THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT ISSUED OCTOBER 26, 1998 (SUBJECT TO COMPLETION)
(TO PROSPECTUS DATED JULY 14, 1998)
3,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
NORTHWESTERN CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK, $1.75 PAR
VALUE.
-------------------
THE COMMON STOCK IS LISTED AND TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE
SYMBOL "NOR." THE LAST REPORTED SALE
PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON OCTOBER 23, 1998 WAS
$25 1/16 PER SHARE.
------------------------
PRICE $ A SHARE
-------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
------------------ ------------------ ------------------
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NORTHWESTERN CORPORATION HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP
TO AN ADDITIONAL 450,000 SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN
STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO
PURCHASERS ON NOVEMBER , 1998.
-------------------
MORGAN STANLEY DEAN WITTER
CIBC OPPENHEIMER
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
NOVEMBER , 1998
ABOUT THIS PROSPECTUS
You should read this Prospectus Supplement along with the Prospectus that
follows. Both documents contain information you should consider when making your
investment decision. You should rely only on the information provided or
incorporated by reference in this Prospectus Supplement and the Prospectus. We
have not authorized anyone else to provide you with different information. We
are not making an offer of the common stock in any state where the offer is not
permitted. You should not assume that the information in this Prospectus
Supplement or the Prospectus is accurate as of any date other than the dates on
the front of these documents.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Prospectus Summary......................................................................................... S-3
The Offering............................................................................................... S-3
Recent Developments........................................................................................ S-4
Price Range of Common Stock and Dividend Information....................................................... S-5
Capitalization............................................................................................. S-6
Selected Financial Data.................................................................................... S-7
Use of Proceeds............................................................................................ S-8
Shares Eligible For Future Sale............................................................................ S-8
Underwriters............................................................................................... S-9
Legal Matters.............................................................................................. S-10
Forward-Looking Statements................................................................................. S-10
PROSPECTUS
Available Information...................................................................................... 2
Documents Incorporated by Reference........................................................................ 2
NorthWestern............................................................................................... 3
The Trusts................................................................................................. 3
Use of Proceeds............................................................................................ 4
Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Dividends.......... 4
Price Range of Common Stock and Dividends.................................................................. 5
Description of Mortgage Bonds.............................................................................. 5
Description of Debt Securities............................................................................. 15
Description of Preferred Stock and Preference Stock........................................................ 23
Description of Common Stock................................................................................ 26
Description of the Trusts' Preferred Securities............................................................ 29
Description of the Guarantees.............................................................................. 30
Plan of Distribution....................................................................................... 32
Selling Stockholders....................................................................................... 33
Experts and Legal Opinions................................................................................. 34
S-2
PROSPECTUS SUMMARY
NorthWestern Corporation is a provider of services and solutions to
customers across America. We provide electric and natural gas service to
Midwestern customers through our energy division, NorthWestern Public Service.
In addition, we hold interests in Cornerstone Propane Partners, L.P. (NYSE:CNO),
the nation's fifth largest retail propane distributor, Communication Systems
USA, a national provider of integrated communication and data solutions and
network services, and Blue Dot Services Inc., a national provider of heating,
air conditioning, plumbing and related services. We are also engaged in other
service and nonenergy-related businesses.
Weather patterns have a material impact on the operating performance for all
three segments of our energy business -- electric, natural gas and propane. This
impact is particularly relevant for natural gas and propane. Because natural gas
and propane are heavily used for residential and commercial heating, the demand
for these products depends heavily upon weather patterns throughout
NorthWestern's market areas. With a larger proportion of our operations related
to seasonal propane and natural gas sales, a significantly greater portion of
our consolidated operating income is recognized in the first and fourth
quarters, which correspond to the heating season.
NorthWestern was incorporated under the laws of the State of Delaware in
1923. Our principal offices have recently moved to 125 S. Dakota Avenue, Suite
1100, Sioux Falls, South Dakota 57104, and our telephone number is now (605)
978-2908. Information about NorthWestern is available on the Internet at
http://www.northwestern.com and as set forth under "Available Information" in
the accompanying Prospectus. NorthWestern has filed with the Securities and
Exchange Commission a Current Report on Form 8-K dated October 26, 1998
summarizing its third quarter financial results. That report is incorporated by
reference in the accompanying Prospectus.
THE OFFERING
Common Stock offered......................... 3,000,000 shares (1)
Common Stock to be outstanding after this
offering................................... Approximately 20,962,000 shares (1)
Price Range (January 1, 1998 through October
23, 1998).................................. $20 1/4 - $27 3/8
Current Indicated Annual Dividend............ $1.03 per share
Use of Proceeds.............................. To repay short-term indebtedness, including
commercial paper, and for general corporate
purposes
NYSE Symbol.................................. NOR
- ---------
(1) Unless otherwise stated, information in this Prospectus Supplement does not
reflect the possible issuance of up to an aggregate of 450,000 additional
shares of Common Stock to the underwriters under their right to purchase
additional shares to cover over-allotments.
S-3
RECENT DEVELOPMENTS
PROPOSED PREFERRED SECURITY AND DEBT OFFERINGS
Immediately after completion of this Common Stock offering, NorthWestern
Capital Financing I, a business trust controlled by NorthWestern, intends to
offer up to $50,000,000 of its Preferred Securities, and NorthWestern intends to
offer up to $100,000,000 of its Senior Debt Securities, in underwritten
offerings pursuant to separate prospectus supplements. NorthWestern Capital
Financing I would use the proceeds from the sale of its securities to purchase
an equal amount of NorthWestern's Subordinated Debt Securities. Certain general
information regarding the Preferred Securities, the Subordinated Debt Securities
and the Senior Debt Securities is contained in the accompanying Prospectus. The
specific terms of the securities proposed to be offered have not been
established. See "Use of Proceeds" below for a description of the intended use
of proceeds from these proposed offerings.
Consummation of this Common Stock offering is not conditioned upon
completion of any proposed offering.
ACQUISITION PROGRAMS
NorthWestern's growth strategies are targeted at activities that will
generate earnings growth, expand its customer base and increase value-added
product and service offerings by focusing on customers' expectations for service
and solutions, convenience and value. Strategic acquisitions, particularly in
growth-oriented service and solutions sectors, play a significant role in
NorthWestern's long-term plans to capture a greater share of the growing global
service and solutions marketplace. NorthWestern intends to pursue development
and acquisition opportunities that have long-term growth potential and at any
given time may be engaged in various stages of discussions regarding such
opportunities or the increase of its equity participation in its existing
operations.
Cornerstone's business strategy contemplates growing, both through internal
growth and start-ups of new customer service centers and, more importantly,
through the acquisition of other retail and wholesale propane distributors.
Cornerstone is from time to time engaged in various stages of discussions with
respect to acquisitions of various sizes and expects to continue to pursue
acquisition opportunities actively. Cornerstone recently filed a shelf
registration statement with the Securities and Exchange Commission under which
it may issue up to 3,487,500 of its Common Units representing limited
partnership interests from time to time for general purposes, including
expansion of its business through internal growth and acquisitions. Cornerstone
also has available and under negotiation various credit arrangements under which
it may incur indebtedness to fund acquisitions, including a $75 million
revolving acquisition facility. Approximately $52 million was available under
Cornerstone's acquisition facility as of September 30, 1998. NorthWestern
expects that consummation of certain acquisition opportunities that are
currently under consideration could use a substantial amount of Cornerstone's
available capital resources.
Because the general partner interests in Cornerstone are held by
subsidiaries of NorthWestern, Cornerstone is treated as a consolidated
subsidiary in NorthWestern's financial statements, and any additional
partnership interests or long-term indebtedness issued by Cornerstone will be
reflected on NorthWestern's consolidated balance sheet in "Minority interest in
subsidiaries" and "Long-term debt of subsidiaries," respectively. NorthWestern
has not guaranteed, and does not intend to guarantee, any indebtedness of
Cornerstone.
S-4
PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION
NorthWestern's Common Stock is listed on the New York Stock Exchange under
the symbol "NOR." The following table shows, for the calendar quarters listed,
the range of high and low sale prices of the Common Stock on the New York Stock
Exchange and the cash dividends declared on the Common Stock, in each case as
adjusted for the two-for-one stock split in May 1997.
DIVIDENDS
HIGH LOW DECLARED
--------- --------- -----------
1996
First quarter...................................................................... $ 15 1/8 $ 13 3/4 $ .22
Second quarter..................................................................... 14 13/16 13 3/8 .22
Third quarter...................................................................... 15 9/16 13 7/16 .22
Fourth quarter..................................................................... 18 1/4 15 .23
1997
First quarter...................................................................... 19 3/4 16 15/16 .23
Second quarter..................................................................... 22 1/4 18 5/16 .23
Third quarter...................................................................... 21 1/4 17 3/4 .23
Fourth quarter..................................................................... 23 1/2 18 7/16 .2425
1998
First quarter...................................................................... 24 21 5/16 .2425
Second quarter..................................................................... 25 5/16 20 1/4 .2425
Third quarter...................................................................... 27 3/8 23 15/16 .2425
Fourth quarter (through October 23, 1998).......................................... 26 24 3/8 .2575(1)
- ---------
(1) Payable December 1, 1998 to holders of record November 15, 1998.
The last reported sale price of the Common Stock on October 23, 1998 was
$25 1/16.
NorthWestern has paid cash dividends on its Common Stock in each fiscal
quarter since 1947. The payment of dividends in the future is subject to
NorthWestern's earnings and financial condition and such other factors as our
Board of Directors may deem relevant. In addition, certain covenants in the debt
instruments of our subsidiaries, including Cornerstone, limit the amounts
available for dividends and distributions. See "Description of Common Stock" in
the accompanying Prospectus.
S-5
CAPITALIZATION
The following table shows NorthWestern's capitalization on a consolidated
basis at September 30, 1998. The "As Adjusted" column shows our capitalization
at September 30, 1998 after giving effect to the sale of 3,000,000 shares of
Common Stock at an assumed price of $25 1/16 (the closing price on October 23,
1998) in this offering. The "As Further Adjusted" column shows our
capitalization after giving effect to both this offering and the proposed
offerings of Preferred Securities, Subordinated Debt Securities and Senior Debt
Securities discussed above under "Recent Developments -- Proposed Preferred
Security and Debt Offerings," assuming those offerings are consummated at the
maximum amounts contemplated.
SEPTEMBER 30, 1998
---------------------------------------------
AS ADJUSTED AS FURTHER
(FOR COMMON ADJUSTED (FOR
STOCK PROPOSED
ACTUAL OFFERING) OFFERINGS)
---------- -------------- --------------
(UNAUDITED)
(IN THOUSANDS)
Common stock equity............................................... $ 170,095 $ 242,283 $ 242,283
Nonredeemable cumulative preferred stock.......................... 2,600 2,600 2,600
Redeemable cumulative preferred stock............................. 1,150 1,150 1,150
Company obligated mandatorily redeemable security of trust holding 32,500 32,500 82,500
solely parent debentures........................................
Long-term debt.................................................... 151,350 151,350 251,350
---------- -------------- -----------------
357,695 429,883 579,883
Minority interest in subsidiaries................................. 221,095 221,095 221,095
Long-term debt of subsidiaries.................................... 262,766 262,766 262,766
---------- -------------- -----------------
Total capitalization:........................................... $ 841,556 $ 913,744 $ 1,063,744
---------- -------------- -----------------
---------- -------------- -----------------
S-6
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The consolidated financial information presented below is derived from, and
should be read in conjunction with, the audited consolidated financial
statements contained in NorthWestern's most recent Annual Report on Form 10-K.
Information for the nine month periods ended September 30, 1997 and 1998 are
derived from NorthWestern's unaudited consolidated financial statements which,
in the opinion of management, have been prepared on the same basis as the
audited financial statements and reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of
NorthWestern's results of operations and financial position. Results for the
nine months ended September 30, 1998 are not necessarily indicative of results
that may be expected for the entire year.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Revenues............................... $ 153,257 $ 157,266 $ 204,970 $ 344,009 $ 918,070 $ 634,941 $ 663,811
Operating income....................... 27,273 30,536 38,097 50,418 58,997 36,462 36,361
Net income............................. 15,191 15,440 19,306 26,054 26,264 17,403 18,941
Basic earnings per average common
share................................. 0.98 1.00 1.11 1.28 1.31 0.86 0.94
Diluted earnings per average common
share................................. 0.98 1.00 1.11 1.28 1.31 0.86 0.93(1)
Dividends declared per average common
share................................. 0.82 0.84 0.87 0.89 0.93 0.69 0.73
Weighted average common shares
outstanding........................... 15,354 15,354 16,261 17,840 17,843 17,843 17,848
- ------------
(1) Reflects warrants to purchase approximately 1.2 million shares of Common
Stock. See "Shares Available for Future Sale" below.
AS OF SEPTEMBER 30,
1998
-----------------------
BALANCE SHEET DATA:
Total assets....................................................... $ 1,167,248
Long-term debt..................................................... 151,350
Long-term debt of subsidiaries..................................... 262,766
Common stock equity................................................ 170,095
S-7
USE OF PROCEEDS
NorthWestern intends to use approximately $63 million of the net proceeds to
be received from the issuance and sale of the Common Stock to repay
approximately $25 million of outstanding commercial paper and approximately $38
million of indebtedness outstanding under a revolving bank credit facility that
expires on November 30, 1998. The commercial paper to be repaid bears interest
at an average rate of 5.75% per annum, and the bank borrowings bear interest at
a rate equal to LIBOR plus .25% (5.94% as of September 30, 1998). NorthWestern
will use the balance of the net proceeds for general corporate purposes. Net
proceeds not immediately used for the above purposes will be invested in
NorthWestern's securities portfolio.
Assuming that NorthWestern completes the proposed offerings of Preferred
Securities, Subordinated Debt Securities and Senior Debt Securities discussed
above under "Recent Developments -- Proposed Preferred Security and Debt
Offerings," it intends to use the net proceeds that would be received from the
issuance and sale of those securities to repay its remaining short-term
indebtedness and for general corporate purposes. Assuming those offerings are
consummated at the maximum amounts contemplated, the application of the net
proceeds from those offerings, together with the net proceeds from this offering
of Common Stock, would result in the repayment of all of NorthWestern's
outstanding short-term indebtedness and add approximately $106 million to our
funds available for general corporate purposes. Consummation of this offering of
Common Stock is not conditioned upon completion of any proposed offering.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. In connection with a previous
acquisition, NorthWestern issued warrants that are currently exercisable for an
aggregate of approximately 1.2 million shares of Common Stock at an exercise
price of $18.225 per share. The resale of those shares of Common Stock has been
registered under the Securities Act of 1933, and, subject to compliance with
prospectus delivery requirements, those shares are freely tradable in the open
market without restriction.
S-8
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof (the "Underwriting Agreement"), each of the
underwriters named below, for whom Morgan Stanley & Co. Incorporated, CIBC
Oppenheimer Corp., A.G. Edwards & Sons, Inc. and PaineWebber Incorporated are
acting as representatives (the "Representatives"), have severally agreed to
purchase, and NorthWestern has agreed to sell to them, severally, the respective
number of shares of Common Stock set forth opposite the names of such
underwriters below:
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------- ----------
Morgan Stanley & Co. Incorporated................................................
CIBC Oppenheimer Corp............................................................
A.G. Edwards & Sons, Inc.........................................................
PaineWebber Incorporated.........................................................
----------
Total.......................................................................... 3,000,000
----------
----------
The Underwriting Agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the underwriters' over-allotment option described below) if any such
shares are taken.
The underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain other dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
NorthWestern has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
NorthWestern has granted to the underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to an aggregate
of 450,000 additional shares of Common Stock at the public offering price set
forth on the cover page hereof (minus, if such additional shares of Common Stock
are sold after the date fixed for the determination of stockholders entitled to
receive the next dividend payable on shares of Common Stock, an amount equal to
such dividend per share of such additional shares), less underwriting discounts
and commissions. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. To the extent such option
is exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of Common Stock set
forth next to the names of all underwriters in the preceding table.
S-9
NorthWestern has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not during the
period ending 90 days after the date of this Prospectus Supplement (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, provided that NorthWestern may during such 90
day period issue shares under its dividend reinvestment, direct stock purchase,
stock option and other plans, and upon exercise of warrants outstanding on the
date hereof.
In order to facilitate the offering of the Common Stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
Certain of the underwriters engage in (or in the future may engage in)
transactions with, and provide services for, NorthWestern or its affiliates in
the ordinary course of business. Canadian Imperial Bank of Commerce, an
affiliate of CIBC Oppenheimer Corp., is the agent and lender under a $50 million
revolving credit facility with NorthWestern.
LEGAL MATTERS
The legality of the Common Stock offered hereby has been passed upon for
NorthWestern by Schiff Hardin & Waite, Chicago, Illinois. Certain legal matters
will be passed upon for the underwriters by Winthrop, Stimson, Putnam & Roberts,
New York, New York.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed above, including under the caption "Recent
Developments," and certain statements incorporated by reference in the
accompanying Prospectus, are forward-looking statements within the meaning of
the securities laws. NorthWestern cautions that, while we believe such
statements to be based on reasonable assumptions and make such statements in
good faith, there can be no assurance that the actual results will not differ
materially from such assumptions or that the expectations set forth in the
forward-looking statements derived from such assumptions will be realized.
Investors should be aware of important factors that could have a material impact
on future results. These factors include, but are not limited to: weather; the
federal and state regulatory environment; regional, commercial, industrial and
residential growth in the service territories served by NorthWestern and its
subsidiaries and affiliates; the speed and degree to which competitors enter
NorthWestern's industries; the timing and extent of changes in commodity prices;
risks associated with acquisitions and integration of acquired companies;
fluctuations in operating results; competition; the economic climate; customers'
usage patterns and preferences; changing conditions in the capital and equity
markets; and other uncertainties, all of which are difficult to predict, and
many of which are beyond our control.
S-10
PROSPECTUS
$500,000,000
NORTHWESTERN CORPORATION
MORTGAGE BONDS
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
CUMULATIVE PREFERRED STOCK
PREFERENCE STOCK
COMMON STOCK
NORTHWESTERN CAPITAL FINANCING I
NORTHWESTERN CAPITAL FINANCING II
NORTHWESTERN CAPITAL FINANCING III
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN
BY NORTHWESTERN CORPORATION
-------------------
1,279,476 SHARES
NORTHWESTERN CORPORATION
COMMON STOCK
OFFERED BY CERTAIN SELLING STOCKHOLDERS
-------------------
NORTHWESTERN CORPORATION, A DELAWARE CORPORATION FORMERLY NAMED NORTHWESTERN
PUBLIC SERVICE COMPANY (THE "COMPANY"), MAY FROM TIME TO TIME OFFER (I) ITS
MORTGAGE BONDS, IN ONE OR MORE SERIES ("MORTGAGE BONDS"); (II) ITS SENIOR DEBT
SECURITIES, WHICH MAY CONSIST OF DEBENTURES, NOTES AND/OR OTHER UNSECURED
EVIDENCES OF INDEBTEDNESS IN ONE OR MORE SERIES ("SENIOR DEBT SECURITIES");
(III) ITS SUBORDINATED DEBT SECURITIES, WHICH MAY CONSIST OF DEBENTURES, NOTES
AND/OR OTHER UNSECURED EVIDENCES OF INDEBTEDNESS, SUBORDINATED TO THE EXTENT SET
FORTH THEREIN, IN ONE OR MORE SERIES ("SUBORDINATED DEBT SECURITIES" AND,
TOGETHER WITH THE SENIOR DEBT SECURITIES, "DEBT SECURITIES"); (IV) SHARES OF ITS
CUMULATIVE PREFERRED STOCK, $100 PAR VALUE, IN ONE OR MORE SERIES ("PREFERRED
STOCK"); (V) SHARES OF ITS PREFERENCE STOCK, $50 PAR VALUE, IN ONE OR MORE
SERIES ("PREFERENCE STOCK"); AND (IV) SHARES OF ITS COMMON STOCK, $1.75 PAR
VALUE (INCLUDING RELATED COMMON STOCK PURCHASE RIGHTS) ("COMMON STOCK") AT AN
AGGREGATE INITIAL OFFERING PRICE NOT TO EXCEED $500,000,000 AT PRICES AND ON
TERMS TO BE DETERMINED AT THE TIME OF SALE.
NORTHWESTERN CAPITAL FINANCING I, NORTHWESTERN CAPITAL FINANCING II AND
NORTHWESTERN CAPITAL FINANCING III, EACH A STATUTORY BUSINESS TRUST FORMED UNDER
THE LAWS OF THE STATE OF DELAWARE (A "TRUST"), MAY OFFER, FROM TIME TO TIME,
PREFERRED SECURITIES REPRESENTING UNDIVIDED BENEFICIAL INTERESTS IN THE ASSETS
OF THE RESPECTIVE TRUSTS ("PREFERRED SECURITIES") AT AN AGGREGATE INITIAL
OFFERING PRICE NOT TO EXCEED $500,000,000 AT PRICES AND ON TERMS TO BE
DETERMINED AT THE TIME OF SALE. THE COMPANY WILL OWN ALL OF THE COMMON
SECURITIES OF EACH TRUST, AND THE SOLE ASSETS OF EACH TRUST WILL BE A SERIES OF
THE COMPANY'S SUBORDINATED DEBT SECURITIES. THE PAYMENT OF PERIODIC CASH
DISTRIBUTIONS WITH RESPECT TO THE PREFERRED SECURITIES AND COMMON SECURITIES
(COLLECTIVELY, "TRUST SECURITIES") OF A TRUST AND PAYMENTS ON REDEMPTION OF THE
TRUST SECURITIES OR LIQUIDATION OF THE TRUST, IN EACH CASE OUT OF FUNDS HELD BY
THE TRUST, WILL BE GUARANTEED BY THE COMPANY TO THE EXTENT DESCRIBED HEREIN (THE
"GUARANTEES").
IN ADDITION, CERTAIN PERSONS (THE "SELLING STOCKHOLDERS") MAY OFFER, FROM
TIME TO TIME, UP TO AN AGGREGATE OF 1,279,476 SHARES OF COMMON STOCK, AT PRICES
AND ON TERMS TO BE DETERMINED AT THE TIME OF SALE.
THE MORTGAGE BONDS, DEBT SECURITIES, PREFERRED STOCK, PREFERENCE STOCK AND
COMMON STOCK OF THE COMPANY, AND THE PREFERRED SECURITIES OF THE TRUSTS
(TOGETHER WITH THE RELATED GUARANTEES OF THE COMPANY), ARE COLLECTIVELY REFERRED
TO AS THE "SECURITIES."
SECURITIES WILL BE OFFERED AT PRICES AND ON TERMS TO BE DETERMINED AND WHICH
WILL BE SET FORTH IN ONE OR MORE SUPPLEMENTS TO THIS PROSPECTUS (EACH, A
"PROSPECTUS SUPPLEMENT"). EACH PROSPECTUS SUPPLEMENT WILL SET FORTH WITH REGARD
TO THE PARTICULAR SECURITIES BEING OFFERED BY THE COMPANY OR A TRUST: (I) IN THE
CASE OF MORTGAGE BONDS AND DEBT SECURITIES, THE TITLE, AGGREGATE OFFERING
AMOUNT, DENOMINATIONS (WHICH MAY BE IN UNITED STATES DOLLARS OR A FOREIGN
CURRENCY OR CURRENCY UNIT), MATURITY, INTEREST RATE, IF ANY (WHICH MAY BE FIXED
OR VARIABLE), OR THE METHOD OF CALCULATION OF INTEREST, INTEREST PAYMENT DATES,
ANY TERMS FOR DEFERRING PAYMENT OF INTEREST AT THE ELECTION OF THE COMPANY, ANY
TERMS FOR REDEMPTION AT THE OPTION OF THE COMPANY OR THE HOLDER, ANY TERMS FOR
SINKING FUND PAYMENTS, ANY CONVERSION OR EXCHANGE RIGHTS, ANY LISTING ON A
SECURITIES EXCHANGE, THE INITIAL OFFERING PRICE AND ANY OTHER TERMS IN
CONNECTION WITH THE OFFERING AND SALE OF SUCH MORTGAGE BONDS OR DEBT SECURITIES;
(II) IN THE CASE OF PREFERRED STOCK OR PREFERENCE STOCK, THE DESIGNATION,
AGGREGATE OFFERING AMOUNT, STATED VALUE AND LIQUIDATION PREFERENCE PER SHARE,
DIVIDEND RATE, OR THE METHOD OF CALCULATION, DIVIDEND PAYMENT DATES, DATES FROM
WHICH DIVIDENDS WILL ACCRUE, ANY REDEMPTION OR SINKING FUND PROVISIONS, ANY
CONVERSION OR EXCHANGE RIGHTS, ANY LISTING OF THE PREFERRED STOCK OR PREFERENCE
STOCK ON A SECURITIES EXCHANGE, THE INITIAL OFFERING PRICE AND ANY OTHER TERMS
IN CONNECTION WITH THE OFFERING AND SALE OF SUCH PREFERRED STOCK OR PREFERENCE
STOCK; (III) IN THE CASE OF COMMON STOCK, THE NUMBER OF SHARES AND THE TERMS OF
OFFERING THEREOF; AND (IV) IN THE CASE OF PREFERRED SECURITIES OF A TRUST, THE
IDENTITY OF THE TRUST, TITLE, AGGREGATE OFFERING AMOUNT, STATED LIQUIDATION
PREFERENCE, DENOMINATIONS, MATURITY, DISTRIBUTION RATE, IF ANY (WHICH MAY BE
FIXED OR VARIABLE), OR THE METHOD OF CALCULATION OF DISTRIBUTIONS, DISTRIBUTION
PAYMENT DATES, ANY TERMS ON WHICH DISTRIBUTIONS MAY BE DEFERRED, ANY TERMS FOR
REDEMPTION AT THE OPTION OF THE COMPANY OR THE HOLDER, ANY TERMS FOR SINKING
FUND PAYMENTS, ANY CONVERSION OR EXCHANGE RIGHTS, ANY LISTING ON A SECURITIES
EXCHANGE, THE INITIAL OFFERING PRICE AND ANY OTHER TERMS IN CONNECTION WITH THE
OFFERING AND SALE OF SUCH PREFERRED SECURITIES. EACH PROSPECTUS SUPPLEMENT
RELATING TO COMMON STOCK BEING OFFERED BY ONE OR MORE SELLING STOCKHOLDERS WILL
SET FORTH THE IDENTITY OF EACH OFFERING SELLING STOCKHOLDER, THE NUMBER OF
SHARES BEING OFFERED AND THE TERMS OF OFFERING THEREOF. THE PROSPECTUS
SUPPLEMENT WILL ALSO CONTAIN INFORMATION, AS APPLICABLE, ABOUT CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PARTICULAR SECURITIES
BEING OFFERED.
THE COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"NOR." ANY COMMON STOCK SOLD PURSUANT TO A PROSPECTUS SUPPLEMENT WILL BE
APPROVED FOR LISTING, SUBJECT TO NOTICE OF ISSUANCE, ON SUCH EXCHANGE.
THE COMPANY, THE TRUSTS AND THE SELLING STOCKHOLDERS MAY SELL SECURITIES TO
OR THROUGH UNDERWRITERS AND MAY ALSO SELL SECURITIES DIRECTLY TO OTHER
PURCHASERS OR THROUGH AGENTS. THE ACCOMPANYING PROSPECTUS SUPPLEMENT SETS FORTH
THE NAMES OF ANY UNDERWRITERS OR AGENTS INVOLVED IN THE SALE OF THE SECURITIES
IN RESPECT OF WHICH THIS PROSPECTUS IS BEING DELIVERED, THE PRINCIPAL AMOUNTS,
IF ANY, TO BE PURCHASED BY EACH UNDERWRITER AND THE COMPENSATION, IF ANY, OF
SUCH UNDERWRITERS OR AGENTS. SEE "PLAN OF DISTRIBUTION."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JULY 14, 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the offices of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West Madison Street,
14th Floor, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a site on the World
Wide Web that contains reports, proxy statements and other information regarding
the Company. The address of the Commission's Web site is http://www.sec.gov. In
addition, the Company's reports and proxy statements may be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including any amendments thereto, the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to the Securities
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. For further information about the Company and the Securities,
reference is made to the Registration Statement and the exhibits thereto, which
may be inspected at the public reference facilities maintained by the Commission
at the addresses set forth above or through the Commission's Web site.
No separate financial statements of any Trust have been included herein. The
Company and the Trusts do not consider that such financial statements would be
material to the holders of the Trusts' Preferred Securities because each Trust
is a special purpose entity, with no operating history or independent
operations, which is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Subordinated Debt Securities of
the Company and issuing its Trust Securities as described below. Furthermore,
taken together, the Company's obligations under the Subordinated Debt Securities
held by a Trust, the indenture under which such Subordinated Debt Securities are
issued, the applicable Trust Declaration and the related Guarantee provide, in
the aggregate, a full, irrevocable and unconditional guarantee of payment in
respect of the Preferred Securities. For this same reason, the Company does not
expect that any Trust will file reports with the Commission pursuant to the
Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ending March
31, 1998.
3. The description of the Common Stock contained in the Company's
registration statement on Form S-3 (registration no. 33-60423), and any
document filed which updates such description.
4. The description of the Company's Common Stock Purchase Rights contained
in the Company's registration statement on Form 8-A, dated December 11,
1996, and any document filed which updates such description.
5. All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering made
by this Prospectus also shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a
2
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on request of such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents. Requests
for copies should be directed to Alan D. Dietrich, Vice President - Law and
Corporate Secretary, Northwestern Corporation, 600 Market Street West, Huron,
South Dakota 57350-1500, telephone number: (605) 353-7606.
NORTHWESTERN
The Company is a nationwide diversified energy, telecommunications and
related services provider. It generates and distributes electric energy to
approximately 56,000 customers in eastern South Dakota. The Company also
purchases, distributes, sells and transports natural gas to approximately 79,000
customers in central Nebraska and eastern South Dakota. The Company, through its
majority-owned subsidiaries, also owns approximately 35% of Cornerstone Propane
Partners, L.P., a publicly traded master limited partnership for which a
subsidiary of the Company serves as managing general partner. Cornerstone serves
more than 380,000 propane customers in 26 states. The Company, through its
consolidated and unconsolidated subsidiaries, is also engaged in certain
non-energy manufacturing industries and owns companies engaged in heating,
ventilation and air conditioning and telecommunications services. The Company
was incorporated under the laws of the State of Delaware in 1923. The Company
has its principal office at 33 Third Street SE, Huron, South Dakota 57350-1605.
Its telephone number is (605) 352-8411.
THE TRUSTS
Each of Northwestern Capital Financing I, Northwestern Capital Financing II
and Northwestern Capital Financing III is a statutory business trust formed
under Delaware law pursuant to (i) a declaration of trust executed by the
Company, as sponsor, and the Capital Financing Trustees (as defined below), as
trustees (as such declaration may be amended from time to time, the "Trust
Declaration"), and (ii) the filing of a certificate of trust with the Secretary
of State of the State of Delaware. Each Trust exists for the exclusive purposes
of (i) issuing the Trust Securities of such Trust, (ii) investing the gross
proceeds from the sale of the Trust Securities in the Subordinated Debt
Securities of the Company and (iii) engaging in only those other activities
necessary or incidental thereto. All of the common securities representing
undivided beneficial interests in the assets of a Trust (the "Common
Securities") will be directly or indirectly owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that, upon an event of default under the
applicable Trust Declaration, the rights of the holders of the 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 Company will directly or indirectly acquire Common Securities in
an aggregate liquidation amount equal to 3% of the total capital of each Trust.
Each Trust has a term of approximately 55 years but may terminate earlier, as
provided in the applicable Trust Declaration. The Company will pay all fees and
expenses related to the Trusts and the offering of the Trust Securities, the
payment of which will be guaranteed by the Company as described under
"Description of the Guarantees." The principal place of business of each Trust
is c/o the Company, 33 Third Street S.E., Huron, South Dakota, 57350-1318,
telephone (605) 352-8411.
The business and affairs of each Trust will be conducted by the trustees
(the "Capital Financing Trustees") appointed by the Company as the direct or
indirect holder of all the Common Securities. A majority of the Capital
Financing Trustees will be persons who are employees or officers of or who are
affiliated with the Company. One Capital Financing Trustee of each Trust will be
a financial institution that is not affiliated with the Company and has
aggregate capital, surplus and undivided profits of not less than
3
$50,000,000, which institution will act as property trustee under the applicable
Trust Declaration (the "Property Trustee") and as an indenture trustee for
purposes of the Trust Indenture Act of 1939 (the "Trust Indenture Act"). In
addition, unless the Property Trustee maintains a principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
one Capital Financing Trustee of each Trust will have a principal place of
business or reside in the State of Delaware (the "Delaware Trustee"). The
initial Property Trustee of each Trust is Wilmington Trust Company, a Delaware
banking corporation, which maintains a principal place of business in Delaware.
The holder of the Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the Capital Financing
Trustees of each Trust. The duties and obligations of the Capital Financing
Trustees for each Trust will be governed by the applicable Trust Declaration.
USE OF PROCEEDS
Except as may be set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of any Securities offered by the Company will be used for
general corporate purposes, which may include the repayment of indebtedness,
capital expenditures, working capital and other investments in, or acquisitions
of, businesses and assets. Pending application of such net proceeds for specific
purposes, such proceeds may be invested in short-term or marketable securities.
Specific allocations of proceeds to a particular purpose that have been made at
the date of any Prospectus Supplement will be described therein.
Each Trust will use all of the proceeds received from the sale of its Trust
Securities to purchase Subordinated Debt Securities from the Company. Unless
otherwise set forth in the applicable Prospectus Supplement, the net proceeds to
the Company from the sale of Subordinated Debt Securities to a Trust will be
added to the Company's general funds and used for general corporate purposes.
Neither the Company nor any Trust will receive any proceeds from Securities
sold by any Selling Stockholder.
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred dividends for the Company for
the fiscal years ended December 31, 1993, 1994, 1995, 1996 and 1997, and for the
three-month period ended March 31, 1998. For the purpose of calculating such
ratios, "earnings" consist of income from continuing operations before income
taxes and minority interest, "fixed charges" consist of interest on all
indebtedness, amortization of debt expense and the percentage of rental expense
on operating leases deemed representative of the interest factor, and "preferred
dividends" represent dividends paid on all preferred shares (consisting solely
of shares of Cumulative Preferred Stock) outstanding during the periods.
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996
----- ----- ----- -----
Ratio of Earnings to Fixed Charges.................................. 3.5 3.4 3.4 3.2
Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends.......................................................... 3.5 3.4 3.1 2.7
QUARTER
ENDED
MARCH 31,
1997 1998 (1)
----- -------------
Ratio of Earnings to Fixed Charges.................................. 3.0 4.3
Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends.......................................................... 2.6 5.2
- ---------
(1) Results for quarter ended March 31, 1998 are not necessarily indicative of
results for the year ended December 31, 1998.
4
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "NOR." The following table sets forth, for the calendar quarters
shown, the range of high and low composite prices of the Common Stock on the New
York Stock Exchange and the cash dividends declared on the Common Stock, in each
case as adjusted for the two-for-one stock split in May 1997.
DIVIDENDS
HIGH LOW DECLARED
------------ ------------ -----------
1996
First quarter............................................................... $ 15 1/8 $ 13 3/4 $ .22
Second quarter.............................................................. 14 13/16 13 3/8 .22
Third quarter............................................................... 15 9/16 13 7/16 .22
Fourth quarter.............................................................. 18 1/4 15 .23
1997
First quarter............................................................... 19 3/4 16 15/16 .23
Second quarter.............................................................. 22 1/4 18 5/16 .23
Third quarter............................................................... 21 1/4 17 3/4 .23
Fourth quarter.............................................................. 23 1/2 18 7/16 .2425
1998
First quarter............................................................... 24 21 5/16 .2425
Second quarter.............................................................. 25 5/16 20 1/4 .2425
DESCRIPTION OF MORTGAGE BONDS
The Mortgage Bonds will be bonds, notes or other evidences of indebtedness
authenticated and delivered under a General Mortgage Indenture and Deed of
Trust, dated as of August 1, 1993, between the Company and The Chase Manhattan
Bank (as successor to The Chase Manhattan Bank, N.A.), as trustee (the "Bond
Trustee"). Such General Mortgage and Deed of Trust, as supplemented by various
supplemental indentures, is hereinafter referred to as the "Mortgage." A copy of
the Mortgage, as supplemented to date, has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the
supplemental indenture relating to each series of Mortgage Bonds will be filed
as an exhibit to or incorporated by reference in the Registration Statement at
or prior to the time of issuance of such series of Mortgage Bonds. The following
summary of certain provisions of the Mortgage does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Mortgage, including the definitions set forth therein. Capitalized terms used
under this heading which are not otherwise defined in this Prospectus have the
meanings given them in the Mortgage. References to article and section numbers
in this description of the Mortgage Bonds, unless otherwise indicated, are
references to article and section numbers of the Mortgage.
GENERAL
The maximum principal amount of Mortgage Bonds which may be issued under the
Mortgage is limited to $500,000,000, provided that, without the consent of the
holders of outstanding Mortgage Bonds, the Company and the Bond Trustee may
enter into supplemental indentures to increase such amount. As of June 15, 1998,
there were outstanding $25 million of 6.99% Series Mortgage Bonds due 2002, $60
million of 7.10% Series Mortgage Bonds due 2005 and $55 million of 7% Series
Mortgage Bonds due 2023. Additional Mortgage Bonds may be issued under the
Mortgage on the basis of property additions, retired bonds and cash. See
"Issuance of Additional Mortgage Bonds" below. The Prospectus Supplement
relating to the series of Mortgage Bonds offered thereby (the "Offered Mortgage
Bonds") will describe the following terms of the Offered Mortgage Bonds: (i) the
title (series designation) of the Offered Mortgage Bonds; (ii) any limit upon
the aggregate principal amount of Offered Mortgage Bonds; (iii) the percentage
of the principal amount at which the Offered Mortgage Bonds will be issued and,
if other than the principal amount thereof,
5
the portion of the principal amount thereof payable upon acceleration of the
maturity thereof, or the method by which such portion will be determined; (iv)
the date or dates on which the principal of the Offered Mortgage Bonds will be
payable; (v) the rate or rates at which the Offered Mortgage Bonds will bear
interest, if any, or the method by which such rate or rates will be determined,
the date or dates from which such interest will accrue, or the method by which
such date or dates will be determined; (vi) the dates on which such interest
will be payable and the regular record dates for any interest payment dates and
the basis on which interest will be calculated; (vii) the bases on which the
Offered Mortgage Bonds will be issued; (viii) the option, if any, of the Company
to redeem the Offered Mortgage Bonds and the periods within which or the dates
on which, the prices at which and the terms and conditions upon which the
Offered Mortgage Bonds may be redeemed, in whole or in part, upon the exercise
of such option; (ix) the obligation, if any, of the Company to redeem or
purchase the Offered Mortgage Bonds pursuant to any sinking fund or analogous
provisions or at the option of the holder and the periods within which or the
dates on which, the prices at which and the terms and conditions upon which the
Offered Mortgage Bonds will be redeemed, in whole or in part, pursuant to such
obligation; (x) the denominations in which the Offered Mortgage Bonds will be
issuable and any provision for the Offered Mortgage Bonds to be denominated, and
payments thereon to be made, in currencies other than the United States dollar
or in units based on or relating to such other currencies; and (ix) any other
terms of the Offered Mortgage Bonds not inconsistent with the provisions of the
Mortgage.
While the Mortgage contains provisions for the maintenance of the Mortgaged
Property, it does not contain any provisions for a maintenance or sinking fund
and, except as may be provided in a Supplemental Indenture (and described in the
applicable Prospectus Supplement), there will be no provisions for any such
funds for the Mortgage Bonds.
Mortgage Bonds may be issued as discount bonds, which may be sold at a
discount below their principal amount. These Mortgage Bonds, as well as other
Mortgage Bonds that are not issued at a discount below their principal amount,
may, for United States Federal income tax purposes, be deemed to have been
issued with "original issue discount" because of, among other things, certain
interest payment characteristics. Special United States Federal income tax
considerations applicable to Offered Mortgage Bonds issued with original issue
discount, including discount bonds, will be described in more detail in the
applicable Prospectus Supplement. In addition, special United States Federal
income tax considerations or other restrictions or terms applicable to any
Offered Mortgage Bonds which are issuable in bearer form, offered exclusively to
United States aliens, denominated in a currency other than United States dollars
or having certain other characteristics will be set forth in the Prospectus
Supplement relating thereto.
Other than the security afforded by the lien of the Mortgage and the
restrictions on the issuance of additional Mortgage Bonds, there are no
provisions of the Mortgage which afford the holders of the Offered Mortgage
Bonds protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company. See
"Consolidation, Merger, Conveyance, Transfer or Lease" below.
REDEMPTION OF THE MORTGAGE BONDS
Any terms for the optional or mandatory redemption of the Offered Mortgage
Bonds will be set forth in the applicable Prospectus Supplement. Except as
otherwise be provided in the applicable Prospectus Supplement with respect to
Mortgage Bonds redeemable at the option of the holder, Mortgage Bonds will be
redeemable only upon notice by mail not less than 30 days prior to the date
fixed for redemption, and, if less than all the Mortgage Bonds of a series, or
any tranche thereof, are to be redeemed, the particular Mortgage Bonds to be
redeemed will be selected by such method as shall be provided for the particular
series or tranche, or in the absence of any such provision, by such method as
the Bond Registrar deems fair and appropriate. (See Sections 5.03 and 5.04.)
6
Any notice of redemption at the option of the Company may state that such
redemption will be conditioned upon receipt by the Bond Trustee, on or prior to
the date fixed for such redemption, of money sufficient to pay the principal of
and premium, if any, and interest, if any, on such Mortgage Bonds and that if
such money has not been so received, such notice will be of no force and effect
and the Company will not be required to redeem such Mortgage Bonds. (See Section
5.04.)
SECURITY
Except as discussed below, Mortgage Bonds now or hereafter issued under the
Mortgage will be secured primarily by the lien of the Mortgage on the Company's
properties used in the generation, production, transmission or distribution of
electricity or the distribution of gas in any form and for any purpose in the
States of South Dakota or Nebraska, together with the properties owned by the
Company as of August 1, 1993 located in the States of North Dakota and Iowa
(which consist principally of shared ownership interests in electric generating
facilities), but not, unless the Company otherwise elects, any future acquired
properties in the States of North Dakota and Iowa.
The lien of the Mortgage is subject to permitted liens which include tax
liens and other governmental charges which are not delinquent and which are
being contested, construction and materialmen's liens, certain judgment liens,
easements, reservations and rights of others (including governmental entities)
in, and defects of title in, certain property of the Company, certain leasehold
interests, liens on the Company's pollution control and sewage and solid waste
facilities and certain other liens and encumbrances. (See Section 1.01.)
There are excepted from the lien of the Mortgage, among other things, cash
and securities not paid to, deposited with or held by the Bond Trustee under the
Mortgage; contracts, leases and other agreements of all kinds, contract rights,
bills, notes and other instruments, accounts receivable, claims, certain
intellectual property rights and other general intangibles; permits, licenses
and franchises; automobiles, other vehicles, movable equipment, aircraft and
vessels; all goods, wares and merchandise held for sale in the ordinary course
of business or for use by or for the benefit of the Company; fuel, materials,
supplies and other personal property consumable in the operations of the
Company's business; computers, machinery and equipment; coal, ore, gas, oil,
minerals and timber mined or extracted from the land; gas transmission lines
connecting wells with main or branch trunk lines or field gathering lines
connecting wells with main or branch trunk lines; electric energy, gas, steam,
water and other products generated, produced or purchased; leasehold interests;
and all books and records. (See Granting Clauses.)
Without the consent of the holders of any Mortgage Bonds, the Company and
the Bond Trustee may enter into supplemental indentures to subject to the lien
of the Mortgage additional property, whether or not used in the electric or gas
utility businesses (including property which would otherwise be excepted from
such lien). (See Section 14.01.) Such property, so long as the same would
otherwise constitute Property Additions (as described below), would thereupon
constitute Property Additions and be available as a basis for the issuance of
Mortgage Bonds. See "Issuance of Additional Mortgage Bonds" below.
The Mortgage contains provisions subjecting after-acquired property to the
lien of the Mortgage. These provisions are limited in the case of consolidation
or merger (whether or not the Company is the surviving corporation) or sale of
substantially all of the Company's assets. In the event of the consolidation or
merger of the Company or the transfer of all the Mortgaged Property as or
substantially as an entirety, the Mortgage will not be required to be a lien
upon any of the properties then owned or thereafter acquired by the successor
corporation, except properties acquired from the Company in or as a result of
such transaction and improvements, extensions and additions to such properties
and renewals, replacements and substitutions of or for any part or parts of such
properties. (See Article Thirteen and "Consolidation, Merger, Conveyance,
Transfer or Lease" below.) In addition, after-acquired property may be subject
to vendors' liens, purchase money mortgages and other liens thereon at the time
of acquisition.
7
The Mortgage provides that the Bond Trustee will have a lien, prior to the
lien on behalf of the holders of Mortgage Bonds, upon Mortgaged Property and any
money collected by the Bond Trustee as proceeds of the Mortgaged Property, for
the payment of its reasonable compensation and expenses and for indemnity
against certain liabilities. (See Section 11.07.)
ISSUANCE OF ADDITIONAL MORTGAGE BONDS
The maximum principal amount of Mortgage Bonds which may be issued under the
Mortgage is limited to $500,000,000, provided that, without the consent of the
holders of any Mortgage Bonds, the Company and the Bond Trustee may enter into
supplemental indentures to increase such amount. (See Sections 3.01 and 14.01.)
Mortgage Bonds of any series may be issued from time to time under Article Four
of the Mortgage on the basis of, and in an aggregate principal amount not
exceeding:
(1) 75% of the cost or fair value (whichever is less) of Property
Additions which do not constitute "bonded" Property Additions (generally,
Property Additions which have been made the basis of the authentication and
delivery of Mortgage Bonds, the release of Mortgaged Property or cash
withdrawals) after certain deductions and additions, primarily including
adjustments to offset property retirements;
(2) the aggregate principal amount of "Retired Bonds" (which consist of
Mortgage Bonds no longer outstanding under the Mortgage (including Mortgage
Bonds deposited under any sinking or analogous funds) which have not been
used for certain other purposes under the Mortgage and which are not to be
paid, redeemed or otherwise retired by the application of funded cash); and
(3) an amount of cash deposited with the Bond Trustee.
In general, the issuance of Mortgage Bonds is subject to Adjusted Net
Earnings of the Company (as described below) for 12 consecutive months within
the preceding 18 months being at least one and three-fourths the Annual Interest
Requirements on all Mortgage Bonds then outstanding or applied for, and all
other indebtedness (with certain exceptions) secured by a lien prior to the lien
of the Mortgage, except that no such net earnings requirement need be met if the
additional Mortgage Bonds to be issued are to have no stated interest rate prior
to maturity. The Company is not required to satisfy the net earnings requirement
prior to issuance of Mortgage Bonds in replacement of Retired Bonds unless (a)
the stated maturity of the Retired Bonds is more than five years after the date
of the Company's order to authenticate and deliver such additional Mortgage
Bonds and (b) the stated interest rate, if any, on such Retired Bonds
immediately prior to maturity is less than the initial stated interest rate, if
any, on such Mortgage Bonds. In general, the interest requirement with respect
to variable interest rate indebtedness, if any, is determined with reference to
the rate or rates in effect on the date immediately preceding such determination
or the rate to be in effect upon initial authentication. (See Section 1.03 and
Article Four.)
Adjusted Net Earnings are calculated before, among other things, provisions
for income taxes; depreciation or amortization of property; interest on any
indebtedness and amortization of debt discount and expense; any non-recurring
charge to income of whatever kind or nature (including without limitation the
recognition of expense or impairment due to the non-recoverability of assets or
expense), whether or not recorded as a non-recurring item in the Company's books
of account; and any refund of revenues previously collected or accrued by the
Company subject to possible refund. With respect to Mortgage Bonds of a series
subject to a periodic offering (such as a medium-term note program), the Bond
Trustee will be entitled to receive a certificate evidencing compliance with the
net earnings requirements only once, at or prior to the time of the first
authentication and delivery of the Mortgage Bonds of such series (unless the
Company's order requesting the authentication and delivery of such Mortgage
Bonds is delivered on or after the date which is two years after the most recent
net earnings certificate was delivered, in which case an updated certificate
would be required to be delivered). (See Sections 1.03 and 4.01.)
8
Property Additions generally include any property which is owned by the
Company and is subject to the lien of the Mortgage, except any property the cost
of acquisition or construction of which is properly chargeable to an operating
expense account of the Company. (See Section 1.04.)
RELEASE OF PROPERTY
The Company may obtain the release from the lien of the Mortgage of any
Mortgaged Property if the fair value of all of the Mortgaged Property (excluding
the Mortgaged Property to be released but including any Mortgaged Property to be
acquired by the Company with the proceeds of, or otherwise in connection with,
such release) equals or exceeds an amount equal to twenty-fifteenths (20/15ths)
of the aggregate principal amount of Mortgage Bonds outstanding.
The Mortgage provides simplified procedures for the release of minor
properties and property taken by eminent domain and provides for dispositions of
certain obsolete property and grants of surrender of certain rights without any
release or consent by the Bond Trustee.
If any property released from the lien of the Mortgage continues to be owned
by the Company after such release, the Mortgage will not become a lien on any
improvement, extension or addition to such property or renewals, replacements or
substitutions of or for any part or parts of such property. (See Article Eight.)
WITHDRAWAL OF CASH
Subject to certain limitations, cash held by the Bond Trustee may (1) be
withdrawn by the Company (a) to the extent of the cost or fair value (whichever
is less) of unbonded Property Additions, after certain deductions and additions
primarily including adjustments to offset retirements, or (b) in an amount equal
to twenty-fifteenths (20/15ths) of the aggregate principal amount of Mortgage
Bonds that the Company would be entitled to issue on the basis of Retired Bonds
(with the entitlement to such issuance being waived by operation of such
withdrawal), or (c) in an amount equal to twenty-fifteenths (20/15ths) of the
aggregate principal amount of any outstanding Mortgage Bonds delivered to the
Bond Trustee, or (2) upon the request of the Company, be applied to (a) the
purchase of Mortgage Bonds (at prices not exceeding twenty-fifteenths (20/15ths)
of the principal amount thereof) or (b) the redemption or payment at stated
maturity of Mortgage Bonds (with any Mortgage Bonds received by the Bond Trustee
pursuant to these provisions being canceled by the Bond Trustee) (see Section
8.06); provided, however, that cash deposited with the Bond Trustee as the basis
for authentication and delivery of Mortgage Bonds, may only be withdrawn in an
amount equal to the aggregate principal amount of Mortgage Bonds the Company
would be entitled to issue on any basis (with the entitlement to such issuance
being waived by operation of such withdrawal), or may, upon the request of the
Company, be applied to the purchase, redemption or payment of Mortgage Bonds at
prices not exceeding, in the aggregate, the principal amount thereof (See
Sections 4.05 and 7.02).
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company may not consolidate with or merge into any other corporation or
convey, transfer or lease the Mortgaged Property as or substantially as an
entirety to any person unless (a) such transaction is on such terms as will
fully preserve the lien and security of the Mortgage and the rights and powers
of the Bond Trustee and the holders of Mortgage Bonds, (b) the corporation
formed by such consolidation or into which the Company is merged or the person
which acquires by conveyance or transfer, or which leases, the Mortgaged
Property as or substantially as an entirety is a corporation organized and
existing under the laws of the United States of America or any state or
territory thereof or the District of Columbia, and such corporation executes and
delivers to the Bond Trustee a supplemental indenture, which contains an
assumption by such corporation of the due and punctual payment of the principal
of and premium, if any, and interest, if any, on the Mortgage Bonds and the
performance of all of the covenants of the Company under the Mortgage and which
contains a grant, conveyance, transfer and mortgage by the corporation
confirming
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the lien of the Mortgage on the Mortgaged Property and subjecting to such lien
all property thereafter acquired by the corporation which constitutes an
improvement, extension or addition to the Mortgaged Property or a renewal,
replacement or substitution of or for any part thereof, and, at the election of
the corporation, subjecting to the lien of the Mortgage such other property then
owned or thereafter acquired by the corporation as the corporation may specify,
and (c) in the case of a lease, such lease will be made expressly subject to
termination by the Company or the Bond Trustee at any time during the
continuance of an Event of Default under the Mortgage. (See Section 13.01.)
The Mortgage does not contain provisions requiring the repurchase of the
Offered Mortgage Bonds upon the change in control of the Company.
MODIFICATION OF MORTGAGE
Without the consent of the holders of any Mortgage Bonds, the Company and
the Bond Trustee may enter into one or more supplemental indentures for any of
the following purposes:
(a) to evidence the succession of another person to the Company and the
assumption by any such successor of the covenants of the Company in the
Mortgage and in the Mortgage Bonds; or
(b) to add one or more covenants of the Company or other provisions for
the benefit of all holders of Mortgage Bonds or for the benefit of the
holders of, or to remain in effect only so long as there are outstanding,
Mortgage Bonds of one or more specified series, or one or more tranches
thereof, or to surrender any right or power conferred upon the Company by
the Mortgage; or
(c) to correct or amplify the description of any property at any time
subject to the lien of the Mortgage, or better to assure, convey and confirm
to the Bond Trustee any property subject or required to be subjected to the
lien of the Mortgage, or to subject to the lien of the Mortgage additional
property; or
(d) to convey, transfer and assign to the Bond Trustee and to subject to
the lien of the Mortgage with the same force and effect as if included in
the Mortgage, property of subsidiaries of the Company used or to be used for
one or more purposes which if owned by the Company would constitute property
used or to be used for one or more of the primary purposes of the Company's
business, which property will for all purposes of the Mortgage be deemed to
be property of the Company, together with such other provisions as may be
appropriate to express the respective rights of the Bond Trustee and the
Company in regard thereto; or
(e) to change or eliminate any provision of the Mortgage or to add any
new provision to the Mortgage, provided that if such change, elimination or
addition adversely affects the interests of the holders of the Mortgage
Bonds of any series or tranche in any material respect, such change,
elimination or addition will become effective with respect to such series or
tranche only when no Mortgage Bonds of such series or tranche remain
outstanding under the Mortgage; or
(f) to establish the form or terms of the Mortgage Bonds of any series
or tranche as permitted by the Mortgage; or
(g) to provide for the authentication and delivery of bearer securities
and coupons appertaining thereto representing interest, if any, thereon and
for the procedures for the registration, exchange and replacement thereof
and for the giving of notice to, and the solicitation of the vote or consent
of, the holders thereof, and for any and all other matters incidental
thereto; or
(h) to evidence and provide for the acceptance of appointment by a
successor trustee or by a co-trustee or separate trustee; or
(i) to provide for the procedures required to permit the Company to
utilize, at its option, a noncertificated system of registration for all, or
any series or tranche of, the Mortgage Bonds; or
10
(j) to change any place where (1) the principal of and premium, if any,
and interest, if any, on the Mortgage Bonds of any series, or any tranche
thereof, will be payable, (2) any Mortgage Bonds of any series, or any
tranche thereof, may be surrendered for registration of transfer, (3) any
Mortgage Bonds of any series, or any tranche thereof, may be surrendered for
exchange or (4) notices and demands to or upon the Company in respect of the
Mortgage Bonds of any series, or any tranche thereof, and the Mortgage may
be served; or
(k) to cure any ambiguity, to correct or supplement any provision
therein which may be defective or inconsistent with any other provision
therein, or to make any changes to the provisions thereof or to add other
provisions with respect to matters and questions arising under the Mortgage,
so long as such other changes or additions do not adversely affect the
interests of the holders of Mortgage Bonds of any series or tranche in any
material respect; or
(l) to reflect changes in generally accepted accounting principles; or
(m) to provide the terms and conditions of the exchange or conversion,
at the option of the holders of Mortgage Bonds of any series, of the
Mortgage Bonds of such series for or into Mortgage Bonds of other series or
stock or other securities of the Company or any other corporation; or
(n) to change the words "Mortgage Bonds" to "First Mortgage Bonds" in
the descriptive title of all outstanding Mortgage Bonds at any time; or
(o) to comply with the rules or regulations of any national securities
exchange on which any of the Mortgage Bonds may be listed; or
(p) to increase the aggregate principal amount of Mortgage Bonds which
may be authenticated and delivered under the Mortgage. (See Section 14.01.)
Without limiting the generality of the foregoing, if the Trust Indenture Act
is amended after the date of the Mortgage in such a way as to require changes to
the Mortgage or the incorporation therein of additional provisions or so as to
permit changes to, or the elimination of, provisions which, at the date of the
Mortgage or at any time thereafter, were required by the Trust Indenture Act to
be contained in the Mortgage, the Company and the Bond Trustee may, without the
consent of the holders of any Mortgage Bonds, enter into one or more
supplemental indentures to evidence or effect such amendment. (See Sections
14.01.)
Except as provided above, the consent of the holders of not less than a
majority in aggregate principal amount of the Mortgage Bonds of all series then
outstanding, considered as one class, is required for the purpose of adding any
provisions to, or changing in any manner, or eliminating any of the provisions
of, the Mortgage pursuant to one or more supplemental indentures; provided,
however, if less than all of the series of Mortgage Bonds outstanding (or less
than all of the tranches of a particular series) are directly affected by a
proposed supplemental indenture, then the consent only of the holders of a
majority in aggregate principal amount of outstanding Mortgage Bonds of all
series (or tranches) so directly affected, considered as one class, will be
required. Notwithstanding the foregoing, no such amendment or modification may,
without the consent of each holder of the outstanding Mortgage Bonds of each
series or tranche directly affected thereby, (a) change the stated maturity of
the principal of, or any installment of principal of or interest on, any
Mortgage Bond, or reduce the principal amount thereof or the rate of interest
thereon (or the amount of any installment of interest thereon) or change the
method of calculating such rate or reduce any premium payable upon the
redemption thereof, or reduce the amount of the principal of a discount bond
that would be due and payable upon a declaration of acceleration of maturity or
change the coin or currency (or other property) in which any Mortgage Bond or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the stated maturity
thereof (or, in the case of redemption, on or after the redemption date), (b)
permit the creation of any lien ranking prior to the lien of the Mortgage with
respect to all or substantially all of the Mortgaged Property or terminate the
lien of the Mortgage on all or substantially all of the Mortgaged Property, or
deprive such holder of the benefit of the security of the lien of the Mortgage,
(c) reduce the percentage in principal amount of the outstanding
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Mortgage Bonds of such series or tranche, the consent of the holders of which is
required for any such supplemental indenture, or the consent of the holder of
which is required for any waiver of compliance with any provision of the
Mortgage or any default thereunder and its consequences, or reduce the
requirements for quorum or voting, or (d) modify certain of the provisions of
the Mortgage relating to supplemental indentures, waiver of certain covenants
and waivers of past defaults. A supplemental indenture which changes or
eliminates any covenant or other provision of the Mortgage which has expressly
been included solely for the benefit of the holders of, or which is to remain in
effect only so long as there are outstanding, Mortgage Bonds of one or more
specified series, or one or more tranches thereof, or modifies the rights of the
holders of Mortgage Bonds of such series or tranches with respect to such
covenant or other provision, will be deemed not to affect the rights under the
Mortgage of the holders of the Mortgage Bonds of any other series or tranche.
(See Section 14.02.)
WAIVER
The holders of at least a majority in aggregate principal amount of all
Mortgage Bonds may waive the Company's obligations to comply with certain
covenants, including the Company's obligation to maintain its corporate
existence and properties, pay taxes and discharge liens, maintain certain
insurance and to make such recordings and filings as are necessary to protect
the security of the holders of Mortgage Bonds and the rights of the Bond
Trustee, provided that such waiver occurs before the time such compliance is
required. The holders of at least a majority of the aggregate principal amount
of outstanding Mortgage Bonds of all affected series or tranches, considered as
one class, may waive, before the time for such compliance, compliance with the
Company's obligation to maintain an office or agency where the Mortgage Bonds of
such series or tranches may be surrendered for payment, registration, transfer
or exchange, and compliance with any other covenant specified in a supplemental
indenture respecting such series or tranches. (See Section 6.09.)
EVENTS OF DEFAULT
Each of the following events constitutes an "Event of Default" under the
Mortgage:
(1) failure to pay interest on any Mortgage Bond within 60 days after
the same becomes due;
(2) failure to pay principal of or premium, if any, on any Mortgage Bond
within 15 days after its maturity;
(3) failure to perform or breach of any covenant or warranty of the
Company in the Mortgage (other than a covenant to pay interest, principal or
premium with respect to any Mortgage Bond) for a period of 60 days after
there has been given to the Company by the Bond Trustee, or to the Company
and the Bond Trustee by the holders of at least 50% in principal amount of
outstanding Mortgage Bonds, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default," unless the Bond Trustee, or the Bond Trustee and the
holders of a principal amount of Mortgage Bonds not less than the principal
amount of Mortgage Bonds the holders of which gave such notice, as the case
may be, agree in writing to an extension of such period prior to its
expiration; provided, however, that the Bond Trustee, or the Bond Trustee
and such holders, as the case may be, will be deemed to have agreed to an
extension of such period if corrective action has been initiated by the
Company within such period and is being diligently pursued; or
(4) Certain events relating to reorganization, bankruptcy and insolvency
of the Company and appointment of a receiver or trustee for its property.
(See Section 10.01.)
REMEDIES
If an Event of Default occurs and is continuing, then the Bond Trustee or
the holders of not less than a majority in principal amount of Mortgage Bonds
then outstanding may declare the principal amount (or if
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the Mortgage Bonds are discount bonds, such portion of the principal amount as
may be provided for such discount bonds pursuant to the terms of the Mortgage)
of all of the Mortgage Bonds together with premium, if any, and interest
accrued, if any, thereon to be immediately due and payable. At any such time
after such declaration of the maturity of the Mortgage Bonds then outstanding,
but before the sale of any of the Mortgaged Property and before a judgment or
decree for payment of money shall have been obtained by the Bond Trustee as
provided in the Mortgage, the Event or Events of Default giving rise to such
declaration of acceleration will, without further act, be deemed to have been
waived, and such declaration and its consequences will, without further act, be
deemed to have been rescinded and annulled, if:
(a) the Company has paid or deposited with the Bond Trustee a sum
sufficient to pay:
(1) all overdue interest, if any, on all Mortgage Bonds then
outstanding;
(2) the principal of and premium, if any, on any Mortgage Bonds then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Mortgage Bonds; and
(3) all amounts due to the Bond Trustee as compensation and
reimbursement as provided in the Mortgage; and
(b) any other Event or Events of Default other than the non-payment of
the principal of Mortgage Bonds which shall become due solely by such
declaration of acceleration shall have been cured or waived as provided in
the Mortgage. (See Sections 10.02 and 10.17.)
The Mortgage provides that, under certain circumstances and to the extent
permitted by law, if an Event of Default occurs and is continuing, the Bond
Trustee has the power to take possession of, and to hold, operate and manage,
the Mortgaged Property or, with or without entry, sell the Mortgaged Property.
If the Mortgaged Property is sold, whether by the Trustee or pursuant to
judicial proceedings, the principal of the outstanding Mortgage Bonds, if not
previously due, will become immediately due, together with premium, if any, and
any accrued interest. (See Sections 10.03, 10.04 and 10.05.)
If an Event of Default occurs and is continuing, the holders of a majority
in principal amount of the Mortgage Bonds then outstanding will have the right
to direct the time, method and place of conducting any proceedings for any
remedy available to the Bond Trustee or exercising any trust or power conferred
on the Bond Trustee, provided that (a) such direction does not conflict with any
rule of law or with the Mortgage and could not involve the Bond Trustee in
personal liability in circumstances where indemnity would not, in the Bond
Trustee's sole discretion, be adequate, (b) such direction is not unduly
prejudicial to the rights of the nonassenting holders, and (c) the Bond Trustee
may take any other action deemed proper by the Bond Trustee which is not
inconsistent with such discretion. (See Section 10.16.)
The Mortgage provides that no holder of any Mortgage Bond will have any
right to institute any proceeding, judicial or otherwise, with respect the
Mortgage, or for the appointment of a receiver or trustee, or for any other
remedy thereunder, unless (a) such holder has previously given to the Bond
Trustee written notice of a continuing Event of Default; (b) the holders of not
less than a majority in aggregate principal amount of the Mortgage Bonds then
outstanding have made written request to the Bond Trustee to institute
proceedings in respect of such Event of Default and have offered the Bond
Trustee reasonable indemnity against cost and liabilities incurred in complying
with such request; and (c) for 60 days after receipt of such notice, the Bond
Trustee has failed to institute any such proceeding and no direction
inconsistent with such request has been given to the Trustee during such 60-day
period by the holders of a majority in aggregate principal amount of Mortgage
Bonds then outstanding. Furthermore, no holder will be entitled to institute any
such action if and to the extent that such action would disturb or prejudice the
rights of other holders. (See Section 10.11.) Notwithstanding that the right of
a holder to institute a proceeding with respect to the Mortgage is subject to
certain conditions precedent, each holder of a Mortgage Bond has the right,
which is absolute and unconditional, to receive payment of the principal of and
premium, if any, and interest, if any, on such Mortgage Bond when due and to
institute suit for the enforcement of any such payment, and such
13
rights may not be impaired without the consent of such holder. (See Section
10.12.) The Mortgage provides that the Bond Trustee will give the holders notice
of any default under the Mortgage to the extent required by the Trust Indenture
Act, unless such default shall have been cured or waived, except that no such
notice to holders of a default of the character described in paragraph (3) under
"Event of Default" may be given until at least 45 days after the occurrence
thereof. (See Section 11.02.) The Trust Indenture Act currently permits the Bond
Trustee to withhold notice of default (except for certain payment defaults) if
the Bond Trustee in good faith determines the withholding of such notice to be
in the interests of the holders.
As a condition precedent to certain actions by the Bond Trustee in the
enforcement of the lien of the Mortgage and institution of action on the
Mortgage Bonds, the Bond Trustee may require adequate indemnity against costs,
expense and liabilities to be incurred in connection therewith. (See Sections
10.11 and 11.01.)
DEFEASANCE
Any Mortgage Bond or Bonds, or any portion of the principal amount thereof,
will be deemed to have been paid for purposes of the Mortgage, and the entire
indebtedness of the Company in respect thereof will be deemed to have been
satisfied and discharged, if there has been irrevocably deposited with the Bond
Trustee, in trust: (a) money in the amount which will be sufficient, or (b)
Eligible Obligations (as described below), which do not contain provisions
permitting the redemption or other prepayment thereof at the option of the
issuer thereof, the principal of and the interest on which when due, without any
regard to reinvestment thereof, will provide monies which will be sufficient, or
(c) a combination of (a) and (b) which will be sufficient, to pay when due the
principal of and premium, if any, and interest, if any, due and to become due on
such Mortgage Bond or Bonds or portions thereof. (See Section 9.01.) For this
purpose, Eligible Obligations include direct obligations of, or obligations
unconditionally guaranteed by, the United States of America, entitled to the
benefit of the full faith and credit thereof, and certificates, depositary
receipts or other instruments which evidence a direct ownership interest in such
obligations or in any specific interest or principal payments due in respect
thereof.
While there is no legal precedent directly on point, it is possible that,
for federal income tax purposes, any deposit contemplated in the preceding
paragraph could be treated as a taxable exchange of the related Mortgage Bonds
for an issue of obligations of the trust or a direct interest in the cash and
securities held in the trust. In that case, holders of such Mortgage Bonds would
recognize gain or loss as if the trust obligations or the cash or securities
deposited, as the case may be, had actually been received by them in exchange
for their Mortgage Bonds. Such holders thereafter would be required to include
in income a share of the income, gain or loss of the trust. The amount so
required to be included in income could be different from the amount that would
be includible in the absence of such deposit. Prospective investors are urged to
consult their own tax advisors as to the specific consequences to them of such
deposit.
RESIGNATION OF THE BOND TRUSTEE
The Bond Trustee may resign at any time by giving written notice thereof to
the Company or may be removed at any time by the holders of a majority in
principal amount of Mortgage Bonds then outstanding delivered to the Trustee and
the Company. No resignation or removal of the Bond Trustee and no appointment of
a successor trustee will become effective until the acceptance of appointment by
a successor trustee in accordance with the requirements of the Mortgage. In
addition, so long as no Event of Default or event which, after notice of lapse
of time, or both, would become an Event of Default has occurred and is
continuing, under certain circumstances, if the Company has delivered to the
Bond Trustee a resolution of its Board of Directors appointing a successor
trustee and such successor has accepted such appointment in accordance with the
terms of the Mortgage, the Bond Trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as trustee in accordance with
the Mortgage. (See Section 11.10.)
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CONCERNING THE BOND TRUSTEE
The Chase Manhattan Bank, the Bond Trustee under the Mortgage, has been a
regular depositary of funds of the Company. There are instances under the Trust
Indenture Act which would require the resignation of the Bond Trustee, such as
an affiliate of the Bond Trustee acting as underwriter with respect to any of
the Mortgage Bonds.
REGISTRATION AND TRANSFER
The transfer of the Mortgage Bonds may be registered, and Mortgage Bonds may
be exchanged for other Mortgage Bonds of the same series and tranche, of
authorized denominations and of like tenor and aggregate principal amount, at
the office of The Chase Manhattan Bank, as Bond Registrar for the Mortgage
Bonds, in Brooklyn, New York. The Company may change the place for registration
of transfer of the Mortgage Bonds, may appoint one or more additional Bond
Registrars (including the Company) and may remove any Bond Registrar, all at its
discretion. (See Section 6.02.) The applicable Prospectus Supplement will
identify any new place for registration of transfer and additional Bond
Registrar appointed, and will disclose the removal of any Bond Registrar
effected, prior to the date of such Prospectus Supplement. Except as otherwise
provided in the applicable Prospectus Supplement, no service charge will be made
for any transfer or exchange of the Mortgage Bonds, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
the Mortgage Bonds. The Company will not be required to issue, and no Bond
Registrar will be required to register, the transfer of or to exchange (a)
Mortgage Bonds of any series (including the Mortgage Bonds) during a period of
15 days prior to giving any notice of redemption, or (b) any Mortgage Bond
selected for redemption in whole or in part, except the unredeemed portion of
any Mortgage Bond being redeemed in part. (See Section 3.05.)
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities may be issued, in one or more series, from time
to time under an Indenture between the Company and The Chase Manhattan Bank, as
trustee. The Subordinated Debt Securities may be issued, in one or more series,
from time to time under a Subordinated Debt Securities Indenture dated as of
August 1, 1995 (the "Subordinated Indenture"), between the Company and The Chase
Manhattan Bank (as successor to The Chase Manhattan Bank, N.A.), as trustee. The
Chase Manhattan Bank, as trustee under the indentures (the "Indenture Trustee"),
will act as indenture trustee for the purposes of the Trust Indenture Act. The
form of the Indenture relating to the Senior Debt Securities and the
Subordinated Indenture relating to the Subordinated Debt Securities (each, an
"Indenture") are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the provisions of the Indentures. Capitalized terms used under
this heading which are not otherwise defined in this Prospectus will have the
meanings given them in the applicable Indenture. References to article and
section numbers in this description of the Debt Securities unless otherwise
indicated are references to article and section numbers of each Indenture.
GENERAL
The Indentures do not limit the amount of Senior Debt Securities or
Subordinated Debt Securities that may be issued thereunder. The Indentures
provide that Senior Debt Securities or Subordinated Debt Securities, as the case
may be, may be issued from time to time in one or more series. As of June 30,
1998, no Senior Debt Securities were outstanding under the Indenture relating to
the Senior Debt Securities, and $32.5 million principal amount of Subordinated
Debt Securities were outstanding under the Subordinated Indenture. The Debt
Securities will be direct, unsecured obligations of the Company. The Senior Debt
Securities will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company,
15
and each series of Subordinated Debt Securities will be subordinate and junior
in right of payment to other indebtedness of the Company to the extent set forth
in the resolutions of the Company's Board of Directors or a special committee
thereof (each, a "Board Resolution") establishing such series of Subordinated
Debt Securities.
The Prospectus Supplement relating to the series of Debt Securities offered
thereby (the "Offered Debt Securities") will describe the following terms of the
Offered Debt Securities: (i) the title of the Offered Debt Securities; (ii) any
limit on the aggregate principal amount of the Offered Debt Securities; (iii)
the percentage of the principal amount at which the Offered Debt Securities will
be issued and, if other than the principal amount thereof, the portion of the
principal amount thereof payable upon acceleration of the maturity thereof, or
the method by which such portion will be determined; (iv) the date or dates on
which the principal of the Offered Debt Securities will be payable; (v) the
rights, if any, to defer payments of interest on the Offered Debt Securities by
extending the interest payment period, and the duration of such extensions; (vi)
in the case of Subordinated Debt Securities, the subordination terms of the
Subordinated Debt Securities of such series; (vii) the rate or rates at which
the Offered Debt Securities will bear interest, if any, or the method by which
such rate or rates will be determined, and the date or dates from which such
interest will accrue, or the method by which such date or dates will be
determined; (viii) the dates on which such interest will be payable and the
regular record dates for any interest payment dates and the basis on which
interest will be calculated; (ix) the dates, if any, on which, and the price or
prices at which the Offered Debt Securities may, pursuant to any mandatory or
optional sinking fund provisions, be redeemed by the Company and other detailed
terms and provisions of such sinking funds; (x) the date, if any, after which,
and the price or prices at which, the Offered Debt Securities may, pursuant to
any optional redemption provisions, be redeemed at the option of the Company or
of the holder thereof, and other detailed terms and provisions of such optional
redemption; (xi) the denominations in which the Offered Debt Securities will be
issuable and any provision for the Offered Debt Securities to be denominated,
and payments thereon to be made, in currencies other than the United States
dollar or in units based on or relating to such other currencies; (xii) any
deletions from, modifications of or additions to the events of default or
covenants of the Company with respect to the Offered Debt Securities, whether or
not such events of default or covenants are consistent with the events of
default or covenants set forth herein; and (xiii) any other terms of the Offered
Debt Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Offered Debt Securities will be issued in United States dollars in fully
registered form, without coupons, in denominations of $25 or any integral
multiple thereof. No service charge will be made for any transfer or exchange of
the Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless otherwise indicated in the applicable Prospectus Supplement, the
principal of, and any premium or interest on, the Offered Debt Securities will
be payable, and the Offered Debt Securities will be exchangeable and transfers
thereof will be registrable, at the office of the Indenture Trustee in New York
City; provided that, at the option of the Company, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the security register.
Debt Securities may be issued as discount securities, which may be sold at a
discount below their principal amount. These Debt Securities, as well as other
Debt Securities that are not issued at a discount below their principal amount,
may, for United States Federal income tax purposes, be deemed to have been
issued with "original issue discount" because of, among other things, certain
interest payment characteristics. Special United States Federal income tax
considerations applicable to Offered Debt Securities issued with original issue
discount, including discount securities, will be described in more detail in the
applicable Prospectus Supplement. In addition, special United States Federal
income tax considerations or other restrictions or terms applicable to any
Offered Debt Securities which are issuable in bearer form, offered exclusively
to United States aliens, denominated in a currency other than United States
dollars or having certain other characteristics will be set forth in the
Prospectus Supplement relating thereto.
16
The Indentures do not contain any provisions that may afford the holders of
Debt Securities protection in the event of a highly leveraged transaction or
other transaction involving the Company. The Indentures also do not contain any
provisions that would limit the ability of the Company to incur indebtedness or
to declare or pay dividends on its capital stock, except as described under
"Certain Covenants" below.
SUBORDINATION
Offered Debt Securities that are Subordinated Debt Securities will be
subordinated and junior in right of payment to certain other indebtedness of the
Company to the extent set forth in the applicable Prospectus Supplement. (See
Section 301.)
CERTAIN COVENANTS
If Subordinated Debt Securities are issued to a Trust in connection with the
issuance of Trust Securities by such Trust and (i) there shall have occurred any
event that would constitute an Event of Default under the Subordinated Indenture
or (ii) the Company shall be in default with respect to its payment of any
obligations under the related Guarantee, then (a) the Company may not declare or
pay dividends (other than stock dividends paid in the same class of stock as
that on which they are paid) on, or make a distribution with respect to or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock, and (b) the Company may not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank pari passu with or junior to such
Subordinated Debt Securities. The Company is subject to the same limitations if
Subordinated Debt Securities are issued to a Trust in connection with the
issuance of Trust Securities by such Trust, and the Company shall have given
notice of its election to defer payments of interest on such Subordinated Debt
Securities by extending the interest payment period as provided in the
Subordinated Indenture and such period, or any extension thereof, shall be
continuing. (See Section 1009 of the Subordinated Indenture.)
If Subordinated Debt Securities are issued to a Trust in connection with the
issuance of Trust Securities by such Trust, for so long as such Trust Securities
remain outstanding, the Company will covenant (i) to directly or indirectly
maintain 100% ownership of the Common Securities of such Trust; provided,
however, that any permitted successor of the Company under the Subordinated
Indenture may succeed to the Company's ownership of such Common Securities and
(ii) to use its reasonable efforts to cause such Trust (a) to remain a statutory
business trust, except in connection with the distribution of Subordinated Debt
Securities to the holders of Trust Securities in liquidation of such Trust, the
redemption of all of the Trust Securities of such Trust, or certain mergers or
consolidations, each as permitted by the Trust Declaration of such Trust, and
(b) to otherwise continue to be classified as a grantor trust for United States
federal income tax purposes. (See Section 1010 of the Subordinated Indenture.)
CONSOLIDATION, MERGER AND SALE
The Company may not merge or consolidate with or into any other corporation,
or sell or convey all or substantially all of its assets to any person, firm or
corporation unless (i) such corporation or person is organized and validly
existing under the laws of the United States or any state thereof and expressly
assumes the Company's obligations under the Indenture, (ii) after giving effect
to such transaction, no default or Event of Default shall have occurred and be
continuing and (iii) the Company shall have delivered to the Indenture Trustee
an officer's certificate and an opinion of counsel to the effect that such
transaction complies with the Indenture. (See Section 801.)
MODIFICATION OF INDENTURES
Without the consent of the holders of any Debt Securities, the Company and
the Indenture Trustee may modify or amend either Indenture for any of the
following purposes: (i) to evidence the succession of another person to the
Company as obligor under the Indenture; (ii) to add to the covenants of the
Company
17
for the benefit of the holders of all or any series of Debt Securities; (iii) to
add Events of Default for the benefit of the holders of all or any series of
Debt Securities; (iv) to change or eliminate any provisions of the Indenture,
provided that any such change or elimination will become effective only when
there are no outstanding Debt Securities of any series created prior thereto
that are entitled to the benefit of such provision; (v) to establish the form or
terms of Debt Securities of any series; (vi) to secure the Debt Securities;
(vii) to provide for the acceptance of appointment by a successor Indenture
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Indenture Trustee; and (viii) to close the Indenture with respect
to the authentication and delivery of additional series of Debt Securities, or
to cure any ambiguity, defect or inconsistency in the Indenture, provided such
action does not adversely affect the interest of holders of Debt Securities of
any series in any material respect. (See Section 901.)
Except as provided above, the consent of the holders of not less than a
majority in principal amount of all outstanding Senior Debt Securities or
Subordinated Debt Securities, as the case may be, of all series affected by a
proposed modification or amendment of the applicable Indenture, considered as
one class, will be required to modify or amend the applicable Indenture;
provided that no such modification or amendment may, without the consent of the
holder of each outstanding Debt Security of such series, among other things, (i)
change the stated maturity of the principal of (or premium, if any, on) or any
installment of principal of or interest on any Debt Security of such series,
(ii) reduce the principal amount or the rate of interest on or any Additional
Amounts payable in respect of, or any premium payable upon the redemption of,
any Debt Security of such series or change the redemption provisions of any Debt
Securities, (iii) change any obligation of the Company to pay Additional Amounts
in respect of any Debt Security of such series, (iv) reduce the amount of
principal of a Debt Security of such series that is a discount security and
would be due and payable upon a declaration of acceleration of the maturity
thereof, (v) adversely affect any right of repayment at the option of the holder
of any Debt Security of such series, (vi) change the place or currency of
payment of principal of, or any premium or interest on, any Debt Security of
such series, (vii) impair the right to institute suit for the enforcement of any
such payment on or after the stated maturity thereof or any redemption date or
repayment date therefor, (viii) reduce the above-stated percentage of holders of
outstanding Debt Securities of such series necessary to modify or amend the
Indenture or to consent to any waiver thereunder or reduce the requirements for
voting or quorum described below, (ix) modify the change of control provisions,
if any, or (x) modify the foregoing requirements or reduce the percentage of
outstanding Debt Securities of such series necessary to waive any past default.
(See Section 902.)
EVENTS OF DEFAULT
Each Indenture provides, with respect to any series of Debt Securities
outstanding thereunder, that any one or more of the following events that has
occurred and is continuing constitutes an "Event of Default": (i) default in the
payment of any interest upon any Debt Security of that series, or of any coupon
appertaining thereto, when the same becomes due and payable and continues for 30
days (10 days in the case of Subordinated Debt Securities issued to a Trust);
(ii) default in the payment of the principal of or any premium on any Debt
Security of that series when due, whether at maturity, upon redemption, by
declaration or otherwise; (iii) default in the deposit of any sinking fund
payment, when and as due by the terms of any Debt Securities of that series;
(iv) default in the performance or breach of any covenant or agreement of the
Company in the Indenture with respect to any Debt Security of that series,
continued for 60 days after written notice to the Company from the Indenture
Trustee or from the holders of at least 25% of the outstanding Debt Securities
of that series; (v) certain events in bankruptcy, insolvency or reorganization
of the Company; (vi) in the case of Subordinated Debt Securities issued to a
Trust, the voluntary or involuntary dissolution, winding-up or termination of
such Trust, except in connection with the distribution of Subordinated Debt
Securities to the holders of Trust Securities in liquidation of such Trust, the
redemption of all of the Trust Securities of such Trust, or certain mergers or
consolidations, each as permitted by the Trust Declaration of such Trust; and
(vii) any other Event of Default provided with respect to Debt Securities of
that series. The Company is required to file annually with the Indenture Trustee
an officer's certificate as to
18
the Company's compliance with all conditions and covenants under each Indenture.
Each Indenture provides that the Indenture Trustee may withhold notice to the
holders of Debt Securities of any default, except in the case of a default on
the payment of the principal of (or premium), if any, or interest on any Debt
Securities or the payment of any sinking fund installment with respect to such
Debt Securities, if it considers it in the interest of the holders of Debt
Securities to do so. (See Section 501.)
If an Event of Default under an Indenture, other than certain events with
respect to bankruptcy, insolvency and reorganization of the Company, occurs and
is continuing with respect to Debt Securities of a particular series, the
Indenture Trustee or the holders of not less than 25% in principal amount of
outstanding Debt Securities of that series may declare the outstanding Debt
Securities of that series due and payable immediately. If an Event of Default
with respect to certain events of bankruptcy, insolvency or reorganization of
the Company with respect to Debt Securities of a particular series occurs and is
continuing, then the principal of all the outstanding Debt Securities of that
series, and accrued and unpaid interest thereon, will automatically be due and
payable without any act on the part of the Indenture Trustee or any holder. (See
Section 502.)
Subject to the provisions relating to the duties of the Indenture Trustee,
if an Event of Default with respect to Debt Securities of a particular series
occurs and is continuing, the Indenture Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders of Debt Securities of such series, unless such
holders shall have offered to the Indenture Trustee reasonable indemnity and
security against the costs, expenses and liabilities that might be incurred by
it in compliance with such request. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in principal
amount of the outstanding Debt Securities of such series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee under the applicable Indenture, or exercising
any trust or power conferred on the Indenture Trustee with respect to the Debt
Securities of that series. The Indenture Trustee may refuse to follow directions
in conflict with law or the Indenture that may involve the Indenture Trustee in
personal liability or may be unduly prejudicial to holders not joining therein.
(See Section 512.)
The holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may, on behalf of the holders of all
the Debt Securities of such series and any related coupons, waive any past
default under the applicable Indenture with respect to such series and its
consequences, except a default (i) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration and any applicable
premium has been deposited with the Indenture Trustee) or (ii) in respect of a
covenant or provision that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security of such series affected thereby.
(See Section 513.)
DEFEASANCE
Each Indenture provides that, except as may be provided in respect of any
series of Debt Securities, the Company may elect either to (i) defease and be
discharged from any and all obligations with respect to any series of Debt
Securities (except for the obligation to pay Additional Amounts, if any, to a
holder who is not a United States person upon the occurrence of certain events
of tax, assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities,
and to hold moneys for payment in trust) ("defeasance") or (ii) be released from
its obligations with respect to any series of Debt Securities or, if provided in
the terms of such series of Debt Securities, its obligations with respect to any
other covenant, and any omission to comply with such obligations will not
constitute a default or an Event of Default with respect to such Debt Securities
("covenant defeasance"), in either case, upon the irrevocable deposit by the
Company with the Indenture Trustee (or other qualifying trustee), in trust, of
an amount, in such currency in which such Debt
19
Securities are then specified as payable at stated maturity, or Government
Obligations (as defined below), or both, applicable to such Debt Securities
(with such applicability being determined on the basis of the currency, currency
unit or composite currency in which such Debt Securities are then specified as
payable at stated maturity) which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest, if any,
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor. The Company will not have the
right to effect defeasance with respect to any series of Subordinated Debt
Securities issued to a Trust. (See Sections 1401, 1402 and 1403.)
The Company may effect defeasance or covenant defeasance only if, among
other things, the Company has delivered to the Indenture Trustee an opinion of
counsel to the effect that the holders of the affected Debt Securities will not
recognize income, gain or loss for United States Federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred. In the case of full defeasance, such opinion must refer to and
be based on a revenue ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
respective Indenture. (See Section 1404.)
"Government Obligations" means securities that are (i) direct obligations of
the government that issued the currency in which the Debt Securities of a
particular series are payable, or (ii) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the government that
issued the currency in which the Debt Securities of such series are payable, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and also includes certain depository receipts issued by a bank or trust company
as custodian with respect to any such Government Obligation or a specific
payment of interest on or principal of any such Government Obligation held by
such custodian for the account of the holder of a depository receipt. (See
Section 101.)
The Prospectus Supplement relating to the Offered Debt Securities may
further describe the provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions described above, with
respect to the Offered Debt Securities of or within a particular series and any
related coupons.
GOVERNING LAW
The Indentures are, and the Debt Securities will be, governed by the
internal laws of the State of New York. (See Section 112.)
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indentures and, after default, will
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by
either Indenture at the request of any holder of Debt Securities issued
thereunder, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities that might be incurred thereby. The Indenture
Trustee is not required to expand or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Indenture
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (See Section 601.)
REGISTRATION AND TRANSFER
The Offered Debt Securities will be issued as registered securities and
either will be in certificated form or will be represented by Global Securities
(as defined below). Registered Senior Debt Securities will be
20
issuable in denominations of $1,000 and integral multiples of $1,000, and
registered Subordinated Debt Securities will be issuable in denominations of $25
and integral multiples of $25, or in such other denominations as may be in the
terms of the Debt Securities. (See Section 302.)
Registered Debt Securities will be exchangeable for other registered Debt
Securities of the same series and of a like aggregate principal amount and tenor
of different authorized denominations. Registered Debt Securities may be
presented for registration of transfer (duly endorsed or accompanied by a
written instrument of transfer), at the corporate trust office of the Indenture
Trustee in New York City or at the office of any transfer agent designated by
the Company for such purpose with respect to any series of Debt Securities and
referred to in any Prospectus Supplement. No service charge will be made for any
transfer or exchange of Debt Securities, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. (See Section 305.)
In the event of any redemption of any series of Debt Securities, the Company
will not be required to: (i) issue, register the transfer of or exchange any
Debt Securities of that series during a period beginning at the opening of
business 15 days before any selection of Debt Securities of that series to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
Debt Securities, or portion thereof, called for redemption, except the
unredeemed portion of any Debt Security being redeemed in part; or (iii) issue,
register the transfer of or exchange any Debt Securities that have been
surrendered for repayment at the option of the holder, except the portion if
any, thereof not to be so repaid. (See Section 305.)
GLOBAL SECURITIES
The Offered Debt Securities may be issued in whole or in part in the form of
one or more Global Securities (as such term is defined below), which will be
deposited with, or on behalf of, a depositary (the "Depositary") or its nominee
identified in the applicable Prospectus Supplement. In such case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in registered form, a Global Security may not be registered for
transfer or exchange except as (i) a whole by the Depositary for such Global
Security to a nominee of such Depositary, by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary, or
by any nominee to a successor Depositary or a nominee of such successor
Depositary, and (ii) in the circumstances described in the applicable Prospectus
Supplement. The term "Global Security," when used with respect to any series of
Debt Securities, means a Debt Security that is executed by the Company and
authenticated and delivered by the Indenture Trustee to the Depositary or
pursuant to the Depositary's instruction, which will be registered in the name
of the Depositary or its nominee and which will represent, and will be
denominated in an amount equal to the aggregate principal amount of, all of the
outstanding Debt Securities of such series or any portion thereof, in either
case having the same terms, including, without limitation, the same original
issue date, date or dates on which principal is due, and interest rate or method
of determining the interest rate.
The specific terms of the depositary arrangement with respect to any Offered
Debt Securities to be represented by a Global Security will be described in the
applicable Prospectus Supplement. The Company expects that the following
provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Offered
Debt Securities that are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such Depositary or its nominee. Upon the issuance of
such Global Security, and the deposit of such Global Security with or on behalf
of the Depositary for such Global Security, the Depositary will credit on its
book-entry registration and transfer system the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have
21
accounts with such Depositary or its nominee ("participants"). The accounts to
be credited will be designated by the underwriters or agents of such Debt
Securities or, if such Debt Securities are offered and sold directly by the
Company, by the Company. Ownership of beneficial interests in such Global
Security will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Depositary or its
nominee for such Global Security. Ownership of beneficial interests in such
Global Security by persons that hold through participants will be shown on, and
the transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Unless otherwise specified in the applicable Prospectus
Supplement, owners of beneficial interests in such Global Security will not be
entitled to have Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated form and
will not be considered the holders thereof for any purposes under the applicable
Indenture. Accordingly, each person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest to exercise any rights of a Holder under the Indenture.
The Company understands that under existing industry practices, if the Company
requests any action of holders, or if an owner of a beneficial interest in such
Global Security desires to give any notice or take any action a holder is
entitled to give or take under the applicable Indenture, then the Depositary
would authorize the participants to give such notice or take such action, and
participants would authorize beneficial owners owning through such participants
to give such notice or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
MISCELLANEOUS
The Company will have the right at all times to assign any of its respective
rights or obligations under either Indenture to a direct or indirect
wholly-owned subsidiary of the Company; provided, that, in the event of any such
assignment, the Company will remain liable for all of its obligations. Subject
to the foregoing, each Indenture will be binding upon and inure to the benefit
of the parties thereto and their respective successors and assigns. Each
Indenture provides that it may not otherwise be assigned by the parties thereto.
(See Section 803.)
22
DESCRIPTION OF PREFERRED STOCK AND PREFERENCE STOCK
The Company's Restated Certificate of Incorporation, as amended (the
"Charter"), authorizes three classes of capital stock: Cumulative Preferred
Stock, par value $100 per share; Preference Stock, par value $50 per share; and
Common Stock, par value $1.75 per share. The following is a description of
certain general terms and provisions of the Preferred Stock and the Preference
Stock (collectively, the "Priority Stock"). This description does not purport to
be complete and is subject to, and qualified in its entirety by, the provisions
of the Charter and the certificate of designations relating to each series of
Priority Stock (each a "Certificate of Designations"), which will be filed as an
exhibit to or incorporated by reference in the Registration Statement of which
this Prospectus is a part at or prior to the time of issuance of such series of
Priority Stock.
GENERAL
The Charter authorizes 1,000,000 shares of Preferred Stock, par value $100
per share, and 1,000,000 shares of Preference Stock, par value $50 per share.
The Preference Stock is junior to the Preferred Stock, but senior to the Common
Stock. As of June 30, 1998, there were outstanding 26,000 shares of 4 1/2%
Series Cumulative Preferred Stock, 11,500 shares of 6 1/2% Series Cumulative
Preferred Stock, and no shares of Preference Stock.
The Priority Stock may be issued from time to time in one or more series,
without stockholder approval. Subject to limitations prescribed by law and the
Charter, the Board of Directors of the Company is authorized to determine the
voting power (if any), designation, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, for each series of Priority Stock that may be issued, and
to fix the number of shares of each such series. Thus, the Board of Directors,
without stockholder approval, could authorize the issuance of Priority Stock
with voting, conversion and other rights that could adversely affect the voting
power and other rights of holders of Common Stock or other series of Priority
Stock or that could have the effect of delaying, deferring or preventing a
change in control of the Company. See "Description of Common Stock-- Certain
Effects of Authorized but Unissued Stock."
The Prospectus Supplement relating to the particular Priority Stock offered
thereby (the "Offered Priority Stock") will describe the following terms of the
Offered Priority Stock: (i) the designation and stated value per share of the
Offered Priority Stock and the number of shares offered; (ii) the amount of
liquidation preference per share of the Offered Priority Stock; (iii) the
initial public offering price at which the Offered Priority Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates on which
dividends will be payable and the dates from which dividends will commence to
accrue, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion or exchange rights; and (vii) any additional voting, dividend,
redemption, liquidation, sinking fund and other rights, preferences, privileges,
limitations and restrictions. The Priority Stock will be, upon issuance against
full payment therefor, fully paid and nonassessable. The holders of Priority
Stock will not have any preemptive rights. The applicable Prospectus Supplement
will contain a description of certain United States Federal income tax
consequences relating to the purchase and ownership of the Offered Priority
Stock.
The Priority Stock will have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in the applicable
Prospectus Supplement.
RANK
With respect to dividend rights and rights upon the liquidation, dissolution
or winding up of the Company, each share of Preferred Stock will rank on a
parity with each other share of Preferred Stock, irrespective of series, and
will rank prior to the Common Stock and the Preference Stock and any other class
or series of capital stock of the Company hereafter authorized over which the
Preferred Stock has preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or
23
winding up of the Company. With respect to dividend rights and rights upon the
liquidation, dissolution or winding up of the Company, each share of Preference
Stock will rank on a parity with each other share of Preference Stock,
irrespective of series, and will rank junior to the Preferred Stock but prior to
the Common Stock and any other class or series of capital stock of the Company
hereafter authorized over which the Preference Stock has preference or priority
in the payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Company.
The Priority Stock will be junior to all outstanding debt of the Company.
Each series of Priority Stock will be subject to creation of preferred or
preference stock ranking senior to, on a parity with or junior to such Priority
Stock to the extent not expressly prohibited by the Company's Charter.
DIVIDEND RIGHTS
Holders of shares of the Offered Priority Stock will be entitled to receive,
when, as and if declared by the Board of Directors out of funds of the Company
legally available for payment, cash dividends, payable quarterly on the first
day of March, June, September and December in each year and at such rates per
share per annum as set forth in the applicable Prospectus Supplement. Such rate
may be fixed or variable or both. Each declared dividend will be payable to
holders of record as they appear at the close of business on the stock books of
the Company on such record dates, not more than 60 calendar days preceding the
corresponding payment dates, as are determined by the Board of Directors.
Dividends on the Priority Stock will be cumulative. No full dividend will be
declared or paid or set apart for payment on any series of Preferred Stock or
any series of Preference Stock for any dividend period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on all the
outstanding shares of Preferred Stock or Preference Stock, as applicable, for
all dividend periods terminating on or prior to the end of such dividend period.
When dividends are not paid in full as aforesaid on all shares of Preferred
Stock or Preference Stock, as the case may be, any dividend payments (including
accruals, if any) on the Preferred Stock or Preference Stock, as applicable,
will be paid to the holders of the shares of the Preferred Stock or Preference
Stock, as the case may be, ratably in proportion to the respective sums which
such holders would receive if all dividends thereon accrued to the date of
payment were declared and paid in full. Accruals of dividends will not bear
interest. So long as any shares of Preferred Stock or Preference Stock are
outstanding, no dividends, whether in cash or property, will be paid or
declared, nor will any distribution be made, on any class of stock ranking
subordinate to the Preferred Stock or Preference Stock, as the case may be, nor
will any shares of stock ranking subordinate to the Preferred Stock or
Preference Stock, as the case may be, be purchased, redeemed or otherwise
acquired for consideration by the Company or any subsidiary of the Company,
unless all dividends on the Preferred Stock or Preference Stock, as applicable,
for all past quarterly dividend periods have been paid or declared and a sum
sufficient for the payment thereof set apart. The foregoing provisions will not,
however, apply to a dividend payable solely in shares of any stock ranking
subordinate to the Preferred Stock or Preference Stock, as the case may be, or
to the acquisition of shares of any stock ranking subordinate to the Preferred
Stock or Preference Stock, as the case may be, in exchange solely for shares of
any other stock ranking subordinate to the Preferred Stock or Preference Stock,
as applicable.
LIQUIDATION RIGHTS
In the event of a liquidation, dissolution or winding up of the Company, or
any reduction in its capital resulting in any distribution of assets to the
Company's shareholders, the holders of the Offered Priority Stock will be
entitled, subject to the rights of creditors, but before any distribution or
payment to the holders of Common Stock or any other security ranking junior to
the Offered Priority Stock, to receive an amount per share determined by the
Board of Directors and set forth in the applicable Prospectus Supplement plus
accrued and unpaid dividends to the distribution or payment date (whether or not
earned or declared). No payments will be made with respect to the Preference
Stock until the full liquidation rights of the Preferred Stock have been
satisfied. In the event that the assets available for distribution with respect
to the Preferred Stock or Preference Stock, as the case may be, are not
sufficient to satisfy the full liquidation rights of all the
24
outstanding Preferred Stock or Preference Stock, as applicable, then such assets
will be distributed to the holders of such Preferred Stock or Preference Stock,
as the case may be, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled. After payment of the full amount of
the liquidation preference, the holders of Priority Stock will not be entitled
to any further participation in any distribution of assets by the Company.
Neither the consolidation, merger, or reorganization, nor the sale or transfer
of all or any part of the assets, of the Company will be deemed a liquidation,
dissolution or winding up of the Company for purposes of this provision.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Offered Priority
Stock may be redeemed by the Company, by action of the Board of Directors, at
the redemption price set forth in the applicable Prospectus Supplement, plus
accrued but unpaid dividends. From and after the date of redemption, all
dividends on the Priority Stock called for redemption will cease to accrue, and
all rights of the holders of such Priority Stock, other than the right to
receive the redemption price, shall terminate.
VOTING RIGHTS
At any time dividends in an amount equal to four quarterly dividend payments
on the Preferred Stock of any series, whether or not consecutive, are unpaid in
whole or in part, holders of the Preferred Stock will have the right to a
separate class vote to elect the smallest number of directors necessary to
constitute a majority of the Company's Board of Directors at the next annual
meeting of stockholders and thereafter until such arrearages in dividends have
been declared and paid (or declared and a sum sufficient for the payment thereof
set apart in trust for the holders entitled thereto), at which time the rights
of the holders of the Preferred Stock to elect such directors will cease and the
terms of the directors elected by the holders of the Preferred Stock will
terminate. In such event, the holders of the Common Stock, voting as a class,
are entitled to elect the remaining directors, subject to the rights of the
holders of the Preference Stock if there is a similar dividend arrearage on the
Preference Stock. While the holders of the Preferred Stock are entitled to elect
a majority of the Board of Directors, payment of dividends on the Preferred
Stock shall not be unreasonably withheld if the financial condition of the
Company permits their payment.
At any time dividends in an amount equal to four quarterly dividend payments
on the Preference Stock of any series, whether or not consecutive, are unpaid in
whole or in part, holders of the Preference Stock will have the right to a
separate class vote to elect two members of the Board of Directors at the next
annual meeting of stockholders and thereafter until such arrearages in dividends
have been declared and paid (or declared and a sum sufficient for the payment
thereof set apart in trust for the holders entitled thereto), at which time the
rights of the holders of the Preference Stock to elect such directors will cease
and the terms of such two directors will terminate.
Without the affirmative vote of the holders of two-thirds of the Preferred
Stock or two-thirds of the Preference Stock, as the case may be, then
outstanding (voting separately as a class, without respect to series), the
Company may not (i) adopt any proposed amendment to the Company's Charter which
authorizes any capital stock (which, in the case of the Preference Stock,
includes any increase in the number of authorized shares of Preferred Stock), or
any security or obligation convertible into any other capital stock, ranking
prior in any respect to the Preferred Stock or the Preference Stock, as the case
may be, (ii) change, by Charter Amendment or otherwise, the terms and provisions
of the Preferred Stock or the Preference Stock, as the case may be, so as to
affect adversely the relative rights, preferences, qualifications, limitations
or restrictions of the outstanding Preferred Stock or Preference Stock, as the
case may be, or the holders thereof, provided, that if any such amendment
affects adversely the relative rights, preferences, qualifications, limitations
or restrictions of less than all series of the Preferred Stock or less than all
series of the Preference Stock, as the case may be, at the time outstanding,
then only the affirmative vote of the holders of at least two-thirds of the
shares of each series so affected is necessary, or (iii) with respect to the
Preferred Stock, issue any shares of Preferred Stock or shares of any stock
ranking pari passu with the Preferred Stock as to dividends or liquidation
rights, or any securities convertible into shares of Preferred Stock or stock
ranking pari passu with the Preferred Stock as to dividend or liquidation rights
(otherwise than in exchange
25
for or for the purpose of effecting the redemption or other retirement of not
less than an equal number of shares of Preferred Stock or shares of any stock
ranking pari passu with the Preferred Stock as to dividend or liquidation
rights), unless the Common Stock equity (as defined in the Charter) is not less
than the aggregate par value of all shares of Preferred Stock and the aggregate
par value or stated value of all other shares of stock ranking prior to or pari
passu with the Preferred Stock as to dividends or liquidation rights, which will
be outstanding after the issue of the shares or convertible securities proposed
to be issued.
Without the affirmative vote of the holders of at least a majority of the
shares of the Preferred Stock or a majority of the shares of the Preference
Stock, as the case may be, at the time outstanding (or, if an affirmative vote
of the holders of the shares of the Preferred Stock or the Preference Stock of
each series is required by law, without the affirmative vote of holders of at
least a majority of the shares of the Preferred Stock or the Preference Stock,
as the case may be, of each series at the time outstanding), the Company may not
merge or consolidate with or into another corporation or sell, lease or exchange
all or substantially all of the assets of the Company.
The holders of Priority Stock are entitled to one vote per share on each
matter submitted for their vote, other than the election of directors, which is
subject to cumulative voting rights. In those instances when the holders of
Priority Stock are entitled to elect certain directors, each holder is entitled
to a number of votes equal to the number of shares owned by such holder
multiplied by the number of directors to be elected by the holders of the
Preferred Stock or the holders of the Preference Stock, as the case may be.
None of the foregoing voting requirements will apply if at the time
provision has been made for the redemption of the outstanding Priority Stock.
Except as described above or as required by law, the Offered Priority Stock
will not be entitled to any voting rights unless provided for in the applicable
Certificate of Designations and set forth in the applicable Prospectus
Supplement.
NO OTHER RIGHTS
The Offered Priority Stock will not have any preferences, voting powers or
relative, participating, optional or other special rights except as set forth
above or in the applicable Prospectus Supplement, the Charter and the applicable
Certificate of Designations or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and the registrar for the Offered Priority Stock will be
described in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The following is a description of certain terms of the Common Stock. This
description does not purport to be complete and is subject to, and qualified in
its entirety by, reference to the Charter.
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common Stock.
As of June 30, 1998, there were 17,842,524 shares of Common Stock outstanding
held by approximately 8,900 stockholders of record. Subject to the limitations
described below and the prior rights of the Preferred Stock and Preference
Stock, the Common Stock is entitled to dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock are entitled to one vote per share. There is no provision for cumulative
voting or preemptive rights. The holders of Preferred Stock and the holders of
26
Preference Stock are each entitled to elect a certain number of directors of the
Company in the event of a default in the payment of four quarterly dividends on
any series of such stock and have voting rights with respect to amendments of
the Charter affecting certain of their rights and in the case of certain
mergers, consolidations and dispositions of substantially all the Company's
assets. See "Description of Preferred Stock and Preference Stock." Upon any
liquidation, voluntary or involuntary, of the Company, holders of Common Stock
are entitled ratably to all the assets of the Company after payment of the
Company's liabilities and satisfaction of the liquidation preferences of the
Preferred Stock and the Preference Stock. The outstanding shares of Common Stock
are, and any shares of Common Stock offered pursuant to a Prospectus Supplement
(upon issuance against full payment therefor) will be, fully paid and
nonassessable.
The Common Stock is listed on the New York Stock Exchange. The transfer
agents and registrars for the Common Stock are Norwest Bank Minnesota, N.A. and
the Company.
LIMITATIONS ON DIVIDENDS
The Company may not declare or pay cash dividends on the Common Stock unless
full dividends on all shares of Preferred Stock and Preference Stock then
outstanding for the current and all past quarterly dividend periods have been
paid or provided for. Also, dividends on the Common Stock may not be paid unless
the Company has complied with all sinking fund requirements for those series of
Preferred Stock and Preference Stock which have such requirements.
The Company's outstanding Subordinated Debt Securities provide that the
Company may not declare or pay cash dividends on the Common Stock during any
period for which the payment of interest on such Subordinated Debt Securities is
being deferred, or if the Company is in default under the Subordinated Indenture
or the related Guarantee. Any Subordinated Debt Securities issued to a Trust in
connection with the issuance of Trust Securities by such Trust will contain
similar provisions. See "Description of Debt Securities--Certain Covenants."
RIGHTS
The Company has a Stockholder Rights Plan, which it first adopted in 1996,
pursuant to which each share of Common Stock has associated with it one Common
Stock Purchase Right ("Right"). Each Right, when exercisable, entitles the
registered holder to purchase from the Company one share of Common Stock at a
price of $50.00 per share (as adjusted for the two-for-one stock split in May
1997), subject to further adjustments. The Rights are evidenced by the Common
Stock certificates and may not be exercised or transferred separately from the
Common Stock until ten days after a person or group acquires, or announces a
tender offer which would result in its acquiring, beneficial ownership of
securities having 15% or more of the voting power of all outstanding voting
securities of the Company.
In the event that a person or group acquires 15% or more or the Company's
voting power, or if the Company merges or engages in certain self-dealing
transactions with a 15% or more stockholder, each Right will entitle the holder
(other than the 15% or more stockholder) to purchase a number of shares of
Common Stock (or, if the Company is not the surviving corporation, shares of
common stock of the surviving corporation), having a market value of two times
the exercise price of the Right.
The Rights do not have voting rights and are redeemable at the option of the
Company at a price of $.005 per Right at any time before the Rights become
exercisable. Unless earlier redeemed, the Rights will expire on December 10,
2006.
27
RESTRICTIONS ON CHANGE OF CONTROL
The Company's Charter contains certain provisions which will make it
difficult for any party to obtain control of the Company through transactions
not approved by the Board of Directors of the Company, including the following:
(i) The Board of Directors is divided into three classes, only one of
which stands for election each year for a three year term of office, thereby
requiring two successive annual elections for a party or group acquiring
control to replace a majority of the incumbent directors.
(ii) Directors may be removed from office before their terms expire only
for cause.
(iii) To authorize certain "business combinations" between the Company
and any person or entity which owns 10% or more of the outstanding Common
Stock, or an affiliate of such a person or entity, the approving vote of the
holders of at least 75% of the outstanding Common Stock must be obtained,
unless certain "fair price" and other financial and procedural conditions
are satisfied, coupled with approval of the transaction by a majority of
"Continuing Directors."
(iv) Amendment of the foregoing Charter provisions must be approved by
the holders of at least 75% of the outstanding shares of the Company's
Common Stock.
In addition, the Company is subject to the "business combination" statute of
the Delaware General Corporation Law (Section 203). In general, this statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless (i) the transaction is approved by the board of directors
prior to the date the interested stockholder obtains such status, (ii) upon
consummation of the transaction in which the interested stockholder obtains such
status, the interested stockholder beneficially owned at least 85% of the
outstanding shares of the corporation's voting stock owned by stockholders other
than (a) persons who are directors and also officers and (b) employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (iii) the "business combination" is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." "Business
combination" includes mergers, asset sales and other transactions resulting in
financial benefit to the "interested stockholder." An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) beneficially 15% or more of a corporation's voting stock.
The overall effect of the above provisions may be to render more difficult
or to discourage a merger, tender offer or proxy contest, the assumption of
control of the Company by a holder of a large block of the Company's stock or
other person, or the removal of incumbent management, even if such actions may
be beneficial to the Company's stockholders generally.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The Company's authorized but unissued shares of Common Stock, Preferred
Stock and Preference Stock may be issued without additional stockholder approval
and may be utilized for a variety of corporate purposes, including future
offerings to raise additional capital or to facilitate corporate acquisitions.
The issuance of Preferred Stock or Preference Stock could have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock or Preference Stock could decrease the amount of earnings and
assets available for distribution to the holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the Common Stock.
28
One of the effects of the existence of unissued and unreserved Common Stock,
Preferred Stock or Preference Stock may be to enable the Board to issue shares
to persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of the Company.
LIMITATION OF DIRECTOR LIABILITY
The Charter contains a provision that limits the liability of the Company's
directors for monetary damages for breach of fiduciary duty as a director to the
fullest extent permitted by the Delaware General Corporation Law. Such
limitation does not, however, affect the liability of a director (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or purchases and (iv) for any transaction
from which the director derives an improper personal benefit. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
DESCRIPTION OF THE TRUSTS' PREFERRED SECURITIES
The following is a description of certain general terms and provisions of
the Preferred Securities. This description does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the form of
Trust Declaration, which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Each Trust Declaration will be qualified as
an indenture under the Trust Indenture Act. Wilmington Trust Company will act as
Property Trustee under each Trust Declaration and as an indenture trustee for
purposes of the Trust Indenture Act.
Each Trust may issue only one series of Preferred Securities. The Prospectus
Supplement relating to the particular Preferred Securities offered thereby (the
"Offered Preferred Securities") will describe the following terms of the Offered
Preferred Securities: (i) the designation of the Offered Preferred Securities,
(ii) the number of Offered Preferred Securities, (iii) the annual distribution
rate (or method of determining such rate) for the Offered Preferred Securities
and the date or dates upon which such distributions will be payable, (iv)
whether distributions on the Offered Preferred Securities will be cumulative,
and, in the case of Preferred Securities having cumulative distribution rights,
the date or dates or method of determining the date or dates from which
distributions on such Preferred Securities will accumulate, (v) the amount or
amounts to be paid out of the assets of the applicable Trust to the holders of
the Offered Preferred Securities upon voluntary or involuntary dissolution,
winding-up or termination of such Trust, (vi) the obligation, if any, of the
applicable Trust to purchase or redeem the Offered Preferred Securities and the
price or prices at which, the period or periods within which and the terms and
conditions upon which the Offered Preferred Securities will be purchased or
redeemed, in whole or in part, pursuant to such obligation, (vii) the voting
rights, if any, of the Offered Preferred Securities in addition to those
required by law, including the number of votes per Preferred Security and any
requirement for the approval by the holders of Preferred Securities, or of
Preferred Securities issued by one or more Trusts or of both, as a condition to
specified action or amendments to the Trust Declaration of the applicable Trust,
and (viii) any other relevant rights, preferences, privileges, limitations or
restrictions of the Offered Preferred Securities consistent with the applicable
Trust Declaration or with applicable law. All Offered Preferred Securities will
be guaranteed by the
29
Company to the extent set forth below under "Description of the Guarantees."
Certain United States Federal income tax considerations applicable to any
Offered Preferred Securities will be described in the applicable Prospectus
Supplement.
In connection with the issuance of Preferred Securities, each Trust will
issue one series of Common Securities having such terms, including distribution,
redemption, voting and liquidation rights, limitations and restrictions, as
shall be set forth in the applicable Trust Declaration. The terms of the Common
Securities issued by a Trust will be substantially identical to the terms of the
Preferred Securities issued by such Trust and the Common Securities will rank
pari passu with, and payments will be made thereon pro rata with, the Preferred
Securities except that, upon an event of default under the applicable Trust
Declaration, the rights of the holders of the 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.
Except in certain limited circumstances, the Common Securities will also carry
the right to vote and to appoint, remove or replace any of the Capital Financing
Trustees of a Trust. All of the Common Securities of each Trust will be directly
or indirectly owned by the Company.
DESCRIPTION OF THE GUARANTEES
Set forth below is a description of certain terms and provisions of the
Guarantees that will be executed and delivered by the Company for the benefit of
the holders, from time to time, of Preferred Securities. The description does
not purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the form of Guarantee, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Each Guarantee
will be qualified as an indenture under the Trust Indenture Act. Wilmington
Trust Company will act as trustee under each Guarantee (the "Guarantee Trustee")
and as an indenture trustee for purposes of the Trust Indenture Act. Each
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities of the applicable Trust.
GENERAL
Pursuant to each Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full to the holders of the
Preferred Securities issued by a Trust, the Guarantee Payments (as defined
below), as and when due, regardless of any defense, right of set-off or
counterclaim which such Trust may have or assert. The following payments with
respect to Preferred Securities issued by a Trust (the "Guarantee Payments"), to
the extent not paid by such Trust, will be subject to the Guarantee (without
duplication): (i) any accumulated and unpaid distributions that are required to
be paid on such Preferred Securities, to the extent the Company has made a
payment of interest or principal on the Subordinated Debt Securities, (ii) the
redemption price, including all accumulated and unpaid distributions to the date
of redemption (the "Redemption Price"), to the extent the Company has made a
payment of interest or principal on the Subordinated Debt Securities, with
respect to any Preferred Securities called for redemption by such Trust, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
such Trust (other than in connection with the distribution of Subordinated Debt
Securities to the holders of Preferred Securities or the redemption of all of
the Preferred Securities upon the maturity or redemption of the Subordinated
Debt Securities) the lesser of (a) the aggregate of the liquidation amount and
all accumulated and unpaid distributions on such Preferred Securities to the
date of payment to the extent such Trust has funds legally available therefor
and (b) the amount of assets of such Trust remaining available for distribution
to holders of such Preferred Securities in liquidation of such Trust. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Preferred
Securities or by causing such Trust to pay such amounts to such holders.
Each Guarantee will be a full and unconditional guarantee with respect to
the Preferred Securities issued by the applicable Trust from the time of
issuance of such Preferred Securities but will not apply to any payment of
distributions due to the extent such Trust lacks funds legally available
therefor as a result of a failure by the Company to make payments of interest or
principal on the Subordinated Debt Securities. If the
30
Company does not make interest payments on the Subordinated Debt Securities
purchased by a Trust, such Trust will not pay distributions on the Preferred
Securities issued by a Trust and will not have funds legally available therefor.
See "Description of Debt Securities."
The Company and the Trusts believe that the Guarantees, taken together with
the Company's obligations under the Subordinated Indenture and the Subordinated
Debt Securities and the provisions of the Trust Declaration, are substantially
equivalent to a full and unconditional guarantee by the Company of payments due
on the Preferred Securities.
The Company has also agreed to irrevocably and unconditionally guarantee the
obligations of the Trusts with respect to the Common Securities (the "Common
Securities Guarantee") to the same extent as the Guarantees, except that, upon
an event of default under the Subordinated Indenture, holders of Preferred
Securities under the Guarantees will have priority over holders of Common
Securities under the Common Securities Guarantees with respect to distributions
and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In each Guarantee, the Company will covenant that, so long as any Preferred
Securities issued by the applicable Trust remain outstanding, if there shall
have occurred any event that would constitute an event of default under such
Guarantee or the Trust Declaration of such Trust, then (a) the Company will not
declare or pay any dividend (other than stock dividends paid in the same class
of stock as that on which they are paid) on, or make any distribution with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock and (b) the Company will not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company which rank pari passu with or
junior to such Subordinated Debt Securities.
MODIFICATION OF THE GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), each Guarantee may be amended only with the prior approval of the
holders of not less than 66 2/3% in liquidation amount of the outstanding
Preferred Securities issued by the applicable Trust. All guarantees and
agreements contained in a Guarantee will bind the successors, assignees,
receivers, trustees and representatives of the Company and will inure to the
benefit of the holders of the Preferred Securities of the applicable Trust then
outstanding.
EVENTS OF DEFAULT
An "Event of Default" under the Guarantee will occur upon the failure of the
Company to perform any of its payments or other obligations thereunder. The
holders of a majority in liquidation amount of the Preferred Securities of the
applicable Trust 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.
If the Guarantee Trustee fails to enforce such Guarantee, any holder of
Preferred Securities of the applicable Trust may, after such holder's written
request to the Guarantee Trustee to enforce the Guarantee, institute a legal
proceeding directly against the Company to enforce the Guarantee Trustee's
rights under such Guarantee without first instituting a legal proceeding against
the relevant Trust, the Guarantee Trustee or any other person or entity.
The Company will be required to provide annually to the Guarantee Trustee a
statement as to the performance by the Company of certain of its obligations
under each of the Guarantees and as to any default in such performance.
The Company is required to file annually with the Guarantee Trustee an
officer's certificate as to the Company's compliance with all conditions under
each of the Guarantees.
31
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default, undertakes to
perform only such duties as are specifically set forth in the applicable
Guarantee and, after default with respect to a Guarantee, will exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Guarantee at the
request of any holder of Preferred Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate as to the Preferred Securities issued by the
applicable Trust upon full payment of the Redemption Price of all such Preferred
Securities, upon distribution of the Subordinated Debt Securities held by the
Trust to the holders of the Preferred Securities of such Trust, or upon full
payment of the amounts payable in accordance with the applicable Trust
Declaration upon liquidation of such Trust. Each Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities issued by the applicable Trust must restore payment of
any sums paid under such Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Company and with any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock of any affiliate of the Company, and (iii) senior to the
Company's Common Stock. The terms of the Preferred Securities provide that each
holder of Preferred Securities issued by a Trust by acceptance thereof agrees to
the subordination provisions and other terms of the applicable Guarantee.
Each Guarantee will constitute a guarantee of payment and not of collection
(allowing the guaranteed party to institute a legal proceeding directly against
the Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
GOVERNING LAW
Each Guarantee will be governed by the internal laws of the State of New
York.
PLAN OF DISTRIBUTION
The Company, the Trusts (with respect to Preferred Securities) and the
Selling Stockholders (with respect to shares of Common Stock) may sell
Securities to one or more underwriters for public offering and sale by them or
may sell Securities to investors directly or through agents. Any such
underwriter or agent involved in the offer and sale of Securities will be named
in the applicable Prospectus Supplement. Any sale of Securities by the Company
to one or more underwriters may include stand-by call arrangements or other
arrangements whereby an underwriter purchases Securities directly or indirectly
from the Company in connection with a redemption of securities convertible into
Securities.
The distribution of Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, or from time
to time at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Each Prospectus
Supplement will describe the method of distribution of the offered Securities.
In connection with the sale of Securities, underwriters or agents acting on
the Company's behalf may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Securities for whom they may act as
32
agent. Underwriters may sell Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent.
Any underwriting compensation paid to underwriters or agents in connection
with the offering of Securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
applicable Prospectus Supplement. Underwriters, dealers and agents participating
in the distribution of Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of Securities may be deemed to be underwriting discounts and commissions
under the Securities. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company and the Selling Stockholders, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters acting as the Company's agents to solicit offers by
certain institutions to purchase Securities from the Company pursuant to delayed
delivery contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the amount of Securities sold pursuant to Contracts
will be not less nor more than, the respective amounts stated in such Prospectus
Supplement. Institutions with which Contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investments companies, educational and charitable institutions and other
institutions, but will in all cases be subject to the approval of the Company.
The obligations of any purchaser under any Contract will not be subject to any
conditions except that (i) the purchase by an institution of the Securities
covered by its Contract shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (ii) if the Securities are also being sold to underwriters, the
Company shall have sold to such underwriters the total principal amount of the
Securities less the principal amount thereof covered by the Contracts. The
underwriters and such other persons will not have any responsibility in respect
of the validity or performance of the Contracts.
SELLING STOCKHOLDERS
Up to 1,279,476 shares of Common Stock may be offered by or for the accounts
of the Selling Stockholders listed in the table below. The Selling Stockholders
were stockholders of Empire Energy Corporation ("Empire Energy"), which merged
with a wholly owned subsidiary of the Company in 1996. In connection with that
merger, the Company and the Selling Stockholders entered into a Warrant Issuance
and Exchange Agreement, pursuant to which the Company issued warrants to
purchase Common Stock ("Warrants") to the former stockholders of Empire Energy,
including the Selling Stockholders. The Warrants are exercisable for Common
Stock at an exercise price of $18.225 per share. Except as a result of their
ownership of the Warrants, their stock ownership of Empire Energy prior to its
acquisition by the Company and their positions with Empire Energy, none of the
Selling Stockholders or any of their affiliates, other than Kermit Clay, Charles
Jones and Link Young, has had within the past three years any material
relationship with the Company or any of its affiliates. Messrs. Clay, Jones and
Young are currently employees of Cornerstone Propane, L.P., an affiliate of the
Company.
The Selling Stockholders beneficially own an aggregate of 1,279,476 shares
of Common Stock, all of which represent shares that may be acquired upon
exercise of Warrants held by such persons.
33
The following table sets forth certain information as of June 15, 1998 with
respect to the Common Stock beneficially owned by each Selling Stockholder:
SHARES
BENEFICIALLY
NAME OWNED(1)
- --------------------------------------------------------------------------- -----------------
Bill Byrne................................................................. 39,730
Kermit Clay................................................................ 19,866
David Dean................................................................. 27,840
Luther Gill................................................................ 72,936
Charles Jones.............................................................. 50,896
Earl L. Noe................................................................ 79,896
Stephen R. Plaster Trust................................................... 593,764
Floyd J. Waterman.......................................................... 71,776
Larry A. Weis.............................................................. 73,516
Robert W. Wooldridge....................................................... 225,476
Link Young................................................................. 23,780
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(1) Issuable upon exercise of Warrants held by such person.
EXPERTS AND LEGAL OPINIONS
The financial statements and schedules included in Form 10-K and
incorporated by reference in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The legality of the Securities of the Company offered hereby will be passed
upon for the Company by Schiff Hardin & Waite, Chicago, Illinois. Certain
matters of Delaware law relating to the validity of the Preferred Securities,
the enforceability of the Trust Declarations and the creation of the Trusts will
be passed upon by Richards, Layton & Finger, PA, Wilmington, Delaware.
34