<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1998.
REGISTRATION NOS. 333-63447 AND 333-63447-01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ATLANTIC CITY ELECTRIC COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 21-0398280
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ATLANTIC CAPITAL II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE
(STATE OR OTHER JURISDICTION OF 51-0384721
(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
800 KING STREET
P.O. BOX 231
WILMINGTON, DELAWARE 19899
(302) 429-3011
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BARBARA S. GRAHAM
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
800 KING STREET
P.O. BOX 231
WILMINGTON, DELAWARE 19899
(302) 429-3448
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
IT RESPECTFULLY IS REQUESTED THAT THE COMMISSION
SEND COPIES OF ALL NOTICES, ORDERS AND COMMUNICATIONS TO:
VINCENT PAGANO, JR., ESQ. KEVIN STACEY, ESQ.
SIMPSON THACHER & BARTLETT THELEN REID & PRIEST LLP
425 LEXINGTON AVENUE 40 WEST 57TH STREET
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10019
212-455-2000 212-603-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
(Subject to Completion, Issued 1998)
1,000,000 Preferred Securities
Atlantic Capital II
% CUMULATIVE TRUST PREFERRED CAPITAL SECURITIES
(Liquidation Amount $25 per Preferred Security)
Fully and Unconditionally Guaranteed to the extent described herein by
Atlantic City Electric Company
----------
The % Cumulative Trust Preferred Capital Securities (the "Preferred
Securities") offered hereby are being issued by and represent undivided
beneficial ownership interests in the assets of Atlantic Capital II ("Atlantic
Capital"), a statutory business trust created under the laws of the State of
Delaware. Atlantic City Electric Company (the "Company"), a New Jersey
corporation, will be the owner, directly or indirectly, of the undivided
beneficial interests in the assets represented by common securities of Atlantic
Capital (the "Common Securities," together with the Preferred Securities herein
referred to as the "Trust Securities"). The Bank of New York is the Property
Trustee (the "Property Trustee") of Atlantic Capital. Atlantic Capital exists
for the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in % Junior Subordinated Debentures, Series I, Due 2028, to be
issued by the Company (the "Subordinated Debentures") in an aggregate principal
amount equal to the aggregate liquidation amount of the Trust Securities. The
Preferred Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption or
otherwise over the Common Securities. See "Description of the Preferred
Securities--Subordination of Common Securities."
(continued on following page)
----------
SEE "RISK FACTORS," BEGINNING ON PAGE 9, FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
PREFERRED SECURITIES MAY BE DEFERRED AND CERTAIN RELATED UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES.
----------
Application has been made to list the Preferred Securities on the New York
Stock Exchange. Trading of the Preferred Securities on the New York Stock
Exchange is expected to commence within a thirty-day period after the date of
this Prospectus. See "Underwriting."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND ATLANTIC
PUBLIC(1) COMMISSIONS(2) CAPITAL(3)(4)
----------- -------------- --------------
<S> <C> <C> <C>
Per Preferred Security.............. $25.00 (3) $25.00
Total............................... $25,000,000 (3) $25,000,000
</TABLE>
- -----
(1) Plus accrued distributions, if any, from , 1998.
(2) Atlantic Capital and the Company have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "1933 Act"). See
"Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures, the
Company has agreed, in the Underwriting Agreement, to pay to the
Underwriters, as compensation for their services, $ per Preferred
Security (or $ in the aggregate); provided that such compensation
will be $ per Preferred Security sold to certain institutions. See
"Underwriting."
(4) Expenses of the offering, which are payable by the Company, are
estimated to be $316,550.
----------
The Preferred Securities are offered, subject to prior sale, when, as and if
accepted by the Underwriters and subject to approval of certain legal matters
by Thelen Reid & Priest LLP, counsel for the Underwriters. It is expected that
delivery of the Preferred Securities will be made on or about , 1998
through the book-entry facilities of The Depository Trust Company against
payment therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
LEGG MASON WOOD WALKER
INCORPORATED WHEAT FIRST UNION
, 1998
<PAGE>
(Continued from previous page)
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions accruing from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing December 31, 1998, at the per annum rate of % of the
liquidation amount of $25 per Preferred Security (together, at any given time,
with any accrued but unpaid amounts and interest thereon, if any,
"Distributions"). Interest on the Subordinated Debentures is the sole source
of income for Atlantic Capital from which payment of Distributions on the
Preferred Securities can be made. The Company has the right to defer payments
of interest on the Subordinated Debentures by extending the interest payment
period thereon at any time or from time to time for up to 20 consecutive
quarters with respect to each deferral period (each, an "Extension Period");
provided that no such Extension Period may extend beyond the maturity of the
Subordinated Debentures. Prior to the end of an Extension Period the Company
may, and at the end of such Extension Period the Company shall, pay all
interest then accrued and unpaid (together with interest thereon at the stated
rate borne thereby, compounded quarterly to the extent permitted by applicable
law). Upon the termination of any Extension Period and the payment of all
amounts then due, including interest on deferred interest payments, the
Company may elect a new Extension Period, subject to the above requirements.
See "Description of the Subordinated Debentures--Option to Extend Interest
Payment Period."
If interest payments on the Subordinated Debentures are deferred,
Distributions on the Preferred Securities also will be deferred and the
Company will not be permitted, to (i) declare or pay dividends or
distributions on (other than dividends or distributions paid in shares of
Common Stock of the Company) or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, or (ii) make
any payment of principal of, interest or premium, if any, on, or repay,
repurchase or redeem any indebtedness that is pari passu with the Subordinated
Debentures (including other Debt Securities, as defined under "Description of
Subordinated Debentures--General") or make any guarantee payment with respect
to such indebtedness. During an Extension Period, interest on the Subordinated
Debentures will continue to accrue and, as a result, Distributions on the
Preferred Securities will continue to accumulate at the per annum rate of %
(to the extent permitted by applicable law, compounded quarterly). During an
Extension Period, holders of Preferred Securities will be required to accrue
interest income (in the form of original issue discount ("OID")) for United
States federal income tax purposes in advance of receipt of cash related to
such interest income. See "Description of the Preferred Securities--
Distributions" and "Certain United States Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
The payment of Distributions and payments on the liquidation of Atlantic
Capital or the redemption of the Preferred Securities are guaranteed by the
Company to the extent that Atlantic Capital has sufficient funds available to
make such payments (the "Guarantee"). See "Description of the Guarantee." If
the Company fails to make interest payments on the Subordinated Debentures to
Atlantic Capital, Atlantic Capital will have insufficient funds to pay
Distributions on the Preferred Securities. In such event, a Holder of
Preferred Securities may institute a legal proceeding directly against the
Company to enforce payment to such Holder of the principal of or interest on
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such Holder. The Company's
obligations under the Guarantee and the Subordinated Debentures are unsecured
and rank subordinate and junior in right of payment to Senior Indebtedness (as
defined under "Description of the Subordinated Debentures--Subordination") of
the Company. Pursuant to the Indenture, the Company, as borrower, has agreed
to pay the obligations of Atlantic Capital (other than with respect to the
Trust Securities). The Subordinated Debentures and the Guarantee, together
with the obligations of the Company with respect to the Preferred Securities
2
<PAGE>
under the Indenture and the Trust Agreement (as defined under "Atlantic
Capital"), constitute a full and unconditional guarantee of the Preferred
Securities by the Company.
The Trust Securities are subject to mandatory redemption upon repayment of
the Subordinated Debentures at maturity or upon their earlier redemption. Any
redemption of Trust Securities by Atlantic Capital will be in amounts having
an aggregate liquidation amount equal to the aggregate principal of
Subordinated Debentures to be redeemed and will be at a redemption price equal
to 100% of such liquidation amount, plus accrued and unpaid Distributions, if
any, to the redemption date (the "Redemption Price"). See "Description of the
Preferred Securities--Redemption." The Company will have the option at any
time on or after , 2003, to redeem the Subordinated Debentures, in whole or
in part. The Company also will have the option, upon the occurrence and during
the continuation of a Special Event (as defined under "Description of the
Preferred Securities--Special Event Redemption or Distribution"), (i) to
redeem the Subordinated Debentures, in whole but not in part, which will
result in the redemption of all of the Trust Securities by Atlantic Capital or
(ii) to cause the termination of Atlantic Capital and, in connection
therewith, after satisfaction of all amounts due to creditors of Atlantic
Capital, if any, to cause the distribution of Subordinated Debentures to the
Holders of the Trust Securities. If the Subordinated Debentures are
distributed to the Holders of the Trust Securities, the Company will use its
best efforts to have the Subordinated Debentures listed on the New York Stock
Exchange ("NYSE") or on such other exchange as the Preferred Securities then
are listed. See "Description of the Preferred Securities--Special Event
Redemption or Distribution."
The Subordinated Debentures are unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of the Company. The terms of the
Subordinated Debentures place no limitation on the amount of Senior
Indebtedness that may be incurred by the Company. As of June 30, 1998, the
Company had approximately $846,540,000 of principal amount of indebtedness for
borrowed money and capital lease obligations constituting Senior Indebtedness.
See "Description of the Subordinated Debentures--Subordination."
In the event of the liquidation of Atlantic Capital, the Holders of the
Trust Securities will be entitled to receive either (i) Subordinated
Debentures in an aggregate principal amount of $25 per Trust Security or (ii)
a liquidation amount of $25 per Trust Security, plus accrued and unpaid
Distributions thereon to the date of payment, subject to certain limitations.
See Description of the "Preferred Securities--Liquidation Distribution upon
Termination."
The Preferred Securities will be represented by a global certificate
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Preferred Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described herein, Preferred Securities in
certificated form will not be issued in exchange for the global certificate.
See "Description of the Preferred Securities--Book-Entry Only Issuance--The
Depository Trust Company."
3
<PAGE>
NO DEALER, SALESMAN 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 THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ATLANTIC
CAPITAL, THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR A SOLICITATION BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT
PREFERRED SECURITIES AND BID FOR, AND PURCHASE, THE PREFERRED SECURITIES IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 5
SUMMARY INFORMATION........................................................ 6
SELECTED FINANCIAL INFORMATION OF ATLANTIC CITY ELECTRIC COMPANY........... 8
RISK FACTORS............................................................... 9
THE COMPANY................................................................ 12
ATLANTIC CAPITAL........................................................... 12
USE OF PROCEEDS............................................................ 12
ACCOUNTING TREATMENT....................................................... 12
DESCRIPTION OF THE PREFERRED SECURITIES.................................... 13
DESCRIPTION OF THE GUARANTEE............................................... 23
DESCRIPTION OF THE SUBORDINATED DEBENTURES................................. 25
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...................... 33
VALIDITY OF THE SECURITIES................................................. 37
UNDERWRITING............................................................... 38
EXPERTS.................................................................... 39
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 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 filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Additionally, such material may be accessed at the Commission's website
(http://www.sec.gov). Certain securities of the Company are listed on the
NYSE, and reports and other information concerning the Company may be
inspected and copied at the office of the NYSE.
This Prospectus constitutes a part of a Registration Statement filed by the
Company and Atlantic Capital with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement in accordance with the
rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and the related exhibits for further information with
respect to the Company, Atlantic Capital and the Preferred Securities.
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.
No separate financial statements of Atlantic Capital are included herein.
The Company considers that such financial statements would not be material to
Holders of the Preferred Securities because the Company is a reporting company
under the 1934 Act and Atlantic Capital has no independent operations, but
exists for the sole purpose of issuing the Trust Securities and holding as
trust assets the Subordinated Debentures.
It is anticipated that Atlantic Capital will not be subject to the reporting
requirements under the 1934 Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to the 1934 Act, are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
2. The Company's Quarterly Report on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998;
3. The Company's Current Reports on Form 8-K dated February 27, 1998, March
3, 1998, March 5, 1998 and September 18, 1998.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the termination of
the offering made by this Prospectus shall be deemed to be incorporated by
reference in this Prospectus and shall be a part hereof from the date of
filing of such document. The documents that are incorporated or deemed to be
incorporated by reference in this Prospectus are referred to sometimes
hereinafter as the "Incorporated Documents."
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any
document referred to above which has been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference into such documents).
Requests for such copies should be directed to: Stephanie M. Scola, Manager of
Capital Markets, Atlantic City Electric Company, 800 King Street, P.O. Box
231, Wilmington, Delaware 19899, telephone number (302) 429-3931.
5
<PAGE>
SUMMARY INFORMATION
The following is a summary of certain information contained herein and should
be read in conjunction with such information contained elsewhere in this
Prospectus and is subject to and qualified by reference to such information.
Capitalized terms used herein have the respective meanings ascribed to them
elsewhere in this Prospectus.
GENERAL
The Preferred Securities represent undivided beneficial ownership interests
in the assets of Atlantic Capital and will have a preference under certain
circumstances with respect to Distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. The sole assets of Atlantic
Capital will be the Subordinated Debentures. The Subordinated Debentures are
unsecured subordinated debt securities issued under an Indenture (the
"Indenture") between the Company and The Bank of New York, as trustee (the
"Debenture Trustee").
DISTRIBUTIONS
Holders of the Preferred Securities will be entitled to receive cumulative
cash Distributions accruing from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing December 31, 1998, at the per annum rate set forth on the
cover page of this prospectus to the persons in whose names the Preferred
Securities are registered at the close of business on the relevant record
dates.
Atlantic Capital will hold Subordinated Debentures in an aggregate principal
amount equal to the liquidation amount of the Trust Securities. Atlantic
Capital will use interest payments on the Subordinated Debentures to make
Distributions on the Preferred Securities. The Subordinated Debentures are
unsecured and rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period thereon for Extension
Periods of up to 20 consecutive quarters with respect to each deferral period;
provided, however, that no Extension Period may extend beyond the maturity of
the Subordinated Debentures. If interest payments on the Subordinated
Debentures are deferred, Distributions on the Preferred Securities also will be
deferred and the Company will not be permitted, to (i) declare or pay dividends
or distributions on (other than dividends or distributions paid in shares of
Common Stock of the Company) or redeem, purchase, acquire or make a liquidation
payment with respect to, any of its capital stock, or (ii) make any payment of
principal of, interest or premium, if any, on, or repay, repurchase or redeem
any indebtedness that is pari passu with the Subordinated Debentures (including
other Debt Securities, as defined herein) or make any guarantee payment with
respect to such indebtedness. During an Extension Period, interest on the
Subordinated Debentures will continue to accrue and, as a result, Distributions
on the Preferred Securities will accumulate at the per annum rate set forth on
the cover page of this Prospectus (to the extent permitted by applicable law,
compounded quarterly), and Holders of Preferred Securities will be required to
accrue interest income for United States federal income tax purposes in the
form of OID in advance of receipt of cash related to such interest income. Upon
the termination of any Extension Period and the payment of all amounts then
due, the Company may elect another Extension Period subject to the requirements
set forth above.
REDEMPTION
The Preferred Securities are subject to mandatory redemption upon repayment
of the Subordinated Debentures at maturity or upon their earlier redemption.
The Subordinated Debentures are redeemable, at the
6
<PAGE>
option of the Company, in whole or in part, on or after , 2003, or, in whole
but not in part, upon the occurrence of a Special Event and in certain other
circumstances. See "Description of the Preferred Securities--Redemption and--
Special Event Redemption or Distribution" and "Description of the Subordinated
Debentures--Optional Redemption."
No sinking fund will be established for the benefit of the Preferred
Securities.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence and during the continuation of a Special Event, the
Company has the option to (i) redeem the Subordinated Debentures, in whole but
not in part, and therefore cause a mandatory redemption of all of the Trust
Securities at the Redemption Price within 90 days following the occurrence of
such Special Event or (ii) cause the termination of Atlantic Capital, subject,
in the case of a Tax Event (as defined under "Description of the Preferred
Securities--Special Event Redemption or Distribution"), to receipt of a No
Recognition Opinion (as defined under "Description of the Preferred
Securities--Special Event Redemption or Distribution") and in connection
therewith, after the satisfaction of all amounts due to creditors of Atlantic
Capital, if any, cause the Subordinated Debentures to be distributed to the
Holders of the Trust Securities on a pro rata basis. If the Subordinated
Debentures are distributed to the Holders of the Preferred Securities, the
Company will use its best efforts to have the Subordinated Debentures listed on
the NYSE or on such other exchange as the Preferred Securities are then listed.
See "Description of the Preferred Securities--Special Event Redemption or
Distribution."
THE GUARANTEE
The payment of Distributions and payments on the liquidation of Atlantic
Capital or the redemption of Preferred Securities are guaranteed by the Company
to the extent that Atlantic Capital has sufficient funds available therefor.
See "Description of the Guarantee."
LISTING
Application has been made to list the Preferred Securities on the NYSE.
Trading of the Preferred Securities on the NYSE is expected to commence within
a 30-day period after the date of this Prospectus.
USE OF PROCEEDS
The proceeds to be received by Atlantic Capital from the sale of the
Preferred Securities will be used to purchase Subordinated Debentures of the
Company. The Company expects to use the proceeds of such purchase to repay
short-term debt incurred by the Company in order to purchase from Conectiv
shares of the Company's preferred stock tendered in connection with Conectiv's
Offer to Purchase, which expired on October 14, 1998. To the extent the
proceeds are not immediately so used, they may be invested temporarily in
short-term interest-bearing obligations. See "Use of Proceeds."
7
<PAGE>
SELECTED FINANCIAL INFORMATION OF ATLANTIC CITY ELECTRIC COMPANY
(THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES)
Presented below is selected audited consolidated financial information for
the Company for the years ended December 31, 1993 through 1997 as well as
unaudited information for the twelve months ended June 30, 1998. The
consolidated financial information is not necessarily indicative of the results
for any future period and is qualified in its entirety by the detailed
information available in the Company's reports as described under
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $1,078,825 $1,084,890 $989,647 $954,783 $913,226 $865,799
Net Income(1)........... 45,276 85,747 75,017 98,752 93,174 109,026
Ratio of Earnings to
Fixed Charges(1)....... 2.00 2.83 2.58 3.19 3.07 3.37
Ratio of Earnings to
Fixed Charges and
Preferred
Dividends(2)........... 1.84 2.58 2.16 2.43 2.26 2.47
</TABLE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of June 30, 1998 and as adjusted to give effect to the consummation of the
offering of the Preferred Securities offered hereby. The following data should
be read in conjunction with the Company's reports filed with the Commission
under the Exchange Act. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------
ACTUAL AS ADJUSTED
----------------- --------------------
OUTSTANDING RATIO OUTSTANDING RATIO
----------- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Long-Term Debt(3)................... $ 849,402 49.6% $ 849,402 49.6%
Cumulative Preferred Stock --
Subject to Mandatory Redemption.... 23,950 1.4 23,950 1.4
--Not Subject to Mandatory
Redemption........................ 30,000 1.8 6,277(4) 0.4(4)
Cumulative Quarterly Preferred
Securities......................... 70,000 4.1 95,000 5.5
Common Equity....................... 738,513 43.1 738,513 43.1
---------- ----- ---------- -----
Total Capitalization................ $1,711,865 100.0% $1,713,142 100.0%
========== ===== ========== =====
</TABLE>
- --------
(1) Net income for the twelve months ended June 30, 1998 was decreased by $44.6
million ($70.1 million before taxes) due to charges for employee separation
programs, termination of certain employee benefit plans, and other Merger-
related costs.
(2) For the twelve months ended June 30, 1998, excluding $70.1 million of pre-
tax charges for employee separation programs, termination of certain
employee benefit plans, and other Merger-related costs, the ratio of
earnings to fixed charges is 2.96 and the ratio of earnings to fixed
charges and preferred dividends is 2.73.
(3) Includes current portion.
(4) Reflects shares retired pursuant to Conectiv's Offer to Purchase. See "Use
of Proceeds".
8
<PAGE>
RISK FACTORS
Prospective purchasers of Preferred Securities should review carefully the
information contained elsewhere herein and should particularly consider the
following risk factors with respect to the Preferred Securities:
SUBORDINATION OF THE GUARANTEE AND THE SUBORDINATED DEBENTURES
The Company's obligations under the Guarantee and the Subordinated
Debentures are unsecured and rank subordinate and junior in right of payment
to Senior Indebtedness of the Company, except any liabilities that may be made
pari passu expressly by their terms. See "Description of the Guarantee--Status
of the Guarantee" and "Description of the Subordinated Debentures--
Subordination." As of June 30, 1998, Senior Indebtedness of the Company
aggregated approximately $846,540,000. There are no terms of the Preferred
Securities, the Guarantee or the Subordinated Debentures that limit the
Company's ability to incur additional indebtedness, including indebtedness
that would rank senior to the Guarantee and the Subordinated Debentures.
The ability of Atlantic Capital to pay amounts due on the Preferred
Securities is solely dependent upon the Company making payments on the
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
The Company has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period thereon for Extension
Periods of up to 20 consecutive quarters with respect to each deferral period;
provided that no Extension Period may extend beyond the maturity of the
Subordinated Debentures. Prior to the end of an Extension Period, the Company
may, and at the end of such Extension Period the Company shall, pay all
interest then accrued and unpaid (together with interest thereon at the stated
rate borne thereby, compounded quarterly to the extent permitted by applicable
law). Upon the termination of any Extension Period and the payment of all
amounts then due, including interest on deferred interest payments, the
Company may select a new Extension Period, subject to the above requirements.
If interest payments on the Subordinated Debentures are deferred,
Distributions on the Preferred Securities also will be deferred and the
Company will not be permitted, subject to certain exceptions set forth herein,
to (i) declare or pay dividends or distributions on (other than dividends or
distributions paid in shares of Common Stock of the Company) or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock, or (ii) make any payment of principal of, interest or premium,
if any, on, or repay, repurchase or redeem any indebtedness that is pari passu
with the Subordinated Debentures (including other Debt Securities) or make any
guarantee payment with respect to such indebtedness. During an Extension
Period, interest on the Subordinated Debentures will continue to accrue and,
as a result, Distributions on the Preferred Securities will accumulate at the
per annum rate set forth on the cover page of this Prospectus (to the extent
permitted by applicable law, compounded quarterly). See "Description of the
Preferred Securities--Distributions" and "Description of the Subordinated
Debentures--Option to Extend Interest Payment Period."
Should an Extension Period occur, a Holder of Preferred Securities will be
required to accrue interest (in the form of original issue discount ("OID"))
in income in respect of its pro rata share of the Subordinated Debentures held
by Atlantic Capital for United States federal income tax purposes. As a
result, a Holder of Preferred Securities will include such interest in gross
income for United States federal income tax purposes in advance of the receipt
of cash, and will not receive the cash related to such income from Atlantic
Capital if the Holder disposes of the Preferred Securities prior to the record
date for the payment of Distributions. See "Certain United States Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A Holder that disposes of its Preferred Securities
during an Extension Period, therefore, might not receive the same return on
its investment as a Holder that continues to hold its Preferred Securities. In
addition, as a result of the existence
9
<PAGE>
of the Company's right to defer interest payments, the market price of the
Preferred Securities (which represent an undivided beneficial ownership
interest in the Subordinated Debentures) may be more volatile than other
securities that do not have such rights.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION; ADVERSE EFFECT OF POSSIBLE TAX LAW
CHANGES
Upon the occurrence and during the continuation of a Special Event, the
Company has the option to (i) redeem the Subordinated Debentures, in whole but
not in part, and therefore cause a mandatory redemption of all of the Trust
Securities at the Redemption Price within 90 days following the occurrence of
such Special Event or (ii) cause the termination of Atlantic Capital and, in
connection therewith, after satisfaction of all amounts due to creditors of
Atlantic Capital, if any, cause Subordinated Debentures to be distributed to
the Holders of Trust Securities within 90 days following the occurrence of
such Special Event.
Recently, a petition was filed in the United States Tax Court as a result of
a challenge by the Internal Revenue Service ("IRS") of the petitioner's
treatment as indebtedness of a loan issued in circumstances with similarities
to the issuance of the Subordinated Debentures. If this matter is in fact
litigated and the Tax Court were to sustain the IRS's position on this matter,
such judicial decision could give rise to a Tax Event, which would permit the
Company to cause a redemption of the Preferred Securities as described more
fully under "Description of the Preferred Securities--Special Event Redemption
or Distribution".
RIGHTS UNDER THE GUARANTEE; LIMITATION AS TO FUNDS AVAILABLE TO ATLANTIC
CAPITAL
The Guarantee guarantees to the Holders of the Preferred Securities, to the
extent not paid by Atlantic Capital, the payment (but not the collection) of
(i) any accrued and unpaid Distributions required to be paid on the Preferred
Securities, to the extent Atlantic Capital has sufficient funds available
therefor, (ii) the Redemption Price with respect to Preferred Securities
called for redemption by Atlantic Capital, to the extent the Property Trustee
has available in the payment account sufficient funds to make such payment and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination
of Atlantic Capital (unless the Subordinated Debentures are distributed to
Holders of the Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid Distributions on the Preferred
Securities to the date of payment and (b) the amount of assets of Atlantic
remaining available for distribution to Holders of the Preferred Securities in
liquidation of Atlantic Capital. If the Company were to default on its
obligations under the Subordinated Debentures, Atlantic Capital would lack
available funds for the payment of Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and in such event Holders
of the Preferred Securities would not be able to rely upon the Guarantee for
payment of such amounts. See "Description of the Guarantee" and "Description
of the Subordinated Debentures--Subordination" herein.
LIMITED VOTING RIGHTS
Holders of Preferred Securities generally will have limited voting rights
relating only to the modification of the Preferred Securities and the exercise
of remedies upon the occurrence of an Event of Default. Holders of Preferred
Securities will not be entitled to vote to appoint, remove or replace the
Property Trustee or the Delaware Trustee, which voting rights are vested
exclusively in the Holder of the Common Securities, except upon the occurrence
of certain events described herein. The Administrative Trustees (as defined
under "Atlantic Capital") and the Company may amend the Trust Agreement to
ensure that Atlantic Capital will be classified for United States federal
income tax purposes as a grantor trust without the consent of Holders, even if
such action adversely affects the interests of Holders. See "Description of
the Preferred Securities--Voting Rights," "--Amendments," "--Removal of
Property Trustee" and "--Co-Trustees and Separate Property Trustees."
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
Application has been made to list the Preferred Securities on the NYSE. If
approved for listing, the Preferred Securities may trade at a price that does
not fully reflect the value of accrued but unpaid interest with respect to the
underlying Subordinated Debentures.
10
<PAGE>
MARKET PRICES
There can be no assurance as to the market prices for Preferred Securities
or Subordinated Debentures that may be distributed in exchange for Preferred
Securities upon dissolution or liquidation of Atlantic Capital. Accordingly,
the Preferred Securities that an investor may purchase, whether pursuant to
the offer made hereby or in the secondary market, or the Subordinated
Debentures that a holder of Preferred Securities may receive on termination
and liquidation of Atlantic Capital, may trade at a discount to the price that
the investor paid to purchase the Preferred Securities offered hereby. Because
Holders of Preferred Securities may receive Subordinated Debentures upon the
occurrence of a Special Event, prospective purchasers of Preferred Securities
also are making an investment decision with regard to the Subordinated
Debentures and should review carefully all the information regarding the
Subordinated Debentures contained herein. As a result of the existence of the
Company's right to extend interest payment periods, the market price of the
Preferred Securities may be more volatile than the market prices of other
securities on which the interest is not subject to such deferral. See
"Description of the Preferred Securities--Special Event Redemption or
Distribution" and "Description of the Subordinated Debentures."
11
<PAGE>
THE COMPANY
The Company was incorporated in New Jersey on April 28, 1924. The Company's
principal executive offices are located at 800 King Street, P.O. Box 231,
Wilmington, Delaware 19899, (302) 429-3011.
The Company is an operating utility primarily engaged in the generation,
transmission, distribution and sale of electric power to approximately 480,000
customers in the southern part of New Jersey. All of the common stock of the
Company is owned by Conectiv, a registered holding company under the Holding
Company Act.
ATLANTIC CAPITAL
Atlantic Capital is a statutory business trust created under Delaware law
pursuant to (i) a trust agreement (the "Original Trust Agreement") executed by
the Company, as depositor for Atlantic Capital, The Bank of New York, as
Property Trustee, The Bank of New York (Delaware) as Delaware Trustee, and an
Administrative Trustee, who is an employee of the Company (together with such
other Administrative Trustees from time to time appointed by the Company, the
"Administrative Trustees") and (ii) the filing of a certificate of trust (the
"Certificate of Trust") with the Delaware Secretary of State on September 10,
1998. Such Original Trust Agreement will be amended and restated in its
entirety (as so amended and restated, the "Trust Agreement") substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Trust Agreement will be qualified as an indenture
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Atlantic Capital exists for the exclusive purposes of (i) issuing Trust
Securities representing undivided beneficial ownership interests in the assets
of Atlantic Capital (ii) holding the Subordinated Debentures as trust assets
and (iii) engaging in only those other activities necessary or incidental
thereto. All of the Common Securities, which will represent at least 3% of the
total capital of Atlantic Capital, will be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except as described under "Description of the
Preferred Securities--Subordination of the Common Securities." Atlantic
Capital has a term of approximately 45 years, but may terminate earlier as
provided in the Trust Agreement. Atlantic Capital's business and affairs will
be conducted by the Administrative Trustees. The office of the Delaware
Trustee is White Clay Center, Newark, Delaware 19711. The principal place of
business of Atlantic Capital is c/o Atlantic City Electric Company, 800 King
Street, P.O. Box 231, Wilmington, Delaware 19899.
USE OF PROCEEDS
The proceeds to be received by Atlantic Capital from the sale of the
Preferred Securities will be used to purchase Subordinated Debentures of the
Company. The Company expects to use the proceeds from the sale of the
Subordinated Debentures to repay short-term debt incurred by the Company in
order to purchase from Conectiv the shares of its Preferred Stock tendered in
connection with Conectiv's Offer to Purchase, which expired on October 14,
1998 (the "Offer to Purchase"). The funding requirement with respect to such
tender was approximately $4,266,782 for the 4% Preferred Stock ($100 par
value), $4,299,916 for the 4.10% Preferred Stock ($100 par value), $1,054,162
for the 4.35% Preferred Stock ($100 par value), $3,038,980 for the 4.35% 2nd
Series Preferred Stock ($100 par value), $4,002,450 for the 4.75% Preferred
Stock ($100 par value) and $4,588,000 for the 5% Preferred Stock ($100 par
value) and related fees and expenses. To the extent the proceeds are not
immediately so used, they may be invested temporarily in short-term interest-
bearing obligations.
ACCOUNTING TREATMENT
For financial reporting purposes, Atlantic Capital will be treated as a
subsidiary of the Company and, accordingly, the accounts of Atlantic Capital
will be included in the consolidated financial statements of the
12
<PAGE>
Company. The Preferred Securities will be included in the consolidated balance
sheets of the Company and appropriate disclosures about the Preferred
Securities, the Guarantee and the Subordinated Debentures will be included in
the notes to the consolidated financial statements of the Company. For
financial reporting purposes, dividend distributions on the Preferred
Securities will be recorded in the consolidated statements of income of the
Company.
DESCRIPTION OF THE PREFERRED SECURITIES
The following summaries of certain provisions of the Preferred Securities
and the Trust Agreement do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the Trust
Agreement, including the definitions therein of certain terms, and the Trust
Indenture Act. Wherever particular sections or defined terms of the Trust
Agreement are referred to, such sections or defined terms are incorporated
herein by reference. The Trust Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
GENERAL
The Preferred Securities and the Common Securities will be created pursuant
to the terms of the Trust Agreement. The Preferred Securities represent
undivided beneficial ownership interests in the assets of Atlantic Capital and
will have a preference under certain circumstances with respect to
Distributions and amounts payable on liquidation, redemption or otherwise over
the Common Securities. The Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Preferred Securities, except
as described under "--Subordination of Common Securities." (Section 4.03). The
Subordinated Debentures will be owned by Atlantic Capital and held by the
Property Trustee in trust for the benefit of the Holders of the Trust
Securities. (Section 2.09). The Subordinated Debentures and the Guarantee,
together with the obligations of the Company with respect to the Preferred
Securities under the Indenture and the Trust Agreement, constitute a full and
unconditional guarantee of the Preferred Securities by the Company.
DISTRIBUTIONS
The Distributions payable on the Preferred Securities will be fixed at the
rate per annum of the stated liquidation amount thereof set forth on the cover
page of this Prospectus. The term "Distributions" as used herein includes any
additional Distributions payable on overdue Distributions, unless otherwise
stated. The amount of Distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months and for any period shorter
than a full month, on the basis of the actual number of days elapsed. (Section
4.01(b)).
Distributions on the Preferred Securities will be cumulative, will accrue
from and including the date of initial issuance thereof, and will be payable
quarterly in arrears, on March 31, June 30, September 30 and December 31 of
each year, commencing December 31, 1998, except as otherwise described below.
Such Distributions will accrue to, and including, the first Distribution
payment date (as defined below), and for each subsequent Distribution payment
date will accrue from, and excluding, the last Distribution payment date
through which Distributions have been paid or duly provided for. In the event
that any date on which Distributions are otherwise payable on the Preferred
Securities is not a Business Day, payment of the Distribution payable on such
date will be made on the next succeeding Business Day, except that, if such
Business Day is in the next succeeding calendar year, payment of such
Distribution shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date (each date on
which Distributions are otherwise payable in accordance with the foregoing, a
"Distribution payment date"). (Section 4.01(a)). "Business Day" is used herein
to mean any day other than (i) a Saturday or a Sunday, (ii) a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to remain closed and (iii) a day on which the Corporate
Trust Office of the Property Trustee or the Debenture Trustee is closed for
business. (Section 1.01).
13
<PAGE>
The Company has the right under the Indenture to defer interest payments on
the Subordinated Debentures at any time or from time to time by extending the
interest payment period thereon for Extension Periods up to 20 consecutive
quarters but not extending beyond the maturity of the Subordinated Debentures,
with the consequence that quarterly Distributions on the Preferred Securities
would be deferred (but interest on the Subordinated Debentures would continue
to accrue and, as a result, Distributions on the Preferred Securities will
accumulate at the rate per annum set forth on the cover page of this
Prospectus, compounded quarterly) by Atlantic Capital during any such
Extension Period. (Section 4.01(b)). In the event that the Company exercises
this right, during the Extension Period the Company may not (i) declare or pay
dividends or distributions (other than dividends or distributions in Common
Stock of the Company) on, or redeem, purchase, acquire, or make a liquidation
payment with respect to any of its capital stock, or (ii) make any payment of
principal of, interest or premium, if any, on, or repay, repurchase or redeem
any indebtedness that is pari passu with the Subordinated Debentures
(including other Debt Securities) or make any guarantee payment with respect
to such indebtedness (other than payments made pursuant to any Guarantee). See
"Description of the Subordinated Debentures--Option to Extend Interest Payment
Period."
Distributions on the Preferred Securities will be payable to the Holders
thereof as they appear on the register of Atlantic Capital on the relevant
record dates, each of which, will be 15 days prior to the relevant
Distribution payment date. Subject to any applicable laws and regulations and
the Trust Agreement, each such payment will be made as described under "--
Book-Entry Only Issuance--The Depository Trust Company." (Section 4.01(d)).
REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment shall be applied by the Property Trustee to redeem a Like Amount (as
defined herein) of Trust Securities, upon not less than 30 nor more than 60
days' notice, at the Redemption Price. (Section 4.02). See "Description of the
Subordinated Debentures--Optional Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event (each, as defined below, a "Special Event"), the
Company has the option to (i) redeem the Subordinated Debentures in whole, but
not in part, and therefore cause a mandatory redemption of all of the Trust
Securities at the Redemption Price within 90 days following the occurrence of
such Special Event, or (ii) cause the termination of Atlantic Capital and in
connection therewith, after satisfaction of all amounts due to creditors of
Atlantic Capital, if any, cause the Subordinated Debentures to be distributed
to the Holders of the Trust Securities within 90 days following the occurrence
of such Special Event; provided that in the case of the occurrence of a Tax
Event, as a condition to any such termination and distribution, the
Administrative Trustees shall have received an opinion of nationally
recognized independent tax counsel experienced in such matters, which opinion
may rely on any then applicable published revenue rulings of the Internal
Revenue Service, to the effect that the Holders of the Preferred Securities
will not recognize any gain or loss for United States federal income tax
purposes as a result of the termination of the Trust and the distribution of
the Subordinated Debentures (a "No Recognition Opinion"). See "Certain United
States Federal Income Tax Consequences--Distribution of Subordinated
Debentures or Cash upon Liquidation of Atlantic Capital." If the Company does
not elect either option (i) or (ii) above, the Preferred Securities will
remain outstanding and, in the event a Tax Event has occurred and is
continuing, under the Indenture, the Company, as borrower, will be obligated
to pay any taxes, duties, assessments or other governmental charges (other
than United States withholding taxes) to which Atlantic Capital has become
subject.
"Like Amount" means, as the context requires, (i) with respect to a
redemption of Trust Securities, Trust Securities having a liquidation amount
equal to the principal amount of Subordinated Debentures to be
contemporaneously redeemed and (ii) with respect to a distribution of
Subordinated Debentures to Holders of Trust Securities in connection with a
liquidation of Atlantic Capital, Subordinated Debentures having a principal
14
<PAGE>
amount equal to the liquidation amount of the Trust Securities with respect to
which such Subordinated Debentures are to be distributed. (Section 1.01).
"Tax Event" means the receipt by Atlantic Capital of an opinion of counsel
(which may be counsel to the Company or an affiliate but not an employee
thereof and which must be acceptable to the Property Trustee) experienced in
such matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any administrative
pronouncement or action or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement, action or decision is announced on or after the date of
issuance of the Preferred Securities, there is more than an insubstantial risk
that at such time or within 90 days of the date thereof (i) Atlantic Capital
is, or will be, subject to United States federal income tax with respect to
income received or accrued on the Subordinated Debentures, (ii) interest
payable by the Company on the Subordinated Debentures, is not, or will not be,
fully deductible by the Company for United States federal income tax purposes,
or (iii) Atlantic Capital is, or will be, subject to more than a de minimis
amount of other taxes, duties or other governmental charges. (Section 1.01).
"Investment Company Event" means the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority to
the effect that Atlantic Capital is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act"), which change in law becomes effective on or
after the date of original issuance of the Preferred Securities. (Section
1.01).
On the date fixed for the distribution of Subordinated Debentures upon
termination of Atlantic Capital (i) the Trust Securities no longer will be
deemed to be outstanding and (ii) all rights of the Holders thereof will
cease, except the right to receive Subordinated Debentures upon surrender of
the certificates representing their Trust Securities. (Section 9.04).
If the Subordinated Debentures are distributed to the Holders of Preferred
Securities, the Company will use its best efforts to list the Subordinated
Debentures on the NYSE or on such other exchange on which the Preferred
Securities then are listed.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date (as defined below)
shall be redeemed at the Redemption Price with the proceeds from the
contemporaneous redemption of Subordinated Debentures. Redemptions of the
Preferred Securities shall be made and the Redemption Price shall be deemed
payable on each date selected for redemption (the "Redemption Date") only if
Atlantic Capital has funds immediately available for the payment of such
Redemption Price. (Section 4.02(c)). See also "--Subordination of Common
Securities."
If Atlantic Capital shall give a notice of redemption in respect of
Preferred Securities, then, on or before the Redemption Date, the Property
Trustee will deposit irrevocably with the paying agent for such Preferred
Securities funds sufficient to pay the applicable Redemption Price and will
give such paying agent irrevocable instructions to pay the Redemption Price to
the Holders thereof upon surrender of their certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable on
or prior to the Redemption Date for any Preferred Securities called for
redemption shall be payable to the Holders of such Preferred Securities on the
relevant record dates for the related Distribution payment dates. If notice of
redemption shall have been given and funds deposited as required, then on the
Redemption Date, all rights of Holders of such Preferred Securities so called
for redemption will cease, except the right of the Holders of such Preferred
Securities to receive the Redemption Price, but without interest thereon, and
such Preferred Securities will cease to be outstanding. In the event that any
date fixed for redemption of Preferred Securities is not a Business Day,
15
<PAGE>
then payment of the amount payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay). In the event that payment of the
Redemption Price in respect of Preferred Securities called for redemption is
not paid either by Atlantic Capital or by the Company pursuant to the
Guarantee, Distributions on such Preferred Securities will continue to accrue
at the then applicable rate, from the original Redemption Date to the date of
payment. (Section 4.02(d)).
If less than all the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate liquidation amount of such securities to be redeemed
shall be allocated on a pro rata basis to the Common Securities and the
Preferred Securities based upon the relative liquidation amounts of such
classes. The particular Preferred Securities to be redeemed shall be selected
on a pro rata basis not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities not previously
called for redemption which may provide for the selection for redemption of
portions equal to $25 or integral multiples thereof of the liquidation amount
of Preferred Securities of a denomination greater than $25. The Property
Trustee shall notify the Registrar promptly in writing of the Preferred
Securities selected for redemption and, in the case of any Preferred
Securities selected for partial redemption, the liquidation amount thereof to
be redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities shall relate, in the case of any Preferred Securities redeemed or
to be redeemed only in part, to the portion of the liquidation amount of
Preferred Securities that has been or is to be redeemed. (Section 4.02(e)).
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Trust
Securities, shall be made pro rata based on the liquidation amount of the
Trust Securities; provided that if on any Distribution payment date or
Redemption Date any Event of Default resulting from an Event of Default under
the Indenture (a "Debenture Event of Default") shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, any
Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accrued and unpaid Distributions on all
Preferred Securities for all distribution periods terminating on or prior
thereto, or in the case of payment of the Redemption Price, the full amount of
such Redemption Price on all Preferred Securities, shall have been made or
provided for. (Section 4.03(a)).
In the case of an Event of Default resulting from a Debenture Event of
Default under the Indenture, the Company as Holder of the Common Securities
will be deemed to have waived any such Event of Default until the effect of
all such Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until all such Events of Default have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the Holders of the Preferred Securities, and only Holders
of Preferred Securities will have the right to direct the Property Trustee to
act. (Section 4.03(b)).
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, Atlantic Capital shall terminate and shall
be liquidated by the Property Trustee on December 31, 2043 or, if earlier, on
the first to occur of: (i) the bankruptcy, dissolution or liquidation of the
Company; (ii) the redemption of all of the Preferred Securities, (iii) the
termination and liquidation of Atlantic Capital upon the occurrence of a
Special Event and, in the case of a Tax Event, receipt by the Administrative
Trustees of a No Recognition Opinion, and (iv) the entrance by a court of
competent jurisdiction of an order for judicial termination of Atlantic
Capital. (Sections 9.01 and 9.02).
On December 31, 2043 or if an early termination occurs as described in
clause (i), (iii) or (iv) above, Atlantic Capital shall be liquidated by the
Property Trustee by distributing to each Holder of Preferred Securities and
Common Securities a Like Amount of Subordinated Debentures, unless such
distribution is determined by the Property Trustee not to be practical, in
which event such Holders will be entitled to receive, out of the assets of
Atlantic Capital available for distribution to Holders after adequate
provision has been made for the
16
<PAGE>
satisfaction of all amounts due to creditors, if any, an amount equal to the
aggregate liquidation amount of the Trust Securities 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 Atlantic Capital has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by Atlantic Capital on the Trust Securities shall be paid on a pro rata basis,
except that if a Debenture Event of Default has occurred and is continuing, or
if a Debenture Event of Default has not occurred solely by reason of a
requirement that time lapse or notice be given, the Liquidation Distribution
with respect to the Preferred Securities shall be paid in full prior to making
any Liquidation Distribution with respect to the Common Securities. (Sections
9.04(a) and (e)).
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an Event of Default under the
Trust Agreement:
(i) the occurrence of a Debenture Event of Default (see "Description of
the Subordinated Debentures--Events of Default"); or
(ii) default by Atlantic Capital or the Property Trustee in the payment
of any Distribution when it becomes due and payable, and continuation of
such default for a period of 30 days; or
(iii) default by Atlantic Capital or the Property Trustee in the payment
of any Redemption Price of any Trust Security when it becomes due and
payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is specifically dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Property Trustee by
the Holders of Preferred Securities having at least 25% of the total
liquidation amount of the outstanding Preferred Securities, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a Notice of Default thereunder; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to Atlantic Capital or the Property Trustee if a successor Property
Trustee has not been appointed within 90 days thereof. (Section 1.01).
Within five Business Days after the occurrence of any Event of Default, the
Property Trustee shall transmit to the Holders of Trust Securities, the
Administrative Trustees and the Company notice of such Event of Default known
to the Property Trustee, unless such Event of Default shall have been cured or
waived. (Section 8.02(a)).
The Company and the Administrative Trustees are required to file annually
with the Property Trustee such documents, reports, compliance certificates and
information as may be required by Section 314 of the Trust Indenture Act,
including a certificate as to whether or not they are in compliance with all
of the conditions and covenants applicable to them under the Trust Agreement
(Section 8.15).
VOTING RIGHTS
Holders of Trust Securities shall be entitled to one vote for each $25 in
liquidation amount represented by their Trust Securities in respect of any
matter as to which such Holders of Trust Securities are entitled to vote.
Except as described below and under "--Amendments," and under "Description of
the Guarantee--Amendments and Assignment" and as otherwise required by law and
the Trust Agreement, the Holders of the Preferred Securities will have no
voting rights. (Section 6.01(a)). In the event that the Company elects to
defer payments of interest on the Subordinated Debentures as described under
"--Distributions," the Holders of the Preferred Securities do not have the
right to appoint a special representative or trustee or otherwise act to
protect their interests.
So long as any Subordinated Debentures are held by the Property Trustee, the
Property Trustee, the Delaware Trustee and the Administrative Trustees
(collectively, the "Trustees" and individually, a "Trustee")
17
<PAGE>
shall not (i) direct the time, method and place of conducting any proceeding
for any remedy available to the Debenture Trustee, or executing any trust or
power conferred on the Debenture Trustee with respect to the Subordinated
Debentures, (ii) waive any past default which is waivable under Section 813 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the Holders of Preferred Securities
having at least 66 2/3% of the liquidation amount of the outstanding Preferred
Securities; provided that where a consent under the Indenture would require
the consent of each Holder of Subordinated Debentures affected thereby, no
such consent shall be given by the Trustees without the prior consent of each
Holder of Preferred Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the Preferred Securities. If
the Property Trustee fails to enforce its rights under the Subordinated
Debentures or the Trust Agreement, any Holder of Preferred Securities may
institute a legal proceeding directly against the Company to enforce the
Property Trustee's rights under the Subordinated Debentures or the Trust
Agreement, to the fullest extent permitted by law, without first instituting
any legal proceeding against the Property Trustee or any other person or
entity. (Section 6.01(a) and (b)). The Property Trustee shall notify all
Holders of the Preferred Securities of any notice of Event of Default received
from the Debenture Trustee. Notwithstanding the foregoing, a Holder of
Preferred Securities may institute a proceeding for enforcement of payment to
such Holder directly of principal of or interest on the Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such Holder on or after the due dates specified
in the Subordinated Debentures.
AMENDMENTS
The Trust Agreement may be amended from time to time by a majority of the
Administrative Trustees, the Property Trustee, the Delaware Trustee and the
Company, without the consent of any Holders of Trust Securities, (i) to cure
any ambiguity, correct or supplement any provision therein which may be
inconsistent with any other provision therein, 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,
provided that any such amendment shall not adversely affect in any material
respect the interests of any Holder of Trust Securities, (ii) to modify,
eliminate or add to any provisions of the Trust Agreement to such extent as
shall be necessary to ensure that Atlantic Capital will not be classified for
United States federal income tax purposes other than as a "grantor trust" at
any time that any Trust Securities are outstanding or to ensure Atlantic
Capital's exemption from the status of an "investment company" under the 1940
Act, or (iii) to effect the acceptance of a successor Trustee appointment. In
the case of clause (i), any amendments of the Trust Agreement shall become
effective when notice thereof is given to the Holders of Trust Securities
(Section 10.02(a)).
Except as provided below, any provision of the Trust Agreement may be
amended by a majority of the Administrative Trustees, the Property Trustee,
the Delaware Trustee and the Company with (i) the consent of Holders of Trust
Securities representing not less than a majority of the liquidation amount of
the Trust Securities then outstanding and (ii) receipt by the Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment will not
affect Atlantic Capital's status as a grantor trust for United States federal
income tax purposes or affect Atlantic Capital's exemption from the status of
an "investment company" under the 1940 Act. (Section 10.02(b)).
Without the consent of each affected Holder of Trust Securities, the Trust
Agreement may not be amended to (i) change the amount or timing of any
Distributions with respect to the Trust Securities or otherwise adversely
affect the amount of any Distributions required to be made in respect of the
Trust Securities as of a specified date, (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 or (iii) change the requirement that each affected
Holder consent to amendments in respect of clauses (i) or (ii) above. (Section
10.02(c)).
18
<PAGE>
REMOVAL OF PROPERTY TRUSTEE
Unless an Event of Default under the Indenture shall have occurred and be
continuing, a Trustee may be removed at any time by the Company, as the Holder
of the Common Securities. If an Event of Default under the Indenture has
occurred and is continuing, the Property Trustee and the Delaware Trustee may
be removed at such time by act of the Holders of Preferred Securities having a
majority of the liquidation amount of the outstanding Preferred Securities. In
no event will the Holders of the Preferred Securities have the right to vote
to appoint, remove or replace the Administrative Trustees, which voting rights
are vested exclusively in the Company as the Holder of the Common Securities.
No resignation or removal of a 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.
(Sections 8.10 and 8.11).
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default under the Indenture shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any
part of the Trust Property (as defined in the Trust Agreement) may at the time
be located, the Company and the Property Trustee shall have power to appoint,
and upon the written request of the Property Trustee, the Company shall for
such purpose join with the Property Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to appoint
one or more persons approved by the Property Trustee either to act as co-
trustee, jointly with the Property Trustee, of all or any part of such Trust
Property, or to act as separate trustee of any such property, in either case
with such powers as may be provided in the instrument of appointment, and to
vest in such person or persons in such capacity, any property, title, right or
power deemed necessary or desirable, subject to the provisions of the Trust
Agreement. If the Company does not join in such appointment within 15 days
after the receipt by it of a request so to do, or in case an Event of Default
under the Indenture has occurred and is continuing, the Property Trustee alone
shall have power to make such appointment. (Section 8.09(a)).
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS
Atlantic Capital may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. Atlantic Capital may, at the request of the Company, with the
consent of the Administrative Trustees and without the consent of the holders
of the Preferred Securities, merge with or into, consolidate, amalgamate, be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State; provided that (i) such successor entity either (a) expressly
assumes all of the obligations of Atlantic Capital with respect to the
Preferred Securities or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities
(the "Successor Securities") so long as the Successor Securities rank the same
as the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) the Company
expressly appoints a trustee of such successor entity possessing substantially
the same powers and duties as the Property Trustee as the holder of the
Subordinated Debentures, (iii) the Successor Securities are listed or traded,
or any Successor Securities will be listed or traded upon notification of
issuance, on any national securities exchange or other organization on which
the Preferred Securities are then listed, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in
any material respect, (vi) such successor entity has a purpose identical to
that of Atlantic Capital, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer, or lease, the Company has
received an opinion from independent counsel to Atlantic Capital 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 Preferred
Securities (including any
19
<PAGE>
Successor Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither Atlantic Capital nor such successor entity will be required to
register as an investment company under the Investment Company Act and (viii)
the Company 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, Atlantic Capital shall not, except with the consent of holders
of 100% in aggregate liquidation amount of the outstanding Preferred
Securities, consolidate, amalgamate, merge with or into, be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
Atlantic Capital or the successor entity to be classified as other than a
grantor trust for United States federal income tax purposes. (Section 9.05).
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
all of the Preferred Securities. The Preferred Securities initially will be
issued only as fully-registered securities registered in the name of Cede &
Co. ("DTC's nominee"). One or more fully-registered global Preferred
Securities certificates, representing the aggregate number of Preferred
Securities, will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the 1934 Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system also is
available to others, such as securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant ("Indirect Participants").
The rules applicable to DTC and its Direct Participants and Indirect
Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of each Preferred Security (the "Beneficial Owner") is in turn to be recorded
on the Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected
to receive written confirmations providing details of the transactions, as
well as periodic statements of their holdings, from the Participants through
which the Beneficial Owners purchased Preferred Securities. Transfers of
ownership interests in the Preferred Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in the Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Direct Participants with DTC are registered in the name of DTC's nominee,
Cede & Co. The deposit of Preferred Securities with DTC and their registration
in the name of Cede & Co. will effect no change in beneficial ownership. DTC
has no knowledge of the actual Beneficial Owners of the Preferred Securities.
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Preferred Securities are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
20
<PAGE>
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Redemption notices shall be sent to Cede & Co. as the registered Holder of
Preferred Securities. The Preferred Securities to be redeemed shall be
selected by DTC on a pro rata basis in accordance with DTC's customary
procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to Atlantic Capital as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy). The Company and Atlantic Capital believe that
the arrangements among DTC, Direct and Indirect Participants, and Beneficial
Owners will enable the Beneficial Owners to exercise rights equivalent in
substance to the rights that can be exercised directly by a holder of a
beneficial interest in Atlantic Capital.
Payment of Distributions on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
Distribution payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payments on such payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the account of customers in bearer form or
registered in "street name," and such payments will be the responsibility of
such Participant and not of DTC, the Property Trustee, Atlantic Capital or the
Company, subject to any statutory or regulatory requirements to the contrary
that may be in effect from time to time. Payment of Distributions to DTC is
the responsibility of Atlantic Capital, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Participants.
Except as provided herein, a Beneficial Owner will not be entitled to
receive physical delivery of Preferred Securities. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
Atlantic Capital and the Company. Under such circumstances, in the event that
a successor securities depositary should not be obtained, Preferred Securities
certificates would be required to be printed and delivered. Additionally, the
Administrative Trustees (with the consent of the Company) may decide to
discontinue use of the system of book-entry transfers through DTC (or any
successor depositary) with respect to the Preferred Securities. In that event,
certificates for the Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and Atlantic Capital believe
to be reliable, but neither the Company nor Atlantic Capital takes
responsibility for the accuracy thereof.
FORM, EXCHANGE, AND TRANSFER
The following provisions shall apply to the Preferred Securities only in the
event that the Preferred Securities are no longer held in book-entry only
form.
Preferred Securities will be issuable only in fully registered form, each
having a liquidation amount of $25 and any integral multiple thereof.
Preferred Securities will be exchangeable for other Preferred Securities, of
any authorized denomination and of like tenor and aggregate liquidation
amount. Preferred Securities may be presented for exchange as provided above
or for registration of transfer (duly endorsed or accompanied by a
21
<PAGE>
duly executed instrument of transfer) at the office of the Transfer Agent
designated for such purpose. Initially, The Bank of New York will act as
Registrar and Transfer Agent for the Preferred Securities. (Section 5.03(b)).
No service charge will be made for any registration of transfer or exchange
of Preferred Securities, but Atlantic Capital may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 5.03(d)). Such transfer or exchange will be effected upon
the Transfer Agent being satisfied with the documents of title and identity of
the person making the request. The Administrative Trustees may at any time
designate additional Transfer Agents or rescind the designation of any
Transfer Agent or approve a change in the office through which any Transfer
Agent acts.
Atlantic Capital will not be required to (i) issue, register the transfer
of, or exchange any Preferred Securities during a period beginning at the
opening of business 15 calendar days before the day of mailing of a notice of
redemption of any Preferred Securities called for redemption and ending at the
close of business on the day of such mailing or (ii) register the transfer of
or exchange any Preferred Securities so selected for redemption, in whole or
in part, except the unredeemed portion of any such Preferred Securities being
redeemed in part. (Section 5.03(c)).
CONCERNING THE PROPERTY TRUSTEE
The Company maintains deposit accounts and conducts other banking
transactions with the Property Trustee in the ordinary course of their
businesses. In addition, the Property Trustee acts as indenture trustee under
the Mortgage and Deed of Trust dated as of January 15, 1937 pursuant to which
the Company's First Mortgage Bonds are issued, under the Junior Subordinated
Indenture dated as of October 1, 1996 pursuant to which the Company's 8.25%
Junior Subordinated Deferrable Interest Debentures were issued and under the
Indenture dated as of March 1, 1997 pursuant to which the Company's Unsecured
Medium Term Notes are issued. The Property Trustee also acts as the Guarantee
Trustee and the Debenture Trustee.
GOVERNING LAW
The Preferred Securities will be governed by and construed in accordance
with the internal laws of the State of Delaware.
MISCELLANEOUS
Application has been made to list the Preferred Securities on the NYSE.
The Administrative Trustees are authorized and directed to conduct the
affairs of Atlantic Capital and to operate Atlantic Capital so that Atlantic
Capital will not be deemed to be an "investment company" required to be
registered under the 1940 Act or taxed as a corporation for United States
federal income tax purposes and so that the Subordinated Debentures will be
treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Administrative Trustees and the Company are
authorized to take any action, not inconsistent with applicable law, the
Certificate of Trust or the Trust Agreement, that the Administrative Trustees
and the Company determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not materially adversely affect the
interests of the Holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
22
<PAGE>
DESCRIPTION OF THE GUARANTEE
The following summary of certain provisions of the Guarantee does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Guarantee, including the
definitions therein of certain terms, and the Trust Indenture Act. Whenever
particular Sections or defined terms of the Guarantee are referred to, such
Sections or defined terms are incorporated herein by reference. The Guarantee
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part.
GENERAL
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Bank of New York will act as indenture trustee under the Guarantee
for the purpose of compliance with the Trust Indenture Act (the "Guarantee
Trustee") and will hold the Guarantee for the benefit of the Holders of the
Preferred Securities.
The Company will agree fully and unconditionally to the extent set forth
herein, to pay the Guarantee Payments (as defined below) in full to the
Holders of the Preferred Securities (except to the extent paid by or on behalf
of Atlantic Capital), as and when due, regardless of any defense, right of
set-off or counterclaim that the Company may have or assert. The following
payments with respect to the Preferred Securities, to the extent not paid by
or on behalf of Atlantic Capital (the "Guarantee Payments"), will be subject
to the Guarantee (without duplication): (i) any accumulated and unpaid
Distributions required to be paid on the Preferred Securities, but only to the
extent the Property Trustee has available in the payment account sufficient
funds to make such payment, (ii) the Redemption Price with respect to any
Preferred Securities called for redemption by Atlantic Capital, but only to
the extent the Property Trustee has available in the payment account
sufficient funds to make such payment and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of Atlantic Capital, the
lesser of (a) the aggregate of the liquidation amount and all accumulated and
unpaid Distributions on the Preferred Securities to the date of payment and
(b) the amount of assets of Atlantic Capital remaining available for
distribution to Holders of Preferred Securities in liquidation of Atlantic
Capital. The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the Holders of
Preferred Securities or by causing Atlantic Capital to pay such amounts to
such Holders. (Section 5.01).
The Guarantee will be a guarantee with respect to the Preferred Securities
issued by Atlantic Capital from the time of issuance of the Preferred
Securities, but will not apply to (i) any payment of Distributions if and to
the extent that Atlantic Capital does not have funds available to make such
payments, or (ii) collection of payment. If the Company does not make interest
payments on the Subordinated Debentures held by Atlantic Capital, Atlantic
Capital will not have funds available to pay Distributions on the Preferred
Securities. The Guarantee will rank subordinate and junior in right of payment
to Senior Indebtedness of the Company (except those made pari passu by their
terms). See "Status of the Guarantee." The Subordinated Debentures and the
Guarantee, together with the obligations of the Company with respect to the
Preferred Securities under the Indenture, the Trust Agreement and the
Guarantee, constitute a full and unconditional guarantee of the Preferred
Securities by the Company. 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 and unconditional guarantee by the Company of the
Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of Holders of Preferred Securities (in which case no vote will be
required), the terms of the Guarantee may be changed only with the prior
approval of the Holders of Preferred Securities having at least 66 2/3% of the
liquidation amount of the outstanding Preferred Securities. (Section 8.02).
All guarantees and agreements contained in the Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the Holders of the Preferred Securities then
outstanding. (Section 8.01).
23
<PAGE>
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment obligations thereunder. The Holders of
Trust Securities having a majority of the liquidation amount of the Trust
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or exercising of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Any Holder of Trust Securities may institute a
legal proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against Atlantic
Capital, the Guarantee Trustee or any other person or entity. (Section 5.04).
The Company, as Guarantor, will be required to provide to the Guarantee
Trustee an annual statement as to the performance by the Company of certain of
its obligations under the Guarantee and as to any default in such performance
and an officer's certificate as to the Company's compliance with all
conditions under the Guarantee. (Section 2.04).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default by the Company
in performance of the Guarantee, has undertaken to perform only such duties as
are specifically set forth in the Guarantee and, after default with respect to
the Guarantee, must exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Guarantee at the request of any Holder of Preferred
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. (Section 3.01). See
"Description of the Preferred Securities--Concerning the Property Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of all Preferred Securities, the distribution
of Subordinated Debentures to Holders of Preferred Securities in exchange for
all of the Preferred Securities or full payment of the amounts payable upon
liquidation of Atlantic Capital. The Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any Holder of
Preferred Securities must restore payment of any sums paid under the Preferred
Securities or the Guarantee. (Section 7.01).
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company to the same extent as the Subordinated Debentures.
(Section 6.01). The Trust Agreement provides that each Holder of Preferred
Securities by acceptance thereof agrees to the subordination provisions and
other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
24
<PAGE>
DESCRIPTION OF THE SUBORDINATED DEBENTURES
The following summary of the Subordinated Debentures and certain provisions
of the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture, including the definition therein of
certain terms and the Trust Indenture Act. Whenever particular sections or
defined terms in the Indenture are referred to herein, such sections or
defined terms are incorporated herein by reference. The Indenture is filed as
an exhibit to the Registration Statement of which this Prospectus forms a
part.
GENERAL
The Indenture provides for the issuance of subordinated debentures
(including the Subordinated Debentures), notes or other evidence of
indebtedness by the Company (each a "Debt Security") in an unlimited amount
from time to time. The Subordinated Debentures constitute a separate series
under the Indenture.
The Subordinated Debentures will be limited in aggregate principal amount to
the sum of the aggregate liquidation amount of the Trust Securities. The
Subordinated Debentures are unsecured, subordinated obligations of the Company
which rank junior to all of the Company's Senior Indebtedness. The
Subordinated Debentures will bear interest at the same rate, payable at the
same times, as the Distributions payable on the Trust Securities, and will
have a maturity and redemption provisions correlative to those of the Trust
Securities.
The entire outstanding principal amount of the Subordinated Debentures will
become due and payable, together with any accrued and unpaid interest thereon,
on December 31, 2028. The amounts payable as principal and interest on the
Subordinated Debentures will be sufficient to provide for payment of
Distributions payable on the Trust Securities.
If Subordinated Debentures are distributed to Holders of Preferred
Securities in a termination of Atlantic Capital, such Subordinated Debentures
will be issued in fully-registered certificated form in denominations of $25
and integral multiples thereof and may be transferred or exchanged at the
offices described below.
Payments of principal and interest on Subordinated Debentures will be
payable, the transfer of Subordinated Debentures will be registrable, and
Subordinated Debentures will be exchangeable for Subordinated Debentures of
other denominations of a like aggregate principal amount, at the corporate
trust office of the Debenture Trustee in New York, New York; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto and that the
payment in full of principal with respect to any Subordinated Debenture will
be made only upon surrender of such Subordinated Debenture to the Debenture
Trustee.
OPTIONAL REDEMPTION
On or after , 2003, the Company will have the option, at any time and
from time to time, to redeem the Subordinated Debentures, in whole or in part,
at a redemption price equal to 100% of the principal amount of the
Subordinated Debentures being redeemed, together with any accrued but unpaid
interest to the Redemption Date.
If a Special Event shall occur and be continuing, the Company shall have the
option to redeem the Subordinated Debentures, in whole but not in part, at a
redemption price equal to 100% of the principal amount of Subordinated
Debentures then outstanding plus any accrued and unpaid interest to the
Redemption Date. The Subordinated Debentures will be subject to optional
redemption in whole but not in part upon the termination and liquidation of
Atlantic Capital pursuant to an order for the dissolution, termination or
liquidation of Atlantic Capital entered by a court of competent jurisdiction.
For so long as Atlantic Capital is the Holder of all the outstanding
Subordinated Debentures, the proceeds of any such redemption will be used by
Atlantic Capital to redeem Trust Securities in accordance with their terms.
The Company may not redeem less than all the Subordinated Debentures unless
all accrued and unpaid
25
<PAGE>
interest has been paid in full on all outstanding Subordinated Debentures for
all quarterly interest periods terminating on or prior to the date of
redemption.
Any optional redemption of Subordinated Debentures shall be made upon not
less than 30 nor more than 60 days' notice from the Debenture Trustee to the
Holders of Subordinated Debentures, as provided in the Indenture.
INTEREST
The Subordinated Debentures shall bear interest at the rate per annum set
forth on the cover page of this Prospectus. Such interest is payable quarterly
in arrears on March 31, June 30, September 30 and December 31 of each year,
commencing December 31, 1998.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months and for any period shorter than a
full month, on the basis of the actual number of days elapsed (Section 310).
In the event that any date on which interest is payable on the Subordinated
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day, except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date the payment was
originally payable (Section 113).
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture to extend the interest payment
period from time to time on the Subordinated Debentures for an Extension
Period of up to 20 consecutive quarters during which period interest will be
compounded quarterly, provided that no such Extension Period shall extend
beyond the stated maturity of the Subordinated Debentures. At the end of an
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Subordinated
Debentures compounded quarterly, to the extent permitted by applicable law).
However, during any such Extension Period, the Company shall not (i) declare
or pay any dividend or distribution (other than a dividend or distribution in
Common Stock of the Company) on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or (ii) make any
payment of principal of, interest or premium, if any, on, or repay, repurchase
or redeem any indebtedness that is pari passu with the Subordinated Debentures
(including other Debt Securities), or make any guarantee payments with respect
to such indebtedness. Prior to the termination of any such Extension Period,
the Company may further extend the interest payment period provided, however,
that such Extension Period together with all such previous and further
extensions thereof shall not exceed 20 consecutive quarters at any one time or
extend beyond the maturity date of the Subordinated Debentures. Any Extension
Period with respect to payment of interest on the Subordinated Debentures,
other Debt Securities or on any similar securities will apply to all such
securities and will also apply to Distributions with respect to the Preferred
Securities and all other securities with terms substantially the same as the
Preferred Securities. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may select a new Extension
Period, subject to the above requirements. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company
will give Atlantic Capital and the Debenture Trustee notice of its election of
an Extension Period prior to the earlier of (i) one Business Day prior to the
record date for the distribution which would occur but for such election or
(ii) the date the Company is required to give notice to the NYSE or other
applicable self-regulatory organization of the record date and will cause
Atlantic Capital to send notice of such election to the Holders of Preferred
Securities.
PAYMENT OF EXPENSES
In the Indenture the Company, as issuer of Subordinated Debentures, has
agreed to pay all debts and obligations (other than with respect to the Trust
Securities) and all costs, liabilities and expenses of Atlantic Capital
(including, but not limited to, all costs, liabilities and expenses relating
to the organization of Atlantic Capital, the fees and expenses of the Property
Trustee, the Delaware Trustee and the Administrative Trustees
26
<PAGE>
and all costs, liabilities and expenses relating to the operation of Atlantic
Capital (other than with respect to payments due to the holders of the
securities of a Trust pursuant to the terms of such securities)) and to pay
any and all taxes, duties, assessments or other governmental charges of
whatever nature (other than United States withholding taxes) imposed by the
United States or any other taxing authority, so that the net amounts received
and retained by Atlantic Capital after paying such fees, costs, expenses,
liabilities, debts and obligations will be equal to the amounts Atlantic
Capital would have received and retained had no such fees, costs, expenses,
liabilities, debts and obligations been incurred by or imposed on Atlantic
Capital. The foregoing obligations of the Company are for the benefit of, and
shall be enforceable by, any person to whom such fees, costs, expenses,
liabilities, debts and obligations are owed (each a "Creditor") whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of the Company directly against the Company, and the Company
irrevocably waives any right or remedy to require that any such Creditor take
any action against Atlantic Capital or any other person before proceeding
against the Company. The Company shall execute such additional agreements as
may be necessary to give full effect to the foregoing. (Section 312).
DEFEASANCE
The principal amount of any series of Debt Securities issued under the
Indenture will be deemed to have been paid for purposes of the Indenture and
the entire indebtedness of the Company in respect thereof will be deemed to
have been satisfied and discharged, if there shall have been irrevocably
deposited with the Debenture Trustee or any paying agent, in trust: (i) money
in an amount which will be sufficient, or (ii) in the case of a deposit made
prior to the maturity of the Subordinated Debentures, Government Obligations
(as defined below), which do not contain provisions permitting the redemption
or other prepayment thereof at the option of the issuer thereof, the principal
of and the interest on which when due, without any regard to reinvestment
thereof, will provide moneys which, together with the money, if any, deposited
with or held by the Debenture Trustee, will be sufficient, or (iii) a
combination of (i) and (ii) which will be sufficient, to pay when due the
principal of and premium, if any, and interest, if any, due and to become due
on the Debt Securities of such series that are outstanding; provided that if
such deposit shall have been made prior to the maturity of such Debt
Securities, the Company shall have delivered to the Debenture Trustee, among
other things, an opinion of counsel to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of the satisfaction and discharge of the Company's
indebtedness in respect of such Debt Securities, and such holders will be
subject to federal income taxation on the same amounts and in the same manner
and at the same times as if such satisfaction and discharge had not occurred.
For this purpose, "Government Obligations" include direct obligations of, or
obligations unconditionally guaranteed by, the United States of America
entitled to the benefit of the full faith and credit thereof and certificates,
depositary receipts or other instruments which evidence a direct ownership
interest in such obligations or in any specific interest or principal payments
due in respect thereof. (Section 701).
SUBORDINATION
The Subordinated Debentures will be subordinate and junior in right of
payment to all Senior Indebtedness of the Company to the extent provided in
the Indenture. No payment of principal of (including redemption and sinking
fund payments), or interest on, the Subordinated Debentures may be made (i)
upon the occurrence of certain events of bankruptcy, insolvency or
reorganization, (ii) if any Senior Indebtedness is not paid when due, (iii) if
any other default has occurred pursuant to which the Holders of Senior
Indebtedness have accelerated the maturity thereof and with respect to (ii)
and (iii), such default has not been cured or waived, or (iv) if the maturity
of any series of Debt Securities has been accelerated, because of an event of
default with respect thereto, which remains uncured. Upon any payment or
distribution of assets of the Company to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or involuntary or
in bankruptcy, insolvency, receivership or other proceedings, all principal
of, and premium, if any, and interest due or to become due on, all Senior
Indebtedness must be paid in full before the Holders of the Subordinated
Debentures are entitled to receive or retain any payment thereon. (Section
1502). Subject to the prior payment of all Senior Indebtedness, the rights of
the Holders of the Subordinated Debentures will be subrogated to the rights of
the Holders of Senior
27
<PAGE>
Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Subordinated Debentures are paid
in full. (Section 1504).
The term "Senior Indebtedness" is defined in the Indenture to mean all
obligations (other than non-recourse obligations and the indebtedness issued
under the Indenture) of, or guaranteed or assumed by, the Company for borrowed
money, including both senior and subordinated indebtedness for borrowed money
(other than the Debt Securities and $72,164,950 principal amount of 8.25%
Junior Subordinated Deferrable Interest Debentures of the Company issued under
its Junior Subordinated Indenture dated as of October 1, 1996 with The Bank of
New York, Trustee), or for the payment of money relating to any lease which is
capitalized on the consolidated balance sheet of the Company and its
subsidiaries in accordance with generally accepted accounting principles as in
effect from time to time, or evidenced by bonds, debentures, notes or other
similar instruments (other than trade accounts payable in the ordinary course
of business), and in each case, amendments, renewals, extensions,
modifications and refundings of any such indebtedness or obligations, whether
existing as of the date of the Indenture or subsequently incurred by the
Company unless, in the case of any particular indebtedness, renewal, extension
or refunding, the instrument creating or evidencing the same or the assumption
or guarantee of the same expressly provides that such indebtedness, renewal,
extension or refunding is not superior in right of payment to or is pari passu
with the Subordinated Debentures; provided that the Company's obligations
under any Guarantee shall not be deemed to be Senior Indebtedness. (Section
101).
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Under the terms of the Indenture, the Company may not consolidate with or
merge into any other corporation or convey, transfer or lease its properties
and assets substantially as an entirety to any entity, unless (i) the
corporation formed by such consolidation or into which the Company is merged
or the entity which acquires by conveyance or transfer, or which leases, the
property and assets of the Company substantially as an entirety shall be a
entity organized and validly existing under the laws of any domestic
jurisdiction and such entity expressly assumes the Company's obligations on
all Debt Securities and under the Indenture, (ii) immediately after giving
effect to the transaction, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
occurred and be continuing, and (iii) the Company shall have delivered to the
Debenture Trustee certificates and opinions required by the Indenture.
(Section 1101).
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to the Debt Securities of any series: (i) failure to
pay any interest on the Debt Securities of such series within 30 days after
the same becomes due and payable, provided that deferral of payment during an
Extension Period will not constitute an Event of Default; (ii) failure to pay
principal or premium, if any, on the Debt Securities of such series when due
and payable; (iii) failure to perform, or breach of, any other covenant or
warranty of the Company in the Indenture (other than a covenant or warranty of
the Company in the Indenture solely for the benefit of one or more series of
Debt Securities other than such series) for 60 days after written notice to
the Company by the Debenture Trustee, or to the Company and the Debenture
Trustee by the Holders of at least 10% in principal amount of the Debt
Securities of such series outstanding under the Indenture as provided in the
Indenture; (iv) the entry by a court having jurisdiction in the premises of
(a) a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (b) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly filed
a petition by one or more persons other than the Company seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official for the Company or for any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order for relief or any such other decree or order shall have remained
unstayed and in effect for a period of 90 consecutive days; and (v) the
commencement by the Company of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry
28
<PAGE>
of a decree or order for relief in respect of the Company in a case or other
similar proceeding or to the commencement of any bankruptcy or insolvency case
or proceeding against it under any applicable federal or state law or the
filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become
due, or the authorization of such action by the Company's board of directors.
(Section 801).
An Event of Default with respect to the Debt Securities of a particular
series may not necessarily constitute an Event of Default with respect to Debt
Securities of any other series issued under the Indenture.
If an Event of Default due to the default in payment of principal of or
interest on any series of Debt Securities or due to the default in the
performance or breach of any other covenant or warranty of the Company
applicable to the Debt Securities of such series but not applicable to all
series occurs and is continuing, then either the Debenture Trustee or the
Holders of 25% in principal amount of the outstanding Debt Securities of such
series may declare the principal of all of the Debt Securities of such series
and interest accrued thereon to be due and payable immediately (subject to the
subordination provisions of the Indenture). If an Event of Default due to the
default in the performance of any other covenants or agreements in the
Indenture applicable to all outstanding Debt Securities or due to certain
events of bankruptcy, insolvency or reorganization of the Company has occurred
and is continuing, either the Debenture Trustee or the Holders of not less
than 25% in principal amount of all outstanding Debt Securities, considered as
one class, and not the Holders of the Debt Securities of any one of such
series may make such declaration of acceleration (subject to the subordination
provisions of the Indenture).
If, in the event of an Event of Default, the Debenture Trustee fails, or the
Holders of not less than 25% of the aggregate principal amount of the then
outstanding Debt Securities of such series fail, to declare the principal due
and payable immediately, the holders of at least 25% in aggregate liquidation
amount of the related series of Preferred Securities shall have such right.
Except as set forth above, the existence of an Event of Default does not
entitle the holders of Preferred Securities to accelerate the maturity thereof
or declare amounts due and payable.
At any time after the declaration of acceleration with respect to the Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the Event or Events of Default
giving rise to such declaration of acceleration will, without further act, be
deemed to have been waived, and such declaration and its consequences will,
without further act, be deemed to have been rescinded and annulled, if
(i) the Company has paid or deposited with the Debenture Trustee a sum
sufficient to pay
(a) all overdue interest on all Debt Securities of such series;
(b) the principal of and premium, if any, on any Debt Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Debt Securities;
(c) interest upon overdue interest at the rate or rates prescribed
therefor in such Debt Securities, to the extent that payment of such
interest is lawful; and
(d) all amounts due to the Debenture Trustee under the Indenture; and
(ii) any other Event or Events of Default with respect to Debt Securities
of such series, other than the nonpayment of the principal of the Debt
Securities of such series which has become due solely by such declaration
of acceleration, have been cured or waived as provided in the Indenture.
(Section 802).
29
<PAGE>
Subject to the provisions of the Indenture relating to the duties of the
Debenture Trustee in case an Event of Default shall occur and be continuing,
the Debenture Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders of the Subordinated Debentures, unless such Holders shall have offered
to the Debenture Trustee reasonable indemnity. (Section 903). If an Event of
Default has occurred and is continuing in respect of a series of Debt
Securities, subject to such provisions for the indemnification of the
Debenture Trustee, the Holders of a majority in principal amount of the
outstanding Debt Securities of such series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee, with respect to the Debt Securities of such series;
provided that if an Event of Default occurs and is continuing with respect to
more than one series of Debt Securities, the Holders of a majority of the
aggregate principal amount of the outstanding Debt Securities of all such
series, considered as one class, will have the right to make such direction,
and not the Holders of the Debt Securities of any one of such series; and
provided, further, that such direction will not be in conflict with any rule
of law or with the Indenture. (Section 812).
No Holder of Debt Securities of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Debenture Trustee written notice of a
continuing Event of Default with respect to the Debt Securities of such
series, (ii) the Holders of not less than a majority in aggregate principal
amount of the outstanding Debt Securities of all series in respect of which an
Event of Default shall have occurred and be continuing, considered as one
class, have made written request to the Debenture Trustee, and such Holder or
Holders have offered reasonable indemnity to the Debenture Trustee to
institute such proceeding in respect of such Event of Default in its own name
as trustee and (iii) the Debenture Trustee has failed to institute any
proceeding, and has not received from the Holders of a majority of the
aggregate principal amount of the outstanding Debt Securities of such series a
direction inconsistent with such request, within 60 days after such notice,
request and offer. (Section 807). However, such limitations do not apply to a
suit instituted by a Holder of a Debt Security for the enforcement of payment
of the principal of or any premium or interest on such Debt Security on or
after the applicable due date specified in such Debt Security. (Section 808).
The Company will be required to furnish to the Debenture Trustee annually a
statement by an appropriate officer as to such officer's knowledge of the
Company's compliance with all conditions and covenants under the Indenture,
such compliance to be determined without regard to any period of grace or
requirement of notice under the Indenture. (Section 606).
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an Event of Default has occurred and is continuing, then the Holders of
Preferred Securities would rely on the enforcement by the Property Trustee or
the Debenture Trustee, acting for the benefit of the Property Trustee, of its
rights as a holder of the Subordinated Debentures against the Company.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
principal of or interest on the Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on
the Redemption Date), then a Holder of Preferred Securities may directly
institute a proceeding against the Company, without first proceeding against
Atlantic Capital or the Property Trustee, for enforcement of payment to such
Holder of the principal of or interest on the Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such Holder after the respective due dates specified in the
Subordinated Debentures. In connection with such an enforcement proceeding,
the Company will be subrogated to the rights of such Holder of Preferred
Securities with respect to payments on the Preferred Securities to the extent
of any payment made by the Company to such Holder of Preferred Securities in
such proceeding.
The Holders of the Preferred Securities would not be able to exercise
directly against the Company any rights other than those set forth in the
preceding paragraph available to the holders of the Subordinated Debentures
unless the Property Trustee or the Debenture Trustee, acting for the benefit
of the Property Trustee,
30
<PAGE>
fails to do so for 60 days. In such event, to the fullest extent permitted by
law, the holders of at least 25% of the aggregate liquidation amount of the
outstanding Preferred Securities would have the right to directly institute
proceedings for enforcement of such rights.
MODIFICATION AND WAIVER
Without the consent of any Holder of Debt Securities, the Company and the
Debenture Trustee may enter into one or more supplemental indentures for any
of the following purposes: (i) to evidence the assumption by any permitted
successor to the Company of the covenants of the Company in the Indenture and
in the Debt Securities; or (ii) to add one or more covenants of the Company or
other provisions for the benefit of the Holders of outstanding Debt Securities
or to surrender any right or power conferred upon the Company by the
Indenture; or (iii) to add any additional Events of Default with respect to
outstanding Debt Securities; or (iv) to change or eliminate any provision of
the Indenture or to add any new provision to the Indenture, provided that if
such change, elimination or addition will affect adversely the interests of
the Holders of Debt Securities of any series in any material respect, such
change, elimination or addition will become effective with respect to such
series only (a) when the consent of the Holders of Debt Securities of such
series has been obtained in accordance with the Indenture, or (b) when no Debt
Securities of such series remain outstanding under the Indenture; or (v) to
provide collateral security for all but not part of the Debt Securities; (vi)
to establish the form or terms of Debt Securities of any other series as
permitted by the Indenture; or (vii) to provide for the authentication and
delivery of bearer securities and coupons appertaining thereto representing
interest, if any, thereon and for the procedures for the registration,
exchange and replacement thereof and for the giving of notice to, and the
solicitation of the vote or consent of, the Holders thereof, and for any and
all other matters incidental thereto; or (viii) to evidence and provide for
the acceptance of appointment of a successor Debenture Trustee under the
Indenture with respect to the Debt Securities of one or more series and to add
to or change any of the provisions of the Indenture as shall be necessary to
provide for or to facilitate the administration of the trusts under the
Indenture by more than one trustee; or (ix) to provide for the procedures
required to permit the utilization of a noncertificated system of registration
for the Debt Securities of all or any series; or (x) to change any place where
(a) the principal of and premium, if any, and interest, if any, on all or any
series of Debt Securities shall be payable, (b) all or any series of Debt
Securities may be surrendered for registration of transfer or exchange and (c)
notices and demands to or upon the Company in respect of Debt Securities and
the Indenture may be served; or (xi) to cure any ambiguity or inconsistency or
to add or change any other provisions with respect to matters and questions
arising under the Indenture, provided such changes or additions shall not
adversely affect the interests of the Holders of Debt Securities of any series
in any material respect. (Section 1201).
The Holders of at least a majority of the aggregate principal amount of the
outstanding Debt Securities of all series may waive compliance by the Company
with certain restrictive provisions of the Indenture. (Section 607). The
Holders of not less than a majority in principal amount of the outstanding
Debt Securities of any series may waive any past default under the Indenture
with respect to such series, except a default in the payment of principal,
premium, or interest and certain covenants and provisions of the Indenture
that cannot be modified or be amended without the consent of the Holder of
each outstanding Debt Security of such series affected. (Section 813).
Without limiting the generality of the foregoing, if the Trust Indenture Act
is amended after the date of the Indenture in such a way as to require changes
to the Indenture or the incorporation therein of additional provisions or so
as to permit changes to, or the elimination of, provisions which, at the date
of the Indenture or at any time thereafter, were required by the Trust
Indenture Act to be contained in the Indenture, the Indenture will be deemed
to have been amended so as to conform to such amendment of the Trust Indenture
Act or to effect such changes, additions or elimination, and the Company and
the Debenture Trustee may, without the consent of any Holders, enter into one
or more supplemental indentures to evidence or effect such amendment. (Section
1201).
Except as provided above, the consent of the Holders of not less than a
majority of the aggregate principal amount of the outstanding Debt Securities
of all series, considered as one class, is required for the purpose of
31
<PAGE>
adding any provisions to, or changing in any manner, or eliminating any of the
provisions of, the Indenture or modifying in any manner the rights of the
Holders of such Debt Securities under the Indenture pursuant to one or more
supplemental indentures; provided that if less than all of the series of
outstanding Debt Securities are affected directly by a proposed supplemental
indenture, then the consent only of the Holders of a majority of the aggregate
principal amount of outstanding Debt Securities of all series so directly
affected, considered as one class, will be required; and provided further,
that no such amendment or modification may (i) change the stated maturity of
the principal of, or any installment of principal of or interest on, any Debt
Security, or reduce the principal amount thereof or the rate of interest
thereon (or the amount of any installment of interest thereon) or change the
method of calculating such rate or reduce any premium payable upon the
redemption thereof, or change the coin or currency (or other property) in
which any Debt Security or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on
or after the stated maturity of any Debt Security (or, in the case of
redemption, on or after the Redemption Date) without, in any such case, the
consent of the Holder of such Debt Security, (ii) reduce the percentage in
principal amount of the outstanding Debt Security of any series, (or, if
applicable, in liquidation amount of Preferred Securities) the consent of the
Holders of which is required for any such supplemental indenture, or the
consent of the Holders of which is required for any waiver of compliance with
any provision of the Indenture or any default thereunder and its consequences,
or reduce the requirements for quorum or voting, without, in any such case,
the consent of the Holder of each outstanding Debt Security of such series, or
(iii) modify certain of the provisions of the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers of past
defaults with respect to the Debt Security of any series, without the consent
of the Holder of each outstanding Debt Security affected thereby. A
supplemental indenture that changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of one or more particular series of Debt Securities, or modifies the
rights of the Holders of Debt Securities of such series with respect to such
covenant or other provision, will be deemed not to affect the rights under the
Indenture of the Holders of the Debt Securities of any other series. (Section
1202).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver under the
Indenture, or whether a quorum is present at the meeting of the Holders of
Debt Securities, Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor (unless the Company, such affiliate or such obligor owns all Debt
Securities outstanding under the Indenture, determined without regard to this
provision) shall be disregarded and deemed not to be outstanding. (Section
101).
If the Company shall solicit from Holders any request, demand,
authorization, direction, notice, consent, election, waiver or other act, the
Company may, at its option, fix in advance a record date for the determination
of Holders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other such act, but the Company shall have no
obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of the outstanding
Debt Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and
for that purpose the outstanding Debt Securities shall be computed as of the
record date. Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of a Holder shall bind every future Holder of
the same Debt Security and the Holder of every Debt Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Debenture
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Debt Security. (Section 104).
RESIGNATION OF DEBENTURE TRUSTEE
The Debenture Trustee may resign at any time by giving written notice
thereof to the Company or may be removed at any time with respect to the Debt
Securities of any series by the Holders of a majority of the principal
32
<PAGE>
amount of the outstanding Debt Securities of such series. No resignation or
removal of the Debenture Trustee and no appointment of a successor trustee
will become effective until the acceptance of appointment by a successor
trustee in accordance with the requirements of the Indenture. So long as no
Event of Default or event which, after notice or lapse of time, or both, would
become an Event of Default has occurred and is continuing and except with
respect to a Debenture Trustee appointed by the Holders, if the Company has
delivered to the Debenture Trustee a resolution of its board of directors
appointing a successor trustee and such successor has accepted such
appointment in accordance with the terms of the Indenture, the Debenture
Trustee will be deemed to have resigned and the successor will be deemed to
have been appointed as trustee in accordance with the Indenture. (Section
910).
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York.
CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee under the Indenture is The Bank of New York. In
addition, The Bank of New York acts as Property Trustee under the Trust
Agreement and as Guarantee Trustee under the Guarantee. See "Description of
the Preferred Securities--Concerning the Property Trustee."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences that may be relevant to the purchase, ownership and
disposition of the Preferred Securities and where noted constitutes the
opinion of Simpson Thacher & Bartlett, special United States federal income
tax counsel to the Company and Atlantic Capital ("Tax Counsel"). Unless
otherwise stated, this summary deals only with Preferred Securities held as
capital assets by United States Persons (defined below) who purchase the
Preferred Securities upon original issuance at their original offering price.
As used herein, a "United States Person" means (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) any trust if
a court within the United States is able to exercise primary supervision over
the administration of such trust and one or more United States Persons have
the authority to control all the substantial decisions of such trust. The tax
treatment of a holder may vary depending on his, her or its particular
situation. This summary does not address all the tax consequences that may be
relevant to a particular holder or to holders who may be subject to special
tax treatment, such as banks, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, persons holding Preferred Securities as part
of a hedging, conversion or constructive sale transaction or a straddle or
foreign investors. In addition, this summary does not include any description
of any alternative minimum tax consequences or the tax laws of any state,
local or foreign government that may be applicable to a holder of Preferred
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Tax Counsel are not binding on the
Internal Revenue Service ("IRS") or the courts, either of which could take a
contrary position. Moreover, no rulings have been or will be sought by the
Company from the IRS with respect to the transactions described herein.
Accordingly, there can be no assurance that the IRS will not challenge the
opinions expressed herein or that a court would not sustain such a challenge.
Nevertheless, Tax Counsel has advised that it is of the view that, if
challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
33
<PAGE>
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION
OF THE PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE
"DESCRIPTION OF THE PREFERRED SECURITIES--SPECIAL EVENT REDEMPTION OR
DISTRIBUTION."
CLASSIFICATION OF ATLANTIC CAPITAL
In connection with the issuance of the Preferred Securities, Tax Counsel is
of the opinion that under current law and assuming full compliance with the
terms of the Trust Agreement and other documents, and based upon certain facts
and assumptions contained in such opinion, Atlantic Capital will be classified
as a grantor trust for United States federal income tax purposes and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each beneficial owner (a "holder") of Preferred
Securities generally will be treated as owning an undivided beneficial
interest in the Subordinated Debentures and, thus, will be required to include
in its gross income its pro rata share of the interest income or original
issue discount that is paid or accrued on the Subordinated Debentures. See "--
Interest Income and Original Issue Discount."
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company, Atlantic Capital and the holders of the Preferred Securities
(by acceptance of a beneficial interest in a Preferred Security) will agree to
treat the Subordinated Debentures as indebtedness for all United States tax
purposes. Recently, a petition was filed in the United States Tax Court as a
result of a challenge by the IRS of the petitioner's treatment as indebtedness
of a loan issued in circumstances with similarities to the issuance of the
Subordinated Debentures. Nevertheless, in connection with the issuance of the
Subordinated Debentures, Tax Counsel is of the opinion that under current law,
and based on certain representations, facts and assumptions set forth in such
opinion, the Subordinated Debentures will be classified as indebtedness for
United States federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
It is anticipated that the Subordinated Debentures will not be issued with
an issue price that is less than their stated redemption price at maturity. In
such case, under applicable Treasury regulations, the Subordinated Debentures
will not be considered to have been issued with OID within the meaning of
section 1273(a) of the Code. Accordingly, except as set forth below, stated
interest on the 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 regular method of tax accounting.
If, however, the Company exercises its right to defer payments of interest
on the Subordinated Debentures, the Subordinated Debentures will become OID
instruments at such time and all holders will be required to accrue the stated
interest on the Subordinated Debentures on a daily economic accrual basis
(using the constant-yield-to-maturity method of accrual described in section
1272 of the Code) during the Extension Period even though the Company will not
pay such interest until the end of the Extension Period, and even though some
holders may use the cash method of tax accounting. Moreover, thereafter the
Subordinated Debentures will be taxed as OID instruments for as long as they
remain outstanding. Thus, even after the end of the Extension Period, all
holders would be required to continue to include the stated interest on the
Subordinated Debentures (and any "de minimis OID") in income on a daily
economic accrual basis, regardless of their method of tax accounting and in
advance of receipt of the cash attributable to such interest income. Under the
OID economic accrual rules, a holder would accrue an amount of interest income
each year that approximates the stated interest payments called for under the
terms of the Subordinated Debentures, and actual cash payments of interest on
the Subordinated Debentures would not be reported separately as taxable
income. Any amount of OID included in a holder's gross income (whether or not
during an Extension Period) with respect to a Preferred Security will increase
such
34
<PAGE>
holder's tax basis in such Preferred Security, and the amount of distributions
received by a holder in respect of such accrued OID will reduce the tax basis
of such Preferred Security.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. For example, if the IRS were to assert
successfully that the stated interest on the Subordinated Debentures was OID
regardless of whether the Company exercises its option to defer payments of
interest on such Subordinated Debentures, all holders of Preferred Securities
would be required to include such stated interest in income on a daily
economic accrual basis as described above.
Corporate holders of Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized by such
holders with respect to the Preferred Securities.
DISTRIBUTION OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF ATLANTIC
CAPITAL
As described under the caption "Description of the Preferred Securities"
Subordinated Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of Atlantic Capital. Provided Atlantic
Capital is classified as a grantor trust, such a distribution would generally
be non-taxable, and would result in the holder receiving directly its pro rata
share of the Subordinated Debentures previously held indirectly through
Atlantic Capital, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis such holder had in its Preferred
Securities before such distribution. If, however, a Tax Event occurs which
results in Atlantic Capital being treated as an association taxable as a
corporation, the distribution would constitute a taxable event to holders of
Preferred Securities and the Company could, at its option, redeem the
Subordinated Debentures and distribute the resulting cash in liquidation of
Atlantic Capital.
A holder would accrue interest in respect of the Subordinated Debentures
received from Atlantic Capital in the manner described above under "--Interest
Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of Preferred
Securities"), the Subordinated Debentures may be redeemed for cash, with the
proceeds of such redemption distributed to holders in redemption of their
Preferred Securities. Such a redemption would constitute a taxable disposition
of the redeemed Preferred Securities for United States federal income tax
purposes, and a holder would recognize gain or loss as if it sold such
redeemed Preferred Securities for cash. See "--Sales of Preferred Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between the amount realized by the holder on the sale or
redemption of the Preferred Securities (except for an amount equal to any
accrued but unpaid interest on such holder's allocable share of the
Subordinated Debentures that such holder has not included in income
previously, which will be taxable as such) and the holder's adjusted tax basis
in the Preferred Securities sold or redeemed. Such gain or loss generally will
be a capital gain or loss and generally will be a long-term capital gain or
loss if the Preferred Securities have been held for more than one year.
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation. Holders should
consult their own tax advisors regarding the capital gains rates applicable to
them. Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States federal income tax purposes.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any person that is
not a United States Person. As discussed above, the Preferred Securities will
be treated as evidence of an indirect beneficial ownership interest in the
Subordinated Debentures. See "--Classification of Atlantic Capital." Thus,
under present United States federal income tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any paying agent of principal
or interest (which for purposes of this discussion includes
35
<PAGE>
any OID) on the Preferred Securities (or the Subordinated Debentures) to a
Non-United States Holder, provided (i) that the beneficial owner of the
Preferred Securities ("Beneficial Owner") does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) the
Beneficial Owner is not a controlled foreign corporation that is related to
the Company through stock ownership, (iii) the Beneficial Owner is not a
bank whose receipt of interest on the Subordinated Debentures is described
in section 881(c)(3)(A) of the Code and (iv) the Beneficial Owner satisfies
the statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder; and
(b) no withholding of United States federal income tax will be required
with respect to any gain realized by a Non-United States Holder upon the
sale or other disposition of the Preferred Securities (or the Subordinated
Debentures).
To satisfy the requirement referred to in (a)(iv) above, the Beneficial
Owner, or a financial institution holding the Preferred Securities on behalf
of such owner, must provide, in accordance with specified procedures, to
Atlantic Capital or its paying agent, a statement to the effect that the
Beneficial Owner is not a United States Person. These requirements will be met
if (1) the Beneficial Owner provides his name and address, and certifies,
under penalties of perjury, that it is not a United States Person (which
certification may be made on an IRS Form W-8 (or successor form)) or (2) a
financial institution holding the Preferred Securities on behalf of the
Beneficial Owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof.
Under final Treasury regulations ("Final Regulations"), the statement
requirement referred to in (a)(iv) above may also be satisfied with other
documentary evidence for interest paid after December 31, 1999 with respect to
an offshore account or through certain foreign intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest (including any OID) made to such Non-United States Holder
will be subject to a 30% United States withholding tax unless the Beneficial
Owner provides the Company or its paying agent, as the case may be, with a
properly executed (1) IRS Form 1001 (or successor form) claiming an exemption
from, or a reduction of, such withholding tax under the benefit of an
applicable tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Preferred Securities (or the Subordinated Debentures) is
not subject to such withholding tax because it is effectively connected with
the Beneficial Owner's conduct of a trade or business in the United States.
Under the Final Regulations, Non-United States Holders will generally be
required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224,
although alternative documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Preferred Securities (or Subordinated
Debentures) is effectively connected with the conduct of such trade or
business, the Non-United States Holder, although exempt from the withholding
tax discussed above, will be subject to United States federal income tax on
such interest on a net income basis in the same manner as if it were a United
States Person. In addition, if such Non-United States Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or lesser
rate under an applicable tax treaty) of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, such
interest would be included in such foreign corporation's earnings and profits.
Any gain realized upon the sale or other disposition of the Preferred
Securities (or the Subordinated Debentures) generally will not be subject to
United States federal income tax unless (i) such gain is effectively connected
with a trade or business in the United States of the Non-United States Holder,
(ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale, exchange or retirement, and certain other conditions are
met, or (iii) in the case of any gain representing accrued interest on the
Subordinated Debentures, the requirements described above are not satisfied.
36
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Preferred Securities held of record by United States Persons
(other than corporations and other exempt holders) will be reported annually
to such holders and to the IRS. Such income will be reported to holders on
Forms 1099, which should be mailed to the holders of record prior by January
31 following each calendar year.
"Backup withholding" at a rate of 31% generally will apply to payments of
interest to non-exempt United States Persons unless the holder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
In general, no information reporting or backup withholding will be required
with respect to payments made by Atlantic Capital or any paying agent to Non-
United States Holders if a statement described in (a)(iv) under "Non-United
States Holders" has been received and the payor does not have actual knowledge
that the beneficial owner is a United States Person.
In addition, backup withholding and information reporting may apply to the
proceeds from disposition of Preferred Securities (or Subordinated Debentures)
within the United States or conducted through certain United States related
financial intermediaries unless the statement described in (a)(iv) under "Non-
United States Holders" has been received (and the payor does not have actual
knowledge that the beneficial owner is a United States Person) or the holder
otherwise establishes an exemption.
Any amounts withheld from a holder of the Preferred Securities under the
backup withholding rules generally will be allowed as a refund or a credit
against such holder's United States federal income tax liability, provided the
required information is furnished to the IRS.
VALIDITY OF THE SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of
Atlantic Capital are being passed upon by Richards, Layton & Finger, Special
Delaware counsel for the Company and Atlantic Capital. The validity of the
Guarantee and the Subordinated Debentures will be passed upon for the Company
by Simpson Thacher & Bartlett, Counsel for the Company, and for the
Underwriters by Thelen Reid & Priest LLP. Simpson Thacher & Bartlett and
Thelen Reid & Priest LLP may rely as to matters of New Jersey law upon the
opinion of Pamela D. Joseph, Counsel for the Company. From time to time,
Thelen Reid & Priest LLP has represented the Company with respect to matters
unrelated to the Preferred Securities.
R. Franklin Balotti, a director for the Company, is a member of the law firm
of Richards, Layton & Finger, the Special Delaware counsel. However, Mr.
Balotti is not directly involved with the transactions described herein, other
than in his role as a director for the Company.
Certain matters relating to United States federal income tax considerations
will be passed upon for the Company and Atlantic Capital by Simpson Thacher &
Bartlett.
37
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each of the Underwriters named below for whom
Morgan Stanley & Co. Incorporated, Legg Mason Wood Walker Incorporated and
Wheat First Securities, Inc. are acting as representatives (the
"Representatives") has severally agreed to purchase, and Atlantic Capital has
agreed to sell to each of the Underwriters, severally, the respective number
of Preferred Securities set opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
Morgan Stanley & Co. Incorporated....................
Legg Mason Wood Walker Incorporated..................
Wheat First Securities, Inc. ........................
---------
Total............................................ 1,000,000
=========
</TABLE>
The Underwriting Agreement provides that the several obligations of the
Underwriters to pay for and accept delivery of the Preferred Securities are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. In the Underwriting Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the Preferred Securities offered hereby if any of the
Preferred Securities are purchased. In the event of default by an Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Underwriters initially propose to offer all or part of the Preferred
Securities directly to the public at the price to public set forth on the
cover page of this Prospectus, and all or part to certain dealers at a price
that represents a concession not in excess of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Preferred Security to certain other dealers. After the
initial offering of the Preferred Securities, the offering price and other
selling terms may from time to time be varied by the Representatives.
Because the proceeds of the sale of the Preferred Securities will ultimately
be used to purchase the Subordinated Debentures, the Underwriting Agreement
provides that the Company will pay to the Underwriters as compensation for
their services, $ per Preferred Security (or $ in the aggregate); provided
that such compensation will be $ per Preferred Security sold to certain
institutions.
Prior to this offering, there has been no public market for the Preferred
Securities. Application has been made to list the Preferred Securities on the
NYSE. Listing is contingent upon meeting the requirements of the NYSE,
including those relating to distribution. In order to meet one such
requirement, the Underwriters have undertaken to sell lots of 100 or more
Preferred Securities to a minimum of 400 beneficial holders. Trading of the
Preferred Securities on the NYSE is expected to commence within a 30-day
period after the date of this Prospectus. The Underwriters have advised
Atlantic Capital that they intend to make a market in the Preferred Securities
prior to the commencement of trading on the NYSE. The Underwriters will have
no obligation to make a market in the Preferred Securities, however, and may
cease market making activities, if commenced, at any time.
The Company and Atlantic Capital have agreed that, during a period of thirty
days from the date of this Prospectus, neither will offer, sell, contract to
sell or otherwise dispose of any securities of the Company or Atlantic Capital
that are substantially similar to the Preferred Securities, or that are
convertible into or exchangeable for, or otherwise represent a right to
receive, any such securities, except in this offering or with the prior
written consent of the Underwriters.
Atlantic Capital and the Company have agreed to indemnify the Underwriters
against or contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the 1933
Act.
38
<PAGE>
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Preferred Securities. Specifically, the Underwriters may
overallot by selling more Preferred Securities than they are committed to
purchase from Atlantic Capital. In such a case, to cover all or part of the
short position, the Underwriters may purchase Preferred Securities in the open
market following completion of the initial offering of the Preferred
Securities. The Underwriters also may engage in stabilizing transactions in
which they bid for, and purchase, Preferred Securities at a level above that
which might otherwise prevail in the open market. Neither the Company nor any
Underwriter makes any representation or prediction as to the direction or
magnitude of any offer that the transactions described above may have on the
price of the Preferred Securities. The Underwriters are not required to engage
in any of the foregoing transactions and, if commenced, such transactions may
be discontinued at anytime without notice.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or financial services to
the Company and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
39
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the securities to be
registered.
<TABLE>
<S> <C>
Filing fee--Securities and Exchange Commission....................... $ 8,850
Filing fee--New York Stock Exchange.................................. 17,700
Trustees' Fees, including counsel.................................... 25,000
Company Counsel Fees................................................. 145,000
Auditors' fees....................................................... 30,000
Rating agencies' fees................................................ 35,000
Printing, including Registration Statements, prospectuses, exhibits,
etc................................................................. 30,000
Blue Sky fees and expenses........................................... 10,000
Miscellaneous........................................................ 15,000
--------
Total expenses................................................... $316,550
========
</TABLE>
II-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF WILMINGTON, STATE OF DELAWARE, ON
OCTOBER 22, 1998.
Atlantic City Electric Company
(Registrant)
/s/ Barbara S. Graham
By___________________________________
(Barbara S. Graham,
Senior Vice President and
Chief Financial Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Howard E. Cosgrove Chairman of the
- ------------------------------------- Board, Chief October 22,
(HOWARD E. COSGROVE) Executive Officer 1998
and Director
/s/ Barbara S. Graham Senior Vice
- ------------------------------------- President, Chief October 22,
(BARBARA S. GRAHAM) Financial Officer 1998
and Director
/s/ James P. Lavin Controller and Chief
- ------------------------------------- Accounting Officer October 22,
(JAMES P. LAVIN) 1998
Director
/s/ Barry R. Elson October 22,
- ------------------------------------- 1998
(BARRY R. ELSON)
/s/ Meredith I. Harlacher, Jr. Director
- ------------------------------------- October 22,
(MEREDITH I. HARLACHER, JR.) 1998
/s/ Thomas S. Shaw Director
- ------------------------------------- October 22,
(THOMAS S. SHAW) 1998
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF WILMINGTON, STATE OF DELAWARE, ON
OCTOBER 22, 1998.
Atlantic Capital ii
By: Atlantic City Electric Company,
as Depositor
/s/ Barbara S. Graham
By___________________________________
(Barbara S. Graham,
Senior Vice President and
Chief Financial Officer)
II-3
