Filed Pursuant to Rule 424(b)(5)
Registration Nos. 333-104449
333-104449-01
333-104449-02
PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus dated April 25, 2003)
$60,000,000
[LOGO]
GULF
POWER
A SOUTHERN COMPANY
Series H 5.25% Senior Notes due July 15, 2033
-----------------
The Series H Senior Notes bear interest at the rate of 5.25% per year.
Interest on the Series H Senior Notes is payable quarterly on January 15, April
15, July 15 and October 15 of each year, beginning October 15, 2003. The Series
H Senior Notes will mature on July 15, 2033. The Series H Senior Notes are
redeemable by Gulf Power Company on or after July 22, 2008. The Series H Senior
Notes do not have the benefit of any sinking fund.
The Series H Senior Notes are unsecured and rank equally with all of Gulf
Power Company's other unsecured indebtedness and will be effectively
subordinated to all secured debt of Gulf Power Company. The Series H Senior
Notes will be issued only in registered form in denominations of $25 and any
integral multiple thereof.
Payments of principal and interest on the Series H Senior Notes when due
will be insured by a financial guaranty insurance policy to be issued by XL
Capital Assurance Inc.
[LOGO] XL CAPITAL ASSURANCE SM
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Prospectus Supplement or the accompanying Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Per
Series H
Senior Note Total
----------- -----------
Initial Public Offering Price(1).................... 100.00% $60,000,000
Underwriting Discounts and Commissions.............. 3.15% $ 1,890,000
Net Proceeds, before expenses, to Gulf Power Company 96.85% $58,110,000
- --------
(1) The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Series H Senior Notes will accrue from
the date the Series H Senior Notes are issued.
See "Risk Factors" on page S-3 for a description of certain risks associated
with investing in the Series H Senior Notes.
Gulf Power Company plans to list the Series H Senior Notes on the New York
Stock Exchange. Trading of the Series H Senior Notes is expected to begin on
the New York Stock Exchange within 30 days after the Series H Senior Notes are
first issued.
It is expected that the Series H Senior Notes will be ready for delivery in
book-entry form only through The Depository Trust Company, on or about July 22,
2003.
-----------------
Joint Book--Running Managers
Morgan Stanley Wachovia Securities
-----------------
SunTrust Robinson Humphrey
The date of this Prospectus Supplement is July 10, 2003.
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained or incorporated by reference in this
Prospectus Supplement or the accompanying Prospectus. You must not rely on any
unauthorized information or representations. This Prospectus Supplement and
accompanying Prospectus is an offer to sell only the Series H Senior Notes and
only under circumstances and in jurisdictions where it is lawful to do so. The
information incorporated by reference or contained in this Prospectus
Supplement and accompanying Prospectus is current only as of its date.
Table of Contents
Prospectus Supplement
Page
- ----
Risk Factors................................................................................. S-3
The Company.................................................................................. S-3
Selected Financial Information............................................................... S-3
Use of Proceeds.............................................................................. S-4
Description of the Series H Senior Notes..................................................... S-4
The Policy and the Insurer................................................................... S-7
Ratings...................................................................................... S-11
Underwriting................................................................................. S-12
Experts...................................................................................... S-13
Appendix A -- Form of Policy................................................................. A-1
Prospectus
About this Prospectus........................................................................ 2
Risk Factors................................................................................. 2
Available Information........................................................................ 2
Incorporation of Certain Documents by Reference.............................................. 3
Gulf Power Company........................................................................... 3
Selected Information......................................................................... 4
The Trusts................................................................................... 5
Accounting Treatment of Trusts............................................................... 5
Use of Proceeds.............................................................................. 5
Description of the Senior Notes.............................................................. 6
Description of the Junior Subordinated Notes................................................. 10
Description of the Preferred Securities...................................................... 15
Description of the Guarantees................................................................ 16
Relationship Among the Preferred Securities, the Junior Subordinated Notes and the Guarantees 18
Plan of Distribution......................................................................... 19
Legal Matters................................................................................ 20
Experts...................................................................................... 20
S-2
RISK FACTORS
Investing in the Series H Senior Notes involves risk. Please see the risk
factors in Gulf Power Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, which is incorporated by reference in this Prospectus
Supplement. Before making an investment decision, you should carefully consider
these risks as well as other information contained or incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus. The risks and
uncertainties not presently known to Gulf Power Company or that Gulf Power
Company currently deems immaterial may also impair its business operations, its
financial results and the value of the Series H Senior Notes.
THE COMPANY
Gulf Power Company (the "Company") is a corporation organized under the laws
of the State of Maine on November 2, 1925, and admitted to do business in
Florida on January 15, 1926, in Mississippi on October 25, 1976 and in Georgia
on November 20, 1984. The mailing address of the Company's principal executive
offices is One Energy Place, Pensacola, Florida 32520-0100, and the telephone
number is (850) 444-6111. The Company is a wholly owned subsidiary of The
Southern Company.
The Company is a regulated public utility engaged in the generation,
transmission, distribution and sale of electric energy within an approximately
7,400 square mile service area within the northwestern portion of the State of
Florida.
SELECTED FINANCIAL INFORMATION
The following selected financial data for the years ended December 31, 1998
through December 31, 2002 and the three months ended March 31, 2003 have been
derived from the Company's financial statements and related notes, incorporated
by reference in this Prospectus Supplement. The information set forth below is
qualified in its entirety by reference to and, therefore, should be read
together with management's discussion and analysis of results of operations and
financial information, the financial statements and related notes and other
financial information incorporated by reference in this Prospectus Supplement.
Three Months
Ended
Year Ended December 31, March 31,
-------------------------------------------- ------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- ------------
(Thousands, except ratios) (unaudited)
Operating Revenues........... $650,518 $674,099 $714,319 $725,203 $820,467 $197,838
Earnings Before Income Taxes. 89,356 86,515 82,607 89,716 104,397 22,291
Net Income After Dividends on
Preferred Stock............ 56,521 53,667 51,843 58,307 67,036 13,972
Ratio of Earnings to Fixed
Charges(1)................. 3.83 3.62 3.38 3.64 3.52 3.21
Capitalization
As of March 31, 2003
------------------------------------------
Actual As Adjusted(2)
---------- --------------------------
(Thousands, except percentages) (unaudited)
Common Stock Equity............................................. $ 556,870 $ 556,870 46.4%
Cumulative Preferred Stock...................................... 4,236 4,236 0.4
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Company Junior Subordinated Notes... 115,000 115,000 9.6
Senior Notes.................................................... 281,725 310,000 25.8
Other Long-Term Debt............................................ 214,390 214,390 17.8
---------- ---------- -----
Total........................................................... $1,172,221 $1,200,496 100.0%
========== ========== =====
S-3
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(1) This ratio is computed as follows: (i) "Earnings" have been calculated by
adding to "Earnings Before Income Taxes" "Interest Expense, Net of Amounts
Capitalized," "Distributions on Preferred Securities of Subsidiary" and the
debt portion of allowance for funds used during construction; and
(ii) "Fixed Charges" consist of "Interest Expense, Net of Amounts
Capitalized," "Distributions on Preferred Securities of Subsidiary" and the
debt portion of allowance for funds used during construction.
(2)Reflects (i) the redemption in April 2003 of $5,000, the redemption in July
2003 of $25,000 and the proposed redemption in August 2003 of $46,695,000
aggregate principal amount of Series A 6.70% Senior Insured Quarterly Notes
due June 30, 2038; (ii) the redemption in May 2003 of $45,000,000 aggregate
principal amount of Series E 6.00% Senior Notes due January 30, 2012; (iii)
the proposed issuance in July 2003 of $60,000,000 aggregate principal amount
of Series G Senior Notes (the "Series G Senior Notes"); and (iv) the
issuance of the Series H Senior Notes offered hereby.
USE OF PROCEEDS
A portion of the proceeds from the sale of the Series H Senior Notes will be
used by the Company to redeem in August 2003 the $46,695,000 outstanding
principal amount of its Series A 6.70% Senior Insured Quarterly Notes due
June 30, 2038. This redemption is subject to the Company's closing of the sale
of the Series H Senior Notes. The balance of the proceeds will be used by the
Company to repay a portion of its outstanding short-term indebtedness, which
aggregated approximately $55,000,000 as of July 10, 2003.
DESCRIPTION OF THE SERIES H SENIOR NOTES
Set forth below is a description of the specific terms of the Series H 5.25%
Senior Notes due July 15, 2033 (the "Series H Senior Notes"). This description
supplements, and should be read together with, the description of the general
terms and provisions of the senior notes set forth in the accompanying
Prospectus under the caption "Description of the Senior Notes." The following
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the description in the accompanying Prospectus
and the Senior Note Indenture dated as of January 1, 1998, as supplemented (the
"Senior Note Indenture"), between the Company and JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank), as trustee (the "Senior Note Indenture
Trustee").
General
The Series H Senior Notes will be issued as a series of senior notes under
the Senior Note Indenture. The Series H Senior Notes will initially be issued
in the aggregate principal amount of $60,000,000. The Company may, without the
consent of the holders of the Series H Senior Notes, issue additional notes
having the same ranking and the same interest rate, maturity and other terms,
including the benefit of the Policy (as defined below), as the Series H Senior
Notes. Any additional notes having such similar terms, together with the Series
H Senior Notes, will constitute a single series of senior notes under the
Senior Note Indenture.
The entire principal amount of the Series H Senior Notes will mature and
become due and payable, together with any accrued and unpaid interest thereon,
on July 15, 2033. The Series H Senior Notes are not subject to any sinking fund
provision. The Series H Senior Notes are available for purchase in
denominations of $25 and any integral multiple thereof.
Interest
Each Series H Senior Note shall bear interest at the rate of 5.25% per annum
(the "Securities Rate") from the date of original issuance, payable quarterly
in arrears on January 15, April 15, July 15 and October 15 of each year (each,
an "Interest Payment Date") to the person in whose name such Series H Senior
Note is registered at the close of business on the fifteenth calendar day prior
to such payment date (whether or not a Business Day).
S-4
The initial interest payment date is October 15, 2003. The amount of interest
payable 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 Series H
Senior Notes is not a Business Day, then payment of the interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), with the
same force and effect as if made on such date. "Business Day" means a day other
than (i) a Saturday or Sunday, (ii) a day on which banks in New York, New York
are authorized or obligated by law or executive order to remain closed or (iii)
a day on which the Senior Note Indenture Trustee's corporate trust office is
closed for business.
Ranking
The Series H Senior Notes will be direct, unsecured and unsubordinated
obligations of the Company ranking equally with all other unsecured and
unsubordinated obligations of the Company. The Series H Senior Notes will be
effectively subordinated to all secured debt of the Company, including its
first mortgage bonds, aggregating approximately $170,000,000 outstanding at
March 31, 2003. The Senior Note Indenture contains no restrictions on the
amount of additional indebtedness that may be incurred by the Company.
Trading Characteristics
The Series H Senior Notes are expected to trade at a price that takes into
account the value, if any, of accrued but unpaid interest; thus, purchasers
will not pay and sellers will not receive accrued and unpaid interest with
respect to the Series H Senior Notes that is not included in the trading price
thereof. Any portion of the trading price of a Series H Senior Note received
that is attributable to accrued interest will be treated as ordinary interest
income for federal income tax purposes and will not be treated as part of the
amount realized for purposes of determining gain or loss on the disposition of
the Series H Senior Note.
The trading price of the Series H Senior Notes is likely to be sensitive to
the level of interest rates generally. If interest rates rise in general, the
trading price of the Series H Senior Notes may decline to reflect the
additional yield requirements of the purchasers. Conversely, a decline in
interest rates may increase the trading price of the Series H Senior Notes,
although any increase will be moderated by the Company's ability to call the
Series H Senior Notes at any time on or after July 22, 2008.
Special Insurance Provisions of the Senior Note Indenture
Subject to the provisions of the Senior Note Indenture, so long as the
Insurer (as defined below) is not in default under the Policy, the Insurer
shall be entitled to control and direct the enforcement of all rights and
remedies with respect to the Series H Senior Notes upon the occurrence and
continuation of an Event of Default (as defined in the Senior Note Indenture).
Optional Redemption
The Company shall have the right to redeem the Series H Senior Notes, in
whole or in part, without premium, from time to time, on or after July 22,
2008, upon not less than 30 nor more than 60 days' notice, at a redemption
price (the "Redemption Price") equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest to the date of redemption (the
"Redemption Date").
If notice of redemption is given as aforesaid, the Series H Senior Notes so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price together with any accrued interest thereon, and from and after
such date (unless the Company shall default in the payment of the Redemption
Price and accrued interest) such Series H Senior Notes shall cease to bear
interest. If any Series H Senior Note called for redemption shall not be paid
upon surrender thereof for redemption, the principal shall, until paid, bear
interest from the Redemption Date at the Securities Rate. See "Description of
the Senior Notes--Events of Default" in the accompanying Prospectus.
S-5
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), the Company or its
affiliates may, at any time and from time to time, purchase outstanding Series
H Senior Notes by tender, in the open market or by private agreement.
Book-Entry Only Issuance--The Depository Trust Company
The Depository Trust Company ("DTC") will act as the initial securities
depositary for the Series H Senior Notes. The Series H Senior Notes will be
issued only as fully-registered securities registered in the name of Cede &
Co., DTC's nominee, or such other name as may be requested by an authorized
representative of DTC. One or more fully registered global Series H Senior
Notes certificates will be issued, representing in the aggregate the total
principal amount of Series H Senior Notes, and will be deposited with DTC or a
custodian therefor.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "1934 Act"). DTC holds and provides asset
servicing for over 2 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues and money market instruments from over 85
countries that DTC's participants ("Direct Participants") deposit with DTC. DTC
also facilitates the post-trade settlement among Direct Participants of sales
and other securities transactions in deposited securities, through electronic
computerized book-entry transfers and pledges between Direct Participants'
accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is a wholly-owned subsidiary of The Depository Trust &
Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct
Participants of DTC and members of the National Securities Clearing
Corporation, Government Securities Clearing Corporation, MBS Clearing
Corporation and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC and
EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange,
Inc. (the "NYSE"), the American Stock Exchange LLC and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others such as both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies and clearing corporations that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants" and, together with Direct Participants,
"Participants"). The DTC rules applicable to its Participants are on file with
the Securities and Exchange Commission (the "Commission"). More information
about DTC can be found at www.dtcc.com.
Purchases of Series H Senior Notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Series H
Senior Notes on DTC's records. The ownership interest of each actual purchaser
of Series H Senior Notes ("Beneficial Owner") is in turn to be recorded on the
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants through which the
Beneficial Owners purchased Series H Senior Notes. Transfers of ownership
interests in the Series H Senior Notes are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Series H Senior Notes, except in the event that use of the book-entry system
for the Series H Senior Notes is discontinued.
To facilitate subsequent transfers, all Series H Senior Notes deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Series H Senior Notes with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect
any changes in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Series H Senior Notes. DTC's records reflect only the
identity of the Direct Participants to whose accounts such Series H Senior
Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
S-6
Redemption notices shall be sent to DTC. If less than all of the Series H
Senior Notes are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such Series H Senior Notes
to be redeemed.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the Series H Senior Notes is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. (or such other
DTC nominee) will itself consent or vote with respect to Series H Senior Notes.
Under its usual procedures, DTC would mail an Omnibus Proxy to the Company as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
(or such other DTC nominee's) consenting or voting rights to those Direct
Participants to whose accounts the Series H Senior Notes are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Payments on the Series H Senior Notes will be made to Cede & Co. or such
other nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit Direct Participants' accounts upon DTC's receipt of funds
and corresponding detail information from the Company or the Senior Note
Indenture Trustee on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers registered in "street name," and will be the responsibility of such
Participant and not of DTC or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment to Cede
& Co. (or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of the Company, disbursement of
such payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the responsibility of
Participants.
Except as provided herein, a Beneficial Owner of a global Series H Senior
Note will not be entitled to receive physical delivery of Series H Senior
Notes. Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Series H Senior Notes. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of securities in definitive form. Such laws may impair the ability to
transfer beneficial interests in a global Series H Senior Note.
DTC may discontinue providing its services as securities depositary with
respect to the Series H Senior Notes at any time by giving reasonable notice to
the Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, Series H Senior Notes certificates will be printed
and delivered to the holders of record. Additionally, the Company may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary) with respect to the Series H Senior Notes. In that event,
certificates for the Series H Senior Notes will be printed and delivered to the
holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof. The Company has
no responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
THE POLICY AND THE INSURER
The Policy
Concurrently with the issuance of the Series H Senior Notes, XL Capital
Assurance Inc. (the "Insurer") will issue a financial guaranty insurance policy
relating to the Series H Senior Notes (the "Policy"). The form of the Policy is
attached to this Prospectus Supplement as Appendix A. The following summary of
the terms of the Policy does not purport to be complete and is qualified in its
entirety by reference to the Policy. Any capitalized terms used in this section
but not defined herein have the meanings ascribed to them in the Policy.
S-7
The Policy guarantees the scheduled payment of principal of and interest on
the Series H Senior Notes when due. The Policy will extend for the term of the
Series H Senior Notes and, once issued, cannot be canceled by the Insurer. The
Policy will insure payment only on the stated maturity date, in the case of
principal, and on stated dates for payment, in the case of interest. If any
Series H Senior Notes become subject to redemption and insufficient funds are
available for redemption of all such outstanding Series H Senior Notes, the
Insurer will remain obligated to pay principal of and interest on such
outstanding Series H Senior Notes on the originally scheduled principal and
interest payment dates. In the event of any acceleration of the principal of
the Series H Senior Notes, the insured payments will be made at such times and
in such amounts as would have been made had there not been an acceleration.
In the event the Senior Note Indenture Trustee has notice that any payment
of principal of or interest on a Series H Senior Note which has become Due for
Payment on any regularly scheduled principal payment date or Interest Payment
Date and which is made to a holder by or on behalf of the Company has been
deemed a preferential transfer and theretofore recovered from its holder
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such holder will be
entitled to payment from the Insurer to the extent of such recovery if
sufficient funds are not otherwise available.
The Policy does not insure any risk other than Nonpayment. Specifically, the
Policy does not cover:
a. payment on acceleration, as a result of a call for redemption or as a
result of any other advancement of maturity;
b. nonpayment of principal or interest caused by the insolvency or
negligence of the Senior Note Indenture Trustee; or
c. losses suffered as a result of a holder's inability to sell Series H
Senior Notes.
Upon payment of the insurance benefits with respect to a Series H Senior
Note, the Insurer will become the owner of such Series H Senior Note or right
to payment of principal or interest on such Series H Senior Note and will be
fully subrogated to the rights to payment of the surrendering holder.
The Insurer
The information set forth below has been provided by the Insurer for use in
this Prospectus Supplement. None of the Company, the Senior Note Indenture
Trustee or any Underwriter makes any representation or warranty or assumes any
responsibility with respect to the information concerning the Insurer, its
parent or the Policy contained or incorporated into this Prospectus Supplement.
Neither the Company nor any Underwriter has made any independent investigation
of the Policy or the Insurer, and reference should be made to the information
set forth below for a description of the Policy. The Policy does not constitute
a part of the contract between the Company and the holders. Except for the
payment of the premium for the Policy to the Insurer, the Company has no
responsibility whatsoever with respect to the Policy, including the maintenance
or enforcement of the Policy or collection of amounts payable under the Policy.
The Insurer accepts no responsibility for the accuracy or completeness of
this Prospectus Supplement or any other information or disclosure contained
herein, or omitted herefrom, other than with respect to the accuracy of the
information regarding the Insurer and its affiliates set forth under this
heading. In addition, the Insurer makes no representation regarding the Series
H Senior Notes or the advisability of investing in the Series H Senior Notes.
General. The Insurer is a monoline financial guaranty insurance company
incorporated under the laws of the State of New York. The Insurer is currently
licensed to do insurance business in, and is subject to the insurance
regulation and supervision by, the State of New York, forty-seven other states,
the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Singapore.
The Insurer has license applications pending, or intends to file an
application, in each of those states in which it is not currently licensed.
S-8
The Insurer is an indirect wholly owned subsidiary of XL Capital Ltd, a
Cayman Islands corporation ("XL Capital Ltd"). Through its subsidiaries, XL
Capital Ltd is a leading provider of insurance and reinsurance coverages and
financial products to industrial, commercial and professional service firms,
insurance companies and other enterprises on a worldwide basis. The common
stock of XL Capital Ltd is publicly traded in the United States and listed on
the New York Stock Exchange (NYSE:XL). XL Capital Ltd is not obligated to pay
the debts of or claims against the Insurer.
The Insurer was formerly known as The London Assurance of America Inc.
("London"), which was incorporated on July 25, 1991 under the laws of the State
of New York. On February 22, 2001, XL Reinsurance America Inc. ("XL Re")
acquired 100% of the stock of London. XL Re merged its former financial
guaranty subsidiary, known as XL Capital Assurance Inc. (formed September 13,
1999), with and into London, with London as the surviving entity. London
immediately changed its name to XL Capital Assurance Inc. All previous business
of London was 100% reinsured to Royal Indemnity Company, the previous owner at
the time of acquisition.
Reinsurance. The Insurer has entered into a facultative quota share
reinsurance agreement with XL Financial Assurance Ltd ("XLFA"), an insurance
company organized under the laws of Bermuda and an affiliate of the Insurer.
Pursuant to this reinsurance agreement, the Insurer expects to cede up to 90%
of its business to XLFA. The Insurer may also cede reinsurance to third parties
on a transaction-specific basis, which cessions may be any or a combination of
quota share, first loss or excess of loss. Such reinsurance is used by the
Insurer as a risk management device and to comply with statutory and rating
agency requirements and does not alter or limit the Insurer's obligations under
any financial guaranty insurance policy. With respect to any transaction
insured by the Insurer, the percentage of risk ceded to XLFA may be less than
90% depending on certain factors including, without limitation, whether the
Insurer has obtained third party reinsurance covering the risk. As a result,
there can be no assurance as to the percentage reinsured by XLFA of any given
financial guaranty insurance policy issued by the Insurer, including the Policy.
Ratings. Based on the audited financials of XLFA as of December 31, 2002,
XLFA had total assets, liabilities, redeemable preferred shares and
shareholders' equity of $611,791,000, $245,750,000, $39,000,000 and
$327,041,000, respectively, determined in accordance with generally accepted
accounting principles in the United States. XLFA's insurance financial strength
is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's, a division of The McGraw-Hill Companies ("Standard &
Poor's"), and Fitch Ratings ("Fitch"). In addition, XLFA has obtained a
financial enhancement rating of "AAA" from Standard & Poor's.
The obligations of XLFA to the Insurer under the reinsurance agreement
described above are unconditionally guaranteed by XL Insurance (Bermuda) Ltd
("XLI"), a Bermuda company and one of the world's leading excess commercial
insurers. XLI is a wholly owned indirect subsidiary of XL Capital Ltd. In
addition to having an "A+" rating from A.M. Best, XLI's financial strength
rating is "Aa2" by Moody's and "AA" by Standard & Poor's and Fitch. The ratings
of XLFA and XLI are not recommendations to buy, sell or hold securities,
including the Series H Senior Notes, and are subject to revision or withdrawal
at any time by Moody's, Standard & Poor's or Fitch.
Notwithstanding the capital support provided to the Insurer described in
this section, the holders of the Series H Senior Notes will have direct
recourse against the Insurer only, and neither XLFA nor XLI will be directly
liable to the holders of the Series H Senior Notes.
Financial Strength and Financial Enhancement Ratings of the Insurer. The
Insurer's insurance financial strength is rated "Aaa" by Moody's and "AAA" by
Standard & Poor's and Fitch. In addition, the Insurer has obtained a financial
enhancement rating of "AAA" from Standard & Poor's. These ratings reflect
Moody's, Standard & Poor's and Fitch's current assessment of the Insurer's
creditworthiness and claims-paying ability as well as the reinsurance
arrangement with XLFA described under "--Reinsurance" above.
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The above ratings are not recommendations to buy, sell or hold securities,
including the Series H Senior Notes, and are subject to revision or withdrawal
at any time by Moody's, Standard & Poor's or Fitch. Any downward revision or
withdrawal of these ratings may have an adverse effect on the market price of
the Series H Senior Notes. The Insurer does not guaranty the market price of
the Series H Senior Notes nor does it guaranty that the ratings on the Series H
Senior Notes will not be revised or withdrawn.
Capitalization of the Insurer. Based on the audited statutory financial
statements for the Insurer as of December 31, 2001, the Insurer had total
admitted assets of $158,442,157, total liabilities of $48,899,961 and total
capital and surplus of $109,542,696 determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities ("SAP"). Based on the audited statutory financial statements for
the Insurer as of December 31, 2002, the Insurer has total admitted assets of
$180,993,189, total liabilities of $58,685,217 and total capital and surplus of
$122,307,972 determined in accordance with SAP.
For further information concerning the Insurer and XLFA, see the financial
statements of the Insurer and XLFA, and the notes thereto, incorporated by
reference in this Prospectus Supplement. The financial statements of the
Insurer and XLFA are included as exhibits to the periodic reports filed with
the Commission by XL Capital Ltd and may be reviewed at the EDGAR website
maintained by the Commission. All financial statements of the Insurer and XLFA
included in, or as exhibits to, documents filed by XL Capital Ltd pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act on or prior to the date of
this Prospectus Supplement, or after the date of this Prospectus Supplement but
prior to termination of the offering of the Series H Senior Notes, shall be
deemed incorporated by reference in this Prospectus Supplement. Except for the
financial statements of the Insurer and XLFA, no other information contained in
XL Capital Ltd's reports filed with the Commission is incorporated by
reference. Copies of the statutory quarterly and annual statements filed with
the State of New York Insurance Department by the Insurer are available upon
request to the State of New York Insurance Department.
Regulation of the Insurer. The Insurer is regulated by the Superintendent
of Insurance of the State of New York. In addition, the Insurer is subject to
regulation by the insurance laws and regulations of the other jurisdictions in
which it is licensed. As a financial guaranty insurance company licensed in the
State of New York, the Insurer is subject to Article 69 of the New York
Insurance Law, which, among other things, limits the business of each insurer
to financial guaranty insurance and related lines, prescribes minimum standards
of solvency, including minimum capital requirements, establishes contingency,
loss and unearned premium reserve requirements, requires the maintenance of
minimum surplus to policyholders and limits the aggregate amount of insurance
which may be written and the maximum size of any single risk exposure which may
be assumed. The Insurer is also required to file detailed annual financial
statements with the New York Insurance Department and similar supervisory
agencies in each of the other jurisdictions in which it is licensed.
The extent of state insurance regulation and supervision varies by
jurisdiction, but New York and most other jurisdictions have laws and
regulations prescribing permitted investments and governing the payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liabilities for borrowings.
THE FINANCIAL GUARANTY INSURANCE POLICIES ISSUED BY THE INSURER, INCLUDING
THE POLICY, ARE NOT COVERED BY THE FLORIDA INSURANCE GUARANTY ASSOCIATION ACT
SPECIFIED IN PART II OF CHAPTER 631 OF THE FLORIDA INSURANCE LAW OR THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The principal executive offices of the Insurer are located at 1221 Avenue of
the Americas, 31st Floor, New York, New York 10020-1001 and its telephone
number at this address is (212) 478-3400.
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RATINGS
It is anticipated that Standard & Poor's and Moody's will assign the Series
H Senior Notes the ratings of "AAA" and "Aaa", respectively, conditioned upon
the issuance and delivery by the Insurer at the time of delivery of the Series
H Senior Notes of the Policy, insuring the timely payment of the principal of
and interest on the Series H Senior Notes. Such ratings reflect only the views
of such ratings agencies, and an explanation of the significance of such
ratings may be obtained only from such rating agencies at the following
addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New
York 10007; and Standard & Poor's, 25 Broadway, New York, New York 10004. There
is no assurance that such ratings will remain in effect for any period of time
or that they will not be revised downward or withdrawn entirely by said rating
agencies if, in their judgment, circumstances warrant. Neither the Company nor
any Underwriter has undertaken any responsibility to oppose any proposed
downward revision or withdrawal of a rating on the Series H Senior Notes. Any
such downward revision or withdrawal of such ratings may have an adverse effect
on the market price of the Series H Senior Notes.
At present, each of such rating agencies maintains four categories of
investment grade ratings. They are for Standard & Poor's--AAA, AA, A and BBB
and for Moody's--Aaa, Aa, A and Baa. Standard & Poor's defines "AAA" as the
highest rating assigned to a debt obligation. Moody's defines "Aaa" as
representing the best quality debt obligation carrying the smallest degree of
investment risk.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated the date hereof, the Company has agreed to sell to each of the
Underwriters named below (for whom Morgan Stanley & Co. Incorporated and
Wachovia Capital Markets, LLC are acting as Representatives) and each of the
Underwriters severally has agreed to purchase the principal amount of the
Series H Senior Notes set forth opposite its name below:
Principal
Amount of
Series H
Name Senior Notes
---- ------------
Morgan Stanley & Co. Incorporated $27,000,000
Wachovia Capital Markets, LLC.... 27,000,000
SunTrust Capital Markets, Inc.... 6,000,000
-----------
Total..................... $60,000,000
===========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Series H Senior Notes are
subject to, among other things, the approval of certain legal matters by their
counsel and certain other conditions. The Underwriters are obligated to take
and pay for all the Series H Senior Notes if any are taken.
Series H Senior Notes sold by the Underwriters to the public will initially
be offered at the initial public offering price set forth on the cover of this
Prospectus Supplement. The Underwriters may offer the Series H Senior Notes to
certain securities dealers at such price less a concession not in excess of
$.50 per Series H Senior Note. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.45 per Series H Senior Note to certain
brokers and dealers. If all the Series H Senior Notes are not sold at the
initial offering price, the Underwriters may change the offering price and the
other selling terms.
Prior to this offering, there has been no public market for the Series H
Senior Notes. The Series H Senior Notes are expected to be approved for listing
on the NYSE, subject to official notice of issuance. In order to meet the
requirements for listing the Series H Senior Notes, the Underwriters will
undertake to sell the Series H Senior Notes to a minimum of 400 beneficial
holders. Trading of the Series H Senior Notes on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Series H
Senior Notes. The Representatives have advised the Company that they intend to
make a market in the Series H Senior Notes prior to the commencement of trading
on the NYSE. The Representatives will have no obligation to make a market in
the Series H Senior Notes, however, and may cease market making activities, if
commenced, at any time.
The Company has agreed, during the period of 15 days from the date of the
Underwriting Agreement, not to sell, offer to sell, grant any option for the
sale of or otherwise dispose of any Series H Senior Notes, any security
convertible into or exchangeable into or exercisable for Series H Senior Notes
or any debt securities substantially similar to the Series H Senior Notes
(except for the Series H Senior Notes issued pursuant to the Underwriting
Agreement and the Series G Senior Notes), without the prior written consent of
the Representatives.
The Company estimates that it will incur offering expenses of approximately
$1,350,000, which includes the premium for the Policy.
In connection with this offering and in compliance with applicable law and
industry practice, the Underwriters may overallot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Series H Senior
Notes at levels above those which might otherwise prevail in the open market,
including by entering stabilizing bids, purchasing Series H Senior Notes to
cover syndicate short positions and imposing penalty bids. A stabilizing bid
means the placing of any bid, or the effecting of any purchase, for the purpose
of pegging, fixing or maintaining the price of a security. Covering a syndicate
short position means placing a bid or effecting a purchase of a security on
behalf of the underwriting syndicate to reduce a short position created in
connection with the offering. Imposing a penalty bid means purchasing a
security in the open market to reduce
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the underwriting syndicate's short position or to stabilize the price of the
security and in connection therewith reclaiming the amount of the selling
concession from the underwriters and selling group members who sold such
securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as the direction or magnitude of any effect that the transactions
described above may have on the price of the Series H Senior Notes. In
addition, neither the Company nor any of the Underwriters makes any
representation that such transactions will be engaged in or that such
transactions, once commenced, will not be discontinued without notice.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters and their affiliates engage in transactions with and, from
time to time, have performed services for, the Company and its affiliates in
the ordinary course of business.
EXPERTS
The consolidated balance sheets of the Insurer as of December 31, 2002 and
December 31, 2001 and the related consolidated statements of operations and
comprehensive income, changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 2002, incorporated by reference
in this Prospectus Supplement, have been incorporated in this Prospectus
Supplement in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The balance sheets of XLFA as of December 31, 2002 and December 31, 2001 and
the related statements of operations and comprehensive income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 2002, incorporated by reference in this Prospectus
Supplement, have been incorporated in this Prospectus Supplement in reliance on
the report of PricewaterhouseCoopers, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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APPENDIX A
FORM OF POLICY
XL Capital Assurance
1221 Avenue of the Americas
New York, New York 10020
Telephone: (212) 478-3400
Facsimile: (212) 478-3597
FINANCIAL GUARANTY
INSURANCE POLICY
OBLIGOR: Policy No:
INSURED
OBLIGATIONS: Effective Date:
XL Capital Assurance Inc. (XLCA), a New York stock insurance company,
in consideration of the payment of the premium, hereby unconditionally and
irrevocably guarantees to the Trustee for the benefit of the Owners of the
Insured Obligations, the full and complete payment by the Obligor of Scheduled
Payments in respect of the Insured Obligations, subject only to the terms of
this Policy (which includes the Endorsement attached hereto).
XLCA will pay the Insured Amount to the Trustee upon the presentation
of a Payment Notice to XLCA (which Payment Notice shall include an irrevocable
assignment to XLCA of all rights and claims in respect of the relevant Insured
Obligation, as specified in the Payment Notice), on the later of (a) one (1)
Business Day following receipt by XLCA of a Payment Notice or (b) the Business
Day on which Scheduled Payments are due for payment. XLCA shall be subrogated to
the Owners' rights to payment on the Insured Obligations to the extent of any
payment by XLCA hereunder. The obligations of XLCA with respect to a Scheduled
Payment will be discharged to the extent funds to pay such Scheduled Payment are
deposited in the account specified in the Payment Notice, whether such funds are
properly applied by the Trustee or claimed by an Owner.
In addition, in the event that any Scheduled Payment which has become
due for payment and which is made to an Owner by or on behalf of the Trustee is
recovered or is recoverable from the Owner pursuant to a final order of a court
of competent jurisdiction in an Insolvency Proceeding that such payment
constitutes an avoidable preference to such Owner within the meaning of any
applicable bankruptcy law, XLCA unconditionally and irrevocably guarantees
payment of the amount of such recovery (in accordance with the Endorsement
attached hereto).
This Policy sets forth in full the undertaking of XLCA and shall not be
cancelled or revoked by XLCA for any reason, including failure to receive
payment of any premium due hereunder or under the Insurance Agreement, and may
not be further endorsed or modified without the written consent of XLCA. The
premium on this Policy is not refundable for any reason. This Policy does not
insure against loss of any prepayment or other acceleration payment which at any
time may become due in respect of any Insured Obligation, other than at the sole
option of XLCA, nor against any risk other than Nonpayment and Avoided Payment,
including any shortfalls, if any, attributable to the liability of the Obligor
for taxes or withholding taxes if any, including interest and penalties in
respect of such liability.
THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
Any capitalized terms not defined herein shall have the meaning given
such terms in the Endorsement attached hereto and forming a part hereof, or in
the Insurance Agreement referenced therein. In witness whereof, XLCA has caused
this Policy to be executed as of the Effective Date.
Name: Mary Jane Constant Name: Henri N. Gourd
Title: Associate General Counsel Title: Managing Director
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Financial Guaranty Insurance Policy Endorsement
Effective Date
Attached to and forming part of
Financial Guaranty Insurance Policy No.
Obligor:
Insured Obligations:
Beneficiary:
Capitalized terms used herein and not otherwise defined herein or in the Policy
shall have the meanings assigned to them in the Insurance Agreement as defined
below.
As used herein the term "Business Day" means any day other
than Saturday or Sunday on which commercial banking institutions in New York,
New York are generally open for banking business.
As used herein the term "Insolvency Proceeding" means the
commencement, after the date hereof, of any bankruptcy, insolvency, readjustment
of debt, reorganization, marshalling of assets and liabilities or similar
proceedings by or against any Person, the commencement, after the date hereof,
of any proceedings by or against any Person for the winding up or liquidation of
its affairs, or the consent, after the date hereof, to the appointment of a
trustee, conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, reorganization, marshalling of assets and liabilities or
similar proceedings of or relating to any Person.
As used herein the term "Indenture" means the _____________
Indenture dated as of _______________ between the Obligor and ________________,
as Trustee (the "Trustee"), as amended and supplemented, including by the
___________ Supplemental Indenture dated as of _______________.
As used herein the term "Insurance Agreement" means the
Insurance Agreement dated as of _______________ by and among XLCA,
_______________ and the Trustee, as may be amended or modified from time to
time.
As used herein the term "Insured Amount" means that portion of
the Scheduled Payments that shall become due for payment but shall be unpaid by
reason of Nonpayment.
As used herein the term "Nonpayment" means, with respect to
any Payment Date, the failure of the Trustee to receive in full, in accordance
with the terms of the Indenture, that Scheduled Payment that is due for payment
with respect to such date.
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As used herein the term "Owner" means the registered owner of
any Insured Obligation as indicated in the registration books maintained by or
on behalf of the Obligor for such purpose or, if the Insured Obligation is in
bearer form, the holder of the Insured Obligation.
As used herein, the term "Payment Date" means, in the case of
scheduled interest on the Insured Obligations, each ____________, ____________,
____________ and ____________ of each year during the Term of this Policy,
beginning _____________, and, in the case of scheduled principal of the Insured
Obligations,
_________________.
As used herein, the term "Person" means an individual, a
partnership, a limited liability company, a joint venture, a corporation, a
trust, an unincorporated organization, and a government or any department or
agency thereof.
As used herein the term "Scheduled Payment" means, with
respect to any Payment Date during the Term of this Policy, scheduled payments
of interest and principal, in accordance with the original terms of the Insured
Obligations and the Indenture when issued and without regard to any subsequent
amendment or modification of the Insured Obligations or the Indenture that has
not been consented to in writing by XLCA. Notwithstanding the foregoing,
"Scheduled Payments" shall in no event include payments which become due on an
accelerated basis as a result of (a) any default by the Obligor, (b) the
occurrence of an Event of Default under the Indenture, (c) mandatory or optional
redemption, in whole or in part or (d) any other cause, unless XLCA elects, in
its sole discretion, to pay such amounts in whole or in part (in which event
Scheduled Payments shall include such accelerated payments as, when, and to the
extent so elected by XLCA). In the event that it does not make such election,
Scheduled Payments shall include payments due in accordance with the original
scheduled terms without regard to any acceleration. In addition, "Scheduled
Payment" shall not include, nor shall coverage be provided under the Policy in
respect of, (i) any make whole, redemption or call premium payable in respect of
the Insured Obligations, (ii) any amounts due in respect of the Insured
Obligations attributable to any increase in interest rate, penalty or other sum
payable by the Issuer by reason of any default or event of default in respect of
the Insured Obligations, or by reason of any deterioration of the
creditworthiness of the Issuer or (iii) any taxes, withholding or other charge
imposed by any governmental authority due in connection with the payment of any
Scheduled Payment to any holder of an Insured Obligation.
As used herein the term "Term of this Policy" means the period
from and including the Effective Date to and including the first date on which
(i) all Scheduled Payments have been paid that are required to be paid by the
Obligor under the Indenture; (ii) the 91-day period during which any Scheduled
Payment could have been avoided in whole or in part as a preference payment
under applicable bankruptcy, insolvency, receivership or similar law has
expired, and (iii) if any proceedings requisite to avoidance as a preference
payment have been commenced prior to the occurrence of (i) and (ii) above, a
final and nonappealable order in resolution of each such proceeding has been
entered; provided, however, that if the Owners are required to return any
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Avoided Payment (as defined below) as a result of such insolvency proceeding,
then the Term of the Policy shall terminate on the date on which XLCA has made
all payments required to be made under the terms of this Policy in respect of
all such Avoided Payments.
To make a claim under the Policy, the Trustee shall deliver to
XLCA Payment Notice in the form of Exhibit A hereto (a "Payment Notice"),
appropriately completed and executed by the Trustee. A Payment Notice under this
Policy may be presented to XLCA by (i) delivery of the original Payment Notice
to XLCA at its address set forth below, or (ii) facsimile transmission of the
original Payment Notice to XLCA at its facsimile number set forth below. If
presentation is made by facsimile transmission, the Trustee shall (x)
simultaneously confirm transmission by telephone to XLCA at its telephone number
set forth below, and (y) as soon as reasonably practicable, deliver the original
Payment Notice to XLCA at its address set forth below. Any Payment Notice
received by XLCA after 10:00 a.m., New York City time, on a Business Day, or on
any day that is not a Business Day, will be deemed to be received by XLCA at
9:00 a.m., New York City time, on the next succeeding Business Day. XLCA shall
make payments due in respect of Insured Amounts no later than 2:00 p.m. New York
City time to the Trustee upon the presentation of a Payment Notice to XLCA on
the later of (a) one (1) Business Day following receipt by XLCA of a Payment
Notice or (b) the Business Day on which Scheduled Payments are due for payment.
Subject to the foregoing, if the payment of any amount with
respect to the Scheduled Payment is voided (a "Preference Event") as a result of
an Insolvency Proceeding and as a result of such Preference Event, the Owner is
required to return such voided payment, or any portion of such voided payment,
made in respect of the Insured Obligation (an "Avoided Payment"), XLCA will pay
an amount equal to such Avoided Payment, as and when such payment would
otherwise be due pursuant to the Insured Obligation and the Indenture without
regard to acceleration or prepayment, and upon payment of such Avoided Payment
and receipt by XLCA from the Trustee on behalf of such Owner of (x) a certified
copy of a final order of a court exercising jurisdiction in such Insolvency
Proceeding to the effect that the Owner or the Trustee on behalf of the Owner is
required to return any such payment or portion thereof because such payment was
voided under applicable law, with respect to which order the appeal period has
expired without an appeal having been filed (the "Final Order"), (y) an
assignment, substantially in the form attached hereto as Exhibit B, properly
completed and executed by such Owner irrevocably assigning to XLCA all rights
and claims of such Owner relating to or arising under such Avoided Payment, and
(z) a Payment Notice in the form of Exhibit A hereto appropriately completed and
executed by the Trustee.
XLCA shall make payments due in respect of Avoided Payments no
later than 2:00 p.m. New York City time on the Business Day following XLCA's
receipt of the documents required under clauses (x) through (z) of the preceding
paragraph. Any such documents received by XLCA after 10:00 a.m. New York City
time on any Business Day or on any day that is not a Business Day shall be
deemed to have been received by XLCA at 9:00 a.m., New York City time, on the
next succeeding Business Day. All payments made by XLCA hereunder on account of
any Avoided Payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Final Order and not
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to any Owner directly (unless an Owner previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Final Order, in which case such payment shall be disbursed to the Trustee
for distribution to such Owner upon proof of such payment reasonably
satisfactory to XLCA).
XLCA hereby waives and agrees not to assert any and all rights
to require the Trustee to make demand on or to proceed against any person, party
or security prior to the Trustee demanding payment under this Policy.
No defenses, set-offs and counterclaims of any kind available
to XLCA so as to deny payment of any amount due in respect of this Policy will
be valid and XLCA hereby waives and agrees not to assert any and all such
defenses (including, without limitation, defense of fraud in the inducement or
fact, or any other circumstances which would have the effect of discharging a
surety in law or in equity), set-offs and counterclaims, including, without
limitation, any such rights acquired by subrogation, assignment or otherwise.
Upon any payment hereunder, in furtherance and not in limitation of XLCA's
equitable right of subrogation and XLCA's rights under the Insurance Agreement,
XLCA will be subrogated to the rights of the Owner in respect of which such
payment was made to receive any and all amounts due in respect of the
obligations in respect of which XLCA has made a payment hereunder. Any rights of
subrogation acquired by XLCA as a result of any payment made under this Policy
shall, in all respects, be subordinate and junior in right of payment to the
prior indefeasible payment in full of any amounts due the Owner on account of
payments due under the Insured Obligation.
This Policy is neither transferable nor assignable, in whole
or in part, except to a successor trustee duly appointed and qualified under the
Indenture. All Payment Notices and other notices, presentations, transmissions,
deliveries and communications made by the Trustee to XLCA with respect to this
Policy shall specifically refer to the number of this Policy and shall be made
to XLCA at:
XL Capital Assurance Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Surveillance
Telephone: (212) 478-3400
Facsimile: (212) 478- 3597
or such other address, telephone number or facsimile number as XLCA may
designate to the Trustee in writing from time to time. Each such Payment Notice
and other notice, presentation, transmission, delivery and communication shall
be effective only upon actual receipt by XLCA.
The obligations of XLCA under this Policy are irrevocable,
primary, absolute and unconditional, subject to satisfaction of the conditions
for making a claim under the Policy, and neither the failure of any Person to
perform any covenant or obligation in favor of XLCA (or otherwise), nor the
failure or omission to make a demand permitted hereunder, nor the failure of any
A-5
assignment or grant of any security interest, nor the commencement of any
Insolvency Proceeding shall in any way affect or limit XLCA's obligations under
this Policy. If a successful action or proceeding to enforce this Policy is
brought by the Trustee, the Trustee shall be entitled to recover from XLCA costs
and expenses reasonably incurred, including, without limitation, reasonable fees
and expenses of counsel.
This Policy and the obligations of XLCA hereunder shall
terminate on the expiration of the Term of this Policy. This Policy shall be
returned to XLCA by the Trustee upon the expiration of the Term of this Policy.
The Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law does not cover this Policy. The Florida
Insurance Guaranty Association created under Part II of Chapter 631 of the
Florida Insurance Code does not cover this Policy. In the event that XLCA were
to become insolvent, the California Insurance Guaranty Association, established
pursuant to Article 14.2 of Chapter 1 of Part 2 of Division 1 of the California
Insurance Code excludes from coverage any claims arising under this Policy.
THIS POLICY SHALL BE CONSTRUED, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES
THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.
In the event any term or provision of the form of this Policy
is inconsistent with the provision of this Endorsement, the provision of this
Endorsement shall take precedence and be binding.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, XL Capital Assurance Inc. has caused this Endorsement
to the Policy to be executed on the Effective Date.
Name: Mary Jane Constant Name: Henri N. Gourd
Title: Associate General Counsel Title: Managing Director
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Exhibit A to Financial Guaranty Policy No.
XL Capital Assurance Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Surveillance
PAYMENT NOTICE
UNDER Financial Guaranty Policy No.
_______________, as Trustee (the "Trustee"), hereby certifies to XL Capital
Assurance Inc. ("XLCA") with reference to that certain Financial Guaranty
Policy, No. ________, dated _______________ (the "Policy"), issued by XLCA in
favor of the Trustee under the ____________ Indenture dated as of ____________
between ____________________ and the Trustee, as amended and supplemented,
including by the ____________ Supplemental Indenture dated as of _______________
(the "Indenture"), as follows:
1. The Trustee is the trustee under the Indenture and the
beneficiary on behalf of each Owner of the Policy.
2. The Trustee is entitled to make a demand under the Policy
pursuant to the Indenture.
3. This notice relates to the [insert date] Payment Date. The
amount demanded is to be paid in immediately available funds to the [Specify
Account] at [Identify Financial Institution Holding Account] account
number[_____].
[For a Payment Notice in respect of Insured Amounts other than Avoided
Payment, use paragraph 4.]
4. The Trustee demands payment of $________ which is an amount
equal to the amount by which the Scheduled Payment due on the above Payment Date
exceeds the funds made available to the Trustee to pay such Scheduled Payment.
[For a Payment Notice in respect of an Avoided Payment use the
following paragraphs [4] or [5].]
[4.] or [5.] The Trustee hereby represents and warrants, based upon information
available to it, that (i) the amount entitled to be drawn under the Policy on
the date hereof in respect of Avoided Payments is the amount paid or to be paid
simultaneously with such draw on the Policy by the Owner on account of a
Preference Event [$________] (the "Avoided Payment Amount"), (ii) the Owner with
respect to which the drawing is being made under the Policy has paid or
simultaneously with such draw on the Policy will pay such Avoided Payment
Amount, and (iii) the documents required by the Policy to be delivered in
connection with such Avoided Payment and Avoided Payment Amount have previously
been presented to XLCA or are attached hereto.
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[6] The Trustee agrees that, following payment of funds by
XLCA, it shall use reasonable efforts to procure (a) that such amounts are
applied directly to the payment of any Insured Amount which is due for payment;
(b) that such funds are not applied for any other purpose; and (c) the
maintenance of accurate records of such payments in respect of the Insured
Obligation and the corresponding claim on the Policy and the proceeds thereof.
[7] The Trustee, on behalf of itself and the Owners, hereby
assigns to XLCA all rights and claims (including rights of actions and claims in
respect of securities laws violations or otherwise) of the Trustee and the
Owners with respect to the Insured Obligation to the extent of any payments
under the Policy. The foregoing assignment is in addition to, and not in
limitation of, rights of subrogation otherwise available to XLCA in respect of
such payments. The Trustee shall take such action and deliver such instruments
as may be reasonably required by XLCA to effectuate the purposes of this
paragraph [7].
[8] The Trustee, on behalf of itself and the Owners, hereby
appoints XLCA as agent and attorney-in-fact for the Trustee and the Owners in
any legal proceeding in respect of the Insured Obligation. The Trustee, on
behalf of itself and the Owners, thereby (and without limiting the generality of
the preceding sentence) agrees that XLCA may, at any time during the
continuation of any proceeding by or against any debtor with respect to which a
Preference Claim (as defined below) or other claim with respect to the Insured
Obligation is asserted under any Insolvency Proceeding, direct all matters
relating to such Insolvency Proceeding, including, without limitation, (a) all
matters relating to any claim in connection with a Insolvency Proceeding seeking
the avoidance as a preferential transfer of any payment made with respect to the
obligations (a "Preference Claim"), (b) the direction of any appeal of any order
relating to any Preference Claim and (c) the posting of any surety, supersedeas
or performance bond pending any such appeal. In addition, the Trustee, on behalf
of itself and the Owners, hereby agrees that XLCA shall be subrogated to, and
the Trustee, on behalf of itself and the Owners, hereby delegates and assigns,
to the fullest extent permitted by law, the rights of the Trustee and the Owners
in the conduct of any Insolvency Proceeding, including, without limitation, all
rights of any party to an adversary proceeding or action with respect to any
court order issued in connection with any such Insolvency Proceeding.
A-9
Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Policy or Indenture.
IN WITNESS WHEREOF, this notice has been executed this ____ day of
________, ____.
______________________________, as Trustee
By:
----------------------------------------
Authorized Officer
Any Person Who Knowingly And With Intent To Defraud Any Insurance Company Or
Other Person Files An Application For Insurance Or Statement Of Claim Containing
Any Materially False Information, Or Conceals For The Purpose Of Misleading
Information Concerning Any Fact Material Thereof, Commits A Fraudulent Insurance
Act, Which Is A Crime, And Shall Also Be Subject To A Civil Penalty Not To
Exceed Five Thousand Dollars And The Stated Value Of The Claim For Each Such
Violation
A-10
Exhibit B to Financial Guaranty Insurance Policy, No.
Form of Assignment
Reference is made to the Financial Guaranty Insurance Policy No.
__________, dated _______________ (together with the Endorsement attached
thereto, the "Policy"), issued by XL Capital Assurance Inc. ("XLCA") relating to
the ____________________ due ______________________________ issued by
_________________. Unless otherwise defined herein, capitalized terms used in
this Assignment shall have the meanings assigned thereto in the Policy as
incorporated by reference therein. In connection with the Avoided Payment of [$
] paid by the undersigned (the "Owner") on [ ] and the payment by XLCA in
respect of such Avoided Payment pursuant to the Policy, the Owner hereby
irrevocably and unconditionally, without recourse, representation or warranty
(except as provided below), sells, assigns, transfers, conveys and delivers all
of such Owner's rights, title and interest in and to any rights or claims,
whether accrued, contingent or otherwise, which the Owner now has or may
hereafter acquire, against any person relating to, arising out of or in
connection with such Avoided Payment. The Owner represents and warrants that
such claims and rights are free and clear of any lien or encumbrance created or
incurred by such Owner.1
---------------------------
Owner
- ------------------------
1 In the event that the terms of this form of assignment are reasonably
determined to be insufficient solely as a result of a change of law or
applicable rules after the date of the Policy to fully vest all of the Owner's
right, title and interest in such rights and claims, the Owner and XLCA shall
agree on such other form as is reasonably necessary to effect such assignment,
which assignment shall be without recourse, representation or warranty except as
provided above.
A-11
PROSPECTUS
$360,000,000
Gulf Power Company
Senior Notes
Junior Subordinated Notes
-----------------
Gulf Power Capital Trust V
Gulf Power Capital Trust VI
Trust Preferred Securities
Fully and unconditionally guaranteed, as set forth in this Prospectus, by
Gulf Power Company
a subsidiary of The Southern Company
-----------------
We will provide the specific terms of these securities in supplements to
this Prospectus. You should read this Prospectus and the applicable prospectus
supplement carefully before you invest.
See "Risk Factors" on page 2 for information on certain risks related to the
purchase of securities offered by this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
April 25, 2003
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement filed with the
Securities and Exchange Commission (the "Commission") using a "shelf"
registration process under the Securities Act of 1933, as amended (the "1933
Act"). Under the shelf process, Gulf Power Company (the "Company") may sell, in
one or more transactions,
. senior notes (the "Senior Notes")
. junior subordinated notes (the "Junior Subordinated Notes")
and Gulf Power Capital Trust V and Gulf Power Capital Trust VI (individually, a
"Trust" and collectively, the "Trusts") may sell
. trust preferred securities or capital securities (the "Preferred
Securities")
in one or more offerings up to a total dollar amount of $360,000,000. This
Prospectus provides a general description of those securities. Each time the
Company sells securities, the Company will provide a prospectus supplement that
will contain specific information about the terms of that offering ("Prospectus
Supplement"). The Prospectus Supplement may also add, update or change
information contained in this Prospectus. You should read this Prospectus and
the applicable Prospectus Supplement together with additional information under
the heading "Available Information."
RISK FACTORS
Investing in the Company's securities involves risk. Please see the risk
factors described in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, which is incorporated by reference in this
Prospectus. Before making an investment decision, you should carefully consider
these risks as well as other information contained or incorporated by reference
in this Prospectus. The risks and uncertainties described are not the only ones
facing the Company. Additional risks and uncertainties not presently known to
the Company or that the Company currently deems immaterial may also impair its
business operations, its financial results and the value of its securities.
AVAILABLE INFORMATION
The Company and the Trusts have filed with the Commission a combined
registration statement on Form S-3 (the "Registration Statement," which term
encompasses any amendments of the Registration Statement and exhibits to the
Registration Statement) under the 1933 Act. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is made.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance with the
1934 Act files reports and other information with the Commission. Such reports
and other information can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants including the Company that file electronically at
http://www.sec.gov. In addition, reports and other material concerning the
Company can be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
No separate financial statements of any Trust are included in this
Prospectus. The Company considers that such statements would not be material to
holders of the Preferred Securities because each Trust has no
2
independent operations and exists for the sole purpose of investing the
proceeds of the sale of its Trust Securities (as defined below) in Junior
Subordinated Notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission pursuant to the
1934 Act and are incorporated by reference in this Prospectus and made a part
of this Prospectus:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002; and
(b) the Company's Current Report on Form 8-K dated March 21, 2003.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and made a part of this Prospectus
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all documents incorporated herein by reference in this
Prospectus (other than the exhibits to such documents unless such exhibits are
specifically incorporated by reference in this Prospectus). Such requests
should be directed to Warren E. Tate, Vice President, Secretary and Treasurer,
Gulf Power Company, One Energy Place, Pensacola, Florida 32520, telephone:
(850) 444-6111.
GULF POWER COMPANY
The Company is a corporation organized under the laws of the State of Maine
on November 2, 1925, and was admitted to do business in Florida on January 15,
1926, in Mississippi on October 25, 1976 and in Georgia on November 20, 1984.
The principal executive offices of the Company are located at 500 Bayfront
Parkway, Pensacola, Florida 32501, and the telephone number is (850) 444-6111.
The Company is a wholly owned subsidiary of The Southern Company
("Southern"), a holding company registered under the Public Utility Holding
Company Act of 1935, as amended. The Company is engaged, within the
northwestern portion of the State of Florida, in the generation and purchase of
electricity and the distribution and sale of such electricity at retail in 71
communities as well as in rural areas, and at wholesale to a nonaffiliated
utility and to a municipality.
3
SELECTED INFORMATION
The following material, which is presented in this Prospectus solely to
furnish limited introductory information regarding the Company, has been
selected from, or is based upon, the detailed information and financial
statements appearing in the documents incorporated in this Prospectus by
reference or elsewhere in this Prospectus, is qualified in its entirety by
reference to those documents and, therefore, should be read together with those
documents.
Gulf Power Company
Business.................... Generation, transmission, distribution and sale
of electric energy
Service Area................ Approximately 7,400 square miles within the
northwestern portion of the State of Florida
Customers at December 31,
2002...................... 383,923
Generating Capacity at
December 31, 2002
(kilowatts)............... 2,808,550
Sources of Generation during
2002 (kilowatt-hours)....... Coal (82%), Gas (18%)
Certain Ratios
The following table sets forth the Ratios of Earnings to Fixed Charges and
Earnings to Fixed Charges Plus Preferred Dividend Requirements (Pre-Income Tax
Basis) for the periods indicated.
Year Ended December 31,
------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges(1).................................. 3.83 3.62 3.38 3.64 3.52
Ratio of Earnings to Fixed Charges Plus Preferred Dividend Requirements
(Pre-Income Tax Basis)(2)............................................ 3.72 3.58 3.34 3.60 3.50
- --------
(1) This ratio is computed as follows: (i) "Earnings" have been calculated by
adding to "Earnings Before Income Taxes" "Interest Expense, Net of Amounts
Capitalized," "Distributions on Preferred Securities of Subsidiary" and the
debt portion of allowance for funds used during construction, and
(ii) "Fixed Charges" consist of "Interest Expense, Net of Amounts
Capitalized," "Distributions on Preferred Securities of Subsidiary" and the
debt portion of allowance for funds used during construction.
(2) In computing this ratio, "Preferred Dividend Requirements" represent the
before tax earnings necessary to pay such dividends, computed at the
effective tax rates for the applicable periods.
4
THE TRUSTS
Each Trust is a statutory trust created under Delaware law pursuant to the
filing of a certificate of trust with the Delaware Secretary of State on April
7, 2003. Each Trust's business is defined in a trust agreement, executed by the
Company, as Depositor, and the Delaware Trustee of each Trust. This trust
agreement of each Trust will be amended and restated in its entirety
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part (the "Trust Agreement"). Each Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "1939 Act"). The Company will own all of the common
securities (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities") of each Trust. The Trust Securities
represent undivided beneficial interests in the assets of the respective
Trusts. Each Trust exists for the exclusive purposes of (i) issuing its Trust
Securities representing undivided beneficial interests in the assets of such
Trust, (ii) investing the gross proceeds of its Trust Securities in a related
series of Junior Subordinated Notes, and (iii) engaging in only those other
activities necessary, appropriate, convenient or incidental to these purposes.
The payment of periodic cash distributions on the Preferred Securities of each
Trust and payments on liquidation and redemption with respect to the Preferred
Securities of each Trust, in each case to the extent each Trust has funds
legally and immediately available for these purposes, will be guaranteed by the
Company (individually, a "Guarantee" and collectively, the "Guarantees") to the
extent set forth under "Description of the Guarantees."
Each Trust's business and affairs will be conducted by its trustees, which
shall be appointed by the Company as the holder of the Common Securities: two
officers of the Company as Administrative Trustees; JPMorgan Chase Bank as
Property Trustee; and Chase Manhattan Bank USA, National Association as
Delaware Trustee (collectively, the "Securities Trustees"). The Property
Trustee of each Trust will act as the indenture trustee with respect to such
Trust for purposes of compliance with the provisions of the 1939 Act.
The principal place of business of each Trust shall be c/o the Company, 500
Bayfront Parkway, Pensacola, Florida 32501, telephone (850) 444-6111, Attn:
Treasurer.
Reference is made to the Prospectus Supplement relating to the Preferred
Securities of a Trust for further information concerning such Trust.
ACCOUNTING TREATMENT OF TRUSTS
For financial reporting purposes, the Trusts will be treated as subsidiaries
of the Company and, accordingly, the accounts of the Trusts will be included in
the consolidated financial statements of the Company. The Preferred Securities
will be presented as a separate line item in the consolidated balance sheet of
the Company, and appropriate disclosures concerning the Preferred Securities,
the Guarantees and the Junior Subordinated Notes will be included in the notes
to the consolidated financial statements. For financial reporting purposes, the
Company will record distributions payable on the Preferred Securities as an
expense.
USE OF PROCEEDS
Each Trust will invest the proceeds received from the sale of its Preferred
Securities in Junior Subordinated Notes. Except as may be otherwise described
in an applicable Prospectus Supplement, the net proceeds received by the
Company from such investment and any proceeds received from the sale of its
Senior Notes or other sales of its Junior Subordinated Notes will be used in
connection with its ongoing construction program, to pay scheduled maturities
and/or refundings of its securities, to repay short-term indebtedness to the
extent outstanding and for other general corporate purposes.
5
DESCRIPTION OF THE SENIOR NOTES
Set forth below is a description of the general terms of the Senior Notes.
The following description does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Senior Note Indenture,
dated as of January 1, 1998, between the Company and JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank), as trustee (the "Senior Note
Indenture Trustee"), as to be supplemented by a supplemental indenture to the
Senior Note Indenture establishing the Senior Notes of each series (the Senior
Note Indenture, as so supplemented, is referred to as the "Senior Note
Indenture"), the forms of which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part. The terms of the Senior Notes
will include those stated in the Senior Note Indenture and those made a part of
the Senior Note Indenture by reference to the 1939 Act. Certain capitalized
terms used in this Prospectus and not defined in this Prospectus are defined in
the Senior Note Indenture.
General
The Senior Notes will be issued as unsecured senior debt securities under
the Senior Note Indenture and will rank equally with all other unsecured and
unsubordinated debt of the Company. The Senior Notes will be effectively
subordinated to all secured debt of the Company, including its first mortgage
bonds, aggregating approximately $170,000,000 outstanding at December 31, 2002.
The Senior Note Indenture does not limit the aggregate principal amount of
Senior Notes that may be issued under the Senior Note Indenture and provides
that Senior Notes may be issued from time to time in one or more series
pursuant to an indenture supplemental to the Senior Note Indenture. The Senior
Note Indenture gives the Company the ability to reopen a previous issue of
Senior Notes and issue additional Senior Notes of such series, unless otherwise
provided.
Reference is made to the Prospectus Supplement that will accompany this
Prospectus for the following terms of the series of Senior Notes being offered
by such Prospectus Supplement: (i) the title of such Senior Notes; (ii) any
limit on the aggregate principal amount of such Senior Notes; (iii) the date or
dates on which the principal of such Senior Notes is payable; (iv) the rate or
rates at which such Senior Notes shall bear interest, if any, or any method by
which such rate or rates will be determined, the date or dates from which such
interest will accrue, the interest payment dates on which such interest shall
be payable, and the regular record date for the interest payable on any
interest payment date; (v) the place or places where the principal of (and
premium, if any) and interest, if any, on such Senior Notes shall be payable;
(vi) the period or periods within which, the price or prices at which and the
terms and conditions on which such Senior Notes may be redeemed, in whole or in
part, at the option of the Company or at the option of the holder prior to
their maturity; (vii) the obligation, if any, of the Company to redeem or
purchase such Senior Notes; (viii) the denominations in which such Senior Notes
shall be issuable; (ix) if other than the principal amount of the Senior Notes,
the portion of the principal amount of such Senior Notes which shall be payable
upon declaration of acceleration of the maturity of such Senior Notes; (x) any
deletions from, modifications of or additions to the Events of Default or
covenants of the Company as provided in the Senior Note Indenture pertaining to
such Senior Notes; (xi) whether such Senior Notes shall be issued in whole or
in part in the form of a Global Security; and (xii) any other terms of such
Senior Notes.
The Senior Note Indenture does not contain provisions that afford holders of
Senior Notes protection in the event of a highly leveraged transaction
involving the Company.
Events of Default
The Senior Note Indenture provides that any one or more of the following
described events with respect to the Senior Notes of any series, which has
occurred and is continuing, constitutes an "Event of Default" with respect to
the Senior Notes of such series:
(a) failure for 10 days to pay interest on the Senior Notes of such
series, when due on an interest payment date other than at maturity or upon
earlier redemption; or
6
(b) failure to pay principal or premium, if any, or interest on the
Senior Notes of such series when due at maturity or upon earlier redemption;
or
(c) failure for three Business Days to deposit any sinking fund payment
when due by the terms of a Senior Note of such series; or
(d) failure to observe or perform any other covenant or warranty of the
Company in the Senior Note Indenture (other than a covenant or warranty
which has expressly been included in the Senior Note Indenture solely for
the benefit of one or more series of Senior Notes other than such series)
for 90 days after written notice to the Company from the Senior Note
Indenture Trustee or the holders of at least 25% in principal amount of the
outstanding Senior Notes of such series; or
(e) certain events of bankruptcy, insolvency or reorganization of the
Company.
The holders of not less than a majority in aggregate outstanding principal
amount of the Senior Notes of any series have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Senior Note Indenture Trustee with respect to the Senior Notes of such series.
If a Senior Note Indenture Event of Default occurs and is continuing with
respect to the Senior Notes of any series, then the Senior Note Indenture
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the Senior Notes of such series may declare the principal amount of
the Senior Notes due and payable immediately by notice in writing to the
Company (and to the Senior Note Indenture Trustee if given by the holders), and
upon any such declaration such principal amount shall become immediately due
and payable. At any time after such a declaration of acceleration with respect
to the Senior Notes of any series has been made and before a judgment or decree
for payment of the money due has been obtained as provided in Article Five of
the Senior Note Indenture, the holders of not less than a majority in aggregate
outstanding principal amount of the Senior Notes of such series may rescind and
annul such declaration and its consequences if the default has been cured or
waived and the Company has paid or deposited with the Senior Note Indenture
Trustee a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and all sums paid or advanced by
the Senior Note Indenture Trustee, including reasonable compensation and
expenses of the Senior Note Indenture Trustee.
The holders of not less than a majority in aggregate outstanding principal
amount of the Senior Notes of any series may, on behalf of the holders of all
the Senior Notes of such series, waive any past default with respect to such
series, except (i) a default in the payment of principal or interest or (ii) a
default in respect of a covenant or provision which under Article Nine of the
Senior Note Indenture cannot be modified or amended without the consent of the
holder of each outstanding Senior Note of such series affected.
Registration and Transfer
The Company shall not be required to (i) issue, register the transfer of or
exchange Senior Notes of any series during a period of 15 days immediately
preceding the date notice is given identifying the Senior Notes of such series
called for redemption, or (ii) register the transfer of or exchange any Senior
Notes so selected for redemption, in whole or in part, except the unredeemed
portion of any Senior Note being redeemed in part.
Payment and Paying Agent
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of any Senior Notes will be made only against surrender to the
Paying Agent of such Senior Notes. Principal of and interest on Senior Notes
will be payable subject to any applicable laws and regulations, at the office
of such Paying Agent or Paying Agents as the Company may designate from time to
time, except that, at the option of the Company, payment of any interest may be
made by wire transfer or by check mailed to the address of the person entitled
to an interest payment as such address shall appear in the Security Register
with respect to the Senior Notes.
7
Payment of interest on Senior Notes on any interest payment date will be made
to the person in whose name the Senior Notes (or predecessor security) are
registered at the close of business on the record date for such interest
payment.
Unless otherwise indicated in an applicable Prospectus Supplement, the
Senior Note Indenture Trustee will act as Paying Agent with respect to the
Senior Notes. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agents or approve a change in the office
through which any Paying Agent acts.
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or interest on the Senior Notes of any series which remain
unclaimed at the end of two years after such principal or interest shall have
become due and payable will be repaid to the Company, and the holder of such
Senior Notes will from that time forward look only to the Company for payment
of such principal and interest.
Modification
The Senior Note Indenture contains provisions permitting the Company and the
Senior Note Indenture Trustee, with the consent of the holders of not less than
a majority in principal amount of the outstanding Senior Notes of each series
that is affected, to modify the Senior Note Indenture or the rights of the
holders of the Senior Notes of such series; provided, that no such modification
may, without the consent of the holder of each outstanding Senior Note that is
affected, (i) change the stated maturity of the principal of, or any
installment of principal of or interest on, any Senior Note, or reduce the
principal amount of any Senior Note or the rate of interest on any Senior Note
or any premium payable upon the redemption thereof, or change the method of
calculating the rate of interest on any Senior Note, or impair the right to
institute suit for the enforcement of any such payment on or after the stated
maturity of any Senior Note (or, in the case of redemption, on or after the
redemption date), or (ii) reduce the percentage of principal amount of the
outstanding Senior Notes of any series, the consent of whose holders is
required for any such supplemental indenture, or the consent of whose holders
is required for any waiver (of compliance with certain provisions of the Senior
Note Indenture or certain defaults under the Senior Note Indenture and their
consequences) provided for in the Senior Note Indenture, or (iii) modify any of
the provisions of the Senior Note Indenture relating to supplemental
indentures, waiver of past defaults, or waiver of certain covenants, except to
increase any such percentage or to provide that certain other provisions of the
Senior Note Indenture cannot be modified or waived without the consent of the
holder of each outstanding Senior Note that is affected.
In addition, the Company and the Senior Note Indenture Trustee may execute,
without the consent of any holders of Senior Notes, any supplemental indenture
for certain other usual purposes, including the creation of any new series of
Senior Notes.
Consolidation, Merger and Sale
The Company shall not consolidate with or merge into any other corporation
or convey, transfer or lease its properties and assets substantially as an
entirety to any person, unless (1) such other corporation or person is a
corporation organized and existing under the laws of the United States, any
state in the United States or the District of Columbia and such other
corporation or person expressly assumes, by supplemental indenture executed and
delivered to the Senior Note Indenture Trustee, the payment of the principal of
(and premium, if any) and interest on all the Senior Notes and the performance
of every covenant of the Senior Note Indenture on the part of the Company to be
performed or observed; (2) immediately after giving effect to such
transactions, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have happened and be
continuing; and (3) the Company has delivered to the Senior Note Indenture
Trustee an officers' certificate and an opinion of counsel, each stating that
such transaction complies with the provisions of the Senior Note Indenture
governing consolidation, merger, conveyance, transfer or lease and that all
conditions precedent to the transaction have been complied with.
8
Information Concerning the Senior Note Indenture Trustee
The Senior Note Indenture Trustee, prior to an Event of Default with respect
to Senior Notes of any series, undertakes to perform, with respect to Senior
Notes of such series, only such duties as are specifically set forth in the
Senior Note Indenture and, in case an Event of Default with respect to Senior
Notes of any series has occurred and is continuing, shall exercise, with
respect to Senior Notes of such series, the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Senior Note Indenture Trustee is under no obligation to
exercise any of the powers vested in it by the Senior Note Indenture at the
request of any holder of Senior Notes of any series, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred by the Senior Note Indenture Trustee. The Senior Note
Indenture Trustee is not required to expend or risk its own funds or otherwise
incur any financial liability in the performance of its duties if the Senior
Note Indenture Trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it.
JPMorgan Chase Bank, the Senior Note Indenture Trustee, also serves as
Subordinated Note Indenture Trustee, as Property Trustee and as Guarantee
Trustee. The Company and certain of its affiliates maintain deposit accounts
and banking relationships with JPMorgan Chase Bank. JPMorgan Chase Bank also
serves as trustee under other indentures pursuant to which securities of the
Company and affiliates of the Company are outstanding.
Governing Law
The Senior Note Indenture and the Senior Notes will be governed by, and
construed in accordance with, the internal laws of the State of New York.
Miscellaneous
The Company will have the right at all times to assign any of its rights or
obligations under the Senior Note Indenture to a direct or indirect
wholly-owned subsidiary of the Company; provided, that, in the event of any
such assignment, the Company will remain primarily liable for all such
obligations. Subject to the foregoing, the Senior Note Indenture will be
binding upon and inure to the benefit of the parties of the Senior Note
Indenture and their respective successors and assigns.
9
DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES
Set forth below is a description of the general terms of the Junior
Subordinated Notes. The following description does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Subordinated Note Indenture, dated as of January 1, 1997, between the Company
and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as
trustee (the "Subordinated Note Indenture Trustee"), as to be supplemented by a
supplemental indenture to the Subordinated Note Indenture establishing the
Junior Subordinated Notes of each series (the Subordinated Note Indenture, as
so supplemented, is referred to as the "Subordinated Note Indenture"), the
forms of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part. The terms of the Junior Subordinated Notes will
include those stated in the Subordinated Note Indenture and those made a part
of the Subordinated Note Indenture by reference to the 1939 Act. Certain
capitalized terms used in this Prospectus and not defined in this Prospectus
are defined in the Subordinated Note Indenture.
General
The Junior Subordinated Notes will be issued as unsecured junior
subordinated debt securities under the Subordinated Note Indenture. The
Subordinated Note Indenture does not limit the aggregate principal amount of
Junior Subordinated Notes that may be issued under the Subordinated Note
Indenture and provides that Junior Subordinated Notes may be issued from time
to time in one or more series pursuant to an indenture supplemental to the
Subordinated Note Indenture. The Subordinated Note Indenture gives the Company
the ability to reopen a previous issue of Junior Subordinated Notes and issue
additional Junior Subordinated Notes of such series, unless otherwise provided.
Reference is made to the Prospectus Supplement that will accompany this
Prospectus for the following terms of the series of Junior Subordinated Notes
being offered by such Prospectus Supplement: (i) the title of such Junior
Subordinated Notes; (ii) any limit on the aggregate principal amount of such
Junior Subordinated Notes; (iii) the date or dates on which the principal of
such Junior Subordinated Notes is payable; (iv) the rate or rates at which such
Junior Subordinated Notes shall bear interest, if any, or any method by which
such rate or rates will be determined, the date or dates from which such
interest will accrue, the interest payment dates on which such interest shall
be payable, and the regular record date for the interest payable on any
interest payment date; (v) the place or places where the principal of (and
premium, if any) and interest, if any, on such Junior Subordinated Notes shall
be payable; (vi) the period or periods within which, the price or prices at
which and the terms and conditions on which such Junior Subordinated Notes may
be redeemed, in whole or in part, at the option of the Company or at the option
of the holder prior to their maturity; (vii) the obligation, if any, of the
Company to redeem or purchase such Junior Subordinated Notes; (viii) the
denominations in which such Junior Subordinated Notes shall be issuable; (ix)
if other than the principal amount of the Junior Subordinated Notes, the
portion of the principal amount of such Junior Subordinated Notes which shall
be payable upon declaration of acceleration of the maturity of such Junior
Subordinated Notes; (x) any deletions from, modifications of or additions to
the Events of Default or covenants of the Company as provided in the
Subordinated Note Indenture pertaining to such Junior Subordinated Notes;
(xi) whether such Junior Subordinated Notes shall be issued in whole or in part
in the form of a Global Security; (xii) the right, if any, of the Company to
extend the interest payment periods of such Junior Subordinated Notes; and
(xiii) any other terms of such Junior Subordinated Notes. The terms of each
series of Junior Subordinated Notes issued to a Trust will correspond to those
of the related Preferred Securities of such Trust as described in the
Prospectus Supplement relating to such Preferred Securities.
The Subordinated Note Indenture does not contain provisions that afford
holders of Junior Subordinated Notes protection in the event of a highly
leveraged transaction involving the Company.
Subordination
The Junior Subordinated Notes are subordinated and junior in right of
payment to all Senior Indebtedness (as defined below) of the Company. No
payment of principal of (including redemption payments, if any), or premium,
10
if any, or interest on (including Additional Interest (as defined below)) the
Junior Subordinated Notes may be made if (a) any Senior Indebtedness is not
paid when due and any applicable grace period with respect to such default has
ended with such default not being cured or waived or otherwise ceasing to
exist, or (b) the maturity of any Senior Indebtedness has been accelerated
because of a default, or (c) notice has been given of the exercise of an option
to require repayment, mandatory payment or prepayment or otherwise. Upon any
payment or distribution of assets of the Company to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors, marshalling of assets or liabilities, or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of Senior
Indebtedness shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Indebtedness before the holders of
the Junior Subordinated Notes are entitled to receive or retain any payment or
distribution. Subject to the prior payment of all Senior Indebtedness, the
rights of the holders of the Junior Subordinated Notes will be subrogated to
the rights of the holders of Senior Indebtedness to receive payments and
distributions applicable to such Senior Indebtedness until all amounts owing on
the Junior Subordinated Notes are paid in full.
The term "Senior Indebtedness" means, with respect to the Company, (i) any
payment due in respect of indebtedness of the Company, whether outstanding at
the date of execution of the Subordinated Note Indenture or incurred, created
or assumed after the execution of the Subordinated Note Indenture, (a) in
respect of money borrowed (including any financial derivative, hedging or
futures contract or similar instrument) and (b) evidenced by securities,
debentures, bonds, notes or other similar instruments issued by the Company
that, by their terms, are senior or senior subordinated debt securities
including, without limitation, all obligations under its indentures with
various trustees; (ii) all capital lease obligations; (iii) all obligations
issued or assumed as the deferred purchase price of property, all conditional
sale obligations and all obligations of the Company under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business and long-term purchase obligations); (iv) all obligations for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction; (v) all obligations of the type
referred to in clauses (i) through (iv) above of other persons the payment of
which the Company is responsible or liable as obligor, guarantor or otherwise;
and (vi) all obligations of the type referred to in clauses (i) through (v)
above of other persons secured by any lien on any property or asset of the
Company (whether or not such obligation is assumed by the Company), except for
(1) any such indebtedness that is by its terms subordinated to or pari passu
with the Junior Subordinated Notes and (2) any unsecured indebtedness between
or among the Company or its affiliates. Such Senior Indebtedness shall continue
to be Senior Indebtedness and be entitled to the benefits of the subordination
provisions contained in the Subordinated Note Indenture irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
The Subordinated Note Indenture does not limit the aggregate amount of
Senior Indebtedness that may be issued by the Company. As of December 31, 2002,
Senior Indebtedness of the Company aggregated approximately $550,000,000.
Additional Interest
"Additional Interest" is defined in the Subordinated Note Indenture as (i)
such additional amounts as may be required so that the net amounts received and
retained by a holder of Junior Subordinated Notes (if the holder is a Trust)
after paying taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
taxing authority will not be less than the amounts the holder would have
received had no such taxes, duties, assessments or other governmental charges
been imposed; and (ii) any interest due and not paid on an interest payment
date, together with interest on such interest due from such interest payment
date to the date of payment, compounded quarterly, on each interest payment
date.
Certain Covenants
The Company covenants in the Subordinated Note Indenture, for the benefit of
the holders of each series of Junior Subordinated Notes, that, (i) if at such
time the Company shall have given notice of its election to extend an interest
payment period for such series of Junior Subordinated Notes and such extension
shall be continuing,
11
(ii) if at such time the Company shall be in default with respect to its
payment or other obligations under the Guarantee with respect to the Trust
Securities, if any, related to such series of Junior Subordinated Notes, or
(iii) if at such time an Event of Default under the Subordinated Note Indenture
with respect to such series of Junior Subordinated Notes shall have occurred
and be continuing, (a) the Company shall not declare or pay any dividend or
make any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, and (b) the
Company shall not make any payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities (including guarantees
other than the Guarantees) issued by the Company which rank equally with or
junior to the Junior Subordinated Notes. None of the foregoing, however, shall
restrict (i) any of the actions described in the preceding sentence resulting
from any reclassifications of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, or (ii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged.
The Subordinated Note Indenture further provides that, for so long as the
Trust Securities of any Trust remain outstanding, the Company covenants (i) to
directly or indirectly maintain 100% ownership of the Common Securities of such
Trust; provided, however, that any permitted successor of the Company under the
Subordinated Note Indenture may succeed to the Company's ownership of such
Common Securities, and (ii) to use its reasonable efforts to cause such Trust
(a) to remain a statutory trust, except in connection with the distribution of
Junior Subordinated Notes to the holders of Trust Securities in liquidation of
such Trust, the redemption of all of the Trust Securities of such Trust, or
certain mergers, consolidations or amalgamations, each as permitted by the
related Trust Agreement, and (b) to otherwise continue to be classified as a
grantor trust for United States federal income tax purposes.
Events of Default
The Subordinated Note Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Notes of any
series, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Junior Subordinated Notes of such series:
(a) failure for 10 days to pay interest on the Junior Subordinated Notes
of such series, including any Additional Interest (as defined in clause (ii)
of the definition of Additional Interest in the Subordinated Note Indenture)
in respect of the Junior Subordinated Notes, when due on an interest payment
date other than at maturity or upon earlier redemption; provided, however,
that a valid extension of the interest payment period by the Company shall
not constitute a default in the payment of interest for this purpose; or
(b) failure for 10 days to pay Additional Interest (as defined in clause
(i) of the definition of Additional Interest in the Subordinated Note
Indenture); or
(c) failure to pay principal or premium, if any, or interest, including
Additional Interest (as defined in clause (ii) of the definition of
Additional Interest in the Subordinated Note Indenture), on the Junior
Subordinated Notes of such series when due at maturity or upon earlier
redemption; or
(d) failure for three Business Days to deposit any sinking fund payment
when due by the terms of a Junior Subordinated Note of such series; or
(e) failure to observe or perform any other covenant or warranty of the
Company in the Subordinated Note Indenture (other than a covenant or
warranty which has expressly been included in the Subordinated Note
Indenture solely for the benefit of one or more series of Junior
Subordinated Notes other than such series) for 90 days after written notice
to the Company from the Subordinated Note Indenture Trustee or the holders
of at least 25% in principal amount of the outstanding Junior Subordinated
Notes of such series; or
(f) certain events of bankruptcy, insolvency or reorganization of the
Company.
The holders of not less than a majority in aggregate outstanding principal
amount of the Junior Subordinated Notes of any series have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Subordinated Note Indenture Trustee with respect to the Junior
Subordinated Notes of such series. If a Subordinated Note Indenture Event of
Default occurs and is continuing with respect to the Junior Subordinated Notes
of any series, then the Subordinated Note Indenture Trustee or the holders of
not less than
12
25% in aggregate outstanding principal amount of the Junior Subordinated Notes
of such series may declare the principal amount of the Junior Subordinated
Notes due and payable immediately by notice in writing to the Company (and to
the Subordinated Note Indenture Trustee if given by the holders), and upon any
such declaration such principal amount shall become immediately due and
payable. At any time after such a declaration of acceleration with respect to
the Junior Subordinated Notes of any series had been made and before a judgment
or decree for payment of the money due has been obtained as provided in Article
Five of the Subordinated Note Indenture, the holders of not less than a
majority in aggregate outstanding principal amount of the Junior Subordinated
Notes of such series may rescind and annul such declaration and its
consequences if the default has been cured or waived and the Company has paid
or deposited with the Subordinated Note Indenture Trustee a sum sufficient to
pay all matured installments of interest (including any Additional Interest)
and principal due otherwise than by acceleration and all sums paid or advanced
by the Subordinated Note Indenture Trustee, including reasonable compensation
and expenses of the Subordinated Note Indenture Trustee.
A holder of Preferred Securities may institute a legal proceeding directly
against the Company, without first instituting a legal proceeding against the
Property Trustee or any other person or entity, for enforcement of payment to
such holder of principal of or interest on the Junior Subordinated Notes of the
related series having a principal amount equal to the aggregate stated
liquidation amount of the Preferred Securities of such holder on or after the
due dates specified in the Junior Subordinated Notes of such series.
The holders of not less than a majority in aggregate outstanding principal
amount of the Junior Subordinated Notes of any series may, on behalf of the
holders of all the Junior Subordinated Notes of such series, waive any past
default with respect to such series, except (i) a default in the payment of
principal or interest or (ii) a default in respect of a covenant or provision
which under Article Nine of the Subordinated Note Indenture cannot be modified
or amended without the consent of the holder of each outstanding Junior
Subordinated Note of such series affected.
Registration and Transfer
The Company shall not be required to (i) issue, register the transfer of or
exchange Junior Subordinated Notes of any series during a period of 15 days
immediately preceding the date notice is given identifying the Junior
Subordinated Notes of such series called for redemption, or (ii) register the
transfer of or exchange any Junior Subordinated Notes so selected for
redemption, in whole or in part, except the unredeemed portion of any Junior
Subordinated Note being redeemed in part.
Payment and Paying Agent
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of any Junior Subordinated Notes will be made only against
surrender to the Paying Agent of such Junior Subordinated Notes. Principal of
and interest on Junior Subordinated Notes will be payable, subject to any
applicable laws and regulations, at the office of such Paying Agent or Paying
Agents as the Company may designate from time to time, except that, at the
option of the Company, payment of any interest may be made by wire transfer or
by check mailed to the address of the person entitled to an interest payment as
such address shall appear in the Security Register with respect to the Junior
Subordinated Notes. Payment of interest on Junior Subordinated Notes on any
interest payment date will be made to the person in whose name the Junior
Subordinated Notes (or predecessor security) are registered at the close of
business on the record date for such interest payment.
Unless otherwise indicated in an applicable Prospectus Supplement, the
Subordinated Note Indenture Trustee will act as Paying Agent with respect to
the Junior Subordinated Notes. The Company may at any time designate additional
Paying Agents or rescind the designation of any Paying Agents or approve a
change in the office through which any Paying Agent acts.
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or interest on the Junior Subordinated Notes of any series which
remain unclaimed at the end of two years after such principal or interest shall
have become due and payable will be repaid to the Company, and the holder of
such Junior Subordinated Notes will from that time forward look only to the
Company for payment of such principal and interest.
13
Modification
The Subordinated Note Indenture contains provisions permitting the Company
and the Subordinated Note Indenture Trustee, with the consent of the holders of
not less than a majority in principal amount of the outstanding Junior
Subordinated Notes of each series that is affected, to modify the Subordinated
Note Indenture or the rights of the holders of the Junior Subordinated Notes of
such series; provided, that no such modification may, without the consent of
the holder of each outstanding Junior Subordinated Note that is affected, (i)
change the stated maturity of the principal of, or any installment of principal
of or interest on, any Junior Subordinated Note, or reduce the principal amount
of any Junior Subordinated Note or the rate of interest (including Additional
Interest) on any Junior Subordinated Note or any premium payable upon the
redemption thereof, or change the method of calculating the rate of interest on
any Junior Subordinated Note, or impair the right to institute suit for the
enforcement of any such payment on or after the stated maturity of any Junior
Subordinated Note (or, in the case of redemption, on or after the redemption
date), or (ii) reduce the percentage of principal amount of the outstanding
Junior Subordinated Notes of any series, the consent of whose holders is
required for any such supplemental indenture, or the consent of whose holders
is required for any waiver (of compliance with certain provisions of the
Subordinated Note Indenture or certain defaults under the Subordinated Note
Indenture and their consequences) provided for in the Subordinated Note
Indenture, or (iii) modify any of the provisions of the Subordinated Note
Indenture relating to supplemental indentures, waiver of past defaults, or
waiver of certain covenants, except to increase any such percentage or to
provide that certain other provisions of the Subordinated Note Indenture cannot
be modified or waived without the consent of the holder of each outstanding
Junior Subordinated Note that is affected, or (iv) modify the provisions of the
Subordinated Note Indenture with respect to the subordination of the Junior
Subordinated Notes in a manner adverse to such holder.
In addition, the Company and the Subordinated Note Indenture Trustee may
execute, without the consent of any holders of Junior Subordinated Notes, any
supplemental indenture for certain other usual purposes, including the creation
of any new series of Junior Subordinated Notes.
Consolidation, Merger and Sale
The Company shall not consolidate with or merge into any other corporation
or convey, transfer or lease its properties and assets substantially as an
entirety to any person, unless (1) such other corporation or person is a
corporation organized and existing under the laws of the United States, any
state of the United States or the District of Columbia and such other
corporation or person expressly assumes, by supplemental indenture executed and
delivered to the Subordinated Note Indenture Trustee, the payment of the
principal of (and premium, if any) and interest (including Additional Interest)
on all the Junior Subordinated Notes and the performance of every covenant of
the Subordinated Note Indenture on the part of the Company to be performed or
observed; (2) immediately after giving effect to such transactions, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and (3) the
Company has delivered to the Subordinated Note Indenture Trustee an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the provisions of the Subordinated Note Indenture governing
consolidation, merger, conveyance, transfer or lease and that all conditions
precedent to the transaction have been complied with.
Information Concerning the Subordinated Note Indenture Trustee
The Subordinated Note Indenture Trustee, prior to an Event of Default with
respect to Junior Subordinated Notes of any series, undertakes to perform, with
respect to Junior Subordinated Notes of such series, only such duties as are
specifically set forth in the Subordinated Note Indenture and, in case an Event
of Default with respect to Junior Subordinated Notes of any series has occurred
and is continuing, shall exercise, with respect to Junior Subordinated Notes of
such series, the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provision, the
Subordinated Note Indenture Trustee is under no obligation to exercise any of
the powers vested in it by the Subordinated Note Indenture at the request of any
14
holder of Junior Subordinated Notes of any series, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred by the Subordinated Note Indenture Trustee. The Subordinated
Note Indenture Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of its duties if the
Subordinated Note Indenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
JPMorgan Chase Bank, the Subordinated Note Indenture Trustee, also serves as
Senior Note Indenture Trustee, as Property Trustee and as Guarantee Trustee.
The Company and certain of its affiliates maintain deposit accounts and banking
relationships with JPMorgan Chase Bank. JPMorgan Chase Bank also serves as
trustee under other indentures pursuant to which securities of the Company and
affiliates of the Company are outstanding.
Governing Law
The Subordinated Note Indenture and the Junior Subordinated Notes will be
governed by, and construed in accordance with, the internal laws of the State
of New York.
Miscellaneous
The Company will have the right at all times to assign any of its rights or
obligations under the Subordinated Note Indenture to a direct or indirect
wholly-owned subsidiary of the Company; provided, that, in the event of any
such assignment, the Company will remain primarily liable for all such
obligations. Subject to the foregoing, the Subordinated Note Indenture will be
binding upon and inure to the benefit of the parties to the Subordinated Note
Indenture and their respective successors and assigns.
DESCRIPTION OF THE PREFERRED SECURITIES
Each Trust may issue only one series of Preferred Securities having terms
described in the Prospectus Supplement relating to the Preferred Securities.
The Trust Agreement of each Trust will authorize the Administrative Trustees,
on behalf of the Trust, to issue the Preferred Securities of such Trust. The
Preferred Securities of each Trust will have such terms, including
distributions, redemption, voting, liquidation rights and such other preferred,
deferral or other special rights or such restrictions as shall be set forth in
the Trust Agreement of such Trust. Reference is made to the Prospectus
Supplement relating to the Preferred Securities of a Trust for specific terms,
including (i) the distinctive designation of such Preferred Securities; (ii)
the number of Preferred Securities issued by such Trust; (iii) the annual
distribution rate (or method of determining such rate) for Preferred Securities
of such Trust and the date or dates on which such distributions shall be
payable; (iv) whether distributions on such Preferred Securities shall be
cumulative and, in the case of Preferred Securities having cumulative
distribution rights, the date or dates, or method of determining the date or
dates, from which distributions on such Preferred Securities shall be
cumulative; (v) the amount or amounts that shall be paid out of the assets of
such Trust to the holders of the Preferred Securities of such Trust upon
voluntary or involuntary dissolution, winding-up or termination of such Trust;
(vi) the obligation, if any, of such Trust to purchase or redeem such Preferred
Securities and the price or prices at which, the period or periods within
which, and the terms and conditions upon which such Preferred Securities shall
be purchased or redeemed, in whole or in part, pursuant to such obligation;
(vii) the voting rights, if any, of such Preferred Securities in addition to
those required by law, including the number of votes per Preferred Security and
any requirement for the approval by the holders of Preferred Securities as a
condition to specified action or amendments to the Trust Agreement of such
Trust; (viii) the rights, if any, to defer distributions on the Preferred
Securities by extending the interest payment period on the related Junior
Subordinated Notes; and (ix) any other relative rights, preferences,
privileges, limitations or restrictions of such Preferred Securities not
inconsistent with the Trust Agreement of such Trust or applicable law. All
Preferred Securities offered by this Prospectus will be guaranteed by the
Company to the extent set forth under "Description of the Guarantees." Any
material United States federal income tax considerations applicable to an
offering of Preferred Securities will be described in the Prospectus Supplement
relating to the Preferred Securities.
15
DESCRIPTION OF THE GUARANTEES
Set forth below is a summary of information concerning the Guarantees that
will be executed and delivered by the Company for the benefit of the holders of
Preferred Securities of the respective Trusts from time to time. Each Guarantee
will be qualified as an indenture under the 1939 Act. JPMorgan Chase Bank will
act as indenture trustee under each Guarantee (the "Guarantee Trustee") for
purposes of the 1939 Act. The terms of the respective Guarantees will be those
set forth in such Guarantee and those made part of such Guarantee by the 1939
Act. The following summary does not purport to be complete and is subject in
all respects to the provisions of, and is qualified in its entirety by
reference to, the Guarantees, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the 1939 Act.
Each Guarantee will be held by the Guarantee Trustee for the benefit of holders
of the Preferred Securities to which it relates.
General
Pursuant to each Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth in such Guarantee, to pay in full, to the
holders of the related Preferred Securities, the Guarantee Payments (as defined
below), to the extent not paid by, or on behalf of, the related Trust,
regardless of any defense, right of set-off or counterclaim that the Company
may have or assert against any person. The following payments or distributions
with respect to the Preferred Securities of any Trust to the extent not paid or
made by, or on behalf of, such Trust will be subject to the Guarantee related
to the Preferred Securities (without duplication): (i) any accrued and unpaid
distributions required to be paid on the Preferred Securities of such Trust but
if and only if and to the extent that such Trust has funds legally and
immediately available for these distributions, (ii) the redemption price,
including all accrued and unpaid distributions to the date of redemption (the
"Redemption Price"), with respect to any Preferred Securities called for
redemption by such Trust, but if and only to the extent such Trust has funds
legally and immediately available to pay such Redemption Price, and (iii) upon
a dissolution, winding-up or termination of such Trust (other than in
connection with the distribution of Junior Subordinated Notes to the holders of
Trust Securities of such Trust or the redemption of all of the Preferred
Securities of such Trust), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Preferred Securities of
such Trust to the date of payment, to the extent such Trust has funds legally
and immediately available for such purpose, and (b) the amount of assets of
such Trust remaining available for distribution to holders of Preferred
Securities of such Trust in liquidation of such Trust (the "Guarantee
Payments"). The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the related Preferred Securities or by causing the related Trust to
pay such amounts to such holders.
Each Guarantee will be a guarantee of the Guarantee Payments with respect to
the related Preferred Securities from the time of issuance of such Preferred
Securities, but will not apply to the payment of distributions and other
payments on such Preferred Securities when the related Trust does not have
sufficient funds legally and immediately available to make such distributions
or other payments. If the Company does not make interest payments on the Junior
Subordinated Notes held by the Property Trustee under any Trust, such Trust
will not make distributions on its Preferred Securities.
Subordination
The Company's obligations under each Guarantee to make the Guarantee
Payments will constitute an unsecured obligation of the Company and will rank
(i) subordinate and junior in right of payment to all other liabilities of the
Company, including the Junior Subordinated Notes, except those obligations or
liabilities made equal or subordinate by their terms, (ii) equal to the most
senior preferred or preference stock now issued by the Company or issued at a
later date by the Company and with any guarantee now entered into by the
Company or entered into at a later date by the Company in respect of any
preferred or preference securities of any affiliate of the Company, and (iii)
senior to all common stock of the Company. The terms of the Preferred
Securities will provide that each holder of Preferred Securities by acceptance
of the Preferred Securities agrees to the subordination
16
provisions and other terms of the Guarantee related thereto. The Company has
outstanding preferred stock that ranks equal to the Guarantees and common stock
that ranks junior to the Guarantees.
Each Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the guarantor to enforce its rights under the guarantee without first
instituting a legal proceeding against any other person or entity).
Amendments and Assignment
Except with respect to any changes that do not materially and adversely
affect the rights of holders of the related Preferred Securities (in which case
no consent will be required), each Guarantee may be amended only with the prior
approval of the holders of not less than 66 2/3% in liquidation amount of such
outstanding Preferred Securities. The manner of obtaining any such approval of
holders of the Preferred Securities will be as set forth in an accompanying
Prospectus Supplement. All guarantees and agreements contained in each
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the related Preferred Securities then outstanding.
Termination
Each Guarantee will terminate and be of no further force and effect as to
the related Preferred Securities upon full payment of the Redemption Price of
all such Preferred Securities, upon distribution of Junior Subordinated Notes
to the holders of such Preferred Securities, or upon full payment of the
amounts payable upon liquidation of the related Trust. Each Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the related Preferred Securities must restore payment of any
sums paid with respect to such Preferred Securities or under such Guarantee.
Events of Default
An event of default under each Guarantee will occur upon the failure by the
Company to perform any of its payment obligations under such Guarantee. The
holders of a majority in liquidation amount of the Preferred Securities to
which any Guarantee relates 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 such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under such Guarantee. Any holder of the
related Preferred Securities may institute a legal proceeding directly against
the Company to enforce its rights under such Guarantee without first
instituting a legal proceeding against the Guarantee Trustee or any other
person or entity. The holders of a majority in liquidation amount of Preferred
Securities of any series may, by vote, on behalf of the holders of all the
Preferred Securities of such series, waive any past event of default and its
consequences.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, prior to the occurrence of any event of default with
respect to any Guarantee and after the curing or waiving of all events of
default with respect to such Guarantee, undertakes to perform only such duties
as are specifically set forth in such Guarantee and, in case an event of
default has occurred, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provisions, the Guarantee Trustee is under no obligation to exercise any
of the powers vested in it by any Guarantee at the request of any holder of the
related Preferred Securities, unless offered reasonable indemnity against the
costs, expenses and liabilities which might be incurred by the Guarantee
Trustee.
JPMorgan Chase Bank, the Guarantee Trustee, also serves as Property Trustee,
as Senior Note Indenture Trustee and as Subordinated Note Indenture Trustee.
The Company and certain of its affiliates maintain deposit accounts and banking
relationships with JPMorgan Chase Bank. JPMorgan Chase Bank serves as trustee
under other indentures pursuant to which securities of the Company and
affiliates of the Company are outstanding.
17
Governing Law
Each Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
The Agreements as to Expenses and Liabilities
Pursuant to an Agreement as to Expenses and Liabilities to be entered into
by the Company under each Trust Agreement, the Company will irrevocably and
unconditionally guarantee to each person or entity to whom each Trust becomes
indebted or liable the full payment of any indebtedness, expenses or
liabilities of such Trust, other than obligations of such Trust to pay to the
holders of the related Preferred Securities or other similar interests in such
Trust the amounts due such holders pursuant to the terms of such Preferred
Securities or such other similar interests, as the case may be.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED NOTES AND
THE GUARANTEES
As long as payments of interest and other payments are made when due on each
series of Junior Subordinated Notes issued to a Trust, such payments will be
sufficient to cover distributions and payments due on the related Trust
Securities of such Trust primarily because (i) the aggregate principal amount
of each series of Junior Subordinated Notes will be equal to the sum of the
aggregate stated liquidation amount of the related Trust Securities; (ii) the
interest rate and interest and other payment dates on each series of Junior
Subordinated Notes will match the distribution rate and distribution and other
payment dates for the related Preferred Securities; (iii) the Company shall pay
for all costs and expenses of each Trust pursuant to the Agreements as to
Expenses and Liabilities; and (iv) each Trust Agreement provides that the
Securities Trustees thereunder shall not cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes
of the Trust.
Payments of distributions (to the extent funds for such purpose are legally
and immediately available) and other payments due on the Preferred Securities
(to the extent funds for such purpose are legally and immediately available)
will be guaranteed by the Company as and to the extent set forth under
"Description of the Guarantees." If the Company does not make interest payments
on any series of Junior Subordinated Notes, it is not expected that the related
Trust will have sufficient funds to pay distributions on its Preferred
Securities. Each Guarantee is a guarantee from the time of its issuance, but
does not apply to any payment of distributions unless and until the related
Trust has sufficient funds legally and immediately available for the payment of
such distributions.
If the Company fails to make interest or other payments on any series of
Junior Subordinated Notes when due (taking into account any extension period as
described in the applicable Prospectus Supplement), the Trust Agreement
provides a mechanism that allows the holders of the related Preferred
Securities to appoint a substitute Property Trustee. Such holders may also
direct the Property Trustee to enforce its rights under the Junior Subordinated
Notes of such series, including proceeding directly against the Company to
enforce such Junior Subordinated Notes. If the Property Trustee fails to
enforce its rights under any series of Junior Subordinated Notes, to the
fullest extent permitted by applicable law, any holder of related Preferred
Securities may institute a legal proceeding directly against the Company to
enforce the Property Trustee's rights under such series of Junior Subordinated
Notes without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, a holder
of Preferred Securities may institute a legal proceeding directly against the
Company, without first instituting a legal proceeding against the Property
Trustee or any other person or entity, for enforcement of payment to such
holder of principal of or interest on Junior Subordinated Notes of the related
series having a principal amount equal to the aggregate stated liquidation
amount of the Preferred Securities of such holder on or after the due dates
specified in the Junior Subordinated Notes of such series.
18
If the Company fails to make payments under any Guarantee, such Guarantee
provides a mechanism that allows the holders of the Preferred Securities to
which such Guarantee relates to direct the Guarantee Trustee to enforce its
rights under such Guarantee. In addition, any holder of Preferred Securities
may institute a legal proceeding directly against the Company to enforce the
Guarantee Trustee's rights under the related Guarantee without first
instituting a legal proceeding against the Guarantee Trustee or any other
person or entity.
Each Guarantee, the Subordinated Note Indenture, the Junior Subordinated
Notes of the related series, the related Trust Agreement and the related
Agreement as to Expenses and Liabilities, as described above, constitute a full
and unconditional guarantee by the Company of the payments due on the related
series of Preferred Securities.
Upon any voluntary or involuntary dissolution, winding-up or termination of
any Trust, unless Junior Subordinated Notes of the related series are
distributed in connection with such action, the holders of the Preferred
Securities of such Trust will be entitled to receive, out of assets legally
available for distribution to holders, a liquidation distribution in cash as
described in the applicable Prospectus Supplement. Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the related series of Junior Subordinated Notes, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Indebtedness, but entitled to receive payment in full of principal and
interest, before any stockholders of the Company receive payments or
distributions. Because the Company is guarantor under each Guarantee and has
agreed to pay for all costs, expenses and liabilities of each Trust (other than
the Trust's obligations to holders of the Preferred Securities) pursuant to the
related Agreement as to Expenses and Liabilities, the positions of a holder of
Preferred Securities and a holder of Junior Subordinated Notes of the related
series relative to other creditors and to stockholders of the Company in the
event of liquidation or bankruptcy of the Company would be substantially the
same.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Subordinated Note Indenture.
However, in the event of payment defaults under, or acceleration of, Senior
Indebtedness, the subordination provisions of the Junior Subordinated Notes
provide that no payments may be made in respect of the Junior Subordinated
Notes until such Senior Indebtedness has been paid in full or any payment
default of Senior Indebtedness has been cured or waived. Failure to make
required payments on the Junior Subordinated Notes of any series would
constitute an Event of Default under the Subordinated Note Indenture with
respect to the Junior Subordinated Notes of such series except that failure to
make interest payments on the Junior Subordinated Notes of such series will not
be an Event of Default during an extension period as described in the
applicable Prospectus Supplement.
PLAN OF DISTRIBUTION
The Company may sell the Senior Notes and the Junior Subordinated Notes and
the Trusts may sell the Preferred Securities in one or more of the following
ways from time to time: (i) to underwriters for resale to the public or to
institutional investors; (ii) directly to institutional investors; or (iii)
through agents to the public or to institutional investors. The Prospectus
Supplement with respect to each series of Senior Notes, Junior Subordinated
Notes or Preferred Securities will set forth the terms of the offering of such
Senior Notes, Junior Subordinated Notes or Preferred Securities, including the
name or names of any underwriters or agents, the purchase price of such Senior
Notes, Junior Subordinated Notes or Preferred Securities and the proceeds to
the Company or the applicable Trust from such sale, any underwriting discounts
or agency fees and other items constituting underwriters' or agents'
compensation, any initial public offering price, any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchange on which
such Senior Notes, Junior Subordinated Notes or Preferred Securities may be
listed.
If underwriters participate in the sale, such Senior Notes, Junior
Subordinated Notes or Preferred Securities will be acquired by the underwriters
for their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale.
19
Unless otherwise set forth in the Prospectus Supplement, the obligations of
the underwriters to purchase any series of Senior Notes, Junior Subordinated
Notes or Preferred Securities will be subject to certain conditions precedent
and the underwriters will be obligated to purchase all of such series of Senior
Notes, Junior Subordinated Notes or Preferred Securities, if any are purchased.
Underwriters and agents may be entitled under agreements entered into with
the Company and/or the applicable Trust to indemnification against certain
civil liabilities, including liabilities under the 1933 Act. Underwriters and
agents may engage in transactions with, or perform services for, the Company in
the ordinary course of business.
Each series of Senior Notes, Junior Subordinated Notes or Preferred
Securities will be a new issue of securities and will have no established
trading market. Any underwriters to whom Senior Notes, Junior Subordinated
Notes or Preferred Securities are sold for public offering and sale may make a
market in such Senior Notes, Junior Subordinated Notes or Preferred Securities,
but such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. The Senior Notes, Junior Subordinated
Notes or Preferred Securities may or may not be listed on a national securities
exchange.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Company and the Trusts by
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel
to the Company and the Trusts. The validity of the Senior Notes, the Junior
Subordinated Notes, the Guarantees and certain matters relating to such
securities will be passed upon on behalf of the Company by Beggs & Lane, a
Registered Limited Liability Partnership, Pensacola, Florida, and by Troutman
Sanders LLP, Atlanta, Georgia. Certain legal matters will be passed upon for
the Underwriters by Dewey Ballantine LLP, New York, New York.
EXPERTS
The financial statements and the related financial statement schedule as of
and for the year ended December 31, 2002 incorporated by reference in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated by reference in this Prospectus,
and has been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
Certain of the Company's financial statements incorporated by reference in
this Prospectus have been audited by Arthur Andersen LLP ("Andersen"),
independent public accountants, as indicated in their reports with respect to
the financial statements, and are incorporated by reference in this Prospectus,
in reliance upon the authority of Andersen as experts in giving such reports.
On March 28, 2002, Southern's Board of Directors, upon recommendation of its
Audit Committee, decided not to engage Andersen as the Company's principal
public accountants. The Company has not obtained a reissued report from
Andersen and has been unable to obtain, after reasonable efforts, Andersen's
written consent to incorporate by reference Andersen's reports on the financial
statements. Under these circumstances, Rule 437a under the 1933 Act permits
this Prospectus to be filed without a written consent from Andersen. The
absence of such written consent from Andersen may limit a holder's ability to
assert claims against Andersen under Section 11(a) of the 1933 Act for any
untrue statement of a material fact contained in the financial statements
audited by Andersen or any omissions to state a material fact required to be
stated in the financial statements.
20
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$60,000,000
[LOGO]
GULF
POWER
A SOUTHERN COMPANY
GULF POWER COMPANY APPEARS HERE
Series H 5.25% Senior Notes
due July 15, 2033
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PROSPECTUS SUPPLEMENT
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Morgan Stanley
Wachovia Securities
SunTrust Robinson Humphrey
July 10, 2003
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