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PROSPECTUS FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-38207
[LOGO]
SAFECO CORPORATION
OFFER TO EXCHANGE ITS
6 7/8% NOTES DUE JULY 15, 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
6 7/8% NOTES DUE JULY 15, 2007
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON DECEMBER 15, 1997 UNLESS EXTENDED.
SAFECO Corporation, a Washington corporation (the "Corporation"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, this
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $200,000,000 aggregate
principal amount of its 6 7/8% Notes due July 15, 2007 (the "Exchange Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for a like principal amount of its
outstanding 6 7/8% Notes due July 15, 2007 (the "Original Notes"), of which
$200,000,000 aggregate principal amount are issued and outstanding. The Original
Notes and the Exchange Notes are sometimes collectively referred to herein as
the "Notes." See "The Exchange Offer" and "Description of Exchange Notes."
The terms of the Exchange Notes are identical in all material respects to
the terms of the Original Notes, except that (i) the Exchange Notes have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Original Notes, and (ii) the Exchange
Notes will not provide for any increase in the interest rate thereon. See
"Description of Exchange Notes." The Exchange Notes are being offered for
exchange in order to satisfy certain obligations of the Corporation under the
Registration Rights Agreement dated as of July 15, 1997 (the "Registration
Rights Agreement") between the Corporation and the Initial Purchaser (as defined
below).
(CONTINUED ON THE FOLLOWING PAGE)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of the Original Notes on November 12, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL NOTES IN THE
EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 10, 1997.
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The Exchange Notes will be unsecured indebtedness of the Corporation, will
rank PARI PASSU in right of payment with all other unsubordinated and unsecured
indebtedness of the Corporation and will mature on July 15, 2007. Interest on
the Exchange Notes will accrue from July 15, 1997 and will be payable in cash on
each January 15 and July 15, commencing January 15, 1998. In the event that the
Exchange Offer is consummated, any Original Notes that remain outstanding after
consummation of the Exchange Offer and the Exchange Notes issued in the Exchange
Offer will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding principal amount thereof have
taken certain actions or exercised certain rights under the Indenture dated as
of July 15, 1997 between the Corporation and The Chase Manhattan Bank, as
trustee (the "Trustee"), as amended and supplemented from time to time relating
to the Notes (the "Indenture").
The Corporation sold the Original Notes in an offering exempt from the
registration requirements of the Securities Act, which was consummated on July
15, 1997 (the "Closing Date"). On the Closing Date, a subsidiary trust of the
Corporation also issued $850,000,000 aggregate liquidation amount of 8.072%
Series A capital securities (the "Original 8.072% Capital Securities"), the
proceeds of which were invested in junior subordinated deferrable interest
debentures of the Corporation, and guaranteed payments of cash distributions and
certain other payments by its subsidiary trust (such Original 8.072% Capital
Securities, debentures and guarantee, the "Original Capital Securities"). The
Corporation currently anticipates a separate exchange offer by the Corporation
and its subsidiary trust of up to $850,000,000 aggregate liquidation amount of
8.072% Series B capital securities (the "Exchange 8.072% Capital Securities"),
together with a like principal amount of junior subordinated deferrable interest
debentures and a like guarantee in respect of the Exchange 8.072% Capital
Securities (such Exchange 8.072% Capital Securities, debentures and guarantee,
the "Exchange Capital Securities") which have been registered under the
Securities Act, for the 8.072% Capital Securities. The Original 8.072% Capital
Securities and the Exchange 8.072% Capital Securities are sometimes collectively
referred to herein as the "8.072% Capital Securities"). The exchange offer for
the Original 8.072% Capital Securities will be made through a separate
prospectus, and the Exchange Offer made hereby is not contingent upon completion
of the exchange offer for the Original 8.072% Capital Securities.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Original Notes acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Corporation has agreed
that, ending on the close of business on the 180th day following the Expiration
Date (as defined below), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, a broker-dealer who acquired Original Notes for its own
account, as a result of market-making activities or other trading activities (a
"Participating Broker-Dealer"), and who intends to use this Prospectus in
connection with the resale of Exchange Notes received in exchange for Original
Notes pursuant to the Exchange Offer must notify the Corporation, or cause the
Corporation to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided for
that purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein under "The Exchange Offer--
Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of the
Corporation may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Resales of
Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Original
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal, that upon receipt of notice from the Corporation
of the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of Exchange Notes pursuant to this Prospectus until the Corporation has
amended or supplemented this Prospectus to correct such misstatement or omission
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and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer, or the Corporation has given notice that the sale
of the Exchange Notes may be resumed, as the case may be. If the Corporation
gives such notice to suspend the sale of the Exchange Notes, it shall extend the
180-day period referred to above during which Participating Broker-Dealers are
entitled to use this Prospectus in connection with the resale of Exchange Notes
by the number of days during the period from and including the date of the
giving of such notice to and including the date when Participating Broker-
Dealers shall have received copies of the amended or supplemented Prospectus
necessary to permit resales of the Exchange Notes or to and including the date
on which the Corporation has given notice that the sale of Exchange Notes may be
resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Original Notes. The Exchange Notes will be a new
issue of securities for which there currently is no market. Although Smith
Barney Inc., the initial purchaser of the Original Notes (the "Initial
Purchaser'), has informed the Corporation that it currently intends to make a
market in the Exchange Notes, it is not obligated to do so, and any such market
making may be discontinued at any time without notice. Accordingly, there can be
no assurance as to the development or liquidity of any market for the Exchange
Notes. The Corporation currently does not intend to apply for listing of the
Exchange Notes on any securities exchange or for quotation through Nasdaq.
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Original Notes will
continue to be subject to all of the existing restrictions upon transfer thereof
and the Corporation will not have any further obligation to such holders (other
than under certain limited circumstances) to provide for registration under the
Securities Act of the Original Notes held by them. To the extent that Original
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered Original Notes could be adversely affected. See "Risk
Factors--Consequences of a Failure to Exchange Original Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
Original Notes may be tendered for exchange on or prior to 5:00 p.m., New
York City time, on December 15, 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Corporation (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). Tenders of Original Notes may
be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum principal amount of Original Notes being
tendered for exchange. However, the Exchange Offer is subject to certain events
and conditions which may be waived by the Corporation and to the terms and
provisions of the Registration Rights Agreement. Original Notes may be tendered
in whole or in part in integral multiples of $1,000 principal amount. The
Corporation has agreed to pay all expenses of the Exchange Offer. See "The
Exchange Offer--Fees and Expenses." Holders of the Original Notes whose Original
Notes are accepted for exchange will not receive interest on such Original Notes
and will be deemed to have waived the right to receive any interest on such
Original Notes accumulated from and after July 15, 1997. Accordingly, holders of
Exchange Notes as of the record date for the payment of interest on January 15,
1998 will be entitled to receive interest accumulated from and after July 15,
1997. See "The Exchange Offer--Interest Payments on Exchange Notes."
The Corporation will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
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FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements other
than statements of historical fact made in this Prospectus or incorporated by
reference are forward-looking. In particular, the statements under the headings
"Prospectus Summary," and those located elsewhere herein regarding industry
prospects, the Corporation's future results of operations or financial position
and pro forma information are forward-looking statements. Forward-looking
statements represent management's current expectations and are inherently
uncertain. Investors are warned that the Corporation's actual results may differ
significantly from management's expectations and, therefore, from the results
discussed in such forward-looking statements. Factors that might cause such
differences include, but are not limited to, the "Risk Factors" described
herein.
AVAILABLE INFORMATION
Effective October 1, 1997, the Corporation acquired American States
Financial Corporation ("American States"), through the merger of American States
with a subsidiary of the Corporation (the "Acquisition"). Certain information
about American States has been incorporated into this Prospectus by reference.
See "Incorporation of Certain Documents by Reference" and "Prospectus
Summary--SAFECO-- Acquisition of American States."
The Corporation is, and American States prior to the Acquisition was,
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith, files (or
filed with respect to American States prior to the Acquisition) reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such information
may also be accessed electronically by means of the Commission's home page on
the Internet (http://www.sec.gov). In addition, such reports, proxy statements
and other information concerning the Corporation may be inspected at the offices
of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006 on which
certain securities of the Corporation are quoted and such reports, proxy
statements and other information concerning American States may be inspected at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, on which certain securities of American States were listed prior to
the Acquisition.
The Corporation has filed with the Commission a Registration Statement on
Form S-4, of which this Prospectus forms a part (the "Registration Statement"),
to register the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted from this Prospectus in accordance with the rules and regulations of
the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document do not purport to be complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. Items omitted from this
Prospectus but contained in the Registration Statement may be inspected and
copied as described above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated into this
Prospectus by reference:
1. The Corporation's Annual Report on Form 10-K for the year ended December
31, 1996 (File No. 1-6563);
2. The Corporation's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 (File No. 1-6563) and June 30, 1997 (File No. 1-6563);
3. The Corporation's Current Reports on Form 8-K filed with the Commission
on June 24, 1997 (File No. 1-6563), October 14, 1997 (File No. 1-6563),
October 15, 1997 (File No. 1-6563) and November 10, 1997 (File No.
1-6563);
4. American States' Annual Report on Form 10-K, Form 10-K/A(1) and Form
10-K/A(2) for the year ended December 31, 1996 (File No. 1-11733);
5. American States' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 (File No. 1-11733) and June 30, 1997 (File No. 1-11733);
and
6. American States' Current Reports on Form 8-K filed with the Commission
on March 28, 1997 (File No. 1-11733) and June 17, 1997 (File No.
1-11733).
All documents subsequently filed by the Corporation pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of any offering of securities made by this
Prospectus shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from their respective dates of filing. Any statement
made in this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that another statement contained
made in this Prospectus or in any other subsequently filed document that also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any modified or superseded statement shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Unless otherwise indicated, all references in this Prospectus to
documents "incorporated by reference" are to documents incorporated by reference
into this Prospectus. The Corporation will provide without charge to any person
to whom this Prospectus is delivered, on such person's request, a copy of any or
all of the documents incorporated by reference (other than exhibits not
specifically incorporated by reference into the texts of such documents).
Requests for such documents should be directed to SAFECO Investor Relations,
SAFECO Corporation, SAFECO Plaza, 4333 Brooklyn Avenue N.E., Seattle, Washington
98185. Telephone requests may be directed to SAFECO Investor Relations at (206)
545-5000.
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PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. THE
INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS THE OCTOBER 1, 1997
ACQUISITION (THE "ACQUISITION") OF AMERICAN STATES FINANCIAL CORPORATION THROUGH
A MERGER OF AMERICAN STATES WITH A NEWLY FORMED SUBSIDIARY OF SAFECO
CORPORATION. THE CORPORATION AND AMERICAN STATES ARE INSURANCE HOLDING
COMPANIES. EACH CONDUCTS ITS OPERATIONS THROUGH ITS SUBSIDIARIES AND HAS NO
DIRECT OPERATIONS. THE CORPORATION'S PRINCIPAL ASSETS ARE THE SHARES OF CAPITAL
STOCK OF ITS SUBSIDIARIES. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT
OTHERWISE REQUIRES, "SAFECO" REFERS TO SAFECO CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES, EXCLUDING AMERICAN STATES, "AMERICAN STATES" REFERS TO AMERICAN
STATES FINANCIAL CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES, AND THE
"CORPORATION" REFERS TO SAFECO, TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES,
INCLUDING AMERICAN STATES. UNLESS THE CONTEXT OTHERWISE REQUIRES, HISTORICAL
DATA FOR THE CORPORATION REFER TO COMBINED HISTORICAL DATA FROM SAFECO AND
AMERICAN STATES ON A PRO FORMA BASIS GIVING EFFECT TO THE ACQUISITION.
UNLESS OTHERWISE INDICATED, FINANCIAL INFORMATION AND OPERATING STATISTICS
APPLICABLE TO THE CORPORATION, SAFECO AND AMERICAN STATES SET FORTH IN THIS
PROSPECTUS OR INCORPORATED BY REFERENCE ARE BASED ON UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"), NOT STATUTORY ACCOUNTING PRACTICES
("SAP"). IN CONFORMITY WITH INDUSTRY PRACTICE, FINANCIAL INFORMATION AND
OPERATING STATISTICS APPLICABLE TO THE INSURANCE COMPANY SUBSIDIARIES OF THE
CORPORATION AND DATA DERIVED FROM A.M. BEST CORPORATION, INC. ("A.M. BEST") AND
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS ("NAIC") SOURCES, GENERALLY USED
FOR INDUSTRY COMPARISONS, ARE BASED ON SAP. INDUSTRY RANKINGS FOR THE
CORPORATION, WHICH ARE BASED ON A.M. BEST 1996 DATA, HAVE BEEN ADJUSTED TO GIVE
EFFECT TO THE ACQUISITION.
SEE "RISK FACTORS," IMMEDIATELY FOLLOWING THIS PROSPECTUS SUMMARY, FOR
CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO
TENDER ORIGINAL NOTES IN THE EXCHANGE OFFER.
SAFECO CORPORATION
OVERVIEW
The Corporation is one of the largest property and casualty insurance
companies in the United States. On a pro forma basis giving effect to the
Acquisition and related financings, the Corporation had consolidated revenues of
$5.9 billion in 1996, and total assets of $27.3 billion and total stockholders'
equity of $5.0 billion at June 30, 1997. The Corporation provides a broad range
of personal and commercial property and casualty insurance to individuals,
businesses, government entities and associations. SAFECO and American States
have each underwritten property and casualty insurance since the 1920s. Through
its insurance subsidiaries, the Corporation is licensed as a property and
casualty insurer in all 50 states and the District of Columbia, with a
significant presence in the Pacific Northwest and the Midwest. The Corporation's
property and casualty operations generated approximately 92% of the
Corporation's insurance revenues in 1996. Of the Corporation's 1996 net written
property and casualty premiums of $3.9 billion, personal and commercial lines
accounted for 60% and 40%, respectively.
The Corporation is the third largest writer of personal lines insurance
through independent agents in the United States and one of the largest writers
of personal lines insurance overall, based on 1996 net written premiums
published by A.M. Best. The Corporation's principal personal lines are
automobile and homeowners insurance, which accounted for 66% and 27%,
respectively, of the Corporation's approximately $2.4 billion of 1996 personal
lines net written premiums.
SAFECO significantly expanded its commercial lines business through the
Acquisition. Management believes that American States is one of the largest
writers in the United States of property and casualty insurance for businesses
with fewer than 50 employees. The Corporation's principal commercial lines are
commercial multi-peril, commercial automobile, workers' compensation and surety,
which accounted for
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33%, 22%, 21% and 4%, respectively, of the Corporation's approximately $1.6
billion of 1996 commercial lines net written premiums.
The Corporation also offers annuities, retirement services and group life
and health and individual life insurance. In addition, the Corporation conducts
commercial lending and leasing, asset management, insurance agency and financial
services distribution operations, and real estate investment and management.
RECENT DEVELOPMENTS
On September 2, 1997, the Corporation agreed to acquire Washington Mutual,
Inc.'s life insurance subsidiaries, WM Life Insurance Company and Empire Life
Insurance Company, and Washington Mutual, Inc., agreed to distribute SAFECO Life
annuity products through the Washington Mutual multi-state banking network. The
transaction is valued at $140.0 million. It must be approved by state insurance
regulators in the states of Arizona and Washington.
On October 13, 1997, the Corporation announced, based on a preliminary
review of results, that it expects its third quarter earnings from operations to
be $0.20 to $0.25 lower than the consensus estimates of research analysts of
$0.84 per share. Such consensus was based upon the earnings estimates survey by
First Call Corporation, an independent compiler of research analyst estimates of
public company results of operations. The variance relates primarily to several
unusually large losses in commercial lines, reduced credit to operations from
reserve adjustments on claims settled during the quarter, and net interest
charges for funds accumulated during the quarter that were used to close the
Acquisition. Based on the same preliminary review, the Corporation noted that
claims severity and frequency in its core voluntary personal automobile line
continue to be favorable and its overall loss reserve position continues to be
sound.
ACQUISITION OF AMERICAN STATES
Effective October 1, 1997, SAFECO acquired American States through the
merger of American States with a newly formed subsidiary of SAFECO. In
connection with the Acquisition, each share of outstanding common stock of
American States was converted into the right to receive $47.00 in cash, for an
aggregate purchase price of approximately $2.8 billion. SAFECO also repaid
approximately $300 million of outstanding debt obligations of American States.
SAFECO financed the purchase price for the Acquisition from various sources,
including proceeds from the issuance of the $200 million aggregate principal
amount of Original Notes, $850 million aggregate liquidation amount of the
8.072% Capital Securities and $1.5 billion of commercial paper. The Corporation
also repaid a portion of certain other indebtedness incurred to finance the
Acquisition with the net proceeds of $595.5 million from the issuance of common
stock, no par value (the "Common Stock"). See "Capitalization" and "Unaudited
Pro Forma Combined Condensed Financial Statements."
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THE EXCHANGE OFFER
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The Exchange Offer................ Up to $200,000,000 aggregate principal amount of
Exchange Notes are being offered in exchange for a like
aggregate principal amount of Original Notes. Original
Notes may be tendered for exchange in whole or in part
in an aggregate principal amount of $100,000 and
integral multiples of $1,000 in excess thereof. The
Corporation is making the Exchange Offer in order to
satisfy its obligations under the Registration Rights
Agreement relating to the Original Notes. For a
description of the procedures for tendering Original
Notes, see "The Exchange Offer--Procedures for Tendering
Original Notes."
Expiration Date................... 5:00 p.m., New York time, on December 15, 1997, unless
the Exchange Offer is extended by the Corporation (in
which case the Expiration Date will be the latest date
and time to which the Exchange Offer is extended). See
"The Exchange Offer--Terms of the Exchange Offer."
Conditions to the Exchange The Exchange Offer is subject to certain conditions,
Offer........................... which may be waived by the Corporation in its sole
discretion. The Exchange Offer is not conditioned upon
any minimum principal amount of Original Notes being
tendered. See "The Exchange Offer--Conditions to the
Exchange Offer."
Offer............................. The Corporation reserves the right in its sole and
absolute discretion, subject to applicable law, at any
time and from time to time, (i) to delay the acceptance
of the Original Notes for exchange, (ii) to terminate
the Exchange Offer if certain specified conditions have
not been satisfied, (iii) to extend the Expiration Date
of the Exchange Offer and retain all Original Notes
tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Original Notes to
withdraw their tendered Original Notes, or (iv) to waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights................. Tenders of Original Notes may be withdrawn at any time
on or prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange Agent
(as defined herein) in conformity with certain
procedures set forth below under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering
Original Notes.................. Brokers, dealers, commercial banks, trust companies and
other nominees who hold Original Notes through The
Depository Trust Company (the "Depository" or "DTC") may
effect tenders by book-entry transfer in accordance with
DTC's Automated Tender Offer Program ("ATOP"). Holders
of such Original Notes registered in the name of a
broker, dealer, commercial bank, trust company or other
nominee are urged to contact such person promptly if
they wish to tender Original Notes. In order for
Original Notes to be tendered by a means
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other than by book-entry transfer, a Letter of
Transmittal must be completed and signed in accordance
with the instructions contained therein. The Letter of
Transmittal and any other documents required by the
Letter of Transmittal must be delivered to The Chase
Manhattan Bank (the "Exchange Agent") by mail,
facsimile, hand delivery or overnight courier and either
such Original Notes must be delivered to the Exchange
Agent or specified procedures for guaranteed delivery
must be complied with. See "The Exchange
Offer--Procedures for Tendering Original Notes."
Letters of Transmittal and certificates representing
Original Capital Securities should not be sent to the
Corporation. Such documents should be sent only to the
Exchange Agent.
Resales of Exchange Notes......... The Corporation is making the Exchange Offer in reliance
on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties
in other transactions. However, the Corporation has not
sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation
Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it
has in such interpretive letters to third parties. Based
on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to
the two immediately following sentences, the Corporation
believes that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Original Notes may be
offered for resale, resold and otherwise transferred by
a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's
business and that such holder is not participating, and
has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of
the Securities Act) of such Exchange Notes. However, any
holder of Original Notes who is an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Corporation or who intends to participate in the
Exchange Offer for the purpose of distributing the
Exchange Notes, or any broker-dealer who purchased the
Original Notes from the Corporation to resell pursuant
to Rule 144A under the Securities Act ("Rule 144A") or
any other available exemption under the Securities Act,
(a) will not be able to rely on the interpretations of
the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender
such Original Notes in the Exchange Offer and (c) must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with
any sale or other transfer of such Original Notes unless
such sale is made pursuant to an exemption from such
requirements. In addition,
</TABLE>
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<TABLE>
<S> <C>
as described below, if any broker-dealer holds Original
Notes acquired for its own account as a result of
market-making or other trading activities and exchanges
such Original Notes for Exchange Notes, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resales of such Exchange Notes.
Each holder of Original Notes who wishes to exchange
Original Notes for Exchange Notes in the Exchange Offer
will be required to represent that (i) it is not an
"affiliate," as defined in Rule 405 under the Securities
Act, of the Corporation, (ii) any Exchange Notes to be
received by it are being acquired in the ordinary course
of its business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities Act)
of such Exchange Notes, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does
not intend to engage in, a distribution (within the
meaning of the Securities Act) of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its
own account in exchange for Original Notes, where such
Original Notes were acquired by such broker-dealer as a
result of market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution." The Letter
of Transmittal states that, by so acknowledging and by
delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Based on the position taken by the staff of the Division
of Corporation Finance of the Commission in the
interpretive letters referred to above, the Corporation
believes that Participating Broker-Dealers who acquired
Original Notes for their own accounts as a result of
market-making activities or other trading activities may
fulfill their prospectus deliver requirements with
respect to the Exchange Notes received upon exchange of
such Original Notes (other than Original Notes which
represent an unsold allotment from the initial sale of
the Original Notes) with a prospectus meeting the
requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with
respect to the resale of such Exchange Notes.
Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired by such
Participating Broker-Dealer for its own account as a
result of market-making or other trading activities.
Subject to certain provisions set forth in the
Registration Rights Agreement and to the limitations
described below in "The Exchange Offer--Resales of
Exchange Notes," the Corporation has agreed that this
Prospectus, as it may be
</TABLE>
10
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<TABLE>
<S> <C>
amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with
resales of such Exchange Notes for a period ending 180
days after the Expiration Date (subject to extension
under certain limited circumstances) or, if earlier,
when all such Exchange Notes have been disposed of by
such Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer who is an
"affiliate" of the Corporation may not rely on such
interpretive letters and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of
Exchange Notes."
Exchange Agent.................... The exchange agent with respect to the Exchange Offer is
The Chase Manhattan Bank. The addresses, and telephone
and facsimile numbers, of the Exchange Agent are set
forth in "The Exchange Offer--Exchange Agent" and in the
Letter of Transmittal. The Chase Manhattan Bank also
serves as trustee under the Indenture.
Use of Proceeds................... The Corporation will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby. See
"Use of Proceeds."
Certain United States Federal
Income Tax Consequences;
ERISA Considerations............ Holders of Original Notes should review the information
set forth in "Certain United States Federal Income Tax
Consequences" and "ERISA Considerations" prior to
tendering Original Notes in the Exchange Offer.
THE EXCHANGE NOTES
Securities Offered................ Up to $200,000,000 aggregate principal amount of the
Corporation's Exchange Notes which have been registered
under the Securities Act. The Exchange Notes will be
issued and the Original Notes were issued under the
Indenture. The Exchange Notes and any Original Notes
which remain outstanding after consummation of the
Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite
percentage in outstanding principal amount thereof have
taken certain actions or exercised certain rights under
the Indenture. See "Description of Exchange
Notes--Modification and Waiver." The terms of the
Exchange Notes are identical in all material respects to
the terms of the Original Notes, except that the
Exchange Notes have been registered under the Securities
Act and will not be subject to certain restrictions on
transfer applicable to the Original Notes and will not
provide for any increase in the interest rate thereon.
See "The Exchange Offer--Purpose of the Exchange Offer"
and "Description of Exchange Notes."
Maturity Date..................... July 15, 2007.
</TABLE>
11
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<TABLE>
<S> <C>
Interest.......................... Interest on the Notes is payable semi-annually on each
January 15 and July 15, commencing January 15, 1998.
Ranking........................... The Notes are unsecured obligations of the Corporation
and will rank PARI PASSU with all secured and
unsubordinated indebtedness of the Corporation.
Redemption........................ The Notes may not be redeemed prior to maturity.
Ratings........................... The Exchange Notes are rated A3 by Moody's Investors
Service, Inc. and A+ by Standard & Poor's Rating
Services.
Book-Entry, Delivery and Form..... It is expected that delivery of the Exchange Notes will
be made in book-entry or certificated form. The
Corporation expects that Exchange Notes exchanged for
Original Notes currently represented by Global Notes (as
defined under "Description of Exchange Notes") deposited
with, or on behalf of the Depository and registered in
the name of Cede & Co., its nominee, will be represented
by Global Notes and deposited upon issuance with the
Depository and registered in its name or the name of its
nominee. Beneficial interests in Global Note(s)
representing the Notes will be shown on, and transfers
thereof will be effected through, records maintained by
the Depository and its participants.
Transfer Restrictions............. The Exchange Notes will be issued, and may be
transferred, only in minimum denominations of not less
than $1,000 principal amount. See "Description of
Exchange Notes--Restrictions on Transfer." Any such
transfer of Exchange Notes in denominations of less than
$1,000 principal amount shall be deemed to be void and
of no legal effect whatsoever.
Absence of Market for the Notes... The Exchange Notes will be a new issue of securities for
which there currently is no market. Although the Initial
Purchaser has informed the Corporation that it currently
intends to make a market in the Notes, the Initial
Purchaser is not obligated to do so, and any such
market-making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Notes.
The Corporation does not intend to apply for listing of
the Notes on any securities exchange or for quotation
through Nasdaq. See "Plan of Distribution."
</TABLE>
For additional information regarding the Notes, see "Description of Exchange
Notes" and "Certain Federal Income Tax Considerations."
12
<PAGE>
RISK FACTORS
THE CORPORATION IDENTIFIES THE FOLLOWING IMPORTANT FACTORS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS THAT MIGHT BE PROJECTED,
FORECAST, ESTIMATED OR BUDGETED BY THE CORPORATION AS FORWARD-LOOKING
INFORMATION. ALL SUCH FACTORS ARE DIFFICULT TO PREDICT AND THE MAJORITY ARE
BEYOND THE CONTROL OF THE CORPORATION. HOLDERS OF ORIGINAL NOTES SHOULD
CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND
SHOULD PARTICULARLY CONSIDER THE INFORMATION STATED BELOW. SEE "FORWARD-LOOKING
INFORMATION."
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Original Notes which
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Original Notes that remain
outstanding will not be entitled to any rights to have such Original Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions). The
Corporation does not intend to register under the Securities Act any Original
Notes which remain outstanding after consummation of the Exchange Offer (subject
to such limited exceptions, if applicable). To the extent that Original Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Notes could be adversely affected.
The Exchange Notes and any Original Notes which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount of Notes have taken certain actions or exercised
certain rights under the Indenture. See "Description of Exchange
Notes--Modification and Waiver."
The Original Notes provide, among other things, that, if a registration
statement relating to the Exchange Offer has not been filed by December 8, 1997
and declared effective by January 21, 1998, the interest rate borne by the
Original Notes will increase by 0.50% per annum until such registration
statement has been filed or declared effective, as the case may be. Upon
consummation of the Exchange Offer, holders of Original Notes will not be
entitled to any increase in the interest rate thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Description of Exchange Notes."
HOLDING CORPORATION STRUCTURE; DIVIDEND AND DISTRIBUTION RESTRICTIONS
The Corporation's principal assets are the shares of capital stock of its
insurance subsidiaries. The Corporation relies primarily on dividends from its
subsidiaries to meet its obligations for paying principal and interest on
outstanding debt obligations, distributions on capital securities, dividends to
stockholders and corporate expenses. Except to the extent that a holding company
may itself be a creditor with recognized claims against its subsidiaries, claims
of creditors of such subsidiaries, including policyholders, have priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of the holding company, including claims under the Notes. At June 30,
1997 liabilities of the Corporation's subsidiaries, including provisions for
outstanding losses and unearned premiums, totaled $16.4 billion and assets of
the subsidiaries totaled $20.8 billion.
In the event of the insolvency, liquidation or other reorganization of any
of the Corporation's subsidiaries, the creditors and stockholders of the
Corporation will have no right to proceed against the assets of such subsidiary
or to cause the liquidation, bankruptcy or winding-up of such subsidiary under
applicable liquidation, bankruptcy or winding-up laws. The applicable insurance
laws of the domiciliary jurisdiction of each of the Corporation's insurance
subsidiaries would govern any proceedings relating to
13
<PAGE>
such insurance subsidiary, and the relevant insurance authority would act as a
liquidator or rehabilitator for such subsidiary. Both creditors and
policyholders of such subsidiary would be entitled to payment in full from such
assets before the Corporation, as a stockholder, would be entitled to receive
any distribution therefrom.
The payment of dividends to the Corporation by its insurance subsidiaries is
subject to limitations imposed by the insurance laws of the states in which such
subsidiaries are domiciled or deemed to be commercially domiciled, which are
Washington, Indiana, California, Missouri, Illinois, Texas, Pennsylvania and New
York. It is generally the case that unless an insurance subsidiary receives
advance approval from the Insurance Commissioner in its state of domicile, it
may not pay a dividend which, together with any other dividends paid within the
prior 12-month period, would exceed the greater of (i) 10% of such subsidiary's
surplus as of the prior calendar year end and (ii) the net income from such
subsidiary's operations for the prior calendar year. In the case of a
Missouri-domiciled property and casualty insurance company, in the absence of
advance approval, dividends cannot be paid if, together with any other dividends
paid within the prior 12-month period, such aggregate dividends would exceed the
insurance company's prior year investment income. Regulatory authorities may,
from time to time, impose other restrictions which may affect the actual amounts
available for dividends. Based on the applicable dividend restrictions, the
annual limit on the amount of dividends available for payment by the
Corporation's insurance subsidiaries for 1997 without regulatory approval is
$665 million. Three of SAFECO's insurance subsidiaries received approval in July
1997 to pay dividends totaling $600 million to SAFECO to fund a portion of the
purchase price for the Acquisition.
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain provisions that afford holders of the Notes
protection in the event of a highly leveraged transaction, including a change of
control, or other similar transactions involving the Corporation that may
adversely affect such holders.
ABSENCE OF PUBLIC MARKET
The Original Notes were issued to, and the Corporation believes such
securities are currently owned by, a relatively small number of beneficial
owners. The Original Notes have not been registered under the Securities Act and
will be subject to restrictions on transferability if they are not exchanged for
the Exchange Notes. Although the Exchange Notes may be resold or otherwise
transferred by the holders (who are not affiliates of the Corporation) without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market.
The Corporation has been advised by the Initial Purchaser that the Initial
Purchaser presently intends to make a market in the Exchange Notes. However, the
Initial Purchaser is not obligated to do so and any market-making activity with
respect to the Exchange Notes may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or the Original Notes, or as to the
liquidity or the trading market for the Exchange Notes or the Original Notes. If
an active public market does not develop, the market price and liquidity of the
Exchange Notes may be adversely affected.
If a public trading market develops for the Exchange Notes, future trading
prices will depend on many factors, including, among other things, prevailing
interest rates, the financial condition of the Corporation and the market for
similar securities. Depending on these and other factors, the Exchange Notes may
trade at a discount.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Corporation may publicly offer for sale or resell the Exchange Notes
only in compliance with the provisions of Rule 144 under the Securities Act.
14
<PAGE>
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Capital Securities. See "Plan of Distribution."
FLUCTUATION AND UNCERTAINTY OF PROPERTY AND CASUALTY INSURANCE INDUSTRY RESULTS
The results of companies in the property and casualty insurance industry
historically have been subject to significant fluctuations and uncertainties.
The industry's profitability can be affected significantly by volatile and
unpredictable developments (including catastrophes); changes in reserves
resulting from the general claims and legal environments as different types of
claims arise and judicial interpretations relating to the scope of insurers'
liability develop; fluctuations in interest rates and other changes in the
investment environment, which affect returns on invested capital; and
inflationary pressures that affect the size of losses. The demand for property
and casualty insurance can also vary significantly, generally rising as the
overall level of economic activity increases and falling as such activity
decreases. The property and casualty insurance industry historically has been
cyclical, and the commercial lines business has been in a soft market since the
late 1980s, primarily due to premium rate competition, which has resulted in
lower underwriting profitability. The Corporation's results of operations may be
adversely affected by these fluctuations.
CATASTROPHE LOSSES
Property and casualty insurers are subject to claims arising out of
catastrophes that may have a significant effect on their results of operations
and financial condition. Losses caused by catastrophes have had a significant
impact on the Corporation's results. Catastrophes can be caused by various
events, including hurricanes, windstorms, earthquakes, hailstorms, explosions,
severe winter weather and fires. The incidence and severity of catastrophes are
inherently unpredictable. The extent of losses from a catastrophe is a function
of both the total amount of insured exposure in the area affected by the event
and the severity of the event. Most catastrophes are restricted to small
geographic areas; however, hurricanes and earthquakes may produce significant
damage in large, heavily populated areas. Although catastrophes can cause losses
in a variety of the Corporation's property and casualty lines, most of the
Corporation's past catastrophe-related claims have related to homeowners and
other personal lines coverage. Insurance companies are not permitted to reserve
for a catastrophe until it has occurred. Subject to restrictions imposed by
insurance regulatory authorities and as dictated by business considerations, the
Corporation attempts to limit its exposure to acceptable risk levels through
selective underwriting practices, catastrophe reinsurance and higher deductibles
on earthquake coverage in certain states. There can be no assurance, however,
that such attempts will be successful. It is therefore possible that a
catastrophic event or multiple catastrophic events could have a material adverse
effect on the Corporation.
PROPERTY AND CASUALTY LOSS RESERVES
The Corporation maintains property and casualty loss reserves to cover the
estimated liability for unpaid losses and loss adjustment expenses for reported
and unreported claims incurred as of the end of each accounting period. Reserves
do not represent an exact calculation of liability. Rather, reserves represent
estimates of what the Corporation expects the ultimate settlement and
administration of claims will cost. These estimates, which generally involve
actuarial projections, are based on the Corporation's assessment of facts and
circumstances then known, as well as estimates of future trends in claims
severity, frequency, judicial theories of liability and other factors. These
variables are affected by both internal and external events, such as changes in
claims handling procedures, inflation, judicial trends and legislative changes.
Many of these items are not directly quantifiable, particularly on a prospective
basis. Additionally, there may be a significant reporting lag between the
occurrence of the insured event and the time it is reported to the Corporation.
The inherent uncertainties of estimating reserves are greater for certain types
15
<PAGE>
of property and casualty liabilities, particularly for environmental, asbestos
and construction defect claims where the technological, judicial and political
considerations affecting these types of claims are subject to change and long
periods of time may elapse before a definitive determination of liability is
made. Reserve estimates are continually refined in a regular and ongoing process
as experience develops and further claims are reported and settled. Adjustments
to reserves are reflected in the results of the periods in which such estimates
are changed. Because setting reserves is inherently uncertain, there can be no
assurance that current reserves will prove adequate for the Corporation in light
of subsequent actual experience.
INTEGRATION; ACHIEVEMENT OF REVENUE ENHANCEMENTS AND EXPENSE SAVINGS
The pro forma combined results of operations of SAFECO and American States
do not necessarily indicate the Corporation's future results. Since SAFECO and
American States both engage in the property and casualty insurance business and
write many of the same lines of insurance throughout the United States, it is
possible that, despite the differences in geographic and product line
concentrations of SAFECO and American States, the Corporation could experience a
loss of customers and agents as a result of the Acquisition. Management has
estimated that capitalizing on cross-selling opportunities and capturing a
larger share of business generated by existing agents will produce incremental
annual revenues that will increase to approximately $170 million for the year
2000. In addition, management is working to integrate the operations of SAFECO
and American States and to achieve significant expense savings by eliminating
redundant expenses and facilities, streamlining corporate infrastructure and
improving efficiency. Management has identified annual cost savings from the
Acquisition that will increase to approximately $80 million for the year 2000.
There can be no assurance that the Corporation will generate the projected
revenues or achieve the projected savings.
INSURANCE REGULATION
The Corporation and its insurance subsidiaries are subject to extensive
regulation and supervision. This regulation is generally designed to protect the
interests of policyholders rather than stockholders and other investors. Such
regulation, generally administered by a department of insurance in each state in
which the insurance subsidiaries do business, relates to, among other things,
the standards of solvency that must be met and maintained; the licensing of
insurers and their agents; the nature of and limitations on investments; the
ability to withdraw from the state; the approval of premium rates; restrictions
on the size of risks that may be insured under a single policy; reserves and
provisions for unearned premiums, losses and other purposes; deposits of
securities for the benefit of policyholders; approval of policy forms; and the
regulation of market conduct, including underwriting and claims practices. State
insurance departments also conduct periodic examinations of the affairs of
insurance companies and require the filing of annual and other reports relating
to the financial condition of insurance companies, holding company issues and
other matters. The Corporation's insurance subsidiaries are collectively
licensed to transact insurance business in all 50 states and the District of
Columbia. See "--Holding Company Structure; Dividend and Distribution
Restrictions."
An insurance company's capacity for premium growth is in part a function of
the amount of its statutory surplus. Maintaining appropriate levels of statutory
surplus is considered important by state insurance regulatory authorities and
the private agencies that rate insurers' claims-paying abilities and financial
strength. Failure to maintain certain levels of statutory surplus could result
in increased regulatory scrutiny, action by state regulatory authorities or a
downgrade by rating agencies.
The NAIC has adopted a system of assessing minimum capital adequacy which is
applicable to the Corporation's insurance subsidiaries. This system, known as
risk-based capital ("RBC"), develops a risk profile of the insurer by comparing
its adjusted surplus to its required surplus in order to determine whether the
insurer merits further regulatory action. At June 30, 1997, the RBC ratios of
the Corporation's insurance subsidiaries were substantially in excess of levels
that would require regulatory action.
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In recent years the state insurance regulatory framework has come under
increased federal scrutiny, and certain state legislatures have considered or
enacted laws that altered and, in many cases, increased state authority to
regulate insurance companies and insurance holding companies. Further, the NAIC
and state insurance regulators are reexamining existing laws and regulations,
specifically focusing on investment laws and regulations, modifications to
holding company regulations, codification of statutory accounting practices, RBC
guidelines, interpretations of existing laws and the development of new laws.
Finally, various consumer movements have exerted pressure on elected officials
to regulate or roll back property and casualty insurance rates. While most of
these provisions have failed to become law, these initiatives may continue as
legislators and regulators try to respond to insurance availability and
affordability concerns. The Corporation cannot predict with certainty the effect
any proposed or future legislation or NAIC initiative may have on the conduct of
its business, its financial condition or its results of operations.
All 50 states of the United States and the District of Columbia have laws
requiring all property and casualty insurance companies doing business within
the jurisdiction to participate in guaranty funds or associations, which are
organized to pay contractual obligations under insurance policies issued by
impaired or insolvent insurance companies and are funded by assessments based on
a proportionate share of certain premiums written by such companies. These
assessments may increase in the future depending on the rate of insurance
company insolvencies. In addition, as a condition to the ability to conduct
business in various states, the Corporation's insurance subsidiaries are
required to participate in mandatory property and casualty shared market
mechanisms or pooling arrangements, which provide various types of insurance
coverage to individuals or other entities that otherwise are unable to purchase
such coverage voluntarily from private insurers. The underwriting results of
these pools traditionally have been unprofitable.
COMPETITION
The insurance business is highly competitive. Competition is based on many
factors, including the perceived overall financial strength of the insurer,
pricing and other terms and conditions of products offered, levels of customer
service (including the speed with which claims are paid) and experience in the
business. Some of the insurers that compete with the Corporation have greater
financial resources or lower cost structures than the Corporation. The
Corporation also competes with insurance companies that use captive agents or
salaried employees to sell their products. Because these companies generally do
not pay commissions, they may be able to obtain business at a lower cost than
the Corporation. In addition, the Corporation competes with organizations
offering alternative forms of risk protection, including self-insurance and
large-deductible programs. Finally, in recent years marketwide premium rates
have leveled or been reduced in certain lines of business in which the
Corporation competes.
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth in "The Exchange Offer--Conditions to
the Exchange Offer," delivery of Exchange Notes in exchange for Original Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) certificates for Original
Notes or a book-entry confirmation of a book-entry transfer of Original Notes
into the Exchange Agent's account at DTC, including an Agent's Message (as
defined in "The Exchange Offer--Acceptance for Exchange and Issuance of Exchange
Notes") if the tendering holder does not deliver a Letter of Transmittal, (ii) a
completed and signed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message in lieu of the Letter of Transmittal, and (iii) any other
documents required by the Letter of Transmittal. Therefore, holders of Original
Notes desiring to tender such Original Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Corporation is not
under a duty to give notification of defects or irregularities with respect to
the tenders of Original Notes for exchange.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed statements of income of
the Corporation for the six months ended June 30, 1997 and for the year ended
December 31, 1996 present results for the Corporation as if the Acquisition, the
issuance of the 8.072% Capital Securities, the issuance of the Notes and the
other financings consummated by the Corporation in connection with the
Acquisition (including the Related Financings, as hereinafter defined) had
occurred at January 1, 1996. See "Capitalization." The accompanying unaudited
pro forma combined condensed balance sheet as of June 30, 1997 gives effect to
the Acquisition, the issuance of the 8.072% Capital Securities, the issuance of
the Notes and the other financings consummated by the Corporation in connection
with the Acquisition (including the Related Financings) as if they had occurred
as of June 30, 1997. The unaudited pro forma combined condensed financial
statements do not purport to represent the Corporation's financial position or
the operating results that would have been achieved had the Acquisition been
consummated as of the dates indicated and should not be construed as projecting
the Corporation's future financial position or operating results. The unaudited
pro forma combined condensed financial statements do not reflect any projected
revenue increases or cost savings. The pro forma adjustments are based on
available information and certain assumptions that the Corporation currently
believes are reasonable under the circumstances.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the accompanying notes thereto, the historical
consolidated financial statements of SAFECO as of and for the year ended
December 31, 1996 and the six months ended June 30, 1997 and the historical
consolidated financial statements of American States as of and for the year
ended December 31, 1996 and the six months ended June 30, 1997, in each case
incorporated by reference in this Prospectus. See "Incorporation of Certain
Documents by Reference."
The pro forma adjustments are applied to the historical financial statements
to account for, among other things, the Acquisition using the purchase method of
accounting. Under purchase accounting, the total purchase cost for the
Acquisition has been allocated to the assets and liabilities of American States
based on their fair values. Allocations are subject to valuations as of the date
of the Acquisition based on appraisals and other studies which are not yet
completed. Accordingly, the final allocations will be different from the amounts
reflected herein. Although the final allocations will differ, the unaudited pro
forma combined condensed financial statements reflect management's best
estimates based on currently available information as of the date of this
Prospectus.
As part of the Acquisition, SAFECO and Lincoln National Corporation, as the
majority stockholder of American States, jointly elected to treat the purchase
of American States by SAFECO as an asset acquisition for federal income tax
purposes pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended. This election allows the Corporation to deduct the amortization of
goodwill recorded in the Acquisition, thereby significantly improving the
Corporation's future cash flows.
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PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ADJUSTMENTS PRO
AMERICAN INCREASE NOTE FORMA
SAFECO STATES (DECREASE) REFERENCE COMBINED
--------- ----------- ----------- --------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Fixed maturities available-for-sale, at market
value............................................ $12,238.2 $ 3,787.6 $ (600.0) (a) $15,425.8
Fixed maturities held-to-maturity, at amortized
cost............................................. 2,698.1 -- 2,698.1
Marketable equity securities, at market value...... 1,501.1 460.6 1,961.7
Mortgage loans..................................... 460.3 21.9 482.2
Real estate........................................ 614.6 -- 614.6
Short-term investments............................. 110.1 74.2 184.3
Other invested assets.............................. 59.4 39.4 98.8
--------- ----------- ----------- -----------
Total investments................................ 17,681.8 4,383.7 (600.0) 21,465.5
Cash................................................. 80.5 19.3 (42.0) (b) 57.8
Accrued investment income............................ 247.6 64.9 312.5
Finance receivables.................................. 913.8 -- 913.8
Premiums and other service fees receivable........... 486.9 482.8 969.7
Reinsurance recoverables............................. 129.9 175.1 305.0
Deferred policy acquisition costs.................... 411.6 212.3 623.9
Deferred federal income taxes recoverable............ -- 121.1 102.5 (b) 0.0
(223.6) (b)
Land, buildings and equipment for company use........ 171.7 31.8 203.5
Cost in excess of net assets of acquired
subsidiaries....................................... 41.1 96.1 (96.1) (b) 1,525.1
1,484.0 (b)
Other assets......................................... 223.9 64.8 288.7
Separate account assets.............................. 662.2 -- 662.2
--------- ----------- ----------- -----------
Total assets..................................... $21,051.0 $ 5,651.9 $ 624.8 $27,327.7
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Losses, adjustment expense and future policy
benefits........................................... $ 2,128.8 $ 2,854.7 (c) $ 4,983.5
Unearned premiums.................................... 981.7 746.1 1,727.8
Funds held under deposit contracts................... 10,402.8 -- 10,402.8
Short-term debt...................................... 906.3 66.7 (66.7) (a) 1,644.8
738.5 (a)
Long-term debt....................................... 434.9 232.9 (232.9) (a) 634.9
200.0 (a)
Other liabilities.................................... 669.3 334.5 41.0 (b) 1,044.8
(d)
Current federal income taxes payable................. 12.3 -- 12.3
Deferred federal income taxes payable................ 482.1 -- (223.6) (b) 258.5
Separate account liabilities......................... 662.2 -- 662.2
--------- ----------- ----------- -----------
Total liabilities................................ 16,680.4 4,234.9 456.3 21,371.6
Corporation-obligated, mandatorily redeemable capital
securities of subsidiary trusts holding solely
junior subordinated debentures of the
Corporation........................................ 990.0 (a) 990.0
--------- ----------- ----------- -----------
Common stock......................................... 227.9 304.5 (304.5) (e) 823.4
595.5 (a)
Retained earnings.................................... 3,190.4 941.0 (941.0) (e) 3,190.4
Unrealized appreciation of investment securities, net
of tax............................................. 956.6 171.5 (171.5) (e) 956.6
Unrealized loss from foreign currency translation,
net of tax......................................... (4.3) -- (4.3)
--------- ----------- ----------- -----------
Total stockholders' equity....................... 4,370.6 1,417.0 (821.5) 4,966.1
--------- ----------- ----------- -----------
Total liabilities and stockholders' equity....... $21,051.0 $ 5,651.9 $ 624.8 $27,327.7
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
19
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ADJUSTMENTS PRO
AMERICAN INCREASE NOTE FORMA
SAFECO STATES (DECREASE) REFERENCE COMBINED
----------- ----------- ------------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Insurance:
Property and casualty earned premiums.............. $ 1,176.4 $ 824.1 $ 2,000.5
Life and health premiums and other revenues........ 134.9 29.0 163.9
----------- ----------- -----------
Total............................................ 1,311.3 853.1 2,164.4
Real estate.......................................... 32.7 -- 32.7
Finance.............................................. 41.0 -- 41.0
Asset management..................................... 11.7 -- 11.7
Other................................................ 25.1 6.7 31.8
Net investment income................................ 583.7 133.0 $ (16.2) (f) 700.5
Realized investment gain............................. 40.8 19.4 60.2
----------- ----------- ------ -----------
Total revenues................................... 2,046.3 1,012.2 (16.2) 3,042.3
----------- ----------- ------ -----------
----------- ----------- ------ -----------
EXPENSES:
Losses, adjustment expense and policy benefits....... 1,210.3 620.9 1,831.2
Commissions.......................................... 226.6 148.3 374.9
Interest............................................. 37.4 10.4 17.9 (f) 65.7
Other................................................ 284.9 122.4 24.8 (f) 431.3
(0.8) (f)
Amortization of deferred policy acquisition costs.... 223.1 169.0 392.1
Deferral of policy acquisition costs................. (236.1) (178.1) (414.2)
----------- ----------- ------ -----------
Total expenses................................... 1,746.2 892.9 41.9 2,681.0
----------- ----------- ------ -----------
Income before income taxes............................. 300.1 119.3 (58.1) 361.3
Provision (benefit) for federal income
taxes................................................ 71.4 21.0 (13.1) (g) 79.3
----------- ----------- ------ -----------
Income before distributions on capital securities...... 228.7 98.3 (45.0) 282.0
Distributions on capital securities, net
of tax............................................... -- -- 26.8 (h) 26.8
----------- ----------- ------ -----------
Net income available to common
stockholders......................................... $ 228.7 $ 98.3 $ (71.8) $ 255.2
----------- ----------- ------ -----------
----------- ----------- ------ -----------
Net income per share of common stock:
Income before realized gain.......................... $ 1.60 $ 1.56
Realized gain........................................ .21 .27
----------- -----------
Net income per share................................... $ 1.81 $ 1.83
----------- -----------
----------- -----------
Weighted average shares outstanding.................... 126.3 (i) 139.3
</TABLE>
20
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ADJUSTMENTS PRO
AMERICAN INCREASE NOTE FORMA
SAFECO STATES (DECREASE) REFERENCE COMBINED
----------- ----------- ------------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Insurance:
Property and casualty earned premiums.............. $ 2,275.4 $ 1,617.2 $ 3,892.6
Life and health premiums and other revenues........ 265.9 56.9 322.8
----------- ----------- -----------
Total............................................ 2,541.3 1,674.1 4,215.4
Real estate.......................................... 79.9 -- 79.9
Finance.............................................. 75.7 -- 75.7
Asset management..................................... 23.2 -- 23.2
Other................................................ 38.5 -- 38.5
Net investment income................................ 1,116.7 274.3 $ (32.4) (f) 1,358.6
Realized investment gain............................. 90.1 35.6 125.7
----------- ----------- ------------- -----------
Total revenues................................... 3,965.4 1,984.0 (32.4) 5,917.0
----------- ----------- ------------- -----------
EXPENSES:
Losses, adjustment expense and policy benefits....... 2,362.7 1,248.9 3,611.6
Commissions.......................................... 415.7 283.0 698.7
Interest............................................. 72.4 12.4 35.8 (f) 120.6
Other................................................ 552.6 243.8 49.5 (f) 844.4
(1.5) (f)
Amortization of deferred policy acquisition costs.... 426.9 338.0 764.9
Deferral of policy acquisition costs................. (443.4) (337.8) (781.2)
----------- ----------- ------------- -----------
Total expenses................................... 3,386.9 1,788.3 83.8 5,259.0
----------- ----------- ------------- -----------
Income before income taxes............................. 578.5 195.7 (116.2) 658.0
Provision (benefit) for federal income
taxes................................................ 139.5 26.0 (26.2) (g) 139.3
----------- ----------- ------------- -----------
Income before distributions on capital securities...... 439.0 169.7 (90.0) 518.7
Distributions on capital securities, net
of tax............................................... -- -- 53.6 (h) 53.6
----------- ----------- ------------- -----------
Net income available to common
stockholders......................................... $ 439.0 $ 169.7 $ (143.6) $ 465.1
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Net income per share of common stock:
Income before realized gain.......................... $ 3.02 $ 2.75
Realized gain........................................ .46 .59
----------- -----------
Net income per share................................... $ 3.48 $ 3.34
----------- -----------
----------- -----------
Weighted average shares outstanding.................... 126.1 (i) 139.1
</TABLE>
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(a) The following adjustments reflect the funding of the Acquisition:
<TABLE>
<S> <C>
SOURCES:
Proceeds from issuance of commercial paper (after application of the net
proceeds of $595.5 from issuance of common stock and the issuance of an
additional $150 aggregate liquidation amount of capital securities)........... $ 738.5
Proceeds from issuance of Notes................................................. 200.0
Net proceeds from issuance of capital securities................................ 990.0
Net proceeds from issuance of common stock...................................... 595.5
Dividend from SAFECO's property and casualty subsidiaries....................... 600.0
---------
Total......................................................................... $ 3,124.0
---------
---------
USES:
Purchase price of outstanding shares of common stock of American States
(60,093,615 shares x $47)..................................................... $ 2,824.4
Retirement of American States debt.............................................. 299.6
---------
Total......................................................................... $ 3,124.0
---------
---------
</TABLE>
(b) The following adjustments result from the allocation of the purchase
price for the Acquisition based on the fair value of the net assets acquired:
<TABLE>
<CAPTION>
DEBIT
(CREDIT)
---------
<S> <C>
ASSETS:
Record the direct out-of-pocket costs of the Acquisition............................................. $ (42.0)
Adjustment to reflect the deferred tax benefit of purchase accounting adjustments.................... 102.5
Net American States' deferred tax asset against SAFECO's deferred tax liability...................... (223.6)
Eliminate American States' goodwill.................................................................. (96.1)
Record the excess of the cost to acquire American States over the fair value of net assets acquired
(goodwill)......................................................................................... 1,484.0
LIABILITIES:
Adjustments to other liabilities:
Record lease-related fair value adjustments........................................................ $ (18.0)
Record the estimated liability for change of control and other costs for certain executive officers
and employees of American States.................................................................. (30.0)
Increase liability for pension obligations......................................................... (9.6)
Reduce liability for postretirement obligations.................................................... 16.6
---------
Total adjustments to other liabilities........................................................... $ (41.0)
---------
---------
</TABLE>
(c) Adjustments of unpaid loss and loss adjustment expense resulting from
the Corporation's evaluation of American States' reserves will be recorded in
operations in the period determined. The Corporation expects to record $40.0 of
additional reserves in the fourth quarter of 1997, which will result in an
after-tax charge of $26.0 for such quarter.
(d) The Corporation expects to accrue in the fourth quarter of 1997 an
estimated liability of $23.0 ($15.0 after-tax) for first-year incentive
commissions on certain American States' personal lines business.
(CONTINUED ON NEXT PAGE)
22
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
(e) Adjustment to eliminate American States' equity:
<TABLE>
<S> <C>
Common stock........................................................ $ (304.5)
Retained earnings................................................... (941.0)
Unrealized gain..................................................... (171.5)
</TABLE>
(f) The following adjustments reflect the annual income statement effect of
the pro forma adjustments. The income statement adjustments for the six-month
period ended June 30, 1997 are equal to one-half of the annual amounts
presented:
<TABLE>
<CAPTION>
ANNUAL INCREASE
(DECREASE) IN
PRETAX INCOME
---------------
<S> <C>
INVESTMENT INCOME:
Loss of investment income due to dividend from SAFECO's property and casualty subsidiaries
($600.0 x 5.4%, rate based on market yields for tax-exempt securities at September 5,
1997)........................................................................................ $ (32.4)
INTEREST EXPENSE:
Retire existing American States debt ($100.0 x 7 1/8%, $200.0 x 6.7%).......................... $ 20.5
Commercial paper interest expense ($738.5 x 5.7%).............................................. (42.1)
Notes interest expense ($200.0 x 7.1%)......................................................... (14.2)
-------
Total interest expense effect................................................................ (35.8)
-------
Record the amortization of goodwill over 30 years.............................................. (49.5)
Record amortization of unfavorable lease obligation............................................ 1.5
-------
Total pretax income effect................................................................... $ (116.2)
-------
(g) Record income tax expense (benefit) of the pro forma adjustments......................... $ (26.2)
(h) Distributions on capital securities, net of tax
($1,000 x 8.25% = 82.5) x (100% - 35%)................................................... $ 53.6
</TABLE>
The interest rate on the Notes and the distribution rate on the capital
securities are based on effective cost, including the cost of an interest rate
lock, of the Notes and the Capital Securities. The Corporation issued $1,500 of
commercial paper in late September 1997 ($750 on September 26, 1997 and $750 on
September 29, 1997) at interest rates ranging from 5.65% to 5.70% and maturities
ranging from October 20, 1997 to January 29, 1998 and used all but $16 to
finance the Acquisition. The Corporation, through a subsidiary trust, may issue
an additional $150 aggregate liquidation amount of capital securities in 1997 to
retire a like amount of commercial paper.
(i) Reflects the issuance of shares of Common Stock at a public offering
price of $47.50 per share and gross proceeds of $617.5.
23
<PAGE>
SAFECO CORPORATION
The Corporation is one of the largest property and casualty insurance
companies in the United States. On a pro forma basis giving effect to the
Acquisition and the Related Financings, the Corporation had consolidated
revenues of $5.9 billion in 1996, and total assets of $27.3 billion and total
stockholders' equity of $5.0 billion at June 30, 1997. The Corporation provides
a broad range of personal and commercial property and casualty insurance to
individuals, businesses, government entities and associations. SAFECO and
American States have each underwritten property and casualty insurance since the
1920s. Through its insurance subsidiaries, the Corporation is licensed as a
property and casualty insurer in all 50 states and the District of Columbia,
with a significant presence in the Pacific Northwest and the Midwest. The
Corporation's property and casualty operations generated approximately 92% of
the Corporation's insurance revenues in 1996. Of the Corporation's 1996 net
written property and casualty premiums of $3.9 billion, personal and commercial
lines accounted for 60% and 40%, respectively.
The Corporation also offers annuities, retirement services and group life
and health and individual life insurance. In addition, the Corporation conducts
commercial lending and leasing, asset management, insurance agency and financial
services distribution operations, and real estate investment and management.
The Corporation's principal executive officers are located at 4333 Brooklyn
Avenue N.E., Seattle, Washington 98185, and its telephone number is (206)
545-5000.
The Corporation is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. For further information regarding the
Corporation, holders of Original Notes may refer to such reports, proxy
statements and other information which are available as described in "Available
Information" and "Incorporation of Certain Documents by Reference."
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Corporation under the Registration Rights Agreement. The Corporation will not
receive any proceeds from the issuance of the Exchange Notes offered hereby and
has agreed to pay the expenses of the Exchange Offer. In consideration for
issuing the Exchange Notes as contemplated in this Prospectus, the Corporation
will receive, in exchange, Original Notes representing an equal aggregate
principal amount at maturity. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Original Notes,
except as otherwise described in "The Exchange Offer--Terms of the Exchange
Offer." The Original Notes surrendered in the exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the outstanding debt of the
Corporation.
24
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND DISTRIBUTIONS ON CAPITAL SECURITIES
The following table sets forth the Corporation's ratios of earnings to fixed
charges and earnings to fixed charges and distributions on capital securities:
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED DEC. 31, ENDED ---------------------------------
JUNE 30,1997 1996 JUNE 30, 1997 1996 1995 1994
----------------- --------------- --------------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(1)........................ 6.0 6.0 8.4 8.6 6.7 6.2
Ratio of earnings to fixed charges
and distributions on capital
securities........................ 3.8 3.7 8.4 8.6 6.7 6.2
Ratio of earnings to fixed charges
excluding SAFECO Credit Company,
Inc.(1)........................... 8.8 8.7 22.0 20.5 11.5 9.5
Ratio of earnings to fixed charges
and distributions on capital
securities, excluding SAFECO
Credit Company, Inc............... 4.6 4.4 22.0 20.5 11.5 9.5
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Ratio of earnings to fixed
charges(1)........................ 10.1 7.0
Ratio of earnings to fixed charges
and distributions on capital
securities........................ 10.1 7.0
Ratio of earnings to fixed charges
excluding SAFECO Credit Company,
Inc.(1)........................... 16.1 10.6
Ratio of earnings to fixed charges
and distributions on capital
securities, excluding SAFECO
Credit Company, Inc............... 16.1 10.6
</TABLE>
- ------------------------
(1) Excludes distributions on capital securities.
For purposes of computing the ratios of earnings to fixed charges, earnings
represent net income before extraordinary items and cumulative effect of changes
in accounting principles plus applicable income taxes and fixed charges. Fixed
charges include all interest expense, distributions on capital securities
(except where noted) and the proportion deemed representative of the interest
factor of rent expense. The table also presents the pro forma ratios of earnings
to fixed charges for the six months ended June 30, 1997 and for the year ended
December 31, 1996 as if the Acquisition and related transactions had been
consummated on January 1, 1996.
25
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
SAFECO as of June 30, 1997, as adjusted to reflect the consummation of the
Acquisition and the issuance of an additional $150 million aggregate liquidation
amount of capital securities, $1,334 million of commercial paper and the
issuance of Common Stock in an equity offering with net proceeds of $595.5
million (collectively, the "Related Financings"), and as further adjusted to
reflect the issuance of the 8.072% Capital Securities and the Notes and the
application of the net proceeds therefrom. The issuance of the Exchange Notes
and the Exchange Capital Securities will have no effect on the capitalization of
the Corporation. The information presented below should be read in conjunction
with the historical consolidated financial statements of SAFECO and the related
notes thereto, the historical consolidated financial statements of American
States and the related notes thereto and the unaudited pro forma combined
condensed financial statements of the Corporation, included elsewhere in this
Prospectus or incorporated by reference herein from the SAFECO Annual Report and
the American States Annual Report (each as defined in "Selected Financial
Information"), as the case may be.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------
AS ADJUSTED FOR AS ADJUSTED FOR
THE ACQUISITION THE 8.072% CAPITAL
SAFECO AND THE RELATED SECURITIES AND THE
ACTUAL FINANCINGS NOTES
-------- --------------- ------------------
(IN MILLIONS)
<S> <C> <C> <C>
Credit company debt............................... $ 907.7 $ 907.7 $ 907.7
Commercial paper(1)............................... -- 1,334.0 738.5
7 7/8% Notes due 2005............................. 200.0 200.0 200.0
Notes............................................. -- 200.0 200.0
Other notes and mortgages......................... 233.5 233.5 233.5
-------- --------------- --------
Total debt................................ 1,341.2 2,875.2 2,279.7
Corporation-obligated, mandatorily redeemable
capital securities of subsidiary trusts holding
solely junior subordinated debentures of the
Corporation..................................... -- 990.0 990.0
Total stockholders' equity........................ 4,370.6 4,370.6 4,966.1
-------- --------------- --------
Total capitalization...................... $5,711.8 $8,235.8 $8,235.8
-------- --------------- --------
-------- --------------- --------
</TABLE>
- ------------------------
(1) The Corporation issued $1,500 million of commercial paper in late September
1997 and used all but $16 million to finance the Acquisition. The $1,334
million of commercial paper is net of the $16 million not used to finance
the Acquisition and the $150 million aggregate liquidation amount of capital
securities that may be issued in the fourth quarter of 1997.
26
<PAGE>
SELECTED FINANCIAL INFORMATION
SELECTED GAAP CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF SAFECO
The selected consolidated financial information presented below is derived
from the consolidated financial statements of SAFECO and its subsidiaries. Such
financial statements have been audited by Ernst & Young LLP, independent
auditors, for each of the three years in the period ended December 31, 1996. The
consolidated financial statements of SAFECO and its subsidiaries as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 are incorporated by reference to the SAFECO Annual Report on Form 10-K
for the year ended December 31, 1996 (the "SAFECO Annual Report"), and the
information set forth below should be read in conjunction with such consolidated
financial statements and the notes thereto. See "Incorporation of Certain
Documents by Reference." The selected consolidated financial information as of
June 30, 1997 and for the six months ended June 30, 1997 and 1996 are derived
from unaudited consolidated financial statements of SAFECO which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial information.
The results for the six months ended June 30, 1997 do not necessarily indicate
the results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Insurance:
Property and casualty earned premiums............... $ 1,176.4 $ 1,112.4 $ 2,275.4 $ 2,162.1 $ 2,053.4
Life and health premiums and other revenues......... 134.9 132.3 265.9 261.6 276.8
--------- --------- --------- --------- ---------
Total............................................. 1,311.3 1,244.7 2,541.3 2,423.7 2,330.2
Other................................................. 110.5 106.3 217.3 191.6 201.8
Net investment income................................. 583.7 549.8 1,116.7 1,075.3 991.6
Realized investment gain.............................. 40.8 52.8 90.1 64.3 39.0
--------- --------- --------- --------- ---------
Total revenues.................................... 2,046.3 1,953.6 3,965.4 3,754.9 3,562.6
--------- --------- --------- --------- ---------
Expenses:
Losses, adjustment expense and policy benefits........ 1,210.3 1,167.7 2,362.7 2,250.4 2,202.3
Commissions........................................... 226.6 201.4 415.7 401.2 394.1
Interest.............................................. 37.4 35.4 72.4 85.4 70.3
Other................................................. 271.9 264.3 536.1 504.1 506.2
--------- --------- --------- --------- ---------
Total expenses.................................... 1,746.2 1,668.8 3,386.9 3,241.1 3,172.9
--------- --------- --------- --------- ---------
Income before income taxes.............................. 300.1 284.8 578.5 513.8 389.7
Provision for federal income taxes...................... 71.4 68.1 139.5 114.8 75.3
--------- --------- --------- --------- ---------
Net income.............................................. $ 228.7 $ 216.7 $ 439.0 $ 399.0 $ 314.4
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share of common stock:
Income before realized gain........................... $ 1.60 $ 1.45 $ 3.02 $ 2.84 $ 2.29
Realized gain......................................... .21 .27 .46 .33 .21
--------- --------- --------- --------- ---------
Net income per share.................................... $ 1.81 $ 1.72 $ 3.48 $ 3.17 $ 2.50
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding..................... 126.3 126.0 126.1 126.0 125.9
</TABLE>
(CONTINUED ON NEXT PAGE)
27
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ----------------------------------
1997 1996 1995 1994
----------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Investments:
Fixed maturities available-for-sale, at market value........ $12,238.2 $ 11,936.2 $ 11,928.1 $ 9,509.1
Fixed maturities held-to-maturity, at amortized cost........ 2,698.1 2,488.3 2,044.5 2,053.1
Marketable equity securities, at market value............... 1,501.1 1,298.8 1,119.4 855.1
Other invested assets....................................... 1,244.4 1,166.2 1,040.2 1,049.7
----------- ---------- ---------- ----------
Total investments......................................... 17,681.8 16,889.5 16,132.2 13,467.0
Finance receivables........................................... 913.8 829.1 741.2 619.1
Premiums and other service fees receivable.................... 486.9 467.2 444.6 418.7
Deferred policy acquisition costs............................. 411.6 396.1 356.4 388.8
Other assets.................................................. 894.7 844.6 817.0 849.8
Separate account assets....................................... 662.2 491.2 276.4 158.3
----------- ---------- ---------- ----------
Total assets.............................................. $21,051.0 $ 19,917.7 $ 18,767.8 $ 15,901.7
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Liabilities and Stockholders' Equity:
Losses, adjustment expense and future policy benefits......... $ 2,128.8 $ 2,237.8 $ 2,361.3 $ 2,421.2
Unearned premiums............................................. 981.7 946.9 910.8 867.0
Funds held under deposit contracts............................ 10,402.8 9,792.7 8,756.4 7,988.5
Short-term debt............................................... 906.3 793.4 608.6 639.3
Long-term debt................................................ 434.9 440.1 458.9 343.6
Other liabilities............................................. 1,163.7 1,100.3 1,412.8 654.3
Separate account liabilities.................................. 662.2 491.2 276.4 158.3
----------- ---------- ---------- ----------
Total liabilities......................................... 16,680.4 15,802.4 14,785.2 13,072.2
----------- ---------- ---------- ----------
Common stock.................................................. 227.9 225.3 217.4 211.2
Retained earnings............................................. 3,190.4 3,042.2 2,755.5 2,495.8
Unrealized appreciation of investment securities, net of
tax/other................................................... 952.3 847.8 1,009.7 122.5
----------- ---------- ---------- ----------
Total stockholders' equity................................ 4,370.6 4,115.3 3,982.6 2,829.5
----------- ---------- ---------- ----------
Total liabilities and stockholders' equity................ $21,051.0 $ 19,917.7 $ 18,767.8 $ 15,901.7
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
OTHER PROPERTY AND CASUALTY DATA-- STATUTORY BASIS:
Policyholders' surplus(1)....................................... $ 2,431.1 $ 2,166.2 $ 1,864.7 $ 1,506.1
Ratio of net written premiums to policyholders' surplus(2)...... 1.0x 1.1x 1.2x 1.4x
Combined ratio(3)............................................... 97.6% 98.8% 99.6% 103.6%
Industry combined ratio(4)...................................... N/A 105.8% 106.5% 108.4%
</TABLE>
- --------------------------
(1) Excludes surplus of SAFECO's life and health subsidiaries of $619.0, $587.7,
$504.7 and $416.8 at June 30, 1997 and December 31, 1996, 1995 and 1994,
respectively.
(2) Annual ratios represent statutory net written premiums for the year divided
by statutory policyholders' surplus at the end of the year attributable to
the property and casualty business. The six-month ratio is based on
annualized statutory net written premiums divided by statutory
policyholders' surplus at the end of the six-month period.
(3) The combined ratio is an industry measurement of the results of property and
casualty insurance underwriting. This ratio is the sum of the ratio of
incurred losses and loss adjustment expenses to net earned premiums (the
"loss and LAE ratio"), the ratio of underwriting expenses incurred to net
written premiums (the "underwriting expense ratio") and, where applicable,
the ratio of dividends to policyholders to net earned premiums. A combined
ratio under 100% generally indicates an underwriting profit; a combined
ratio over 100% generally indicates an underwriting loss.
(4) Source: A.M. Best; data for 1997 are not yet available.
28
<PAGE>
SELECTED GAAP CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF AMERICAN STATES
The selected consolidated financial information presented below is derived
from the consolidated financial statements of American States and its
subsidiaries. Such financial statements have been audited by Ernst & Young LLP,
independent auditors, for each of the three years in the period ended December
31, 1996. The consolidated financial statements of American States and its
subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 are included in the American States Annual
Report on Form 10-K, Form 10-K/A(1) and Form 10-K/A(2) for the year ended
December 31, 1996 (collectively, the "American States Annual Report"), and the
information set forth below should be read in conjunction with such consolidated
financial statements and the notes thereto. See "Incorporation of Certain
Documents by Reference." The selected consolidated financial information as of
June 30, 1997 and for the six months ended June 30, 1997 and 1996 are derived
from unaudited consolidated financial statements of American States which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such financial
information. The results for the six months ended June 30, 1997 do not
necessarily indicate the results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Insurance:
Property and casualty earned premiums............... $ 824.1 $ 819.6 $ 1,617.2 $ 1,689.6 $ 1,693.5
Life and health premiums and other revenues......... 29.0 28.9 56.9 56.8 52.5
--------- --------- --------- --------- ---------
Total............................................. 853.1 848.5 1,674.1 1,746.4 1,746.0
Other................................................. 6.7 -- -- (28.4) --
Net investment income................................. 133.0 134.5 274.3 266.6 260.5
Realized investment gain.............................. 19.4 28.4 35.6 41.0 19.9
--------- --------- --------- --------- ---------
Total revenues.................................... 1,012.2 1,011.4 1,984.0 2,025.6 2,026.4
--------- --------- --------- --------- ---------
Expenses:
Losses, adjustment expense and policy benefits........ 620.9 655.9 1,248.9 1,242.3 1,272.0
Commissions........................................... 140.8 144.4 283.0 291.6 296.9
Interest.............................................. 10.4 1.8 12.4 -- --
Other................................................. 120.8 122.4 244.0 282.6 257.2
--------- --------- --------- --------- ---------
Total expenses.................................... 892.9 924.5 1,788.3 1,816.5 1,826.1
--------- --------- --------- --------- ---------
Income before income taxes.............................. 119.3 86.9 195.7 209.1 200.3
Provision for federal income taxes...................... 21.0 10.2 26.0 30.8 15.7
--------- --------- --------- --------- ---------
Net income.............................................. $ 98.3 $ 76.7 $ 169.7 $ 178.3 $ 184.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income before realized investment gain.............. $ 88.0 $ 59.6 $ 146.2 $ 156.7 $ 171.6
</TABLE>
(CONTINUED ON NEXT PAGE)
29
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, -------------------------------
1997 1996 1995 1994
----------- --------- --------- ---------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Investments:
Fixed maturities available-for-sale, at market value.......... $ 3,787.6 $ 3,763.9 $ 3,860.9 $ 3,429.9
Marketable equity securities, at market value................. 460.6 435.1 437.7 522.5
Other invested assets......................................... 135.5 143.6 131.6 188.9
----------- --------- --------- ---------
Total investments........................................... 4,383.7 4,342.6 4,430.2 4,141.3
Premiums receivable............................................. 482.8 413.4 377.8 384.0
Deferred policy acquisition costs............................... 212.3 202.2 199.2 210.8
Other assets.................................................... 573.1 582.9 532.0 683.2
----------- --------- --------- ---------
Total assets................................................ $ 5,651.9 $ 5,541.1 $ 5,539.2 $ 5,419.3
----------- --------- --------- ---------
----------- --------- --------- ---------
Liabilities and Stockholders' Equity:
Losses, adjustment expense and future policy benefits........... $ 2,854.7 $ 2,868.3 $ 2,828.3 $ 2,878.2
Unearned premiums............................................... 746.1 712.0 718.5 725.4
Short-term debt................................................. 66.7 66.7 -- --
Long-term debt.................................................. 232.9 232.9 -- --
Other liabilities............................................... 334.5 325.2 323.7 347.1
----------- --------- --------- ---------
Total liabilities........................................... 4,234.9 4,205.1 3,870.5 3,950.7
----------- --------- --------- ---------
Common stock.................................................... 304.5 304.5 387.5 387.5
Retained earnings............................................... 941.0 867.9 1,069.4 1,090.1
Unrealized appreciation (depreciation) of investment securities,
net of tax.................................................... 171.5 163.6 211.8 (9.0)
----------- --------- --------- ---------
Total stockholders' equity.................................. 1,417.0 1,336.0 1,668.7 1,468.6
----------- --------- --------- ---------
Total liabilities and stockholders' equity.................. $ 5,651.9 $ 5,541.1 $ 5,539.2 $ 5,419.3
----------- --------- --------- ---------
----------- --------- --------- ---------
OTHER PROPERTY AND CASUALTY DATA--STATUTORY BASIS:
Policyholders' surplus(1)......................................... $ 1,092.9 $ 966.0 $ 1,011.0 $ 980.7
Ratio of net written premiums to policyholders' surplus(2)........ 1.5x 1.7x 1.7x 1.7x
Combined ratio(3)................................................. 102.9% 105.8% 103.6% 104.6%
Industry combined ratio(4)........................................ N/A 105.8% 106.5% 108.4%
</TABLE>
- ------------------------
(1) Excludes surplus of American States Life Insurance Company of $60.6, $57.4,
$51.7 and $61.2 at June 30, 1997 and December 31, 1996, 1995 and 1994,
respectively.
(2) Annual ratios represent statutory net written premiums for the year divided
by statutory policyholders' surplus at the end of the year attributable to
the property and casualty business. The six-month ratio is based on
annualized statutory net written premiums divided by statutory
policyholders' surplus at the end of the six-month period.
(3) The combined ratio is an industry measurement of the results of property and
casualty insurance underwriting. This ratio is the sum of the loss and LAE
ratio, the underwriting expense ratio and, where applicable, the ratio of
dividends to policyholders to net earned premiums. A combined ratio under
100% generally indicates an underwriting profit; a combined ratio over 100%
generally indicates an underwriting loss.
(4) Source: A.M. Best; data for 1997 are not yet available.
30
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Notes, the Corporation entered
into the Registration Rights Agreement with the Initial Purchaser, pursuant to
which the Corporation agreed to file and to use reasonable efforts to cause to
become effective with the Commission a registration statement with respect to
the exchange of the Original Notes for notes with terms identical in all
material respects to the terms of the Original Notes. A copy of the Registration
Rights Agreement has been filed as an Exhibit to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation under the Registration Rights Agreement. The form and terms of
the Exchange Notes are the same as the form and terms of the Original Notes
except that the Exchange Notes have been registered under the Securities Act and
will not be subject to certain restrictions on transfer applicable to the
Original Notes, and will not provide for any increase in the interest rate
thereon. In that regard, the Original Notes provide, among other things, that,
if a registration statement relating to the Exchange Offer has not been filed by
December 8, 1997 and declared effective by January 21, 1998, the interest rate
borne by the Original Notes will increase by 0.50% per annum until such
registration statement is filed or declared effective, as the case may be. Upon
consummation of the Exchange Offer, holders of Original Notes will not be
entitled to any increase in the interest rate thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors--Consequences of a Failure to Exchange
Original Notes" and "Description of Exchange Notes."
The Exchange Offer is not being made to, nor will the Corporation accept
tenders for exchange from, holders of Original Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Original Notes are registered
on the books of the Corporation or any other person who has obtained a properly
completed bond power from the registered holder, or any person whose Original
Notes are held of record by DTC who desires to deliver such Original Notes by
book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
The Corporation hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $200,000,000 aggregate principal amount of Exchange Notes for a
like aggregate principal amount of Original Notes properly tendered on or prior
to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. The Corporation will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $200,000,000 of Exchange
Notes in exchange for a like principal amount of outstanding
Original Notes tendered and accepted in connection with the Exchange Offer.
Holders may tender their Original Notes in whole or in part in an aggregate
principal amount of $100,000 and integral multiples of $1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Original Notes being tendered. As of the date of this Prospectus, $200,000,000
aggregate principal amount of the Original Notes is outstanding.
Holders of Original Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Original Notes which are not tendered for or
are tendered but not accepted in connection with the Exchange Offer will remain
outstanding and be entitled to the benefits of the Indenture, but will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under
31
<PAGE>
limited circumstances. See "Risk Factors--Consequences of a Failure to Exchange
Original Notes" and "Description of Exchange Notes."
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Original Notes in connection with the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Original Notes in connection with the Exchange Offer. The
Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
NEITHER THE CORPORATION NOR THE BOARD OF DIRECTORS OF THE CORPORATION MAKES
ANY RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO
THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISIONS WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
ORIGINAL NOTES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL POSITIONS AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on December
15, 1997 unless the Exchange Offer is extended by the Corporation (in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Corporation expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Original Notes for exchange, (ii) to terminate the
Exchange Offer (whether or not any Original Notes have theretofore been accepted
for exchange) if the Corporation determines, in its sole and absolute
discretion, that any of the events or conditions referred to in "--Conditions to
the Exchange Offer" have occurred or exist or have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all Original Notes
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Original Notes to withdraw their tendered Original Notes as described
in "--Withdrawal Rights," and (iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect.
If the Exchange Offer is amended in a manner determined by the Corporation
to constitute a material change, or if the Corporation waives a material
condition of the Exchange Offer, the Corporation will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
holders of the Original Notes, and the Corporation will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Corporation may choose to make any public announcement
and subject to applicable law, the Corporation shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to an appropriate news agency.
32
<PAGE>
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Corporation will exchange Exchange Notes for Original Notes validly tendered and
not withdrawn (pursuant to the withdrawal rights described in "--Withdrawal
Rights") promptly after the Expiration Date.
Subject to the conditions set forth in "--Conditions to the Exchange Offer,"
delivery of Exchange Notes in exchange for Original Notes tendered and accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of (i) certificates for Original Notes or a
book-entry confirmation of a book-entry transfer of Original Notes into the
Exchange Agent's account at DTC, including an Agent's Message if the tendering
holder does not deliver a Letter of Transmittal, (ii) a completed and signed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message in lieu
of the Letter of Transmittal, and (iii) any other documents required by the
Letter of Transmittal. Accordingly, the delivery of Exchange Notes might not be
made to all tendering holders at the same time, and will depend upon when
certificates for Original Notes, book-entry confirmations with respect to
Original Notes and other required documents are received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Original Notes into the Exchange Agent's account at DTC.
See "--Procedures for Tendering Original Notes-- Book-Entry Transfer." The term
"Agent's Message" means a message, transmitted by DTC to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from the tendering participant,
which acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Corporation may enforce such
Letter of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Corporation
will be deemed to have accepted for exchange, and thereby exchanged, Original
Notes validly tendered and not withdrawn as, if and when the Corporation gives
oral or written notice to the Exchange Agent of the Corporation's acceptance of
such Original Notes for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Corporation for the purpose of receiving tenders
of Original Notes, Letters of Transmittal and related documents, and as agent
for tendering holders for the purpose of receiving Original Notes, Letters of
Transmittal and related documents and transmitting Exchange Notes which will not
be held in global form by DTC or a nominee of DTC to validly tendering holders.
Such exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Original Notes
tendered pursuant to the Exchange Offer is delayed (whether before or after the
Corporation's acceptance for exchange of Original Notes) or the Corporation
extends the Exchange Offer or is unable to accept for exchange or exchange
Original Notes tendered pursuant to the Exchange Offer, then, without prejudice
to the Corporation's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Corporation and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered Original Notes and such Original Notes may not
be withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described in "--Withdrawal Rights."
Pursuant to an Agent's Message or a Letter of Transmittal, a holder of
Original Notes will represent, warrant and agree in the Letter of Transmittal
that it has full power and authority to tender, exchange, sell, assign and
transfer Original Notes, that the Corporation will acquire good, marketable and
unencumbered title to the tendered Original Notes, free and clear of all liens,
restrictions, charges and encumbrances, and the Original Notes tendered for
exchange are not subject to any adverse claims or proxies. The holder also will
warrant and agree that it will, upon request, execute and deliver any additional
documents deemed by the Corporation or the Exchange Agent to be necessary or
desirable to complete the exchange, sale, assignment, and transfer of the
Original Notes tendered pursuant to the Exchange Offer.
33
<PAGE>
PROCEDURES FOR TENDERING ORIGINAL NOTES
VALID TENDER
Except as set forth below, in order for Original Notes to be validly
tendered by book-entry transfer, an Agent's Message or a completed and signed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and in either case any other documents required by the Letter of
Transmittal, must be delivered to the Exchange Agent by mail, facsimile, hand
delivery or overnight courier at one of the Exchange Agent's addresses set forth
in "--Exchange Agent" on or prior to the Expiration Date and either (i) such
Original Notes must be tendered pursuant to the procedures for book-entry
transfer set forth below or (ii) the guaranteed delivery procedures set forth
below must be complied with.
Except as set forth below, in order for Original Notes to be validly
tendered by a means other than by book-entry transfer, a completed and signed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal must
be delivered to the Exchange Agent by mail, facsimile, hand delivery or
overnight courier at one of the Exchange Agent's addresses set forth in
"--Exchange Agent" on or prior to the Expiration Date and either (i) such
Original Notes must be delivered to the Exchange Agent on or prior to the
Expiration Date or (ii) the guaranteed delivery procedures set forth below must
be complied with.
If less than all Original Notes are tendered, a tendering holder should fill
in the amount of Original Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Original Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent and DTC have confirmed that any Participant (as defined
in "Description of Exchange Notes--Description of the Exchange Notes--Depositary
Procedures") in DTC's book-entry transfer facility system may utilize DTC's ATOP
procedures to tender Original Notes. The Exchange Agent will establish an
account with respect to the Original Notes at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any
Participant may make a book-entry delivery of the Original Notes by causing DTC
to transfer such Original Notes into the Exchange Agent's account at DTC in
accordance with DTC's ATOP procedures for transfer. However, although delivery
of Original Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, an Agent's Message or a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other documents required by the Letter of Transmittal, must in any case be
delivered to and received by the Exchange Agent at one of its addresses set
forth in "--Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
Certificates for the Original Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate
for the Original Notes is registered in a name other
34
<PAGE>
than that of the person surrendering the certificate or (b) such holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the Letter of Transmittal. In the case of (a) or (b) above,
such certificates for Original Notes must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on the bond
power and on the Letter of Transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Original Notes pursuant to the Exchange Offer
and the certificates for such Original Notes are not immediately available or
time will not permit all required documents to reach the Exchange Agent on or
prior to the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Original Notes may nevertheless be tendered,
provided that all of the following guaranteed delivery procedures are complied
with:
(a) such tenders are made by or through an Eligible Institution;
(b) properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Original Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within three New York Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Notes
in exchange for Original Notes tendered and accepted for exchange pursuant to
the Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Original Notes, or of a book-entry confirmation with respect
to such Original Notes, and a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Notes might not be made to all tendering
holders at the same time, and will depend upon when Original Notes, book-entry
confirmations with respect to Original Notes and other required documents are
received by the Exchange Agent.
The Corporation's acceptance for exchange of Original Notes tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Corporation upon the terms and
subject to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered Original Notes will
be determined by the Corporation, in its sole discretion, whose determination
shall be final and binding on all parties. The Corporation reserves the absolute
right, in its sole and absolute discretion, to reject any and all tenders
determined by it not to be in proper form or the acceptance of which, or
exchange for, may, in the opinion of counsel to the
35
<PAGE>
Corporation, be unlawful. The Corporation also reserves the absolute right,
subject to applicable law, to waive any of the conditions of the Exchange Offer
as set forth under "--Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Original Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders.
The interpretation by the Corporation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Original Notes will be deemed
to have been validly made until all irregularities with respect to such tender
have been cured or waived. Neither the Corporation, any affiliates or assigns of
the Corporation, the Exchange Agent nor any other person shall be under any duty
to give any notification of any irregularities in tenders or incur any liability
for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Corporation, proper
evidence satisfactory to the Corporation, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Original Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE NOTES
The Corporation is making the Exchange Offer for the Exchange Notes in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Corporation has not sought its own
interpretive letter and there can be no assurance that the staff of the Division
of Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Corporation believes that Exchange Notes issued
pursuant to this Exchange Offer in exchange for Original Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such Exchange Notes. However, any holder of Original Notes
who is an "affiliate" of the Corporation or who intends to participate in the
Exchange Offer for the purpose of distributing Exchange Notes, or any
broker-dealer who purchased Original Notes from the Corporation to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
(a) will not be able to rely on the interpretations of the staff of the Division
of Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such
Original Notes in the Exchange Offer and (c) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of such Original Notes unless such sale is made
pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Original Notes acquired for its own account as
a result of market-making or other trading activities and exchanges such
Original Notes for Exchange Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such Exchange Notes.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an "affiliate" of the Corporation, (ii) any Exchange Notes to be received
by it are being acquired in the ordinary course of its business, (iii) it has no
36
<PAGE>
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Notes. In addition, the Corporation may require such holder, as
a condition to such holder's eligibility to participate in the Exchange Offer,
to furnish to the Corporation (or an agent thereof) in writing information as to
the number of "beneficial owners" (within the meaning of Rule 13d-3 under the
Exchange Act) on behalf of whom such holder holds the Notes to be exchanged in
the Exchange Offer. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it acquired the
Original Notes for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Corporation
believes that Participating Broker-Dealers who acquired Original Notes for their
own accounts as a result of market-making activities or other trading activities
may fulfill their prospectus delivery requirements with respect to the Exchange
Notes received upon exchange of such Original Notes (other than Original Notes
which represent an unsold allotment from the initial sale of the Original Notes)
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
Exchange Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Corporation has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such Exchange
Notes for a period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such Exchange Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution."
However, a Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of Exchange Notes received in exchange for Original
Notes pursuant to the Exchange Offer must notify the Corporation, or cause the
Corporation to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided for
that purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth in "--Exchange Agent." Any Participating
Broker-Dealer who is an "affiliate" of the Corporation may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Original
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal, that upon receipt of notice from the Corporation
of the occurrence of any event or the discovery of (i) any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or (ii) any fact which causes this Prospectus to omit to
state a material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which they
were made, not misleading, or (iii) of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating Broker-Dealer
will suspend the sale of Exchange Notes, pursuant to this Prospectus until the
Corporation has amended or supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemented
Prospectus to such Participating Broker-Dealer, or the Corporation has given
notice that the sale of the Exchange Notes may be resumed, as the case may be.
If the Corporation gives such notice to suspend the sale of the Exchange
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Notes, it shall extend the 180-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in connection
with the resale of Exchange Notes by the number of days during the period from
and including the date of the giving of such notice to and including the date
when Participating Broker-Dealers shall have received copies of the amended or
supplemented Prospectus necessary to permit resales of the Exchange Notes or to
and including the date on which the Corporation has given notice that the sale
of Exchange Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth in "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Notes to be withdrawn, the
aggregate principal amount of Original Notes to be withdrawn, and (if
certificates for such Original Notes have been tendered) the name of the
registered holder of the Original Notes as set forth on the Original Notes, if
different from that of the person who tendered such Original Notes. If Original
Notes have been delivered or otherwise identified to the Exchange Agent, then,
prior to the physical release of such Original Notes, the tendering holder must
submit the serial numbers shown on the particular Original Notes to be withdrawn
and the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Original Notes tendered for the account of an
Eligible Institution. If Original Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering
Original Notes," the notice of withdrawal must specify the name and number of
the account at DTC to be credited with the withdrawal of Original Notes, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Original Notes may not be rescinded. Original Notes properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above in
"--Procedures for Tendering Original Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Corporation, in
its sole discretion, whose determination shall be final and binding on all
parties. Neither the Corporation, any affiliates or assigns of the Corporation,
the Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Original Notes which
have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
INTEREST PAYMENTS ON EXCHANGE NOTES
Holders of Original Notes whose Original Notes are accepted for exchange
will not receive interest payments on such Original Notes and will be deemed to
have waived the right to receive any interest payments on such Original Notes
accumulated from and after July 15, 1997. Accordingly, holders of Exchange Notes
as of the record date for the payment of interest on January 15, 1998 will be
entitled to receive interest accumulated from and after July 15, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Corporation will not be required to accept for
exchange, or to exchange, any Original Notes for any Exchange Notes, and, as
described below, may terminate the Exchange Offer (whether or not any Original
Notes have theretofore been accepted for exchange) or may waive any conditions
to or amend the Exchange Offer, if any of the following conditions have occurred
or exists or have not been satisfied:
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(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Original Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of the
Corporation within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such Exchange Notes; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Corporation, would reasonably be
expected to impair its ability to proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Corporation, threatened for that purpose, or any governmental approval
has not been obtained, which approval the Corporation shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby.
If the Corporation determines in its sole and absolute discretion that any
of the foregoing events or conditions has occurred or exists or has not been
satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Original Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material change
to the Exchange Offer, the Corporation will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Original Notes and will extend the Exchange Offer to
the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND:
The Chase Manhattan Bank (FOR ELIGIBLE INSTITUTIONS ONLY) The Chase Manhattan Bank
450 West 33rd Street, 15th Floor (212) 946-8154 450 West 33rd Street, 15th Floor
New York, New York 10001-2697 New York, New York 10001-2697
Attention: John T. Needham, Jr. CONFIRM BY TELEPHONE: Attention: John T. Needham, Jr.
(212) 946-3041
BY OVERNIGHT DELIVERY:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
</TABLE>
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
The Chase Manhattan Bank also serves as Trustee under the Indenture.
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FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Original Notes, and in
handling or tendering for their customers.
Holders who tender their Original Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Original Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Original Notes in
connection with the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
The Corporation will not make any payment to brokers, dealers or other
nominees soliciting acceptances of the Exchange Offer.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Original Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain "restricted securities" within the meaning of Rule
144(a)(3)(iv) of the Securities Act. Accordingly, such Original Notes may not be
offered, sold, pledged or otherwise transferred except (i) to a person whom the
seller reasonably believes is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act purchasing for its own account or
for the account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A, (ii) in an offshore transaction complying with Rule
903 or Rule 904 of Regulation S under the Securities Act, (iii) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
thereunder (if available), (iv) pursuant to an effective registration statement
under the Securities Act or (v) to institutional accredited investors in a
transaction exempt from the registration requirements of the Securities Act,
and, in each case, in accordance with all other applicable securities laws and
the transfer restrictions set forth in the Indenture.
ACCOUNTING TREATMENT
For accounting purposes, the Corporation will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the remaining term of the Notes.
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DESCRIPTION OF EXCHANGE NOTES
The terms of the Original Notes are identical in all materials respects to
the Exchange Notes, except that (i) the Original Notes have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except under
limited circumstances) and (ii) the Exchange Notes will not contain the $100,000
minimum principal amount transfer restriction and certain other restrictions on
transfer applicable to Original Notes and (iii) the Exchange Notes will not
provide for any increase in the interest rate thereon. The Original Notes
provide that, in the event that a registration statement relating to the
Exchange Offer has not been filed by December 8, 1997 and been declared
effective by January 21, 1998, or, in certain limited circumstances, in the
event a shelf registration statement with respect to the resale of the Original
Notes is not declared effective by the time required by the Registration Rights
Agreement, then liquidated damages ("Additional Interest") will accrue at the
rate of 0.50% per annum on the principal amount of the Original Notes for the
period from the occurrence of such event until such time as such registration
statement has been filed or declared effective, as the case may be. The Exchange
Notes are not, and upon consummation of the Exchange Offer the Original Notes
will not be, entitled to any such Additional Interest. Accordingly, holders of
Original Notes should review the information set forth in "Risk
Factors--Consequences of a Failure to Exchange Original Notes."
DESCRIPTION OF THE EXCHANGE NOTES
The Corporation is offering up to $200,000,000 aggregate principal amount of
its 6 7/8% Exchange Notes due July 15, 2007 (the "Exchange Notes"). The Exchange
Notes will be, and the Original Notes were, issued under an indenture, dated as
of July 15, 1997 (the "Indenture"), between the Corporation and The Chase
Manhattan Bank, as Trustee (the "Trustee"), a copy of which is available upon
request to the Corporation. The statements under this caption are brief
summaries of certain provisions of the Indenture, do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Indenture, including the definitions therein of certain
terms. Wherever particular terms that are defined in the Indenture are referred
to herein, it is intended that such defined terms shall be incorporated by
reference herein or therein, as the case may be.
The Exchange Notes will be limited to $200,000,000 aggregate principal
amount. The Exchange Notes will be unsecured obligations of the Corporation,
will rank PARI PASSU with all other unsecured and unsubordinated indebtedness of
the Corporation, and will mature on July 15, 2007. The Indenture does not limit
the incurrence or issuance of other secured or unsecured indebtedness of the
Corporation.
The Exchange Notes will bear interest at the rate per annum shown on the
cover page of this Offering Memorandum, payable semi-annually on January 15 and
July 15 of each year (each an "Interest Payment Date") commencing January 15,
1998 to the Persons in whose names the Exchange Notes (or any predecessor Notes)
are registered at the close of business on January 1 and July 1, as the case may
be, next preceding such Interest Payment Date. The amount of interest payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the Exchange
Notes is not a Business Day, then payment of the interest payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
Additional Interest on the amount thereof (to the extent permitted by law) at
the rate per annum of 6 7/8% thereof, compounded semi-annually. The term
"interest," as used herein, shall include semi-annual interest payments and
interest on semi-annual interest payments not paid on the applicable Interest
Payment Date. The Exchange Notes may not be redeemed prior to maturity and will
not be subject to any sinking fund.
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CERTAIN RESTRICTIONS
LIMITATIONS ON MORTGAGES AND LIENS. The Corporation will not be permitted
to issue, assume, guarantee or permit to exist any indebtedness secured by a
mortgage, pledge, lien or other encumbrance ("liens") on any of its property or
assets, whether now owned or hereafter acquired, without effectively providing
that the Exchange Notes (and, if the Corporation so elects, any other
indebtedness ranking on a parity with the Exchange Notes) shall be equally and
ratably secured with any such indebtedness, so long as any such other
indebtedness shall be secured, except that the foregoing shall not apply to (a)
liens in existence on the date of the Indenture, (b) liens on real estate
(including those existing on property at the time of acquisition) in any amount
not exceeding 100% of the fair value of the property at the time of creation of
such indebtedness, (c) liens arising from the acquisition of a business as a
going concern (whether by merger, acquisition of a controlling stock interest,
acquisition of assets or otherwise) or to which assets acquired by the
Corporation in partial or complete satisfaction of secured indebtedness are
subject, (d) liens to secure extensions, renewals and replacements of
indebtedness secured by any of the liens referred to in (a), (b) and (c) above,
without increase in the amount of such indebtedness, and (e) certain mechanics,
landlords, tax or other statutory liens, including liens and deposits required
or provided for under state insurance laws and similar regulatory statutes.
LIMITATIONS ON SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. Neither
the Corporation nor any Restricted Subsidiary will be permitted to issue, sell,
transfer or dispose of (except to a Restricted Subsidiary of the Corporation)
capital stock of a Restricted Subsidiary, unless the entire capital stock of
such Subsidiary at the time owned by the Corporation and its Restricted
Subsidiaries is disposed of at the same time for a consideration of cash or
property, which in the opinion of the Board of Directors of the Corporation is
at least equal to the fair value of such capital stock.
For the purposes of the foregoing restrictions, "Restricted Subsidiary"
shall mean a subsidiary, including subsidiaries of any such subsidiary, which
meets any of the following conditions: (a) the Corporation's and its other
subsidiaries' investments in and advances to the subsidiary exceed 10% of the
total assets of the Corporation and its subsidiaries consolidated as of the end
of the most recently completed fiscal year; (b) the Corporation's and its other
subsidiaries' proportionate share of the total assets (after inter-company
eliminations) of the subsidiary exceeds 10% of the total assets of the
Corporation and its subsidiaries consolidated as of the end of the most recently
completed fiscal year; or (c) the Corporation's and its other subsidiaries'
equity in the income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principle of
the subsidiary exceeds 10% of such income of the Corporation and its
subsidiaries consolidated for the most recently completed fiscal year. For
purposes of making the prescribed income test in clause (c) of the preceding
sentence, when a loss has been incurred by either the Corporation and its
subsidiaries consolidated or the tested subsidiary, but not both, the equity in
the income or loss of the tested subsidiary shall be excluded from the income of
the Corporation and its subsidiaries consolidated for purposes of the
computation and if income of the Corporation and its subsidiaries consolidated
for the most recent fiscal year is at least 10% lower than the average of the
income for the last five fiscal years, such average income shall be substituted
for purposes of the computation and any loss years shall be omitted for purposes
of computing average income.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Corporation shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Corporation or convey or transfer its properties and assets substantially as an
entirety to the Corporation, unless: (i) in case the Corporation consolidates
with or merges into another corporation or conveys or transfers its properties
and assets substantially as an entirety to any Person, the successor corporation
is organized under the laws of the United States of America, or any state or the
District of Columbia, and the successor corporation assumes the Corporation's
obligations under the Exchange
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Notes; (ii) immediately after giving effect thereto, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing; and (iii) certain other
conditions are met.
The Corporation shall not lease its properties and assets substantially as
an entirety to any Person.
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Corporation
and the Trustee with the consent of the Holders of 66 2/3% in aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby: (a) change the Stated Maturity of the
principal of, or any installment of interest on, any outstanding Note; (b)
reduce the principal amount of, or interest on, any outstanding Note; (c) change
the place or currency of payment of principal or interest on any outstanding
Note; (d) impair the right to institute suit for the enforcement of any payment
on or with respect to any outstanding Note after the Stated Maturity; or (e)
reduce the percentage in principal amount of outstanding Notes, the consent of
the Holders of which is required for modification or amendment of the Indenture,
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
The Corporation may obtain a waiver of compliance with certain restrictive
covenants with respect to the Notes if the Holders of 66 2/3% in aggregate
principal amount of the outstanding Notes consent to such waiver. The Holders of
not less than a majority in principal amount of the outstanding Notes may, on
behalf of the Holders of all outstanding Notes, waive any past default under the
Indenture with respect to such outstanding Notes, except a default in the
payment of the principal of or any interest on any outstanding Note or in
respect of a provision which under the Indenture cannot be modified or amended
without the consent of the Holder of each outstanding Note affected.
The Exchange Notes and any Original Notes that remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture, including the right to vote on waivers and
amendments as described above or take certain actions upon an event of default
as described below.
EVENTS OF DEFAULT
The Indenture provides that the following shall constitute Events of
Default: (i) default for 30 days in the payment of any interest when due; (ii)
default in the payment of principal; (iii) default in the performance of any
other covenant in the Indenture for 60 days after written notice; (iv) a failure
to pay when due, or a default resulting in the acceleration of maturity of, any
other indebtedness for borrowed money of the Corporation or a Restricted
Subsidiary in which the principal amount of any such indebtedness, together with
the principal amount of any other such indebtedness which is presently in
Payment Default or the maturity of which has been so accelerated, aggregates $25
million or more, without such acceleration having been rescinded, stayed or
annulled, or such indebtedness having been discharged or, in the case of
indebtedness contested in good faith by the Corporation, a bond, letter of
credit, escrow deposit or other cash equivalent in an amount sufficient to
discharge such indebtedness having been set aside, within 10 days after written
notice of default is given to the Corporation; and (v) certain events in
bankruptcy, insolvency or reorganization. The Corporation is required to furnish
the Trustee annually with a statement as to the fulfillment by the Corporation
of its obligations under the Indenture. The Indenture provides that the Trustee
may withhold notice to the Holders of the Notes of any Default (except in
payment of principal or interest on the Notes) if it considers it in the
interest of the Holders to do so.
If an Event of Default with respect to debt securities of any series
outstanding under the Indenture occurs and is continuing, then and in any every
such case the Trustee or the Holders of not less than 25% in
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principal amount of the outstanding Notes may declare the principal amount to be
due and payable immediately, by notice in writing to the Corporation (and to the
Trustee if given by the Holders), and upon any such declaration such principal
shall become immediately due and payable. However, at any time after a
declaration of acceleration with respect to Notes has been made, but before a
judgment or decree based on such acceleration has been obtained, the Holders of
a majority in principal amount of outstanding Notes of that series may, subject
to certain conditions, rescind and annul such acceleration.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
shall be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable security or indemnity.
Subject to such provisions for the security or indemnification of the Trustee,
the Holders of a majority in principal amount of the outstanding Notes shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or powers
conferred on the Trustee with respect to the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default with respect to such Note and unless also the Holders of at least 25% in
principal amount of the outstanding Notes shall have made written request, and
offered reasonable security or indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in principal amount of the outstanding Notes a direction
inconsistent with such request, and the Trustee shall have failed to institute
such proceeding within 60 days. However, the Holder of any Note will have an
absolute right to receive payment of the principal of and any interest on such
Note on or after the due dates expressed in such Note and to institute a
proceeding for the enforcement of any such payment.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture provides that when, among other things, all Notes not
previously delivered to the Trustee for cancellation (i) have become due and
payable or (ii) will become due and payable at their Stated Maturity within one
year and the Corporation deposits or causes to be deposited with the Trustee as
trust funds in trust for the purpose an amount in money sufficient to pay and
discharge the entire indebtedness on the Notes not previously delivered to the
Trustee for cancellation, for the principal and interest to the date of the
deposit or to the stated maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to the Corporation's obligations to
compensate, reimburse and indemnify the Trustee pursuant to the Indenture and
certain other obligations), and the Corporation will be deemed to have satisfied
and discharged the Indenture.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Exchange Notes and beneficial interests therein will be issued only in
fully registered form, without exception, in denominations of $1,000 and
integral multiples thereof.
Exchange Notes initially will be represented by one or more Exchange Notes
in registered, global form (collectively, the "Global Exchange Notes"). The
Global Exchange Notes will be deposited upon issuance with the Trustee as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Exchange Notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Exchange Notes may not be
exchanged for Exchange Notes in certificated form except in the
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limited circumstances described below. See "Depositary Procedures Exchange of
Book-Entry Exchange Notes for Certificated Exchange Notes."
DEPOSITARY PROCEDURES
DTC has advised the Corporation that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Corporation that, pursuant to procedures
established by it, (i) upon deposit of the Global Exchange Notes, DTC will
credit the accounts of Participants designated by the Initial Purchaser with
portions of the principal amount of the Global Exchange Notes and (ii) ownership
of such interests in the Global Exchange Notes will be shown on, and the
transfer of ownership thereof will effected only through, records maintained by
DTC (with respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interests in the Global
Exchange Notes).
Investors in the Global Exchange Notes may hold their interests therein
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system. All interests in a
Global Exchange Note may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery in
certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Exchange Note to such persons will be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in the Global Exchange Notes to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests. For certain
other restrictions on the transferability of the Exchange Notes, see "Exchange
of Book-Entry Exchange Notes for Certificated Exchange Notes."
Except as described below, owners of interests in the Global Exchange Notes
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in certificated form and will not be
considered the registered owners or holders thereof under the Indenture for any
purpose.
Payments in respect of the Global Exchange Notes registered in the name of
DTC or its nominee will be payable by the Trustee to DTC in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Trustee will treat the persons in whose names the Exchange Notes, including the
Global Exchange Notes, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Trustee nor any agent thereof has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Exchange Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Exchange Notes or (ii) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants. DTC
has advised the Corporation that its current practice, upon receipt of any
payment in respect of securities such as the Exchange Notes, is to credit the
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accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in principal amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of DTC, the Trustee
or the Corporation. Neither the Trustee nor the Corporation will be liable for
any delay by DTC or any of its Participants in identifying the beneficial owners
of the Exchange Notes, and the Trustee and the Corporation may conclusively rely
on and will be protected in relying on instructions from DTC or its nominee for
all purposes.
Secondary market trading activity in interests in the Global Exchange Notes
will settle in immediately available funds, subject in all cases to the rules
and procedures of DTC and its participants. Transfers between Participants in
DTC will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised the Corporation that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Exchange Notes
are credited and only in respect of such portion of the principal amount of the
Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC reserves the right to exchange the Global Exchange Notes for Exchange Notes
in certificated form and to distribute such Exchange Notes to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Corporation believes to be reliable, but
the Corporation takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Exchange Notes among participants in DTC, it is under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Corporation nor the
Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
A Global Exchange Note is exchangeable for Exchange Notes in registered
certificated form if (i) DTC (x) notifies the Corporation that it is unwilling
or unable to continue as Depositary for the Global Exchange Notes and the
Corporation thereupon fails to appoint a successor Depositary within 90 days or
(y) has ceased to be a clearing agency registered under the Exchange Act, (ii)
the Corporation in its sole discretion elects to cause the issuance of the
Exchange Notes in certificated form, or (iii) there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse of time
or both would be an Event of Default under the Indenture. In addition,
beneficial interests in a Global Exchange Note may be exchanged for certificated
Exchange Notes upon request but only upon at least 20 days' prior written notice
given to the Trustee by or on behalf of DTC in accordance with customary
procedures. In all cases, certificated Exchange Notes delivered in exchange for
any Global Exchange Note or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the Depositary (in accordance with its customary procedures).
PAYMENT AND PAYING AGENCY
Payments in respect of the Global Exchange Notes held in global form shall
be made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Interest Payment Dates. In respect of the Exchange
Notes that are not held by the Depositary, such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the register. The paying agent (the "Paying Agent") shall initially be
the Trustee and any co-paying agent chosen by the Trustee and acceptable to the
Corporation. The Paying Agent shall be permitted to resign as Paying Agent
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upon 30 days' written notice to the Trustee and the Corporation. In the event
that the Trustee shall no longer be the Paying Agent, the Corporation shall
appoint a successor (which shall be a bank or trust company) to act as Paying
Agent.
Any moneys deposited with the Trustee or any Paying Agent, or then held by
the Corporation in trust, for the payment of the principal of (and premium, if
any) or interest on any Exchange Notes and remaining unclaimed for two years
after such principal or interest has become due and payable shall, at the
request of the Corporation, be repaid to the Corporation and the holder of such
Exchange Note shall thereafter look, as a general unsecured creditor, only to
the Corporation for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Trustee will act as registrar and transfer agent for the Exchange Notes.
Registration of transfers of the Exchange Notes will be effected without
charge by or on behalf of the Corporation, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange.
GOVERNING LAW
The Indenture and the Exchange Notes will be governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Trustee shall have and be subject to all the duties
and responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Exchange Notes, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
The Chase Manhattan Bank acts as property trustee for SAFECO Capital Trust I
(the issuer of the 8.072% Capital Securities) and for the 8.072% Capital
Securities and the underlying junior subordinated deferrable interest debentures
as well as the related indenture and guarantees. Chase Manhattan Delaware, an
affiliate of The Chase Manhattan Bank, acts as Delaware trustee for SAFECO
Capital Trust I. The Chase Manhattan Bank is also the trustee for the
Corporation's 7.875% Notes due 2005 and its medium term note program, the
custodian for the SAFECO's life and health companies' portfolios of investments,
a lender under the Corporation's bank revolving credit facilities and a dealer
under the Corporation's commercial paper program. In addition, the Corporation
and its subsidiaries maintain various depository and disbursement accounts with
The Chase Manhattan Bank.
CERTAIN TAX CONSIDERATIONS
Perkins Coie, special tax counsel to the Corporation, has advised the
Corporation that because the Exchange Notes should not be considered to differ
materially from the Original Notes, the exchange of the Exchange Notes for the
Original Notes pursuant to the Offer should not result in any material federal
income tax consequences to holders. For a full description of the basis of, and
limitations on, this opinion, see "Certain Federal Income Tax Consequences."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion, which was prepared by Perkins Coie, special tax
counsel to the Corporation, summarizes the material United States federal income
tax consequences of the exchange of the Original Notes for the Exchange Notes
pursuant to the Exchange Offer. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative history,
judicial authority, current administrative rulings and practice, and existing
and proposed Treasury Regulations, all as in effect and existing on the date
hereof. Legislative, judicial or administrative changes or interpretations after
the date hereof could alter or modify the validity of this discussion and the
conclusions set forth below. Any such changes or interpretations may be
retroactive and could adversely affect a holder of the Original Notes or the
Exchange Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that might be relevant to particular holders in light of their
personal investment or tax circumstances or status, nor does it discuss the U.S.
federal income tax consequences to certain types of holders subject to special
treatment under the U.S. federal income tax laws, such as certain financial
institutions, insurance companies, dealers in securities or foreign currency,
tax-exempt organizations, foreign corporations or nonresident alien individuals,
or persons holding Original Notes or Exchange Notes that are a hedge against, or
that are hedged against, currency risk or that are part of a straddle or
conversion transaction, or persons whose functional currency is not the United
States dollar. Moreover, the effect of any state, local or foreign tax laws is
not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF AN
ORIGINAL NOTE THAT IS PARTICIPATING IN THE EXCHANGE OFFER IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH HOLDER'S
PARTICULAR TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE EXCHANGE OF
THE ORIGINAL NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER.
EXCHANGE OFFER
The exchange of the Original Notes by any holder for the Exchange Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes should not be considered
to differ materially in kind or extent from the Original Notes. Rather, the
Exchange Notes received by any holder should be treated as a continuation of the
Original Notes in the hands of such holder. As a result, there should be no
federal income tax consequences to holders exchanging the Original Notes for the
Exchange Notes pursuant to the Exchange Offer, and the federal income tax
consequences of holding and disposing of the Exchange Notes should be the same
as the federal income tax consequences of holding and disposing of the Original
Notes. Accordingly, a holder's adjusted tax basis in the Exchange Notes will be
the same as its adjusted tax basis in the Original Notes exchanged therefor and
its holding period for the Original Notes will be included in its holding period
for the Exchange Notes. Thus, the determination of gain on a sale or other
disposition of the Exchange Notes will be the same as for the Original Notes.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (a) employee benefit plans
(as defined in Section 3(3) of ERISA) subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (b) plans (as
defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code,
including individual retirement accounts and Keogh plans, (c) entities whose
underlying assets include plan assets by reason of a plan's investment in such
entities (each of (a), (b) and (c), a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties in Interest" under ERISA and
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"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V. HARRIS
TRUST AND SAVINGS BANK, 114 S. Ct. 517 (1993), an insurance company's general
account may be deemed to include the assets of the Plans investing in the
general account (e.g., through the purchase of an annuity contract), and the
insurance company might be treated as a Party In Interest and a Disqualified
Person with respect to such Plans by virtue of such investment. ERISA also
imposes certain duties on persons who are fiduciaries of Plans, and both ERISA
and the Code prohibit certain transactions involving "plan assets" between a
Plan and Parties in Interest or Disqualified Persons with respect to such Plans.
Each of the Corporation, the Trustee and the affiliates of either of them
may be considered a Party in Interest or a Disqualified Person with respect to
many Plans. The purchase and/or holding of Notes by (or on behalf of) a Plan
with respect to which the Corporation, the Trustee or any affiliate of either of
them is a service provider (or otherwise is a Party in Interest or a
Disqualified Person) may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless such Notes are acquired and held
pursuant to and in accordance with an applicable exemption, such as Prohibited
Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 95-60 (an exemption for
transactions involving certain insurance company general accounts), or PTCE
96-23 (an exemption for certain transactions determined by an in-house asset
manager).
Any purchaser proposing to acquire Notes with assets of any Plan should
consult with its legal counsel concerning the impact of ERISA and the Code and
the potential consequences of acquiring and holding Notes with respect to its
specific circumstances. Moreover, each Plan fiduciary should take into account,
among other considerations, whether the fiduciary has the authority to make the
investment; the composition of the Plan's portfolio with respect to
diversification by type of asset; the Plan's funding objectives; the tax effects
of the investment; and whether under the general fiduciary standards of
investment prudence and diversification an investment in the Notes is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Corporation has
agreed that, starting on the Expiration Date and ending on the close of business
on the 180th day following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until June 15, 1998, all dealers effecting
transactions in the Exchange Securities may be required to deliver a prospectus.
The Corporation will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions, in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
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participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Corporation will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Corporation has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than Commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF EXCHANGE SECURITIES
The validity of the Exchange Notes will be passed upon for the Corporation
by James W. Ruddy, Senior Vice President and General Counsel of the Corporation.
Certain matters relating to United States federal income tax considerations will
be passed upon for the Corporation by Perkins Coie, Seattle, Washington.
INDEPENDENT AUDITORS
The consolidated financial statements of SAFECO at December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
incorporated by reference in the SAFECO Annual Report on Form 10-K for the year
ended December 31, 1996, have been incorporated by reference into this
Prospectus and the Registration Statement and have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon also
incorporated by reference in the SAFECO Annual Report on Form 10-K and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of American States at December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, included in the American States Annual Report on Form 10-K, Form 10-K/A(1)
and Form 10-K/A(2) for the year ended December 31, 1996, have been incorporated
by reference into this Prospectus and the Registration Statement and have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon also included in the American States Annual Report on Form 10-K, Form
10-K/A(1) and Form 10-K/A(2) and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION
SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Information............................................... 4
Available Information..................................................... 4
Incorporation of Certain Documents by Reference........................... 5
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 13
Unaudited Pro Forma Combined Condensed Financial Statements............... 18
SAFECO Corporation........................................................ 24
Use of Proceeds........................................................... 24
Ratios of Earnings to Fixed Charges and Earnings to Fixed Charges and
Distributions on Capital Securities..................................... 25
Capitalization............................................................ 26
Selected Financial Information............................................ 27
The Exchange Offer........................................................ 31
Description of Exchange Notes............................................. 41
Certain Federal Income Tax
Consequences............................................................ 48
ERISA Considerations...................................................... 48
Plan of Distribution...................................................... 49
Validity of Exchange Securities........................................... 50
Independent Auditors...................................................... 50
</TABLE>
[LOGO]
SAFECO CORPORATION
---------------
OFFER TO EXCHANGE ITS
6 7/8% NOTES DUE JULY 15, 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
6 7/8% NOTES DUE JULY 15, 2007
---------------------
PROSPECTUS
---------------------
NOVEMBER 10, 1997
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