<PAGE>
PROSPECTUS FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-38205
SAFECO CAPITAL TRUST I
OFFER TO EXCHANGE ITS
8.072% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8.072% ORIGINAL CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER ORIGINAL CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
SAFECO CORPORATION
------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON DECEMBER 15, 1997 UNLESS EXTENDED.
SAFECO Capital Trust I, a trust formed under the laws of the State of
Delaware (the "Trust"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, this "Prospectus") and in the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange up to $850,000,000 aggregate Liquidation Amount of its 8.072% Series B
Capital Securities (the "Exchange Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its outstanding
8.072% Series A Capital Securities (the "Original Capital Securities"), of which
$850,000,000 aggregate Liquidation Amount are issued and outstanding. Pursuant
to the Exchange Offer, SAFECO Corporation, a Washington corporation (the
"Corporation"), is also offering to exchange (i) its guarantee of payments of
cash distributions and payments on liquidation of the Trust or redemption of the
Original Capital Securities (the "Original Guarantee") for a like guarantee in
respect of the Exchange Capital Securities (the "Exchange Guarantee") and (ii)
$850,000,000 aggregate principal amount of its 8.072% Series A Junior
Subordinated Deferrable Interest Debentures due July 15, 2037 (the "Original
Junior Subordinated Debentures") for a like aggregate principal amount of its
8.072% Series B Junior Subordinated Deferrable Interest Debentures due July 15,
2037 (the "Exchange Junior Subordinated Debentures"), which Exchange Guarantee
and Exchange Junior Subordinated Debentures also have been registered under the
Securities Act. (CONTINUED ON THE FOLLOWING PAGE)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of the Original Capital Securities on November 12, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 10, 1997
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
The Original Capital Securities, the Original Guarantee and the Original Junior
Subordinated Debentures are collectively referred to herein as the "Original
Securities" and the Exchange Capital Securities, the Exchange Guarantee and the
Exchange Junior Subordinated Debentures are collectively referred to herein as
the "Exchange Securities."
The Trust sold the Original Capital Securities in an offering exempt from
the registration requirements of the Securities Act, which was consummated on
July 15, 1997 (the "Closing Date"). On the Closing Date, the Corporation also
issued $200,000,000 aggregate principal amount of 6 7/8% Notes due July 15, 2007
(the "Original Notes"). The Corporation currently anticipates a separate
exchange offer by the Corporation of up to $200,000,000 aggregate principal
amount of 6 7/8% Notes due July 15, 2007 (the "Exchange Notes"), which have been
registered under the Securities Act, for the Original Notes. The Original Notes
and the Exchange Notes are sometimes collectively referred to herein as the
"Notes"). The exchange offer for the Original Notes 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 Notes.
The terms of the Exchange Securities are identical in all material respects
to the respective terms of the Original Securities, except that (i) the Exchange
Securities have been registered under the Securities Act and therefore will not
be subject to certain restrictions on transfer applicable to the Original
Securities, (ii) the Exchange Capital Securities will not contain the $100,000
minimum Liquidation Amount transfer restriction, (iii) the Exchange Capital
Securities will not provide for any increase in the Distribution rate thereon
and (iv) the Exchange Junior Subordinated Debentures will not provide for any
increase in the interest rate thereon. See "Description of Exchange Securities."
The Exchange Capital Securities are being offered for exchange in order to
satisfy certain obligations of the Corporation and the Trust under the
Registration Rights Agreement dated as of July 15, 1997 (the "Registration
Rights Agreement") among the Corporation, the Trust and the Initial Purchasers
(as defined herein). In the event that the Exchange Offer is consummated, any
Original Capital Securities which remain outstanding after consummation of the
Exchange Offer and the Exchange Capital Securities issued in the Exchange Offer
will vote together as a single class for purposes of determining whether holders
of the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement.
The Exchange Capital Securities and the Original Capital Securities
(collectively, the "Capital Securities") represent beneficial interests in the
assets of the Trust. The Corporation is the owner of all of the beneficial
interests represented by common securities of the Trust (the "Common
Securities," and together with the Capital Securities, the "Trust Securities").
The Chase Manhattan Bank is the Property Trustee (the "Property Trustee") of the
Trust. The Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in the Junior Subordinated Debentures (as defined
herein). The Junior Subordinated Debentures will mature on July 15, 2037 (the
"Stated Maturity Date"). The Capital Securities will have a preference over the
Common Securities under certain circumstances with respect to cash distributions
and amounts payable on liquidation, redemption or otherwise. See "Description of
Exchange Securities--Description of Exchange Capital Securities--Subordination
of Common Securities."
As used herein, (i) the "Indenture" means the Indenture, dated as of July
15, 1997, as amended and supplemented from time to time, between the Corporation
and The Chase Manhattan Bank, as trustee (the "Debenture Trustee"), relating to
the Junior Subordinated Debentures, (ii) the "Trust Agreement" means the Amended
and Restated Declaration of Trust relating to the Trust among the Corporation,
as Sponsor, The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank
Delaware, an affiliate of the Property Trustee, as Delaware Trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees"), (iii) the "Guarantee" means the Guarantee Agreement relating to the
Capital Securities between the
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Corporation and The Chase Manhattan Bank, as trustee (the "Guarantee Trustee")
and (iv) the "Common Guarantee" means the Guarantee Agreement relating to the
Common Securities between the Corporation and The Chase Manhattan Bank, as
trustee. In addition, as the context may require, (i) "Junior Subordinated
Debentures" includes the Original Junior Subordinated Debentures and the
Exchange Junior Subordinated Debentures and (ii) "Guarantee" includes the
Original Guarantee and the Exchange Guarantee.
Holders of the Capital Securities and the Common Securities will be entitled
to receive preferential cumulative cash distributions arising from the payment
of interest on the Junior Subordinated Debentures, accruing from the date of
original issuance and payable semi-annually in arrears on January 15 and July 15
of each year, commencing January 15, 1998, at the annual rate of 8.072% of the
Liquidation Amount of $1,000 per Trust Security ("Distributions"). So long as no
Debenture Event of Default (as defined herein) has occurred and is continuing,
the Corporation will have the right to defer payments of interest on the Junior
Subordinated Debentures at any time and from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Corporation may
elect to begin a new Extension Period, subject to the requirements set forth
herein. If and for so long as interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Trust Securities will also be
deferred and the Corporation will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to the Corporation's capital stock (which includes common and preferred
stock) or to make any payment with respect to debt securities of the Corporation
that rank pari passu with or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated Debentures will
continue to accrue (and the amount of Distributions to which holders of the
Trust Securities are entitled will continue to accumulate) at the rate of 8.072%
per annum, compounded semi-annually, and holders of Trust Securities will be
required to accrue interest income for United States federal income tax purposes
prior to the receipt of the cash attributable to such income. See "Description
of Exchange Securities--Description of Exchange Junior Subordinated
Debentures--Option to Extend Interest Payment Date" and "Certain Federal Income
Tax Consequences-- Interest Income and Original Issue Discount."
The Corporation will, through the Guarantee, the Common Guarantee, the Trust
Agreement, the Junior Subordinated Debentures and the Indenture, taken together,
fully, irrevocably and unconditionally guarantee all of the Trust's obligations
under the Trust Securities. See "Relationship Among the Exchange Capital
Securities, the Exchange Junior Subordinated Debentures and the Exchange
Guarantee--Full and Unconditional Guarantee." The Guarantee and the Common
Guarantee will guarantee payments of Distributions and payments on liquidation
or redemption of the Trust Securities, but in each case only to the extent that
the Trust holds funds on hand legally available therefor and has failed to make
such payments, as described herein. See "Description of Exchange
Securities--Description of Exchange Guarantee." If the Corporation fails to make
a required payment on the Junior Subordinated Debentures, the Trust will not
have sufficient funds to make the related payments, including Distributions, on
the Trust Securities. The Guarantee and the Common Guarantee will not cover any
such payment when the Trust does not have sufficient funds on hand legally
available therefor. In such event, a holder of Capital Securities may institute
a legal proceeding directly against the Corporation to enforce its rights in
respect of such payment. See "Description of Exchange Securities--Description of
Exchange Junior Subordinated Debentures--Enforcement of Certain Rights by
Holders of Capital Securities. " The obligations of the Corporation under the
Guarantee, the Common Guarantee and the Junior Subordinated Debentures will be
unsecured and subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of Exchange Securities--Description of
Exchange Junior Subordinated Debentures--Subordination"), which aggregated
approximately $1.1 billion as of March 31, 1996.
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<PAGE>
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued and unpaid interest on, the
Junior Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole
but not in part, contemporaneously with the optional prepayment of the Junior
Subordinated Debentures at any time prior to July 15, 2007 upon the occurrence
and continuation of a Tax Event (as defined herein) at a redemption price equal
to the Special Event Prepayment Price (as defined below) (the "Special Event
Redemption Price"), and (iii) in whole or in part, on or after July 15, 2007,
contemporaneously with the optional prepayment by the Corporation of the Junior
Subordinated Debentures, at a redemption price equal to the Optional Prepayment
Price (as defined below) (the "Optional Redemption Price"). The Trust Securities
were also subject to mandatory redemption prior to March 31, 1998 if the
Agreement and Plan of Merger, dated as of June 6, 1997, by and among American
States Financial Corporation, SAFECO and a subsidiary of SAFECO were terminated,
pursuant to Article 12 thereof, on or prior to December 31, 1997 (a "Merger
Termination Event"). Because of the closing of the acquisition of American
States Financial Corporation by the Corporation (the "Acquisition") on October
1, 1997, no Merger Termination Event can occur. Any of the Maturity Redemption
Price, the Special Event Redemption Price and the Optional Redemption Price may
be referred to herein as the "Redemption Price." See "Description of Exchange
Securities-- Description of Exchange Capital Securities--Redemption."
The Junior Subordinated Debentures will be prepayable prior to the Stated
Maturity Date at the option of the Corporation (i) on or after July 15, 2007, in
whole or in part, at a prepayment price (the "Optional Prepayment Price") equal
to 104.036% of the principal amount thereof on July 15, 2007, declining ratably
on each July 15 thereafter to 100% on or after July 15, 2017, plus accrued and
unpaid interest thereon to the date of prepayment, or (ii) in whole but not in
part, at any time prior to July 15, 2007, in whole but not in part, upon the
occurrence and continuation of a Tax Event, at a prepayment price (the "Special
Event Prepayment Price") equal to the greater of (a) 100% of the principal
amount thereof or (b) the sum, as determined by a Quotation Agent (as defined
hereinafter), of the present values of the remaining scheduled payments of
principal and interest on the Junior Subordinated Debentures to the Stated
Maturity Date, discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined herein) plus, in either case, accrued and unpaid
interest thereon to the date of prepayment. Although the Junior Subordinated
Debentures were also subject to mandatory redemption prior to March 31, 1998
upon the occurrence and continuation of a Merger Termination Event, the closing
of the Acquisition precludes the occurrence of a Merger Termination Event.
Either of the Optional Prepayment Price or the Special Event Prepayment Price
may be referred to herein as the "Prepayment Price." See "Description of
Exchange Securities-- Description of Exchange Junior Subordinated
Debentures--Optional Prepayment" and "--Special Event Prepayment."
The Corporation will have the right at any time to terminate the Trust and
cause a Like Amount of the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust, subject to the
Corporation having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities.
Unless the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, in the event of a liquidation of the Trust as described
herein, after satisfaction of liabilities to creditors of the Trust as required
by applicable law, the holders of the Trust Securities generally will be
entitled to receive a Liquidation Amount of $1,000 per Trust Security plus
accumulated and unpaid Distributions thereon to the date of payment. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures."
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Original Capital Securities. The Exchange Capital
Securities will be a new issue of securities for which there currently is no
market. Although Smith Barney Inc., Salomon Brothers Inc and BancAmerica
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<PAGE>
Securities, Inc., the initial purchasers of the Original Capital Securities (the
"Initial Purchasers"), have informed the Corporation and the Trust that they
each currently intend to make a market in the Exchange Capital Securities, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Capital Securities. The
Corporation and the Trust currently do not intend to apply for listing of the
Exchange Capital Securities on any securities exchange or for quotation through
Nasdaq.
Any Original Capital Securities not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the same rights and
will be subject to the same limitations applicable thereto under the Declaration
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Original
Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Corporation nor the Trust
will have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act of
the Original Capital Securities held by them. To the extent that Original
Capital Securities are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Original Capital Securities could be adversely
affected. See "Risk Factors--Consequences of a Failure to Exchange Original
Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER.
Original Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on December 15, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation or the Trust (in which case the term "Expiration Date" shall
mean the latest date and time to which the Exchange Offer is extended). Tenders
of Original Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Original Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Trust and to the terms and provisions of
the Registration Rights Agreement. Original Capital Securities may be tendered
in whole or in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) or any integral multiple of $1,000 Liquidation
Amount (one Capital Security) in excess thereof. The Corporation has agreed to
pay all expenses of the Exchange Offer. See "The Exchange Offer--Fees and
Expenses." Holders of the Original Capital Securities whose Original Capital
Securities are accepted for exchange will not receive Distributions on such
Original Capital Securities and will be deemed to have waived the right to
receive any Distributions on such Original Capital Securities accumulated from
and after July 15, 1997. Accordingly, holders of Exchange Capital Securities as
of the record date for the payment of Distributions on January 15, 1998 will be
entitled to receive Distributions accumulated from and after July 15, 1997. See
"The Exchange Offer-- Description of Exchange Capital
Securities--Distributions."
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the Exchange Capital Securities offered hereby. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
5
<PAGE>
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.
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING, NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY, OR TRANSACTION; IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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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. Certain information about American States
has been incorporated into this Prospectus by reference. See "Incorporation of
Certain Documents by Reference" and "Prospectus Summary--SAFECO
Corporation--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.
No separate financial statements of the Trust have been included herein. The
Corporation and the Trust do not consider that such financial statements would
be material to holders of the Capital Securities because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures, issuing
the Trust Securities and engaging in incidental activities. See "SAFECO Capital
Trust I" and "Description of Exchange Securities." In addition, the Corporation
does not expect that the Trust will file reports, proxy statements and other
information under the Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Corporation and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Corporation, the
Trust and the Exchange Securities. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
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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 CAPITAL SECURITIES 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 Notes, $850 million aggregate liquidation amount of the 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."
SAFECO CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement executed by the Corporation, as Sponsor, The Chase
Manhattan Bank, as Property Trustee, and Chase Manhattan Bank Delaware, as
Delaware Trustee and the three individual Administrative Trustees named therein,
and (ii) the filing of a certificate of trust with the Delaware Secretary of
State on June 19, 1997. The Trust's activities are conducted by the Issuer
Trustees: the Property Trustee, the Delaware Trustee, and the three individual
Administrative Trustees who are employees or officers of or affiliated with the
Corporation. The Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of the Trust
Securities to acquire the Junior Subordinated Debentures issued by the
Corporation and (iii) engaging in only those other activities necessary,
advisable or incidental thereto. Accordingly, the Junior Subordinated Debentures
will be the sole assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenue of the Trust. All of the Common Securities
will be owned by the Corporation.
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THE EXCHANGE OFFER
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THE EXCHANGE OFFER................ Up to $850 million aggregate Liquidation Amount of
Exchange Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount of
Original Capital Securities. Original Capital Securities
may be tendered for exchange in whole or in part in a
Liquidation Amount of $100,000 (100 Capital Securities)
or any integral multiple of $1,000 (one Capital
Security) in excess thereof. The Corporation and the
Trust are making the Exchange Offer in order to satisfy
their obligations under the Registration Rights
Agreement relating to the Original Capital Securities.
For a description of the procedures for tendering
Original Capital Securities, see "The Exchange
Offer--Procedures for Tendering Original Capital
Securities."
EXPIRATION DATE................... 5:00 p.m., New York time, on 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
OFFER........................... The Exchange Offer is subject to certain conditions,
which may be waived by the Corporation and the Trust in
their sole discretion. The Exchange Offer is not
conditioned upon any minimum Liquidation Amount of
Original Capital Securities being tendered. See "The
Exchange Offer--Conditions to the Exchange Offer."
OFFER............................. The Corporation and the Trust reserve the right in their
sole and absolute discretion, subject to applicable law,
at any time and from time to time, (i) to delay the
acceptance of the Original Capital Securities for
exchange, (ii) to terminate the Exchange Offer if
certain specified conditions have not been satisfied,
(iii) to extend the Expiration Date of the Exchange
Offer and retain all Original Capital Securities
tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Original Capital
Securities to withdraw their tendered Original Capital
Securities, or (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any respect.
See "The Exchange Offer--Terms of the Exchange Offer."
WITHDRAWAL RIGHTS................. Tenders of Original Capital Securities may be withdrawn
at any time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to the
Exchange Agent (as defined herein) in conformity with
certain procedures set forth in "The Exchange
Offer--Withdrawal Rights."
PROCEDURES FOR TENDERING ORIGINAL
CAPITAL SECURITIES.............. Brokers, dealers, commercial banks, trust companies and
other nominees who hold Original Capital Securities
through The Depository Trust Company ("DTC") may effect
tenders by book-entry transfer in accordance with DTC's
Automated Tender Offer Program ("ATOP"). Holders of such
Original
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Capital Securities 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 Capital Securities. In order for
Original Capital Securities to be tendered by a means
other than by book-entry transfer, a Letter of
Transmittal must be completed and signed in accordance
with the instructions contained therein. The Letter of
Transmittal and any other documents required by the
Letter of Transmittal must be delivered to The Chase
Manhattan Bank (the "Exchange Agent") by mail,
facsimile, hand delivery or overnight courier and either
such Original Capital Securities must be delivered to
the Exchange Agent or specified procedures for
guaranteed delivery must be complied with. See "The
Exchange Offer-- Procedures for Tendering Original
Capital Securities."
Letters of Transmittal and certificates representing
Original Capital Securities should not be sent to the
Corporation. Such documents should be sent only to the
Exchange Agent.
RESALES OF EXCHANGE CAPITAL
SECURITIES...................... The Trust is making the Exchange Offer of the Exchange
Capital Securities in reliance on the position of the
staff of the Division of Corporation Finance of the
Commission as set forth in certain interpretive letters
addressed to third parties in other transactions.
However, neither the Corporation nor the Trust has
sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation
Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it
has in such interpretive letters to third parties. Based
on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to
the two immediately following sentences, the Corporation
and the Trust believe that Exchange Capital Securities
issued pursuant to this Exchange Offer in exchange for
Original Capital Securities may be offered for resale,
resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without
further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided
that such Exchange Capital Securities are acquired in
the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement
or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act)
of such Exchange Capital Securities. However, any holder
of Original Capital Securities who is an "affiliate" of
the Corporation or the Trust or who intends to
participate in the Exchange Offer for the purpose of
distributing Exchange Capital Securities, or any
broker-dealer who purchased Original Capital Securities
from the Trust to resell pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available
exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the
Division of Corporation Finance of the
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Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender
such Original Capital Securities in the Exchange Offer
and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or other transfer of such
Original Capital Securities unless such sale is made
pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds
Original Capital Securities acquired for its own account
as a result of market-making or other trading activities
and exchanges such Original Capital Securities for
Exchange Capital Securities, then such broker-dealer
must deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of
such Exchange Capital Securities.
Each holder of Original Capital Securities who wishes to
exchange Original Capital Securities for Exchange
Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate"
of the Corporation or the Trust, (ii) any Exchange
Capital Securities to be received by it are being
acquired in the ordinary course of its business, (iii)
it has no arrangement or understanding with any person
to participate in a distribution (within the meaning of
the Securities Act) of such Exchange Capital Securities,
and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities
Act) of such Exchange Capital Securities. In addition,
the Corporation and the Trust may require such holder,
as a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish to the
Corporation and the Trust (or an agent thereof) in
writing information as to the number of "beneficial
owners" (within the meaning of Rule 13d-3 under the
Exchange Act) on behalf of whom such holder holds the
Capital Securities to be exchanged in the Exchange
Offer. Each broker-dealer that receives Exchange Capital
Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Original
Capital Securities for its own account as the result of
market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resale of such Exchange Capital Securities. The
Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
Based on the position taken by the staff of the Division
of Corporation Finance of the Commission in the
interpretive letters referred to above, the Corporation
and the Trust believe that broker-dealers who acquired
Original Capital Securities for their own accounts, as a
result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill
their prospectus delivery requirements with respect to
the
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Exchange Capital Securities received upon exchange of
such Original Capital Securities (other than Original
Capital Securities which represent an unsold allotment
from the initial sale of the Original Capital
Securities) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus
prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to
the resale of such Exchange Capital Securities. Each
broker-dealer that receives Exchange Capital Securities
for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Capital
Securities. The Letter of Transmittal states that by so
acknowledging and by delivery of a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in
connection with resales of Exchange Capital Securities
received in exchange for Original Capital Securities
acquired by such broker-dealer as a result of
market-making activities or other trading activities.
The Trust and the Corporation have agreed that, ending
on the close of business on the 180th day following the
Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution". However, a
Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of Exchange
Capital Securities received in exchange for Original
Capital Securities pursuant to the Exchange Offer must
notify the Corporation or the Trust, or cause the
Corporation or the Trust to be notified, on or prior to
the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal
or may be delivered to the Exchange Agent at one of the
addresses set forth in "The Exchange Offer--Exchange
Agent." Any Participating Broker-Dealer who is an
"affiliate" of the Corporation or the Trust may not rely
on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of
Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who
surrenders Original Capital Securities pursuant to the
Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that upon
receipt of notice from the Corporation or the Trust of
the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by
reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state
a material fact necessary in order to make the
statements contained or incorporated by reference
herein, in light of the circumstances under which they
were made, not misleading or of the occurrence of
certain other events specified in the Registration
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Rights Agreement, such Participating Broker-Dealer will
suspend the sale of Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated
Debentures, as applicable) pursuant to this Prospectus
until the Corporation or the Trust has amended or
supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the
amended or supplemented Prospectus to such Participating
Broker-Dealer, or the Corporation or the Trust has given
notice that the sale of the Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) may be resumed,
as the case may be. If the Corporation or the Trust
gives such notice to suspend the sale of the Exchange
Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable),
it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled
to use this Prospectus in connection with the resale of
Exchange Capital Securities by the number of days during
the period from and including the date of the giving of
such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales
of the Exchange Capital Securities or to and including
the date on which the Corporation or the Trust has given
notice that the sale of Exchange Capital Securities (or
the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) may be resumed,
as the case may be.
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.
USE OF PROCEEDS................... Neither the Corporation nor the Trust will receive any
cash proceeds from the issuance of the Exchange Capital
Securities offered hereby. See "Use of Proceeds."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES; ERISA
CONSIDERATIONS.................. Holders of Original Capital Securities should review the
information set forth in "Certain Federal Income Tax
Consequences" and "ERISA Considerations" prior to
tendering Original Capital Securities in the Exchange
Offer.
THE EXCHANGE CAPITAL SECURITIES
SECURITIES OFFERED................ Up to $850 million aggregate principal Liquidation
Amount of the Trust's Exchange Capital Securities which
have been registered under the Securities Act
(Liquidation Amount $1,000 per Exchange Capital
Security). The Exchange Capital Securities will be
issued and the Original Capital Securities were issued
under the Trust Agreement. The Exchange Capital
Securities and any Original Capital Securities which
remain
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outstanding after consummation of the Exchange Offer
will vote together as a single class for purposes of
determining whether holders of the requisite percentage
in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the
Declaration. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust
Agreement." The terms of the Exchange Capital Securities
are identical in all material respects to the terms of
the Original Capital Securities, except that the
Exchange Capital Securities have been registered under
the Securities Act and will not be subject to certain
restrictions on transfer applicable to the Original
Capital Securities and will not provide for any increase
in the Distribution rate thereon. See "The Exchange
Offer--Purpose of the Exchange Offer and Description of
Exchange Securities."
DISTRIBUTION DATES................ January 15 and July 15 of each year, commencing January
15, 1998.
EXTENSION PERIODS................. Distributions on Exchange Capital Securities will be
deferred for the duration of any Extension Period
elected by the Corporation with respect to the payment
of interest on the Exchange Junior Subordinated
Debentures. No Extension Period will exceed 10
consecutive semi-annual periods or extend beyond the
Stated Maturity Date. See "Description of Exchange
Securities-- Description of Exchange Junior Subordinated
Debentures-- Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
RANKING........................... The Exchange Capital Securities will rank PARI PASSU,
and payments thereon will be made pro rata, with the
Original Capital Securities and the Common Securities
except as described in "Description of Exchange
Securities--Description of Exchange Capital
Securities--Subordination of Common Securities." The
Exchange Junior Subordinated Debentures will rank PARI
PASSU with the Original Junior Subordinated Debentures
and all other junior subordinated debentures to be
issued by the Corporation ("Other Debentures"), which
will be issued and sold (if at all) to other trusts to
be established by the Corporation (if any), in each case
similar to the Trust ("Other Trusts"), and will be
unsecured and subordinate and junior in right of payment
to all Senior Indebtedness to the extent and in the
manner set forth in the Indenture. See "Description of
Exchange Securities--Description of Exchange Junior
Subordinated Debentures." The Exchange Guarantee will
rank PARI PASSU with the Original Guarantee and all
other guarantees (if any) to be issued by the
Corporation with respect to capital or preferred
securities (if any) issued by Other Trusts ("Other
Guarantees") and will constitute an unsecured obligation
of the Corporation and will rank subordinate and junior
in right of payment to all Senior Indebtedness to the
extent and in the
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manner set forth in the Guarantee Agreement. See
"Description of Exchange Securities--Description of
Exchange Guarantee."
REDEMPTION........................ The Trust Securities will be subject to mandatory
redemption in a Like Amount, (i) in whole but not in
part, on the Stated Maturity Date upon repayment of the
Junior Subordinated Debentures, (ii) in whole but not in
part, contemporaneously with the optional prepayment of
the Junior Subordinated Debentures by the Corporation,
at any time prior to July 15, 2007, upon the occurrence
and continuation of a Tax Event and (iii) in whole or in
part, on or after July 15, 2007 contemporaneously with
the optional prepayment by the Corporation of the Junior
Subordinated Debentures, in each case at the applicable
Redemption Price. The Trust Securities were also subject
to mandatory redemption prior to March 31, 1998 upon the
occurrence of a Merger Termination Event. See
"Description of Exchange Securities--Description of
Exchange Capital Securities--Redemption."
RATINGS........................... The Exchange Capital Securities are rated a3 by Moody's
Investors Service, Inc. and "A" by Standard & Poor's
Rating Services.
TRANSFER RESTRICTIONS............. The Exchange Capital Securities will be issued, and may
be transferred, only in minimum denominations of not
less than $1,000. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Restrictions on Transfer." Any such transfer
of Exchange Capital Securities in denominations of less
than $1,000 shall be deemed to be void and of no legal
effect whatsoever.
ABSENCE OF MARKET FOR THE CAPITAL
SECURITIES...................... The Exchange Capital Securities will be a new issue of
securities for which there currently is no market.
Although the Initial Purchasers have informed the Trust
and the Corporation that they each currently intend to
make a market in the Capital Securities, the Initial
Purchasers are not obligated to do so, and any such
market-making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Capital
Securities. The Trust and the Corporation does not
intend to apply for listing of the Capital Securities on
any securities exchange or for quotation through Nasdaq.
See "Plan of Distribution."
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For additional information regarding the Capital Securities, see
"Description of Exchange Securities" and "Certain Federal Income Tax
Consequences."
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RISK FACTORS
THE CORPORATION IDENTIFIES THE FOLLOWING IMPORTANT FACTORS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS THAT MIGHT BE PROJECTED,
FORECAST, ESTIMATED OR BUDGETED BY THE CORPORATION AS FORWARD-LOOKING
INFORMATION. ALL SUCH FACTORS ARE DIFFICULT TO PREDICT AND THE MAJORITY ARE
BEYOND THE CONTROL OF THE CORPORATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES
SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS
AND SHOULD PARTICULARLY CONSIDER THE INFORMATION STATED BELOW. SEE "FORWARD-
LOOKING INFORMATION."
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Corporation under the Guarantee issued by it for the
benefit of the holders of Capital Securities, as well as under the Junior
Subordinated Debentures, will be unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness. In addition, in the case of a
bankruptcy or insolvency proceeding, the Corporation's obligations under the
Guarantee will also rank subordinate and junior in right of payment to all
liabilities (other than Other Guarantees) of the Corporation. At June 30, 1997,
the aggregate principal amount of outstanding Senior Indebtedness was
approximately $1.2 billion. In connection with the Acquisition, the aggregate
principal amount of Senior Indebtedness will increase. See "Unaudited Pro Forma
Combined Condensed Financial Statements." None of the Indenture, the Guarantee
or the Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Indebtedness, that may be incurred by the
Corporation or by any subsidiary. See "Description of Exchange
Securities--Description of Exchange Guarantee--Status of the Exchange Guarantee"
and "Description of Exchange Securities--Description of Exchange Junior
Subordinated Debenturs--Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Corporation's making payments on the Junior
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default (as defined in "Description of
Exchange Securities-- Description of Exchange Junior Subordinated
Debentures--Debenture Events of Default") shall have occurred and be continuing,
the Corporation will have the right under the Indenture to defer payments of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 10 consecutive semi-annual periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity Date. As a consequence of any such deferral, semi-annual
Distributions on the Capital Securities by the Trust will be deferred (and the
amount of Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the rate of 8.072% per
annum, compounded semi-annually), from the relevant payment date for such
Distributions during any such Extension Period.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid on the Junior
Subordinated Debentures (together with interest thereon at the annual rate of
8.072%, compounded semi-annually, to the extent permitted by applicable law),
the Corporation may elect to begin a new Extension Period, subject to the above
requirements. There is no limitation on the number of times that the Corporation
may elect to begin an Extension Period. See "Description of Exchange
Securities--Description of Exchange Capital Securities--Distributions" and
"Description of Exchange Securities--Description of Exchange Junior Subordinated
Debentures-- Option to Extend Interest Payment Date."
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Should the Corporation exercise its right to defer payments of interest on
the Junior Subordinated Debentures, each holder of Trust Securities will be
required to accrue income (as original issue discount ("OID")) in respect of the
deferred stated interest allocable to its Trust Securities for United States
federal income tax purposes, which will be allocated but not distributed to
holders of Trust Securities. As a result, each such holder of Capital Securities
will recognize income for United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash related to such income from
the Trust if the holder disposes of the Capital Securities prior to the record
date for the payment of Distributions thereafter. See "Certain Federal Income
Tax Consequences--Interest Income and Original Issue Discount" and "--Sales of
Capital Securities."
Should the Corporation elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures in the future, the market price
of the Capital Securities is likely to be affected. A holder that disposes of
its Capital Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its Capital
Securities. In addition, merely as a result of the existence of the
Corporation's right to defer payments of interest on the Junior Subordinated
Debentures, the market price of the Capital Securities may be more volatile than
the market prices of other securities that are not subject to such deferrals.
Although the Corporation has the right to exercise its option to defer
payments of interest on the Junior Subordinated Debentures, the Corporation has
no current intention to defer payments of interest on such debentures.
TAX EVENT REDEMPTION; POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
Upon the occurrence and continuation of a Tax Event (as defined in
"Description of Exchange Securities--Description of Exchange Junior Subordinated
Debentures--Special Event Prepayment"), the Corporation will have the right to
prepay the Junior Subordinated Debentures in whole (but not in part) at the
Special Event Prepayment Price prior to July 15, 2007 and within 90 days
following the occurrence of such Tax Event and therefore cause a mandatory
redemption of the Trust Securities at the Special Event Redemption Price. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Redemption."
The Taxpayer Relief Act of 1997, enacted on August 7, 1997, did not contain
certain provisions of President Clinton's Fiscal Budget Proposal (the "Proposed
Legislation") that, among other things, would have denied an issuer a deduction
for United States federal income tax purposes for the payment of interest on
instruments with characteristics similar to the Junior Subordinated Debentures.
There can be no assurance, however, that the Proposed Legislation or other
legislation enacted after the date hereof would not adversely affect the tax
treatment of the Junior Subordinated Debentures or that any legislation enacted
after the date hereof would not cause a Tax Event that may result in the
redemption of the Junior Subordinated Debentures and, consequently, the Trust
Securities. See "Description of Exchange Securities--Description of Exchange
Capital Securities--Redemption" and "Description of Exchange
Securities--Description of Exchange Junior Subordinated Debentures--Special
Event Prepayment." See also "Certain Federal Income Tax Consequences--Proposed
Tax Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures distributed to the holders of Capital Securities
if a termination of the Trust were to occur. Accordingly, the Capital Securities
or the Junior Subordinated Debentures may trade at a discount from the price
that the investor paid to purchase the Capital Securities offered hereby.
Because holders of Capital Securities may receive Junior Subordinated Debentures
in liquidation of the Trust and because Distributions are otherwise limited to
payments on the Junior Subordinated Debentures, prospective purchasers of
Exchange Capital Securities are also making an investment decision with regard
to the
19
<PAGE>
Exchange Junior Subordinated Debentures and should carefully review all the
information regarding the Exchange Junior Subordinated Debentures contained
herein. See "Description of Exchange Securities-- Description of Exchange Junior
Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. The Chase
Manhattan Bank will also act as Property Trustee and as Debenture Trustee under
the Indenture. Chase Manhattan Bank Delaware will act as Delaware Trustee under
the Trust Agreement. The Guarantee will guarantee to the holders of the Capital
Securities the following payments, to the extent not paid by the Trust: (i) any
accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the applicable Redemption Price with respect to any
Capital Securities called for redemption, to the extent that the Trust has funds
on hand legally available therefor at such time, and (iii) upon a voluntary or
involuntary termination and liquidation of the Trust (unless the Junior
Subordinated Debentures are distributed to holders of the Capital Securities),
the lesser of (a) the aggregate of the Liquidation Amount and all accumulated
and unpaid Distributions to the date of payment, to the extent that the Trust
has funds on hand legally available therefor at such time and (b) the amount of
assets of the Trust remaining available for distribution to holders of the
Capital Securities upon a termination and liquidation of the Trust. The holders
of a majority in Liquidation Amount of the Capital Securities will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of the Guarantee or to
direct the exercise of any trust power conferred upon the Guarantee Trustee. Any
holder of the Capital Securities may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If the Corporation defaults on its obligation to pay
amounts payable under the Junior Subordinated Debentures, the Trust will not
have sufficient funds for the payment of Distributions or amounts payable on
redemption of the Capital Securities or otherwise, and, in such event, holders
of the Capital Securities will not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing and such event is attributable to the
failure of the Corporation to pay principal of (or premium, if any) or interest
on the Junior Subordinated Debentures on the payment date on which such payment
is due and payable, then a holder of Capital Securities may institute a legal
proceeding directly against the Corporation for enforcement of payment to such
holder of the principal of (or premium, if any) or interest on such Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities of such holder (a "Direct Action").
Notwithstanding any payments made to a holder of Capital Securities by the
Corporation in connection with a Direct Action, the Corporation shall remain
obligated to pay the principal of (and premium, if any) and interest on the
Junior Subordinated Debentures, and the Corporation shall be subrogated to the
rights of the holder of such Capital Securities with respect to payments on the
Capital Securities to the extent of any payments made by the Corporation to such
holder in any Direct Action. Except as described herein, holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or to assert directly any
other rights in respect of the Junior Subordinated Debentures. See "Description
of Exchange Securities-- Description of Exchange Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities,"
"--Description of Exchange Junior Subordinated Debentures--Debenture Events of
Default" and "--Description of Exchange Guarantee." The Trust Agreement will
provide that each holder of Capital Securities by acceptance thereof agrees to
the provisions of the Indenture.
20
<PAGE>
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction, including a change of control, or other similar transactions
involving the Corporation that may adversely affect such holders.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have voting rights relating
only to the modification of the Capital Securities, the termination or
liquidation of the Trust, and the exercise of the Trust's rights as holder of
Junior Subordinated Debentures. Holders of Capital Securities will not be
entitled to vote to appoint, remove or replace the Property Trustee or the
Delaware Trustee, and such voting rights are vested exclusively in the holder of
the Common Securities except upon the occurrence of certain events described
herein. See "Description of Exchange Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of
Issuer Trustees."
HOLDING COMPANY 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 the 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
Junior Subordinated Debentures. 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 or bankruptcy or winding-up of such subsidiary under
applicable 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 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
shareholder, 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
impose, from time to time, 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
21
<PAGE>
subsidiaries received approval in July 1997 to pay dividends totalling $600
million to SAFECO to fund a portion of the purchase price for the Acquisition.
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL CAPITAL SECURITIES
The Original Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain other conditions and restrictions.
Original Capital Securities which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of
Original Capital Securities which remain outstanding will not be entitled to any
rights to have such Original Capital Securities registered under the Securities
Act or to any similar rights under the Registration Rights Agreement (subject to
certain limited exceptions). The Corporation and the Trust do not intend to
register under the Securities Act any Original Capital Securities which remain
outstanding after consummation of the Exchange Offer (subject to such limited
exceptions, if applicable). To the extent that Original Capital Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Capital Securities could be adversely affected.
The Exchange Capital Securities and any Original Capital Securities which
remain outstanding after consummation of the Exchange Offer will vote together
as a single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount of Capital Securities have taken
certain actions or exercised certain rights under the Declaration. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement."
The Original Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
December 8, 1997 and declared effective by January 21, 1998, the Distribution
rate borne by the Original Capital Securities 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
Capital Securities will not be entitled to any increase in the Distribution rate
thereon or any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Description of Exchange
Securities."
ABSENCE OF PUBLIC MARKET
The Original Capital Securities were issued to, and the Corporation believes
such securities are currently owned by, a relatively small number of beneficial
owners. The Original Capital Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the Exchange Capital Securities. Although the Exchange
Capital Securities may be resold or otherwise transferred by the holders (who
are not affiliates of the Corporation or the Trust) without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities with no established trading market. Original Capital
Securities may be transferred by the holders thereof only in blocks having a
Liquidation Amount of not less than $100,000 (100 Capital Securities). The
Corporation and the Trust have been advised by the Initial Purchasers that the
Initial Purchasers presently intend to make a market in the Exchange Capital
Securities. However, the Initial Purchasers are not obligated to do so and any
market-making activity with respect to the Exchange Capital Securities may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer. Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Capital Securities or the Original Capital Securities, or as to the
liquidity of or the trading market for the Exchange Capital Securities or the
Original Capital Securities. If an active public
22
<PAGE>
market does not develop, the market price and liquidity of the Exchange Capital
Securities may be adversely affected.
If a public trading market develops for the Exchange Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the financial condition of the Corporation
and the market for similar securities. Depending on these and other factors, the
Exchange Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Corporation or the Trust may publicly offer for sale or
resell the Exchange Capital Securities only in compliance with the provisions of
Rule 144 under the Securities Act. Each broker-dealer that receives Exchange
Capital Securities for its own account in exchange for Original Capital
Securities, where such Original Capital Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Capital Securities. See "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth in "The Exchange Offer--Conditions to
the Exchange Offer," delivery of Exchange Capital Securities in exchange for
Original Capital Securities tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
(i) certificates for Original Capital Securities or a book-entry confirmation of
a book-entry transfer of Original Capital Securities into the Exchange Agent's
account at DTC, including an Agent's Message (as defined in "The Exchange
Offer--Acceptance for Exchange and Issuance of Exchange Capital Securities") if
the tendering holder does not deliver a Letter of Transmittal, (ii) a completed
and signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal, and (iii) any other documents
required by the Letter of Transmittal. Therefore, holders of Original Capital
Securities desiring to tender such Original Capital Securities in exchange for
Exchange Capital Securities should allow sufficient time to ensure timely
delivery. Neither the Corporation nor the Trust is under a duty to give
notification of defects or irregularities with respect to the tenders of
Original Capital Securities for exchange.
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,
23
<PAGE>
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
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.
24
<PAGE>
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.
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.
25
<PAGE>
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.
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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 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 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 shareholder 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
AMERICAN INCREASE NOTE PRO 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>
28
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ADJUSTMENTS
AMERICAN INCREASE NOTE PRO 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>
29
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ADJUSTMENTS
AMERICAN INCREASE NOTE PRO 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>
30
<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)
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AMOUNTS) (CONTINUED)
(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.
32
<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 Capital Securities may refer to such reports,
proxy statements and other information which are available as described in
"Available Information" and "Incorporation of Certain Documents by Reference."
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Corporation under the Registration Rights Agreement. Neither the Corporation nor
the Trust will receive any proceeds from the issuance of the Exchange Capital
Securities and the Exchange Guarantee offered hereby and has agreed to pay the
exepnses of the Exchange Offer. In consideration for issuing the Exchange
Capital Securities as contemplated in this Prospectus, the Trust will receive,
in exchange, Original Capital Securities in like Liquidation Amount. The
Original Capital Securities surrendered in exchange for the Exchange Capital
Securities will be retired and canceled and cannot be re-issued.
The proceeds to the Trust (without giving effect to expenses of the offering
payable by the Corporation) from the offering of the Original Capital Securities
was $850,000,000. All of the proceeds from the sale of the Original Capital
Securities were invested by the Trust in the Original Junior Subordinated
Debentures. The net proceeds from the sale of the Original Junior Subordinated
Debentures were used to fund a portion of the cost of the Acquisition. The form
and terms of the Exchange Junior Subordinated Debentures are identical in all
material respects to the form and terms of the Original Junior Subordinated
Debentures, except as otherwise described in "Description of Exchange
Securities--Description of Exchange Junior Subordinated Debentures."
Accordingly, issuance of the Exchange Junior Subordinated Debentures will not
result in any increase in the outstanding debt of the Corporation.
33
<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 JUNE DEC. 31, ENDED JUNE ---------------------------------
30, 1997 1996 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.
34
<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 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 (as defined in "Selected Financial Information"),
as the case may be.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------
AS ADJUSTED FOR
AS ADJUSTED FOR THE 8.072%
THE ACQUISITION CAPITAL
SAFECO AND THE RELATED SECURITIES AND
ACTUAL FINANCINGS THE 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.
35
<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)
36
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
AT JUNE AT DECEMBER 31,
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.
37
<PAGE>
(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.
38
<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)
39
<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.
40
<PAGE>
SAFECO CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by the Corporation, as Sponsor, The Chase
Manhattan Bank, as Property Trustee, Chase Manhattan Bank Delaware, as Delaware
Trustee, and the Administrative Trustees named therein, and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on June 19, 1997. The
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of Trust Securities to acquire
the Junior Subordinated Debentures and (iii) engaging in only those other
activities incidental thereto. Accordingly, the Junior Subordinated Debentures
will be the sole assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenues of the Trust. All of the Common Securities
will be owned by the Corporation. The Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Capital Securities, except
that upon the occurrence and continuance of an event of default under the Trust
Agreement, the rights of the Corporation as holder of the Common Securities to
payments in respect of Distributions and payments upon liquidation, redemption
or otherwise will be subordinated to the rights of the holders of the Capital
Securities. See "Description of Exchange Securities--Description of Exchange
Capital Securities--Subordination of Common Securities." The Corporation has
acquired Common Securities in a Liquidation Amount equal to approximately 3% of
the total capital of the Trust. The Trust has a term of 41 years, but may
terminate earlier as provided in the Trust Agreement. The Trust's business and
affairs are conducted by its trustees, each appointed by the Corporation as
holder of the Common Securities. The trustees for the Trust are The Chase
Manhattan Bank, as the Property Trustee (the "Property Trustee"), Chase
Manhattan Bank Delaware, as the Delaware Trustee (the "Delaware Trustee"), and
three individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with the Corporation (collectively, the "Issuer
Trustees"). The Chase Manhattan Bank, as Property Trustee, will act as sole
indenture trustee under the Trust Agreement. Chase Manhattan Bank Delaware will
also act as indenture trustee under the Guarantee and the Indenture. See
"Description of Exchange Securities--Description of Exchange Guarantee" and
"--Description of Exchange Junior Subordinated Debentures." The Chase Manhattan
Bank also is the trustee for the Notes, the Corporation's 7.875% notes due 2005
and its medium term note program, the custodian for the SAFECO Life 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.
The holder of the Common Securities of the Trust or, if an Event of Default
under the Trust Agreement has occurred and is continuing, the holders of a
majority in Liquidation Amount of the Capital Securities, will be entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee. In
no event will the holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees; such voting rights will
be vested exclusively in the holder of the Common Securities. The duties and
obligations of each Issuer Trustee are governed by the Trust Agreement. The
Corporation has and will continue to pay all fees, expenses, debts and
obligations (other than the Trust Securities) related to the Trust and the
offering of the Capital Securities and has and will continue to pay, directly or
indirectly, all ongoing costs, expenses and liabilities of the Trust. The
principal executive office of the Trust is c/o SAFECO Corporation, SAFECO Plaza,
4333 Brooklyn Avenue N.E., Seattle, Washington 98185.
41
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Capital Securities, the
Corporation and the Trust entered into the Registration Rights Agreement with
the Initial Purchasers, pursuant to which the Corporation and the Trust agreed
to file and to use their reasonable efforts to cause to become effective with
the Commission a registration statement with respect to the exchange of the
Original Capital Securities for capital securities with terms identical in all
material respects to the terms of the Original Capital Securities. A copy of the
Registration Rights Agreement has been filed as an Exhibit to the Registration
Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Trust under the Registration Rights Agreement. The form
and terms of the Exchange Capital Securities are the same as the form and terms
of the Original Capital Securities except that the Exchange Capital Securities
have been registered under the Securities Act and will not be subject to certain
restrictions on transfer applicable to the Original Capital Securities, and will
not provide for any increase in the Distribution rate thereon. In that regard,
the Original Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
December 8, 1997 and declared effective by January 21, 1998, the Distribution
rate borne by the Original Capital Securities 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 Capital
Securities will not be entitled to any increase in the Distribution rate thereon
or any further registration rights under the Registration Rights Agreement,
except under limited circumstances. See "Risk Factors--Consequences of a Failure
to Exchange Original Capital Securities" and "Description of Exchange
Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Original Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Original Capital Securities
are registered on the books of the Trust or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Original Capital Securities are held of record by The Depository Trust Company
("DTC") who desires to deliver such Original Capital Securities by book-entry
transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon as
practicable after the date hereof, the Original Guarantee for the Exchange
Guarantee and the Original Junior Subordinated Debentures, in an amount
corresponding to the Original Capital Securities accepted for exchange, for a
like aggregate principal amount of the Exchange Junior Subordinated Debentures.
The Exchange Guarantee and Exchange Junior Subordinated Debentures have been
registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $850 million aggregate Liquidation Amount of Exchange Capital
Securities for a like aggregate Liquidation Amount of Original Capital
Securities properly tendered on or prior to the Expiration Date and not properly
withdrawn in accordance with the procedures described below. The Trust will
issue, promptly after the Expiration Date, an aggregate Liquidation Amount of up
to $850 million of Exchange Capital Securities in exchange for a like principal
amount of outstanding Original Capital Securities tendered and accepted in
connection with the Exchange Offer. Holders may tender their Original Capital
Securities in whole or in part in a Liquidation Amount of not less than $100,000
(100 Capital Securities) or any integral multiple of $1,000 Liquidation Amount
(one Capital Security) in excess thereof.
42
<PAGE>
The Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Original Capital Securities being tendered. As of the date of this Prospectus,
$850 million aggregate Liquidation Amount of the Original Capital Securities is
outstanding.
Holders of Original Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Original Capital
Securities which are not tendered for or are tendered but not accepted in
connection with the Exchange Offer will remain outstanding and be entitled to
the benefits of the Declaration, but will not be entitled to any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors--Consequences of a Failure to Exchange
Original Capital Securities" and "Description of Exchange Securities."
If any tendered Original Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Capital
Securities will be returned, without expense, to the tendering holder thereof
promptly after the Expiration Date.
Holders who tender Original Capital Securities in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Original Capital Securities in connection with the
Exchange Offer. The Corporation will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
See "--Fees and Expenses."
NEITHER THE CORPORATION, THE BOARD OF DIRECTORS OF THE CORPORATION NOR ANY
ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL
CAPITAL SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN
ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
ORIGINAL CAPITAL SECURITIES MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER
PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF ORIGINAL
CAPITAL SECURITIES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL POSITIONS AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on December
15, 1997 unless the Exchange Offer is extended by the Corporation or the Trust
(in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Original Capital Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any Original
Capital Securities have theretofore been accepted for exchange) if the Trust
determines, in its sole and absolute discretion, that any of the events or
conditions referred to in "--Conditions to the Exchange Offer" have occurred or
exist or have not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Original Capital Securities tendered pursuant to
the Exchange Offer, subject, however, to the right of holders of Original
Capital Securities to withdraw their tendered Original Capital Securities as
described 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
and the Trust to constitute a material change, or if the Corporation and the
Trust waive a material condition of the Exchange Offer, the Corporation and the
Trust will promptly disclose such amendment by means of a prospectus supplement
that will be distributed to the holders of the Original Capital Securities, and
the
43
<PAGE>
Corporation and the Trust 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 and the Trust may choose to make any public
announcement and subject to applicable law, the Corporation and the Trust shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange Exchange Capital Securities for Original Capital Securities
validly tendered and not withdrawn (pursuant to the withdrawal rights described
in "--Withdrawal Rights") promptly after the Expiration Date.
Subject to the conditions set forth in "--Conditions to the Exchange Offer,"
delivery of Exchange Capital Securities in exchange for Original Capital
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i) certificates
for Original Capital Securities or a book-entry confirmation of a book-entry
transfer of Original Capital Securities into the Exchange Agent's account at
DTC, including an Agent's Message if the tendering holder does not deliver a
Letter of Transmittal, (ii) a completed and signed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal,
and (iii) any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Capital Securities might not be made to
all tendering holders at the same time, and will depend upon when certificates
for Original Capital Securities, book-entry confirmations with respect to
Original Capital Securities and other required documents are received by the
Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Original Capital Securities into the Exchange Agent's
account at DTC. See "--Procedures for Tendering Original Capital Securities--
Book-Entry Transfer." The term "Agent's Message" means a message, transmitted by
DTC to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by the Letter of Transmittal and that the Trust
and the Corporation may enforce such Letter of Transmittal against such
participant.
Subject to the terms and conditions of the Exchange Offer, the Corporation
and the Trust will be deemed to have accepted for exchange, and thereby
exchanged, Original Capital Securities validly tendered and not withdrawn as, if
and when the Trust gives oral or written notice to the Exchange Agent of the
Corporation's and the Trust's acceptance of such Original Capital Securities for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent
for the Corporation and the Trust for the purpose of receiving tenders of
Original Capital Securities, Letters of Transmittal and related documents, and
as agent for tendering holders for the purpose of receiving Original Capital
Securities, Letters of Transmittal and related documents and transmitting
Exchange Capital Securities which will not be held in global form by DTC or a
nominee of DTC to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Original Capital Securities tendered pursuant to the
Exchange Offer is delayed (whether before or after the Corporation's and the
Trust's acceptance for exchange of Original Capital Securities) or the
Corporation and the Trust extend the Exchange Offer or are unable to accept for
exchange or exchange Original Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Corporation's and the Trust's
rights set forth herein, the Exchange Agent may, nevertheless, on behalf of
44
<PAGE>
the Corporation and the Trust and subject to Rule 14e-1(c) under the Exchange
Act, retain tendered Original Capital Securities and such Original Capital
Securities may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described in "--Withdrawal Rights."
Pursuant to an Agent's Message or a Letter of Transmittal, a holder of
Original Capital Securities will represent, warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Original Capital Securities, that the Trust will acquire
good, marketable and unencumbered title to the tendered Original Capital
Securities, free and clear of all liens, restrictions, charges and encumbrances,
and the Original Capital Securities tendered for exchange are not subject to any
adverse claims or proxies. The holder also will warrant and agree that it will,
upon request, execute and deliver any additional documents deemed by the Trust
or the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Original Capital Securities tendered
pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL CAPITAL SECURITIES
VALID TENDER
Except as set forth below, in order for Original Capital Securities to be
validly tendered by book-entry transfer, an Agent's Message or a completed and
signed Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and in either case any other documents required by the Letter of
Transmittal, must be delivered to the Exchange Agent by mail, facsimile, hand
delivery or overnight courier at one of the Exchange Agent's addresses set forth
in "--Exchange Agent" on or prior to the Expiration Date and either (i) such
Original Capital Securities must be tendered pursuant to the procedures for
book-entry transfer set forth below or (ii) the guaranteed delivery procedures
set forth below must be complied with.
Except as set forth below, in order for Original Capital Securities to be
validly tendered by a means other than by book-entry transfer, a completed and
signed Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal must
be delivered to the Exchange Agent by mail, facsimile, hand delivery or
overnight courier at one of the Exchange Agent's addresses set forth in "--
Exchange Agent" on or prior to the Expiration Date and either (i) such Original
Capital Securities must be delivered to the Exchange Agent on or prior to the
Expiration Date or (ii) the guaranteed delivery procedures set forth below must
be complied with.
If less than all Original Capital Securities are tendered, a tendering
holder should fill in the amount of Original Capital Securities being tendered
in the appropriate box on the Letter of Transmittal. The entire amount of
Original Capital Securities delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent and DTC have confirmed that any Participant (as defined
in "Description of Exchange Securities--Description of Exchange Capital
Securities--Depositary Procedures") in DTC's book-entry transfer facility system
may utilize DTC's ATOP procedures to tender Original Capital Securities. The
Exchange Agent will establish an account with respect to the Original Capital
Securities at
45
<PAGE>
DTC for purposes of the Exchange Offer within two business days after the date
of this Prospectus. Any
Participant may make a book-entry delivery of the Original Capital Securities by
causing DTC to transfer such Original Capital Securities into the Exchange
Agent's account at DTC in accordance with DTC's ATOP procedures for transfer.
However, although delivery of Original Capital Securities may be effected
through book-entry transfer into the Exchange Agent's account at DTC, an Agent's
Message or a completed and signed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees and any other documents required by the
Letter of Transmittal, must in any case be delivered to and received by the
Exchange Agent at one of its addresses set forth in "--Exchange Agent" on or
prior to the Expiration Date, or the guaranteed delivery procedure set forth
below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
Certificates for the Original Capital Securities need not be endorsed and
signature guarantees on the Letter of Transmittal are unnecessary unless (a) a
certificate for the Original Capital Securities is registered in a name other
than that of the person surrendering the certificate or (b) such holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the Letter of Transmittal. In the case of (a) or (b) above,
such certificates for Original Capital Securities must be duly endorsed or
accompanied by a properly executed bond power, with the endorsement or signature
on the bond power and on the Letter of Transmittal guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Original Capital Securities pursuant to the
Exchange Offer and the certificates for such Original Capital Securities are not
immediately available or time will not permit all required documents to reach
the Exchange Agent on or prior to the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, such Original Capital
Securities may nevertheless be tendered, provided that all of the following
guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Original Capital Securities, in proper form for transfer, together
with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Capital
Securities in exchange for Original Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in
46
<PAGE>
all cases be made only after timely receipt by the Exchange Agent of Original
Capital Securities, or of a book-entry confirmation with respect to such
Original Capital Securities, and a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Capital Securities might not be made to
all tendering holders at the same time, and will depend upon when Original
Capital Securities, book-entry confirmations with respect to Original Capital
Securities and other required documents are received by the Exchange Agent.
The Trust's acceptance for exchange of Original Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered Original Capital
Securities will be determined by the Corporation and the Trust, in their sole
discretion, whose determination shall be final and binding on all parties. The
Corporation and the Trust reserve the absolute right, in their sole and absolute
discretion, to reject any and all tenders determined by them not to be in proper
form or the acceptance of which, or exchange for, may, in the opinion of counsel
to the Corporation and the Trust, be unlawful. The Corporation and the Trust
also reserve the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offer as set forth in "--Conditions to the Exchange
Offer" or any condition or irregularity in any tender of Original Capital
Securities of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
The interpretation by the Corporation and the Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Original Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Corporation,
the Trust, any affiliates or assigns of the Corporation or the Trust, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Corporation and the
Trust, proper evidence satisfactory to the Corporation and the Trust, in their
sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Original Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE CAPITAL SECURITIES
The Trust is making the Exchange Offer for the Exchange Capital Securities
in reliance on the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Corporation nor the
Trust sought its own interpretive letter and there can be no assurance that the
staff of the Division of Corporation Finance of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance of the Commission, and subject to
the two immediately following sentences, the Corporation and the Trust believe
that Exchange Capital Securities issued pursuant to this Exchange Offer in
exchange for Original Capital Securities may be offered for resale, resold and
otherwise
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transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such Exchange Capital Securities. However, any holder of
Original Capital Securities who is an "affiliate" of the Corporation or the
Trust or who intends to participate in the Exchange Offer for the purpose of
distributing Exchange Capital Securities, or any broker-dealer who purchased
Original Capital Securities from the Trust to resell pursuant to Rule 144A or
any other available exemption under the Securities Act, (a) will not be able to
rely on the interpretations of the staff of the Division of Corporation Finance
of the Commission set forth in the above-mentioned interpretive letters, (b)
will not be permitted or entitled to tender such Original Capital Securities in
the Exchange Offer and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Original Capital Securities unless such sale is made pursuant
to an exemption from such requirements. In addition, as described below, if any
broker-dealer holds Original Capital Securities acquired for its own account as
a result of market-making or other trading activities and exchanges such
Original Capital Securities for Exchange Capital Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such Exchange Capital
Securities.
Each holder of Original Capital Securities who wishes to exchange Original
Capital Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Corporation or
the Trust, (ii) any Exchange Capital Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Capital Securities. In addition, the Corporation and the Trust
may require such holder, as a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish to the Corporation and the Trust
(or an agent thereof) in writing information as to the number of "beneficial
owners" (within the meaning of Rule 13d-3 under the Exchange Act) on behalf of
whom such holder holds the Capital Securities to be exchanged in the Exchange
Offer. Each broker-dealer that receives Exchange Capital Securities for its own
account pursuant to the Exchange Offer must acknowledge that it acquired the
Original Capital Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Capital Securities. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Corporation and the Trust believe that Participating Broker-Dealers
who acquired Original Capital Securities for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the Exchange Capital Securities
received upon exchange of such Original Capital Securities (other than Original
Capital Securities which represent an unsold allotment from the initial sale of
the Original Capital Securities) with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Capital Securities. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of Exchange Capital Securities received in exchange for Original
Capital Securities where such Original Capital Securities were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Corporation and the Trust have agreed that
this Prospectus, as it may be amended or supplemented from time to time, may be
used
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by a Participating Broker-Dealer in connection with resales of such Exchange
Capital Securities for a period ending 180 days after the Expiration Date
(subject to extension under certain limited circumstances described below) or,
if earlier, when all such Exchange Capital Securities have been disposed of by
such Participating Broker-Dealer. See "Plan of Distribution."
However, a Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of Exchange Capital Securities received in exchange
for Original Capital Securities pursuant to the Exchange Offer must notify the
Corporation or the Trust, or cause the Corporation or the Trust to be notified,
on or prior to the Expiration Date, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth in "--Exchange Agent." Any Participating Broker-Dealer who is an
"affiliate" of the Corporation or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Original
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal, that upon receipt of notice from the
Corporation or the Trust of the occurrence of any event or the discovery of (i)
any fact which makes any statement contained or incorporated by reference in
this Prospectus untrue in any material respect or (ii) any fact which causes
this Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading, or (iii) of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of Exchange
Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) pursuant to this Prospectus until the
Corporation or the Trust has amended or supplemented this Prospectus to correct
such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer, or the Corporation
or the Trust has given notice that the sale of the Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be. If the Corporation or the Trust
gives such notice to suspend the sale of the Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable), it shall extend the 180-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in connection
with the resale of Exchange Capital Securities by the number of days during the
period from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the Exchange
Capital Securities or to and including the date on which the Corporation or the
Trust has given notice that the sale of Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Capital Securities
may be withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth in "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Capital Securities to be withdrawn,
the aggregate principal amount of Original Capital Securities to be withdrawn,
and (if certificates for such Original Capital Securities have been tendered)
the name of the registered holder of the Original Capital Securities as set
forth on the Original Capital Securities, if different from that of the person
who tendered such Original Capital Securities. If Original Capital Securities
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the physical release of such Original Capital
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Securities, the tendering holder must submit the serial numbers shown on the
particular Original Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Original Capital Securities tendered for the account of an Eligible
Institution. If Original Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering
Original Capital Securities," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Original
Capital Securities, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Original Capital Securities may not be
rescinded. Original Capital Securities properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described above in "--Procedures for Tendering Original Capital
Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Corporation, the Trust, any affiliates or assigns of the Corporation
or the Trust, the Exchange Agent nor any other person shall be under any duty to
give any notification of any irregularities in any notice of withdrawal or incur
any liability for failure to give any such notification. Any Original Capital
Securities which have been tendered but which are withdrawn will be returned to
the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON EXCHANGE CAPITAL SECURITIES
Holders of Original Capital Securities whose Original Capital Securities are
accepted for exchange will not receive Distributions on such Original Capital
Securities and will be deemed to have waived the right to receive any
Distributions on such Original Capital Securities accumulated from and after
July 15, 1997. Accordingly, holders of Exchange Capital Securities as of the
record date for the payment of Distributions on January 15, 1998 will be
entitled to receive Distributions 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 and the Trust will not be required to
accept for exchange, or to exchange, any Original Capital Securities for any
Exchange Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Original Capital Securities have theretofore been
accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Capital Securities issued
pursuant to the Exchange Offer in exchange for Original Capital Securities
to be offered for resale, resold and otherwise transferred by holders
thereof (other than broker-dealers and any such holder which is an
"affiliate" of the Corporation or the Trust within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Capital Securities are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with
any person to participate in the distribution of such Exchange Capital
Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Corporation or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
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(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Corporation or the Trust, threatened for that purpose, or any
governmental approval has not been obtained, which approval the Corporation
or the Trust shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
(d) the Corporation shall receive an opinion of counsel experienced in
such matters to the effect that there is more than an insubstantial risk
that consummation of the Exchange Offer would result in interest payable to
the Trust on the Junior Subordinated Debentures being not deductible by the
Corporation for United States federal income tax purposes.
If the Corporation or the Trust determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, it may, subject to applicable law, terminate the
Exchange Offer (whether or not any Original Capital Securities have theretofore
been accepted for exchange) or may waive any such condition or otherwise amend
the terms of the Exchange Offer in any respect. If such waiver or amendment
constitutes a material change to the Exchange Offer, the Corporation or the
Trust will promptly disclose such waiver or amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Capital Securities and will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND:
The Chase Manhattan Bank (FOR ELIGIBLE INSTITUTIONS The Chase Manhattan Bank
450 West 33rd Street, 15th ONLY) 450 West 33rd Street, 15th
Floor (212) 946-8154 Floor
New York, New York 10001-2697 New York, New York 10001-2697
Attention: John T. Needham, CONFIRM BY TELEPHONE: Attention: John T. Needham,
Jr. (212) 946-3041 Jr.
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.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Original Capital Securities,
and in handling or tendering for their customers.
Holders who tender their Original Capital Securities for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Original Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Original
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Capital Securities in connection with the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
Neither the Corporation nor the Trust will make any payment to brokers,
dealers or other nominees soliciting acceptances of the Exchange Offer.
DESCRIPTION OF EXCHANGE SECURITIES
The terms of the Original Securities are identical in all materials respects
to the Exchange Securities, except that (i) the Original Securities have not
been registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the applicable Registration
Rights Agreement (which rights will terminate upon consummation of the Exchange
Offer, except under limited circumstances), (ii) the Exchange Capital Securities
will not contain the $100,000 minimum Liquidation Amount transfer restriction
and certain other restrictions on transfer applicable to Original Capital
Securities, (iii) the Exchange Capital Securities will not provide for any
increase in the Distribution rate thereon and (iv) the Exchange Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. The Original Securities provide that, in the event that a registration
statement relating to the Exchange Offer has not been filed by 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 Capital Securities 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 Junior Subordinated Debentures and
Distributions will accrue at the rate of 0.50% per annum on the Liquidation
Amount of the Original Capital Securities, for the period from the occurrence of
such event until such time as such registration statement has been filed or
declared effective, as the case may be. The Exchange Securities are not, and
upon consummation of the Exchange Offer the Original Securities will not be,
entitled to any such Additional Interest or Distributions. Accordingly, holders
of Original Capital Securities should review the information set forth in "Risk
Factors--Consequences of a Failure to Exchange Original Capital Securities" and
"Description of Exchange Securities."
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
The Exchange Capital Securities will represent preferred beneficial
interests in the Trust and the holders thereof will be entitled to a preference
over the Common Securities in certain circumstances with respect to
Distributions and amounts payable on redemption of the Trust Securities or
liquidation of the Trust. See "--Subordination of Common Securities." The Trust
Agreement has been qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). This summary of certain provisions of the Exchange
Capital Securities, the Common Securities and the Trust Agreement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Trust Agreement, including the
definitions therein of certain terms.
GENERAL
The Exchange Capital Securities will be limited to $850 million aggregate
Liquidation Amount at any one time outstanding. The Exchange Capital Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Common Securities except as described in "--Subordination of Common Securities."
Legal title to the Junior Subordinated Debentures will be held by the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
Exchange Guarantee will not guarantee payment of Distributions or amounts
payable on redemption of the Exchange Capital Securities or liquidation of the
Trust when the Trust does not have funds on hand legally available for such
payments. See "--Description of Exchange Guarantee."
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DISTRIBUTIONS
Distributions on the Exchange Capital Securities will be cumulative, will
accumulate from July 15, 1997 and will be payable semi-annually in arrears on
January 15 and July 15 of each year, commencing January 15, 1998, at the annual
rate of 8.072% of the Liquidation Amount to the holders of record of the
Exchange Capital Securities on the January 1 or July 1 immediately preceding
such date. The amount of Distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which Distributions are payable on the Exchange Capital Securities is
not a Business Day (as defined below), payment of the Distribution payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect to any such delay), in each
case with the same force and effect as if made on such date (each date on which
Distributions are payable in accordance with the foregoing, a "Distribution
Date"). A "Business Day" shall mean any day other than a Saturday or a Sunday,
or a day on which banking institutions in The City of New York or Seattle,
Washington are authorized or required by law or executive order to remain
closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Corporation will have the right under the Indenture to defer the
payment of interest on the Exchange Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. Upon any such election, semi-annual
Distributions on the Exchange Capital Securities will be deferred by the Trust
during any such Extension Period. Distributions to which holders of the Exchange
Capital Securities are entitled during any such Extension Period will accumulate
additional Distributions thereon at the rate per annum of 8% thereof, compounded
semi-annually from the relevant Distribution Date. The term "Distributions," as
used herein, shall include any such additional Distributions.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due, and subject to the
foregoing limitations, the Corporation may elect to begin a new Extension
Period. The Corporation must give the Property Trustee, the Administrative
Trustees and the Debenture Trustee notice of its election of any such Extension
Period at least five Business Days prior to the earlier of (i) the date the
Distributions on the Exchange Capital Securities would have been payable except
for the election to begin such Extension Period or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or to holders of such Exchange Capital Securities of the record date or the date
such Distributions are payable but in any event not less than five Business Days
prior to such record date. There is no limitation on the number of times that
the Corporation may elect to begin an Extension Period. See "--Description of
Exchange Junior Subordinated Debentures--Option to Extend Interest Payment Date"
and "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal of or premium, if any, or interest on or repay, repurchase or redeem
any debt securities of the Corporation (including Other Debentures) that rank
pari passu with or junior in right of payment to the Exchange Junior
Subordinated Debentures or (iii) make any guarantee payments with respect to any
guarantee by the Corporation of the debt securities of any subsidiary of the
Corporation (including Other Guarantees) if such guarantee ranks pari passu with
or junior in right of payment to the Exchange Junior Subordinated Debentures
(other than (a) dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, common stock of the Corporation,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
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(c) payments under the Guarantee, (d) the purchase of fractional shares
resulting from a reclassification of the Corporation's capital stock or the
exchange or conversion of one class, or series of the Corporation's capital
stock for another class or series of the Corporation's capital stock, and (e)
the purchase of fractional interests in shares of the Corporation's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged).
Although the Corporation has the right in the future to exercise its option
to defer payments of interest on the Exchange Junior Subordinated Debentures in
the future, the Corporation has no current intention to defer payments of
interest on such Exchange Junior Subordinated Debentures.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. See "--Description of Exchange Junior Subordinated
Debentures--General." If the Corporation does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities. The payment of
Distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such Distributions) will be guaranteed by the
Corporation on a limited basis as set forth in "--Description of Exchange
Guarantee."
REDEMPTION
Upon the repayment on the Stated Maturity Date or prepayment prior to the
Stated Maturity Date of the Junior Subordinated Debentures, the proceeds from
such repayment or prepayment shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days' notice of a date of redemption (the "Redemption Date"),
at the applicable Redemption Price, which shall be equal to (i) in the case of
the repayment of the Junior Subordinated Debentures on the Stated Maturity Date,
the Maturity Redemption Price (equal to the principal of, and accrued interest
on, the Junior Subordinated Debentures), (ii) in the case of the optional
prepayment of the Junior Subordinated Debentures prior to July 15, 2007 upon the
occurrence and continuation of a Tax Event, the Special Event Redemption Price
(equal to the Special Event Prepayment Price in respect of the Junior
Subordinated Debentures) and (iii) in the case of the optional prepayment of the
Junior Subordinated Debentures on or after July 15, 2007, the Optional
Redemption Price (equal to the Optional Prepayment Price in respect of the
Junior Subordinated Debentures). See "--Description of Exchange Junior
Subordinated Debentures--Optional Prepayment" and "--Special Event Prepayment."
The Trust Securities were also subject to mandatory redemption prior to March
31, 1998 if the Agreement and Plan of Merger, dated as of June 6, 1997, by and
among American States, SAFECO and a subsidiary of SAFECO were terminated,
pursuant to Article 12 thereof, on or prior to December 31, 1997 (a "Merger
Termination Event"). Because of the closing of the Acquisition on October 1,
1997, no Merger Termination Event can occur.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be paid in accordance with their
terms and (ii) with respect to a distribution of Junior Subordinated Debentures
upon the liquidation of the Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Junior Subordinated Debentures are distributed.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Corporation will have the right at any time to terminate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities in liquidation of the Trust. Such right is subject to the
Corporation having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities.
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The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures to
the holders of the Trust Securities, if the Corporation, as Sponsor, has given
written direction to the Property Trustee to terminate the Trust (which
direction and distribution is optional and, except as described above, wholly
within the discretion of the Corporation, as Depositor); (iii) redemption of all
of the Trust Securities as described in "--Redemption"; (iv) expiration of the
term of the Trust; or (v) the entry of an order for the dissolution of the Trust
by a court of competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Trust Securities a Like Amount of the Junior Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practicable, in which event such holders will be entitled to receive out
of the assets of the Trust legally available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the aggregate of the Liquidation Amount plus accumulated
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets on hand legally available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Capital Securities and the Common Securities shall
be paid on a pro rata basis, except that if a Debenture Event of Default has
occurred and is continuing, the Capital Securities shall have a priority over
the Common Securities. See "--Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each registered
global certificate, if any, representing Trust Securities and held by DTC or its
nominee will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Trust Securities not held
by DTC or its nominee will be deemed to represent Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of such Trust
Securities, and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Corporation will issue to such holder, and the
Debenture Trustee will authenticate, a certificate representing such Junior
Subordinated Debentures.
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
the Trust Securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the Capital Securities that an investor may purchase, or the
Junior Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Capital Securities offered hereby.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous payment of the
Exchange Junior Subordinated Debentures. Any redemption of Trust Securities
shall be made and the applicable Redemption Price shall be payable on the
Redemption Date only to the extent that the Trust has funds legally available
for the payment of such applicable Redemption Price.
If the Trust gives a notice of redemption in respect of the Exchange Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Exchange Capital
Securities held by DTC or its nominees, the Property Trustee will deposit
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irrevocably with DTC funds sufficient to pay the applicable Redemption Price.
See "--Form, Denomination, Book-Entry Procedures and Transfer." With respect to
the Exchange Capital Securities held in certificated form, the Property Trustee,
to the extent funds are legally available, will irrevocably deposit with the
paying agent for the Exchange Capital Securities funds sufficient to pay the
applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the applicable Redemption Price to the holders
thereof upon surrender of their certificates evidencing the Exchange Capital
Securities. See "--Payment and Paying Agency." Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date shall be payable to the
holders of such Exchange Capital Securities on the relevant record dates for the
related Distribution Dates. If notice of redemption shall have been given and
funds deposited as required, then upon the date of such deposit, all rights of
the holders of the Exchange Capital Securities will cease, except the right of
the holders of the Exchange Capital Securities to receive the applicable
Redemption Price, but without interest on such Redemption Price, and the
Exchange Capital Securities will cease to be outstanding. In the event that any
Redemption Date of Exchange Capital Securities is not a Business Day, then the
applicable Redemption Price payable on such date will be paid on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the applicable Redemption Price is
improperly withheld or refused and not paid either by the Trust or by the
Corporation pursuant to the Exchange Guarantee as described in "--Description of
Exchange Guarantee," Distributions on Exchange Capital Securities will continue
to accumulate at the then applicable rate, from the Redemption Date originally
established by the Trust to the date such applicable Redemption Price is
actually paid, in which case the actual payment date will be the Redemption Date
for purposes of calculating the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Corporation defaults in payment of the applicable
Redemption Price on, or in the repayment of, the Junior Subordinated Debentures,
on and after the Redemption Date, Distributions will cease to accrue on the
Trust Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of the Trust Securities; provided, however, that if on
any Distribution Date or Redemption Date an Event of Default shall have occurred
and be continuing, no payment of any Distribution on, or applicable Redemption
Price of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all of the outstanding Capital Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the applicable
Redemption Price the full amount of such Redemption Price, shall have been made
or provided for, and all funds available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions on, or Redemption
Price of, the Capital Securities then due and payable.
In the case of any Event of Default, the Corporation as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Capital Securities and not on behalf of the
Corporation as holder of the Common Securities,
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and only the holders of the Capital Securities will have the right to direct the
Property Trustee to act on their behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "--Description of
Exchange Junior Subordinated Debentures--Debenture Events of Default")
constitutes an "Event of Default" under the Trust Agreement.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Corporation, as Sponsor, unless such Event of
Default shall have been cured or waived. The Corporation, as Sponsor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described in
"--Liquidation of the Trust and Distribution of Junior Subordinated Debentures"
and "--Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Corporation as the holder of the
Common Securities. No resignation or removal of an Issuer Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Issuer Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Issuer Trustee, shall be the successor of such Issuer
Trustee under the Trust Agreement, provided such corporation shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below. The Trust may, at the request of the Corporation, as
Sponsor, with the consent of the Administrative Trustees but without the consent
of the holders of the Capital Securities, merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to a trust organized as
such under the laws of any State; provided, that (i) such successor entity
either (a) expressly assumes all of the obligations of the Trust with respect to
the Capital Securities or (b) substitutes for the Capital Securities other
securities having substantially the same terms as the Capital Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Capital Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) the Corporation expressly
appoints a trustee of
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such successor entity possessing the same powers and duties as the Property
Trustee with respect to the Junior Subordinated Debentures, (iii) the Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Capital Securities are then listed, if any, (iv) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (vi) such successor entity has a purpose identical to that of
the Trust, (vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Corporation has received an opinion from
independent counsel to the Trust experienced in such matters to the effect that
(a) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such successor
entity will be required to register as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
(viii) the Corporation or any permitted successor or assignee owns all of the
common securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or the successor entity not to be classified as a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and in "--Mergers, Consolidations, Amalgamations or
Replacements of the Trust" and "--Description of Exchange Guarantee--Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Corporation, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities (i) to cure any ambiguity, correct or supplement
any provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to
any provisions of the Trust Agreement to such extent as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
such action shall not adversely affect in any material respect the interests of
the holders of the Trust Securities, and any amendments of the Trust Agreement
shall become effective when notice thereof is given to the holders of the Trust
Securities. The Trust Agreement may be amended by the Issuer Trustees and the
Corporation (i) with the consent of holders representing a majority (based upon
Liquidation Amount) of the outstanding Trust Securities, and (ii) upon receipt
by the Issuer Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an "investment company" under the Investment Company Act,
provided that, without the consent of each holder of Trust Securities, the Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of
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the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date. The Exchange Capital Securities and any Original
Capital Securities which remain outstanding after consummation of the Exchange
Offer will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding Liquidation Amount thereof
have taken certain actions or exercised certain rights under the Trust
Agreement.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on such Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive certain past defaults under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior Subordinated
Debentures or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in Liquidation Amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior approval
of each holder of the Capital Securities. The Issuer Trustees shall not revoke
any action previously authorized or approved by a vote of the holders of the
Capital Securities except by subsequent vote of such holders. The Property
Trustee shall notify each holder of Capital Securities of any notice of default
with respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of such holders of the Capital Securities, prior to taking
any of the foregoing actions, the Issuer Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Exchange Capital Securities may be given
at a meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Exchange Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of Exchange Capital Securities in the manner set forth
in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required for
the Trust to redeem and cancel the Capital Securities in accordance with the
Trust Agreement.
Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustees, shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Exchange Capital Securities initially will be represented by one or more
Capital Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited upon issuance with
the Property Trustee as custodian for DTC, in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee, and such transfer shall be effective only when reflected in
the securities register maintained by or on behalf of the Trust. Beneficial
interests in the Global Capital Securities may not be exchanged for Capital
Securities in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Capital Securities for Certificated Capital
Securities."
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Other Capital Securities will be issued only in registered, certificated
(i.e., non-global) form. Other Capital Securities may not be exchanged for
beneficial interests in any Global Capital Securities except in the limited
circumstances described below. See "--Exchange of Certificated Capital
Securities for Book-Entry Capital Securities."
DEPOSITARY PROCEDURES
DTC has advised the Trust and the Corporation that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants designated by the Initial
Purchasers with portions of the Liquidation Amount of the Global Capital
Securities and (ii) ownership of such interests in the Global Capital Securities
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Capital Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system. All interests in a
Global Capital Security may be subject to the procedures and requirements of
DTC. The laws of some states require that certain persons take physical delivery
in certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Capital Security to such persons will
be limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in a Global Capital Security to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests. For certain
other restrictions on the transferability of the Capital Securities, see
"--Exchange of Book-Entry Capital Securities for Certificated Capital
Securities" and "--Exchange of Certificated Capital Securities for Book-Entry
Capital Securities."
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Capital Securities in certificated form and will
not be considered the registered owners or holders thereof under the Trust
Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Capital Securities, including the Global Capital Securities, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made
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on account of beneficial ownership interests in the Global Capital Securities,
or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Capital Securities or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the Trust and the Corporation that its
current practice, upon receipt of any payment in respect of securities such as
the Capital Securities, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Capital
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Property Trustee, the Trust or the
Corporation. Neither the Trust or the Corporation nor the Property Trustee will
be liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Capital Securities, and the Trust or the Corporation
and the Property Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Secondary market trading activity in interests in the Global Capital
Securities will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Corporation that it will take any action
permitted to be taken by a holder of Capital Securities only at the direction of
one or more Participants to whose account with DTC interests in the Global
Capital Securities are credited and only in respect of such portion of the
Liquidation Amount of the Capital Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Trust Agreement, DTC reserves the right to exchange the Global
Capital Securities for legended Capital Securities in certificated form and to
distribute such Capital Securities to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Trust and the Corporation believe to be
reliable, but neither the Trust nor the Corporation takes responsibility for the
accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Capital Securities among participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trust or the
Corporation nor the Property Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL
SECURITIES
A Global Capital Security is exchangeable for Exchange Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depositary within 90 days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Corporation in its sole discretion elects to cause the issuance of the
Exchange Capital Securities in certificated form or (iii) there shall have
occurred and be continuing an Event of Default or any event which after notice
or lapse of time or both would be an Event of Default under the Trust Agreement.
In all cases, certificated Capital Securities delivered in exchange for any
Global Capital Security or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the Depositary (in accordance with its customary procedures).
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EXCHANGE OF CERTIFICATED CAPITAL SECURITIES FOR BOOK-ENTRY CAPITAL
SECURITIES
Other Capital Securities, which will be issued in certificated form, may not
be exchanged for beneficial interests in any Global Capital Security unless such
exchange occurs in connection with a transfer of such Other Capital Securities
and the transferor first delivers to the Property Trustee a written certificate
(in the form provided in the Trust Agreement) to the effect that such transfer
will comply with the appropriate transfer restrictions applicable to such
Capital Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Exchange Capital Securities held in global form
shall be made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates or in respect of the Exchange
Capital Securities that are not held by the Depositary, such payments shall be
made by check mailed to the address of the holder entitled thereto as such
address shall appear on the register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and the
Corporation. The Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Property Trustee and the Corporation. In the
event that the Property Trustee shall no longer be the Paying Agent, the
Administrative Trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the Administrative Trustees and the Corporation) to
act as Paying Agent.
RESTRICTIONS ON TRANSFER
The Exchange Capital Securities will be issued, and may be transferred only,
in minimum denominations of not less than $1,000 and multiples of $1,000 in
excess thereof. Any transfer, sale or other disposition of Exchange Capital
Securities in a denomination of less than $1,000 shall be deemed to be void and
of no legal effect whatsoever. Any such transferee shall be deemed not to be the
holder of such Exchange Capital Securities for any purpose, including but not
limited to the receipt of Distributions on such Exchange Capital Securities, and
such transferee shall be deemed to have no interest whatsoever in such Exchange
Capital Securities.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Exchange Capital Securities. Registration of transfers of the Exchange Capital
Securities will be effected without charge by or on behalf of the Trust, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The Trust will not be required to
register or cause to be registered the transfer of the Exchange Capital
Securities after they have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically set
forth in the Trust Agreement and, after such Event of Default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of the Capital Securities or the Common Securities are entitled
under the Trust Agreement to vote, then the Property Trustee shall take such
action as is directed by the Corporation and
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if not so directed, shall take such action as it deems advisable and in the best
interests of the holders of the Trust Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Corporation for
United States federal income tax purposes. In this connection, the Corporation
and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
Trust Agreement, that the Corporation and the Administrative Trustees determine
in their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the holders of
the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The Original Junior Subordinated Debentures were issued and the Exchange
Junior Subordinated Debentures will be issued under an Indenture, as
supplemented from time to time (as so supplemented, the "Indenture"), between
the Corporation and The Chase Manhattan Bank, as trustee (the "Debenture
Trustee"). The Indenture has been qualified under the Trust Indenture Act. This
summary of certain terms and provisions of the Exchange Junior Subordinated
Debentures and the Indenture does not purport to be complete, and where
reference is made to particular provisions of the Indenture, such provisions,
including the definitions of certain terms, some of which are not otherwise
defined herein, are qualified in their entirety by reference to all of the
provisions of the Indenture and those terms made a part of the Indenture by the
Trust Indenture Act.
GENERAL
Concurrently with the issuance of the Trust Securities, the Trust invested
the proceeds thereof in the Original Junior Subordinated Debentures issued by
the Corporation. The Exchange Junior Subordinated Debentures will bear interest
at the annual rate of 8.072% of the principal amount thereof, payable semi-
annually in arrears on January 15 and July 15 of each year (each, an "Interest
Payment Date"), commencing January 15, 1998, to the person in whose name each
Exchange Junior Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the January 1 or July 1 immediately
preceding the relevant payment date. It is anticipated that, until the
liquidation, if any, of the Trust, each Exchange Junior Subordinated Debenture
will be held in the name of the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The amount of interest payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which interest is payable on the Exchange Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay)
with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear Additional Interest on the amount thereof (to the extent
permitted by law) at the rate per annum of 8.072% thereof, compounded
semi-annually. The term "interest," as used herein, shall include semi-annual
interest payments, interest on semi-annual interest payments not paid on the
applicable Interest Payment Date and Additional Interest, as applicable.
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The Exchange Junior Subordinated Debentures will be issued in denominations
of $1,000 and integral multiples thereof. The Exchange Junior Subordinated
Debentures will mature on July 15, 2037 (the "Stated Maturity Date").
The Exchange Junior Subordinated Debentures will rank pari passu with the
Original Junior Subordinated Debentures and all Other Debentures and will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the Indenture to all Senior Indebtedness. See
"--Subordination." The Indenture does not limit the incurrence or issuance of
other secured or unsecured debt of the Corporation, including Senior
Indebtedness. See "--Subordination."
FORM, REGISTRATION AND TRANSFER
If the Exchange Junior Subordinated Debentures are distributed to the
holders of the Trust Securities, the Exchange Junior Subordinated Debentures may
be represented by one or more global certificates registered in the name of Cede
& Co. as the nominee of DTC. The depositary arrangements for such Exchange
Junior Subordinated Debentures are expected to be substantially similar to those
in effect for the Capital Securities. For a description of DTC and the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "--Description of Exchange
Capital Securities--Form, Denomination, Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and any interest on Exchange
Junior Subordinated Debentures will be made at the office of the Debenture
Trustee in The City of New York or at the office of such Paying Agent or Paying
Agents as the Corporation may designate from time to time, except that at the
option of the Corporation payment of any interest may be made except in the case
of Exchange Junior Subordinated Debentures in global form, (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the register for Exchange Junior Subordinated Debentures or (ii) by transfer to
an account maintained by the Person entitled thereto as specified in such
register, provided that proper transfer instructions have been received by the
relevant record date. Payment of any interest on any Exchange Junior
Subordinated Debenture will be made to the Person in whose name such Exchange
Junior Subordinated Debenture is registered at the close of business on the
record date for such interest, except in the case of defaulted interest. The
Corporation may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent; however the Corporation will at all times be
required to maintain a Paying Agent in each Place of Payment for the Exchange
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Corporation in trust, for the payment of the principal of (and
premium, if any) or interest on any Exchange Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable shall, at the request of the Corporation, be
repaid to the Corporation and the holder of such Exchange Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Corporation for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing, the
Corporation will have the right under the Indenture at any time during the term
of the Exchange Junior Subordinated Debentures to defer the payment of interest
at any time or from time to time for a period not exceeding 10 consecutive
semi-annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity Date. At the end of such
Extension Period, the Corporation must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 8.072%, compounded
semi-annually, to the extent permitted by applicable law). During an Extension
Period,
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interest will continue to accrue and holders of Exchange Junior Subordinated
Debentures (and holders of the Trust Securities while Trust Securities are
outstanding) will be required to accrue interest income for United States
federal income tax purposes prior to the receipt of cash attributable to such
income. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing, the
Corporation will have the right under the Indenture at any time during the term
of the Junior Subordinated Debentures to defer the payment of interest at any
time or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. At the end of such Extension Period,
the Corporation must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of 8.072%, compounded semi-annually, to the
extent permitted by applicable law). During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (and holders of
the Trust Securities while Trust Securities are outstanding) will be required to
accrue interest income for United States federal income tax purposes prior to
the receipt of cash attributable to such income. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Corporation (including any Other Debentures) that rank
PARI PASSU with or junior in right of payment to the Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Corporation of the debt securities of any subsidiary of the Corporation
(including any Other Guarantees) if such guarantee ranks PARI PASSU with or
junior in right of payment to the Junior Subordinated Debentures (other than (a)
dividends or distributions in shares of or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) the purchase of fractional shares resulting
from a reclassification of the Corporation's capital stock or the exchange or
conversion of one class or series of the Corporation's capital stock for another
class or series of the Corporation's capital stock, and (e) the purchase of
fractional interests in shares of the Corporation's capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged).
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Corporation may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Corporation must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of any Extension Period (or an extension thereof) at least five
Business Days prior to the earlier of (i) the date the Distributions on the
Trust Securities would have been payable except for the election to begin or
extend such Extension Period or (ii) the date the Administrative Trustees are
required to give notice to any securities exchange or to holders of Capital
Securities of the record date or the date such Distributions are payable, but in
any event not less than five Business Days prior to such record date. The
Debenture Trustee shall give notice of the Corporation's election to begin or
extend a new Extension Period to the holders of the Capital Securities. There is
no limitation on the number of times that the Corporation may elect to begin an
Extension Period.
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OPTIONAL PREPAYMENT
The Exchange Junior Subordinated Debentures will be prepayable, in whole or
in part, at the option of the Corporation on or after July 15, 2007, at a
prepayment price (the "Optional Prepayment Price") equal to the percentage of
the outstanding principal amount of the Exchange Junior Subordinated Debentures
specified below, plus, in each case, accrued interest thereon to the date of
prepayment if redeemed during the 12-month period beginning July 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2007............................................................................. 104.036%
2008............................................................................. 103.632
2009............................................................................. 103.229
2010............................................................................. 102.825
2011............................................................................. 102.422
2012............................................................................. 102.018
2013............................................................................. 101.614
2014............................................................................. 101.211
2015............................................................................. 100.807
2016............................................................................. 100.404
2017 and thereafter.............................................................. 100.000%
</TABLE>
SPECIAL EVENT PREPAYMENT
If a Tax Event shall occur and be continuing, the Corporation may, at its
option, prepay the Junior Subordinated Debentures in whole (but not in part) at
any time prior to July 15, 2007 and within 90 days of the occurrence of such Tax
Event, at a prepayment price (the "Special Event Prepayment Price") equal to the
greater of (i) 100% of the principal amount of such Junior Subordinated
Debentures or (ii) the sum, as determined by a Quotation Agent, of the present
values of the remaining scheduled payments of principal and interest on the
Junior Subordinated Debentures to the Stated Maturity Date, discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case, accrued
interest thereon to the date of prepayment. Although the Junior Subordinated
Debentures were also subject to mandatory redemption prior to March 31, 1998
upon the occurrence and continuation of a Merger Termination Event, as defined
below, the closing of the Acquisition precludes the occurrence of a Merger
Termination Event.
A "Merger Termination Event" means the termination on or prior to December
31, 1997 of the Agreement and Plan of Merger, dated as of June 6, 1997, by and
among American States, SAFECO, and ASFC Acquisition Co. pursuant to Article 12
thereof.
A "Tax Event" means the receipt by the Corporation and the Trust of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or any amendment to or
change in an interpretation or application of such laws or regulations, which
amendment or change is effective or is announced on or after the Issue Date,
there is more than an insubstantial risk that (i) the Trust would be subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Corporation on
the Junior Subordinated Debentures would not be deductible by the Corporation,
in whole or in part, for United States federal income tax purposes, or (iii) the
Trust would be subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in
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the most recently published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the Federal Reserve and which
established yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity date corresponding to the Stated Maturity Date (if no maturity date is
within three months before or after the Stated Maturity Date, yields for the
first two published maturities most closely corresponding to the Stated Maturity
Date shall be interpolated and the Adjusted Treasury Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date plus, in either case (A)
1.23% if such prepayment date occurs on or prior to July 15, 1998 and (B) 0.50%
in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity date corresponding to the
Stated Maturity Date that would be utilized at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities with a maturity date corresponding to the Stated Maturity Date.
If no United States Treasury security has a maturity date which is within three
months before or after the Stated Maturity Date, the two most closely
corresponding United States Treasury securities shall be used as the Comparable
Treasury Issue, and the calculation of the Adjusted Treasury Rate pursuant to
clause (ii) of the definition thereof shall be interpolated or extrapolated on a
straight-line basis, rounding to the nearest month.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means: (i) Smith Barney Inc. and its
successors; PROVIDED, HOWEVER, that if the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Corporation shall substitute therefor another Primary Treasury
Dealer; and (ii) any other Primary Treasury Dealer selected by the Corporation.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any prepayment date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Corporation
defaults in payment of the prepayment price, on and after the prepayment date
interest ceases to accrue on such Junior Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
"Additional Sums" means the additional amounts as may be necessary in order that
the
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amount available to pay Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties and other governmental charges to which
the Trust has become subject as a result of a Tax Event.
RESTRICTIONS ON CERTAIN PAYMENTS
The Corporation will also covenant that it will not, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities of the Corporation (including Other Debentures) that rank PARI
PASSU with or junior in right of payment to the Junior Subordinated Debentures
or (iii) make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation
(including under Other Guarantees) if such guarantee ranks PARI PASSU or junior
in right of payment to the Junior Subordinated Debentures (other than (a)
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
shareholder's rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) the purchase of fractional shares resulting
from a reclassification of the Corporation's capital stock or the exchange or
conversion of one class or series of the Corporation's capital stock for another
class or series of the Corporation's capital stock and (e) the purchase of
fractional interests in shares of the Corporation's capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged), if at such time (1) there shall have occurred and
be continuing a Declaration Event of Default, (2) there shall have occurred and
be continuing a Debenture Event of Default, (3) there shall have occurred and be
continuing a payment default under the Declaration or the Indenture, (4) if such
Junior Subordinated Debentures are held by the Trust, the Corporation shall be
in default with respect to its payment of any obligations under the Guarantee or
(5) the Corporation shall have given notice of its election of an Extension
Period as provided in the Indenture and shall not have rescinded such notice,
and such Extension Period, or any extension thereof, shall have commenced.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Corporation and the Debenture Trustee, with the consent of the
holders of a majority in principal amount of Junior Subordinated Debentures, to
modify the Indenture in a manner affecting the rights of the holders of Junior
Subordinated Debentures; PROVIDED, that no such modification may, without the
consent of the holders of each outstanding Junior Subordinated Debenture so
affected, (i) extend the Stated Maturity Date, or reduce the principal amount of
the Junior Subordinated Debentures or reduce the rate or extend the time of
payment of interest thereon or (ii) reduce the percentage of principal amount of
Junior Subordinated Debentures, the holders of which are required to consent to
any such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
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operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures or any Other Debentures, when due (subject to the deferral of any
due date in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon redemption, by declaration of acceleration of maturity or
otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Corporation from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal (or premium, if any) on or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest (and premium, if any) and principal due otherwise than by acceleration
has been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior Subordinated
Debenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Corporation to pay interest (or
premium, if any) on or principal of the Junior Subordinated Debentures on the
due date, a holder of Capital Securities may institute a Direct Action. The
Corporation may not amend the Indenture to remove the foregoing right to bring a
Direct Action without the prior written consent of the holders of all of the
Capital Securities. If the right to bring a Direct Action is removed following
the Exchange Offer, the Trust may become subject to the reporting obligations
under the Exchange Act. Notwithstanding any payments made to a holder of Capital
Securities by the Corporation in connection with a Direct Action, the
Corporation shall remain obligated to pay the principal of (or premium, if any)
or interest on the Junior Subordinated Debentures, and the Corporation shall be
subrogated to the rights of the holder of such Capital Securities with respect
to payments on the Capital Securities to the extent of any payments made by the
Corporation to such holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Junior Subordinated Debentures unless there shall have
been an Event of Default under the Trust Agreement. See "--Description of
Exchange Capital Securities--Events of Default; Notice."
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CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation shall not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any Person, and no
Person shall consolidate with or merge into the Corporation or convey, transfer
or lease its properties and assets as an entirety or substantially as an
entirety to the Corporation, unless: (i) in case the Corporation consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes the Corporation's
obligations on the Junior Subordinated Debentures; (ii) immediately after giving
effect thereto, no Debenture Event of Default, and no event which, after notice
or lapse of time or both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as prescribed in
the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at maturity within one year, and the Corporation deposits or causes to be
deposited with the Debenture Trustee funds, in trust, for the purpose and in an
amount sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal (and premium, if any) and interest to the date
of the deposit or to the Stated Maturity Date, as the case may be, then the
Indenture will cease to be of further effect (except as to the Corporation's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Corporation will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures issued
thereunder will be subordinate and junior in right of payment to all Senior
Indebtedness. No payment of principal (including redemption payments), premium,
if any, or interest on the Junior Subordinated Debentures may be made at any
time when (i) any Senior Indebtedness is not paid when due, (ii) any applicable
grace period with respect to such default has ended and such default has not
been cured or waived or ceased to exist, or (iii) the maturity of any Senior
Indebtedness has been accelerated because of a default.
Upon any distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, all Senior Indebtedness must be paid
in full before the holders of the Junior Subordinated Debentures are entitled to
receive or retain any payment in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
"Senior Indebtedness" shall mean all Indebtedness for Money Borrowed,
whether outstanding on the date of execution of the Indenture or thereafter
created, assumed or incurred, unless the terms thereof
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specifically provide that it is not superior in right of payment to the Junior
Subordinated Debentures, and any deferrals, renewals or extensions of such
Senior Indebtedness.
"Indebtedness for Money Borrowed" shall mean any obligation of, or any
obligation guaranteed by, the Corporation for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, but shall not include (i) any trade accounts payable in the
ordinary course of business, (ii) any such indebtedness that by its terms ranks
PARI PASSU with or junior in right of payment to the Junior Subordinated
Debentures, (iii) all other debt securities, and guarantees in respect of those
debt securities, issued to any other trust, or a trustee of such trust,
partnership or other entity affiliated with the Corporation that is a financing
vehicle of the Corporation (a "financing entity") in connection with the
issuance by such financing entity of equity securities or other securities
guaranteed by the Corporation pursuant to an instrument that ranks PARI PASSU
with or junior in right of payment to the Guarantee, and (iv) any other
indebtedness that would otherwise qualify as "Indebtedness for Money Borrowed"
to the extent that such indebtedness by its terms ranks PARI PASSU with or
junior in right of payment to any of the indebtedness described in (i), (ii) or
(iii).
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation expects
from time to time to incur additional indebtedness constituting Senior
Indebtedness.
RESTRICTIONS ON TRANSFER
The Exchange Junior Subordinated Debentures will be issued, and may be
transferred only, in blocks having an aggregate principal amount of not less
than $1,000. Any such transfer of Exchange Junior Subordinated Debentures in a
block having an aggregate principal amount of less than $1,000 shall be deemed
to be void and of no legal effect whatsoever. Any such transferee shall be
deemed not to be the holder of such Exchange Junior Subordinated Debentures for
any purpose, including but not limited to the receipt of payments on such
Exchange Junior Subordinated Debentures, and such transferee shall be deemed to
have no interest whatsoever in such Exchange Junior Subordinated Debentures.
GOVERNING LAW
The Indenture and the Exchange Junior Subordinated Debentures will be
governed by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an indenture trustee
under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF EXCHANGE GUARANTEE
The Exchange Guarantee will be executed and delivered by the Corporation
concurrently with the issuance by the Trust of the Exchange Capital Securities
for the benefit of the holders from time to time of the Exchange Capital
Securities. The Chase Manhattan Bank will act as Guarantee Trustee under the
Exchange Guarantee. The Exchange Guarantee has been qualified under the Trust
Indenture Act. This summary of certain provisions of the Exchange Guarantee does
not purport to be complete and is subject
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to, and qualified in its entirety by reference to, all of the provisions of the
Exchange Guarantee, including the definitions therein of certain terms, and the
Trust Indenture Act. The Guarantee Trustee will hold the Exchange Guarantee for
the benefit of the holders of the Exchange Capital Securities.
GENERAL
The Corporation will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined below)
to the holders of the Exchange Capital Securities, as and when due, regardless
of any defense, right of set-off or counterclaim that the Trust may have or
assert other than the defense of payment. The following payments with respect to
the Exchange Capital Securities, to the extent not paid by or on behalf of the
Trust (the "Guarantee Payments"), will be subject to the Exchange Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on Exchange Capital
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the applicable Redemption Price with respect to
Exchange Capital Securities called for redemption, to the extent that the Trust
has funds on hand legally available therefor at such time, or (iii) upon a
voluntary or involuntary termination and liquidation of the Trust, the lesser of
(a) the Liquidation Distribution and (b) the amount of assets of the Trust
remaining available for distribution to holders of Exchange Capital Securities.
The Corporation's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Corporation to the holders of the
Exchange Capital Securities or by causing the Trust to pay such amounts to such
holders.
The Exchange Guarantee will rank subordinate and junior in right of payment
to all Senior Indebtedness to the extent provided therein. See "--Status of the
Exchange Guarantee." The Exchange Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the Corporation, including Senior
Indebtedness, whether under the Indenture, any other indenture that the
Corporation may enter into in the future or otherwise.
The Corporation will, through the Exchange Guarantee, the Trust Agreement,
the Exchange Junior Subordinated Debentures and the Indenture, taken together,
fully, irrevocably and unconditionally guarantee all of the Trust's obligations
under the Exchange Capital Securities.
STATUS OF THE EXCHANGE GUARANTEE
The Exchange Guarantee will constitute an unsecured obligation of the
Corporation and will rank subordinate and junior in right of payment to all
Senior Indebtedness in the same manner as Exchange Junior Subordinated
Debentures.
The Exchange Guarantee will rank pari passu with the Original Guarantee and
all Other Guarantees issued by the Corporation. The Exchange Guarantee will
constitute a guarantee of payment and not of collection (i.e., the guaranteed
party may institute a legal proceeding directly against the Corporation to
enforce its rights under the Exchange Guarantee without first instituting a
legal proceeding against any other person or entity). The Exchange Guarantee
will be held for the benefit of the holders of the Exchange Capital Securities.
The Exchange Guarantee will not be discharged except by payment of the Guarantee
Payments in full to the extent not paid by the Trust or upon distribution to the
holders of the Exchange Capital Securities of the Exchange Junior Subordinated
Debentures. The Exchange Guarantee does not place a limitation on the amount of
additional Senior Indebtedness that may be incurred by the Corporation. The
Corporation expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Exchange Capital Securities (in which case no vote
will be required), the Exchange Guarantee may not be amended without the prior
approval of the holders of a majority of the Liquidation Amount of such
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outstanding Exchange Capital Securities. The manner of obtaining any such
approval will be as set forth in "--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement." All guarantees and
agreements contained in the Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of the Corporation and shall
inure to the benefit of the holders of the Exchange Capital Securities then
outstanding.
EVENTS OF DEFAULT
An event of default under the Exchange Guarantee will occur upon the failure
of the Corporation to perform any of its payment or other obligations
thereunder. The holders of a majority in Liquidation Amount of the Exchange
Capital Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Exchange Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Exchange Guarantee.
Any holder of the Exchange Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Exchange Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity.
The Corporation, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Exchange Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Corporation in performance of the Exchange Guarantee, will
undertake to perform only such duties as are specifically set forth in the
Exchange Guarantee and, after default with respect to the Exchange Guarantee,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee will be under no obligation to exercise any of
the powers vested in it by the Exchange Guarantee at the request of any holder
of the Exchange Capital Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE EXCHANGE GUARANTEE
The Exchange Guarantee will terminate and be of no further force and effect
upon full payment of the applicable Redemption Price of the Exchange Capital
Securities, upon full payment of the Liquidation Amount payable upon liquidation
of the Trust or upon distribution of Exchange Junior Subordinated Debentures to
the holders of the Exchange Capital Securities. The Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of the Exchange Capital Securities must restore payment of any sums paid
under the Exchange Capital Securities or the Exchange Guarantee.
GOVERNING LAW
The Exchange Guarantee will be governed by and construed in accordance with
the laws of the State of New York.
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RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE EXCHANGE JUNIOR
SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Exchange Capital
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the Corporation
as and to the extent set forth in "Description of Exchange Securities--
Description of Exchange Guarantee." Taken together, the Corporation's
obligations under the Exchange Junior Subordinated Debentures, the Indenture,
the Trust Agreement and the Exchange Guarantee will provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Exchange Capital Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of the Trust's obligations under the Exchange Capital Securities. If
and to the extent that the Corporation does not make the required payments on
the Exchange Junior Subordinated Debentures, the Trust will not have sufficient
funds to make the related payments, including Distributions, on the Exchange
Capital Securities. The Exchange Guarantee will not cover any such payment when
the Trust does not have sufficient funds on hand legally available therefor. In
such event, the remedy of a holder of Exchange Capital Securities is to
institute a Direct Action. The obligations of the Corporation under the Exchange
Guarantee will be subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Exchange Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Exchange Capital Securities,
primarily because: (i) the aggregate principal amount or Prepayment Price of the
Exchange Junior Subordinated Debentures will be equal to the sum of the
Liquidation Amount or Redemption Price, as applicable, of the Exchange Capital
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Exchange Junior Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Trust
Securities; (iii) the Corporation shall pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations to holders of Trust
Securities under such Trust Securities; and (iv) the Trust Agreement provides
that the Trust is not authorized to engage in any activity that is not
consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Exchange Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the Trust or any other person or entity. A default or event of default
under any Senior Indebtedness would not constitute a default or Event of Default
under the Trust Agreement. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness, the subordination provisions of the
Indenture will provide that no payments may be made in respect of the Exchange
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. Failure to make
required payments on Exchange Junior Subordinated Debentures would constitute an
Event of Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Exchange Capital Securities will represent preferred beneficial
interests in the Trust, and the Trust exists for the sole purpose of issuing and
selling the Trust Securities, using the proceeds from the sale
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of the Trust Securities to acquire the Junior Subordinated Debentures and
engaging in only those other activities incidental thereto.
RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary termination and liquidation
of the Trust, the holders of the Trust Securities will be entitled to receive,
out of assets held by the Trust, the Liquidation Distribution in cash. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of the
Corporation, the Property Trustee, as holder of the Exchange Junior Subordinated
Debentures, would be a subordinated creditor of the Corporation, subordinated in
right of payment to all Senior Indebtedness as set forth in the Indenture, but
entitled to receive payment in full of principal (and premium, if any) and
interest, before any stockholders of the Corporation receive payments or
distributions. Since the Corporation will be the guarantor under the Exchange
Guarantee and will agree to pay for all costs, expenses and liabilities of the
Trust (other than the Trust's obligations to the holders of its Trust
Securities), the positions of a holder of Exchange Capital Securities and a
holder of Exchange Junior Subordinated Debentures relative to other creditors
and to stockholders of the Corporation in the event of liquidation or bankruptcy
of the Corporation are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Perkins Cole, counsel to the Corporation and the Trust
("Tax Counsel"), the following is a summary of certain of the material United
States federal income tax consequences of the exchange of Original Capital
Securities for Exchange Capital Securities and the ownership and disposition of
Exchange Capital Securities held as capital assets by a holder who purchased
such Original Capital Securities upon initial issuance. It does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, Non-U.S. Holders (as defined below)
engaged in a trade or business within the United States, insurance companies,
dealers in securities or currencies, tax-exempt investors (including pension
funds), or persons that will hold the Capital Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Capital
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Capital Securities. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations thereunder (the "Regulations") and the administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Original Securities for Exchange Securities should not be a
taxable event to holders for United States federal income tax purposes. The
exchange of Original Securities for Exchange Securities pursuant to the Exchange
Offer should not be treated as an "exchange" for United States federal income
tax purposes because the Exchange Securities should not be considered to differ
materially in kind or extent from the Original Securities and because the
exchange will occur by operation of the terms of the Original Securities.
Accordingly, the Exchange Capital Securities should have the same issue price as
the Original Capital Securities and a holder should have the same adjusted tax
basis and holding period in the Exchange Capital Securities as the holder had in
the Original Capital Securities immediately before the exchange. Moreover, a
holder which had acquired Original Capital Securities with either market
discount
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or bond premium will be treated as holding Exchange Capital Securities with the
same amount of market discount or bond premium and will be required to include
such market discount in or deduct such bond premium from its income in the same
manner as on the Original Capital Securities. Holders are urged to consult their
tax advisors regarding the applicability of the market discount and bond premium
rules.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Corporation intends to, and by acceptance of an Original Capital
Security each holder covenanted to, treat the Junior Subordinated Debentures as
debt for U.S. federal income tax purposes. In connection with the issuance of
the Original Junior Subordinated Debentures, Tax Counsel rendered its opinion
generally to the effect that, under the law in effect at the time of issuance of
the Original Junior Subordinated Debentures and assuming full compliance with
the terms of the Indenture (and the related documents), and based on certain
facts and assumptions contained in such opinion and certain representations of
the Corporation to Tax Counsel, the Original Junior Subordinated Debentures will
be classified for United States federal income tax purposes as indebtedness of
the Corporation. An opinion of Tax Counsel, however, is not binding on the
Internal Revenue Service (the "IRS") or the courts. Prospective investors should
note that no rulings have been or are expected to be sought from the IRS with
respect to any of these issues and no assurance can be given that the IRS will
not take contrary positions. Moreover, no assurance can be given that any of the
opinions expressed herein will not be challenged by the IRS or, if challenged,
that such a challenge would not be successful.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Original Capital Securities, Tax
Counsel rendered its opinion generally to the effect that, under the law then in
effect and assuming full compliance with the terms of the Trust Agreement and
the Indenture (and the related documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Capital Securities (and not the Trust) generally will
be considered the owner of an undivided interest in the Junior Subordinated
Debentures, and each holder will be required to include in its gross income any
interest (or OID accrued) with respect to its allocable share of those Junior
Subordinated Debentures.
Even if the Trust were to be denied grantor trust status, it would not be
treated as a corporation for U.S. federal income tax purposes under the recently
finalized "check-the-box" Regulations, which provide that, if there is no
election to the contrary, a trust that has multiple beneficiaries and that is
treated as a "business entity" will be classified as a partnership for federal
income tax purposes. If the Trust were so characterized, there would be no
material difference in the federal income tax treatment of the holders (other
than possibly the Non-U.S. Holders as described below under "Non-U.S. Holders").
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under certain Regulations applicable to debt instruments, a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Corporation has
represented that the likelihood of its exercising its option to defer payments
of interest is "remote" since exercising that option would prevent the
Corporation from declaring dividends on any class of its equity securities.
Accordingly, the Corporation intends to take the position, based on the advice
of Tax Counsel in reliance on such representation, that the Junior Subordinated
Debentures will not be considered to be issued with OID and, accordingly, stated
interest on the Junior Subordinated Debentures generally will be taxable to a
holder as ordinary income at the time it is paid or accrued in accordance with
such holder's method of accounting.
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Under the Regulations, if the Corporation were to exercise its option to
defer payments of interest, the Junior Subordinated Debentures would at that
time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID as long as the Junior
Subordinated Debentures remain outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures would
thereafter be accounted for on an economic accrual basis regardless of such
holder's method of tax accounting, and actual distributions of stated interest
would not be reported as taxable income. Consequently, a holder of Capital
Securities would be required to include in gross income OID even though the
Corporation would not make actual cash payments during an Extension Period.
Moreover, under the Regulations, if the option to defer the payment of interest
was determined not to be "remote," the Junior Subordinated Debentures would be
treated as having been originally issued with OID. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for on an economic accrual basis regardless of
such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income.
The Regulations discussed above have not yet been addressed in any rulings
or other interpretations by the IRS, and it is possible that the IRS could take
a position contrary to Tax Counsel's interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Corporation will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. Under current law, such a distribution, for United States
federal income tax purposes, would be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Capital Securities. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, as a
result of a change in law the Trust were to be characterized for United States
federal income tax purposes as an association taxable as a corporation at the
time of its dissolution, the distribution of the Junior Subordinated Debentures
may constitute a taxable event to holders of Capital Securities and a holder's
holding period in Junior Subordinated Debentures would begin on the date such
Junior Subordinated Debentures were received.
Under certain circumstances described herein (see "Description of Exchange
Securities--Description of Exchange Capital Securities--Redemption" and
"--Description of Exchange Junior Subordinated Debentures--Special Event
Prepayment"), the Junior Subordinated Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in redemption of their
Capital Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold such redeemed Capital Securities for cash. See "Sales of Capital
Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities (other than with respect
to accrued and unpaid interest, OID, or market discount which has not yet been
included in income, which will be treated as ordinary income). A holder's
adjusted tax basis in the Capital Securities generally will be its initial
purchase price increased by OID (if any) previously includable in such holder's
gross income to the date of disposition and decreased by payments (if any)
received on the Capital
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Securities in respect of OID. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the Capital
Securities have been held for more than one year.
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for more
than 18 months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Holders should consult
their own tax advisors concerning these tax law changes.
The Capital Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder that uses the accrual method of accounting for
tax purposes (and a cash method holder, if the Junior Subordinated Debentures
are deemed to have been issued with OID) and that disposes of its Capital
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as ordinary income (i.e.,
interest or, possibly, OID), and to add such amount to its adjusted tax basis in
its pro rata share of the underlying Junior Subordinated Debentures deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis (which will include all accrued but unpaid interest) a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the United States Treasury proposed legislation that, among other
things, would have denied an issuer a deduction for United States federal income
tax purposes for the payment of interest on instruments with characteristics
similar to the Junior Subordinated Debentures. The Taxpayer Relief Act of 1997,
enacted on August 7, 1997, did not contain these provisions. There can be no
assurance, however, that the proposed legislation or similar legislation, if
enacted after the date hereof, would not adversely affect the tax treatment of
the Junior Subordinated Debentures or that any legislation enacted after the
date hereof would not cause a Tax Event that may result in a redemption of the
Junior Subordinated Debentures at the Special Event Prepayment Price and,
consequently, the Trust Securities at the Special Event Redemption Price. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Redemption" and "Description of Exchange Securities--Description of
Exchange Junior Subordinated Debentures--Special Event Prepayment."
NON-U.S. HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" is any holder that is
not a U.S. Holder for United States federal income tax purposes. A "U.S. Holder"
is a holder of Capital Securities who or which is a citizen or individual
resident (or is treated as a citizen or individual resident) of the United
States for federal income tax purposes, a corporation or partnership created or
organized (or treated as created or organized for federal income tax purposes)
in or under the laws of the United States or any political subdivision thereof,
or a trust or estate the income of which is includable in its gross income for
federal income tax purposes without regard to its source. For taxable years
beginning after December 31, 1996 (or for the immediately preceding taxable
year, if the trustee of a trust so elects), a trust is a U.S. Holder for federal
income tax purposes if, and only if, (i) a court within the United States is
able to exercise primary supervision over the administration of the trust and
(ii) one or more United States trustees have the authority to control all
substantial decisions of the trust.
Under present United States federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a Non-U.S. Holder will not be subject to United States federal
withholding tax; provided that, (a) the beneficial owner of the Capital Security
does not
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actually or constructively own 10 percent or more of the total combined voting
power of all classes of stock of the Corporation entitled to vote, (b) the
beneficial owner of the Capital Security is not a controlled foreign corporation
that is related to the Corporation through stock ownership, and (c) the
beneficial owner of the Capital Securities is not a bank whose receipt of
interest with respect to the Capital Securities (or the Junior Subordinated
Debentures) is described in Section 881(c)(3)(A) of the Code and (d) either (1)
the beneficial owner of the Capital Security certifies to the Trust or its
agent, under penalties of perjury, that it is not a U.S. Holder and provides its
name and address or (2) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Capital
Security in such capacity, certifies to the Trust or its agent, under penalties
of perjury, that such statement has been received from the beneficial owner by
it or by a Financial Institution between it and the beneficial owner and
furnishes the Trust or its agent with a copy thereof; and (ii) a Non-U.S. Holder
of a Capital Security will not be subject to United States federal withholding
tax on any gain realized upon the sale or other disposition of a Capital
Security.
If the Trust were to be denied grantor trust status and instead were to be
treated as a trade or business conducted as a partnership for U.S. federal
income tax purposes, it is possible that a Non-U.S. Holder could be subject to
federal income tax (including withholding) with respect to income (including
OID) generated by the Junior Subordinated Debentures.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will be allowed as a
credit against the holder's United States federal income tax, provided the
required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (a) employee benefit plans
(as defined in Section 3(3) of ERISA) subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (b) plans (as
defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code,
including individual retirement accounts and Keogh plans, (c) entities whose
underlying assets include plan assets by reason of a plan's investment in such
entities (each of (a), (b) and (c), a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties in Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V. HARRIS
TRUST AND SAVINGS BANK, 114 S. Ct. 517 (1993), an insurance company's general
account may be deemed to include the assets of the Plans investing in the
general account (e.g., through the purchase of an annuity contract), and the
insurance company might be treated as a Party In Interest and a Disqualified
Person with respect to such Plans by virtue of such investment. ERISA also
imposes certain duties on persons who are fiduciaries of Plans, and both ERISA
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and the Code prohibit certain transactions involving "plan assets" between a
Plan and Parties in Interest or Disqualified Persons with respect to such Plans.
Each of the Corporation (the obligor with respect to the Exchange Junior
Subordinated Debentures held by the Trust), the Property Trustee and the
affiliates of either of them may be considered a Party in Interest or a
Disqualified Person with respect to many Plans. The purchase and/or holding of
Exchange Capital Securities by (or on behalf of) a Plan with respect to which
the Corporation, the Property Trustee or any affiliate of either of them is a
service provider (or otherwise is a Party in Interest or a Disqualified Person)
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless such Exchange Capital Securities are acquired and held
pursuant to and in accordance with an applicable exemption, such as Prohibited
Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 95-60 (an exemption for
transactions involving certain insurance company general accounts), or PTCE
96-23 (an exemption for certain transactions determined by an in-house asset
manager).
A Plan fiduciary considering the purchase of Exchange Capital Securities
should also be aware that the assets of the Trust may be considered "plan
assets" for ERISA purposes. In such event, service providers with respect to the
assets of the Trust may become Parties in Interest or Disqualified Persons with
respect to investing Plans, and any discretionary authority exercised with
respect to the Junior Subordinated Debentures by such persons could be deemed to
constitute a prohibited transaction under ERISA or the Code. In order to
minimize the likelihood that such prohibited transactions will occur, each
investing Plan (and each person acting on behalf of, or investing with the
assets of, a Plan), by purchasing the Exchange Capital Securities, will be
deemed to have directed the Trust to invest in the Exchange Junior Subordinated
Debentures and to have appointed the Property Trustee. However, none of the
Corporation, the Property Trustee or any affiliate of either of them can
guaranty that such prohibited transactions will not occur.
Any purchaser proposing to acquire Exchange Capital Securities with assets
of any Plan should consult with its legal counsel concerning the impact of ERISA
and the Code and the potential consequences of acquiring and holding Exchange
Capital Securities 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; whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio; and whether the Exchange Capital Securities will be traded with
sufficient regularity to permit such fiduciary to satisfy ERISA's annual
valuation requirement.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Capital Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Capital
Securities received in exchange for Original Capital Securities where such
Original Capital Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Trust and the
Corporation have agreed that, starting on the Expiration Date and ending on the
close of business on the 180th day following the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until June 15, 1998, all
dealers effecting transactions in the Exchange Securities may be required to
deliver a prospectus.
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The Trust and the Corporation will not receive any proceeds from any sale of
Exchange Capital Securities by broker-dealers. Exchange Capital Securities
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions, in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Capital Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Capital Securities. Any
broker-dealer that resells Exchange Capital Securities that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Capital Securities may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
of any such resale of Exchange Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Trust and the
Corporation will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Trust and the Corporation have
agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Capital Securities) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Capital Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF EXCHANGE SECURITIES
The validity of the Exchange Capital Securities, the Exchange Guarantee and
the Exchange Junior Subordinated Debentures will be passed upon for the
Corporation by James W. Ruddy, General Counsel of the Corporation. Certain
matters of Delaware law relating to the validity of the Exchange Capital
Securities will be passed upon on behalf of the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP, as special counsel to the Trust. 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 OR THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Forward-Looking Information............................................... 6
Available Information..................................................... 7
Incorporation of Certain Documents by Reference........................... 8
Prospectus Summary........................................................ 9
Risk Factors.............................................................. 18
Unaudited Pro Forma Combined Condensed Financial Statements............... 27
SAFECO Corporation........................................................ 33
Use of Proceeds........................................................... 33
Ratios of Earnings to Fixed Charges and Earnings to Fixed Charges and
Distributions on Capital Securities..................................... 34
Capitalization............................................................ 35
Selected Financial Information............................................ 36
Safeco Capital Trust I.................................................... 41
The Exchange Offer........................................................ 42
Description of Exchange Securities........................................ 52
Relationship Among the Exchange Capital Securities, the Exchange Junior
Subordinated Debentures and the Exchange Guarantee...................... 74
Certain Federal Income Tax Consequences................................... 75
ERISA Considerations...................................................... 79
Plan of Distribution...................................................... 80
Validity of Exchange Securities........................................... 81
Independent Auditors...................................................... 81
</TABLE>
[LOGO]
SAFECO CAPITAL TRUST I
OFFER TO EXCHANGE ITS
8.072% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS
OUTSTANDING
8.072% ORIGINAL CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER ORIGINAL CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
SAFECO CORPORATION
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PROSPECTUS
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NOVEMBER 10, 1997
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