Pursuant to Rule 424(b)(2)
Registration No. 333-108045
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 25, 2003)
110,0000 PREFERRED SECURITIES
SOUTHWESTERN ELECTRIC POWER COMPANY
SWEPCO CAPITAL TRUST I
FLEXIBLE TRUST PREFERRED SECURITIES
(T-FLEX(SM))
(FIVE YEAR INITIAL FIXED RATE PERIOD)
(LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN
-----------------------------
The initial distribution rate on the Flexible Trust Preferred Securities
will be 5.25% per annum from the date of original issuance through September 30,
2008, which is the initial fixed rate period. Thereafter, the distribution rate
for the Preferred Securities may be at fixed rates determined through
remarketings of the Preferred Securities for specific periods of varying length
or may be at a Floating Rate as defined herein.
A brief description of the Preferred Securities can be found under SUMMARY
INFORMATION-Q&A in this Prospectus Supplement.
Per
Preferred
Security Total
---------- ------------
Initial public offering price(1)...................................................................$..996.40 $109,604,000
Underwriting commissions to be paid by Southwestern Electric Power Company.........................$ 10.00 $ 1,100,000
Proceeds to SWEPCo Capital Trust I.................................................................$ 986.40 $108,504,000
(1) Plus accumulated distributions, if any, from the date of original issuance,
which is expected to be October 1, 2003.
INVESTING IN THESE PREFERRED SECURITIES INVOLVES RISKS. SEE THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 3 OF
THE ACCOMPANYING PROSPECTUS FOR MORE INFORMATION.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Preferred Securities or determined
that this Prospectus Supplement or the accompanying Prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
The Preferred Securities will be ready for delivery in book-entry form only
through The Depository Trust Company on or about October 1, 2003.
LEHMAN BROTHERS
DANSKE MARKETS
MELLON FINANCIAL MARKETS, LLC
TD SECURITIES
The date of this Prospectus Supplement is September 26, 2003.
Page
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY INFORMATION-Q&A.................................................... S-3
RISK FACTORS............................................................... S-9
SWEPCO CAPITAL TRUST I..................................................... S-12
CAPITALIZATION............................................................. S-14
USE OF PROCEEDS............................................................ S-14
ACCOUNTING TREATMENT....................................................... S-14
DESCRIPTION OF THE PREFERRED SECURITIES.................................... S-14
DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED DEBENTURES................. S-28
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SERIES B JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE........... S-31
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...................... S-33
CERTAIN ERISA CONSIDERATIONS............................................... S-37
UNDERWRITING............................................................... S-40
LEGAL OPINIONS............................................................. S-41
PROSPECTUS
WHERE YOU CAN FIND MORE INFORMATION........................................ 2
PROSPECTUS SUPPLEMENTS..................................................... 3
THE COMPANY................................................................ 3
RISK FACTORS............................................................... 3
RATIO OF EARNINGS TO FIXED CHARGES......................................... 15
USE OF PROCEEDS ........................................................... 15
THE TRUSTS................................................................. 16
ACCOUNTING TREATMENT OF TRUSTS............................................. 16
DESCRIPTION OF THE SENIOR NOTES ........................................... 17
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES.......................... 21
DESCRIPTION OF TRUST PREFERRED SECURITIES.................................. 28
DESCRIPTION OF GUARANTEES.................................................. 47
RELATIONSHIP AMONG TRUST PREFERRED SECURITIES,
DEBT SECURITIES AND GUARANTEES.......................................... 50
BOOK-ENTRY SYSTEM.......................................................... 52
PLAN OF DISTRIBUTION....................................................... 54
LEGAL OPINIONS............................................................. 55
EXPERTS.................................................................... 55
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THIS PROSPECTUS SUPPLEMENT.
S-2
SUMMARY INFORMATION-Q&A
The following information supplements, and should be read together with,
the information contained in other parts of this Prospectus Supplement and in
the accompanying Prospectus. This summary highlights selected information from
this Prospectus Supplement and the accompanying Prospectus to help you
understand the Flexible Trust Preferred Securities (the "Preferred Securities").
You should carefully read this Prospectus Supplement and the accompanying
Prospectus to understand fully the terms of the Preferred Securities as well as
the tax and other considerations that are important to you in making a decision
about whether to invest in the Preferred Securities. You should pay special
attention to the RISK FACTORS section beginning on page S-9 of this Prospectus
Supplement and page 3 of the accompanying Prospectus to determine whether an
investment in the Preferred Securities is appropriate for you.
WHAT ARE THE PREFERRED SECURITIES?
Each Preferred Security represents an undivided beneficial interest in the
assets of SWEPCo Capital Trust I (the "Trust"). Each Preferred Security will
entitle the holder to receive cash distributions ("Distributions") as described
in this Prospectus Supplement. The Trust is offering 110,000 Preferred
Securities at a price of $996.40 for each Preferred Security.
WHO IS THE TRUST?
The Trust is a Delaware statutory trust. Its principal place of business is
c/o Southwestern Electric Power Company, 1 Riverside Plaza, Columbus, Ohio
43215, and its telephone number is 614-716-1000.
The Trust will sell its Preferred Securities to the public and its common
securities (the "Common Securities") to Southwestern Electric Power Company (the
"Company"). The Trust will use the proceeds from these sales to buy a series of
junior subordinated debentures due October 1, 2043 (the "Series B Junior
Subordinated Debentures") from the Company with the same financial terms as the
Preferred Securities. The Company will guarantee payments made on the Preferred
Securities as described herein.
The Bank of New York will act as property trustee (the "Property Trustee")
of the Trust. Two officers of the Company also will act as trustees (the
"Administrative Trustees") of the Trust. The Bank of New York (Delaware) will be
an additional trustee (the "Delaware Trustee") of the Trust.
The Bank of New York will act as trustee (the "Indenture Trustee") under
the Subordinated Indenture, dated as of September 1, 2003 (the "Subordinated
Indenture"), pursuant to which the Series B Junior Subordinated Debentures will
be issued and will act as trustee (the "Guarantee Trustee") under the Trust
Securities Guarantee, dated as of September 1, 2003, of the Company (the
"Guarantee"). The Property Trustee, the Delaware Trustee and the Administrative
Trustees are sometimes referred to as the "Securities Trustees".
WHO IS THE COMPANY?
The Company generates, sells, purchases, transmits and distributes electric
power. The Company serves approximately 437,000 retail customers in northeastern
Texas, northwestern Louisiana and western Arkansas and also sells and transmits
power at wholesale to other electric utilities, municipalities, electric
cooperatives and non-utility entities engaged in the wholesale power market. The
Company's principal executive offices are located at 1 Riverside Plaza,
Columbus, Ohio 43215, telephone number (614) 716-
S-3
1000. The Company is a subsidiary of American Electric Power Company, Inc., a
public utility holding company, and it is a part of the American Electric Power
integrated utility system. The executive offices of American Electric Power
Company, Inc. are located at 1 Riverside Plaza, Columbus, Ohio 43215, telephone
number (614) 716-1000.
WHAT WILL THE DISTRIBUTION RATE BE ON THE PREFERRED SECURITIES?
Distributions will initially be paid at a rate (a "Distribution Rate") of
5.25% per annum (the "Initial Distribution Rate"), payable semiannually in
arrears, for the period from the date of original issuance of the Preferred
Securities (the "Issue Date"), which is expected to be October 1, 2003, through
September 30, 2008 (the "Initial Fixed Rate Period"). If the Preferred
Securities are not redeemed, the Company and the Trust will have the option to
remarket the Preferred Securities prior to expiration of the Initial Fixed Rate
Period (to be in effect after the Initial Fixed Rate Period) to establish a new
fixed per annum Distribution Rate (together with the Initial Distribution Rate
and any subsequent fixed rate established pursuant to a remarketing, as
described below, a "Fixed Rate") with respect to the Preferred Securities. Any
new Fixed Rate so established will be in effect for such period (together with
the Initial Fixed Rate Period and any subsequent period established pursuant to
a remarketing, as described below, a "Fixed Rate Period") as the Company and the
Trust determine in connection with the remarketing, provided that a Fixed Rate
Period must be for a duration of at least six months. A Fixed Rate Period may
not extend beyond October 1, 2043, the final maturity of the Series B Junior
Subordinated Debentures, and may not end on a day other than a day immediately
preceding a Distribution Payment Date (as defined below). Distributions on
Preferred Securities during any Fixed Rate Period will be payable semiannually
in arrears. Prior to the expiration of any Fixed Rate Period, the Company and
the Trust will have the option to again remarket the Preferred Securities to
establish a new Fixed Rate for a new Fixed Rate Period (to be in effect after
the expiration of the then current Distribution Period).
If the Preferred Securities are not redeemed and if the Company and the
Trust elect not to remarket the Preferred Securities prior to expiration of the
Initial Fixed Rate Period or any subsequent Fixed Rate Period, or if they are
unable to successfully remarket all Preferred Securities tendered for sale in a
remarketing, Distributions on the Preferred Securities will thereafter be
payable at a floating rate (a "Floating Rate") reset quarterly equal to 2.375%
(the "Initial Credit Spread"), plus the "Adjustable Rate", which will be the
greater of (i) the 3-month LIBOR Rate; (ii) the 10-year Treasury CMT Rate; or
(iii) the 30-year Treasury CMT Rate (each as defined herein). A Floating Rate
will be in effect until the Company and the Trust subsequently remarket
Preferred Securities to again establish a Fixed Rate for a new Fixed Rate Period
as described below. During any period during which a Floating Rate is in effect
(a "Floating Rate Period"), Distributions on the Preferred Securities will be
payable quarterly in arrears. The Company and the Trust may elect to remarket
the Preferred Securities prior to any Distribution Payment Date relating to a
Floating Rate Period in order to again establish a new Fixed Rate for a new
Fixed Rate Period (to be in effect after the expiration of the then current
Distribution Period, as defined below).
In this Prospectus Supplement, each semiannual distribution period in a
Fixed Rate Period (including, without limitation, the Initial Fixed Rate Period)
and each quarterly distribution period in a Floating Rate Period are sometimes
referred to as a "Distribution Period".
WHAT ARE THE PROCEDURES FOR REMARKETING THE PREFERRED SECURITIES AND
ESTABLISHING THE DISTRIBUTION RATE FOR DISTRIBUTION PERIODS SUBSEQUENT TO THE
INITIAL FIXED RATE PERIOD?
In connection with any remarketing of the Preferred Securities, holders of
Preferred Securities will be given the option to elect to retain or tender all
or a portion of their Preferred Securities for sale in the remarketing. Such
election will be required to be made on a date that is no later than the fifth
S-4
Business Day (as defined below) prior to the proposed remarketing date (an
"Election Date"). A holder that fails to give an election notice to the
Remarketing Agent (as defined below) by the Election Date will be deemed to have
elected to sell its Preferred Securities in the remarketing. A holder of
Preferred Securities may notify the Remarketing Agent of its interest in
retaining all or some of its Preferred Securities, provided that the new
Distribution Rate is a Fixed Rate not less than a rate per annum specified by
the holder. In such case, the holder will be given priority to purchase the
specified number of Preferred Securities in the remarketing, provided the new
Distribution Rate is a Fixed Rate not less than the rate specified by the
holder.
If the Remarketing Agent is able to remarket all Preferred Securities
tendered or deemed tendered in connection with the remarketing at a price equal
to $1,000 per Preferred Security for the desired new Fixed Rate Period selected
by the Company and the Trust, the Distribution Rate on the Preferred Securities
for the new Fixed Rate Period will be the rate that the Remarketing Agent
determines, in its sole judgment, to be the lowest rate per annum, if any, that
will enable it to remarket all Preferred Securities tendered or deemed tendered
for remarketing at a price of $1,000 per Preferred Security.
If the Remarketing Agent is unable to remarket all Preferred Securities
tendered or deemed tendered in connection with a remarketing at a price equal to
$1,000 per Preferred Security for the desired new Fixed Rate Period selected by
the Company and the Trust, the Distribution Rate on the Preferred Securities
will be the then applicable Floating Rate. In such case, each holder will
continue to hold its Preferred Securities at the Floating Rate.
The purchase price payable to a holder for any Preferred Securities
repurchased from it in a remarketing is expected to be equal to $1,000 per
Preferred Security plus accrued and unpaid Distributions. Lehman Brothers Inc.
is expected to act as remarketing agent (the "Remarketing Agent") in connection
with any remarketing of the Preferred Securities.
You should read DESCRIPTION OF THE PREFERRED SECURITIES-REMARKETING for
more information regarding the procedures relating to a remarketing of the
Preferred Securities.
WHEN WILL YOU RECEIVE DISTRIBUTIONS?
If you purchase the Preferred Securities, you are entitled to receive
Distributions at the Distribution Rate on the applicable distribution payment
date (each, a "Distribution Payment Date"). During the Initial Fixed Rate
Period, Distributions will be payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on April 1, 2004. In any subsequent Fixed
Rate Period, Distributions will be payable semiannually in arrears determined
based on the remarketing date (if the Preferred Securities are remarketed for a
new Fixed Rate Period that begins on April 1 or October 1, Distributions will be
payable on April 1 and October 1 of each year and if the Preferred Securities
are remarketed for a new Fixed Rate Period that begins on January 1 or July 1,
Distributions will be payable on January 1 and July 1 of each year).
Distributions during any Floating Rate Period will be payable on January 1,
April 1, July 1 and October 1 of each year.
WHEN CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
The Company can, on one or more occasions, defer interest payments on the
Series B Junior Subordinated Debentures for up to five years at a time (each, an
"Extension Period"). A deferral of interest payments cannot extend, however,
beyond the maturity date of the Series B Junior Subordinated Debentures (which
is October 1, 2043). See DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED
DEBENTURES-OPTION TO EXTEND INTEREST PAYMENT PERIOD.
S-5
If the Company defers interest payments on the Series B Junior Subordinated
Debentures, the Trust will also defer Distributions on the Preferred Securities.
During any Extension Period, Distributions will continue to accrue on the
Preferred Securities. If the Company elects to defer interest during a Fixed
Rate Period, Distributions will continue to accrue at the Fixed Rate until the
expiration of the Fixed Rate Period. Upon expiration of such Fixed Rate Period
and any Fixed Rate Period during the Extension Period, the Company and the Trust
will have the option to remarket the Preferred Securities for a new Fixed Rate
Period. If the Company and the Trust do not remarket the Preferred Securities,
the Floating Rate during the Extension Period shall not be less than the Fixed
Rate for the Fixed Rate Period just ended. If the Company elects to defer
interest during a Floating Rate Period, Distributions will continue to accrue at
the applicable Floating Rate, reset quarterly, subject to the right of the
Company and the Trust to remarket the Preferred Securities prior to any
Distribution Payment Date in order to establish a new Fixed Rate Period to begin
on that Distribution Payment Date. Deferred Distributions will themselves accrue
interest at the then prevailing Distribution Rate (to the extent permitted by
law). Once the Company makes all interest payments on the Series B Junior
Subordinated Debentures, with accrued interest, it can again defer interest
payments on the Series B Junior Subordinated Debentures.
During any period in which the Company defers interest payments on the
Series B Junior Subordinated Debentures, the Company will not be permitted to
(with limited exceptions):
o declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its
capital stock, or
o make any payment of principal of or interest or premium, if any, on,
or repay, repurchase or redeem any of its debt securities that rank
equal with or junior to the Series B Junior Subordinated Debentures,
or
o make any guarantee payments with respect to any guarantee issued by
the Company if such guarantee ranks equally with, or junior to, the
Series B Junior Subordinated Debentures.
For a description of the limited exceptions pursuant to which the Company
may make certain repurchases, redemptions or other acquisitions during an
Extension Period, see DESCRIPTION OF TRUST PREFERRED SECURITIES-CERTAIN
COVENANTS in the accompanying Prospectus.
If the Company defers payments of interest on the Series B Junior
Subordinated Debentures, the Preferred Securities will, from the time of
deferral, be treated as being issued with original issue discount ("OID") for
United States federal income tax purposes. This means you will be required to
recognize interest income with respect to Distributions and include such amounts
in your gross income for United States federal income tax purposes even though
you will not have received any cash Distributions relating to such interest
income. You should consult with your own tax advisor regarding the tax
consequences of an investment in the Preferred Securities. See CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES-INTEREST INCOME AND ORIGINAL ISSUE
DISCOUNT.
WHEN CAN THE TRUST REDEEM THE PREFERRED SECURITIES?
The Trust must redeem all of the outstanding Preferred Securities and
Common Securities (together, the "Trust Securities") when the Series B Junior
Subordinated Debentures are paid at maturity on October 1, 2043 or are otherwise
due. In addition, if the Company redeems the Series B Junior Subordinated
Debentures before their maturity, the Trust will use the cash it receives from
the redemption to redeem Preferred Securities and Common Securities having a
combined liquidation amount equal to the principal amount of the Series B Junior
Subordinated Debentures redeemed.
S-6
The Company can redeem, in whole, but not in part, the Series B Junior
Subordinated Debentures before their maturity on the last Distribution Payment
Date relating to the Initial Fixed Rate Period, on such dates with respect to
any other Fixed Rate Period as the Company and the Trust may determine prior to
the remarketing establishing such Fixed Rate Period or on any Distribution
Payment Date relating to a Floating Rate Period (each, a "Redemption Date") at
100% of their principal amount plus accrued and unpaid interest to that
redemption date (the "Redemption Price"). The Company also has the option to
redeem the Series B Junior Subordinated Debentures, in whole, but not in part,
at any time at the Redemption Price if certain changes in tax or investment
company law occur and certain other conditions are satisfied, as more fully
described under DESCRIPTION OF THE PREFERRED SECURITIES-SPECIAL EVENT
REDEMPTION; DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES.
WHAT IS THE COMPANY'S GUARANTEE OF THE PREFERRED SECURITIES?
The Company will guarantee the Preferred Securities based on:
o its obligations to make payments on the Series B Junior Subordinated
Debentures;
o its obligations under the Guarantee; and
o its obligations under the Trust Agreement and the Agreement as to
Expenses and Liabilities between the Company and the Trust (the
"Agreement as to Expenses and Liabilities").
The Company's obligations under the Series B Junior Subordinated Debentures
are subordinate and junior in right of payment to all of its Senior Indebtedness
(as defined under DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED
DEBENTURES-SUBORDINATION in this Prospectus Supplement), which aggregated
approximately $782 million at June 30, 2003.
The payment of Distributions on the Preferred Securities is guaranteed by
the Company under the Guarantee, but only to the extent the Trust has funds on
hand available to make Distributions.
The Company's obligations under the Guarantee are:
o subordinate and junior in right of payment to all of its other
liabilities, including the Series B Junior Subordinated Debentures,
except those obligations or liabilities made pari passu or subordinate
by their terms;
o pari passu with its most senior preferred or preference stock, now or
hereafter issued by it and with any guarantee now or hereafter entered
into by it in respect of any preferred or preference securities by any
of its affiliates; and
o senior to its common stock.
WHEN COULD THE SERIES B JUNIOR SUBORDINATED DEBENTURES BE DISTRIBUTED TO YOU?
The Company has the right to terminate the Trust at any time. If the
Company terminates the Trust, the Trust will liquidate by distributing the
Series B Junior Subordinated Debentures to holders of the Preferred Securities
and the Common Securities on a pro rata basis. For a discussion of the Company's
ability to distribute the Series B Junior Subordinated Debentures, see
DESCRIPTION OF THE PREFERRED SECURITIES-SPECIAL EVENT REDEMPTION; DISTRIBUTION
OF SERIES B JUNIOR SUBORDINATED DEBENTURES and -LIQUIDATION DISTRIBUTION UPON
DISSOLUTION.
S-7
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
The Preferred Securities will not be listed on a stock exchange.
WILL HOLDERS OF THE PREFERRED SECURITIES HAVE ANY VOTING RIGHTS?
Generally, the holders of the Preferred Securities will not have any voting
rights. See DESCRIPTION OF THE PREFERRED SECURITIES-VOTING RIGHTS.
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The Preferred Securities will be represented by one or more global
securities that will be deposited with and registered in the name of a
securities depository or its nominee. This means that you will not receive a
certificate for your Preferred Securities and that your broker will maintain
your position in the Preferred Securities. The Company expects that the
Preferred Securities will be ready for delivery through a securities depository
on or about October 1, 2003. The Depository Trust Company ("DTC") will act as
the initial securities depository for the Preferred Securities.
S-8
RISK FACTORS
Your investment in the Preferred Securities will involve certain risks. You
should carefully consider the following discussion of risks as well as the
section entitled RISK FACTORS beginning on page 3 of the accompanying
Prospectus, and the other information in this Prospectus Supplement and the
accompanying Prospectus before deciding whether an investment in the Preferred
Securities is suitable for you.
THE COMPANY'S OBLIGATIONS UNDER THE GUARANTEE AND THE SERIES B JUNIOR
SUBORDINATED DEBENTURES ARE SUBORDINATED.
The Company's obligations under the Series B Junior Subordinated Debentures
will rank junior in priority of payment to all of the Company's Senior
Indebtedness. This means that the Company cannot make any payments on the Series
B Junior Subordinated Debentures if it defaults on a payment of Senior
Indebtedness and does not cure such default within the applicable grace period
or if the Senior Indebtedness becomes immediately due because of a default and
has not yet been paid in full. The Company's Senior Indebtedness aggregated
approximately $782 million as of June 30, 2003.
The Company's obligations under the Guarantee will rank in priority of
payment as follows:
o subordinate and junior in right of payment to all of its other
liabilities, including the Series B Junior Subordinated Debentures,
except those obligations or liabilities made pari passu or subordinate
by their terms;
o pari passu with its most senior preferred or preference stock, now or
hereafter issued by it and with any guarantee now or hereafter entered
into by it in respect of any preferred or preference securities by any
of its affiliates; and
o senior to its common stock.
This means that the Company cannot make any payments on the Guarantee if it
defaults on a payment on any of its other liabilities. In addition, in the event
of the bankruptcy, liquidation or dissolution of the Company, its assets would
be available to pay obligations under the Guarantee only after the Company made
all payments on its other liabilities.
Neither the Preferred Securities, the Series B Junior Subordinated
Debentures nor the Guarantee limit the ability of the Company to incur
additional indebtedness, including indebtedness that ranks senior in priority of
payment to the Series B Junior Subordinated Debentures and the Guarantee. See
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES-SUBORDINATION in the
accompanying Prospectus and DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED
DEBENTURES-SUBORDINATION in this Prospectus Supplement.
THE GUARANTEE ONLY COVERS PAYMENTS IF THE TRUST HAS CASH AVAILABLE.
The ability of the Trust to pay scheduled Distributions on the Preferred
Securities, the redemption price of the Preferred Securities and the liquidation
amount of each Preferred Security is solely dependent upon the Company making
the related payments on the Series B Junior Subordinated Debentures when due.
S-9
If the Company defaults on its obligations to pay principal or interest on
the Series B Junior Subordinated Debentures, the Trust will not have sufficient
funds to pay Distributions, the redemption price or the liquidation amount of
each Preferred Security. In those circumstances, you will not be able to rely
upon the Guarantee for payment of these amounts.
Instead, you:
o may directly sue the Company or seek other remedies to collect your
pro rata share of payments owed; or
o may rely on the Property Trustee to enforce the Trust's rights under
the Series B Junior Subordinated Debentures.
DEFERRAL OF DISTRIBUTIONS WOULD HAVE TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE
TRADING PRICE OF THE PREFERRED SECURITIES.
The Company can, on one or more occasions, defer interest payments on the
Series B Junior Subordinated Debentures for up to five years at any time. If the
Company defers interest payments on the Series B Junior Subordinated Debentures,
the Trust will defer Distributions on the Preferred Securities during any
Extension Period. However, Distributions would still accumulate and such
deferred Distributions would themselves accrue interest at the prevailing
Distribution Rate (to the extent permitted by law).
If the Company defers payments of interest on the Series B Junior
Subordinated Debentures, you will be required to recognize interest income for
United States federal income tax purposes (based on your pro rata share of the
interest on the Series B Junior Subordinated Debentures held by the Trust)
before you receive any cash relating to such interest. In the event of a
deferral, this income would constitute OID. In addition, you will not receive
such cash if you sell the Preferred Securities before the end of any deferral
period or before the record date relating to Distributions which are paid.
Instead, the accrued Distributions will be paid to the holder of record on the
record date, regardless of who the holder of record may have been on any date
during the deferral period. Moreover, the accrued OID will be added to your
adjusted tax basis in the Preferred Securities but might not be reflected in the
amount you realize on the sale. To the extent the amount realized on a sale is
less than your adjusted tax basis, you will recognize a capital loss for United
States federal income tax purposes. The deduction of capital losses is subject
to limitations.
The Company has no current intention of deferring interest payments on the
Series B Junior Subordinated Debentures. However, if the Company exercises its
right in the future, the Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest on the Series B Junior
Subordinated Debentures. If you sell the Preferred Securities during an interest
deferral period, you may not receive the same return on investment as someone
else who continues to hold the Preferred Securities. In addition, the existence
of the Company's right to defer payments of interest on the Series B Junior
Subordinated Debentures may mean that the market price for the Preferred
Securities (which represent an undivided beneficial interest in the Series B
Junior Subordinated Debentures) may be more volatile than other securities that
do not have these rights.
See CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES for more
information regarding the tax consequences of purchasing, holding and selling
the Preferred Securities.
S-10
PREFERRED SECURITIES MAY BE REDEEMED AT ANY TIME IF CERTAIN CHANGES IN TAX OR
INVESTMENT COMPANY LAW OCCUR.
Certain tax law changes have been proposed from time to time which could
affect the deductibility of interest paid on the Series B Junior Subordinated
Debentures. None of these proposals has become law. If certain changes in tax or
investment company law occur and are continuing, and certain other conditions
are satisfied, the Company has the right to redeem the Series B Junior
Subordinated Debentures, in whole, but not in part, at any time. Any such
redemption will cause a mandatory redemption of all Preferred Securities and
Common Securities at a redemption price equal to $1,000 per security plus any
accrued and unpaid Distributions. See DESCRIPTION OF THE PREFERRED
SECURITIES-SPECIAL EVENT REDEMPTION; DISTRIBUTION OF SERIES B JUNIOR
SUBORDINATED DEBENTURES.
PREFERRED SECURITIES MAY BE REDEEMED AT THE OPTION OF THE COMPANY.
At the option of the Company, the Series B Junior Subordinated Debentures
may be redeemed, in whole, but not in part, on the last Distribution Payment
Date relating to the Initial Fixed Rate Period, on such dates with respect to
any other Fixed Rate Period as the Company and the Trust may determine prior to
the remarketing establishing such Fixed Rate Period or on any Distribution
Payment Date relating to a Floating Rate Period at the Redemption Price. See
DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED DEBENTURES-OPTIONAL REDEMPTION.
You should assume that the Company will exercise its redemption option if the
Company is able to refinance at a lower interest rate or it is otherwise in the
interest of the Company to redeem the Series B Junior Subordinated Debentures.
If the Series B Junior Subordinated Debentures are redeemed, the Trust must
redeem the Preferred Securities and the Common Securities having an aggregate
liquidation amount equal to the aggregate principal amount of Series B Junior
Subordinated Debentures to be redeemed. See DESCRIPTION OF THE PREFERRED
SECURITIES-REDEMPTION.
THERE CAN BE NO ASSURANCE AS TO THE LIQUIDITY OF THE PREFERRED SECURITIES.
There is no assurance that a secondary market for the Preferred Securities
will develop or, if such a market develops, that the Preferred Securities will
trade at or close to their stated liquidation amount. The ability of a holder of
the Preferred Securities to sell such Preferred Securities may depend on the
success of the remarketing. If the Remarketing Agent cannot remarket the
Preferred Securities or the Company does not elect to remarket the Preferred
Securities, the holders of the Preferred Securities may not be able to sell
Preferred Securities. It is not expected that the Preferred Securities will be
listed on any securities exchange.
AFTER THE INITIAL FIXED RATE PERIOD, THE DISTRIBUTION RATE ON THE PREFERRED
SECURITIES WILL VARY.
The Distribution Rate on the Preferred Securities is fixed at 5.25% per
annum for the Initial Fixed Rate Period. Thereafter, the Preferred Securities
will pay Distributions at Fixed Rates during future Fixed Rate Periods, which
rates will be determined through remarketings of the Preferred Securities, or at
Floating Rates during Floating Rate Periods, which rates will be the Initial
Credit Spread plus the Adjustable Rate. In connection with any proposed
remarketing to set a Fixed Rate for a new Fixed Rate Period, you may have the
opportunity to elect to sell your Preferred Securities to the Remarketing Agent
at a price of $1,000, plus accrued and unpaid distributions, per Preferred
Security. If, however, the remarketing is unsuccessful, the Preferred Securities
will pay Distributions at a Floating Rate until any future time that the Company
and the Trust elect to remarket the Preferred Securities to set a new Fixed Rate
and are able to successfully remarket the Preferred Securities.
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Fixed Rate Periods and Floating Rate Periods can be of varying lengths and
varying Distribution Rates. Distribution Rates on the Preferred Securities may
move back and forth between Fixed Rates and Floating Rates over the life of the
Preferred Securities.
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICES FOR THE PREFERRED SECURITIES
OR THE SERIES B JUNIOR SUBORDINATED DEBENTURES.
There can be no assurance as to the market prices for the Preferred
Securities or the Series B Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities upon a termination of the
Trust. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made by this Prospectus Supplement, in a
remarketing or in the secondary market, or the Series B Junior Subordinated
Debentures that a holder of Preferred Securities may receive upon a termination
of the Trust, may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered by this Prospectus Supplement. As a
result of the Company's right to defer interest payments on the Series B Junior
Subordinated Debentures, the market price of the Preferred Securities (which
represent undivided beneficial ownership interests in the Trust, substantially
all the assets of which consist of the Series B Junior Subordinated Debentures)
may be more volatile than the market prices of other securities that are not
subject to such optional deferrals.
THE COMPANY MAY TERMINATE THE TRUST AT ANY TIME.
The Company has the right to terminate the Trust at any time. If the
Company decides to exercise its right to terminate the Trust, the Trust will
liquidate by distributing the Series B Junior Subordinated Debentures to holders
of the Preferred Securities and the Common Securities on a pro rata basis.
Under current United States federal income tax law, a distribution of
Series B Junior Subordinated Debentures to you on the dissolution of the Trust
should not be a taxable event to you. However, if the Trust is characterized for
United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved or if there is a change in law, the
distribution of Series B Junior Subordinated Debentures to you may be a taxable
event to you.
The Company has no current intention of causing the termination of the
Trust and the distribution of the Series B Junior Subordinated Debentures. The
Company anticipates that it would consider exercising this right in the event
that expenses associated with maintaining the Trust were substantially greater
than currently expected such as if certain changes in tax law or investment
company law occurred. See DESCRIPTION OF THE PREFERRED SECURITIES-SPECIAL EVENT
REDEMPTION, DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES. The Company
cannot predict the other circumstances under which this right would be
exercised.
YOU HAVE LIMITED VOTING RIGHTS.
You will have limited voting rights. In particular, subject to certain
exceptions, only the Company can appoint or remove any of the Securities
Trustees. See DESCRIPTION OF THE PREFERRED SECURITIES-VOTING RIGHTS.
SWEPCO CAPITAL TRUST I
The 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 August
15, 2003. The Trust's business is defined in a trust agreement, executed by the
Company, as Depositor and the Delaware Trustee thereunder. This trust
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agreement will be amended and restated in its entirety on the Issue Date
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus form a part
(the "Trust Agreement"). The Trust Agreement will be qualified as an indenture
under the Trust Indenture Act of 1939, as amended (the "1939 Act"). The Trust
exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the Trust; (ii)
investing the gross proceeds of the Trust Securities in the Series B Junior
Subordinated Debentures; and (iii) engaging in only those other activities
necessary, appropriate, convenient or incidental thereto. The Trust has a term
of approximately 40 years, but may terminate earlier as provided in the Trust
Agreement.
Upon issuance of the Preferred Securities, the purchasers thereof will own
all of the Preferred Securities. The Company will acquire all of the Common
Securities, which will have an aggregate liquidation amount equal to
approximately 3% of the total capital of the Trust. The Common Securities will
rank on a parity with, and payments will be made thereon pro rata with, the
Preferred Securities, except that upon the occurrence and continuance of a
Subordinated Indenture Event of Default (as defined below), the rights of the
holders of Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities.
The Trust's business and affairs will be conducted by the Securities
Trustees, which shall be appointed by the Company as the holder of the Common
Securities. Two officers of the Company initially will serve as the
Administrative Trustees. The Bank of New York will serve as Property Trustee and
will hold legal title to the Series B Junior Subordinated Debentures issued by
the Company on behalf of the Trust and the holders of the Trust Securities. The
Bank of New York (Delaware) will serve as Delaware Trustee. In certain
circumstances, the holders of a majority in liquidation amount of the Preferred
Securities will be entitled to appoint a Substitute Property Trustee. See
DESCRIPTION OF THE PREFERRED SECURITIES-VOTING RIGHTS.
The Property Trustee will hold legal title to the Series B Junior
Subordinated Debentures for the benefit of the Trust and the holders of the
Trust Securities and will have the power to exercise all rights, powers and
privileges under the Subordinated Indenture as the holder of the Series B Junior
Subordinated Debentures. The Property Trustee will make payments of
Distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities. Subject to the right of the holders of the
Preferred Securities to appoint a Substitute Property Trustee in certain
instances, the Company, as the holder of all the Common Securities, will have
the right to appoint, remove or replace all the Securities Trustees.
The Series B Junior Subordinated Debentures will constitute substantially
all of the assets of the Trust. Other assets that may constitute "Trust
Property" (as that term is defined in the Trust Agreement) include any cash on
deposit in, or owing to, the payment account as established under the Trust
Agreement, as well as any other property or assets held by the Property Trustee
pursuant to the Trust Agreement. In addition, the Trust may, from time to time,
receive cash pursuant to the Agreement as to Expenses and Liabilities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the Trust
Agreement, the Delaware Statutory Trust Act and the 1939 Act. See DESCRIPTION OF
THE PREFERRED SECURITIES.
The Trust's registered office in the State of Delaware is White Clay
Center, Route 273, Newark, Delaware 19711. The principal place of business of
the Trust shall be c/o the Company 1 Riverside Plaza, Columbus, Ohio 43215,
telephone number (614) 716-1000.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2003:
o on an actual basis; and
o on an as adjusted basis to give effect to the sale of the Preferred
Securities after deducting estimated offering expenses, and the
expected use of proceeds described herein.
You should read the information in this table along with the financial
information included or incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus.
Capitalization
As of June 30, 2003
-------------------
(Unaudited)
Actual As adjusted
------ -----------
(Millions)
Common Shareholder's Equity..................................................... $ 664 $ 664
Cumulative Preferred Stock...................................................... 5 5
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures (1)............ 110 110
Long-Term Debt.................................................................. 734 734
-------- --------
Total, excluding amounts due within one year of $47 million $1,513 $1,513
====== ======
- -----------------------
(1) Substantially all of the assets of the subsidiary trust are junior
subordinated debentures of the Company and upon redemption of such
debt, the related preferred securities will be mandatorily redeemable.
USE OF PROCEEDS
The Trust will invest the proceeds received from the sale of the Preferred
Securities in Series B Junior Subordinated Debentures. The net proceeds received
by the Company from such investment will be used by the Company to redeem $110
million in aggregate outstanding principal amount of the Company's 7.875% Junior
Subordinated Deferrable Interest Debentures, Series A due 2037 which will, in
turn, cause the redemption of the SWEPCo Capital I 7.875% Trust Preferred
Securities.
ACCOUNTING TREATMENT
For financial reporting purposes, the Series B Junior Subordinated
Debentures issued by the Company to the Trust will be included in the Company's
consolidated financial statements under the long-term debt section and
appropriate disclosures concerning the Preferred Securities, the Guarantee and
the Series B Junior Subordinated Debentures will be included in the notes to the
Company's consolidated financial statements.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the 1939
Act. The Property Trustee will act as the Indenture trustee with respect to the
Trust, as well as the Guarantee, for purposes of compliance with the provisions
of the 1939 Act. The terms of the Preferred Securities will include those stated
in the Trust Agreement and the Delaware Statutory Trust Act and those made part
of the Trust Agreement by the 1939 Act. This description supplements, and should
be read together with, the description of the general terms
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and provisions of the Preferred Securities set forth in the accompanying
Prospectus under the caption DESCRIPTION OF THE TRUST PREFERRED SECURITIES. If
the descriptions are inconsistent, the description in the Prospectus Supplement
controls. The following summary of the principal terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Trust Agreement, the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus are a part, as well as the
Delaware Statutory Trust Act and 1939 Act.
GENERAL
The Trust Agreement authorizes the Administrative Trustees, on behalf of
the Trust, to issue the Preferred Securities, which represent preferred
undivided beneficial interests in the assets of the Trust, and the Common
Securities, which represent common undivided beneficial interests in the assets
of the Trust. All of the Common Securities will be owned by the Company. The
Common Securities rank on a parity with, and payments will be made thereon on a
pro rata basis with, the Preferred Securities, except that upon the occurrence
of a Subordinated Indenture Event of Default, the rights of the holders of the
Common Securities to receive payment of periodic Distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Preferred Securities. The Trust Agreement does not permit the
issuance by the Trust of any securities other than the Trust Securities or the
incurrence of any indebtedness by the Trust. Pursuant to the Trust Agreement,
the Property Trustee will own and hold the Series B Junior Subordinated
Debentures for the benefit of the Trust and the holders of the Trust Securities.
The payment of Distributions out of money held by the Trust, and payments upon
redemption of the Preferred Securities or liquidation of the Trust, are
guaranteed by the Company on a subordinated basis as and to the extent described
under the captions RISK FACTORS-THE COMPANY'S OBLIGATIONS UNDER THE GUARANTEE
AND THE SERIES B JUNIOR SUBORDINATED DEBENTURES ARE SUBORDINATED in this
Prospectus Supplement and DESCRIPTION OF GUARANTEES in the accompanying
Prospectus. The Guarantee does not cover payment of Distributions on the
Preferred Securities when the Trust does not have funds available on hand
sufficient to make such Distributions. In such event, the remedy of a holder of
Preferred Securities is to direct the Property Trustee to enforce its rights
under the Series B Junior Subordinated Debentures. In addition, 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 Series B Junior Subordinated Debentures
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 Series B Junior Subordinated Debentures. The above mechanisms and
obligations, together with the Company's obligations under the Agreement as to
Expenses and Liabilities, constitute a full and unconditional guarantee by the
Company of payments due on the Preferred Securities.
DISTRIBUTIONS
GENERAL
The Initial Distribution Rate on the Preferred Securities will be 5.25% per
annum, payable semiannually in arrears, for the Initial Fixed Rate Period. If
the Preferred Securities are not redeemed, the Company and the Trust will have
the option to remarket the Preferred Securities prior to the expiration of the
Initial Fixed Rate Period (to be in effect after the Initial Fixed Rate Period)
to establish a new Fixed Rate with respect to the Preferred Securities. Any new
Fixed Rate so established will be in effect for such Fixed Rate Period as the
Company and the Trust determine in connection with the remarketing, provided
that a Fixed Rate Period must be for a duration of at least six months, may not
extend beyond the stated maturity of the Series B Junior Subordinated Debentures
and may not end on a day other than a day immediately preceding a Distribution
Payment Date. Distributions on Preferred Securities during any
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Fixed Rate Period will be payable semiannually in arrears. Prior to expiration
of any Fixed Rate Period, the Company and the Trust will have the option to
again remarket the Preferred Securities to establish a new Fixed Rate for a new
Fixed Rate Period (to be in effect after the expiration of the then current
Distribution Period). The Company and the Trust also have the option to remarket
the Preferred Securities for the purpose of establishing a new Fixed Rate for a
new Fixed Rate Period prior to any Distribution Payment Date during a time in
which Preferred Securities are redeemable in a subsequent Fixed Rate Period.
If the Preferred Securities are not redeemed and the Company and the Trust
elect not to remarket the Preferred Securities prior to expiration of the
Initial Fixed Rate Period or any subsequent Fixed Rate Period, or if they are
unable to successfully remarket all Preferred Securities tendered for sale in a
remarketing, Distributions on the Preferred Securities will thereafter be
payable at the Floating Rate, subject to the right of the Company and the Trust
to subsequently remarket Preferred Securities to again establish a Fixed Rate
for a new Fixed Rate Period. During any Floating Rate Period, Distributions on
the Preferred Securities will be payable quarterly in arrears. The Company and
the Trust may elect to remarket the Preferred Securities prior to any
Distribution Payment Date relating to a Floating Rate Period in order to again
establish a new Fixed Rate for a new Fixed Rate Period (to be in effect after
the expiration of the then current Distribution Period).
During the Initial Distribution Period, Distributions will be payable
semiannually in arrears on April 1 and October 1 of each year, commencing on
April 1, 2004. In any subsequent Fixed Rate Period, Distributions will be
payable semiannually in arrears determined based on the remarketing date (if the
Preferred Securities are remarketed for a new Fixed Rate Period that begins on
April 1 or October 1, Distributions will be payable on April 1 and October 1 of
each year, and if the Preferred Securities are remarketed for a new Fixed Rate
Period that begins on January 1 or July 1, Distributions will be payable on
January 1 and July 1 of each year). Distributions during any Floating Rate
Period will be payable on January 1, April 1, July 1 and October 1 of each year.
Distributions not paid on a Distribution Payment Date will accumulate additional
Distributions (to the extent permitted by law) compounded semiannually at the
Fixed Rate or quarterly at the Floating Rate, as applicable, then in effect.
If any Distribution Payment Date with respect to a Fixed Rate Period is not
a Business Day, then Distributions will be payable on the first Business Day
following such Distribution Payment Date with the same force and effect as if
payment was made on the date such payment was originally payable. If any
Distribution Payment Date with respect to a Floating Rate Period is not a
Business Day, then Distributions will be payable on the first Business Day
following such Distribution Payment Date and Distributions shall accrue to the
actual payment date (except for a Distribution Payment Date that coincides with
the Redemption Date).
Distributions shall be payable on the Distribution Payment Date to holders
of record as of the opening of business on the Business Day immediately
preceding such Distribution Payment Date (the "Record Date").
The amount of Distributions per Preferred Security payable on each
semiannual Distribution Payment Date relating to a Fixed Rate Period will be
computed on the basis of a 360-day year of twelve 30-day months. The amount of
Distributions per Preferred Security payable on each quarterly Distribution
Payment Date in respect of a Floating Rate Period will be computed by
multiplying the per annum Distribution Rate in effect for such Distribution
Period by a fraction, the numerator of which will be the actual number of days
in such Distribution Period (or portion thereof) (determined by including the
first day thereof and excluding the last thereof) and the denominator of which
will be 360, and multiplying the rate so obtained by $1,000.
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Distributions on the Preferred Securities must be paid on the Distribution
Payment Dates to the extent that the Trust has funds on hand available for the
payment of such Distributions. The Trust's funds available for distribution to
the holders of the Preferred Securities will be limited to payments received
under the Series B Junior Subordinated Debentures. See DESCRIPTION OF THE SERIES
B JUNIOR SUBORDINATED DEBENTURES.
DETERMINING THE FLOATING RATE
During any Floating Rate Period, the Calculation Agent shall calculate the
Floating Rate and the amount of Distributions payable on each quarterly
Distribution Payment Date relating to a Floating Rate Period. Promptly upon such
determination, the Calculation Agent shall notify the Company, the Indenture
Trustee and the Property Trustee, if the Property Trustee or the Indenture
Trustee is not then serving as the Calculation Agent, of the Floating Rate for
the new Distribution Period. The Floating Rate determined by the Calculation
Agent, absent manifest error, shall be binding and conclusive upon the
beneficial owners and holders of the Preferred Securities, the Company and the
Securities Trustees.
Except as provided below, the Floating Rate for any Floating Rate Period
for the Preferred Securities will be equal to the Adjustable Rate (as defined
below) plus 2.375% (the "Initial Credit Spread"). The "Adjustable Rate" for any
Distribution Period will be equal to the highest of the 3-month LIBOR Rate, the
10-year Treasury CMT and the 30-year Treasury CMT (each as defined below and
collectively referred to as the "Benchmark Rates") for such Distribution Period
during the Floating Rate Period. In the event that the Calculation Agent
determines in good faith that for any reason:
o any one of the Benchmark Rates cannot be determined for any
Distribution Period, the Adjustable Rate for such Distribution Period
will be equal to the higher of whichever two of such rates can be so
determined;
o only one of the Benchmark Rates can be determined for any Distribution
Period, the Adjustable Rate for such Distribution Period will be equal
to whichever such rate can be so determined; or
o none of the Benchmark Rates can be determined for any Distribution
Period, the Adjustable Rate for the preceding Distribution Period will
be continued for such Distribution Period.
The "3-MONTH LIBOR RATE" means, for each Distribution Period, the
arithmetic average of the two most recent weekly quotes for deposits for U.S.
Dollars having a term of three months, as published on the first Business Day of
each week during the relevant Calendar Period (as defined below) immediately
preceding the Distribution Period for which the Floating Rate is being
determined. Such quotes will be taken from Telerate Page 3750 at approximately
11:00 a.m. London time on the relevant date. If such rate does not appear on
Telerate Page 3750 on the relevant date, the 3-month LIBOR Rate will be the
arithmetic mean of the rates quoted by three major banks in New York City
selected by the Calculation Agent, at approximately 11:00 a.m., New York City
time, on the relevant date for loans in U.S. Dollars to leading European banks
for a period of three months.
The "10-YEAR TREASURY CMT" means the rate determined in accordance with the
following provisions:
o With respect to any Distribution determination date and the
Distribution Period that begins immediately thereafter, the 10-year
Treasury CMT means the rate displayed on Telerate Page 7051 under the
caption "...Treasury Constant Maturities...Federal Reserve Board
Release
S-17
H.15...Mondays Approximately 3:45 p.m.", under the column for the
Designated CMT Maturity Index (as defined below).
o If such rate is no longer displayed on the relevant page, or is not so
displayed by 3:00 p.m., New York City time, on the applicable
Distribution determination date, then the 10-year Treasury CMT for
such Distribution determination date will be such treasury constant
maturity rate for the Designated CMT Maturity Index as is published in
H.15(519).
o If such rate is no longer displayed on the relevant page, or if not
published by 3:00 p.m., New York City time, on the applicable
Distribution determination date, then the 10-year Treasury CMT for
such Distribution determination date will be such constant maturity
treasury rate for the Designated CMT Maturity Index (or other United
States Treasury rate for the Designated CMT Maturity Index) for the
applicable Distribution determination date with respect to such
Distribution reset date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States
Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Telerate Page 7051
and published in H.15(519).
o If such information is not provided by 3:00 p.m., New York City time,
on the applicable Distribution determination date, then the 10-year
Treasury CMT for such Distribution determination date will be
calculated by the Calculation Agent and will be a yield to maturity,
based on the arithmetic mean of the secondary market offered rates as
of approximately 3:30 p.m., New York City time, on the Distribution
determination date reported, according to their written records, by
three leading primary United States government securities dealers in
The City of New York (each, a "Reference Dealer") selected by the
Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for the most recently
issued direct noncallable fixed rate obligations of the United States
("Treasury Debentures") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not
less than such Designated CMT Maturity Index minus one year.
o If the Calculation Agent is unable to obtain three such Treasury
Debentures quotations, the 10-year Treasury CMT for the applicable
Distribution determination date will be calculated by the Calculation
Agent and will be a yield to maturity based on the arithmetic mean of
the secondary market offered rates as of approximately 3:30 p.m., New
York City time, on the applicable Distribution determination date of
three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent and eliminating
the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one
of the lowest)), for Treasury Debentures with an original maturity of
the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100
million.
o If three or four (and not five) of such Reference Dealers are quoting
as set forth above, then the 10-year Treasury CMT will be based on the
arithmetic mean of the offered rates obtained and neither the highest
nor lowest of such quotes will be eliminated; provided, however, that
if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as set forth above, the 10-year Treasury CMT with
respect to the applicable Distribution determination date will remain
the 10-year Treasury CMT for the immediately preceding Distribution
Period. If two Treasury Debentures with an original maturity as
described in the second preceding sentence have
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remaining terms to maturity equally close to the Designated CMT
Maturity Index, then the quotes for the Treasury Debentures with the
shorter remaining term to maturity will be used.
The "30-YEAR TREASURY CMT" has the meaning specified under the definition
of 10-year Treasury CMT, except that the Designated CMT Maturity Index for the
30-year Treasury CMT shall be 30 years.
The 3-month LIBOR Rate, the 10-year Treasury CMT and the 30-year Treasury
CMT shall each be rounded to the nearest hundredth of a percent.
The Floating Rate with respect to each Floating Rate Period will be
calculated as promptly as practicable by the Calculation Agent according to the
appropriate method described above.
"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 Indenture
Trustee's corporate trust office is closed for business.
"Calculation Agent" means The Bank of New York, or its successor appointed
by the Company and the Trust, acting as calculation agent.
"Calendar Period" means a period of 180 calendar days.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (10 years) with respect to which the 10-year
Treasury CMT will be calculated.
"Telerate Page 3750" means the display designated on page 3750 on MoneyLine
Telerate (or such other page as may replace the 3750 page on the service or such
other service as may be nominated by the British Bankers' Association for the
purpose of displaying London interbank offered rates for U.S. Dollars deposits).
"Telerate Page 7051" means the display on MoneyLine Telerate (or any
successor service), on such page (or any other page as may replace such page on
that service), for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519).
DEFERRED DISTRIBUTIONS
The Company has the right under the Subordinated Indenture to defer
payments of interest on the Series B Junior Subordinated Debentures by extending
the interest payment period from time to time on the Series B Junior
Subordinated Debentures which, if exercised, would defer Distributions on the
Preferred Securities during any Extension Period. During any Extension Period,
Distributions will continue to accrue on the Preferred Securities at the then
applicable Distribution Rate. If the Company elects to defer interest during a
Fixed Rate Period, Distributions will continue to accrue at the Fixed Rate until
the expiration of the Fixed Rate Period. Upon expiration of such Fixed Rate
Period and any Fixed Rate Period during the Extension Period, the Company and
the Trust will have the option to remarket the Preferred Securities for a new
Fixed Rate Period. If the Company and the Trust do not remarket the Preferred
Securities, the Floating Rate during the Extension Period shall not be less than
the Fixed Rate for the Fixed Rate Period just ended. If the Company elects to
defer interest during a Floating Rate Period, Distributions will continue to
accrue at the applicable Floating Rate, reset quarterly, subject to the right of
the Company and the Trust to remarket the Preferred Securities prior to any
Distribution Payment Date in order to establish a new Fixed Rate for a new Fixed
Rate Period.
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An Extension Period shall not extend beyond the stated maturity of the
Series B Junior Subordinated Debentures. Prior to the termination of any
Extension Period, the Company may further defer payments of interest provided
that the Extension Period, together with all such previous and further
extensions thereof, may not exceed five (5) years. The Company may only
terminate an Extension Period on the last day of a Distribution Period. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may select a new Extension Period, subject to the above requirements.
There could be multiple Extension Periods of varying lengths throughout the term
of the Series B Junior Subordinated Debentures.
Deferred installments of interest on the Series B Junior Subordinated
Debentures will bear interest, compounded on each Interest Payment Date, at a
rate per annum equal to the applicable Distribution Rate. Any deferred
Distributions and accrued interest thereon shall be paid, if funds are legally
available therefor, to holders of record of the Preferred Securities as they
appear on the books and records of the Trust on the Record Date next preceding
the termination of such Extension Period. See DESCRIPTION OF THE SERIES B JUNIOR
SUBORDINATED DEBENTURES-INTEREST and-OPTION TO EXTEND INTEREST PAYMENT PERIOD.
REDEMPTION
The Preferred Securities are subject to mandatory redemption upon repayment
of the Series B Junior Subordinated Debentures at maturity, their earlier
redemption or when they are otherwise due. The Series B Junior Subordinated
Debentures will mature on October 1, 2043, and may be redeemed, in whole, but
not in part, at the option of the Company, on the last Distribution Payment Date
relating to the Initial Fixed Rate Period, on such dates with respect to any
other Fixed Rate Period as the Company and the Trust may determine prior to the
remarketing establishing such Fixed Rate Period or on any Distribution Payment
Date relating to a Floating Rate Period or at any time in whole, but not in
part, upon the occurrence of a Special Event (as discussed below) at the
Redemption Price. Upon the repayment of the Series B Junior Subordinated
Debentures, whether at maturity, upon redemption or when they are otherwise due,
the proceeds from such repayment or payment shall simultaneously be applied to
redeem a like amount of Trust Securities upon not less than 30 nor more than 60
days' notice, at a redemption price equal to the stated liquidation amount of
$1,000 plus accrued and unpaid Distributions thereon to the date of payment (the
"Preferred Securities Redemption Price"). See DESCRIPTION OF THE SERIES B JUNIOR
SUBORDINATED DEBENTURES-OPTIONAL REDEMPTION.
SPECIAL EVENT REDEMPTION; DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED
DEBENTURES
Upon the occurrence of a Special Event at any time, the Company will have
the option to redeem the Series B Junior Subordinated Debentures in whole (and
thus cause the redemption of the Preferred Securities in whole) (a "Special
Event Redemption"). A Special Event is either an Investment Company Act Event or
a Tax Event. For a description of the definition of Investment Company Act
Event, see DESCRIPTION OF TRUST PREFERRED SECURITIES-REDEMPTION in the
accompanying Prospectus.
"Tax Event" means that the Administrative Trustees and the Company shall
have received an opinion from independent tax counsel experienced in such
matters (which may be counsel to the Company) to the effect that, as a result of
(a) any amendment to, or change (including any announced proposed change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations, there
is more than an insubstantial risk that (i) the Trust would be subject to United
States federal income tax with respect to income accrued or received on the
Series B Junior Subordinated Debentures; (ii) interest payable on the Series B
Junior Subordinated Debentures would not be deductible, in whole or in part, by
the Company for United States federal income tax
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purposes; or (iii) the Trust would be subject to more than a de minimis amount
of other taxes, duties or other governmental charges, which change or amendment
becomes effective on or after the Issue Date.
The Company will have the right at any time to terminate the Trust and,
after satisfaction of liabilities to creditors of the Trust, if any, cause the
Series B Junior Subordinated Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Trust. See -LIQUIDATION DISTRIBUTION
UPON DISSOLUTION below. This right is optional and wholly within the discretion
of the Company. Circumstances under which the Company may determine to exercise
such right could include the occurrence of an Investment Company Act Event or a
Tax Event, adverse tax consequences to the Company or the Trust that are not
within the definition of a Tax Event because they do not result from an
amendment or change described in such definition and changes in the accounting
requirements applicable to the Preferred Securities as described under
ACCOUNTING TREATMENT.
If Series B Junior Subordinated Debentures are distributed to the holders
of the Preferred Securities, the Interest Rate, interest payable, Interest
Periods and Interest Payment Dates for the Series B Junior Subordinated
Debentures will be determined in the same manner as the Distribution Rate,
Distributions, Distribution Periods and Distribution Payment Dates for the
Preferred Securities and the associated remarketing procedures shall remain the
same except (i) the effects of Trust Agreement Events of Default (as defined
below) shall be occasioned only by the Subordinated Indenture Events of Default
and (ii) the cure and waiver provisions relating to Trust Agreement Events of
Default shall be superceded by the cure and waiver provisions relating to
Subordinated Indenture Events of Default. See DESCRIPTION OF THE JUNIOR
SUBORDINATED DEBENTURES-EVENTS OF DEFAULT in the accompanying Prospectus. After
the date for any distribution of Series B Junior Subordinated Debentures upon
termination of the Trust, (i) the Preferred Securities and the Guarantee will no
longer be deemed to be outstanding; (ii) the securities depositary or its
nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Series B Junior
Subordinated Debentures to be delivered upon such distribution; and (iii) any
certificates representing Preferred Securities and the Guarantee not held by the
securities depositary or its nominee will be deemed to represent Series B Junior
Subordinated Debentures having an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an Interest Rate identical to the
Distribution Rate of, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, such Preferred Securities, until such certificates are
presented to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Series B Junior Subordinated Debentures that may be
distributed in exchange for the Preferred Securities if a termination and
liquidation of the Trust were to occur. Accordingly, the Preferred Securities
that an investor may purchase, or the Series B Junior Subordinated Debentures
that the investor may receive on termination and liquidation of the Trust, may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Redemption of the Preferred Securities shall be at the Preferred Securities
Redemption Price with the proceeds from the contemporaneous redemption of the
Series B Junior Subordinated Debentures. The Preferred Securities Redemption
Price shall be deemed payable on each redemption date only to the extent that
the Trust has funds on hand available for payment of such Preferred Securities
Redemption Price. For a further description of redemption procedures, see
DESCRIPTION OF TRUST PREFERRED SECURITIES-REDEMPTION PROCEDURES in the
accompanying Prospectus.
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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
Preferred Securities by tender, in the open market or by private agreement.
REMARKETING
REMARKETING PROCEDURES
Set forth below is a summary of the procedures to be followed in connection
with a remarketing of the Preferred Securities (or, if the Series B Junior
Subordinated Debentures have been distributed to holders of the Trust Securities
in liquidation of the Trust, the Series B Junior Subordinated Debentures):
If the Company and the Trust elect to conduct a remarketing, not less than
20 nor more than 35 Business Days prior to the related Election Date, the Trust
is required to give the notice of remarketing of the Preferred Securities to
DTC, the Remarketing Agent, the Property Trustee, the Indenture Trustee and the
Calculation Agent. Such notice will describe the Remarketing and will indicate
the length of the proposed new Fixed Rate Period, the proposed Remarketing Date
and any redemption provisions that will apply during such new Fixed Rate Period.
At any time prior to the Election Date, the Company and the Trust may elect to
terminate a remarketing by giving DTC, the Remarketing Agent, the Property
Trustee, the Indenture Trustee and the Calculation Agent notice of such
termination.
Not later than 4:00 p.m., New York City time, on an Election Date, each
holder of Preferred Securities may give, through the facilities of DTC, a notice
to the Property Trustee of its election ("Notice of Election") (i) to retain and
not to have all or any portion of the Preferred Securities owned by it
remarketed in the remarketing, or (ii) to tender all or any portion of such
Preferred Securities for purchase in the remarketing (such portion, in either
case, is required to be in the liquidation amount of $1,000 or any integral
multiple thereof). Any Notice of Election given to the Property Trustee will be
irrevocable and may not be conditioned upon the level at which the Fixed Rate is
established in the remarketing. Promptly after 4:30 p.m., New York City time, on
such Election Date, the Property Trustee, based on the Notices of Election
received by it through DTC prior to such time, will notify the Trust, the
Company and the Remarketing Agent of the number of Preferred Securities to be
retained by holders of Preferred Securities and the number of Preferred
Securities tendered for purchase in the remarketing.
If any holder of Preferred Securities gives a Notice of Election to tender
Preferred Securities as described in clause (ii) in the prior paragraph, the
Preferred Securities so subject to such Notice of Election will be deemed
tendered for purchase in the remarketing, notwithstanding any failure by such
holder to deliver or properly deliver such Preferred Securities to the
Remarketing Agent for purchase. If any holder of Preferred Securities fails
timely to deliver a Notice of Election, as described above, such Preferred
Securities will be deemed tendered for purchase in such remarketing,
notwithstanding such failure or the failure by such holder to deliver or
properly deliver such Preferred Securities to the Remarketing Agent for
purchase.
The right of each holder of Preferred Securities to have Preferred
Securities tendered for purchase shall be limited to the extent that (i) the
Remarketing Agent conducts a remarketing pursuant to the terms of the
Remarketing Agreement (as defined below); (ii) Preferred Securities tendered
have not been called for redemption; (iii) the Remarketing Agent is able to find
a purchaser or purchasers for tendered Preferred Securities at a Fixed Rate; and
(iv) such purchaser or purchasers deliver the purchase price therefor to the
Remarketing Agent.
Any holder of Preferred Securities that desires to continue to retain a
number of Preferred Securities, but only if the Fixed Rate is not less than a
specified rate per annum, should submit a Notice of
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Election to tender such Preferred Securities and separately notify the
Remarketing Agent of its interest at the telephone number set forth in the
notice of remarketing. If such holder so notifies the Remarketing Agent, the
Remarketing Agent will give priority to such holder's purchase of such number of
Preferred Securities in the remarketing, providing that the Fixed Rate is not
less than such specified rate.
If holders submit Notices of Election to retain all of the Preferred
Securities then outstanding, the Fixed Rate will be the rate determined by the
Remarketing Agent, in its sole discretion, as the rate that would have been
established had a remarketing been held on the related Remarketing Date.
On any Remarketing Date on which the remarketing is to be conducted, the
Remarketing Agent will use commercially reasonable efforts to remarket, at a
price equal to 100% of the liquidation amount thereof, Preferred Securities
tendered or deemed tendered for purchase.
If, as a result of such efforts, on any Remarketing Date, the Remarketing
Agent has determined that it will be able to remarket all Preferred Securities
tendered or deemed tendered for purchase in the remarketing at a Fixed Rate and
at a price of $1,000 per Preferred Security, prior to 4:00 p.m., New York City
time, on such Remarketing Date, the Remarketing Agent will determine the Fixed
Rate, which will be the rate per annum (rounded to the nearest one-thousandth
(0.001) of one percent per annum) which the Remarketing Agent determines, in its
sole judgment, to be the lowest Fixed Rate per annum, if any, that will enable
it to remarket all Preferred Securities tendered or deemed tendered for
remarketing at a price of $1,000 per Preferred Security.
If the Remarketing Agent is unable to remarket by 4:00 p.m., New York City
time on the third Business Day prior to the Remarketing Settlement Date, all
Preferred Securities tendered or deemed tendered for purchase at a price of
$1,000 per Preferred Security, the Distribution Rate shall be the Floating Rate.
In such case, no Preferred Securities will be sold in the remarketing and each
holder will continue to hold its Preferred Securities at the Floating Rate. All
Preferred Securities tendered or deemed tendered in the remarketing will be
automatically delivered to the account of the Remarketing Agent through the
facilities of DTC against payment of the purchase price therefor on the
Remarketing Settlement Date. The Remarketing Agent will make payment to the
Participant (as defined below) of each tendering holder of Preferred Securities
in the remarketing through the facilities of DTC by the close of business on the
Remarketing Settlement Date.
In accordance with DTC's normal procedures, on the Remarketing Settlement
Date, the transactions described above with respect to each Preferred Security
tendered for purchase and sold in the remarketing will be executed through DTC
and the accounts of the Participants (as defined below) will be debited and
credited and such Preferred Securities delivered by book entry as necessary to
effect purchases and sales of such Preferred Securities. DTC is expected to make
payment in accordance with its normal procedures.
If any holder selling Preferred Securities in the remarketing fails to
deliver such Preferred Securities, the Participant of such selling holder and of
any other person that was to have purchased Preferred Securities in the
remarketing may deliver to any such other person a number of Preferred
Securities that is less than the number of Preferred Securities that otherwise
was to be purchased by such person. In such event, the number of Preferred
Securities to be so delivered will be determined by such Participant and
delivery of such lesser number of Preferred Securities will constitute good
delivery.
The Remarketing Agent is not obligated to purchase any Preferred Securities
that would otherwise remain unsold in a remarketing. Neither the Trust, any
Securities Trustee, the Company nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of Preferred Securities
for remarketing.
S-23
As used herein:
"Remarketing Date" means any Business Day no later than the third Business
Day prior to any Remarketing Settlement Date.
"Remarketing Settlement Date" means (i) the first Business Day of the next
Distribution Period following the expiration of the Initial Fixed Rate Period;
(ii) any Distribution Payment Date during a Floating Rate Period; or (iii) any
Distribution Payment Date during a time in which Preferred Securities are
redeemable in a subsequent Fixed Rate Period.
REMARKETING AGENT
The Remarketing Agent will be Lehman Brothers Inc. The Company and the
Trust will enter into a Remarketing Agreement (the "Remarketing Agreement") with
the Remarketing Agent which provides, among other things, that Lehman Brothers
Inc. will act as the exclusive Remarketing Agent and will use commercially
reasonable efforts to remarket Preferred Securities tendered or deemed tendered
for purchase in the remarketing at a price of $1,000 per Preferred Security.
Under certain circumstances, some portion of the Preferred Securities tendered
in the remarketing may be purchased by the Remarketing Agent. See -REMARKETING
PROCEDURES.
The Remarketing Agreement provides that the Remarketing Agent shall incur
no liability to the Company or to any holder of Preferred Securities in its
individual capacity or as Remarketing Agent for any action or failure to act in
connection with a remarketing or otherwise, except as a result of gross
negligence or willful misconduct on its part.
The Company has agreed to indemnify the Remarketing Agent against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act") or contribute to payments that the Remarketing Agent may
be required to make, arising out of or in connection with its duties under the
Remarketing Agreement.
The Remarketing Agreement will also provide that any Remarketing Agent may
resign and be discharged from its duties and obligations thereunder; provided,
however, that no such resignation will become effective until the Company has
appointed at least one nationally recognized broker-dealer as successor
Remarketing Agent and such successor Remarketing Agent has entered into a
remarketing agreement with the Company and the Trust. In such case, the Company
and the Trust will use its reasonable best efforts to appoint a successor
Remarketing Agent and enter into such a remarketing agreement with such person
as soon as reasonably practicable.
BOOK-ENTRY ONLY ISSUANCE - THE DEPOSITORY TRUST COMPANY
DTC will act as the initial securities depositary for the Preferred
Securities. The Preferred Securities will be listed 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 Preferred Securities certificates will be issued,
representing in the aggregate the total number of Preferred Securities, and will
be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
S-24
Exchange Act of 1934, as amended. 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
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 the Direct Participants, the "Participants"). The DTC Rules
applicable to its Participants are on file with the Securities and Exchange
Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect 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 Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Preferred Securities,
except in the event that use of the book-entry system for the Preferred
Securities is discontinued.
To facilitate subsequent transfers, all Preferred Securities 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 Preferred Securities with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect
any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Preferred Securities. DTC's records reflect only the
identity of the Direct Participants to whose accounts such Preferred Securities
are credited, which may or may not be the Beneficial Owners. The Direct and
Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
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.
Redemption notices shall be sent to DTC.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. (nor any other
DTC nominee) will consent or vote with respect to Preferred Securities. Under
its usual procedures, DTC mails an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to
S-25
those Direct Participants to whose accounts the Preferred Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Distribution payments on the Preferred Securities 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 Trust or the
Property Trustee on the relevant payment date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
such Participant and not of DTC nor its nominee, the Trust or the Property
Trustee, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of distributions to Cede & Co. (or such nominee as
may be requested by an authorized representative of DTC) is the responsibility
of the Trust, 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 Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities. 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 Preferred Security.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such Circumstances, in the event that a successor securities
depositary is not obtained, Preferred securities 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 Preferred Securities. In that event,
certificates for the Preferred Securities 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 and the Trust believe to be
reliable, but the Company and the Trust take no responsibility for the accuracy
thereof. The Company and the Trust have 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.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Trust shall terminate on December 1,
2043 or earlier upon (i) the occurrence of a Bankruptcy Event (as defined in the
Trust Agreement) in respect of the Company, dissolution or liquidation of the
Company, or dissolution of the Trust pursuant to a judicial decree; (ii) the
delivery of written direction to the Property Trustee by the Company, as
Depositor, at any time (which direction is optional and wholly within the
discretion of the Company, as Depositor) to terminate the Trust and distribute
the Series B Junior Subordinated Debentures to the holders of the Preferred
Securities in liquidation of the Trust (see -SPECIAL EVENT REDEMPTION;
DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES above); or (iii) the
payment at maturity, upon redemption, or otherwise when due of all of the Series
B Junior Subordinated Debentures, and the consequent payment of the Trust
Securities.
If an early termination occurs as described in clause (i) or (ii) above,
the Trust shall be liquidated, and the Property Trustee shall distribute to each
holder of Preferred Securities and Common Securities a like amount of Series B
Junior Subordinated Debentures, unless in the case of an event described in
S-26
clause (i) such distribution is determined by the Administrative Trustees not to
be practical, in which event such holders will be entitled to receive, out of
the assets of the Trust available for distribution to holders after satisfaction
of liabilities to creditors, an amount equal to the aggregate of the stated
liquidation preference of $1,000 per Trust Security plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then subject to the next succeeding sentence, the
amounts payable directly by the Trust on the Trust Securities shall be paid on a
pro rata basis. The holder of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Subordinated Indenture Event of Default
has occurred and is continuing, the holders of Preferred Securities shall have a
preference over the holders of Common Securities.
EVENTS OF DEFAULT
For a description of events of default under the Trust Agreement (each a
"Trust Agreement Event of Default") and the remedies relating to such defaults
see DESCRIPTION OF TRUST PREFERRED SECURITIES-EVENTS OF DEFAULT and -ENFORCEMENT
OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES in the accompanying
Prospectus.
VOTING RIGHTS
Except as provided under DESCRIPTION OF TRUST PREFERRED SECURITIES-VOTING
RIGHTS; AMENDMENT OF TRUST AGREEMENT and under DESCRIPTION OF
GUARANTEES-AMENDMENTS AND ASSIGNMENT in the accompanying Prospectus and as
otherwise required by law and the Trust Agreement, the holders of the Preferred
Securities will have no voting rights.
CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE
At any time or times, for the purpose of meeting the legal requirements of
the 1939 Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the holder of the Common Securities and the Property
Trustee shall have power to appoint, and upon the written request of the
Property Trustee, the Company, as Depositor, shall for such purpose join with
the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to appoint, one or more persons
approved by the Property Trustee either to act as co-property trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to act
as separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such person or
persons in such capacity, any property, title, right or power deemed necessary
or desirable, subject to the provisions of the Trust Agreement. If the Company,
as Depositor, does not join in such appointment within 15 days after the receipt
by it of a request so to do, or in case a Subordinated Indenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment.
REGISTRAR AND TRANSFER AGENT
It is anticipated that the Property Trustee, or one of its affiliates, will
act as registrar and transfer agent (the "Securities Registrar") for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment in respect of any tax or
other governmental charges which may be imposed in relation to it.
S-27
The Securities Registrar will not be required to register or cause to be
registered any transfer of Preferred Securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Bank of New York, the Property Trustee, also serves as Indenture
Trustee and Guarantee Trustee and is an affiliate of the Delaware Trustee. The
Company and certain of its affiliates maintain deposit accounts and banking
relationships with The Bank of New York. The Bank of New York serves as trustee
under other indentures pursuant to which securities of the Company and
affiliates of the Company are outstanding.
GOVERNING LAW
The Trust Agreement and the Trust Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the
Trust so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or taxed as other than a grantor
trust for federal income tax purposes and so that the Series B Junior
Subordinated Debentures will be treated as indebtedness of the Company for
federal income tax purposes. In this connection, the Administrative Trustees and
the Company are authorized to take any action, not inconsistent with applicable
law, the Trust's certificate of trust or the Trust Agreement, that the
Administrative Trustees and the Company determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially and adversely affect the interests of the holders of the Preferred
Securities.
DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Series B
Junior Subordinated Debentures. This description supplements, and should be read
together with, the description of the general terms and provisions of the Junior
Subordinated Debentures set forth in the accompanying Prospectus under the
caption DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES. If the descriptions
are inconsistent, the description in the Prospectus Supplement controls. 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 Subordinated Indenture.
GENERAL
The Series B Junior Subordinated Debentures will be issued as a series of
Junior Subordinated Debentures under the Subordinated Indenture. The Series B
Junior Subordinated Debentures will be limited in aggregate principal amount to
$113,403,000 such amount being the approximate aggregate liquidation amount of
the Trust Securities.
The entire principal amount of the Series B Junior Subordinated Debentures
will mature and become due and payable, together with any accrued and unpaid
interest thereon, on October 1, 2043. The Series B Junior Subordinated
Debentures are not subject to any sinking fund provision.
S-28
The terms of the Series B Junior Subordinated Debentures correspond to
those of the Preferred Securities, as described herein.
SUBORDINATION
For a description of the subordination provisions of the Series B Junior
Subordinated Debentures, see DESCRIPTION OF THE JUNIOR SUBORDINATED
DEBENTURES-SUBORDINATION in the accompanying Prospectus.
For purposes of the Series B Junior Subordinated Debentures, "Senior
Indebtedness" means all obligations (other than non-recourse obligations and the
indebtedness issued under the Subordinated Indenture) of, or guaranteed or
assumed by, the Company, as the case may be, for borrowed money, including both
senior and subordinated indebtedness for borrowed money (other than the
outstanding junior subordinated debentures issued pursuant to the Company's
Indenture dated as of May 1, 1997), or for the payment of money relating to any
lease which is capitalized on the consolidated balance sheet of the Company, as
the case may be, and its subsidiaries in accordance with generally accepted
accounting principles as in effect from time to time, or evidenced by bonds,
debentures, notes or other similar instruments, and in each case, amendments,
renewals, extensions, modifications and refundings of any such indebtedness or
obligations, whether existing as of the date of the Subordinated Indenture or
subsequently incurred by the Company, as the case may be, unless, in the case of
any particular indebtedness, renewal, extension or refunding, the instrument
creating or evidencing the same or the assumption or guarantee of the same
expressly provides that such indebtedness, renewal, extension or refunding is
not superior in right of payment to or is PARI PASSU with the Series B Junior
Subordinated Debentures; provided that the following shall not constitute Senior
Indebtedness: (a) indebtedness for goods or materials purchased in the ordinary
course of business or for services obtained in the ordinary course of business
or indebtedness consisting of trade payables, (b) any obligations of the Company
to any of its subsidiaries, (c) obligations of the Company to an employee, (d)
any obligations in respect of debt securities issued to any trust, or a trustee
of such trust, partnership or other entity affiliated with the Company that is a
financing entity of the Company in connection with the issuance by such
financing entity of securities that are similar to the Preferred Securities, or
(e) indebtedness that is subordinated to any obligation of the type specified as
Senior Indebtedness above.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Series B Junior Subordinated
Debentures, in whole, but not in part, without premium, from time to time, on
the last Interest Payment Date, as defined below, relating to the Initial Fixed
Rate Period, on such dates with respect to any other Fixed Rate Period as the
Company and the Trust may determine prior to the remarketing establishing such
Fixed Rate Period, or any Interest Payment Date, as defined below, relating to a
Floating Rate Period or upon the occurrence of a Special Event as described
under DESCRIPTION OF THE PREFERRED SECURITIES-SPECIAL EVENT REDEMPTION;
DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES, upon not less than 30
nor more than 60 days' notice, at the Redemption Price.
The provisions described under DESCRIPTION OF TRUST PREFERRED
SECURITIES-OPTION TO ACCELERATE MATURITY DATE in the accompanying Prospectus
will not be applicable to the Series B Junior Subordinated Debentures.
INTEREST
Each Series B Junior Subordinated Debenture shall bear interest at a rate
equal to the Distribution Rate payable on the Preferred Securities (the
"Interest Rate"). The periods for which interest is payable shall be the same as
the semiannual or quarterly Distribution Periods for the Preferred Securities
(each, an
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"Interest Period"). Interest shall be payable on the same dates as Distributions
are payable on the Preferred Securities (each, an "Interest Payment Date") to
the person in whose name such Series B Junior Subordinated Debenture is
registered on the Record Date. The Interest Rate payable on each Interest
Payment Date and the length of each Interest Period shall be determined and
shall be computed in the same manner as Distributions and Distribution Periods
are computed for the Preferred Securities.
TRUST COSTS AND EXPENSES
In the Subordinated Indenture, the Company, as borrower, has agreed to pay
all debts and obligations (other than with respect to the Preferred Securities)
and all costs and expenses of the Trust (including, but not limited to, all
costs and expenses relating to the organization of the Trust, the fees and
expenses of the Securities Trustees and all costs and expenses relating to the
operation of the Trust (other than with respect to the Preferred Securities))
and to pay any and all taxes, duties, assessments or other governmental charges
of whatever nature (other than United States federal withholding taxes) imposed
by the United States or any other taxing authority, so that the net amounts
received and retained by the Trust after paying such debts, obligations, costs,
expenses, taxes, duties, assessments or other governmental charges will be equal
to the amounts the Trust would have received had no such debts, obligations,
costs, expenses, taxes, duties, assessments or other governmental charges been
incurred by or imposed on the Trust. The foregoing obligations of the Company
are for the benefit of, and shall be enforceable by, any person to whom any such
debts, obligations, costs, expenses, taxes, duties, assessments or other
governmental charges are owed (each a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company irrevocably waives any
right or remedy to require that such Creditor take any action against the Trust
or any other person before proceeding against the Company. The Company shall
execute such additional agreements as may be necessary or desirable to give full
effect to the foregoing.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, to
defer payments of interest on the Series B Junior Subordinated Debentures by
extending the interest payment period for up to five years, but not beyond the
stated maturity date. During any Extension Period, Distributions and interest
will continue to accrue on the Preferred Securities and the Series B Junior
Subordinated Debentures. If the Company elects to defer interest during a Fixed
Rate Period, interest will continue to accrue at the Fixed Rate until the
expiration of the Fixed Rate Period. Upon expiration of such Fixed Rate Period
and any Fixed Rate Period during the Extension Period, the Company and the Trust
will have the option to remarket the Preferred Securities for a new Fixed Rate
Period. If the Company and the Trust do not remarket the Preferred Securities,
the Floating Rate during the Extension Period shall not be less than the Fixed
Rate for the Fixed Rate Period just ended. If the Company elects to defer
interest during a Floating Rate Period, interest will continue to accrue at the
applicable Floating Rate, reset quarterly, subject to the right of the Company
and the Trust to remarket the Preferred Securities prior to any Interest Payment
Date in order to establish a new Fixed Rate for a new Fixed Rate Period.
If the Company decides to defer interest payments on the Series B Junior
Subordinated Debentures, the Extension Period shall not exceed five years. An
Extension Period shall not extend beyond the stated maturity of the Series B
Junior Subordinated Debentures. Prior to the termination of any Extension
Period, the Company may further defer payments of interest, provided that the
Extension Period, together with all such previous and further extensions
thereof, may not exceed five years. The Company may only terminate an Extension
Period on the last day of any Interest Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may select
a new Extension Period, subject to the above requirements. There could be
multiple Extension Periods of varying lengths throughout the term of the Series
B Junior Subordinated Debentures.
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At the end of an Extension Period, the Company shall pay all interest then
accrued and unpaid (together with interest thereon at the prevailing Interest
Rate, to the extent permitted by law, compounded on each Interest Payment Date).
For a description of certain restrictions on the Company during an Extension
Period, see DESCRIPTION OF TRUST PREFERRED SECURITIES-CERTAIN COVENANTS in the
accompanying Prospectus.
The Company has no present intention of exercising its rights to defer
payments of interest by extending the interest payment period on the Series B
Junior Subordinated Debentures. See CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES-INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT.
The Company shall give the holder or holders of the Series B Junior
Subordinated Debentures and the Indenture Trustee notice of its selection or
extension of an Extension Period at least one Business Day prior to the earlier
of (i) the Record Date relating to the Interest Payment Date on which the
Extension Period is to commence or relating to the Interest Payment Date on
which an Extension Period that is being extended would otherwise terminate, or
(ii) the date the Company or the Trust is required to give notice to any
applicable self-regulatory organization of the Record Date or the date such
interest or Distributions are payable.
EVENTS OF DEFAULT
For a description of Subordinated Indenture Events of Default with respect
to the Series B Junior Subordinated Debentures, see DESCRIPTION OF THE JUNIOR
SUBORDINATED DEBENTURES-EVENTS OF DEFAULT in the accompanying Prospectus.
Additionally, the following shall constitute a Subordinated Indenture Event of
Default:
- Failure to pay for 10 days any costs and expenses of the Trust as more
fully described under DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED
DEBENTURES-TRUST COSTS AND EXPENSES in this Prospectus Supplement.
BOOK-ENTRY AND ISSUANCE
If distributed to holders of Trust Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of the Trust,
the Series B Junior Subordinated Debentures are expected to be issued in the
form of one or more global certificates registered in the name of the securities
depositary or its nominee. In such event, the procedures applicable to the
transfer and payment of the Series B Junior Subordinated Debentures are expected
to be substantially similar to those described with respect to the Preferred
Securities in DESCRIPTION OF THE PREFERRED SECURITIES-BOOK-ENTRY ONLY
ISSUANCE-THE DEPOSITORY TRUST COMPANY.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SERIES B JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As long as payments of interest and other payments are made when due on the
Series B Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and payments due on the Trust Securities primarily because
(i) the aggregate principal amount of Series B Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and interest and other payment dates on the
Series B Junior Subordinated Debentures will match the Distribution Rate and
distribution and other payment dates for the Preferred Securities; (iii) the
Company shall pay for all costs and expenses of the Trust pursuant to the
Agreement as to Expenses and
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Liabilities; and (iv) the Trust Agreement provides that the Securities Trustees
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 therefor are on hand
available) and other payments due on the Preferred Securities (to the extent
funds therefor are on hand available) are guaranteed by the Company as and to
the extent set forth under DESCRIPTION OF GUARANTEES in the accompanying
Prospectus. If the Company does not make interest payments on the Series B
Junior Subordinated Debentures, it is not expected that the Trust will have
sufficient funds to pay Distributions on the Preferred Securities. The Guarantee
is a guarantee from the time of its issuance, but does not apply to any payment
of Distributions unless and until the Trust has sufficient funds on hand
available for the payment of such Distributions.
If the Company fails to make interest or other payments on the Series B
Junior Subordinated Debentures when due (taking into account any Extension
Period), the Trust Agreement provides a mechanism whereby the holders of the
Preferred Securities may appoint a substitute Property Trustee. Such holders may
also direct the Property Trustee to enforce its rights under the Series B Junior
Subordinated Debentures, including proceeding directly against the Company to
enforce the Series B Junior Subordinated Debentures. If the Property Trustee
fails to enforce its rights under the Series B Junior Subordinated Debentures,
to the fullest extent permitted by applicable law, any holder of Preferred
Securities may institute a legal proceeding directly against the Company to
enforce the Property Trustee's rights under the Series B Junior Subordinated
Debentures 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 the Series B Junior Subordinated Debentures
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 Series B Junior Subordinated Debentures.
If the Company fails to make payments under the Guarantee, the Guarantee
provides a mechanism whereby the holders of the Preferred Securities may direct
the Guarantee Trustee to enforce its rights thereunder. 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 Guarantee without
first instituting a legal proceeding against the Guarantee Trustee or any other
person or entity.
The Guarantee, the Subordinated Indenture, the Series B Junior Subordinated
Debentures, the Trust Agreement and the Agreement as to Expenses and
Liabilities, as described above, constitute a full and unconditional guarantee
by the Company of the payments due on the Preferred Securities.
Upon any voluntary or involuntary dissolution, winding-up or termination of
the Trust, unless the Series B Junior Subordinated Debentures are distributed in
connection therewith, the holders of Preferred Securities will be entitled to
receive, out of assets legally available for distribution to holders, the
Liquidation Distribution in cash. See DESCRIPTION OF THE PREFERRED
SECURITIES-LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
Upon any voluntary or involuntary liquidation or bankruptcy of the Company,
the Property Trustee, as holder of the Series B Junior Subordinated Debentures,
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 the Guarantee and has
agreed to pay for all costs, expenses and liabilities of the Trust (other than
the Trust's obligation to holders of the Preferred Securities) pursuant to the
Agreement as to Expenses and Liabilities, the positions of a holder of Preferred
Securities and a holder of Series B Junior Subordinated Debentures relative to
other creditors and to
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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 Subordinated Indenture Event of Default. However, in the
event of payment defaults under, or acceleration of, Senior Indebtedness, the
subordination provisions of the Series B Junior Subordinated Debentures provide
that no payments may be made in respect of the Series B Junior Subordinated
Debentures until such Senior Indebtedness has been paid in full or any payment
default thereunder has been cured or waived. Failure to make required payments
on the Series B Junior Subordinated Debentures would constitute a Subordinated
Indenture Event of Default, except that failure to make interest payments on the
Series B Junior Subordinated Debentures will not be a Subordinated Indenture
Event of Default during an Extension Period; provided, however, that any
Extension Period may not exceed five years or extend beyond the stated maturity
of the Series B Junior Subordinated Debentures.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Preferred
Securities as of the date of this Prospectus Supplement.
Except where stated otherwise, this summary deals only with Preferred
Securities held as capital assets by a holder who:
o is a United States holder (as defined below), and
o purchases the Preferred Securities upon original issuance at their
original issue price.
For purposes of this discussion, you are a United States holder if you are
a beneficial owner of Preferred Securities that is for United States federal
income tax purposes:
o a citizen or resident of the United States,
o a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision of
the United States,
o an estate the income of which is subject to United States federal
income taxation regardless of its source, or
o a trust that (x) is subject to the primary supervision of a court
within the United States and the control of one or more United States
persons or (y) has a valid election in effect under applicable United
States Treasury regulations to be treated as a United States person.
Your tax treatment may vary depending on your particular situation. This
summary does not address all the tax consequences that may be relevant to
holders that are subject to special tax treatment, such as:
o dealers in securities or currencies;
o financial institutions;
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o tax-exempt investors;
o real estate investment trusts;
o regulated investment companies;
o insurance companies;
o traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
o certain expatriates;
o United States holders whose functional currency is not the United
States dollar;
o persons liable for alternative minimum tax; and
o persons holding Preferred Securities as part of a hedging, integrated,
conversion or constructive sale transaction or a straddle.
In addition, this summary does not include any description of the tax laws
of any state, local or foreign government.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated under the Code and administrative
and judicial interpretations. These income tax laws, regulations and
interpretations, however, may change at any time. Any change could be
retroactive to the issuance date of the Preferred Securities.
If a partnership holds Preferred Securities, the tax treatment of a partner
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding Preferred Securities,
you should consult your tax advisor.
The authorities on which this summary is based are subject to various
interpretations. Either the Internal Revenue Service ("IRS") or the courts could
disagree with the explanations or conclusions contained in this summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE PREFERRED
SECURITIES UPON THE OCCURRENCE OF A TAX EVENT, SEE DESCRIPTION OF THE PREFERRED
SECURITIES-SPECIAL EVENT REDEMPTION; DISTRIBUTION OF SERIES B JUNIOR
SUBORDINATED DEBENTURES.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Simpson
Thacher & Bartlett LLP is of the opinion that under current law and assuming
full compliance with the terms of the Trust Agreement, and based upon certain
facts and assumptions contained in such opinion, the Trust will be classified as
a grantor trust for United States federal income tax purposes and not as an
association taxable as a corporation. As a result, for United States federal
income tax purposes, you generally will be treated as owning an undivided
beneficial ownership interest in the Series B Junior Subordinated Debentures.
Thus,
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you will be required to include in your gross income your pro rata share
of the interest income or original issue discount ("OID") that is paid or
accrued on the Series B Junior Subordinated Debentures. See INTEREST INCOME AND
ORIGINAL ISSUE DISCOUNT.
CLASSIFICATION OF THE SERIES B JUNIOR SUBORDINATED DEBENTURES
The Company, the Trust and you (by your acceptance of a beneficial
ownership interest in a Preferred Security) will agree to treat the Series B
Junior Subordinated Debentures as, and the following discussion assumes that the
Series B Junior Subordinated Debentures are, indebtedness for all United States
tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
We anticipate that the Series B Junior Subordinated Debentures will not be
issued with more than DE MINIMIS OID. In this case, subject to the discussion
below, the Series B Junior Subordinated Debentures will not be subject to the
special OID rules, at least upon initial issuance, so that you will generally be
taxed on the interest on the Series B Junior Subordinated Debentures as ordinary
income at the time it is paid or accrued in accordance with your regular method
of tax accounting.
There is no authority that directly addresses the tax treatment of
securities with terms similar to those of the Series B Junior Subordinated
Debentures. It is possible that the IRS could disagree with the treatment
described above and take the position that the Series B Junior Subordinated
Debentures are contingent payment debt instruments or are subject to the special
OID rules upon initial issuance. In either case, the amount, timing and
character of income you recognize may be substantially different than as
discussed above. You should consult your own tax advisor in this regard.
If the Company exercises its right to defer payments of interest on the
Series B Junior Subordinated Debentures, the Series B Junior Subordinated
Debentures will become OID instruments at such time. In such case, you will be
subject to the special OID rules described below. Once the Series B Junior
Subordinated Debentures become OID instruments, they will be taxed as OID
instruments for as long as they remain outstanding.
Under the OID economic accrual rules, the following occurs:
o regardless of your method of accounting, you would accrue an amount of
interest income each year that approximates the remaining interest
payments called for under the terms of the Series B Junior
Subordinated Debentures using the constant-yield-to-maturity method of
accrual described in section 1272 of the Code;
o the actual cash payments of interest you receive on the Series B
Junior Subordinated Debentures would not be reported separately as
taxable income;
o any amount of OID included in your gross income (whether or not during
a deferral period) with respect to the Preferred Securities will
increase your tax basis in such Preferred Securities; and
o the amount of distributions that you receive in respect of such
accrued OID will reduce your tax basis in such Preferred Securities.
If you are a corporate holder of Preferred Securities, you will not be
entitled to a dividends received deduction with respect to any income you
recognize with respect to the Preferred Securities.
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DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES OR CASH UPON
LIQUIDATION OF THE TRUST
As described under the caption, DESCRIPTION OF THE PREFERRED
SECURITIES-SPECIAL EVENT REDEMPTION; DISTRIBUTION OF SERIES B JUNIOR
SUBORDINATED DEBENTURES, the Series B Junior Subordinated Debentures held by the
Trust may be distributed to you in exchange for your Preferred Securities if the
Trust is liquidated before the maturity date of the Series B Junior Subordinated
Debentures. Under current law, except as described below, this type of
distribution would not be taxable. Upon such a distribution, you will receive
your pro rata share of the Series B Junior Subordinated Debentures previously
held indirectly through the Trust. Your holding period and aggregate tax basis
in the Series B Junior Subordinated Debentures will equal the holding period and
aggregate tax basis that you had in your Preferred Securities before the
distribution.
If you receive Series B Junior Subordinated Debentures in exchange for your
Preferred Securities, you would accrue interest in respect of the Series B
Junior Subordinated Debentures received from the Trust in the manner described
above under INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT.
The Company also has the option to redeem the Series B Junior Subordinated
Debentures and distribute the resulting cash in liquidation of the Trust. This
redemption would be taxable as described below in SALES OF PREFERRED SECURITIES
OR REDEMPTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES. Further, in other
circumstances described under DESCRIPTION OF THE PREFERRED SECURITIES-SPECIAL
EVENT REDEMPTION; DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED DEBENTURES, the
Company may redeem the Series B Junior Subordinated Debentures and distribute
cash in liquidation of the Trust. This redemption would also be taxable as
described below in SALES OF PREFERRED SECURITIES OR REDEMPTION OF SERIES B
JUNIOR SUBORDINATED DEBENTURES.
If, contrary to our intended position that the Trust will be classified as
a grantor trust, the Trust is treated instead as an association taxable as a
corporation, a Tax Event will occur. If the Company elects to distribute the
Series B Junior Subordinated Debentures to you at this time, or to redeem the
Series B Junior Subordinated Debentures and distribute the resulting cash, the
distribution or the redemption and distribution, would likely constitute a
taxable event to the Trust and to you.
SALES OF PREFERRED SECURITIES OR REDEMPTION OF SERIES B JUNIOR SUBORDINATED
DEBENTURES
If you sell your Preferred Securities or receive cash upon redemption of
the Series B Junior Subordinated Debentures, you will recognize gain or loss
equal to the difference between:
o your amount realized on the sale or redemption of the Preferred
Securities or Series B Junior Subordinated Debentures (less an amount
equal to any accrued but unpaid qualified stated interest that you did
not previously include in income, which will be taxable as such); and
o your adjusted tax basis in your Preferred Securities or Series B
Junior Subordinated Debentures sold or redeemed.
The gain or loss will generally be a long-term capital gain or loss if you
have held your Preferred Securities or Series B Junior Subordinated Debentures
for more than one year. Long-term capital gains of individuals derived with
respect to capital assets held for more than one year are taxed at a maximum
rate of 15% (for taxable years beginning on or before December 31, 2008, after
which time the maximum rate will increase to 20%). The deductibility of capital
losses is subject to limitations.
S-36
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
income on the Preferred Securities or Series B Junior Subordinated Debentures
and to the proceeds of sale of the Preferred Securities or Series B Junior
Subordinated Debentures made to you (unless you are an exempt recipient such as
a corporation). A 28% backup withholding tax will apply to such payments if you
fail to provide a taxpayer identification number, a certification of exempt
status, or fail to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase of the Preferred Securities by employee benefit plans that are subject
to Title I of the U.S. Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), plans, individual retirement accounts and other arrangements
that are subject to Section 4975 of the Code or provisions under any federal,
state, local, non-U.S. or other laws or regulations that are similar to such
provisions of the Code or ERISA (collectively, "Similar Laws"), and entities
whose underlying assets are considered to include "plan assets" of such plans,
accounts and arrangements (each, a "Plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of
a Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such an ERISA Plan or the management or disposition of the assets of such an
ERISA Plan, or who renders investment advice for a fee or other compensation to
such a Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering an investment of a portion of the assets of any Plan in the
Preferred Securities, a fiduciary should determine whether the investment is in
accordance with the documents and instruments governing the Plan and the
applicable provisions of ERISA, the Code or any Similar Law relating to a
fiduciary's duties to the Plan including, without limitation, the prudence,
diversification, delegation of control and prohibited transaction provisions of
ERISA, the Code and any other applicable Similar Laws.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engaged in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engaged in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code.
Whether or not the underlying assets of the Trust were deemed to include
"plan assets," as described below, the acquisition and/or holding of the
Preferred Securities by an ERISA Plan with respect
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to which the Trust, the Company, the Indenture Trustee, the Guarantee Trustee or
any of the Securities Trustees is considered a party in interest or a
disqualified person may constitute or result in a direct or indirect prohibited
transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless
the investment is acquired and is held in accordance with an applicable
statutory, class or individual prohibited transaction exemption. In this regard,
the U.S. Department of Labor (the "DOL") has issued prohibited transaction class
exemptions, or "PTCEs," that may apply to the acquisition and holding of the
Preferred Securities. These class exemptions include, without limitation, PTCE
84-14 respecting transactions determined by independent qualified professional
asset managers, PTCE 90-1 respecting insurance company pooled separate accounts,
PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting
life insurance company general accounts and PTCE 96-23 respecting transactions
determined by in-house asset managers, although there can be no assurance that
all of the conditions of any such exemptions will be satisfied with respect to
the acquisition and/or holding of the Preferred Securities.
PLAN ASSET ISSUES
ERISA and the Code do not define "plan assets." However, regulations (the
"Plan Asset Regulations") promulgated under ERISA by the DOL generally provide
that when an ERISA Plan acquires an equity interest in an entity that is neither
a "publicly-offered security" nor a security issued by an investment company
registered under the Investment Company Act, the ERISA Plan's assets include
both the equity interest and an undivided interest in each of the underlying
assets of the entity unless it is established either that equity participation
in the entity by "benefit plan investors" is not significant or that the entity
is an "operating company," in each case as defined in the Plan Asset
Regulations. The Plan Asset Regulations define an "equity interest" as any
interest in an entity, including a beneficial interest in a trust, other than an
instrument that is treated as indebtedness under applicable local law and which
has no substantial equity features. Although for U.S. Federal income tax
purposes the Preferred Securities are treated as indebtedness, it is possible
that the Preferred Securities could be deemed equity interests for purposes of
the Plan Asset Regulations.
It is not anticipated that the Preferred Securities would qualify as
"publicly offered" securities for purposes of the Plan Asset Regulations. Also
for purposes of the Plan Asset Regulations, equity participation in an entity by
benefit plan investors will not be significant if they hold, in the aggregate,
less than 25% of the value of any class of such entity's equity, excluding
equity interests held by persons (other than benefit plan investors) with
discretionary authority or control over the assets of the entity or who provide
investment advice for a fee (direct or indirect) with respect to such assets,
and any affiliates thereof. For purposes of this 25% test, "benefit plan
investors" include all employee benefit plans, whether or not subject to ERISA
or the Code, including "Keogh" plans, individual retirement accounts and pension
plans maintained by foreign corporations, as well as any entity whose underlying
assets are deemed to include "plan assets" under the Plan Asset Regulations
(e.g., an entity of which 25% or more of the value of any class of equity
interests is held by benefit plan investors and which does not satisfy another
exception under the Plan Asset Regulations). There can be no assurance that
equity participation by benefit plan investors in the Trust will not be
significant, and it is not anticipated that the Trust will qualify as an
operating company.
PLAN ASSET CONSEQUENCES
If the assets of the Trust were deemed to be "plan assets" under ERISA,
this would result, among other things, in (i) the application of the prudence
and other fiduciary responsibility standards of ERISA to investments made by the
Trust, and (ii) the possibility that certain transactions in which the Trust
might seek to engage could constitute "prohibited transactions" under ERISA and
the Code. Because of the foregoing, the Preferred Securities should not be
purchased or held by any person investing "plan assets"
S-38
of any Plan, unless such purchase and/or holding is eligible for the exemptive
relief available under Prohibited Transaction Class Exemption ("PTCE") 96-23
(for certain transactions determined by in-house asset managers), PTCE 95-60
(for certain transactions involving insurance company general accounts), PTCE
91-38 (for certain transactions involving bank collective investment funds),
PTCE 90-1 (for certain transactions involving insurance company separate
accounts) or PTCE 84-14 (for certain transactions determined by independent
qualified professional asset managers).
REPRESENTATION
Accordingly, by acceptance of the Preferred Securities, each purchaser and
subsequent transferee of the Preferred Securities will be deemed to have
represented and warranted that either (i) no portion of the assets used by such
purchaser or transferee to acquire and hold the Preferred Securities (or
interest therein) constitutes assets of any Plan, or (ii) the purchase and
holding of the Preferred Securities (or interest therein) by such purchaser or
transferee is eligible for the exemptive relief available under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering purchasing
the Preferred Securities on behalf of, or with the assets of, any Plan, consult
with their counsel regarding the potential applicability of ERISA, Section 4975
of the Code and any Similar Laws to such investment and whether an exemption
would be applicable to the purchase and holding of the Preferred Securities.
Employee benefit plans which are governmental plans (as defined in Section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
generally are not subject to ERISA requirements but may he subject to comparable
requirements.
S-39
UNDERWRITING
The Company and the Trust have entered into an underwriting agreement (the
"Underwriting Agreement") with Lehman Brothers Inc. as representative (the
"Representative") of the several underwriters named below (the "Underwriters").
In the Underwriting Agreement, each Underwriter has severally agreed, subject to
the terms and conditions set forth therein, to purchase all of the Preferred
Securities set opposite its name below if any of the Preferred Securities are
purchased.
Number of
Name Preferred Securities
---- --------------------
Lehman Brothers Inc.................................................... 86,900
Danske Markets Inc..................................................... 7,700
Mellon Financial Markets, LLC.......................................... 7,700
TD Securities (USA) Inc................................................ 7,700
--------
Total 110,000
========
Because the Trust will invest the proceeds from the sale of the Preferred
Securities in the Series B Junior Subordinated Debentures issued by the Company,
the Underwriting Agreement provides that the Company will pay an underwriting
commission of $10.00 per Preferred Security (or $1,100,000 for all Preferred
Securities) to the Representative for the account of the several Underwriters,
as compensation.
The Underwriters propose to offer the Preferred Securities directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus Supplement and may offer them to certain securities dealers at such
price less a concession not in excess of 0.60% of the liquidation amount per
Preferred Security. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of 0.25% of the liquidation amount per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
Prior to this offering, there has been no public market for the Preferred
Securities. The Preferred Securities will not be listed on a securities
exchange. The Representative has advised the Company that the Underwriters
intend to make a market in the Preferred Securities. The Underwriters will have
no obligation to make a market in the Preferred Securities, however, and may
cease market making activities, if commenced, at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or contribute to
payments that each Underwriter may be required to make in respect thereof.
The Company's expenses associated with the offer and sale of the Preferred
Securities are estimated to be $264,000.
In order to facilitate the offering of the Preferred Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Preferred Securities. Specifically, the Underwriters may
over-allot in connection with the offering, creating short positions in the
Preferred Securities for their own account. In addition, to cover
over-allotments or to stabilize the price of the Preferred Securities, the
Underwriters may bid for, and purchase, Preferred Securities in the open market.
S-40
The Underwriters may reclaim selling concessions allowed to an Underwriter or
dealer for distributing Preferred Securities in the offering, if the
Underwriters repurchase previously distributed Preferred Securities in
transactions to cover short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price of
the Preferred Securities above independent market levels. The Underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
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, the Trust nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Preferred
Securities. In addition, neither the Company, the Trust nor the Underwriters
makes any representation that the Underwriters will engage in such transactions
or that such transactions once commenced will not be discontinued without
notice.
Because NASD Regulation, Inc. ("NASDR") is expected to view the Preferred
Securities as interests in a direct participation program, the offering is being
made in compliance with Rule 2810 of the NASDR's Conduct Rules. Offers and sales
of Preferred Securities will be made only to (i) "qualified institutional
buyers", as defined in Rule l44A under the Securities Act, or (ii) institutional
"accredited investors", as defined in Rule 501(a) (l)-(3) of Regulation D under
the Securities Act. The Underwriters may not confirm sales to any accounts over
which they exercise discretionary authority without the prior written approval
of the transaction by the customer.
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.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Company and the Trust by
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel
to the Company and the Trust. The validity of the Series B Junior Subordinated
Debentures, the Guarantee and certain matters relating thereto will be passed
upon on behalf of the Company by Simpson Thacher & Bartlett LLP, New York, New
York, and one of our lawyers. Simpson Thacher & Bartlett LLP will also pass upon
certain matters relating to United States federal income tax considerations.
Certain legal matters will be passed upon for the Underwriters by Dewey
Ballantine LLP, New York, New York. From time to time, Dewey Ballantine LLP acts
as counsel to our affiliates for some matters.
S-41
PROSPECTUS
$600,000,000
SOUTHWESTERN ELECTRIC POWER COMPANY
1 RIVERSIDE PLAZA
COLUMBUS, OHIO 43215
(614) 716-1000
SENIOR NOTES
JUNIOR SUBORDINATED DEBENTURES
SWEPCO CAPITAL TRUST I
SWEPCO CAPITAL TRUST II
SWEPCO CAPITAL TRUST III
TRUST PREFERRED SECURITIES
Guaranteed as described herein by
SOUTHWESTERN ELECTRIC POWER COMPANY
TERMS OF SALE
This prospectus contains summaries of the general terms of the
securities. You will find the specific terms of these securities, and the manner
in which they are being offered, in supplements to this prospectus. You should
read this prospectus and the available prospectus supplement carefully before
you invest.
In this prospectus, unless the context indicates otherwise, the words
"we", "ours" and "us" refer to Southwestern Electric Power Company and its
consolidated subsidiaries. "Trusts" refer to SWEPCo Capital Trust I, SWEPCo
Capital Trust II and SWEPCo Capital Trust III.
INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 3 FOR MORE INFORMATION.
THE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
("SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is August 25, 2003.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we and the trusts
filed with the SEC. We also file annual, quarterly and special reports and other
information with the SEC. You may read and copy any document we file at the
SEC's Public Reference Room at 450 Fifth Street, N. W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also examine our SEC filings through the SEC's web site
at http://www.sec.gov or at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all the securities registered herein.
o Annual Report on Form 10-K for the year ended December 31, 2002 (as
updated by the Company's Current Report on Form 8-K dated May 14,
2003);
o Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003
and June 30, 2003; and
o Current Reports on Form 8-K dated April 8, 2003 and May 14, 2003.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Mr. R. Todd Rimmer
American Electric Power Service Corporation
1 Riverside Plaza
Columbus, Ohio 43215
(614) 716-1000
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
The Trusts will not be subject to the informational requirements of the
Securities Exchange Act of 1934.
2
PROSPECTUS SUPPLEMENTS
We may provide information to you about the notes in up to three
separate documents that progressively provide more detail: (a) this prospectus
provides general information some of which may not apply to your securities; (b)
the accompanying prospectus supplement provides more specific terms of your
securities; and (c) if not in the accompanying prospectus supplement, the
pricing supplement will provide the final terms of your securities. It is
important for you to consider the information contained in this prospectus, the
prospectus supplement and any pricing supplement in making your investment
decision.
THE COMPANY
We generate, sell, purchase, transmit and distribute electric power. We
serve approximately 437,000 retail customers in northeastern Texas, northwestern
Louisiana and western Arkansas. We also sell and transmit power at wholesale to
other electric utilities, municipalities, electric cooperatives and non-utility
entities engaged in the wholesale power market. Our principal executive offices
are located at 1 Riverside Plaza, Columbus, Ohio 43215 (telephone number
614-716-1000). We are a subsidiary of American Electric Power Company, Inc., a
public utility holding company, and we are a part of the American Electric Power
integrated utility system. The executive offices of American Electric Power
Company, Inc. are located at 1 Riverside Plaza, Columbus, Ohio 43215 (telephone
number 614-716-1000).
RISK FACTORS
RISKS RELATED TO OUR REGULATED
BUSINESS AND EVOLVING REGULATION
o Our rates are subject to regulation by three states and a federal
agency whose regulatory paradigms and goals may not be consistent.
We operate in, and are subject to the laws and regulations of, the
states of Texas, Louisiana and Arkansas. We are currently a vertically
integrated electric utility and most of our revenue results from the sale of
electricity to retail customers subject to bundled rates that are approved by
the applicable state utility commission and, to a certain extent, the Federal
Energy Regulatory Commission (the "FERC"). Texas has enacted electric utility
restructuring legislation ("Texas Restructuring Legislation") that requires the
legal separation and deregulation of generation assets from transmission and
distribution assets that will remain regulated. The implementation of such
legislation has been delayed in the portion of Texas in which we operate until
at least January 1, 2007. Arkansas has repealed its electric utility
restructuring law at the request of the Arkansas Public Service Commission
("Arkansas Commission"). The restructuring law had not been implemented prior to
its repeal. Louisiana has not enacted an electric utility restructuring law and
has not announced any plans to do so, and the Louisiana Public Service
3
Commission ("Louisiana Commission") has determined that retail competition is
not in the public interest at this time.
FERC has pursued several regulatory initiatives, such as the formation
and operation of new regional transmission organizations, or "RTOs", which have
been designed to generally facilitate competition in the energy sector. States
such as Louisiana have questioned both the FERC's jurisdiction to pursue such
initiatives and their benefit, if any, to the ratepayers in their state. Our
state commissions generally have authority over the sale or other transfer of
control, of transmission assets to an RTO.
Exposure to inconsistent state and Federal regulatory standards may
limit our ability to operate profitably. Further alteration of the regulatory
landscape in which we operate may harm our financial condition and results of
operations.
o We are subject to the risk that our regulators will not permit recovery
of material amounts of our fuel costs.
Our retail rates currently in effect in Louisiana are adjusted based on
our cost of fuel in accordance with a fuel cost adjustment. The fuel cost
adjustment is applied to each billing month based on the second previous month's
average fuel cost. Provision for any over- or under-recovery of fuel costs is
allowed under an automatic fuel clause.
In Arkansas, a fuel adjustment rider is developed annually based on the
previous year's actual fuel cost. This factor is then applied to each billing
month's sales, allowing us to recover fuel costs from customers. Any difference
between actual fuel cost for the month and revenues collected from customers,
including interest, will be used in the determination of the annual factor for
the following year.
The Louisiana Commission and the Arkansas Commission may audit our fuel
costs to determine the reasonableness of the actual fuel costs. To the extent
these commissions do not permit us to recover fuel costs under the procedures
described above, our net income could be materially reduced.
As a result of complaints filed by customers, the Louisiana Commission
is performing an audit of our fuel rates. Five customers filed a suit in the
Caddo Parish District Court in January 2003 and filed a complaint with the
Louisiana Commission. The customers claim that we have overcharged them for fuel
costs since 1975. Management believes that our fuel rates prior through 1999,
the date to which fuel costs have been reconciled, were proper and have been
approved by the Louisiana Commission. If the Louisiana Commission or the Court
rules against us, it could have an adverse impact on results of operations and
cash flows.
Fuel recovery for Texas utilities is a multi-step procedure. When fuel
costs change, utilities file twice each year with the PUCT for authority to
adjust fuel factors. If a utility's prior fuel factors result in an over- or
under-recovery of fuel, the utility will also request a surcharge factor to
refund or collect that amount. While fuel factors are
4
intended to recover all fuel-related costs, final settlement of these accounts
are subject to reconciliation and approval by the PUCT. Fuel reconciliation
proceedings determine whether fuel costs incurred and collected during the
reconciliation period were reasonable and necessary. All fuel costs incurred
since the prior reconciliation date are subject to PUCT review and approval. If
material amounts are determined to be unreasonable and ordered to be refunded to
customers, results of operations and cash flows would be diminished. In June
2003, we filed with the PUCT to reconcile fuel costs. This reconciliation covers
the period of January 2000 through December 2002. At December 31, 2002, our
filing detailed a $2.2 million over-recovery balance including interest. During
the reconciliation period, we incurred $434.8 million of eligible fuel expense.
If PUCT does not reconcile and permit recovery for these costs for any reason,
our revenue and income would suffer in a corresponding amount. Fuel cost
recovery as described above will end upon implementation of Texas Restructuring
Legislation in our service area.
o The implementation of electric utility restructuring legislation in
Texas may limit our ability to pass on to our customers our costs of
production in those jurisdictions.
While customer choice of electricity supplier began in much of Texas on
January 1, 2002, it has been delayed in our service area. Pursuant to
restructuring, delivery of electricity continues to be the responsibility of the
local electric transmission and distribution company at regulated prices. Once
customer choice is implemented, the protection afforded by retail fuel clause
recovery mechanisms will likely be eliminated. In view of the fact that higher
fuel prices and generating unit outage can only be partially passed through, and
then only with regulatory approval, we would bear the costs associated with
those events. At present, however, we are protected against market price changes
by an active fuel clause.
o The different regional power markets in which we compete or will
compete in the future have changing transmission regulatory structures,
which could affect our performance in these regions.
Our results are likely to be affected by differences in the market and
transmission regulatory structures in various regional power markets. Our
ability to sell power produced by our generating capacity to certain markets may
be restricted if there is insufficient transmission capacity available. The
rules governing the various regional power markets may also change from time to
time, which could affect our costs or revenues. Because it remains unclear which
companies will be participating in the various regional power markets, or how
RTOs will develop or what regions they will cover, we are unable to assess fully
the impact that these power markets may have on our business.
We are currently a member of the Southwest Power Pool ("SPP"). The SPP
had agreed to merge with the Midwest Independent Transmission System Operator
("MISO"), an independent operator of transmission assets in the Midwest. MISO
and
5
SPP recently announced that they were no longer pursuing their merger. We
provided notice that we will withdraw from the SPP after October 31, 2002. This
action was taken to provide us additional flexibility in deciding which RTO we
will ultimately join.
The Louisiana and Arkansas Commissions are concerned about the effect
on retail ratepayers of utilities in Louisiana and Arkansas joining RTOs. The
Commissions have ordered the utilities in those states, including us, to perform
and submit to the Commissions the costs and benefits of RTO options available to
the utilities. The Louisiana Commission has also determined that certain RTO
structures that contemplate legally transferring transmission assets to it are
presumptively not in the public interest. To the extent we are faced with
conflicting state and Federal requirements as to our participation in RTOs, it
could adversely affect our ability to operate and recover transmission costs
from retail customers.
Management is unable to predict the outcome of these transmission
regulatory actions and proceedings or their impact on the timing and operation
of RTOs, our transmission operations or future results of operations and cash
flows.
o AEP's merger with CSW may ultimately be found to violate the Public
Utility Holding Company Act of 1935 ("PUHCA").
AEP acquired CSW in a merger completed on June 15, 2000. As a result of
the merger AEP acquired four additional domestic electric utility companies,
including us. On January 18, 2002, the U.S. Court of Appeals for the District of
Columbia ruled that the SEC's June 14, 2000 order approving the merger failed to
properly find that the merger meets the requirements of PUHCA and sent the case
back to the SEC for further review. Specifically, the Court told the SEC to
revisit its conclusion that the merger met PUHCA's requirement that the electric
utilities be "physically interconnected" and confined to a "single area or
region."
We believe that the merger meets the requirements of PUHCA and expect
the matter to be resolved favorably. We intend to fully cooperate with the staff
of the SEC in supplementing the record, if necessary, to ensure the merger
complies with PUHCA. We can give no assurance, however, that: (i) the SEC or any
applicable court review will find that the merger complies with PUHCA, or (ii)
the SEC or any applicable court review will not impose material adverse
conditions on us in order to find that the merger complies with PUHCA. If the
merger were ultimately found to violate PUHCA, it may require AEP to take
remedial actions or divest assets, which may harm our results of operations or
financial condition.
RISKS RELATED TO OUR POWER TRADING
AND WHOLESALE BUSINESSES
o We plan to significantly reduce the scope and scale of our power
trading and marketing operations.
6
In October 2002 AEP announced its plans to reduce the exposure to
energy trading markets of its subsidiaries that trade power (including us) and
to downsize the trading and wholesale marketing operations conducted on behalf
of such subsidiaries. It is expected that in the future our power trading and
marketing operations will be limited to risk management around our generation
assets and those of our regulated affiliates. Trading and marketing operations
that were not limited to risk management around such assets have contributed to
our wholesale revenues and earnings in the past. Management is unable to predict
the effect this downsizing of our trading operations will have on our future
results of operations and cash flows. The following risk factors appearing under
this subheading should be read in light of the announcements discussed in this
paragraph.
o Our revenues and results of operations are subject to market risks that
are beyond our control.
We sell power from our generation facilities into the spot market or
other competitive power markets or on a contractual basis. We also enter into
contracts to purchase and sell electricity as part of our power marketing and
trading operations. With respect to such transactions, we are not guaranteed any
rate of return on our capital investments through regulated rates, and our
revenues and results of operations are likely to depend, in large part, upon
prevailing market prices for power in our regional markets and other competitive
markets. These market prices may fluctuate substantially over relatively short
periods of time. It is reasonable to expect that trading margins may erode as
markets mature and that there may be diminished opportunities for gain should
volatility decline. In addition, the FERC, which has jurisdiction over wholesale
power rates, as well as independent system operators that oversee some of these
markets, may impose price limitations, bidding rules and other mechanisms to
address some of the volatility in these markets. Fuel prices may also be
volatile, and the price we can obtain for power sales may not change at the same
rate as changes in fuel costs. These factors could reduce our margins and
therefore diminish our revenues and results of operations.
Volatility in market prices for fuel and power may result from:
- weather conditions;
- seasonality;
- power usage;
- illiquid markets;
- transmission or transportation constraints or inefficiencies;
- availability of competitively priced alternative energy sources;
- demand for energy commodities;
- natural gas, crude oil and refined products, and coal production levels;
- natural disasters, wars, embargoes and other catastrophic events; and
- federal, state and foreign energy and environmental regulation and
legislation.
o Our power trading (including fuel procurement and power marketing) and
risk management policies cannot eliminate the risk associated with
these activities.
7
Our power trading (including fuel procurement and power marketing)
activities expose us to risks of commodity price movements. We attempt to manage
our exposure through enforcement of established risk limits and risk management
procedures. These risk limits and risk management procedures may not always be
followed or may not work as planned and cannot eliminate the risks associated
with these activities. As a result, we cannot predict the impact that our power
trading and risk management decisions may have on our business, operating
results or financial position.
We routinely have open trading positions in the market, within
established guidelines, resulting from the management of our trading portfolio.
To the extent open trading positions exist, fluctuating commodity prices can
improve or diminish our financial results and financial position.
Our power trading and risk management activities, including our power
sales agreements with counterparties, rely on projections that depend heavily on
judgments and assumptions by management of factors such as the future market
prices and demand for power and other energy-related commodities. These factors
become more difficult to predict and the calculations become less reliable the
further into the future these estimates are made. Even when our policies and
procedures are followed and decisions are made based on these estimates, results
of operations may be diminished if the judgments and assumptions underlying
those calculations prove to be wrong or inaccurate.
o Our financial performance may be adversely affected if we are unable to
successfully operate our electric generating facilities.
Our performance depends on the successful operation of our electric
generating facilities. Operating electric generating facilities involves many
risks, including:
- operator error and breakdown or failure of equipment or processes;
- operating limitations that may be imposed by environmental or other
regulatory requirements;
- labor disputes;
- fuel supply interruptions; and
- catastrophic events such as fires, earthquakes, explosions, floods or
other similar occurrences.
A decrease or elimination of revenues from power produced by our
electric generating facilities or an increase in the cost of operating the
facilities would adversely affect our results of operations.
o Parties with whom we have contracts may fail to perform their
obligations, which could harm our results of operations.
We are exposed to the risk that counterparties that owe us money or
power will breach their obligations. Should the counterparties to these
arrangements fail to perform, we may be forced to enter into alternative hedging
arrangements or honor underlying
8
commitments at then-current market prices that may exceed our contractual
prices, which would cause our financial results to be diminished and we might
incur losses. Although our estimates take into account the expected probability
of default by a counterparty, our actual exposure to a default by a counterparty
may be greater than the estimates predict if defaults by counterparties exceed
our estimates.
o We rely on electric transmission facilities that we do not own or
control. If these facilities do not provide us with adequate
transmission capacity, we may not be able to deliver our wholesale
electric power to the purchasers of our power.
We depend on transmission facilities owned and operated by other
unaffiliated power companies to deliver the power we sell at wholesale. This
dependence exposes us to a variety of risks. If transmission is disrupted, or
transmission capacity is inadequate, we may not be able to sell and deliver our
wholesale power. If a region's power transmission infrastructure is inadequate,
our recovery of wholesale costs and profits may be limited. If restrictive
transmission price regulation is imposed, the transmission companies may not
have sufficient incentive to invest in expansion of transmission infrastructure.
The FERC has issued electric transmission initiatives that require
electric transmission services to be offered unbundled from commodity sales.
Although these initiatives are designed to encourage wholesale market
transactions for electricity, access to transmission systems may in fact not be
available if transmission capacity is insufficient because of physical
constraints or because it is contractually unavailable. We also cannot predict
whether transmission facilities will be expanded in specific markets to
accommodate competitive access to those markets.
o We do not fully hedge against price changes in commodities.
As part of our power marketing and trading operations, we routinely
enter into contracts to purchase and sell electricity and to procure fuel. In
connection with these trading activities, we routinely enter into financial
contracts, including futures and options, over-the-counter options, swaps and
other derivative contracts. These activities expose us to risks from price
movements. If the values of the financial contracts change in a manner we do not
anticipate, it could harm our financial position or reduce the financial
contribution of our trading operations.
We manage our exposure by establishing risk limits and entering into
contracts to offset some of our positions (i.e., to hedge our exposure to
demand, market effects of weather and other changes in commodity prices).
However, we do not always hedge the entire exposure of our operations from
commodity price volatility. To the extent we do not hedge against commodity
price volatility, our results of operations and financial position may be
improved or diminished based upon our success in the market.
o We are unable to predict the course, results or impact, if any, of
current or future energy market investigations.
9
In February 2002, the FERC issued an order directing its staff to
conduct a fact-finding investigation into whether any entity, including Enron
Corp., manipulated short-term prices in electric energy or natural gas markets
in the West or otherwise exercised undue influence over wholesale prices in the
West, for the period January 1, 2000, forward. In April 2002, AEP furnished
certain information to the FERC in response to their related data request.
Pursuant to the FERC's February order, on May 8, 2002, the FERC issued
further data requests, including requests for admissions, with respect to
certain trading strategies engaged in by Enron Corp. and, allegedly, traders of
other companies active in the wholesale electricity and ancillary services
markets in the West, particularly California, during the years 2000 and 2001.
This data request was issued to AEP as part of a group of over 100 entities
designated by the FERC as all sellers of wholesale electricity and/or ancillary
services to the California Independent System Operator and/or the California
Power Exchange.
The May 8, 2002 FERC data request required senior management to conduct
an investigation into AEP's trading activities during 2000 and 2001 and to
provide an affidavit as to whether AEP engaged in certain trading practices that
the FERC characterized in the data request as being potentially manipulative.
AEP's senior management complied with the order and denied its involvement with
those trading practices.
On May 21, 2002, the FERC issued a further data request with respect to
this matter to AEP and over 100 other market participants requesting information
for the years 2000 and 2001 concerning "wash", "round trip" or "sale/buy back"
trading in the Western System Coordinating Council ("WSCC"), which involves the
sale of an electricity product to another company together with a simultaneous
purchase of the same product at the same price (collectively, "wash sales").
Similarly, on May 22, 2002, the FERC issued an additional data request with
respect to this matter to AEP and other market participants requesting similar
information for the same period with respect to the sale of natural gas products
in the WSCC and Texas. After reviewing its records, AEP responded to the FERC
that it did not participate in any "wash sale" transactions involving power or
gas in the relevant market. AEP further informed the FERC that certain of its
traders did engage in trades on the Intercontinental Exchange, an electronic
electricity trading platform owned by a group of electricity trading companies,
including AEP, on September 21, 2001, the day on which all brokerage commissions
for trades on that exchange were donated to charities for the victims of the
September 11, 2001 terrorist attacks, which do not meet the FERC criteria for a
"wash sale" but do have certain characteristics in common with such sales.
The Public Utility Commission of Texas, which has jurisdiction over
several of our affiliates, also issued similar data requests to AEP and other
power marketers. AEP responded to such data request by the July 2, 2002 response
date. We understand that the SEC and US Commodity Futures Trading Commission
("CFTC") are also looking into
10
"wash sale" trading practices. The CFTC issued a subpoena to AEP on June 17,
2002 requesting information with respect to these matters. AEP responded to
CFTC.
In August 2002, AEP received an informal data request from the SEC
asking it to voluntarily provide documents related to "round-trip" or "wash"
trades and AEP has provided the requested information to the SEC. In March 2003,
AEP received a subpoena from the SEC. The subpoena seeks additional information
and is part of the SEC's formal investigative process. AEP responded to the
subpoena in April 2003. AEP has completed a review of its trading activities in
the United States for the last three years involving sequential trades with the
same terms and counterparties. The revenue from such trading is not material to
either our financial statements or AEP's. We believe that substantially all
these transactions involve economic substance and risk transference and do not
constitute "wash sales".
Management is unable to predict the course or outcome of these or any
future energy market investigations or their impact, if any, on power commodity
trading generally or, more specifically, on our trading operations or future
results of operations and cash flows.
o Diminished liquidity in the wholesale power markets could negatively
impact our earnings.
The Enron Corp. bankruptcy and enhanced regulatory scrutiny have
contributed to more rigorous credit rating review of wholesale power market
participants. Credit downgrades and financial difficulties of certain other
market participants have significantly reduced such participants' participation
in the wholesale power markets. These events are causing a decrease in the
number of significant participants in the wholesale power markets, at least
temporarily, which could result in a decrease in the volume and liquidity in the
wholesale power markets. Reduced liquidity in these markets could also hamper
our efforts to exit transactions not related to risk management of our assets
that we entered into before reducing the scale of our power marketing and
trading operations. We are unable to predict the impact on our power marketing
and trading business, if such developments continue.
o Uncertainty exists regarding FERC proposed security standards.
In July 2002, the FERC published for comment its proposed security
standards as part of the Standard Electricity Market Design ("SMD"). These
standards are intended to ensure all market participants have a basic security
program that effectively protects the electric grid and related market
activities and require compliance by January 1, 2004. The impact of these
proposed standards is far-reaching and has significant penalties for
non-compliance. These standards apply to marketers, transmission owners, and
power producers, including us. Compliance with these standards would represent a
significant effort that will impact us. Unless the cost of compliance can be
recovered from customers, results of operations and cash flows would be
adversely affected. After the FERC's proposal in 2002, the North American
Electric Reliability Council ("NERC"),
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with FERC's support, developed a new set of standards to address industry
compliance. These new standards closely parallel the initial, proposed FERC
standards in both content and compliance time frames, and were approved by the
NERC ballot body in June of 2003. AEP is developing financial requirements for
security implementation and compliance with these NERC standards. Since these
financial requirements are not yet determined, management cannot predict the
impacts of such standards on future results of operations and cash flows.
o Potential for disruption exists if the delay of a FERC market power
mitigation order is lifted.
A FERC order on AEP's triennial market based wholesale power rate
authorization update required certain mitigation actions that certain AEP
subsidiaries, including us, would need to take for sales/purchases within its
control area and required AEP to post information on its website regarding its
power systems status. As a result of a request for rehearing filed by AEP and
other market participants, FERC issued an order delaying the effective date of
the mitigation plan until after a planned technical conference on market power
determination. No such conference has been held and management is unable to
predict the timing of any further action by the FERC or its affect on future
results of our operations and cash flows.
RISKS RELATED TO MARKET OR ECONOMIC VOLATILITY
o We are subject to risks associated with a changing economic
environment.
In response to the occurrence of several recent events, including the
September 11, 2001 terrorist attack on the United States, the ongoing war
against terrorism by the United States, and the bankruptcy of Enron Corp., the
financial markets have been disrupted in general, and the availability and cost
of capital for our business and that of our competitors has been at least
temporarily harmed. In addition, following the bankruptcy of Enron Corp., the
credit ratings agencies initiated a thorough review of the capital structure and
earnings power of energy companies, including us. These events could constrain
the capital available to our industry and could limit our access to funding for
our operations. Our business is capital intensive, and we are dependent upon our
ability to access capital at rates and on terms we determine to be attractive.
If our ability to access capital becomes significantly constrained, our interest
costs will likely increase and our financial condition could be harmed and
future results of operations could be significantly diminished.
The insurance industry has also been disrupted by these events. As a
result, the availability of insurance covering risks we and our competitors
typically insure against may decrease. In addition, the insurance we are able to
obtain may have higher deductibles, higher premiums and more restrictive policy
terms.
o A downgrade in our credit rating or that of AEP could negatively affect
our ability to access capital and/or to operate our power trading
businesses.
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Standard & Poor's and Moody's rate our senior, unsecured debt at BBB
and Baa1, respectively. If Moody's or Standard & Poor's were to downgrade our
long-term rating, particularly below investment grade, our borrowing costs would
increase, which would diminish our financial results. In addition, we would
likely be required to pay a higher interest rate in future financings, and our
potential pool of investors and funding sources could decrease.
On February 10, 2003, Moody's downgraded AEP's short-term debt rating
to P-3 (with stable outlook) from P-2. On March 7, 2003, S&P affirmed AEP's
short-term rating of A-2 with stable outlook. As a result of Moody's downgrade,
AEP's access to the commercial paper market may be limited and our short-term
borrowing costs may increase because we conduct our short-term borrowing through
AEP and on the same terms available to AEP.
Our power trading business relies on the investment grade ratings of
our senior, unsecured debt. Most of our counterparties require the
creditworthiness of an investment grade entity to stand behind transactions. If
our rating were to decline below investment grade, our ability to profitably
operate our power trading business would be diminished because we would likely
have to deposit cash or cash related instruments, which would reduce our
profits.
o Our operating results may fluctuate on a seasonal and quarterly basis.
Electric power generation is generally a seasonal business. In many
parts of the country, demand for power peaks during the hot summer months, with
market prices also peaking at that time. In other areas, power demand peaks
during the winter. As a result, our overall operating results in the future may
fluctuate substantially on a seasonal basis. The pattern of this fluctuation may
change depending on the terms of power sale contracts we enter into. In
addition, we have historically sold less power, and consequently earned less
income, when weather conditions are milder. We expect that unusually mild
weather in the future could diminish our results of operations and harm our
financial condition.
o Changes in technology may significantly affect our business by making
our power plants less competitive.
A key element of our business model is that generating power at central
power plants achieves economies of scale and produces power at relatively low
cost. There are other technologies that produce power, most notably fuel cells,
microturbines, windmills and photovoltaic (solar) cells. It is possible that
advances in technology will reduce the cost of alternative methods of producing
power to a level that is competitive with that of most central power station
electric production. If this were to happen and if these technologies achieved
economies of scale, our market share could be eroded, and the value of our power
plants could be reduced. Changes in technology could also alter the channels
through which retail electric customers buy power, thereby harming our financial
results.
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o Changes in commodity prices may increase our cost of producing power or
decrease the amount we receive from selling power, harming our
financial performance.
We are exposed to changes in the price and availability of coal and
natural gas because a significant portion of our generating capacity is
coal-fired with the remainder using natural gas as fuel. We have contracts of
varying durations for the supply of fuel for most of our existing generation
capacity, but as these contracts end, we may not be able to purchase fuel on
terms as favorable as the current contracts. Our exposure to such changes in
fuel costs is mitigated in part by our ability to recover fuel costs from
regulated customers pursuant to state and Federal fuel recovery provisions,
subject to applicable review by these regulatory bodies.
Changes in the cost of fuel and changes in the relationship between
such cost and the market price of power will affect our financial results. Since
the price we obtain for power may not change at the same rate as the change in
fuel costs, we may be unable to pass on the changes in costs to our customers in
the future.
Actual power prices and fuel costs will differ from those assumed in
financial projections used to initially value our trading and marketing
transactions, and those differences may be material. As a result, our financial
results may be diminished in the future as those transactions are marked to
market.
o Demand for power could exceed our supply capacity.
We are currently obligated to supply power to our regulated retail and
wholesale customers. At peak times, the demand for power required to meet this
obligation may exceed our available generation capacity. Until recently, we have
had little need to purchase power in the market for our retail customers. If
current consumption trends continue in the future, we may be required to buy
more power on the market or build additional generation. Either the market or
regulators (through rate recovery) may not permit us to pass all of these
purchase or construction costs on to our customers. To the extent regulators do
not permit timely recovery of the base rate portion of these costs, we have
exposure to regulatory lag associated with the time between the incurrence of
costs of purchased or constructed capacity and their recovery in customers'
rates.
RISKS RELATED TO ENVIRONMENTAL REGULATION
o Our costs of compliance with environmental laws are significant, and
the cost of compliance with future environmental laws could harm our
cash flow and profitability.
Our operations are subject to extensive federal, state and local
environmental statutes, rules and regulations relating to air quality, water
quality, waste management, natural resources and health and safety. Compliance
with these legal requirements
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requires us to commit significant capital toward environmental monitoring,
installation of pollution control equipment, emission fees and permits at all of
our facilities. These expenditures have been significant in the past and we
expect that they will increase in the future. Costs of compliance with
environmental regulations could harm our industry, our business and our results
of operations and financial position, especially if emission and/or discharge
limits are tightened, more extensive permitting requirements are imposed,
additional substances become regulated and the number and types of assets we
operate increase.
o Governmental authorities may assess penalties on us for failures to
comply with environmental laws and regulations.
If we fail to comply with environmental laws and regulations, even if
caused by factors beyond our control, that failure may result in the assessment
of civil or criminal penalties and fines against us. Recent lawsuits by the EPA
and various states filed against certain of our affiliate utility companies
highlight the environmental risks faced by generating facilities, in general,
and coal-fired generating facilities, in particular.
RATIO OF EARNINGS TO FIXED CHARGES
The Ratio of Earnings to Fixed Charges for each of the periods
indicated is as follows:
Twelve Months
Period Ended Ratio
-------------- -----
December 31, 1998 3.52
December 31, 1999 2.95
December 31, 2000 2.55
December 31, 2001 3.18
December 31, 2002 2.95
June 30, 2003 2.99
For current information on the Ratio of Earnings to Fixed Charges,
please see our most recent Form 10-K (as updated by the Current Report on Form
8-K dated May 14, 2003) and 10-Q. See WHERE YOU CAN FIND MORE INFORMATION.
USE OF PROCEEDS
The net proceeds from the sale of any of the offered securities will be
used for general corporate purposes relating to our business. Unless stated
otherwise in a prospectus supplement, these purposes include redeeming or
repurchasing outstanding debt, replenishing working capital, financing our
subsidiaries' ongoing construction and maintenance programs. If we do not use
the net proceeds immediately, we temporarily invest them in short-term,
interest-bearing obligations.
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The prospectus supplement of a particular offering of securities will
identify the use of proceeds for the offering. The proceeds from the sale of
Trust Preferred Securities by a trust will be invested in Debt Securities issued
by us. Except as we may otherwise describe in the related prospectus supplement,
we expect to use the net proceeds of the sale of such Debt Securities to the
applicable trust for the above purposes.
THE TRUSTS
SWEPCo Capital Trust I, SWEPCo Capital Trust II and SWEPCo Trust III
(each a "trust") are statutory business trusts created under the Delaware
Statutory Trust Act pursuant to amended and restated declarations of trust,
among SWEPCo, The Bank of New York, as the Property Trustee, The Bank of New
York (Delaware) as Delaware Trustee and two employees of SWEPCo as
Administrative Trustees. In this prospectus, we refer to these declarations as
the trust agreements.
Each trust exists solely to:
- issue and sell its Trust Preferred Securities (including Trust Capital
Securities) and Trust Common Securities (the "Trust Securities");
- use the proceeds from the sale of its Trust Securities to purchase and
hold a series of our Debt Securities;
- maintain its status as a grantor trust for federal income tax purposes;
and
- engage in other activities that are necessary or incidental to these
purposes.
We will purchase all of the Trust Common Securities. The Trust Common
Securities will represent an aggregate liquidation amount equal to at least 3%
of the total capital of the trust. Payments will be made on the Trust Common
Securities PRO RATA with the Trust Preferred Securities, except that the Trust
Common Securities' right to payment will be subordinated to the rights of the
Trust Preferred Securities if there is a default under the trust agreement
resulting from an event of default under the applicable indenture.
We will guarantee the Trust Preferred Securities as described later in
this prospectus.
Each trust's business and affairs will be conducted by its
Administrative Trustees, as set forth in the trust agreement. The office of the
Delaware Trustee in the State of Delaware is 700 White Clay Center, Newark,
Delaware 19711. The trust's offices are located at 1 Riverside Plaza, Columbus,
Ohio 43215; the telephone number is (614) 716-1000.
ACCOUNTING TREATMENT OF TRUSTS
For financial reporting purposes, the debt instruments issued to the
trusts will be included in our consolidated financial statements under the
long-term debt section. Appropriate disclosures concerning the Trusts, the
Guarantees, the Senior Notes and the
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Junior Subordinated Debentures will be included in the notes to the consolidated
financial statements.
DESCRIPTION OF THE SENIOR NOTES
GENERAL
We will issue the Senior Notes under the Indenture dated February 25,
2000 (as previously supplemented and amended) between us and the Trustee, The
Bank of New York. This prospectus briefly outlines some provisions of the
Indenture. If you would like more information on these provisions, you should
review the Indenture and any supplemental indentures that we have filed or will
file with the SEC. See WHERE YOU CAN FIND MORE Information on how to locate
these documents. You may also review these documents at the Trustee's offices at
101 Barclay Street, New York, New York.
The Indenture does not limit the amount of Senior Notes that may be
issued. The Indenture permits us to issue Senior Notes in one or more series or
tranches upon the approval of our board of directors pursuant to any
supplemental indentures. Each series of Senior Notes may differ as to their
terms.
The Senior Notes are unsecured and will rank equally with all our
unsecured unsubordinated debt. Substantially all of our fixed properties and
franchises are subject to the lien of our first mortgage bonds issued under and
secured by a Mortgage and Deed of Trust, dated as of February 1, 1940 (as
previously supplemented and amended) between us and The Bank of New York, as
trustee. For current information on our debt outstanding see our most recent
Form 10-K and Form 10-Q. See WHERE YOU CAN FIND MORE INFORMATION.
The Senior Notes will be denominated in U.S. dollars and we will pay
principal and interest in U.S. dollars. Unless an applicable pricing or
prospectus supplement states otherwise, the Senior Notes will not be subject to
any conversion, amortization, or sinking fund. We expect that the Senior Notes
will be "book-entry," represented by a permanent global note registered in the
name of The Depository Trust Company, or its nominee. We reserve the right,
however, to issue note certificates registered in the name of the noteholders.
The interest rate and interest and other payment dates of each series
of Senior Notes issued to a trust will correspond to the rate at which
distributions will be paid and the distribution and other payment dates of the
Trust Preferred Securities.
The Indenture does not protect holders of the Senior Notes if we engage
in a highly leveraged transaction.
In the discussion that follows, whenever we talk about paying principal
on the Senior Notes, we mean at maturity or redemption. Also, in discussing the
time for notices and how the different interest rates are calculated, all times
are New York City time and all references to New York mean the City of New York,
unless otherwise noted.
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The following terms may apply to each Senior Note as specified in the
applicable pricing or prospectus supplement and the Senior Note.
REDEMPTIONS
If we issue redeemable Senior Notes, we may redeem such Senior Notes at
our option unless an applicable pricing or prospectus supplement states
otherwise. The pricing or prospectus supplement will state the terms of
redemption. We may redeem Senior Notes in whole or in part by delivering written
notice to the noteholders no more than 60, and not less than 30, days prior to
redemption. If we do not redeem all the Senior Notes of a series at one time,
the Trustee selects the Senior Notes to be redeemed in a manner it determines to
be fair.
REMARKETED SENIOR NOTES
If we issue Senior Notes with remarketing features, an applicable
pricing or prospectus supplement will describe the terms for the Senior Notes
including: interest rate, remarketing provisions, our right to redeem Senior
Notes, the holders' right to tender Senior Notes, and any other provisions.
NOTE CERTIFICATES-REGISTRATION, TRANSFER, AND PAYMENT OF INTEREST AND PRINCIPAL
If we issue note certificates, they will be registered in the name of
the noteholder. The Senior Notes may be transferred or exchanged, pursuant to
administrative procedures in the indenture, without the payment of any service
charge (other than any tax or other governmental charge) by contacting the
paying agent. Payments on note certificates will be made by check.
INTEREST RATE
The interest rate on the Senior Notes will either be fixed or floating.
The interest paid will include interest accrued to, but excluding, the date of
maturity or redemption. Interest is generally payable to the person in whose
name the Senior Note is registered at the close of business on the record date
before each interest payment date. Interest payable at maturity or redemption,
however, will be payable to the person to whom principal is payable.
If we issue a Senior Note after a record date but on or prior to the
related interest payment date, we will pay the first interest payment on the
interest payment date after the next record date. We will pay interest payments
by check or wire transfer, at our option.
For a discussion of our ability to defer interest payments on the
Senior Notes, see DESCRIPTION OF TRUST PREFERRED SECURITIES--OPTION TO EXTEND
INTEREST PAYMENT PERIOD.
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FIXED RATE NOTES
A pricing or prospectus supplement will designate the record dates,
payment dates and the fixed rate of interest payable on a Senior Note. We will
pay interest quarterly or semi-annually, and upon maturity or redemption. Unless
an applicable pricing or prospectus supplement states otherwise, if any payment
date falls on a day that is not a business day, we will pay interest on the next
business day and no additional interest will be paid. Interest payments will be
the amount of interest accrued to, but excluding, each payment date. Interest
will be computed using a 360-day year of twelve 30-day months.
FLOATING RATE NOTES
Each floating rate Senior Note will have an interest rate formula. The
applicable pricing supplement will state the initial interest rate or interest
rate formula on each Senior Note effective until the first interest reset date.
The applicable pricing or prospectus supplement will state the method and dates
on which the interest rate will be determined, reset and paid.
EVENTS OF DEFAULT
"Event of Default" means any of the following:
- failure to pay the principal of (or premium, if any, on) any Senior
Note of a series for three days after payment is due;
- failure to pay any interest on any Senior Note of any series for 30
days after payment is due;
- failure to perform any other requirements in such Senior Notes, or in
the Indenture in regard to such Senior Notes, for 90 days after notice;
- failure to pay any sinking fund installment for three days after
payment is due;
- certain events of bankruptcy or insolvency; or
- any other event of default specified in a series of Senior Notes.
An Event of Default for a particular series of Senior Notes does not
necessarily mean that an Event of Default has occurred for any other series of
Senior Notes issued under the Indenture. If an Event of Default occurs and
continues, the Trustee or the holders of at least 33% of the principal amount of
the Senior Notes of the series affected may require us to repay the entire
principal of the Senior Notes of such series within ten days after the date of
such notice ("Repayment Acceleration"). In most instances, the holders of at
least a majority in aggregate principal amount of the Senior Notes of the
affected series may rescind a previously triggered Repayment Acceleration if we
have first cured our default by depositing with the Trustee enough money to pay
all (unaccelerated) past due amounts and penalties, if any. For a discussion of
remedies in the event Senior Notes are issued to a trust, see DESCRIPTION OF
TRUST PREFERRED SECURITIES-ENFORCEMENT OF CERTAIN RIGHTS OF HOLDERS OF TRUST
PREFERRED SECURITIES.
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The Trustee must within 90 days after a default occurs, notify the
holders of the Senior Notes of the series of default unless such default has
been cured or waived. We are required to file an annual certificate with the
Trustee, signed by an officer, concerning any default by us under any provisions
of the Indenture.
Subject to the provisions of the Indenture relating to its duties in
case of default, the Trustee shall be under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
holders unless such holders offer the Trustee reasonable indemnity. Subject to
the provisions for indemnification, the holders of a majority in principal
amount of the Senior Notes of any series may direct the time, method and place
of conducting any proceedings for any remedy available to, or exercising any
trust or power conferred on, the Trustee with respect to such Senior Notes.
MODIFICATION OF INDENTURE
Under the Indenture, our rights and obligations and the rights of the
holders of any Senior Notes may be changed. Any change affecting the rights of
the holders of any series of Senior Notes requires the consent of the holders of
not less than a majority in aggregate principal amount of the outstanding Senior
Notes of all series affected by the change, voting as one class. However, we
cannot change the terms of payment of principal or interest, or a reduction in
the percentage required for changes or a waiver of default, unless the holder
consents. We may issue additional series of Senior Notes and take other action
that does not affect the rights of holders of any series by executing
supplemental indentures without the consent of any noteholders.
CONSOLIDATION, MERGER OR SALE
We may merge or consolidate with any entity or sell our assets
substantially as an entirety as long as the successor or purchaser expressly
assumes the payment of principal, and premium, if any, and interest on the
Senior Notes.
LEGAL DEFEASANCE
We will be discharged from our obligations on the Senior Notes of any
series on the 91st day after the date of the deposit referred to in the first
item below if, among other things:
- we deposit with the Trustee sufficient cash or government securities to
pay (i) the principal, interest, any premium and any other sums due to
the stated maturity date or a redemption date of the Senior Note of the
series and (ii) any applicable mandatory sinking fund payments on the
day such payments are due;
- we deliver to the Trustee an opinion of counsel to the effect that such
provision would not cause any outstanding Senior Notes then listed on a
national security exchange to be delisted; and
- we deliver to the Trustee an opinion of counsel stating that the
federal income tax obligations of noteholders of that series will not
change as a result of our performing the action described above.
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If this happens, the noteholders of the series will not be entitled to
the benefits of the Indenture except for registration of transfer and exchange
of Senior Notes and replacement of lost, stolen or mutilated Senior Notes.
COVENANT DEFEASANCE
We will be discharged from our obligations under certain restrictive
covenants applicable to the Senior Notes of a particular series if, among other
things, we perform all of the actions described above. See LEGAL DEFEASANCE. If
this happens, any later breach of that particular restrictive covenant will not
result in Repayment Acceleration. If we cause an Event of Default apart from
breaching that restrictive covenant, there may not be sufficient money or
government obligations on deposit with the Trustee to pay all amounts due on the
Senior Notes of that series. In that instance, we would remain liable for such
amounts.
GOVERNING LAW
The Indenture and Senior Notes of all series will be governed by the
laws of the State of New York.
CONCERNING THE TRUSTEE
We and our affiliates use or will use some of the banking services of
the Trustee and other services of its affiliates in the normal course of
business.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
GENERAL
We will issue the Junior Subordinated Debentures directly to the public
or to a trust under the Subordinated Indenture to be entered into by us and the
Subordinated Indenture Trustee, The Bank of New York. This prospectus briefly
outlines some provisions of the Subordinated Indenture. If you would like more
information on these provisions, you should review the Subordinated Indenture
and any supplemental indentures or company orders that we will file with the
SEC. See WHERE YOU CAN FIND MORE INFORMATION on how to locate these documents.
The Junior Subordinated Debentures are unsecured obligations and are
junior in right of payment to "Senior Indebtedness". You may find a description
of the subordination provisions of the Junior Subordinated Debentures, including
a description of Senior Indebtedness under SUBORDINATION.
The Subordinated Indenture does not limit the amount of Junior
Subordinated Debentures that we may issue under it. We may issue Junior
Subordinated Debentures from time to time under the Subordinated Indenture in
one or more series by entering into
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supplemental indentures or by our Board of Directors or a duly authorized
committee authorizing the issuance. The Subordinated Indenture also gives us the
ability to reopen a previous issue of a series of Junior Subordinated Debentures
and issue additional Junior Subordinated Debentures of such series.
A prospectus supplement or pricing supplement will include the final
terms for each Junior Subordinated Debenture. If we decide to list upon issuance
any Junior Subordinated Debenture or Junior Subordinated Debentures on a
securities exchange, a prospectus supplement or pricing supplement will identify
the exchange and state when we expect trading could begin. The following terms
of the Junior Subordinated Debentures that we may sell at one or more times will
be established in a prospectus supplement:
- Maturity
- Fixed or floating interest rate
- Remarketing features
- Certificate or book-entry form
- Redemption
- Not convertible, amortized or subject to a sinking fund
- Interest paid on fixed rate Junior Subordinated Debentures quarterly or
semi-annually
- Interest paid on floating rate Junior Subordinated Debentures monthly,
quarterly, semi-annually, or annually
- Issued in multiples of a minimum denomination
- Ability to defer interest payments
- Any other terms not inconsistent with the Subordinated Indenture
- Issued with Original Issue Discount
The interest rate and interest and other payment dates of each series
of Junior Subordinated Debentures issued to a trust will correspond to the rate
at which distributions will be paid and the distribution and other payment dates
of the Trust Preferred Securities.
The Subordinated Indenture does not protect the holders of Junior
Subordinated Debentures if we engage in a highly leveraged transaction.
REDEMPTION
Provisions relating to the redemption of Junior Subordinated Debentures
will be set forth in the applicable prospectus supplement. Unless we state
otherwise in the applicable prospectus supplement, we may redeem Junior
Subordinated Debentures only upon notice mailed at least 30 but not more than 60
days before the date fixed for redemption. If we do not redeem all the Junior
Subordinated Debentures of a series at one time, the Subordinated Indenture
Trustee selects those to be redeemed in a manner it determines to be fair.
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REMARKETED JUNIOR SUBORDINATED DEBENTURES
If we issue Junior Subordinated Debentures with remarketing features,
an applicable pricing or prospectus supplement will describe the terms for the
Junior Subordinated Debentures including: interest rate, remarketing provisions,
our right to purchase or redeem Junior Subordinated Debentures, the holders'
right to tender Junior Subordinated Debentures, and any other provisions.
JUNIOR SUBORDINATED DEBENTURE CERTIFICATES-REGISTRATION, TRANSFER, AND PAYMENT
OF INTEREST AND PRINCIPAL
Unless otherwise indicated in the applicable prospectus supplement,
each series of Junior Subordinated Debentures issued to the public initially
will be in the form of one or more global Junior Subordinated Debentures, in
registered form, without coupons, as described under BOOK-ENTRY SYSTEM. However,
if we issue Junior Subordinated Debenture certificates, they will be registered
in the name of the Junior Subordinated Debentureholder. The Junior Subordinated
Debentures may be transferred or exchanged, pursuant to administrative
procedures in the Subordinated Indenture, without the payment of any service
charge (other than any tax or other governmental charge) by contacting the
paying agent. Payments to public holders of Junior Subordinated Debenture
certificates will be made by check.
ORIGINAL ISSUE DISCOUNT
We may issue the Junior Subordinated Debentures at an original issue
discount, bearing no interest or bearing interest at a rate that, at the time of
issuance, is below market rate, to be sold at a substantial discount below their
stated principal amount. Generally speaking, if the Junior Subordinated
Debentures are issued at an original issue discount and there is an event of
default or acceleration of their maturity, holders will receive an amount less
than their principal amount. Tax and other special considerations applicable to
original issue discount debt will be described in the prospectus supplement in
which we offer those Junior Subordinated Debentures.
INTEREST RATE
The interest rate on the Junior Subordinated Debentures will either be
fixed or floating. The interest paid will include interest accrued to, but
excluding, the date of maturity or redemption. Interest is generally payable to
the person in whose name the Junior Subordinated Debenture is registered at the
close of business on the record date before each interest payment date. Interest
payable at maturity or redemption, however, will be payable to the person to
whom principal is payable.
If we issue a Junior Subordinated Debenture after a record date but on
or prior to the related interest payment date, we will pay the first interest
payment on the interest payment date after the next record date. We will pay
interest payments by check or wire transfer, at our option.
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For a discussion of our ability to defer interest payments on the
Junior Subordinated Debentures, see DESCRIPTION OF TRUST PREFERRED
SECURITIES-OPTION TO EXTEND INTEREST PAYMENT PERIOD.
FIXED RATE JUNIOR SUBORDINATED DEBENTURES
A pricing or prospectus supplement will designate the record dates,
payment dates, our ability to defer interest payments and the fixed rate of
interest payable on a Junior Subordinated Debenture. We will pay interest
quarterly or semi-annually, and upon maturity or redemption. Unless an
applicable pricing or prospectus supplement states otherwise, if any payment
date falls on a day that is not a business day, we will pay interest on the next
business day and no additional interest will be paid. Interest payments will be
the amount of interest accrued to, but excluding, each payment date. Interest
will be computed using a 360-day year of twelve 30-day months.
FLOATING RATE JUNIOR SUBORDINATED DEBENTURES
Each floating rate Junior Subordinated Debenture will have an interest
rate formula. The applicable prospectus supplement or pricing supplement will
state the initial interest rate or interest rate formula on each Junior
Subordinated Debenture effective until the first interest reset date. The
applicable pricing or prospectus supplement will state the method and dates on
which the interest rate will be determined, reset and paid.
EVENTS OF DEFAULT
The following are events of default under the Subordinated Indenture
with respect to any series of Junior Subordinated Debentures, unless we state
otherwise in the applicable prospectus supplement:
- failure to pay for three business days the principal of (or premium, if
any, on) any Junior Subordinated Debenture of a series when due and
payable;
- failure to pay for 30 days any interest on any Junior Subordinated
Debenture of any series when due and payable;
- failure to perform any other requirements in such Junior Subordinated
Debentures, or in the Subordinated Indenture, for 90 days after notice;
- certain events of our bankruptcy or insolvency; or
- any other event of default specified in a series of Junior Subordinated
Debentures.
An event of default for a particular series of Junior Subordinated
Debentures does not necessarily mean that an event of default has occurred for
any other series of Junior Subordinated Debentures issued under the Subordinated
Indenture. If an event of default occurs and continues, the Subordinated
Indenture Trustee or the holders of at least 33% of the principal amount of the
Junior Subordinated Debentures of the series affected may require us to repay
the entire principal of the Junior Subordinated Debentures of such
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series immediately ("Repayment Acceleration"). In most instances, the holders of
at least a majority in aggregate principal amount of the Junior Subordinated
Debentures of the affected series may rescind a previously triggered Repayment
Acceleration. However, if we cause an event of default because we have failed to
pay (unaccelerated) principal, premium, if any, or interest, Repayment
Acceleration may be rescinded only if we have first cured our default by
depositing with the Subordinated Indenture Trustee enough money to pay all
(unaccelerated) past due amounts and penalties, if any. For a discussion of
remedies in the event Junior Subordinated Debentures are issued to a trust, see
DESCRIPTION OF TRUST PREFERRED SECURITIES-ENFORCEMENT OF CERTAIN RIGHTS BY
HOLDERS OF TRUST PREFERRED SECURITIES.
The Subordinated Indenture Trustee must within 90 days after a default
occurs, notify the holders of the Junior Subordinated Debentures of the series
of default unless such default has been cured or waived. We are required to file
an annual certificate with the Subordinated Indenture Trustee, signed by an
officer, concerning any default by us under any provisions of the Subordinated
Indenture.
In the case of Junior Subordinated Debentures issued to a trust, a
holder of Trust Preferred Securities may institute a legal proceeding directly
against us without first instituting a legal proceeding against the Property
Trustee of the trust by which those Trust Preferred Securities were issued or
any other person or entity, for enforcement of payment to that holder of
principal or interest on an equivalent amount of Junior Subordinated Debentures
of the related series on or after the due dates specified in those Junior
Subordinated Debentures.
Subject to the provisions of the Subordinated Indenture relating to its
duties in case of default, the Subordinated Indenture Trustee shall be under no
obligation to exercise any of its rights or powers under the Subordinated
Indenture at the request, order or direction of any holders unless such holders
offer the Subordinated Indenture Trustee reasonable indemnity. Subject to the
provisions for indemnification, the holders of a majority in principal amount of
the Junior Subordinated Debentures of any series may direct the time, method and
place of conducting any proceedings for any remedy available to, or exercising
any trust or power conferred on, the Subordinated Indenture Trustee with respect
to such Junior Subordinated Debentures.
MODIFICATION OF SUBORDINATED INDENTURE
Under the Subordinated Indenture, our rights and obligations and the
rights of the holders of any Junior Subordinated Debentures may be changed. Any
change affecting the rights of the holders of any series of Junior Subordinated
Debentures requires the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Junior Subordinated Debentures of
all series affected by the change, voting as one class. However, we cannot
change the terms of payment of principal or interest, or a reduction in the
percentage required for changes or a waiver of default, unless the holder
consents. We may issue additional series of Junior Subordinated Debentures and
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take other action that does not affect the rights of holders of any series by
executing supplemental indentures without the consent of any debentureholders.
CONSOLIDATION, MERGER OR SALE
We may merge or consolidate with any entity or sell substantially all
of our assets as an entirety as long as the successor or purchaser expressly
assumes the payment of principal, premium, if any, and interest on the Junior
Subordinated Debentures.
LEGAL DEFEASANCE
We will be discharged from our obligations on the Junior Subordinated
Debentures of any series at any time if:
- we deposit with the Trustee sufficient cash or government securities to
pay the principal, interest, any premium and any other sums due to the
stated maturity date or a redemption date of the Junior Subordinated
Debenture of the series, and
- we deliver to the Trustee an opinion of counsel stating that the
federal income tax obligations of debentureholders of that series will
not change as a result of our performing the action described above.
If this happens, the debentureholders of the series will not be
entitled to the benefits of the Subordinated Indenture except for registration
of transfer and exchange of Junior Subordinated Debentures and replacement of
lost, stolen or mutilated Junior Subordinated Debentures.
COVENANT DEFEASANCE
We will be discharged from our obligations under any restrictive
covenant applicable to the Junior Subordinated Debentures of a particular series
if we perform both actions described above. See LEGAL Defeasance. If this
happens, any later breach of that particular restrictive covenant will not
result in Repayment Acceleration. If we cause an event of default apart from
breaching that restrictive covenant, there may not be sufficient money or
government obligations on deposit with the Subordinated Indenture Trustee to pay
all amounts due on the Junior Subordinated Debentures of that series. In that
instance, we would remain liable for such amounts.
Junior Subordinated Debentures issued to a trust will not be subject to
covenant defeasance.
SUBORDINATION
Each series of Junior Subordinated Debentures will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated
Indenture, to all Senior Indebtedness as defined below. If:
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- we make a payment or distribution of any of our assets to creditors
upon our dissolution, winding-up, liquidation or reorganization,
whether in bankruptcy, insolvency or otherwise;
- a default beyond any grace period has occurred and is continuing with
respect to the payment of principal, interest or any other monetary
amounts due and payable on any Senior Indebtedness; or
- the maturity of any Senior Indebtedness has been accelerated because of
a default on that Senior Indebtedness,
then the holders of Senior Indebtedness generally will have the right to receive
payment, in the case of the first instance, of all amounts due or to become due
upon that Senior Indebtedness, and, in the case of the second and third
instances, of all amounts due on that Senior Indebtedness, or we will make
provision for those payments, before the holders of any Junior Subordinated
Debentures have the right to receive any payments of principal or interest on
their Junior Subordinated Debentures.
"Senior Indebtedness" means, with respect to any series of Junior
Subordinated Debentures, the principal, premium, interest and any other payment
in respect of any of the following:
- all of our indebtedness that is evidenced by notes, debentures, bonds
or other securities we sell for money or other obligations for money
borrowed, other than outstanding junior subordinated debentures issued
pursuant to the Indenture dated as of May 1, 1997;
- all indebtedness of others of the kinds described in the preceding
category which we have assumed or guaranteed or which we have in effect
guaranteed through an agreement to purchase, contingent or otherwise;
and
- all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding two categories.
Any such indebtedness, renewal, extension or refunding, however, will
not be Senior Indebtedness if the instrument creating or evidencing it or the
assumption or Guarantee of it provides that it is not superior in right of
payment to or is equal in right of payment with those Junior Subordinated
Debentures. Senior Indebtedness will be entitled to the benefits of the
subordination provisions in the Subordinated Indenture irrespective of the
amendment, modification or waiver of any term of the Senior Indebtedness.
The Subordinated Indenture does not limit the amount of Senior
Indebtedness that we may issue. As of June 30, 2003, our Senior Indebtedness
(which includes our first mortgage bonds) totaled approximately $782 million.
GOVERNING LAW
The Subordinated Indenture and Junior Subordinated Debentures of all
series will be governed by the laws of the State of New York.
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CONCERNING THE TRUSTEE
We and our affiliates use or will use some of the banking services of
the Subordinated Indenture Trustee in the normal course of business. The
Subordinated Trustee is also the Trustee under the Indenture relating to the
Senior Notes.
DESCRIPTION OF TRUST PREFERRED SECURITIES
Each trust may issue Trust Preferred Securities and Trust Common
Securities under the trust agreement, which we refer to in this prospectus as
the Trust Securities. These Trust Securities will represent undivided beneficial
interests in the assets of the trust. Selected provisions of the trust agreement
are summarized below. This summary is not complete. The form of trust agreement
is filed with the SEC herewith and you should read the trust agreement for
provisions that may be important to you. The trust agreement will be qualified
as an indenture under the Trust Indenture Act. You should also refer to the
Trust Indenture Act for provisions that apply to the Trust Preferred Securities.
GENERAL
Each trust will exist for the exclusive purposes of:
- issuing and selling its Trust Preferred Securities and Trust Common
Securities;
- investing the gross proceeds of the Trust Securities in our Debt
Securities;
- maintaining its status as a grantor trust for federal income tax
purposes;
- making distributions; and
- engaging in only those other activities necessary, advisable or
incidental to the purposes listed above.
Our Debt Securities will be the sole assets of each trust, and our
payments under the Debt Securities will be the sole income of each trust. No
separate financial statements of any trust will be included in this prospectus.
We consider that these financial statements would not be material to holders of
the Trust Preferred Securities because no trust would have any independent
operations and the only purposes of each trust are those described above. We do
not expect that any trust will be filing annual, quarterly or special reports
with the SEC. The principal place of business of each trust will be c/o
Southwestern Electric Power Company, 1 Riverside Plaza, Columbus, OH 43215.
Each trust will exist until terminated as provided in its trust
agreement. The trustees of each trust will be:
- two of our employees or officers or two employees or officers of our
affiliates as administrators (the "Administrative Trustees"); and
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- The Bank of New York, which will act as Property Trustee and as
indenture trustee for purposes of the Trust Indenture Act (the
"Property Trustee") and The Bank of New York (Delaware) which will act,
for the purpose of complying with the provisions of the Delaware
Statutory Trust Act, as Delaware Trustee (the "Delaware Trustee").
The trust agreement will authorize the Administrative Trustees to issue
two classes of Trust Securities: Trust Preferred Securities and Trust Common
Securities. We will own all of the Trust Common Securities issued by each trust,
which will rank equally in right of payment with the Trust Preferred Securities
issued by the respective trust. However, if an event of default occurs and is
continuing under the trust agreement, rights of the holders of the Trust Common
Securities to payment for distributions and otherwise will be subordinated to
the rights of the holders of the Trust Preferred Securities. We will acquire
Trust Common Securities of each trust in a total liquidation amount of at least
three percent of the total capital of the trust.
Proceeds from the sale of both the Trust Preferred Securities and the
Trust Common Securities issued by each trust will be used to purchase our Debt
Securities, which will be held in trust by the Property Trustee for the benefit
of the holders of the Trust Securities issued by the respective trust. We will
guarantee the payments of distributions and payments of redemption or
liquidation with respect to the Trust Preferred Securities issued by each trust,
but only to the extent the respective trust has funds legally available for and
cash sufficient to make those payments and has not made the payments. See
DESCRIPTION OF GUARANTEES below.
Each Guarantee, when taken together with our obligations under the
related Debt Securities, the related indenture and the related trust agreement,
will provide a full and unconditional guarantee of amounts due on the Trust
Preferred Securities issued by the respective trust. The Trust Preferred
Securities will have the terms, including distributions, redemption, voting,
liquidation rights and other rights or restrictions that will be described in
the related trust agreement or made part of it by the Trust Indenture Act or the
Delaware Statutory Trust Act.
PROVISIONS OF A PARTICULAR SERIES
Each Trust may issue only one series of Trust Preferred Securities. The
applicable prospectus supplement will set forth the principal terms of the Trust
Preferred Securities that will be offered, including:
- the name of the Trust Preferred Securities;
- the liquidation amount and number of Trust Preferred Securities issued;
- the annual distribution rate or rates or method of determining such
rate or rates, the payment date or dates and the record dates used to
determine the holders who are to receive distributions;
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- whether distributions will be cumulative and, in the case of Trust
Preferred Securities, having cumulative distribution rights, the date
from which distributions will be cumulative;
- the optional redemption provisions, if any, including the prices, time
periods and other terms and conditions on which the Trust Preferred
Securities will be purchased or redeemed, in whole or in part;
- the terms and conditions, if any, upon which the Debt Securities and
the related Guarantee may be distributed to holders of the Trust
Preferred Securities;
- any securities exchange on which the Trust Preferred Securities will be
listed;
- any remarketing features of the Trust Preferred Securities;
- the terms and conditions, if any, upon which the Trust Preferred
Securities may be converted into our securities; and
- any other relevant rights, covenants, preferences, privileges,
limitations or restrictions of the Trust Preferred Securities.
Terms of the Trust Preferred Securities issued by each trust will
mirror the terms of the Debt Securities held by the respective trust. In other
words, the interest rate and interest and other payment dates of each series of
Debt Securities issued to a trust will correspond to the rate at which
distributions will be paid and the distribution and other payment dates of the
Trust Preferred Securities of that trust. The prospectus supplement will also
set forth whether the Debt Securities to be issued to a trust will be Senior
Notes or Junior Subordinated Debentures.
DISTRIBUTIONS
The Trust Preferred Securities represent preferred, undivided,
beneficial interests in the assets of the respective trust. The applicable
prospectus supplement will state the annual rate, as a percentage of the
liquidation amount, at which distributions on each Trust Preferred Security will
be payable, the liquidation amount and the dates on which distributions will be
payable.
Each trust will use the proceeds from the issuance and sale of the
Trust Preferred Securities to purchase our Debt Securities. The income of a
trust available for distribution to holders of the Trust Preferred Securities
issued by that trust will be limited to payments under those Debt Securities. If
we do not make payments on the Debt Securities, a trust will not have funds
available to pay distributions or other amounts payable on the Trust Preferred
Securities issued by that trust. The payment of distributions and other amounts
payable on the Trust Preferred Securities issued by a trust, if and to the
extent the trust has funds legally available for and cash sufficient to make
such payments, is guaranteed by us as described herein under DESCRIPTION OF
GUARANTEES.
OPTION TO ACCELERATE MATURITY DATE
If, at any time the Debt Securities are held by a trust, we are not
able to deduct the interest payable on the Debt Securities as a result of a Tax
Event, then we have the right
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to accelerate the stated maturity of the Debt Securities to the minimum extent
required so that interest on the Debt Securities will be deductible for United
States federal income tax purposes. However, the resulting maturity may not be
less than 15 years from the date of the original issuance. Moreover, we may not
accelerate the stated maturity unless we have received an opinion of counsel to
the effect that (1) following acceleration, interest paid on the Debt Securities
will be deductible for United States federal income tax purposes and (2) the
holders of Trust Preferred Securities will not recognize income, gain or loss
for United States federal income tax purposes as a result of this acceleration
and will be subject to United States federal tax in the same amount, in the same
manner and at the same times as would have been the case if acceleration had not
occurred.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
If the applicable prospectus supplement so states, we will have the
right to defer the payment of interest on the Debt Securities at any time or
from time to time for a period, which we refer to in this prospectus as an
"extension period," not exceeding 20 consecutive quarterly periods with respect
to each extension period. During each extension period we shall have the right
to make partial payments of interest on the Debt Security on any interest
payment date. At the end of each extension period we shall pay all interest then
accrued and unpaid. No extension period may extend beyond the stated maturity of
the Debt Securities or end on a date other than an interest payment date. As a
consequence of any such deferral, distributions on the Trust Preferred
Securities by a trust will be deferred during any such extension period.
Distributions to which holders of the Trust Preferred Securities are entitled
will accumulate additional distributions at the rate stated in the applicable
prospectus supplement. During an extension period, interest will continue to
accrue and holders of Debt Securities, or holders of Trust Preferred Securities
while outstanding, will be required to accrue original issue discount income for
United States federal income tax purposes. We will provide further discussion of
the accrual of original issue discount in the applicable prospectus supplement.
Prior to the termination of any extension period, we may further defer
the payment of interest, provided that, unless the applicable prospectus
supplement states otherwise, no extension period may exceed 20 consecutive
quarterly periods or extend beyond the stated maturity of the Debt Securities.
Upon the termination of any extension period and the payment of all amounts then
due, we may elect to begin a new extension period subject to the above
conditions. No interest shall be due and payable during an extension period,
except at its end. We must give the applicable trustee and the Property Trustee
notice of our election of an extension period at least one business day prior to
the earlier of the date the distributions on the Trust Preferred Securities
would have been payable but for the election to begin such extension period and
the date the Property Trustee is required to give notice to holders of the Trust
Preferred Securities of the record date or the date such distributions are
payable, but in any event not less than one business day prior to such record
date. The applicable trustee will give notice of our election to begin a new
extension period to the holders of the Trust Preferred Securities.
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Unless the applicable prospectus supplement states otherwise, during
any extended interest period, or for so long as an event of default under the
applicable indenture or any payment default under the Guarantee has occurred and
is continuing, we will not, except in limited circumstances, (1) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of our capital stock, (2) make any
payment of principal of or interest or premium, if any, on or repay, repurchase
or redeem any Debt Securities of ours that rank equally with, or junior to, the
Debt Securities, or (3) make any guarantee payments with respect to any
guarantee issued by us if such guarantee ranks equally with, or junior to, the
applicable Debt Securities.
REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise indicated in the applicable prospectus supplement,
each series of Trust Preferred Securities will be issued initially in the form
of one or more global securities, in registered form, without coupons, as
described under BOOK-ENTRY SYSTEM. However, if we issue certificates, they will
be issued in the name of the security holder.
Trust Preferred Securities of any series will be exchangeable for other
Trust Preferred Securities of the same series of any authorized denominations of
a like aggregate liquidation amount and tenor. Subject to the terms of the trust
agreement and the limitations applicable to global securities, Trust Preferred
Securities may be presented for exchange or registration of transfer--duly
endorsed or accompanied by a duly executed instrument of transfer--at the office
of the Property Trustee, without service charges but upon payment of any taxes
and other governmental charges as described in the trust agreement. Such
transfer or exchange will be effected upon the Property Trustee being satisfied
with the documents of title and identity of the person making the request.
The Property Trustee will not be required to issue, register the
transfer of, or exchange any Trust Preferred Securities during a period
beginning at the opening of business 15 days before the day of mailing of a
notice of redemption of any Trust Preferred Securities called for redemption and
ending at the close of business on the day of mailing or register the transfer
of, or exchange, any Trust Preferred Securities selected for redemption except,
in the case of any Trust Preferred Security to be redeemed in part, the portion
thereof not to be so redeemed.
PAYMENT AND PAYING AGENTS
Distributions and other payments on Trust Preferred Securities issued
in the form of global securities will be paid in the manner described under
BOOK-ENTRY SYSTEM.
The paying agent initially will be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees. If the Property Trustee is no longer the paying agent,
the Property Trustee will appoint a successor, which must be a bank or trust
company reasonably acceptable to the Administrative Trustees, to act as paying
agent. Such paying agent will be permitted to
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resign as paying agent upon 30 days' written notice to the Property Trustee and
the Administrative Trustees at which time the paying agent will return all
unclaimed funds and all other funds in its possession to the Property Trustee.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Debt
Securities held by a trust, the proceeds shall be applied by the Property
Trustee to redeem a Like Amount, as defined below, of the Trust Securities
issued by that trust, upon not less than 30 nor more than 60 days' notice,
unless otherwise indicated in a prospectus supplement, at a redemption price
equal to the aggregate liquidation amount of the Trust Preferred Securities plus
accumulated but unpaid distributions to but excluding the redemption date and
the related amount of the premium, if any, paid by us upon the concurrent
redemption of the Debt Securities. If less than all the Debt Securities held by
a trust are to be repaid or redeemed on a redemption date, then the proceeds
from the repayment or redemption shall be allocated to the redemption
proportionately of the Trust Preferred Securities and the Trust Common
Securities issued by that trust based on the relative liquidation amounts of the
classes. The amount of premium, if any, paid by us upon the redemption of all or
any part of the Debt Securities held by a trust to be repaid or redeemed on a
redemption date shall be allocated to the redemption proportionately of the
Trust Preferred Securities and the Trust Common Securities issued by that trust.
Unless the applicable prospectus supplement states otherwise, we will
have the right to redeem the Debt Securities held by a trust:
- on or after the date fixed for redemption as stated in the applicable
prospectus supplement, in whole at any time or in part from time to
time; or
- prior to the date fixed for redemption as stated in the applicable
prospectus supplement, in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax
Event or an Investment Company Event, each as defined below.
"Like Amount" means:
- with respect to a redemption of Trust Securities, Trust Securities
having a liquidation amount equal to that portion of the principal
amount of Debt Securities to be contemporaneously redeemed in
accordance with the applicable indenture, allocated to the Trust Common
Securities and to the Trust Preferred Securities based upon the
relative liquidation amounts of the classes; and
- with respect to a distribution of Debt Securities to holders of Trust
Securities in connection with a dissolution or liquidation of a trust,
Debt Securities having a principal amount equal to the liquidation
amount of the Trust Securities of the holder to whom the Debt
Securities are distributed.
"Tax Event" means the receipt by a trust of an opinion of counsel to us
experienced in relevant matters to the effect that, as a result of any amendment
to, or change--including
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any announced prospective change--in, the laws or any regulations thereunder of
the United States or any political subdivision or taxing authority of or in the
United States, or as a result of any official administrative pronouncement or
action or judicial decision interpreting or applying these laws or regulations,
which amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance by a trust of Trust Preferred
Securities, including, without limitation, any of the foregoing arising with
respect to, or resulting from, any proposal, proceeding or other action
commencing on or before the date of issuance, there is more than an
insubstantial risk that:
- the trust is, or will be within 90 days of the delivery of the opinion,
subject to United States federal income tax with respect to income
received or accrued on the Debt Securities we have issued to that
trust;
- interest payable by us on the Debt Securities is not, or within 90 days
of the delivery of the opinion, will not be, deductible by us, in whole
or in part, for United States federal income tax purposes; or
- the trust is, or will be within 90 days of the delivery of the opinion,
subject to more than an insubstantial amount of other taxes, duties or
other governmental charges.
"Investment Company Event" means the receipt by a trust of an opinion of counsel
to us experienced in these matters to the effect that, as a result of the
occurrence of a change in law or regulation or a written change--including any
announced prospective change--in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the trust is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act, which change or prospective change becomes effective or
would become effective, as the case may be, on or after the date of the issuance
by that trust of Trust Preferred Securities.
If and for so long as a trust is the holder of all the Debt Securities
issued by us to that trust, we will pay, with respect to the Debt Securities,
such additional amounts as may be necessary in order that the amount of
distributions then due and payable by a trust on the outstanding Trust Preferred
Securities and Trust Common Securities of a trust will not be reduced as a
result of any additional taxes, duties and other governmental charges to which
that trust has become subject, including as a result of a Tax Event.
REDEMPTION PROCEDURES
Trust Preferred Securities of a trust redeemed on each redemption date
shall be redeemed at the redemption price with the applicable proceeds from the
contemporaneous redemption of the Debt Securities held by that trust.
Redemptions of Trust Preferred Securities shall be made and the redemption price
shall be payable on each redemption date only to the extent that a trust has
funds on hand available for the payment of the redemption price. See also
SUBORDINATION OF TRUST COMMON SECURITIES.
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If a trust gives a notice of redemption in respect of any Trust
Preferred Securities, then, by 12:00 noon, New York City time, on the redemption
date, to the extent funds are available, in the case of Trust Preferred
Securities held in book-entry form, the Property Trustee will deposit
irrevocably with the depository funds sufficient to pay the applicable
redemption price and will give the depository irrevocable instructions and
authority to pay the redemption price to the holders of the Trust Preferred
Securities. With respect to Trust Preferred Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Trust Preferred Securities funds
sufficient to pay the applicable redemption price and will give the paying agent
irrevocable instructions and authority to pay the redemption price to the
holders upon surrender of their certificates evidencing the Trust Preferred
Securities. Notwithstanding the foregoing, distributions payable on or prior to
the redemption date for any Trust Preferred Securities called for redemption
shall be payable to the holders of the Trust Preferred Securities on the
relevant record dates for the related distribution dates. If notice of
redemption shall have been given and funds deposited as required, then upon the
date of the deposit all rights of the holders of the Trust Preferred Securities
so called for redemption will cease, except the right of the holders of the
Trust Preferred Securities to receive the redemption price, and any distribution
payable in respect of the Trust Preferred Securities, but without interest on
the redemption price, and the Trust Preferred Securities will cease to be
outstanding. In the event that payment of the redemption price in respect of
Trust Preferred Securities called for redemption is improperly withheld or
refused and not paid either by a trust or by us pursuant to the Guarantee as
described under DESCRIPTION OF GUARANTEES, distributions on the Trust Preferred
Securities will continue to accumulate at the then applicable rate, from the
redemption date originally established by a trust for the Trust Preferred
Securities it issues to the date the redemption price is actually paid, in which
case the actual payment date will be the date fixed for redemption for purposes
of calculating the redemption price.
If less than all the Trust Preferred Securities and Trust Common
Securities are to be redeemed on a redemption date, then the aggregate
liquidation amount of the Trust Preferred Securities and Trust Common Securities
to be redeemed shall be allocated proportionately to the Trust Preferred
Securities and the Trust Common Securities based upon the relative liquidation
amounts of the classes. The particular Trust Preferred Securities to be redeemed
shall be selected on a proportionate basis not more than 60 days prior to the
redemption date by the Property Trustee from the outstanding Trust Preferred
Securities not previously called for redemption, or if the Trust Preferred
Securities are then held in the form of a global Trust Preferred Security, in
accordance with the depository's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Trust Preferred Securities selected for redemption and, in the
case of any Trust Preferred Securities selected for partial redemption, the
liquidation amount to be redeemed. For all purposes of the trust agreements,
unless the context otherwise requires, all provisions relating to the redemption
of Trust Preferred Securities shall relate, in the case of any Trust Preferred
Securities redeemed or to be redeemed only in part, to the portion of the
aggregate liquidation amount of Trust Preferred Securities which has been or is
to be redeemed.
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Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each registered holder of Trust
Preferred Securities to be redeemed at its address appearing on the securities
register for the Trust Securities. Unless we default in payment of the
redemption price on the related Debt Securities, on and after the redemption
date interest will cease to accrue on the Debt Securities or portions of them
called for redemption.
REMARKETED TRUST PREFERRED SECURITIES
If we issue Trust Preferred Securities with remarketing features, an applicable
pricing or prospectus supplement will describe the terms for the Trust Preferred
Securities including: interest rate, remarketing provisions, our right to
purchase or redeem Trust Preferred Securities, the holders' right to tender
Trust Preferred Securities, and any other provisions.
SUBORDINATION OF TRUST COMMON SECURITIES
If on any distribution date or redemption date a payment event of
default with respect to the underlying Debt Securities has occurred and is
continuing, no payment on or in respect of the related Trust Common Securities
shall be made unless all amounts due in respect of the related Trust Preferred
Securities (including the liquidation amount or redemption price, if applicable)
shall have been paid or payment provided for. All funds immediately available to
the respective Property Trustee shall first be applied to the payment in full in
cash of all distributions on, or redemption price of, the Trust Preferred
Securities then due and payable.
In the case of any event of default under the trust agreement, as
defined below, resulting from an event of default with respect to the underlying
Debt Securities, the holders of Trust Common Securities will be deemed to have
waived any right to act with respect to any event of default under the related
trust agreement until the effects of all events of default with respect to the
related Trust Preferred Securities have been cured, waived or otherwise
eliminated. Until all events of default under the related trust agreement with
respect to the Trust Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee will act solely on behalf of the
holders of the Trust Preferred Securities and not on behalf of the holders of
the Trust Common Securities, and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any liquidation of a trust, the applicable prospectus
supplement will state the amount payable on the Trust Preferred Securities
issued by that trust as a dollar amount per Trust Preferred Security plus
accumulated and unpaid distributions to the date of payment, subject to certain
exceptions, which may be in the form of a distribution of the amount in Debt
Securities held by that trust.
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The holders of all the outstanding Trust Common Securities of a trust
have the right at any time to dissolve the trust and, after satisfaction of
liabilities to creditors of the trust as provided by applicable law, cause the
Debt Securities held by that trust to be distributed in liquidation of the trust
to the holders of the Trust Preferred Securities and Trust Common Securities
issued by the trust.
Pursuant to the related trust agreement, unless the applicable
prospectus supplement states otherwise, a trust will automatically dissolve upon
expiration of its term or, if earlier, will dissolve on the first to occur of:
- events of bankruptcy, dissolution or liquidation involving us or the
holder of the Trust Common Securities, as specified in the trust
agreement;
- the giving by the holder of the Trust Common Securities issued by the
trust of written direction to the Property Trustee to dissolve the
trust, which direction, subject to the foregoing restrictions, is
optional and wholly within the discretion of the holder of the Trust
Common Securities;
- the redemption of all the Trust Preferred Securities issued by the
trust in connection with the repayment or redemption of all the Debt
Securities as described under "Redemption"; and
- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
If dissolution of a trust occurs as described in the first, second or
fourth bullet point above, the trust will be liquidated by the Property Trustee
as expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the trust as
provided by applicable law, to the holders of the Trust Securities issued by the
trust a Like Amount of the related Debt Securities. If such distribution is not
practical, or, if a dissolution of a trust occurs as described in the third
bullet point above, the holders will be entitled to receive out of the assets of
the trust available for distribution to holders, after satisfaction of
liabilities to creditors of the trust as provided by applicable law, an amount
equal to, in the case of holders of the Trust Preferred Securities, the
aggregate of the liquidation amount plus accumulated and unpaid distributions to
the date of payment. In this prospectus we refer to this amount as the
"liquidation distribution." If the liquidation distribution can be paid only in
part because the trust has insufficient assets available to pay in full the
aggregate liquidation distribution, then the amounts payable directly by the
trust on its Trust Preferred Securities shall be paid on a proportionate basis.
The holders of the Trust Common Securities issued by the trust will be entitled
to receive distributions upon any liquidation proportionately with the holders
of the Trust Preferred Securities, except that if a payment event of default has
occurred and is continuing on the related Debt Securities, the Trust Preferred
Securities shall have a priority over the Trust Common Securities. See
SUBORDINATION OF TRUST COMMON SECURITIES.
After the liquidation date is fixed for any distribution of Debt
Securities we have issued to a trust,
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- the Trust Preferred Securities issued by that trust will no longer be
deemed to be outstanding,
- the depository or its nominee, as the registered holder of the Trust
Preferred Securities, will receive a registered global certificate or
certificates representing the Debt Securities to be delivered upon the
distribution with respect to the Trust Preferred Securities held by the
depository or its nominee, and
- any certificates representing the Trust Preferred Securities not held
by the depository or its nominee will be deemed to represent the Debt
Securities having a principal amount equal to the stated liquidation
amount of the Trust Preferred Securities and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid distributions
on the Trust Preferred Securities until the certificates are presented
to the security registrar for the Trust Securities for transfer or
reissuance.
If we do not redeem the Debt Securities we have issued to a trust prior
to the stated maturity and the trust is not liquidated and the Debt Securities
are not distributed to holders of the Trust Preferred Securities issued by that
trust, the Trust Preferred Securities will remain outstanding until the
repayment of the Debt Securities and the distribution of the liquidation
distribution to the holders of the Trust Preferred Securities.
There can be no assurance as to the market prices for Trust Preferred
Securities or the related Debt Securities that may be distributed in exchange
for Trust Preferred Securities if a dissolution and liquidation of a trust were
to occur. Accordingly, the Trust Preferred Securities that an investor may
purchase, or the related Debt Securities that the investor may receive on
dissolution and liquidation of a trust, may trade at a discount to the price
that the investor paid to purchase the Trust Preferred Securities offered
hereby.
CERTAIN COVENANTS
In connection with the issuance of Trust Preferred Securities by a
trust, we will agree:
- to continue to hold, directly or indirectly, 100% of the Trust Common
Securities of any trust to which Debt Securities have been issued while
such Debt Securities are outstanding, provided that certain successors
that are permitted pursuant to the applicable indenture may succeed to
our ownership of the Trust Common Securities;
- not to voluntarily dissolve, wind up or liquidate a trust to which Debt
Securities have been issued, other than in connection with a
distribution of Debt Securities to the holders of the Trust Preferred
Securities in liquidation of a trust or in connection with certain
mergers, consolidations or amalgamations permitted by the trust
agreements; and
- to use our reasonable efforts, consistent with the terms and provisions
of the trust agreements, to cause each trust to which Debt Securities
have been issued to
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continue not to be taxable other than as a grantor trust for United
States federal income tax purposes.
Unless the applicable prospectus supplement states otherwise, during any
extended interest period, or for so long as an event of default under the
applicable indenture or any payment default under the preferred security
Guarantee has occurred and is continuing, we will also agree that we will not,
except in limited circumstances, (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of our capital stock, (2) make any payment of principal of
or interest or premium, if any, on or repay, repurchase or redeem any Debt
Securities of ours that rank equally with, or junior to, the Debt Securities, or
(3) make any guarantee payments with respect to any guarantee issued by us if
such guarantee ranks equally with, or junior to, the applicable Debt Securities,
other than, in each case, repurchases, redemptions or other acquisitions of
shares of our:
- capital stock in connection with any employment contract, benefit plan
or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants or in connection with a
dividend reinvestment or shareholder stock purchase plan;
- as a result of an exchange or conversion of any class or series of our
capital stock, or any capital stock of a subsidiary of ours, for any
class or series of our capital stock or of any class or series of our
then outstanding indebtedness for any class or series of our capital
stock;
- the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of the capital stock
or the security being converted or exchanged;
- payments under any Guarantee executed and delivered by us concurrently
with the issuance of any Trust Preferred Securities;
- any declaration of a dividend in the form of capital stock in
connection with any shareholders' rights plan, or the issuance of
rights to capital stock under any shareholders' rights plan, or the
redemption or repurchase of rights pursuant to any such plan; or
- any dividend in the form of stock, warrants, options or other rights
where the dividend stock or the stock issuable upon exercise of the
warrants, options or other rights is the same stock as that on which
the dividend is being paid or ranks on a parity with or junior to the
stock,
if at such time
- we have actual knowledge of any event that (a) with the giving of
notice or the lapse of time, or both, would constitute an event of
default under the applicable indenture, and (b) we have not taken
reasonable steps to cure the same;
- we are in default with respect to our payment of any obligations under
any Guarantee executed and delivered by us concurrently with the
issuance of any Trust Preferred Securities; or
- an extension period is continuing.
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We will also agree that, if and for so long as a trust is the holder of
all Debt Securities issued by us in connection with the issuance of Trust
Preferred Securities by that trust and that trust is required to pay any
additional taxes, duties or other governmental charges, including in connection
with a Tax Event, we will pay as additional sums on the Debt Securities the
amounts that may be required so that the distributions payable by that trust
will not be reduced as a result of any additional taxes, duties or other
governmental charges.
EVENTS OF DEFAULT
Any one of the following events constitutes an event of default with
respect to the Trust Preferred Securities issued by a trust under the related
trust agreement:
- default by the trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30
days;
- default by the trust in the payment of any redemption price of any
trust security issued by that trust when it becomes due and payable;
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the Property Trustee and the Delaware Trustee
in the trust agreement, other than as described above, and continuation
of the default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the appropriate trustees and
to us by the holders of at least 33% in aggregate liquidation amount of
the outstanding Trust Preferred Securities, a written notice specifying
the default or breach and requiring it to be remedied and stating that
the notice is a "Notice of Default" under the trust agreement;
- the occurrence of an event of default under the applicable indenture
relating to the Debt Securities held by a trust (see DESCRIPTION OF THE
SENIOR NOTES-EVENTS OF DEFAULT and DESCRIPTION OF THE JUNIOR
SUBORDINATED DEBENTURES-EVENTS OF DEFAULT);
- the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee or all or substantially all of its
property if a successor Property Trustee has not been appointed within
90 days of the occurrence; or
- the occurrence of certain events of bankruptcy or insolvency with
respect to the trust.
Within five business days after the occurrence of certain events of
default actually known to the respective Property Trustee, the Property Trustee
will transmit notice of the event of default to the respective holders of Trust
Securities and the respective Administrative Trustees, unless the event of
default has been cured or waived. Within five business days after the receipt of
notice that we intend to exercise our right under the applicable indenture to
defer the payment of interest on the related Debt Securities, the Property
Trustee must notify the holders and the Administrative Trustees that we intend
to defer these interest payments, unless we have revoked our determination to do
so.
The applicable trust agreement includes provisions as to the duties of
the Property Trustee in case an event of default occurs and is continuing.
Consistent with these
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provisions, the Property Trustee will be under no obligation to exercise any of
its rights or powers at the request or direction of any of the holders unless
those holders have offered to the Property Trustee reasonable indemnity. Subject
to these provisions for indemnification, the holders of a majority in
liquidation amount of the related outstanding Trust Preferred Securities may
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or exercising any trust or power conferred on
the Property Trustee, with respect to the related Trust Preferred Securities.
The holders of at least a majority in aggregate liquidation amount of
the outstanding Trust Preferred Securities issued by a trust may waive any past
default under the applicable trust agreement except:
- a default in the payment of any distribution when it becomes due and
payable or any redemption price;
- a default with respect to certain covenants and provisions of the
applicable trust agreement that cannot be modified or amended without
consent of the holder of each outstanding Trust Preferred Security; and
- a default under the applicable indenture that the holders of a majority
in liquidation amount of the Trust Preferred Securities would not be
entitled to waive under the applicable trust agreement.
If an event of default under the applicable indenture has occurred and
is continuing as a result of any failure by us to pay any amounts when due in
respect of the related Debt Securities issued by us to a trust, the related
Trust Preferred Securities will have a preference over the related Trust Common
Securities with respect to payments of any amounts in respect of the Trust
Preferred Securities as described above. See SUBORDINATION OF TRUST COMMON
SECURITIES, LIQUIDATION DISTRIBUTION UPON DISSOLUTION, DESCRIPTION OF THE SENIOR
NOTES-EVENTS OF DEFAULT and DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES-EVENTS
OF DEFAULT.
We must furnish annually to each Property Trustee a statement by an
appropriate officer as to that officer's knowledge of our compliance with all
conditions and covenants under the respective trust agreement. Also, the
Administrative Trustees for each trust must file, on behalf of the respective
trust, a statement as to our compliance with all conditions and covenants under
the respective trust agreement.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under RESIGNATION, REMOVAL OF PROPERTY
TRUSTEE AND DELAWARE TRUSTEE; APPOINTMENT OF SUCCESSORS and DESCRIPTION OF
GUARANTEES-AMENDMENTS AND ASSIGNMENT and as otherwise required by law and the
applicable trust agreement, the holders of the Trust Preferred Securities issued
by a trust will have no voting rights.
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The trust agreement applicable to a trust may be amended from time to
time by the holders of a majority in liquidation amount of its Trust Common
Securities and the respective Property Trustee, without the consent of the
holders of the Trust Preferred Securities issued by the trust:
- to cure any ambiguity, correct or supplement any provisions in the
trust agreements that may be inconsistent with any other provision, or
to make any other provisions with respect to matters or questions
arising under the trust agreements, provided that any such amendment
does not adversely affect in any material respect the interests of any
holder of Trust Securities;
- to facilitate the tendering, remarketing and settlement of the Trust
Preferred Securities, as contemplated in the trust agreement;
- to modify, eliminate or add to any provisions of the trust agreements
to the extent as may be necessary to ensure that a trust will not be
taxable other than as a grantor trust for United States federal income
tax purposes at any time that any Trust Securities are outstanding or
to ensure that a trust will not be required to register as an
"investment company" under the Investment Company Act; or
- to reflect the appointment of a successor trustee.
The trust agreement may be amended by the holders of a majority in
aggregate liquidation amount of the Trust Common Securities and the Property
Trustee with the consent of holders representing not less than a majority in
aggregate liquidation amount of the outstanding Trust Preferred Securities and
receipt by the Property Trustee and the Delaware Trustee of an opinion of
counsel to the effect that the amendment or the exercise of any power granted to
the trustees in accordance with the amendment will not affect the trust's not
being taxable other than as a grantor trust for United States federal income tax
purposes or the trust's exemption from status as an "investment company" under
the Investment Company Act.
Without the consent of each holder of Trust Preferred Securities
affected by the amendment or related exercise of power, the trust agreement
applicable to a trust may not be amended to change the amount or timing of any
distribution on the Trust Securities or otherwise adversely affect the amount of
any distribution required to be made in respect of the Trust Securities as of a
specified date or restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any payment due.
So long as any Debt Securities are held by a trust, the respective
Property Trustee will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the trustee for the Debt Securities under the
related indenture, or execute any trust or power conferred on the
Property Trustee with respect to the related Debt Securities;
- waive any past default that is waivable under the applicable indenture;
- exercise any right to rescind or annul a declaration that the Debt
Securities shall be due and payable; or
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- consent to any amendment, modification or termination of the applicable
indenture or the related Debt Securities, where consent shall be
required;
without, in each case, obtaining the prior approval of the holders of at least a
majority in aggregate liquidation amount of the Trust Preferred Securities,
except that, if a consent under the applicable indenture would require the
consent of each holder of Debt Securities affected by the consent, no consent
will be given by the Property Trustee without the prior written consent of each
holder of the Trust Preferred Securities.
A Property Trustee may not revoke any action previously authorized or
approved by a vote of the holders of the Trust Preferred Securities issued by
its respective trust except by subsequent vote of the holders of the Trust
Preferred Securities. The Property Trustee will notify each holder of Trust
Preferred Securities of any notice of default with respect to the Debt
Securities. In addition, before taking any of the foregoing actions, the
Property Trustee will obtain an opinion of counsel experienced in relevant
matters to the effect that the trust will not be taxable other than as a grantor
trust for United States federal income tax purposes on account of the action.
Any required approval of holders of Trust Preferred Securities issued
by a trust may be given at a meeting of holders of those Trust Preferred
Securities convened for the purpose or pursuant to written consent. The Property
Trustee will cause a notice of any meeting at which holders of Trust Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of the holders is to be taken, to be given to each registered holder of
Trust Preferred Securities in the manner set forth in the applicable trust
agreement.
No vote or consent of the holders of Trust Preferred Securities issued
by a trust will be required to redeem and cancel those Trust Preferred
Securities in accordance with the applicable trust agreement. See above under
REDEMPTION.
Notwithstanding that holders of Trust Preferred Securities issued by a
trust are entitled to vote or consent under any of the circumstances described
above, any of those Trust Preferred Securities that are owned by us, the
respective Property Trustee or Delaware Trustee, or any affiliate of us or
either trustee, will, for purposes of the vote or consent, be treated as if they
were not outstanding.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an event of default has occurred and is continuing under the
applicable indenture, and the trustee for the related Debt Securities and the
holders of those Debt Securities have failed to declare the principal due and
payable, the holders of at least 33% in aggregate liquidation amount of the
related outstanding Trust Preferred Securities shall have this right.
If an event of default has occurred and is continuing under a trust
agreement and the event is attributable to our failure to pay any amounts
payable in respect of Debt
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Securities on the date the amounts are otherwise payable, a registered holder of
Trust Preferred Securities may institute a direct action against us for
enforcement of payment to the holder of an amount equal to the amount payable in
respect of Debt Securities having a principal amount equal to the aggregate
liquidation amount of the Trust Preferred Securities held by the holder, which
we refer to in this discussion as a "Direct Action". We will have the right
under the applicable indenture to set-off any payment made to the holders of
Trust Preferred Securities by us in connection with a Direct Action.
We may not amend the applicable indenture to remove the foregoing right
to bring a Direct Action without the prior written consent of the holders of all
the Trust Preferred Securities. Furthermore, so long as any of the Trust
Preferred Securities are outstanding:
- no modification of the applicable indenture may be made that adversely
affects the holders of the Trust Preferred Securities in any material
respect,
- no termination of the applicable indenture may occur and
- no waiver of any event of default or compliance with any covenant under
the applicable indenture may be effective,
without the prior consent of the holders of at least a majority of the aggregate
liquidation amount of the outstanding Trust Preferred Securities unless and
until the principal of, accrued and unpaid interest on and premium, if any, on
the related Debt Securities have been paid in full and certain other conditions
are satisfied.
With certain exceptions, the holders of the Trust Preferred Securities
would not be able to exercise directly any remedies available to the holders of
the Debt Securities except under the circumstances described in this section.
RESIGNATION, REMOVAL OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE; APPOINTMENT OF
SUCCESSORS
The Property Trustee or the Delaware Trustee of a trust may resign at
any time by giving written notice to us or may be removed at any time by an
action of the holders of a majority in liquidation amount of that trust's
outstanding Trust Preferred Securities delivered to the trustee to be removed
and to us. No resignation or removal of either of the trustees and no
appointment of a successor trustee will become effective until a successor
trustee accepts appointment in accordance with the requirements of the trust
agreement. So long as no event of default or event that would become an event of
default has occurred and is continuing, and except with respect to a trustee
appointed by an action of the holders, if we have delivered to either the
Property Trustee or the Delaware Trustee a resolution of our board of directors
appointing a successor trustee and the successor trustee has accepted the
appointment in accordance with the terms of the trust agreement, the Property
Trustee or the Delaware Trustee, as the case may be, will be deemed to have
resigned and the successor trustee will be deemed to have been appointed as
trustee in accordance with the trust agreement.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF A TRUST
A trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any entity, except as described below or as
otherwise set forth in the applicable trust agreement. A trust may, at the
request of the holders of its Trust Common Securities and without the consent of
the holders of the outstanding Trust Preferred Securities, merge with or into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state, so long as:
- the successor entity either expressly assumes all the obligations of
the trust with respect to its Trust Preferred Securities or substitutes
for the Trust Preferred Securities other securities having
substantially the same terms as the Trust Preferred Securities, which
we refer to in this prospectus as the successor securities, so long as
the successor securities have the same priority as the Trust Preferred
Securities with respect to distributions and payments upon liquidation,
redemption and otherwise;
- a trustee of the successor entity, possessing the same powers and
duties as the Property Trustee, is appointed to hold the related Debt
Securities;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Trust Preferred Securities,
including any successor securities, to be downgraded by any nationally
recognized statistical rating organization;
- the Trust Preferred Securities or any successor securities are listed
or quoted, or any successor securities will be listed or quoted upon
notification of issuance, on any national securities exchange or with
another organization on which the Trust Preferred Securities are then
listed or quoted;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Trust Preferred Securities, including
any successor securities, in any material respect;
- the successor entity has a purpose substantially identical to that of
the trust;
- prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Property Trustee has received an
opinion from independent counsel experienced in relevant matters to the
effect that such transaction does not adversely affect the rights,
preferences and privileges of the holders of the Trust Preferred
Securities, including any successor securities, in any material respect
and following such transaction, neither the trust nor the successor
entity will be required to register as an investment company under the
Investment Company Act; and
- we or any permitted successor or assignee owns all the Trust Common
Securities of the successor entity and guarantees the obligations of
the successor entity under the successor securities at least to the
extent provided by the applicable Guarantee.
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Notwithstanding the foregoing, a trust may not, except with the consent
of holders of 100% in aggregate liquidation amount of the Trust Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to, any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if the consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the trust or the
successor entity to be taxable other than as a grantor trust for United States
federal income tax purposes.
INFORMATION CONCERNING THE PROPERTY TRUSTEES
Each Property Trustee, other than during the occurrence and continuance
of an event of default, undertakes to perform only the duties as are
specifically set forth in the applicable trust agreement and, after an event of
default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, each Property Trustee is under no obligation to exercise any of the
powers vested in it by the trust agreements at the request of any holder of
Trust Preferred Securities issued by the respective trust unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred by exercising these powers.
CONCERNING THE PROPERTY TRUSTEE
We and our affiliates use or will use some of the services of the
Property Trustee in the normal course of business.
MISCELLANEOUS
The Administrative Trustees and the Property Trustee relating to each
trust are authorized and directed to conduct the affairs of and to operate the
trust in such a way that the trust will not be deemed to be an "investment
company" required to be registered under the Investment Company Act or taxable
other than as a grantor trust for United States federal income tax purposes and
so that the Debt Securities held by that trust will be treated as indebtedness
of ours for United States federal income tax purposes. In this regard, each
Property Trustee and the holders of Trust Common Securities issued by the
respective trust are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of the trust or the applicable trust
agreement, that the Property Trustee and the holders of Trust Common Securities
determine in their discretion to be necessary or desirable for these purposes,
as long as this action does not materially adversely affect the interests of the
holders of the Trust Preferred Securities.
Holders of the Trust Preferred Securities have no preemptive or similar
rights.
A trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
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GOVERNING LAW
The trust agreement and the Trust Preferred Securities will be governed
by Delaware law.
DESCRIPTION OF GUARANTEES
Each Guarantee will be executed and delivered by us concurrently with
the issuance of Trust Preferred Securities by a trust for the benefit of the
holders from time to time of the Trust Preferred Securities. We will appoint The
Bank of New York as Guarantee Trustee under each Guarantee. Each Guarantee
Trustee will hold the respective Guarantee for the benefit of the holders of the
Trust Preferred Securities issued by the related trust. Each Guarantee will be
qualified as an indenture under the Trust Indenture Act of 1939. We have
summarized below certain provisions of the Guarantees. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Guarantee, including the definitions in
the Guarantee of certain terms. The form of guarantee agreement will be filed as
an exhibit to the registration statement of which this prospectus is a part.
GENERAL
Unless otherwise provided in a prospectus supplement, we will fully and
unconditionally agree, to the extent described herein, to pay the Guarantee
payments, as defined below, to the holders of the Trust Preferred Securities
issued by each trust, as and when due, regardless of any defense, right of
set-off or counterclaim that a trust may have or assert other than the defense
of payment. The following payments with respect to the Trust Preferred
Securities, to the extent not paid or made by or on behalf of the respective
trust, which payments we refer to in this discussion as the "Guarantee
payments," will be subject to the respective Guarantee:
- any accumulated and unpaid distributions required to be paid on the
Trust Preferred Securities, to the extent that the trust has funds on
hand available therefor;
- the redemption price with respect to any Trust Preferred Securities
called for redemption, to the extent that the trust has funds on hand
available therefor; and
- upon a voluntary or involuntary dissolution, winding up or liquidation
of the trust, unless the related Debt Securities are distributed to
holders of the Trust Preferred Securities, the lesser of:
(1) the aggregate of the liquidation amount and all accumulated
and unpaid distributions to the date of payment, to the extent that the
trust has funds on hand available therefor; and
(2) the amount of assets of the trust remaining available for
distribution to holders of the Trust Preferred Securities on liquidation of
the trust.
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Our obligation to make a Guarantee payment may be satisfied by direct
payment of the required amounts by us to the holders of the Trust Preferred
Securities or by causing the trust to pay these amounts to the holders.
Each Guarantee will be an irrevocable guarantee of the obligations of
the respective trust under its Trust Preferred Securities, but will apply only
to the extent that the trust has funds sufficient to make these payments.
If we do not make payments on the Debt Securities held by a trust, the
trust will not be able to pay any amounts payable in respect of its Trust
Preferred Securities and will not have funds legally available for these
payments. The applicable prospectus supplement will describe the ranking of the
Guarantee. See STATUS OF THE GUARANTEES. The Guarantees do not limit our
incurrence or issuance of other secured or unsecured debt, including Senior
Indebtedness, whether under the applicable indenture, any other indenture that
we may enter into in the future or otherwise.
We will enter into an agreement as to expenses and liabilities with
each trust to provide funds to such trust as needed to pay obligations of the
trust to parties other than the holders of the Trust Preferred Securities. We
have, through the Guarantees, the trust agreements, the agreements as to
expenses and liabilities, the applicable Debt Securities and the related
indenture, taken together, fully, irrevocably and unconditionally guaranteed all
of each trust's obligations under its Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes the Guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of each trust's obligations in respect of its Trust
Preferred Securities. See RELATIONSHIP AMONG TRUST PREFERRED SECURITIES, DEBT
SECURITIES AND GUARANTEES.
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of ours. The
applicable prospectus supplement will describe the ranking of each Guarantee.
Each Guarantee will constitute a guarantee of payment and not of
collection; specifically, 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. Each
Guarantee will be held by the respective Guarantee Trustee for the benefit of
the holders of the related Trust Preferred Securities. A Guarantee will not be
discharged except by payment of the applicable Guarantee payments in full to the
extent not paid or distributed by the respective trust.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of the related Trust Preferred Securities, in which
case no vote will be required, a Guarantee may not be amended without the prior
approval of the holders of
48
not less than a majority of the aggregate liquidation amount of the related
Trust Preferred Securities. The manner of obtaining this type of approval will
be as set forth under DESCRIPTION OF TRUST PREFERRED SECURITIES-VOTING RIGHTS;
AMENDMENT OF TRUST AGREEMENT. All Guarantees and agreements contained in each
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of ours and shall inure to the benefit of the holders of the
related Trust Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under a Guarantee will occur upon our failure to
perform any of our payment obligations under the Guarantee, or to perform any
other obligation if such default remains unremedied for 30 days.
The holders of not less than a majority in aggregate liquidation amount
of the related Trust Preferred Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee. Any
registered holder of Trust Preferred Securities may institute a legal proceeding
directly against us to enforce its rights under the related Guarantee without
first instituting a legal proceeding against the related trust, the Guarantee
Trustee or any other person or entity.
We, as guarantor, are required to file annually with each Guarantee
Trustee a certificate as to whether or not we are in compliance with all the
conditions and covenants applicable to us under each Guarantee.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may merge or consolidate with any entity or sell substantially all
of our assets as an entirety as long as the successor or purchaser expressly
assumes our obligations under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance
of a default by us in performance of the Guarantee, undertakes to perform only
such duties as are specifically set forth in the guarantee agreement. After a
default with respect to the Guarantee, the Guarantee Trustee must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
guarantee agreement at the request of any holder of the Trust Preferred
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that it might thereby incur.
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TERMINATION OF THE GUARANTEES
Each Guarantee will terminate and be of no further force and effect
upon full payment of the redemption price of the related Trust Preferred
Securities, upon full payment of the amounts payable with respect to the Trust
Preferred Securities upon liquidation of the respective trust and upon
distribution of the related Debt Securities to the holders of the Trust
Preferred Securities. 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 Trust
Preferred Securities must restore payment of any sums paid under the Trust
Preferred Securities or the Guarantee.
GOVERNING LAW
Each Guarantee will be governed by New York law.
CONCERNING THE TRUSTEE
We and our affiliates use or will use some of the banking services of
the Guarantee Trustee in the normal course of business.
We must furnish annually to each Property Trustee a statement by an
appropriate officer as to that officer's knowledge of our compliance with all
conditions and covenants under the respective trust agreement. Also, the
Administrative Trustees for each trust must file, on behalf of the respective
trust, a statement as to our compliance with all conditions and covenants under
the respective trust agreement.
RELATIONSHIP AMONG TRUST PREFERRED SECURITIES,
DEBT SECURITIES AND GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Payments of distributions and other amounts due on the Trust Preferred
Securities issued by a trust, to the extent the trust has funds available for
the payment, are irrevocably Guaranteed by us as and to the extent set forth
under DESCRIPTION OF GUARANTEES. Taken together, our obligations under the
related Debt Securities, the applicable indenture, an agreement as to expenses
and liabilities, the related trust agreement and the related Guarantee provide,
in the aggregate, a full, irrevocable and unconditional Guarantee of payments of
distributions and other amounts due on the Trust Preferred Securities issued by
a trust. No single document standing alone or operating in conjunction with
fewer than all the other documents constitutes the Guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional Guarantee of each trust's obligations in respect
of the related Trust Preferred Securities. If and to the extent that we do not
make payments on the Debt Securities issued to a trust, the trust will not have
sufficient funds to pay
50
distributions or other amounts due on its Trust Preferred Securities. A
Guarantee does not cover payment of amounts payable with respect to the Trust
Preferred Securities issued by a trust when the trust does not have sufficient
funds to pay these amounts. In this event, the remedy of a holder of the Trust
Preferred Securities is to institute a legal proceeding directly against us for
enforcement of payment of our obligations under Debt Securities having a
principal amount equal to the liquidation amount of the Trust Preferred
Securities held by the holder.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Debt Securities issued to
a trust, these payments will be sufficient to cover distributions and other
payments distributable on the Trust Preferred Securities issued by that trust,
primarily because:
- the aggregate principal amount of the Debt Securities will be equal to
the sum of the aggregate stated liquidation amount of the Trust
Preferred Securities and Trust Common Securities;
- the interest rate and interest and other payment dates on the Debt
Securities will match the distribution rate, distribution dates and
other payment dates for the Trust Preferred Securities;
- we will pay for any and all costs, expenses and liabilities of the
trust except the trust's obligations to holders of the related Trust
Securities; and
- the applicable trust agreement further provides that the trust will not
engage in any activity that is not consistent with the limited purposes
of the trust.
Notwithstanding anything to the contrary in the applicable indenture,
we have the right to set-off any payment we are otherwise required to make under
that indenture against and to the extent we have previously made, or are
concurrently on the date of the payment making, a payment under a Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF TRUST PREFERRED SECURITIES
Under the circumstances set forth under DESCRIPTION OF TRUST PREFERRED
SECURITIES-ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED
SECURITIES, holders of Trust Preferred Securities may bring a Direct Action
against us.
A holder of any Trust Preferred Security may institute a legal
proceeding directly against us to enforce its rights under the related Guarantee
without first instituting a legal proceeding against the related Guarantee
Trustee, the related trust or any other person or entity. See DESCRIPTION OF
GUARANTEES.
LIMITED PURPOSE OF TRUST
The Trust Preferred Securities issued by a trust represent preferred
undivided beneficial interests in the assets of the trust, and the trust exists
for the sole purpose of issuing its Trust Preferred Securities and Trust Common
Securities and investing the
51
proceeds of these Trust Securities in Debt Securities. A principal difference
between the rights of a holder of a Trust Preferred Security and a holder of a
debt security is that a holder of a debt security is entitled to receive from us
payments on Debt Securities held, while a holder of Trust Preferred Securities
is entitled to receive distributions or other amounts distributable with respect
to the Trust Preferred Securities from a trust, or from us under a Guarantee,
only if and to the extent the trust has funds available for the payment of the
distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of a trust, other than
any dissolution involving the distribution of the related Debt Securities, after
satisfaction of liabilities to creditors of the trust as required by applicable
law, the holders of the Trust Preferred Securities issued by the trust will be
entitled to receive, out of assets held by the trust, the liquidation
distribution in cash. See DESCRIPTION OF TRUST PREFERRED SECURITIES-LIQUIDATION
DISTRIBUTION UPON DISSOLUTION. Since we are the guarantor under each of the
Guarantees and have agreed to pay for all costs, expenses and liabilities of
each trust, other than each trust's obligations to the holders of the respective
Trust Securities, the positions of a holder of Trust Preferred Securities and a
holder of Debt Securities relative to other creditors and to our shareholders in
the event of our liquidation or bankruptcy are expected to be substantially the
same.
BOOK-ENTRY SYSTEM
Unless otherwise stated in a prospectus supplement, book-entry
securities of a series will be issued in the form of a global security that the
Trustee will deposit with The Depository Trust Company, New York, New York
("DTC"). This means that we will not issue security certificates to each holder.
One or more global securities will be issued to DTC who will keep a computerized
record of its participants (for example, your broker) whose clients have
purchased the securities. The participant will then keep a record of its clients
who purchased the securities. Unless it is exchanged in whole or in part for a
certificate, a global security may not be transferred, except that DTC, its
nominees, and their successors may transfer a global security as a whole to one
another.
Beneficial interests in global securities will be shown on, and
transfers of global securities will be made only through, records maintained by
DTC and its participants.
DTC has provided us the following information: 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 United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This
52
eliminates the need to exchange security certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations.
Other organizations such as securities brokers and dealers, banks and
trust companies that work through a Direct Participant also use DTC's book-entry
system. The rules that apply to DTC and its participants are on file with the
SEC.
A number of its Direct Participants and the New York Stock Exchange,
Inc., The American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. own DTC.
We will wire principal and interest payments to DTC's nominee. We and
the applicable trustee will treat DTC's nominee as the owner of the global
securities for all purposes. Accordingly, we, the trustee and any paying agent
will have no direct responsibility or liability to pay amounts due on the global
securities to owners of beneficial interests in the global securities.
It is DTC's current practice, upon receipt of any payment of principal
or interest, to credit Direct Participants' accounts on the payment date
according to their respective holdings of beneficial interests in the global
securities as shown on DTC's records. In addition, it is DTC's current practice
to assign any consenting or voting rights to Direct Participants whose accounts
are credited with securities on a record date. The customary practices between
the participants and owners of beneficial interests will govern payments by
participants to owners of beneficial interests in the global securities and
voting by participants, as is the case with securities held for the account of
customers registered in "street name." However, payments will be the
responsibility of the participants and not of DTC, the Trustee or us.
According to DTC, the foregoing information with respect to DTC has
been provided to the Direct Participants and other members of the financial
community for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
Securities represented by a global certificate will be exchangeable for
definitive securities with the same terms in authorized denominations only if:
- DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by us within
90 days; or
- we determine not to require all of the securities of a series to be
represented by a global security and notify the Trustee of our
decision.
53
PLAN OF DISTRIBUTION
We may sell the securities (a) through agents; (b) through underwriters
or dealers; or (c) directly to one or more purchasers.
BY AGENTS
Securities may be sold on a continuing basis through agents designated
by us. The agents will agree to use their reasonable efforts to solicit
purchases for the period of their appointment.
The applicable prospectus supplement will set forth the terms under
which the securities are offered, including the name or names of any
underwriters, the purchase price of the securities and the proceeds to us from
the sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial offering price and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
Any initial offering price and any discounts, concessions or
commissions allowed or reallowed or paid to dealers may be changed from time to
time.
The Agents will not be obligated to make a market in the securities. We
cannot predict the amount of trading or liquidity of the securities.
BY UNDERWRITERS
If underwriters are used in the sale, the underwriters will acquire the
securities for their own account. The underwriters may resell the securities in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will be subject to
certain conditions. The underwriters will be obligated to purchase all the
securities offered if any are purchased. Any initial public offering price and
any discounts or concessions allowed or re-allowed or paid to dealers may be
changed from time to time.
DIRECT SALES
We may also sell securities directly. In this case, no underwriters or
agents would be involved.
GENERAL INFORMATION
Underwriters, dealers, and agents that participate in the distribution
of the securities may be underwriters as defined in the Securities Act of 1933
(the "Act"), and any discounts or commissions received by them from us and any
profit on the resale of
54
the securities by them may be treated as underwriting discounts and commissions
under the Act.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our affiliates in the ordinary course of their
businesses.
LEGAL OPINIONS
Our counsel, Simpson Thacher & Bartlett LLP, New York, NY, and one of
our lawyers will each issue an opinion about the legality of the securities for
us. Dewey Ballantine LLP, New York, NY will issue an opinion for the agents or
underwriters. From time to time, Dewey Ballantine LLP acts as counsel to our
affiliates for some matters.
Certain matters of Delaware law relating to the validity of the Trust
Preferred Securities, the enforceability of the trust agreement and the creation
of the trusts will be passed upon by Richards Layton & Finger, P.A., Wilmington,
Delaware.
EXPERTS
The consolidated financial statements of the Company and subsidiaries
incorporated in this prospectus by reference from the Company's Current Report
on Form 8-K dated May 14, 2003 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the realignment of segments for financial
reporting purposes).
The consolidated financial statement schedule of the Company and
subsidiaries incorporated by reference in this prospectus from the Company's
Annual Report on Form 10-K (as updated by the Company's Current Report on Form
8-K dated May 14, 2003) has been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein.
The aforementioned reports have been so incorporated and included in
reliance upon such firm given upon their authority as experts in accounting and
auditing.
55
===============================================================================
110,000 PREFERRED SECURITIES
SOUTHWESTERN ELECTRIC POWER COMPANY
SWEPCO CAPITAL TRUST I
FLEXIBLE TRUST PREFERRED SECURITIES
(T-FLEX(SM))
(FIVE YEAR INITIAL FIXED RATE PERIOD)
(LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN.
---------------------------
PROSPECTUS SUPPLEMENT
SEPTEMBER 26, 2003
---------------------------
LEHMAN BROTHERS
DANSKE MARKETS
MELLON FINANCIAL MARKETS, LLC
TD SECURITIES
===============================================================================