrued) with respect to its allocable share
of those Junior Subordinated Debentures.
Even if the Trust were to be denied grantor trust status, it would not be
treated as a corporation for U.S. federal income tax purposes under the
recently finalized "check-the-box" Regulations, which provide that, if there
is no election to the contrary, a trust that has multiple beneficiaries and
that is treated as a "business entity" will be classified as a partnership for
federal income tax purposes. If the Trust were so characterized, there would
be no material difference in the federal income tax treatment of the holders
(other than possibly the Non-U.S. Holders as described below under "Non-U.S.
Holders")
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under certain Regulations applicable to debt instruments, a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Corporation has
represented that the likelihood of its exercising its option to defer payments
of interest is "remote" since exercising that option would prevent the
Corporation from declaring dividends on any class of its equity securities.
Accordingly, the Corporation intends to take the position, based on the advice
of Tax Counsel in reliance on such representation, that the Junior
Subordinated Debentures will not be considered to be issued with OID and,
accordingly, stated interest on the Junior Subordinated Debentures generally
will be taxable to a holder as ordinary income at the time it is paid or
accrued in accordance with such holder's method of accounting.
Under the Regulations, if the Corporation were to exercise its option to
defer payments of interest, the Junior Subordinated Debentures would at that
time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID as long as the
Junior Subordinated Debentures remain outstanding. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would thereafter be accounted for on an economic accrual basis
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income. Consequently, a
holder of Capital Securities would be required to include in gross income OID
even though the Corporation would not make actual cash payments during an
Extension Period. Moreover, under the Regulations, if the option to defer the
payment of interest was determined not to be "remote," the Junior Subordinated
Debentures would be treated as having been originally issued with OID. In such
event, all of a holder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for on an economic accrual basis
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to Tax Counsel's interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with
respect to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST
The Corporation will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities. Under current law, such a distribution, for
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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 Junior Subordinated Debentures equal to such holder's aggregate tax basis
in its Capital Securities. A holder's holding period in the Junior
Subordinated Debentures so received in liquidation of the Trust would include
the period during which the Capital Securities were held by such holder. If,
however, as a result of a change in law the Trust were characterized for
United States federal income tax purposes as an association taxable as a
corporation at the time of its dissolution, the distribution of the Junior
Subordinated Debentures may constitute a taxable event to holders of Capital
Securities and a holder's holding period in Junior Subordinated Debentures
would begin on the date such Junior Subordinated Debentures were received.
Under certain circumstances described herein (see "Description of Exchange
Securities--Description of Exchange Capital Securities"), the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Capital Securities.
Under current law, such a redemption would, for United States federal income
tax purposes, constitute a taxable disposition of the redeemed Capital
Securities, and a holder could recognize gain or loss as if it sold such
redeemed Capital Securities for cash. See "Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and
the amount realized on the sale of such Capital Securities (other than with
respect to accrued and unpaid interest, OID, or market discount which has not
yet been included in income, which will be treated as ordinary income). A
holder's adjusted tax basis in the Capital Securities generally will be its
initial purchase price increased by OID (if any) previously includable in such
holder's gross income to the date of disposition and decreased by payments (if
any) received on the Capital Securities in respect of OID. Such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Capital Securities have been held for more than
one year.
The Taxpayer Relief Act of 1997 reduces the maximum rims on long-term
capital gains recognized on capital assets held by individual taxpayers for
more than 18 months as of the date of disposition (and would further reduce
the maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions) Holders should consult
their own tax advisors concerning these tax law changes.
The Capital Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who uses the accrual method of accounting
for tax purposes (and a cash method holder, if the Junior Subordinated
Debentures are deemed to have been issued with OID) which disposes of its
Capital Securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than
the holder's adjusted tax basis (which will include all accrued but unpaid
interest) a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
PROPOSED TAX LEGISLATION
On February 6, 1997, President's Clinton proposed legislation that, among
other things, would have denied an issuer a deduction for United States
federal income tax purposes for the payment of interest on instruments with
characteristics similar to the Junior Subordinated Debentures. The Taxpayer
Relief Act of 1997, enacted on August 7, 1997, did not contain these
provisions. There can be no assurance, however, that the Proposed Legislation
or similar legislation, if enacted after the date hereof, would not adversely
affect the tax treatment of the Junior Subordinated Debentures or that any
legislation enacted after the date hereof would not cause a Tax Event that may
result in a redemption of the Junior Subordinated Debentures at the Tax Event
Prepayment Price and, consequently, the Trust Securities. See "Description of
Exchange Securities--Description of Exchange
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Capital Securities--Redemption" and "Description of Exchange Securities--
Description of Exchange Junior Subordinated Debentures--Tax Event Prepayment."
NON-U.S. HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" is any holder that is
not a U.S. Holder for United States federal income tax purposes. A "U.S.
Holder" is a holder of Capital Securities who or which is a citizen or
individual resident (or is treated as a citizen or individual resident) of the
United States for federal income tax purposes, a corporation or partnership
created or organized (or treated as created or organized for federal income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, or a trust or estate the income of which is includable in
its gross income for federal income tax purposes without regard to its source.
For taxable years beginning after December 31, 1996 (or for the immediately
preceding taxable year, if the trustee of a trust so elects), a trust is a
U.S. Holder for federal income tax purposes if, and only if, (i) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more United States trustees have
the authority to control all substantial decisions of the trust.
Under present United States federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a Non-U.S. Holder will not be subject to United States federal
withholding tax; provided that, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of stock of the Corporation
entitled to vote, (b) the beneficial owner of the Capital Security is not a
controlled foreign corporation that is related to the Corporation through
stock ownership, and (c) the beneficial owner of the Capital Securities is not
a bank whose receipt of interest with respect to the Capital Securities (or
the Junior Subordinated Debentures) is described in Section 881(c)(3)(A) of
the Code and (d) either (1) the beneficial owner of the Capital Security
certifies to the Trust or its agent, under penalties of perjury, that it is
not a U.S. Holder and provides its name and address or (2) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), and holds the Capital 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 between it and the beneficial owner and furnishes the Trust or its
agent with a copy thereof; and (ii) a Non-U.S. Holder of a Capital Security
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Capital Security.
If the Trust were to be denied grantor trust status and instead were to be
treated as a trade or business conducted as a partnership for U.S. federal
income tax purposes, it is possible that a Non-U.S. Holder could be subject to
federal income tax (including withholding) with respect to income (including
OID) generated by the Junior Subordinated Debentures.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States federal income tax, provided
the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
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RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (a) employee benefit plans
(as defined in Section 3(3) of ERISA) subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (b) plans (as
defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the
Code, including individual retirement accounts and Keogh Plans, (c) entities
whose underlying assets include plan assets by reason of a plan's investment
in such entities (each of (a), (b) and (c), a "Plan") and (d) persons who have
certain specified relationships to such Plans ("Parties in Interest" under
ERISA and "Disqualified Persons" under the Code). Moreover, based on the
reasoning of the United States Supreme Court in John Hancock Mutual Life
Insurance Co. v. Harris Trust and Savings Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include the assets of the
Plans investing in the general account (e.g., through the purchase of an
annuity contract), and the insurance company might be treated as a Party In
Interest and a Disqualified Person with respect to such Plans by virtue of
such investment. ERISA also imposes certain duties on persons who are
fiduciaries of Plans, and both ERISA and the Code prohibit certain
transactions involving "plan assets" between a Plan and Parties in Interest or
Disqualified Persons with respect to such Plans.
Each of the Corporation (the obligor with respect to the Exchange Junior
Subordinated Debentures held by the Trust), the Property Trustee and the
affiliates of either of them may be considered a Party in Interest or a
Disqualified Person with respect to many Plans. The purchase and/or holding of
Exchange Capital Securities by (or on behalf of) a Plan with respect to which
the Corporation, the Property Trustee or any affiliate of either of them is a
service provider (or otherwise is a Party in Interest or a Disqualified
Person) may constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code, unless such Exchange Capital Securities are acquired
and held pursuant to and in accordance with an applicable exemption, such as
Prohibited Transaction Class Exemption ("PTCE") 84-14 (an exemption for
certain transactions determined by an independent qualified professional asset
manager), PTCE 91-38 (an exemption for certain transactions involving bank
collective investment funds), PTCE 90-1 (an exemption for certain transactions
involving insurance company pooled separate accounts), PTCE 95-60 (an
exemption for transactions involving certain insurance company general
accounts), or PTCE 96-23 (an exemption for certain transactions determined by
an in-house asset manager).
A Plan fiduciary considering the purchase of Exchange Capital Securities
should also be aware that the assets of the Trust may be considered "plan
assets" for ERISA purposes. In such event, service providers with respect to
the assets of the Trust may become Parties in Interest or Disqualified Persons
with respect to investing Plans, and any discretionary authority exercised
with respect to the Junior Subordinated Debentures by such persons could be
deemed to constitute a prohibited transaction under ERISA or the Code. In
order to minimize the likelihood that such prohibited transactions will occur,
each investing Plan (and each person acting on behalf of, or investing with
the assets of, a Plan), by purchasing the Exchange Capital Securities, will be
deemed to have directed the Trust to invest in the Exchange Junior
Subordinated Debentures and to have appointed the Property Trustee. However,
none of the Corporation, the Property Trustee or any affiliate of either of
them can guaranty that such prohibited transactions will not occur.
Any purchaser proposing to acquire Exchange Capital Securities with assets
of any Plan should consult with its legal counsel concerning the impact of
ERISA and the Code and the potential consequences of acquisition and holding
Exchange Capital Securities with respect to their specific circumstances.
Moreover, each Plan
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fiduciary should take into account, among other considerations, whether the
fiduciary has the authority to make the investment; the composition of the
Plan's portfolio with respect to diversification by type of asset; the Plan's
funding objectives; the tax effects of the investment; whether under the
general fiduciary standards of investment prudence and diversification an
investment in the Exchange Capital Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio; and whether the Exchange
Capital Securities will be traded with sufficient regularity to permit such
fiduciary to satisfy ERISA's annual valuation requirement.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Capital Securities.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of Exchange Capital
Securities received in exchange for Original Capital Securities where such
Original Capital Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Trust and the
Corporation have agreed that, starting on the Expiration Date and ending on
the close of business on the 180th day following the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale. In addition, until July 6,
1998, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.
The Trust and the Corporation will not receive any proceeds from any sale of
Exchange Capital Securities by broker-dealers. Exchange Capital Securities
received by broker-dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions, in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Capital Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such Exchange Capital Securities. Any
broker-dealer that resells Exchange Capital Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit of any such resale of Exchange Capital Securities and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Trust and the
Corporation will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Trust and the Corporation
have agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Capital Securities) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Capital Securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
VALIDITY OF EXCHANGE SECURITIES
The validity of the Exchange Capital Securities, the Exchange Guarantee and
the Exchange Junior Subordinated Debentures will be passed upon for the
Corporation by Perkins Coie, Seattle, Washington. Certain matters of Delaware
law relating to the validity of the Capital Securities will be passed upon on
behalf of the Trust by Skadden, Arps, Slate, Meagher & Flom LLP, as special
Delaware counsel to the Trust. Certain matters relating to United States
federal income tax considerations will be passed upon for the Corporation by
Perkins Coie.
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EXPERTS
The consolidated financial statements and financial statement schedule of
the Corporation at December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, incorporated by reference in this
Prospectus and the Registration Statement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., given on the authority of
that firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER 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 ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Forward-Looking Information.............................................. 5
Available Information.................................................... 5
Incorporation of Certain Documents by Reference.......................... 6
Prospectus Summary....................................................... 7
Risk Factors............................................................. 15
Puget Sound Energy, Inc.................................................. 20
Use of Proceeds.......................................................... 21
Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends............................. 21
Capitalization........................................................... 22
Selected Financial Data.................................................. 23
Puget Sound Energy Capital Trust I....................................... 24
The Exchange Offer....................................................... 25
Description of Exchange Securities....................................... 35
Relationship Among the Exchange Capital Securities, the Exchange Junior
Subordinated Debentures and the Exchange Guarantee...................... 56
Certain Federal Income Tax Consequences.................................. 58
ERISA Considerations..................................................... 62
Plan of Distribution..................................................... 63
Validity of Exchange Securities.......................................... 63
Experts.................................................................. 64
</TABLE>
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PUGET SOUND ENERGY CAPITAL TRUST I
OFFER TO EXCHANGE ITS
8.231% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF
1933 FOR ANY AND ALL OF ITS OUTSTANDING
8.231% ORIGINAL CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER ORIGINAL CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
PUGET SOUND ENERGY, INC.
[P.S.E. LOGO]
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PROSPECTUS
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DECEMBER 1, 1997
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