FILED PURSUANT TO
RULE 424 (b)(2)
REGISTRATION NO. 333-70640
PROSPECTUS SUPPLEMENT
(To prospectus dated November 15, 2001)
22,000,000 Equity Units
(Initially Consisting of 22,000,000 Income Equity Units)
[LOGO OF SEMPRA ENERGY]
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Sempra Energy is offering 22,000,000 Equity Units. The Equity Units
initially will consist of units referred to as Income Equity Units, each with a
stated amount of $25. Each Income Equity Unit will include a purchase contract
under which you will agree to purchase from us shares of our common stock on
May 17, 2005, and we will pay you quarterly contract adjustment payments at the
rate of 2.90% of the stated amount per year, as described in this prospectus
supplement. Each Income Equity Unit also will include $25 principal amount of
our senior notes due May 17, 2007. The notes will bear interest at a rate of
5.60% per year, which rate is expected to be reset on or after February 17,
2005. The notes will not trade separately from the Income Equity Units unless
and until a permitted substitution is made. At any time after the issuance of
the Income Equity Units, a holder may substitute U.S. Treasury securities for
the notes, in accordance with the terms described in this prospectus
supplement. An Equity Unit that consists of the purchase contract and a
substituted U.S. Treasury security is referred to as a "Growth Equity Unit."
We will endeavor to have the Income Equity Units approved for listing on the
New York Stock Exchange, or NYSE, under the symbol "SRE Pr" subject to official
notice of issuance. On April 24, 2002, the closing price reported for our
common stock on the NYSE was $25.02 per share.
Investing in the Equity Units involves risks that are described in the "Risk
Factors Associated with the Equity Units" section beginning on page S-17 of
this prospectus supplement.
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Per
Income
Equity
Unit Total
------ ------------
Public offering price(1)................................ $25.00 $550,000,000
Underwriting discount................................... $ .75 $ 16,500,000
Proceeds to Sempra Energy............................... $24.25 $533,500,000
(1) Plus accrued interest and accumulated contract adjustment payments from
April 30, 2002, if settlement occurs after that date
The underwriters also may purchase up to an additional 2,000,000 Income
Equity Units at the public offering price less the underwriting discount within
30 days of the date of this prospectus supplement, subject to certain
limitations, in order to cover overallotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the related prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The Income Equity Units will be ready for delivery in book-entry form only
through The Depository Trust Company on or about April 30, 2002.
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Joint Book-Running Managers
Merrill Lynch & Co. Salomon Smith Barney
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Goldman, Sachs & Co. Morgan Stanley
ABN AMRO Rothschild LLC A.G. Edwards & Sons, Inc. Banc One Capital Markets, Inc.
Credit Lyonnais Securities (USA) Inc. Jefferies & Company, Inc. Mizuho International plc
The Royal Bank of Scotland SG Cowen Tokyo-Mitsubishi International plc
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The date of this prospectus supplement is April 24, 2002.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus.
Neither we nor the underwriters have authorized anyone to provide you with
additional or different information. We are not making an offer of these
securities in any jurisdiction where the offer is not permitted. You should not
assume that the information contained in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
front of this prospectus supplement and you should not assume that the
information incorporated by reference is accurate as of any date other than the
date of the document incorporated by reference.
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TABLE OF CONTENTS
Prospectus Supplement
Forward-Looking Statements................................................ S-1
Summary Information....................................................... S-2
Risk Factors Associated with the Equity Units............................. S-17
Use of Proceeds........................................................... S-21
Price Range of Common Stock............................................... S-21
Capitalization............................................................ S-22
Ratio of Earnings to Combined Fixed Charges .............................. S-23
Summary Historical Condensed Consolidated Financial Information........... S-24
Accounting Treatment...................................................... S-26
Description of the Equity Units........................................... S-27
Description of the Purchase Contracts..................................... S-31
Description of the Purchase Contract Agreement and the Pledge Agreement... S-43
Description of the Notes.................................................. S-47
Certain United States Federal Income Tax Consequences..................... S-53
ERISA Considerations...................................................... S-62
Underwriting.............................................................. S-63
Legal Matters............................................................. S-66
Independent Accountants................................................... S-66
Prospectus
About This Prospectus...................................................... 1
Forward-Looking Statements................................................. 2
Where You Can Find More Information........................................ 2
Sempra Energy.............................................................. 4
Sempra Energy Global Enterprises........................................... 4
Sempra Energy Capital Trust II And Sempra Energy Capital Trust III......... 5
Use of Proceeds............................................................ 7
Ratio of Sempra Earnings to Combined Fixed Charges and Preferred Stock
Dividends ................................................................ 7
Description of Securities.................................................. 8
Description of Debt Securities............................................. 8
Description of Sempra Energy's Common Stock and Preferred Stock............ 20
Description of Warrants.................................................... 24
Description of Securities Purchase Contracts and Securities Purchase
Units..................................................................... 27
Description of Depositary Shares........................................... 28
Description of Trust Preferred Securities.................................. 31
Description of The Subordinated Debt Securities of Sempra Energy Purchased
With Proceeds of Trust Securities......................................... 42
Description of Trust Preferred Securities Guarantees....................... 54
Relationship Among Trust Preferred Securities, Preferred Securities
Guarantees and Subordinated Debt Securities Held By Each Trust............ 56
Global Securities.......................................................... 56
Experts.................................................................... 59
Validity of The Securities and The Guarantees.............................. 59
Plan of Distribution....................................................... 60
S-i
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus and the documents
they incorporate by reference contain statements that are not historical fact
and constitute "forward-looking statements." When we use words like "believes,"
"expects," "anticipates," "intends," "plans," "estimates," "may," "should" or
similar expressions, or when we discuss our strategy or plans, we are making
forward-looking statements. Forward-looking statements are not guaranties of
performance. They involve risks, uncertainties and assumptions. Our future
results may differ materially from those expressed in these forward-looking
statements. Forward-looking statements are necessarily based upon various
assumptions involving judgments with respect to the future and other risks,
including, among others:
. national, international, regional and local economic, competitive,
technological, political, legislative and regulatory conditions and
developments;
. actions by the California Public Utilities Commission, the California
State Legislature, the California Department of Water Resources and the
Federal Energy Regulatory Commission;
. capital market conditions, inflation rates, exchange rates and interest
rates;
. energy and trading markets, including the timing and extent of changes
in commodity prices;
. weather conditions;
. war and terrorist attacks;
. business, regulatory and legal decisions;
. the pace of deregulation of retail natural gas and electricity delivery;
. the timing and success of business development efforts; and
. other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
You are cautioned not to rely unduly on any forward-looking statements.
These risks and uncertainties are discussed in more detail under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the year ended December 31,
2001 and other documents on file with the Securities and Exchange Commission,
or the "SEC." You may obtain copies of these documents as described under
"Where You Can Find More Information" in the accompanying prospectus.
S-1
SUMMARY INFORMATION
The following information supplements, and should be read together with, the
information contained in the accompanying prospectus. This summary highlights
selected information from this prospectus supplement and the accompanying
prospectus to help you understand the Equity Units. You should carefully read
this prospectus supplement and the accompanying prospectus, as well as the
documents they incorporate by reference, to fully understand the terms of the
Equity Units and other considerations that are important to you in making a
decision about whether to invest in the Equity Units. Unless we state otherwise
or the context otherwise requires, references appearing in this prospectus
supplement to "we," "us" and "our" should be read to refer to Sempra Energy and
its subsidiaries.
Sempra Energy
Sempra Energy, based in San Diego, is a Fortune 500 energy services holding
company. Our family of companies provide a wide spectrum of value-added
electric and gas products and services to a diverse range of customers. Our
operations are divided between our delivery services, which are comprised of
our California utility subsidiaries, and Sempra Energy Global Enterprises, our
growth businesses, as described below.
[GRAPHIC]
As of March 31, 2002, our California utility subsidiaries, Southern
California Gas Company and San Diego Gas & Electric Company, served over 21
million consumers. Natural gas service was provided throughout Southern
California and portions of Central California through over 5.9 million active
meters as of March 31, 2002. Electric service was provided throughout San Diego
County and portions of Orange County, both in Southern California, through over
1.3 million active meters as of March 31, 2002. In 2001, Southern California
Gas Company and San Diego Gas & Electric Company collectively accounted for 61%
of our consolidated assets, 79% of our consolidated EBITDA (earnings before
interest, income taxes, depreciation and amortization) and 64% of our
consolidated net income.
S-2
Our growth business subsidiaries provide the following energy-related
products and services:
. Sempra Energy Trading is a wholesale trader of physical and financial
energy products, including natural gas, power, crude oil and associated
commodities, and a trader and wholesaler of metals, serving a broad range
of customers;
. Sempra Energy Resources acquires and develops power plants for the
competitive market and operates natural gas storage, production and
transportation assets;
. Sempra Energy International engages in energy-infrastructure projects
outside the United States and, as of March 31, 2002, has interests in
companies that provide natural gas and electricity services to over
2.6 million customers in Argentina, Chile, Mexico and Peru; and
. Sempra Energy Solutions provides energy-related products and services on
a retail basis, including energy efficiency engineering services, to
various markets.
Our strategic direction can be summarized as follows:
. Focus California utilities on the efficient delivery of energy;
. Develop and operate energy infrastructure in the Southwest United States
and Northern Mexico;
. Expand trading business while maintaining a strong risk management
culture; and
. Maintain strong investment grade credit ratings and liquidity.
Our principal executive offices are located at 101 Ash Street, San Diego,
California 92101 and our telephone number is (619) 696-2034.
S-3
Recent Developments
Recently Announced Results of Operations for First Quarter of Fiscal 2002
On April 23, 2002, we reported unaudited earnings for the quarter ended
March 31, 2002 of $146 million, or $0.71 per diluted share. Our unaudited
earnings for the quarter ended March 31, 2001 were $178 million, or $0.88 per
diluted share, which included a one-time gain of $0.10 per diluted share for
the sale of our interest in Energy America, a retail energy marketing firm.
California Department of Water Resources Contract Dispute
Sempra Energy Resources ("SER") has an agreement with the California
Department of Water Resources ("CDWR") to supply the CDWR with up to 1,900
megawatts of electricity over a ten-year period ending in September 2011. As
previously reported, the California Public Utilities Commission and the
California Electricity Oversight Board have filed complaints with the Federal
Energy Regulatory Commission ("FERC") alleging that the agreement, as well as
other agreements entered into by the CDWR with other electricity suppliers, do
not provide just and reasonable rates, and seeking to abrogate or reform the
agreements. On April 24, 2002, the FERC ordered hearings on the complaints. The
order requires the complainants to satisfy a "heavy" burden of proof to support
a revision of the contracts, and cited the FERC's long-standing policy to
recognize the sanctity of contracts from which it has deviated only in "extreme
circumstances." A date for the hearing has not been set pending the completion
of settlement judge proceedings but the FERC order announced that it expects to
issue a final decision by May 2003.
In addition, the CDWR has recently asserted that SER has materially
defaulted in its obligations under the agreement by failing to use commercially
reasonable efforts to achieve simple cycle operation at SER's Elk Hills power
project. SER is continuing to construct the Elk Hills project for combined
cycle operations as well as other power projects sufficient to provide the
electricity to be delivered under the agreement. However, we believe that the
agreement permits SER to fulfill its delivery obligations through market
sources rather than SER owned or operated power plants and, accordingly, that
the CDWR assertions are without merit.
Argentina
Sempra Energy International has a $350 million investment in Argentina
through its ownership of approximately 40% of two natural gas operating
utilities. As a result of the continuing decline in the value of the Argentine
peso, we recorded a $94 million currency adjustment reduction to shareholders'
equity for these investments during the first quarter of 2002. A similar $155
million reduction in shareholders' equity was recorded during the fourth
quarter of 2001. These non-cash adjustments did not affect net income, but did
reduce comprehensive income and increase accumulated other comprehensive loss.
The related Argentine economic decline and government responses (including
Argentina's recent unilateral, retroactive abrogation of utility agreements)
are continuing to adversely affect the operations of our two Argentine
utilities. We have notified the Argentine government that we intend to file
under the 1994 Bilateral Investment Treaty between the United States and
Argentina for recovery of the diminution of the value of our investments
resulting from the government actions. If it were to become probable that we
would not recover at least the difference between our pre-currency-adjustment
carrying value of these investments over their diminished value, we would at
that time record a charge against net income equal to the shortfall. However,
the effect on shareholders' equity of any such charge would be reduced or
eliminated to the extent of previously recorded currency adjustments relating
to our Argentine investments.
S-4
Credit Rating Changes
In April 2002, Fitch, Inc. confirmed its prior ratings of Sempra Energy's
senior unsecured debt at A with a stable outlook as well as confirming its
prior ratings of Sempra Energy's other debt and that of its subsidiaries;
Standard & Poor's reduced its ratings of Sempra Energy's senior unsecured debt
from A with a negative outlook to A- with a stable outlook, and made
corresponding adjustments in the ratings and outlook of Sempra Energy's other
debt and that of its subsidiaries; and Moody's Investors Service, Inc., which
currently rates Sempra Energy's senior unsecured debt at A-2 with a negative
outlook, confirmed its prior ratings of the debt of Southern California Gas
Company and the short-term debt and variable rate demand bonds of San Diego Gas
& Electric Company, but placed its ratings of the debt of Sempra Energy and the
other debt of Sempra Energy's subsidiaries under review for possible downgrade.
CPUC Investigation
As previously disclosed, the California Public Utilities Commission ("CPUC")
has initiated an investigation into the relationship between California's
investor owned utilities and their parent holding companies. Among the matters
to be considered in the investigation are utility dividend policies and
practices and obligations of the holding companies to provide financial support
for utility operations under the agreements with the CPUC permitting the
formation of the holding companies. On January 11, 2002, the CPUC issued a
decision to clarify under what circumstances, if any, a holding company would
be required to provide financial support to its utility subsidiaries. The CPUC
broadly determined that it would require the holding company to provide cash to
a utility subsidiary to cover its operating expenses and working capital to the
extent they are not adequately funded through retail rates. This would be in
addition to the requirement of holding companies to cover their utility
subsidiaries' capital requirements, as the utilities had previously
acknowledged in connection with the holding companies' formations. On January
14, 2002, the CPUC ruled on jurisdictional issues, deciding that the CPUC had
jurisdiction to create the holding company system and, therefore, retains
jurisdiction to enforce conditions to which the holding companies had agreed.
We have requested a rehearing on the issues and are unable to predict the
outcome of that request or any possible rehearing, or what effects the CPUC's
investigation, the CPUC's asserted jurisdiction over holding companies or other
actions by the CPUC may have on us or our securities, including the Equity
Units.
Acquisitions
On February 4, 2002, Sempra Energy Trading announced that it had completed
its acquisition of Enron Metals Limited, a metals trader on the London Metals
Exchange, for approximately $145 million in cash. The company has been renamed
Sempra Metals Limited.
On March 18, 2002, Sempra Energy Trading announced an agreement to buy
Enron's New York-based metals-concentrates trading business for $43.5 million
in cash. The purchase is subject to approval by the U.S. Bankruptcy Court. On
April 2, 2002, Sempra Energy Trading announced an agreement to buy Henry Bath
Ltd., Enron's U.K.-based metals-storage business, for $24 million.
We believe these acquisitions will enable us to leverage our existing
trading skills to different commodities and help to mitigate volatility by
diversifying our trading portfolio.
S-5
THE OFFERING
What are Equity Units?
The Equity Units consist of units referred to as Income Equity Units and
Growth Equity Units. The Equity Units offered will initially consist of
22,000,000 Income Equity Units (24,000,000 Income Equity Units if the
underwriters exercise their overallotment option in full), each with a stated
amount of $25. From each Income Equity Unit, the holder may create a Growth
Equity Unit, as described below.
What are the components of Income Equity Units?
Each Income Equity Unit will consist of a purchase contract and, initially,
$25 principal amount of our 5.60% senior notes due May 17, 2007. You will own
the note that is a component of each Income Equity Unit, but it will be pledged
to us to secure your obligations under the purchase contract. If the notes are
successfully remarketed or a tax event redemption occurs, in each case as
described in this prospectus supplement, your applicable ownership interest in
the Treasury portfolio will replace your note as a component of each Income
Equity Unit and will be pledged to us to secure your obligations under the
purchase contract.
What is a purchase contract?
Each purchase contract underlying an Equity Unit obligates the holder of the
purchase contract to purchase, and obligates us to sell, on May 17, 2005, for
$25, a number of shares of our common stock equal to the "settlement rate." The
settlement rate will be calculated, subject to adjustment as described under
"Description of the Purchase Contracts--Anti-Dilution Adjustments," as follows:
. if the applicable market value of our common stock is equal to or
greater than the threshold appreciation price of $30.5244, the
settlement rate will be 0.8190;
. if the applicable market value of our common stock is less than the
threshold appreciation price but greater than the reference price, the
settlement rate will be equal to the stated amount divided by the
applicable market value; and
. if the applicable market value of our common stock is less than or equal
to the reference price, the settlement rate will be 0.9992.
"Applicable market value" means the average of the closing prices per share
of our common stock for the 20 consecutive trading days ending on the third
trading day immediately preceding May 17, 2005. The "reference price" is
$25.02, which is the closing price reported for our common stock on the NYSE on
April 24, 2002.
Can I settle the purchase contract early?
Each holder has a right to settle a purchase contract at any time using
cash, in which case 0.8190 shares of common stock will be issued pursuant to
the purchase contract. In addition, if we are involved in a merger in which at
least 30% of the consideration for our common stock consists of cash or cash
equivalents, then each holder of a purchase contract will have the right to
accelerate and settle the purchase contract at the settlement rate in effect
immediately before the merger.
Your early settlement right is subject to the condition that, if required
under the U.S. federal securities laws, we have a registration statement under
the Securities Act of 1933 in effect covering any securities deliverable upon
settlement of a purchase contract.
S-6
What are the components of Growth Equity Units?
Each Growth Equity Unit will consist of a purchase contract and a 2.5%
undivided beneficial ownership interest in a U.S. Treasury security. You will
own the ownership interest in a U.S. Treasury security that is a component of
each Growth Equity Unit, but it will be pledged to us to secure your
obligations under the purchase contract. The U.S. Treasury security is a zero-
coupon U.S. Treasury security (consisting of a principal strip) with a
principal amount at maturity of $1,000 that matures on May 16, 2005.
How can I create Growth Equity Units from Income Equity Units?
Unless the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as a result of a successful remarketing of the notes or as
a result of a tax event redemption, as described in this prospectus supplement,
each holder of Income Equity Units will have the right, on or at any time prior
to the fifth business day immediately preceding May 17, 2005, to substitute for
the related notes, zero-coupon U.S. Treasury securities (CUSIP No. 912803AD5)
(consisting of principal strips) that mature on May 16, 2005 in a total
principal amount at maturity equal to the aggregate principal amount of the
notes for which substitution is being made. This substitution will create a
Growth Equity Unit, at which point the applicable notes will be released to the
holder and be separately transferable from the Growth Equity Units. Because
U.S. Treasury securities are issued in multiples of $1,000, holders of Income
Equity Units may make such substitution only in integral multiples of 40 Income
Equity Units. However, if the Treasury portfolio has replaced the notes as a
component of the Income Equity Units as a result of a successful remarketing of
the notes or a tax event redemption, holders of Income Equity Units may make
substitutions only in multiples of 20,000 Income Equity Units, on or at any
time prior to the second business day immediately preceding May 17, 2005.
Following this substitution, the appropriate applicable ownership interest in
the Treasury portfolio would be released to the holder.
How can I recreate Income Equity Units from Growth Equity Units?
Unless the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as a result of a successful remarketing of the notes or a
tax event redemption, each holder of Growth Equity Units will have the right,
on or at any time prior to the fifth business day immediately preceding May 17,
2005, to substitute notes for the related U.S. Treasury securities held by the
collateral agent in an aggregate principal amount of such notes equal to the
aggregate principal amount at maturity of the U.S. Treasury securities. This
substitution will create an Income Equity Unit, at which point the applicable
U.S. Treasury securities will be released to the holder and be separately
transferable from the Income Equity Units. Because U.S. Treasury securities are
issued in integral multiples of $1,000, holders of Growth Equity Units may make
such substitution only in integral multiples of 40 Growth Equity Units.
However, if the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as a result of a successful remarketing of the notes or a
tax event redemption, holders of Growth Equity Units may substitute for the
U.S. Treasury securities the applicable ownership interest in the Treasury
portfolio only in integral multiples of 20,000 Growth Equity Units, on or at
any time prior to the second business day immediately preceding May 17, 2005.
What payments am I entitled to as a holder of Income Equity Units?
Subject to our right to defer contract adjustment payments described below,
each holder of Income Equity Units will be entitled to receive total cash
payments at a rate of 8.50% of the stated amount per year, payable quarterly in
arrears. These cash payments will consist of interest on the related notes or
distributions on the applicable ownership interest of the Treasury portfolio,
at the rate of 5.60% of the stated amount per year, and distributions of
contract adjustment payments at the rate of 2.90% of the stated amount per
year. In addition, original issue discount for United States federal income tax
purposes will accrue on each related note.
S-7
What payments am I entitled to as a holder of Growth Equity Units?
Subject to our right to defer contract adjustment payments described below,
each holder of Growth Equity Units will be entitled to receive quarterly
contract adjustment payments payable by us at the rate of 2.90% of the stated
amount per year.
Do you have the option to defer current payments?
We have the right to defer the payment of contract adjustment payments until
May 17, 2005. Such deferred contract adjustment payments would accrue
additional contract adjustment payments at the rate of 8.50% per year (equal to
the initial interest rate on the notes plus the rate of contract adjustment
payments on the purchase contracts) until paid, compounded quarterly up to but
excluding May 17, 2005. We are not entitled to defer payments of interest on
the notes. In the event we exercise our option to defer the payment of contract
adjustment payments, then until the deferred contract adjustment payments have
been paid, we will not, and will not permit any subsidiary of ours to, with
certain exceptions, declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of our capital stock. We have no present intention of
exercising our right to defer the payment of the contract adjustment payments.
Our obligations with respect to contract adjustment payments will be
subordinate and junior in right of payment to our obligations under any of our
senior debt.
What are the payment dates for the Equity Units?
The payments described above in respect of the Income Equity Units and
Growth Equity Units will be payable quarterly in arrears on February 17, May
17, August 17 and November 17 of each year, commencing August 17, 2002.
Contract adjustment payments are payable until the earlier of May 17, 2005 and
the most recent quarterly payment date on or before any early settlement of the
related purchase contracts and are subject to the deferral provisions described
in this prospectus supplement. Interest payments on the notes are described
below under the questions and answers beginning with "What interest payments
will I receive on the notes?"
What is remarketing?
The notes of holders of Income Equity Units will be remarketed on the third
business day immediately preceding February 17, 2005. The remarketing agent
will use its reasonable efforts to remarket the notes on such date (bearing the
reset rate discussed below) for settlement on February 17, 2005 and to obtain a
price of approximately 100.5% of the Treasury portfolio purchase price.
If the remarketing of the notes on the third business day preceding February
17, 2005 fails because the remarketing agent cannot obtain a price of at least
100% of the Treasury portfolio purchase price or a condition precedent to the
remarketing has not been satisfied, in either case resulting in a failed
remarketing, the notes will continue to be a component of Income Equity Units
and the remarketing agent will use its reasonable efforts to remarket the notes
(bearing the reset rate discussed below) on the third business day preceding
April 17, 2005 for settlement on April 17, 2005 and to obtain a price of
approximately 100.5% of the Treasury portfolio purchase price.
In the event of a successful remarketing on either the third business day
preceding February 17, 2005 or the third business day preceding April 17, 2005,
the portion of the proceeds from the remarketing equal to the Treasury
portfolio purchase price will be applied to purchase the Treasury portfolio.
The applicable ownership interest in the Treasury portfolio will be substituted
for the notes and will be pledged to the collateral agent to secure the
obligations of Income Equity Units holders to purchase our common stock under
the purchase contracts. When paid at maturity, an amount of the Treasury
portfolio equal to the principal amount of the notes will automatically be
applied to satisfy in full the Income Equity Units holders' obligations to
purchase common stock under the purchase contracts.
S-8
In addition, in connection with either of these remarketings, the
remarketing agent may deduct as a remarketing fee an amount not exceeding 25
basis points (0.25%) of the Treasury portfolio purchase price from any amount
of the proceeds in excess of the Treasury portfolio purchase price. The
remarketing agent will remit the remaining portion, if any, of the proceeds
from the remarketing for the benefit of the holders.
If the remarketing of the notes on the third business day preceding February
17, 2005 and the remarketing of the notes on the third business day preceding
April 17, 2005 both fail because, in each case, the remarketing agent cannot
obtain a price of at least 100% of the Treasury portfolio purchase price or a
condition precedent to the applicable remarketing has not been satisfied, the
notes will continue to be a component of Income Equity Units and another
remarketing will be attempted on the third business day immediately preceding
May 17, 2005 for settlement on May 17, 2005.
If the remarketings on the third business day preceding February 17, 2005
and the third business day preceding April 17, 2005 both fail, the notes of
holders of Income Equity Units who fail to notify U.S. Bank Trust National
Association, who is the purchase contract agent for the holders of the Equity
Units, on or before the fifth business day before May 17, 2005 of their
intention to pay cash in order to satisfy their obligations under the related
purchase contracts will be remarketed on the third business day immediately
preceding May 17, 2005. In this remarketing, the remarketing agent will use its
reasonable efforts to obtain a price of approximately 100.5% of the aggregate
principal amount of such notes. The portion of the proceeds from the
remarketing equal to the total principal amount of the notes will automatically
be applied to satisfy in full the obligations of the Income Equity Unit holders
to purchase our common stock under the related purchase contracts.
In connection with a remarketing on the third business day prior to May 17,
2005, the remarketing agent may deduct as a remarketing fee an amount not
exceeding 25 basis points (0.25%) of the aggregate principal amount of the
remarketed notes from any amount of the proceeds in excess of the aggregate
principal amount of the remarketed notes. The remarketing agent will remit the
remaining portion, if any, of the proceeds from the remarketing for the benefit
of the holders.
If the remarketing of the notes on the third business day preceding May 17,
2005 fails because the remarketing agent cannot obtain a price of at least 100%
of the total principal amount of the remarketed notes or a condition precedent
to the remarketing has not been satisfied, we will exercise our rights as a
secured party to dispose of the notes in accordance with applicable law and to
satisfy in full, from the proceeds of the disposition, the Income Equity Units
holders' obligations to purchase common stock under the related purchase
contracts.
What is the Treasury portfolio?
The Treasury portfolio is a portfolio of zero-coupon U.S. Treasury
securities consisting of:
. interest or principal strips of U.S. Treasury securities that mature on
or prior to May 16, 2005 in an aggregate amount equal to the principal
amount of the notes included in the Income Equity Units; and
. with respect to the scheduled interest payment date on the notes that
occurs on May 17, 2005, in the case of a successful remarketing of the
notes, or in the case of a tax event redemption, with respect to each
scheduled interest payment date on the notes that occurs after the tax
event redemption date and on or before May 17, 2005, interest or
principal strips of U.S. Treasury securities that mature prior to that
interest payment date in an aggregate amount equal to the aggregate
interest payment that would be due on that interest payment date on the
principal amount of the notes included in the Income Equity Units
assuming no reset of the interest rate on the notes.
S-9
If I am holding a note as a separated security, can I participate in the
remarketing?
Holders of the notes that are not components of Income Equity Units may
elect, in the manner described in this prospectus supplement, to have their
notes remarketed by the remarketing agent.
Besides participating in a remarketing, how else may I satisfy my obligations
under the purchase contracts?
Holders of Equity Units may satisfy their obligations, or their obligations
will be terminated, under the purchase contracts:
. through early settlement by the early delivery of cash to the purchase
contract agent in the manner described in this prospectus supplement;
provided that at such time, if so required under the U.S. federal
securities laws, there is in effect a registration statement covering
the common shares to be delivered in respect of the purchase contracts
being settled;
. if we are involved in a merger in which at least 30% of the
consideration for our common stock consists of cash, through early
settlement by the early delivery of cash to the purchase contract agent
in the manner described in this prospectus supplement; provided that at
such time, if so required under the U.S. federal securities laws, there
is in effect a registration statement covering any securities to be
delivered in respect of the purchase contracts being settled;
. by settling the related purchase contracts with cash on the business day
prior to May 17, 2005 pursuant to prior notification to the purchase
contract agent; or
. without any further action, upon the termination of the purchase
contracts as a result of our bankruptcy, insolvency or reorganization.
If an Equity Unit holder's purchase contract is terminated as a result of
our bankruptcy, insolvency or reorganization, or settled early at the election
of the holder, as described above, such holder will have no right to receive
any accrued contract adjustment payments or deferred contract adjustment
payments.
What interest payments will I receive on the notes?
Interest payments on the notes will be payable initially at the annual rate
of 5.60% of the principal amount of $25 per note to, but excluding, February
17, 2005, April 17, 2005, if the interest rate is not reset three business days
prior to February 17, 2005, or May 17, 2005, if the interest rate is not reset
three business days prior to either February 17, 2005 or April 17, 2005.
Following a reset of the interest rate three business days prior to February
17, 2005, three days prior to April 17, 2005 or three business days prior to
May 17, 2005, the notes will bear interest from February 17, 2005, April 17,
2005 or May 17, 2005, as applicable, at the reset rate to, but excluding, May
17, 2007. If the interest rate is not reset as a result of a failed remarketing
three business days prior to May 17, 2005, the notes will continue to bear
interest at the initial interest rate. The original issue discount rules that
apply to contingent payment debt instruments should govern the income
inclusions with respect to the notes for United States federal income tax
purposes.
What are the payment dates on the notes?
Interest payments will be payable quarterly in arrears on each February 17,
May 17, August 17 and November 17, commencing August 17, 2002.
S-10
When will the interest rate on the notes be reset?
Unless a tax event redemption has occurred, the interest rate on the notes
will be reset on the third business day immediately preceding February 17,
2005, and such reset rate will become effective on February 17, 2005. If the
remarketing of the notes on the third business day immediately preceding
February 17, 2005 results in a failed remarketing, the interest rate will not
be reset on that date and instead will be reset on the third business day
immediately preceding April 17, 2005, and such reset rate will become effective
on April 17, 2005. If the remarketing of the notes on the third business day
immediately preceding April 17, 2005 also results in a failed remarketing, the
interest rate will not be reset on that date and instead will be reset on the
third business day immediately preceding May 17, 2005, and such reset rate will
become effective on May 17, 2005. If the remarketing of the notes on the third
business day immediately preceding May 17, 2005 also results in a failed
remarketing, the interest rate will not be reset.
What is the reset rate?
In the case of a reset on the third business day immediately preceding
February 17, 2005 or on the third business day immediately preceding April 17,
2005, the reset rate will be the rate determined by the reset agent as the rate
the notes should bear in order for the notes included in the Income Equity
Units to have an approximate aggregate market value on the reset date of 100.5%
of the Treasury portfolio purchase price. In the case of a reset on the third
business day immediately preceding May 17, 2005, the reset rate will be the
rate determined by the reset agent as the rate the notes should bear in order
for each note to have an approximate market value of 100.5% of the principal
amount of the note. The reset rate may not exceed the maximum rate, if any,
permitted by applicable law.
When may the notes be redeemed?
The notes are redeemable at our option, in whole but not in part, upon the
occurrence and continuation of a tax event under the circumstances described in
this prospectus supplement. Following any such redemption of the notes, which
we refer to as a tax event redemption, prior to May 17, 2005, investors that
own Income Equity Units will own the applicable ownership interest of the
Treasury portfolio as a component of their Income Equity Units.
What is the rank of the notes?
The notes will rank equally with all of our other senior unsecured debt. The
indenture does not limit the amount of debt that we or any of our subsidiaries
may incur. Because we are a holding company and we conduct all of our
operations through subsidiaries, the notes will be structurally subordinated to
the claims of creditors and preferred shareholders of our subsidiaries.
What are the principal United States federal income tax consequences related to
the Income Equity Units, Growth Equity Units and notes?
A beneficial owner of Income Equity Units or notes, if separated from Income
Equity Units, will be treated as owning an interest in a debt instrument that
should be subject to the Treasury regulations that govern contingent payment
debt instruments. If the notes are subject to these rules, until February 17,
2005, and possibly thereafter, a holder will be required to include in gross
income an amount in excess of the interest actually received, regardless of the
holder's usual method of tax accounting, and a holder will generally recognize
ordinary income or loss, rather than capital gain or loss, on the sale,
exchange or disposition of separate notes or Income Equity Units, to the extent
such income or loss is allocable to the notes. A beneficial owner of Growth
Equity Units will generally be required to include in gross income any original
issue discount with respect to the U.S. Treasury securities as it accrues on a
constant yield to maturity basis. If the Treasury
S-11
portfolio has replaced the notes as a component of Income Equity Units as a
result of a successful remarketing of the notes or a tax event redemption, a
beneficial owner of Income Equity Units will generally be required to include
in gross income its allocable share of original issue discount on the Treasury
portfolio as it accrues on a constant yield to maturity basis. We intend to
report contract adjustment payments and deferred contract adjustment payments,
if any, as income to you, but you should consult your tax advisor concerning
possible alternative characterizations. We have no present intention of
exercising our right to defer the payment of the contract adjustment payments.
What will the proceeds from the offering be used for?
We expect to use the net proceeds from the sale of the Income Equity Units,
estimated to be $532.5 million ($581.0 million if the underwriters' over-
allotment option is exercised in full) after deducting the underwriting
commissions and estimated expenses, to repay a portion of our short-term debt,
including short-term debt used to finance our capital expenditure program for
Sempra Energy Global Enterprises.
What are the rights and privileges of the common stock?
The shares of common stock that you will be obligated to purchase under the
purchase contracts have one vote per share. For more information, please see
the discussion of our common stock in this prospectus supplement under the
heading "Risk Factors Associated with the Equity Units," and in the
accompanying prospectus under the heading "Description of Sempra Energy's
Common Stock and Preferred Stock."
S-12
THE OFFERING--EXPLANATORY DIAGRAMS
The following diagrams demonstrate some of the key features of the purchase
contracts, the notes, the Income Equity Units and the Growth Equity Units, and
the transformation of Income Equity Units into Growth Equity Units and separate
notes. The hypothetical prices and percentages below are for illustration only.
There can be no assurance that the actual prices and percentages will be
limited by the range of hypothetical prices and percentages shown. The
following diagrams assume that the notes are successfully remarketed, and the
interest rate on the notes is reset, on the third business day immediately
preceding February 17, 2005, early settlement does not occur and we do not
defer payment of the contract adjustment payments.
Purchase Contract
Income Equity Units and Growth Equity Units include a purchase contract
under which the investor agrees to purchase shares of our common stock on May
17, 2005. In addition, these purchase contracts include unsecured contract
adjustment payments as shown in the diagrams on the following pages.
[GRAPHIC]
--------
(1) If the applicable market value of our common stock is less than or equal
to $25.02, the number of shares to be delivered will be calculated by
dividing the stated amount by the reference price.
(2) If the applicable market value of our common stock is between $25.02 and
$30.5244, the number of shares to be delivered will be calculated by
dividing the stated amount by the applicable market value.
(3) If the applicable market value of our common stock is greater than or
equal to $30.5244, the number of shares to be delivered will be calculated
by dividing the stated amount by the threshold appreciation price.
(4) The "reference price" is $25.02, which is the closing price reported for
our common stock on the NYSE on April 24, 2002.
(5) The "threshold appreciation price" is $30.5244.
(6) The "applicable market value" means the average of the closing prices per
share of our common stock for the 20 consecutive trading days ending on
the third trading day immediately preceding May 17, 2005.
S-13
Income Equity Units
Each Income Equity Unit consists of two components as described below.
[GRAPHIC]
. The investor owns the note but will pledge the note to us to secure the
investor's obligations under the purchase contract.
. Following the remarketing of the notes or a tax event redemption prior to
May 17, 2005, the applicable ownership interest in the Treasury portfolio
will replace the note as a component of the Income Equity Units.
S-14
Growth Equity Units
Each Growth Equity Unit consists of two components as described below:
[GRAPHIC]
. The investor owns the U.S. Treasury security but will pledge it to us to
secure the investor's obligations under the purchase contract.
Notes
Each Note has the terms described below:
[GRAPHIC]
S-15
Transforming Income Equity Units into Growth Equity Units and Notes
. To create a Growth Equity Unit, the investor separates an Income Equity
Unit into its components--the purchase contract and the note--and then
combines the purchase contract with an ownership interest in a zero-
coupon U.S. Treasury security (consisting of a principal strip) that
matures the business day immediately preceding the maturity date of the
purchase contract.
. The investor holds the ownership interest in the U.S. Treasury security
but will pledge it to us to secure its obligations under the purchase
contract.
. The U.S. Treasury security together with the purchase contract
constitutes a Growth Equity Unit. The note, which is no longer a
component of the Income Equity Unit, is tradable as a separate security.
[GRAPHIC]
. Upon the transformation of an Income Equity Unit into a Growth Equity
Unit following a successful remarketing of the notes or a tax event
redemption, the applicable ownership interest in the Treasury portfolio,
rather than the note, is no longer a component of the Income Equity Unit
and each item in the Treasury portfolio is tradable as a separate
security.
. The investor also can transform Growth Equity Units and notes into Income
Equity Units. Following that transformation, the U.S. Treasury security,
which is no longer a component of the Growth Equity Unit, is tradable as
a separate security.
. The transformation of Income Equity Units into Growth Equity Units and
notes and the transformation of Growth Equity Units and notes into Income
Equity Units requires certain minimum amounts of securities, as more
fully described in this prospectus supplement.
S-16
RISK FACTORS ASSOCIATED WITH THE EQUITY UNITS
Your investment in the Equity Units will involve risk. You should carefully
consider the following discussion of risk as well as other information
contained and incorporated by reference into this prospectus supplement and the
accompanying prospectus in order to evaluate an investment in the Equity Units.
You assume the risk that the market value of our common stock may decline.
Although as a holder of Equity Units you will be the beneficial owner of the
related notes, Treasury portfolio or U.S. Treasury securities, as the case may
be, you have an obligation pursuant to the purchase contract to buy our common
stock. Unless you pay cash to satisfy your obligation under the purchase
contract or the purchase contract is terminated prior to the settlement date
due to our bankruptcy, insolvency or reorganization, either the principal of
the appropriate applicable ownership interest of the Treasury portfolio when
paid at maturity or the proceeds derived from the remarketing of the notes, in
the case of Income Equity Units, or the principal of the related U.S. Treasury
securities when paid at maturity, in the case of Growth Equity Units, will
automatically be used to purchase a specified number of shares of our common
stock on your behalf. The market value of the common stock that you receive on
May 17, 2005 may not equal or exceed the effective price per share of $25.02
paid by you for our common stock when you purchased your Equity Units. If the
applicable market value of the common stock is less than $25.02, the aggregate
market value of the common stock issued to you pursuant to each purchase
contract on May 17, 2005 will be less than the effective price per share paid
by you for the common stock when you purchased your Equity Units. Accordingly,
you assume the risk that the market value of the common stock may decline, and
that the decline could be substantial.
The opportunity for equity appreciation provided by an investment in the Equity
Units will be less than that provided by a direct investment in our common
stock.
Your opportunity for equity appreciation afforded by investing in the Equity
Units will be less than your opportunity for equity appreciation if you
directly invest in our common stock. This opportunity will be less because the
market value of the common stock to be received by you pursuant to the purchase
contract on May 17, 2005 (assuming that such market value is the same as the
applicable market value of such common stock) will only exceed the price per
share paid by you for our common stock on the purchase contract settlement date
if the applicable market value of the common stock exceeds the threshold
appreciation price (which represents an appreciation of approximately 22.0%
over $25.02). This situation occurs because in such event, you would receive on
May 17, 2005 only approximately 82.0% (the percentage equal to $25.02 divided
by the threshold appreciation price) of the shares of common stock that you
would have received if you had made a direct investment in the common stock on
the date hereof.
The trading price of the Equity Units will be directly affected by the trading
price of our common stock, the general level of interest rates and our credit
quality.
The trading price of Income Equity Units and Growth Equity Units in the
secondary market will be directly affected by the trading prices of our common
stock, the general level of interest rates and our credit quality. It is
impossible to predict whether the price of our common stock or interest rates
will rise or fall. The trading price of our common stock will be influenced by
our operating results and prospects and by economic, financial and other
factors. Market conditions can affect the capital markets and therefore affect
the trading price of our common stock. The level of, and fluctuations in, the
trading prices of stocks generally and sales of substantial amounts of common
stock by us or others in the market after the offering of the Equity Units, or
the perception that such sales could occur also may affect the trading price of
our common stock. Fluctuations in interest rates may give rise to arbitrage
opportunities based on changes in the relative value of the common stock
underlying the purchase contracts and of the other components of the Equity
Units. Any such arbitrage could, in turn, affect the trading prices of the
Income Equity Units, Growth Equity Units, notes and our common stock.
S-17
As a holder of Equity Units, you will not be entitled to any rights with
respect to our common stock, but you will be bound by any changes affecting our
common stock.
As a holder of Equity Units, you will not be entitled to any rights with
respect to our common stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions on our common stock),
but you will be subject to all changes affecting our common stock. You will
only be entitled to the rights of our common stock if and when we deliver
shares of common stock upon settlement of the purchase contract on May 17, 2005
or as a result of early settlement, as the case may be, and if the applicable
record date, if any, for the exercise of voting or other rights or the receipt
of dividends or other distributions occurs after that date. For example, in the
event that an amendment is proposed to our articles of incorporation or by-laws
and the record date for determining the shareholders of record entitled to vote
on such amendment occurs prior to delivery of the common stock, you will not be
entitled to vote on the amendment, although any changes in the powers,
preferences or special rights of our common stock resulting from such amendment
will nevertheless be binding on you after the common stock is delivered to you
under the purchase contract.
We may issue additional shares of common stock and thereby materially and
adversely affect the price of our common stock.
The number of shares of common stock that you are entitled to receive on May
17, 2005, or as a result of early settlement of a purchase contract, is subject
to adjustment for certain events arising from stock splits and combinations,
stock dividends and certain other actions by us that modify our capital
structure. We will not adjust the number of shares of common stock that you are
to receive on May 17, 2005, or as a result of early settlement of a purchase
contract, for other events, including offerings of common stock for cash by us
or in connection with acquisitions or tender offers by others to purchase our
common stock. We are not restricted from issuing additional common stock during
the term of the purchase contracts and have no obligation to consider your
interests for any reason. If we issue additional shares of common stock, it may
materially and adversely affect the price of our common stock and, because of
the relationship of the number of shares to be received on May 17, 2005 to the
price of the common stock, such other events may adversely affect the trading
prices of Income Equity Units and Growth Equity Units.
The secondary market for the Equity Units and the notes may be illiquid.
It is not possible to predict how the Income Equity Units, the Growth Equity
Units or the notes will trade in the secondary market or whether the market
will be liquid or illiquid. There is currently no secondary market for our
Income Equity Units, our Growth Equity Units or the notes. We will endeavor to
have the Income Equity Units approved for listing on the NYSE. If the Growth
Equity Units or the notes are separately traded to a sufficient extent that
applicable exchange listing requirements are met, we may endeavor to cause the
Growth Equity Units or notes to be listed on the exchange on which the Income
Equity Units are then listed but we are under no obligation to do so. There can
be no assurance as to the liquidity of any market that may develop for the
Income Equity Units, the Growth Equity Units or the notes, your ability to sell
these securities or whether a trading market, if it develops, will continue. In
addition, in the event you were to substitute U.S. Treasury securities for
notes or notes for U.S. Treasury securities, thereby converting your Income
Equity Units to Growth Equity Units or your Growth Equity Units to Income
Equity Units, as the case may be, the liquidity of Income Equity Units or
Growth Equity Units could be adversely affected. There can be no assurance that
the Income Equity Units will not be delisted from the NYSE or that trading in
the Income Equity Units will not be suspended as a result of your election to
create Growth Equity Units by substituting collateral, which could cause the
number of Income Equity Units to fall below the requirement for listing
securities on the NYSE that at least 1,000,000 Income Equity Units be
outstanding at any time.
S-18
We depend on payments from our subsidiaries, and claims of holders rank junior
to those of creditors of our subsidiaries.
We conduct our operations primarily through our subsidiaries and
substantially all of our consolidated assets are held by our subsidiaries.
Accordingly, our cash flow and our ability to meet our obligations under the
notes, which are one of the components of the Income Equity Units, are largely
dependent upon the earnings of our subsidiaries and the distribution or other
payment of these earnings to us in the form of dividends or loans or advances
and repayment of loans and advances from us. Our subsidiaries are separate and
distinct legal entities and have no obligation to pay any amounts due on the
notes or to make any funds available for payment of amounts due on these notes.
Because we are a holding company, our obligations under the notes will be
structurally subordinated to all existing and future liabilities of our
subsidiaries. Therefore, our rights and the rights of our creditors, including
the rights of the holders of the notes, to participate in the assets of any
subsidiary upon the liquidation or reorganization of the subsidiary will be
subject to the prior claims of the subsidiary's creditors. To the extent that
we may be a creditor with recognized claims against any of our subsidiaries,
our claims would still be effectively subordinated to any security interest in,
or mortgages or other liens on, the assets of the subsidiary and would be
subordinated to any indebtedness or other liabilities of the subsidiary that
are senior to the claims held by us.
Your rights to the pledged securities will be subject to our security interest.
Although you will be the beneficial owner of the related notes, U.S.
Treasury securities or Treasury portfolio (together, the "pledged securities"),
as applicable, that are components of Equity Units, those pledged securities
will be pledged to U.S. Bank Trust National Association, as the collateral
agent, to secure your obligations under the related purchase contracts. Thus,
your rights to the pledged securities will be subject to our security interest.
Additionally, notwithstanding the automatic termination of the purchase
contracts in the event that we become the subject of a case under the U.S.
Bankruptcy Code, the delivery of the pledged securities to you may be delayed
by the imposition of the automatic stay of Section 362 of the U.S. Bankruptcy
Code.
We may redeem the notes upon the occurrence of a tax event.
We have the option to redeem the notes, on not less than 30 days nor more
than 60 days prior written notice, in whole but not in part, if a tax event
occurs and continues under the circumstances described in this prospectus
supplement (a "tax event redemption"). If we exercise this option to redeem the
notes, we will pay the redemption price thereof, as described herein, in cash
to the holders of the notes. If the tax event redemption date occurs before
February 17, 2005, or before April 17, 2005, if the notes are not successfully
remarketed on the third business day immediately preceding February 17, 2005 or
before May 17, 2005 if the notes are not successfully remarketed on the third
business day immediately preceding either February 17, 2005 or April 17, 2005,
the redemption price payable to you as a holder of Income Equity Units will be
distributed to the collateral agent, who in turn will apply a portion of the
redemption price to purchase the Treasury portfolio on your behalf, and will
remit the remainder of the redemption price, if any, to you, and the Treasury
portfolio will be substituted for the notes as collateral to secure your
obligations under the purchase contracts related to the Income Equity Units. If
your notes are not components of Income Equity Units, you will receive the
redemption payment directly. There can be no assurance as to the effect on the
market price for the Income Equity Units if we substitute the Treasury
portfolio as collateral in place of any notes so redeemed. A tax event
redemption will be a taxable event to the holders of the notes.
S-19
We may defer contract adjustment payments.
We have the option to defer the payment of contract adjustment payments on
the purchase contracts forming a part of the Equity Units until May 17, 2005.
However, deferred installments of contract adjustment payments will bear
interest at the rate of 8.50% per year (compounded quarterly) until paid. If
the purchase contracts are settled early or terminated due to our bankruptcy,
insolvency or reorganization, the right to receive contract adjustment payments
and deferred contract adjustment payments, if any, will also terminate.
The purchase contract agreement will not be qualified under the Trust Indenture
Act and the obligations of the purchase contract agent are limited.
The purchase contract agreement between the purchase contract agent and us
will not be qualified as an indenture under the Trust Indenture Act of 1939,
and the purchase contract agent will not be required to qualify as a trustee
under the Trust Indenture Act. Thus, you will not have the benefit of the
protection of the Trust Indenture Act with respect to the purchase contract
agreement or the purchase contract agent. The notes constituting a part of the
Income Equity Units will be issued pursuant to an indenture qualified under the
Trust Indenture Act. Accordingly, if you hold Equity Units, you will not have
the benefit of the protections of the Trust Indenture Act other than to the
extent applicable to a note included in an Income Equity Unit. The protections
generally afforded the holder of a security issued under an indenture that has
been qualified under the Trust Indenture Act include:
. disqualification of the indenture trustee for "conflicting interests,"
as defined under the Trust Indenture Act;
. provisions preventing a trustee that is also a creditor of the issuer
from improving its own credit position at the expense of the security
holders immediately prior to or after a default under such indenture;
and
. the requirement that the indenture trustee deliver reports at least
annually with respect to certain matters concerning the indenture
trustee and the securities.
The United States federal income tax consequences of the purchase, ownership
and disposition of the Equity Units are unclear.
No statutory, judicial or administrative authority directly addresses the
treatment of the Equity Units or instruments similar to the Equity Units for
United States federal income tax purposes. As a result, the United States
federal income tax consequences of the purchase, ownership and disposition of
Equity Units are not entirely clear. In addition, any gain on a disposition of
a note prior to the purchase contract settlement date will generally be treated
as ordinary interest income; thus, the ability to offset such interest income
with a loss, if any, on a purchase contract may be limited. For additional tax-
related risks, see "Certain United States Federal Income Tax Consequences--
Notes" in this prospectus supplement.
You will be required to accrue original issue discount on the notes for United
States federal income tax purposes.
Because of the manner in which the interest rate on the notes is reset, the
notes should be classified as contingent payment debt instruments subject to
the "noncontingent bond method" for accruing original issue discount for United
States federal income tax purposes. Assuming that the notes are so treated, you
will be required to accrue original issue discount on the notes in your gross
income on a constant yield-to-maturity basis, regardless of your usual method
of tax accounting. For all accrual periods ending on or prior to February 17,
2005, the original issue discount that accrues on the notes will exceed the
stated interest payments on the notes. In addition, any gain on the disposition
of a note before the date that is six months after the reset date generally
will be treated as ordinary interest income; thus, the ability to offset this
interest income with a loss, if any, on a purchase contract may be limited. For
additional tax-related risks relating to the notes, see "Certain United States
Federal Income Tax Consequences--Notes" in this prospectus supplement.
S-20
USE OF PROCEEDS
We expect to use the net proceeds from the sale of the Income Equity Units,
estimated to be $532.5 million ($581.0 million if the underwriters'
overallotment is exercised in full) after deducting the underwriting
commissions and estimated expenses, to repay a portion of our short-term debt,
including short-term debt used to finance our capital expenditure program for
Sempra Energy Global Enterprises, all of which was borrowed in the last 12
months. As of March 31, 2002, the weighted average interest rate of our short-
term debt was 2.12%.
PRICE RANGE OF COMMON STOCK
Our common stock, without par value, is listed and traded on the New York
Stock Exchange under the ticker symbol "SRE." The following table sets forth
the high and low sales prices for transactions involving our common stock for
each calendar quarter, as reported on the New York Stock Exchange Composite
Tape.
High Low
------- -------
2002:
Second Quarter (through April 24, 2002)...................... $26.040 $24.510
First Quarter................................................ 25.920 22.150
2001:
Fourth Quarter............................................... $26.680 $22.000
Third Quarter................................................ 28.000 23.250
Second Quarter............................................... 28.610 21.980
First Quarter................................................ 23.940 17.312
2000:
Fourth Quarter............................................... $24.875 $19.375
Third Quarter................................................ 21.000 17.000
Second Quarter............................................... 19.250 16.188
First Quarter................................................ 19.250 16.250
We currently declare quarterly dividends on our common stock at the rate of
$0.25 per share. We expect to declare a quarterly dividend of $0.25 per share
in June 2002, which will be payable in July 2002.
On April 24, 2002, the last reported sale price of our common stock on the
New York Stock Exchange was $25.02 per share.
S-21
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of December 31, 2001 (i) on an historical basis and (ii) on an as adjusted
basis to give effect to the sale of 22,000,000 Equity Units and the application
of the estimated net proceeds therefrom as described under "Use of Proceeds."
This table should be read in conjunction with the Summary Historical Condensed
Consolidated Financial Information and other financial information contained
and incorporated by reference into this prospectus supplement and the
accompanying prospectus.
December 31, 2001
-----------------------
Historical As Adjusted
---------- -----------
(dollars in millions)
Cash and cash equivalents.............................. $ 605 $ 605
====== ======
Debt:
Short-term debt...................................... $ 875 $ 343
Current portion of long-term debt.................... 242 242
Total long-term debt................................. 3,436 3,986
------ ------
Total debt......................................... 4,553(1) 4,571
Preferred stock of subsidiaries........................ 204 204
Mandatory redeemable trust preferred securities........ 200 200
------ ------
Total Preferred securities......................... 404 404
Shareholders' equity:
Common equity........................................ 2,692 2,649(2)
------ ------
Total capitalization............................... $7,649 $7,624
====== ======
--------
(1) As of March 31, 2002, our total debt was $4,848 million, consisting of
$1,038 million of short-term debt and $3,810 million of long-term debt
(including current portion).
(2) Reflects an adjustment of approximately $43 million representing the
present value of the contract adjustment payments payable in connection
with the purchase contracts underlying the Equity Units.
S-22
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth our ratio of earnings to combined fixed
charges for each of the five years in the five-year period ended December 31,
2001:
Years Ended December 31,
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Ratio of Earnings to Combined Fixed Charges .......... 2.86 2.90 3.21 2.74 3.76
We determined the ratio of earnings to combined fixed charges by dividing
(a) the sum of pretax income and fixed charges by (b) fixed charges. Fixed
charges consist of all interest expense (before allowances for borrowed funds
used during construction), preferred dividends by subsidiaries, one-third of
rent expense (which approximates the interest component of such expense) and
amortization of debt issuance costs.
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SUMMARY HISTORICAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following table contains our summary historical condensed consolidated
financial information. The summary historical condensed consolidated financial
information for the years ended December 31, 2001 and December 31, 2000 and as
of December 31, 2001 and December 31, 2000 has been derived from our audited
consolidated financial statements for the years ended December 31, 2001 and
December 31, 2000. The summary historical condensed consolidated financial
information should be read in conjunction with and is qualified in its entirety
by reference to the audited consolidated financial statements and the related
notes thereto from which it has been derived. More comprehensive financial
information is included in the consolidated financial statements and related
notes contained in our Annual Report on Form 10-K and Quarterly Reports on Form
10-Q, which we file with the SEC.
Condensed Statements of Income
(dollars in millions, unless otherwise indicated)
For the Years
Ended December
31,
----------------
2001 2000
------- -------
Revenues...................................................... $ 8,029 $ 7,037
Expenses...................................................... (7,036) (6,153)
Other income.................................................. 90 127
Preferred dividends by subsidiaries........................... (29) (26)
------- -------
Income before interest and income taxes....................... 1,054 985
Interest...................................................... (323) (286)
Income taxes.................................................. (213) (270)
------- -------
Net income.................................................... $ 518 $ 429
======= =======
Average common shares outstanding (thousands):
Basic....................................................... 203,593 208,155
Diluted..................................................... 205,338 208,345
Earnings per common share:
Basic....................................................... $ 2.54 $ 2.06
Diluted..................................................... 2.52 2.06
Dividends declared per common share........................... 1.00 1.00
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Condensed Balance Sheets
(dollars in millions)
As of December 31,
-------------------
2001 2000
--------- ---------
Assets
Current assets............................................. $ 4,808 $ 6,525
Investments and other assets............................... 4,131 3,289
Property, plant and equipment.............................. 6,217 5,726
--------- ---------
Total assets............................................... $ 15,156 $ 15,540
========= =========
Liabilities and shareholders' equity
Liabilities
Short-term debt............................................ $ 875 $ 568
Current portion of long-term debt.......................... 242 368
Long-term debt............................................. 3,436 3,268
--------- ---------
Total debt................................................. 4,553 4,204
Other current liabilities.................................. 4,407 6,554
Other long-term liabilities................................ 3,100 1,884
--------- ---------
Total liabilities.......................................... 12,060 12,642
Preferred stock of subsidiaries............................ 204 204
Mandatory redeemable trust preferred securities............ 200 200
Shareholders' equity
Common equity.............................................. 2,692 2,494
--------- ---------
Total liabilities and shareholders' equity................. $ 15,156 $ 15,540
========= =========
Common shares outstanding (thousands)...................... 204,475 201,928
Book value per common share (1)............................ $ 13.16 $ 12.35
--------
(1) Book value per common share is calculated as total shareholders' equity at
the end of the period divided by the number of shares outstanding at the
end of the period, which excludes shares held by our Employee Stock
Ownership Plan.
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ACCOUNTING TREATMENT
Generally, proceeds from the sales of equity units are allocable between
purchase contracts and notes, in proportion to their respective fair market
values at the time of purchase. We have determined that the entire purchase
price of an Equity Unit will be allocated to the note and no amount will be
allocated to the purchase contract. The present value of the Equity Units
contract adjustment payments will be initially charged to equity, with an
offsetting credit to liabilities. Subsequent contract adjustment payments will
be allocated between this liability account and interest expense based on a
constant rate calculation over the life of the transaction.
The purchase contracts are forward transactions in our common stock. Upon
settlement of a purchase contract, we will receive $25 on that purchase
contract and will issue the requisite number of shares of common stock. The $25
we receive will be credited to common stock as part of shareholders' equity.
Before the issuance of common stock upon settlement of the purchase
contracts, the purchase contracts will be reflected in our diluted earnings per
share calculations using the treasury stock method. Under this method, the
number of shares of common stock used in calculating diluted earnings per share
will be deemed to be increased by the excess, if any, of the number of shares
that would be issued upon settlement of the purchase contracts over the number
of shares that we could have purchased in the market, at the average market
price during the period for which earnings are being reported, using the
proceeds receivable upon settlement. Consequently, we expect that there will be
no dilutive effect on our earnings per share except during periods when the
average market price of a share of our common stock is above the threshold
appreciation price.
The Emerging Issues Task Force of the Financial Accounting Standards Board
is considering proposals related to accounting for certain securities and
financial instruments, including securities such as the Equity Units. The
current proposals being considered include rulemaking that, if adopted, would
endorse the method of accounting discussed above. Alternatively, other
proposals being considered could result in the common shares issuable pursuant
to the purchase contract to be deemed outstanding and included in the
calculation of diluted earnings per share, and could result in periodic
"marking to market" of the purchase contracts, causing periodic charges or
credits to income. If this latter approach were adopted, our diluted earnings
per share could increase and decrease from quarter to quarter to reflect the
lesser and greater number of shares issuable upon satisfaction of the purchase
contract.
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DESCRIPTION OF THE EQUITY UNITS
The following is a summary of some of the terms of the Equity Units. This
summary, together with the summary of some of the provisions of other related
documents described below, contains a summary description of all of the
material terms of the Equity Units but is not necessarily complete. We refer
you to the copies of those documents, including the definitions of terms, forms
of which have been or will be filed with the SEC and you may obtain copies as
described under "Where You Can Find More Information" in the accompanying
prospectus. This summary supplements the descriptions of the notes, the units
and the stock purchase contracts provided in the accompanying prospectus, and,
to the extent it is inconsistent with the accompanying prospectus, replaces the
descriptions in that prospectus.
The Equity Units will initially consist of 22,000,000 Income Equity Units
(24,000,000 Income Equity Units if the underwriters exercise their
overallotment option in full), each with a stated amount of $25.
Income Equity Units
Each Income Equity Unit will consist of a unit comprised of
(a) a purchase contract under which
(1) the holder will purchase from us on May 17, 2005, for an amount in
cash equal to $25, a number of shares of our common stock equal to
the settlement rate described below under "Description of the
Purchase Contracts--General" and
(2) we will pay the holder quarterly contract adjustment payments at
the rate of 2.90% of the stated amount per year and
(b) either
(1) a note having a principal amount equal to $25, or
(2) upon the successful remarketing of the notes on the third business
day immediately preceding February 17, 2005 or the third business
day immediately preceding April 17, 2005, or upon the occurrence of
a tax event redemption prior to May 17, 2005, the applicable
ownership interest in a portfolio of zero-coupon U.S. Treasury
securities, which we refer to as the Treasury portfolio.
"Applicable ownership interest" means, with respect to an Income Equity Unit
and the U.S. Treasury securities in the Treasury portfolio,
(1) a 2.5% undivided beneficial ownership interest in a $1,000 face amount
of a principal or interest strip in a U.S. Treasury security included
in the Treasury portfolio that matures on or prior to May 16, 2005 and
(2) for the scheduled interest payment date on the notes that occurs on May
17, 2005, in the case of a successful remarketing of the notes, or, in
the case of a tax event redemption, for each scheduled interest payment
date on the notes that occurs after the tax event redemption date and
on or before May 17, 2005, a 0.0350% undivided beneficial ownership
interest in a $1,000 face amount of a principal or interest strip in a
U.S. Treasury security included in the Treasury portfolio that matures
prior to that date.
The purchase price of each Income Equity Unit will generally be allocated
between the related purchase contract and the related note, in proportion to
their respective fair market values at the time of purchase. We have determined
that the entire purchase price of an Income Equity Unit will be allocable to
the note and no amount will be allocable to the purchase contract. This
position generally will be binding on each beneficial owner of each Income
Equity Unit but not on the Internal Revenue Service. As long as an Equity Unit
is in the form of an Income Equity Unit, the related note or the ownership
interest of the Treasury portfolio, as applicable, will be pledged to the
collateral agent to secure your obligation to purchase our common stock under
the related purchase contract.
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Substitution of Pledged Securities to Create Growth Equity Units
Unless the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as the result of a successful remarketing of the notes or a
tax event redemption, each holder of an Income Equity Unit will have the right,
at any time on or prior to the fifth business day immediately preceding May 17,
2005, to substitute for the related notes held by the collateral agent, U.S.
Treasury securities having an aggregate principal amount at maturity equal to
the aggregate principal amount of the notes for which substitution is being
made.
Each Growth Equity Unit will consist of a unit comprised of
(a) a purchase contract under which
(1) the holder will purchase from us on May 17, 2005, for an amount in
cash equal to $25, a number of shares of our common stock equal to
the settlement rate described below under "Description of the
Purchase Contracts--General" and
(2) we will pay the holder quarterly contract adjustment payments at
the rate of 2.90% of the stated amount per year and
(b) a 2.5% undivided beneficial ownership interest in a zero-coupon U.S.
Treasury security (consisting of a principal strip) that matures on May
16, 2005.
The U.S. Treasury securities will be pledged with the collateral agent to
secure the holder's obligation to purchase our common stock under the related
purchase contracts. Because U.S. Treasury securities are issued in integral
multiples of $1,000, holders of Income Equity Units may make the substitution
only in integral multiples of 40 Income Equity Units.
Equity Units with respect to which U.S. Treasury securities have been
substituted for the related notes or the applicable ownership interest of the
Treasury portfolio, as the case may be, as collateral to secure that holder's
obligation under the related purchase contracts will be referred to as Growth
Equity Units.
To create 40 Growth Equity Units, unless the Treasury portfolio has replaced
the notes as a component of the Income Equity Units as a result of a successful
remarketing of the notes or a tax event redemption, you must
(a) deposit with the collateral agent a zero coupon U.S. Treasury security
(consisting of a principal strip) having a principal amount at maturity
of $1,000; and
(b) transfer 40 Income Equity Units to the purchase contract agent
accompanied by a notice stating that you have deposited a U.S. Treasury
security with the collateral agent and are requesting that the purchase
contract agent instruct the collateral agent to release to you the
notes relating to the 40 Income Equity Units.
Upon that deposit and the receipt of an instruction from the purchase
contract agent, the collateral agent will effect the release of the 40 notes
from the pledge under the pledge agreement free and clear of our security
interest to the purchase contract agent, which will
(a) cancel the 40 Income Equity Units,
(b) transfer to you the related notes, and
(c) deliver to you 40 Growth Equity Units.
The substituted U.S. Treasury security will be pledged with the collateral
agent to secure your obligation to purchase our common stock under the related
purchase contracts. The related notes released to you will be able to be
transferred separately from the resulting Growth Equity Units. Contract
adjustment payments will be payable by us on those Growth Equity Units on each
payment date and shall accrue from the later of
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April 30, 2002 and the last payment date on which contract adjustment payments
were paid. In addition, original issue discount for United States federal
income tax purposes will accrue on the related U.S. Treasury securities.
Interest on any released notes will continue to be payable quarterly.
Recreating Income Equity Units
On or prior to the fifth business day immediately preceding May 17, 2005,
unless the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as a result of a successful remarketing of the notes or a
tax event redemption, a holder of Growth Equity Units may recreate Income
Equity Units by
(a) depositing with the collateral agent notes in an aggregate principal
amount of $1,000 and
(b) transferring 40 Growth Equity Units to the purchase contract agent
accompanied by a notice stating that you have deposited with the
collateral agent notes in an aggregate principal amount of $1,000 and
requesting that the purchase contract agent instruct the collateral
agent to release to you the related U.S. Treasury security.
Upon the deposit and receipt of instructions from the purchase contract
agent, the collateral agent will effect the release of the related U.S.
Treasury security from the pledge under the pledge agreement free and clear of
our security interest to the purchase contract agent, which will
(a) cancel the 40 Growth Equity Units,
(b) transfer to you the U.S. Treasury security, and
(c) deliver to you 40 Income Equity Units.
The substituted notes will be pledged with the collateral agent to secure
your obligation to purchase common stock under the related purchase contracts.
Creating Income Equity Units or Growth Equity Units After a Successful
Remarketing or Tax Event Redemption
If the Treasury portfolio has become a component of the Income Equity Units
as a result of a successful remarketing of the notes or a tax event redemption,
holders of Growth Equity Units or Income Equity Units, as applicable, may
create or recreate Income Equity Units or Growth Equity Units, as applicable,
by substituting the appropriate applicable ownership interest of the Treasury
portfolio or U.S. Treasury security, as the case may be, at any time on or
prior to the second business day immediately preceding May 17, 2005, but only
in integral multiples of 20,000 Growth Equity Units or Income Equity Units, as
applicable.
The substituted ownership interest of the Treasury portfolio or a U.S.
Treasury security, as the case may be, will be pledged with the collateral
agent to secure your obligation to purchase our common stock under the related
purchase contracts, and the collateral agent will effect the release of the
related U.S. Treasury security or applicable ownership interest of the Treasury
portfolio, as the case may be, from the pledge under the pledge agreement free
and clear of our security interest.
Holders who elect to substitute pledged securities, before or after a tax
event redemption or remarketing, creating or recreating Growth Equity Units or
Income Equity Units, shall be responsible for any fees or expenses payable in
connection with the substitution.
Current Payments
Holders of Income Equity Units are entitled to receive total cash payments
at a rate of 8.50% of the stated amount per year from and after April 30, 2002
up to but excluding May 17, 2005, payable quarterly in arrears. The quarterly
payments on the Income Equity Units will consist of interest on the related
note or cash
S-29
distributions on the applicable ownership interest of the Treasury portfolio,
as applicable, payable at the rate of 5.60% of the stated amount per year, and
quarterly contract adjustment payments payable by us at the rate of 2.90% of
the stated amount per year, subject to our right to defer the payment of such
contract adjustment payments.
Each holder of Growth Equity Units will be entitled to receive quarterly
contract adjustment payments payable by us at the rate of 2.90% of the stated
amount per year, subject to our right to defer the payment of such contract
adjustment payments. In addition, original issue discount will accrue on the
related U.S. Treasury securities. Our obligations with respect to contract
adjustment payments will be subordinate and junior in right of payment to our
obligations under any senior debt.
Our obligations with respect to the notes will be senior and unsecured and
will rank equally in right of payment with all of our other senior unsecured
indebtedness and will be structurally subordinated to the claims of creditors
and preferred shareholders of our subsidiaries. See "Description of Debt
Securities" in the accompanying prospectus.
Voting and Other Rights
Holders of purchase contracts forming a part of the Income Equity Units or
Growth Equity Units, in their capacity as such holders, will have no voting or
other rights in respect of our common stock.
Listing of the Securities
We will endeavor to have the Income Equity Units approved for listing on the
NYSE under the symbol "SRE Pr," subject to official notice of issuance. If
Growth Equity Units or notes are separately traded to a sufficient extent that
the applicable listing requirements are satisfied, we may endeavor to cause
such securities to be listed on the exchange on which the Income Equity Units
are then listed, including, if applicable, the NYSE. We, however, have no
obligation to do so.
Miscellaneous
We or our affiliates may from time to time purchase any of the securities
offered in this prospectus supplement that are then outstanding by tender, in
the open market or by private agreement.
S-30
DESCRIPTION OF THE PURCHASE CONTRACTS
General
Each purchase contract underlying an Equity Unit, unless earlier terminated
or earlier settled at your option, will obligate you to purchase, and us to
sell, on May 17, 2005, for an amount in cash equal to $25, a number of shares
of our common stock equal to the settlement rate.
The settlement rate, which is the number of newly issued shares of our
common stock issuable upon settlement of a purchase contract on May 17, 2005,
will be calculated, subject to adjustment as described under "--Anti-Dilution
Adjustments" below, as follows:
(a) if the applicable market value is equal to or greater than the
threshold appreciation price of $30.5244, which is 22.0% above $25.02,
the last reported sale price of the common stock on April 24, 2002,
which we refer to as the reference price, the settlement rate will be
0.8190, which is equal to $25 divided by the threshold appreciation
price. Accordingly, if, between the date of this prospectus supplement
and the period during which the applicable market value is measured,
the market price for the common stock increases to an amount that is
higher than the threshold appreciation price, the aggregate market
value of the shares of common stock issued upon settlement of each
purchase contract will be higher than $25, assuming that the market
price of our common stock on May 17, 2005 is the same as the applicable
market value of the common stock. If the market price equals the
threshold appreciation price, the aggregate market value of those
shares will equal $25, assuming that the market price of our common
stock on May 17, 2005 is the same as the applicable market value of the
common stock;
(b) if the applicable market value is less than the threshold appreciation
price but greater than the reference price, the settlement rate will be
equal to $25 divided by the applicable market value. Accordingly, if
the market price for the common stock increases between the date of
this prospectus supplement and the period during which the applicable
market value is measured but that market price is less than the
threshold application price, the aggregate market value of the shares
of common stock issued upon settlement of each purchase contract will
equal $25, assuming that the market price of our common stock on May
17, 2005 is the same as the applicable market value of the common
stock; and
(c) if the applicable market value is less than or equal to the reference
price, the settlement rate will be 0.9992, which is equal to $25
divided by the reference price. Accordingly, if the market price for
the common stock decreases between the date of this prospectus
supplement and the period during which the applicable market value is
measured, the aggregate market value of the shares of common stock
issued upon settlement of each purchase contract will be less than $25,
assuming that the market price of our common stock on May 17, 2005 is
the same as the applicable market value of the common stock, and if the
market price stays the same, the aggregate market value of those shares
will equal $25, assuming that the market price of our common stock on
May 17, 2005 is the same as the applicable market value of the common
stock.
The applicable market value of our common stock means the average of the
closing prices per share of our common stock for the twenty consecutive trading
days ending on the third trading day immediately preceding May 17, 2005.
The closing price of the common stock on any date of determination means the
closing sale price or, if no closing price is reported, the last reported sale
price of the common stock on the NYSE on that date. If the common stock is not
listed for trading on the NYSE on any determination date, the closing price of
the common stock on any date of determination means the closing sale price as
reported in the composite transactions for the principal U.S. securities
exchange on which the common stock is so listed, or if the common stock is not
so listed on a U.S. national or regional securities exchange, as reported by
the NASDAQ stock market, or, if the common stock is not so reported, the last
quoted bid price for the common stock in the
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over-the-counter market as reported by the National Quotation Bureau or similar
organization or, if that bid price is not available, the market value of the
common stock on that date as determined by a nationally recognized independent
investment banking firm retained by us for this purpose.
A trading day is a day on which the common stock (A) is not suspended from
trading on any national or regional securities exchange or association or over-
the-counter market at the close of business and (B) has traded at least once on
the national or regional securities exchange or association or over-the-counter
market that is the primary market for the trading of the common stock.
We will not issue any fractional shares of common stock pursuant to the
purchase contracts. In place of fractional shares otherwise issuable,
calculated on an aggregate basis in respect of the purchase contracts you are
settling, you will be entitled to receive an amount of cash equal to the
fractional share times the applicable market value.
On the business day immediately preceding May 17, 2005, unless,
(a) you have previously settled the related purchase contracts through the
early delivery of cash to the purchase contract agent, in the manner
described under "--Early Settlement" or under "--Early Settlement Upon
Cash Merger,"
(b) you have settled the related purchase contracts with cash after giving
prior notice in the manner described under "--Notice to Settle with
Cash,"
(c) in the case of Income Equity Units, you have had the notes related to
your purchase contracts remarketed in the manner described in this
prospectus supplement, or
(d) an event described under "--Termination" below has occurred,
then
(1) in the case of Income Equity Units, unless the Treasury portfolio
has replaced the notes as a component of the Income Equity Units
as a result of a successful remarketing of the notes or a tax
event redemption, we will exercise our rights as a secured party
to dispose of the notes in accordance with applicable law and
satisfy in full your obligation to purchase our common stock under
the related purchase contract and
(2) in the case of Income Equity Units, if the Treasury portfolio has
replaced the notes as a component of the Income Equity Units as a
result of a successful remarketing of the notes or a tax event
redemption, or in the case of Growth Equity Units, the principal
amount of the applicable ownership interest of the Treasury
portfolio or the related U.S. Treasury securities, as applicable,
when paid at maturity, will automatically be applied to satisfy in
full your obligation to purchase common stock under the related
purchase contracts.
The common stock will then be issued and delivered to you or your designee,
upon presentation and surrender of the certificate evidencing the Equity Units
and payment by you of any transfer or similar taxes payable in connection with
the issuance of the common stock to any person other than you.
Where a holder of Equity Units effects the early settlement of the related
purchase contracts through the delivery of cash or settles the related purchase
contracts with cash on the business day immediately preceding May 17, 2005, the
related notes, U.S. Treasury securities, or the applicable ownership interest
of the Treasury portfolio, as the case may be, will be released to the holder
as described in this prospectus supplement. The funds received by the
collateral agent on the business day immediately preceding May 17, 2005, upon
cash settlement of a purchase contract, will be promptly invested in permitted
overnight investments and paid to us on May 17, 2005 to satisfy in full your
obligation to purchase common stock under the related purchase contracts. Any
funds received by the collateral agent in respect of the interest earned from
the overnight investment in permitted investments will be distributed to the
purchase contract agent for payment to the holders.
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Prior to the date on which shares of common stock are issued in settlement
of purchase contracts, the common stock underlying the related purchase
contracts will not be deemed to be outstanding for any purpose and the holders
of those purchase contracts will not have any voting rights, rights to
dividends or other distributions or other rights or privileges of a
shareholder.
As a holder of Income Equity Units or Growth Equity Units, you will, by
acceptance and under the terms of the purchase contract agreement and the
related purchase contracts, be deemed to have:
(a) irrevocably agreed to be bound by the terms and provisions of the
related purchase contracts and the pledge agreement and agreed to
perform your obligations thereunder for so long as you remain a holder
of Equity Units; and
(b) duly appointed the purchase contract agent as your attorney-in-fact to
enter into and perform the related purchase contracts and pledge
agreement on your behalf and in your name.
In addition, as a beneficial owner of Income Equity Units or Growth Equity
Units, you, by acceptance of the payments thereunder, will be deemed to have
agreed to treat:
(a) yourself as the owner of the related notes and the appropriate
applicable ownership interest of the Treasury portfolio or the U.S.
Treasury securities, as the case may be; and
(b) the notes as indebtedness for all tax purposes.
Remarketing
Pursuant to the remarketing agreement and subject to the terms of the
supplemental remarketing agreement among the remarketing agent, the purchase
contract agent and us, unless a tax event redemption has occurred, the notes of
Income Equity Units holders will be remarketed on the third business day
immediately preceding February 17, 2005. Holders of notes that are not part of
Income Equity Units may also elect to have their notes remarketed.
We will enter into a remarketing agreement with a nationally recognized
investment banking firm, pursuant to which that firm will agree, as remarketing
agent, to use its reasonable efforts to remarket those notes on that date at a
price of approximately 100.5% of the Treasury portfolio purchase price
described below. The portion of the proceeds from the remarketing equal to the
Treasury portfolio purchase price will be applied to purchase a Treasury
portfolio consisting of:
(a) interest or principal strips of U.S. Treasury securities that mature on
or prior to May 16, 2005 in an aggregate amount equal to the principal
amount of the notes included in the Income Equity Units, and
(b) interest or principal strips of U.S. Treasury securities that mature on
or prior to May 16, 2005 in an aggregate amount equal to the aggregate
interest payment that would be due on that interest payment date on the
principal amount of the notes included in the Income Equity Units if
the interest rate on the notes was not reset as described in
"Description of the Notes--Market Rate Reset."
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us, at a price equal to or greater
than 100% of the Treasury portfolio purchase price, or (2) a condition
precedent to the remarketing has not been satisfied, in each case resulting in
a failed remarketing on the third business day prior to February 17, 2005, the
notes will continue to be a component of Income Equity Units and another
remarketing will be attempted as described below.
If the remarketing of the notes on the third business day preceding February
17, 2005 has resulted in a failed remarketing, unless a tax event redemption
has occurred, the remarketing agent will use its reasonable efforts to remarket
the notes on the third business day immediately preceding April 17, 2005.
Holders of notes that are not part of Income Equity Units may also elect to
have their notes remarketed. The remarketing agent will use its reasonable
efforts to remarket those notes on that date at a price of approximately 100.5%
of the
S-33
Treasury portfolio purchase price described below. The portion of the proceeds
from the remarketing equal to the Treasury portfolio purchase price will be
applied to purchase a Treasury portfolio consisting of:
(a) interest or principal strips of U.S. Treasury securities that mature on
or prior to May 16, 2005 in an aggregate amount equal to the principal
amount of the notes included in the Income Equity Units, and
(b) interest or principal strips of U.S. Treasury securities that mature on
or prior to May 16, 2005 in an aggregate amount equal to the aggregate
interest payment that would be due on that interest payment date on the
principal amount of the notes included in the Income Equity Units if
the interest rate on the notes was not reset as described in
"Description of the Notes--Market Rate Reset."
In the event of a successful remarketing on either the third business day
preceding February 17, 2005 or the third business day preceding April 17, 2005,
the Treasury portfolio will be substituted for the notes and will be pledged to
the collateral agent to secure the obligations of Income Equity Units holders
to purchase our common stock under the purchase contracts.
In addition, the remarketing agent may deduct as a remarketing fee an amount
not exceeding 25 basis points (0.25%) of the Treasury portfolio purchase price
from any amount of the proceeds in excess of the Treasury portfolio purchase
price. The remarketing agent will remit the remaining portion of the proceeds,
if any, for the benefit of the holders. Income Equity Units holders whose notes
are remarketed will not otherwise be responsible for payment of any remarketing
fee in connection with the remarketing.
As used in this context, the Treasury portfolio purchase price means the
lowest aggregate price quoted by a primary U.S. government securities dealer in
New York City to the quotation agent on the third business day immediately
preceding February 17, 2005 for the purchase of the Treasury portfolio
described above for settlement on February 17, 2005 or, in the event of a
failed remarketing on the third business day prior to February 17, 2005, on the
third business day immediately preceding April 17, 2005 for the purchase of the
Treasury portfolio described above for settlement on April 17, 2005.
Quotation agent means Merrill Lynch, Pierce, Fenner & Smith Incorporated or
Salomon Smith Barney Inc. or any of their respective affiliates or successors
or any other primary U.S. government securities dealer in New York City
selected by us.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us, at a price equal to or greater
than 100% of the Treasury portfolio purchase price, or (2) a condition
precedent to the remarketing has not been satisfied, in each case resulting in
a failed remarketing on the third business day prior to April 17, 2005, the
notes will continue to be a component of Income Equity Units and another
remarketing will be attempted as described below.
If the remarketing of the notes on the third business day preceding February
17, 2005 and the remarketing of the notes on the third business day preceding
April 17, 2005 have each resulted in a failed remarketing, unless a tax event
redemption has occurred, the notes of holders of Income Equity Units who fail
to notify the purchase contract agent on or before the fifth business day
before May 17, 2005 of their intention to pay cash in order to satisfy their
obligations under the related purchase contracts will be remarketed on the
third business day immediately preceding May 17, 2005.
The remarketing agent will then use its reasonable efforts to obtain a price
of approximately 100.5% of the aggregate principal amount of such notes. The
portion of the proceeds from the remarketing equal to the aggregate principal
amount of the notes will automatically be applied to satisfy in full the
obligations of the Income Equity Units holders to purchase our common stock
under the related purchase contracts.
In addition, the remarketing agent may deduct as a remarketing fee an amount
not exceeding 25 basis points (0.25%) of the aggregate principal amount of the
remarketed notes from any amount of the proceeds in excess of the aggregate
principal amount of the remarketed notes. The remarketing agent will remit the
remaining portion of the proceeds, if any, for the benefit of the holders.
Income Equity Units holders whose
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notes are remarketed will not otherwise be responsible for payment of any
remarketing fee in connection with the remarketing.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us, at a price equal to or greater
than 100% of the aggregate principal amount of the notes, or (2) a condition
precedent to the remarketing has not been satisfied, in each case resulting in
a failed remarketing, we will exercise our rights as a secured party to dispose
of the notes in accordance with applicable law and satisfy in full, from the
proceeds of that disposition, the holders' obligations to purchase common stock
under the related purchase contracts.
We will cause a notice of any failed remarketing to be published on the
second business day immediately preceding February 17, 2005, April 17, 2005 or
May 17, 2005, as applicable, by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to
be The Wall Street Journal. In addition, we will request, not later than seven
nor more than 15 calendar days prior to a remarketing date, that the depositary
notify its participants holding notes, Income Equity Units and Growth Equity
Units of the remarketing. If required by applicable law, we will endeavor to
ensure that a registration statement with regard to the full amount of the
notes to be remarketed shall be effective in a form that will enable the
remarketing agent to rely on it in connection with the remarketing process.
Early Settlement
A holder of Income Equity Units may settle the related purchase contracts
(unless a tax event redemption has occurred) at any time on or prior to the
fifth business day immediately preceding May 17, 2005 by presenting and
surrendering the Equity Units certificate evidencing those Income Equity Units
at the offices of the purchase contract agent provided that at such time, if so
required under the U.S. federal securities laws, there is in effect a
registration statement covering the common shares to be delivered in respect of
the purchase contracts being settled. The holder should also present the form
of election to settle early on the reverse side of that certificate completed
and executed as indicated, accompanied by payment to us in immediately
available funds of an amount equal to $25 times the number of purchase
contracts being settled. However, if the notes have been remarketed or if a tax
event redemption has occurred and, in either case, the applicable ownership of
the Treasury portfolio has become a component of the Income Equity Units,
holders of those Income Equity Units may settle early only in integral
multiples of 20,000 Income Equity Units, at any time on or prior to the second
business day immediately preceding May 17, 2005.
A holder of Growth Equity Units may settle the related purchase contracts on
or prior to the second business day immediately preceding May 17, 2005 by
presenting and surrendering the Equity Units certificate evidencing the Growth
Equity Units at the offices of the purchase contract agent with the form of
election to settle early on the reverse side of that certificate completed and
executed as indicated, accompanied by payment to us in immediately available
funds of an amount equal to $25 times the number of purchase contracts being
settled provided that at such time, if so required under the U.S. federal
securities laws, there is in effect a registration statement covering the
common shares to be delivered in respect of the purchase contracts being
settled. Growth Equity Units holders may settle early only in integral
multiples of 40 Growth Equity Units.
We have agreed that, if required under the U.S. federal securities laws, we
will use commercially reasonable efforts to (1) have in effect a registration
statement covering any securities to be delivered in respect of the purchase
contracts being settled and (2) provide a prospectus in connection therewith,
in each case in a form that may be used in connection with the early
settlement.
So long as the Equity Units are evidenced by one or more global security
certificates deposited with the depositary, procedures for early settlement
will also be governed by standing arrangements between the depositary and the
purchase contract agent.
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Upon early settlement of the purchase contracts related to any Income Equity
Units or Growth Equity Units:
(a) except as described below in "--Early Settlement Upon Cash Merger," as
a holder of Equity Units, you will receive 0.8190 shares of common
stock per Income Equity Unit or Growth Equity Unit, regardless of the
market price of the common stock on the date of the early settlement.
The number of shares of common stock in both cases will be subject to
adjustment under the circumstances described in "--Anti-Dilution
Adjustments" below;
(b) the notes, the applicable ownership interest of the Treasury portfolio
or the U.S. Treasury securities, related to the Income Equity Units or
Growth Equity Units, as applicable, will then be transferred to you
free and clear of our security interest;
(c) your right to receive future contract adjustment payments, if any, will
terminate; and
(d) no adjustment will be made to or for you on account of any amounts
accrued (including deferred amounts) in respect of contract adjustment
payments.
If the purchase contract agent receives an Equity Unit certificate,
accompanied by the completed election to settle early form and the requisite
amount of immediately available funds, from you by 5:00 p.m., New York City
time, on a business day, that day will be considered the early settlement date.
If the purchase contract agent receives those documents after 5:00 p.m., New
York City time, on a business day or at any time on a day that is not a
business day, the next business day will be considered the settlement date.
Upon early settlement of purchase contracts in the manner described above,
presentation and surrender of the Equity Units certificate evidencing the
related Income Equity Units or Growth Equity Units and payment of any transfer
or similar taxes payable by the holder in connection with the issuance of the
related common stock to any person other than the holder of the Income Equity
Units or Growth Equity Units, we will cause the shares of common stock being
purchased to be issued, and the related notes, the applicable ownership
interest of the Treasury portfolio or the U.S. Treasury securities, as the case
may be, securing those purchase contracts to be released from the pledge under
the pledge agreement and transferred, within three business days following the
settlement date, to you or your designee.
Notice to Settle With Cash
If you want to settle the purchase contract underlying an Equity Unit with
cash on the business day immediately preceding May 17, 2005, you must notify
the purchase contract agent by presenting and surrendering the Equity Unit
certificate evidencing those Equity Units. You must present the certificates at
the offices of the purchase contract agent with the form of "Notice to Settle
by Separate Cash" on the reverse side of the certificate completed and executed
as indicated. If you are an Income Equity Unit holder, you must present the
documents on or prior to 5:00 p.m., New York City time, on the fifth business
day immediately preceding May 17, 2005. If you are a Growth Equity Unit holder,
or you are an Income Equity Unit holder and the Treasury portfolio has replaced
the notes as a component of Income Equity Units as a result of a successful
remarketing of the notes or a tax event redemption, you must present the
documents on or prior to 5:00 p.m., New York City time, on the second business
day immediately preceding May 17, 2005.
If you have given notice of your intention to settle the related purchase
contract with cash but fail to deliver the cash on the business day immediately
preceding May 17, 2005, we will exercise our right as a secured party to
dispose of, in accordance with applicable law, the related notes, the
applicable ownership interest of the Treasury portfolio or the Treasury
securities, as the case may be, to satisfy in full from the proceeds of that
disposition your obligation to purchase common stock under the related purchase
contract.
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Early Settlement upon Cash Merger
Prior to the settlement date, if we are involved in a merger in which at
least 30% of the consideration for our common stock consists of cash or cash
equivalents, which we refer to as a cash merger, then on or after the date of
the cash merger each holder of the Equity Units will have the right to
accelerate and settle the related purchase contract at the settlement rate in
effect immediately before the cash merger, provided that at such time, if so
required under the U.S. federal securities laws, there is in effect a
registration statement covering any securities to be delivered in respect of
the purchase contracts being settled. We refer to this right as the "merger
early settlement right." We will provide each of the holders with a notice of
the completion of a cash merger within five business days thereof. The notice
will specify the early settlement date, which shall be ten days after the date
of the notice. The notice will set forth, among other things, the formula for
determining the applicable settlement rate and the amount of the cash,
securities and other consideration receivable by the holder upon settlement. To
exercise the merger early settlement right, you must deliver to the purchase
contract agent, not later than one business day before the early settlement
date, the certificate evidencing your Equity Units, if the Equity Units are
held in certificated form, and payment of the applicable purchase price in the
form of a certified or cashier's check. If you exercise the merger early
settlement right, we will deliver to you on the early settlement date the kind
and amount of securities, cash or other property that you would have been
entitled to receive if you had settled the purchase contract immediately before
the cash merger at the settlement rate in effect at such time, determined using
the average of the closing prices per share of the common stock on each of the
20 consecutive trading days ending on the third trading day immediately
preceding the date of the cash merger. You will also receive the notes, U.S.
Treasury securities or applicable ownership interests in the Treasury portfolio
underlying the Equity Units. Your receipt of the applicable ownership interests
in the Treasury portfolio will be subject to the purchase contract agent's
disposition of the subject securities for cash and the payment of the cash to
you to the extent that you would otherwise have been entitled to receive less
than $1,000 principal amount at maturity of any security. If you do not elect
to exercise your merger early settlement right, your Equity Units will remain
outstanding and subject to normal settlement on the settlement date. We have
agreed that, if required under the U.S. federal securities laws, we will use
commercially reasonable efforts to (1) have in effect a registration statement
covering any securities to be delivered in respect of the purchase contracts
being settled and (2) provide a prospectus in connection therewith, in each
case in a form that may be used in connection with the early settlement upon a
cash merger.
Contract Adjustment Payments
Contract adjustment payments in respect of Equity Units will be fixed at a
rate per year of 2.90% of the stated amount. Contract adjustment payments
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months. Contract adjustment payments will accrue from April 30,
2002 and will be payable quarterly in arrears on February 17, May 17, August 17
and November 17 of each year, commencing August 17, 2002.
Contract adjustment payments will be payable to the holders of purchase
contracts as they appear on the books and records of the purchase contract
agent on the relevant record dates.
As long as the Equity Units remain in book-entry only form, the record dates
will be the first day of each month in which the relevant contract adjustment
payment date falls. Those payments will be paid through the purchase contract
agent who will hold amounts received in respect of the contract adjustment
payments for your benefit. Subject to any applicable laws and regulations, each
of those payments will be made as described under "--Book-Entry System." If the
Equity Units do not remain exclusively in book-entry form, we shall have the
right to select relevant record dates, which shall be more than one (1)
business day but less than sixty (60) business days prior to the relevant
payment dates.
If any date on which contract adjustment payments are to be made on the
purchase contracts related to the Equity Units is not a business day, then
payment of the contract adjustment payments payable on that date will be made
on the next succeeding day that is a business day, and no interest or payment
will be paid in respect of
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the delay. A business day shall mean any day other than a Saturday, Sunday or
any other day on which banking institutions and trust companies in The City of
New York are permitted or required by any applicable law to close.
Our obligations with respect to contract adjustment payments will be
subordinated and junior in right of payment to our obligations under any senior
debt.
Option to Defer Contract Adjustment Payments
We will have the right to defer payment of all or part of the contract
adjustment payments on the purchase contracts until no later than the purchase
contract settlement date. We will pay interest on any deferred contract
adjustment payment at a rate of 8.50% per year, compounded quarterly, until
paid. If the purchase contracts are settled early or terminated, you will have
no right to receive any deferred and unpaid contract adjustment payments. In
the event we exercise our option to defer the payment of contract adjustment
payments, then until the deferred contract adjustment payments have been paid,
we and our subsidiaries will not, with certain exceptions, declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of our capital
stock. We have no present intention of exercising our right to defer the
payment of the contract adjustment payments.
Anti-Dilution Adjustments
The formula for determining the settlement rate will be subject to
adjustment, without duplication, if certain events occur, including:
(a) issuances of our common stock as a dividend or distribution to all
holders of our common stock;
(b) the issuance to all holders of our common stock of rights, warrants or
options, other than pursuant to dividend reinvestment or share purchase
plans, entitling them, for a period of up to 45 days, to subscribe for
or purchase our common stock at less than the "current market price,"
as defined below, of our common stock at the time of announcement of
such issuance;
(c) subdivisions, splits or combinations of our common stock;
(d) distributions to all holders of our common stock of evidences of our
indebtedness, shares of capital stock, securities, cash or property,
excluding any dividend or distribution covered by clauses (a) or (b)
above and any dividend or distribution paid exclusively in cash;
(e) distributions consisting exclusively of cash to all holders of our
common stock, other than such distributions that are made for the
purpose of paying our normal quarterly dividend of up to $0.25 per
share, in an aggregate amount that, together with
. other all-cash distributions, other than such distributions that are
made for the purpose of paying our normal quarterly dividend of up
to $0.25 per share, made within the preceding 12 months and
. any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration payable
in respect of any tender or exchange offer by us or a subsidiary of
ours for our common stock concluded within the preceding 12 months,
exceeds 10% of our aggregate market capitalization on the date of
that distribution; the aggregate market capitalization being the
product of the current market price of the common stock multiplied
by the number of shares of common stock then outstanding; and
(f) the successful completion of a tender or exchange offer made by us or
any subsidiary of ours for our common stock which involves an aggregate
consideration that, together with
. any cash and the fair market value of consideration payable in
respect of any tender or exchange offer by us or a subsidiary of
ours for our common stock concluded within the preceding 12 months
and
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. the aggregate amount of any all-cash distributions to all holders of
our common stock made within the preceding 12 months, exceeds 15% of
our aggregate market capitalization on the expiration of the tender
or exchange offer.
The current market price per share of our common stock on any day means the
average of the daily closing prices for the ten consecutive trading days ending
not later than the earlier of the day in question and the day before the "ex-
date" with respect to the issuance or distribution requiring the computation.
For purposes of this paragraph, the term "ex-date," when used with respect to
any issuance or distribution, shall mean the first date on which our common
stock trades on the applicable exchange or in the applicable market without the
right to receive such issuance or distribution.
The formula for calculating the settlement rate will not be adjusted for
other events, such as an offering of our common stock for cash, a third-party
tender offer or in connection with acquisitions.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which our common stock is
converted into the right to receive other securities, cash or property
(collectively, "reorganization events"), each purchase contract then
outstanding will become, without the consent of the holder of the related
Equity Unit, a contract to purchase only the kind of securities, cash and other
property (collectively, the "exchange property") receivable upon consummation
of the reorganization event by a holder of our common stock immediately prior
to the closing date of the reorganization event. In the case of settlement on
the purchase contract settlement date, the amount of exchange property
receivable upon settlement of each purchase contract will equal the "base
exchange property" multiplied by the "applicable settlement rate," where (a)
the "base exchange property" means the amount of exchange property received
upon consummation of the reorganization event in exchange for one share of our
common stock and (b) the "applicable settlement rate" means the settlement rate
determined as set forth in this prospectus supplement except that the
applicable market value of the exchange property (as described below) will
replace the applicable market value of our common stock for purposes of
determining such settlement rate. In the case of early settlement, the amount
of exchange property receivable upon settlement of each purchase contract will
equal the "base exchange property" multiplied by 0.8190. The "applicable market
value of the exchange property" will be determined (1) with respect to any
publicly traded securities, on the basis of the closing price of such
securities, (2) with respect to any cash, on the basis of the amount of such
cash and (3) with respect to any other property, on the basis of the value of
such property as determined by a nationally recognized investment banking firm
retained by us for this purpose.
If at any time we make a distribution of property to holders of our common
stock that would be taxable to such shareholders as a dividend for United
States federal income tax purposes (which includes, generally, distributions of
evidences of our indebtedness or assets, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the settlement rate
adjustment provisions of the purchase contract agreement, the settlement rate
is increased, such increase may give rise to a taxable dividend to holders of
the Equity Units. See "Certain United States Federal Income Tax Consequences--
U.S. Holders--Adjustment to Settlement Rate" in this prospectus supplement.
In addition, we may make increases in the settlement rate as we deem
advisable in order to avoid or diminish any income tax to holders of our common
stock resulting from any dividend, distribution of our common stock,
distribution of rights to acquire our common stock or from any event treated as
such for income tax purposes or for any other reason.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate will be required
unless such adjustment would require an increase or decrease of at least one
percent in the settlement rate, provided that any adjustments not made by
reason of the foregoing will be carried forward and taken into account in any
subsequent adjustment.
Whenever the settlement rate is adjusted, we must deliver to the purchase
contract agent an officer's certificate setting forth the adjusted settlement
rate, detailing the calculation of the adjusted settlement rate and
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describing the facts upon which the adjustment is based. In addition, we must
provide written notice to the holders of the Equity Units of the adjustment
within ten business days of any event requiring such adjustment and describe in
reasonable detail the method by which the settlement rate was adjusted.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of our common shares issuable upon early settlement of
a purchase contract.
Termination of Purchase Contracts
The purchase contracts, our related rights and obligations and those of the
holders of the Equity Units, including the right and obligation to purchase
common stock and the right to receive accrued and unpaid contract adjustment
payments and deferred and unpaid contract adjustment payments, will
automatically terminate upon the occurrence of particular events of bankruptcy,
insolvency or reorganization with respect to us.
Upon termination, the collateral agent will release the related notes, the
appropriate applicable ownership interest of the Treasury portfolio or the U.S.
Treasury securities held by it to the purchase contract agent for distribution
to the holders. The release will be subject in the case of the Treasury
portfolio to the purchase contract agent's disposition of the subject
securities for cash and the payment of the cash to the holders to the extent
that the holders would otherwise have been entitled to receive less than $1,000
principal amount at maturity of any security. Upon termination, however, the
release and distribution may be subject to a delay. If we become the subject of
a case under the Bankruptcy Code, a delay may occur as a result of the
automatic stay under the U.S. Bankruptcy Code and continue until the automatic
stay has been lifted.
Pledged Securities and Pledge Agreement
The notes related to the Income Equity Units, the applicable ownership
interest of the Treasury portfolio if a successful remarketing of the notes or
a tax event redemption has occurred, or the U.S. Treasury securities related to
the Growth Equity Units (collectively, the pledged securities) will be pledged
to the collateral agent for our benefit. Pursuant to the pledge agreement, the
pledged securities will secure the obligations of holders of Equity Units to
purchase our common stock under the related purchase contracts. Your rights to
the related pledged securities will be subject to our security interest created
by the pledge agreement. You will not be permitted to withdraw the pledged
securities related to the Income Equity Units or Growth Equity Units from the
pledge arrangement except:
(a) to substitute U.S. Treasury securities for the notes or the applicable
ownership interest of the Treasury portfolio;
(b) to substitute notes or the appropriate applicable ownership interest of
the Treasury portfolio for the related U.S. Treasury securities; or
(c) upon the termination or early settlement of the related purchase
contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, (1) each holder of Income Equity Units,
unless the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as a result of a successful remarketing of the notes or a
tax event redemption, will be entitled through the purchase contract agent and
the collateral agent to all of the proportional rights and preferences of the
related notes, including distribution, voting, redemption, repayment and
liquidation rights and (2) each holder of Growth Equity Units or Income Equity
Units, if the Treasury portfolio has replaced the notes as a component of the
Income Equity Units as a result of a successful remarketing of the notes or a
tax event redemption, will retain beneficial ownership of the applicable
ownership interest of the Treasury portfolio or the related U.S. Treasury
securities pledged in respect of the related purchase contracts. We will have
no interest in the pledged securities other than our security interest.
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Except as described in "Description of the Purchase Contracts--General," the
collateral agent will, upon receipt of payments on the pledged securities,
distribute those payments to the purchase contract agent, which will in turn
distribute them, together with contract adjustment payments received from us,
to the persons in whose names the related Income Equity Units or Growth Equity
Units are registered at the close of business on the record date immediately
preceding the date of payment.
Book-Entry System
The Depository Trust Company, which we refer to along with its successors in
this capacity as the depositary, will act as securities depositary for the
Equity Units. The Equity Units will be issued only as fully-registered
securities registered in the name of Cede & Co., the depositary's nominee. One
or more fully-registered global security certificates, representing the total
aggregate number of Equity Units, will be issued and will be deposited with the
depositary and will bear a legend regarding the restrictions on exchanges and
registration of transfer referred to below.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the Equity Units so
long as the Equity Units are represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, including transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The depositary is owned by a number of its direct participants
and by the NYSE, the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the depositary's system is also available
to others, including securities brokers and dealers, banks and trust companies
that clear transactions through or maintain a direct or indirect custodial
relationship with a direct participant either directly or indirectly. The rules
applicable to the depositary and its participants are on file with the SEC.
No Equity Units represented by global security certificates may be exchanged
in whole or in part for Equity Units registered, and no transfer of global
security certificates in whole or in part may be registered, in the name of any
person other than the depositary or any nominee of the depositary except as set
forth below.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests
through institutions that have accounts with the depositary or its nominee.
Ownership of beneficial interests in global security certificates will be shown
only on, and the transfer of those ownership interests will be effected only
through, records maintained by the depositary or its nominee, with respect to
participants' interests, or any participant, with respect to interests of
persons held by the participant on their behalf.
Although the depositary has agreed to the foregoing procedures in order to
facilitate transfer of interests in the global security certificates among
participants, the depositary is under no obligation to perform or continue to
perform these procedures and these procedures may be discontinued at any time.
We will not have any responsibility for the performance by the depositary or
its direct participants or indirect participants under the rules and procedures
governing the depositary.
In the event that the depositary notifies us that it is unwilling or unable
to continue as a depositary for the global security certificates and no
successor depositary has been appointed within 90 days after this notice, or
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an event of default under the purchase contract agreement or the indenture has
occurred and is continuing, certificates for the Equity Units will be printed
and delivered in exchange for beneficial interests in the global security
certificates. Any global notes that are exchangeable pursuant to the preceding
sentence shall be exchangeable for Equity Units certificates registered in the
names directed by the depositary. We expect that these instructions will be
based upon directions received by the depositary from its participants with
respect to ownership of beneficial interests in the global security
certificates.
As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or the nominee, as the case may
be, will be considered the sole owner and holder of the global security
certificates and all Equity Units represented by these certificates for all
purposes under the Equity Units and the purchase contract agreement. Except in
the limited circumstances referred to above, owners of beneficial interests in
global security certificates will not be entitled to have such global security
certificates or the Equity Units represented by these certificates registered
in their names, will not receive or be entitled to receive physical delivery of
Equity Unit certificates in exchange for beneficial interests in global
security certificates and will not be considered to be owners or holders of the
global security certificates or any Equity Units represented by these
certificates for any purpose under the Equity Units or the purchase contract
agreement.
All payments on the Equity Units represented by the global security
certificates and all transfers and deliveries of related notes, applicable
ownership interests of the Treasury portfolio, U.S. Treasury securities and
common stock will be made to the depositary or its nominee, as the case may be,
as the holder of the Equity Units.
Procedures for settlement of purchase contracts on May 17, 2005 or upon
early settlement will be governed by arrangements among the depositary,
participants and persons that may hold beneficial interests through
participants designed to permit settlement without the physical movement of
certificates. Payments, transfers, deliveries, exchanges and other matters
relating to beneficial interests in global security certificates may be subject
to various policies and procedures adopted by the depositary from time to time.
Neither we or any of our agents, nor the purchase contract agent or any of
its agents will have any responsibility or liability for any aspect of the
depositary's or any participant's records relating to, or for payments made on
account of, beneficial interests in global security certificates, or for
maintaining, supervising or reviewing any of the depositary's records or any
participant's records relating to these beneficial ownership interests.
The information in this section concerning the depositary and its book-entry
system has been obtained from sources that we believe to be reliable, but we
have not attempted to verify the accuracy of this information.
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DESCRIPTION OF THE PURCHASE CONTRACT AGREEMENT AND
THE PLEDGE AGREEMENT
The summary of the purchase contract agreement and pledge agreement set
forth below is not complete and is qualified in all respects by reference to
those agreements, forms of which have been or will be filed with the SEC and
you may obtain copies as described under "Where You Can Find More Information"
in the accompanying prospectus.
General
Except as described in "Description of the Purchase Contracts--Book-Entry
System," payments on the Equity Units will be payable, purchase contracts, and
documents related to the Equity Units and purchase contracts, will be settled,
and transfers of the Equity Units will be registrable, at the office of the
purchase contract agent in the Borough of Manhattan, The City of New York. In
addition, if the Equity Units do not remain in book-entry form, payment on the
Equity Units may be made, at our option, by check mailed to the address of the
person entitled to payment as shown on the security register.
Shares of our common stock will be delivered on May 17, 2005, or earlier
upon early settlement, or, if the purchase contracts have terminated, the
related pledged securities will be delivered, potentially after a delay as a
result of the imposition of the automatic stay under the Bankruptcy Code, see
"Description of the Purchase Contracts--Termination of Purchase Contracts," in
each case upon presentation and surrender of the Equity Units certificate at
the office of the purchase contract agent.
If you fail to present and surrender the Equity Unit certificate evidencing
the Income Equity Unit or Growth Equity Unit to the purchase contract agent on
May 17, 2005, the shares of common stock issuable in settlement of the related
purchase contract will be registered in the name of the purchase contract
agent. The shares of common stock, together with any related payment, will be
held by the purchase contract agent as agent for your benefit until the Equity
Unit certificate is presented and surrendered or you provide satisfactory
evidence that the certificate has been destroyed, lost or stolen, together with
any indemnity that may be required by the purchase contract agent and us.
If the purchase contracts have terminated prior to May 17, 2005, the related
pledged securities have been transferred to the purchase contract agent for
distribution to the holders, and a holder fails to present and surrender the
Equity Unit certificates evidencing the holder's Income Equity Units or Growth
Equity Units to the purchase contract agent, the related pledged securities
delivered to the purchase contract agent and payments on the pledged securities
will be held by the purchase contract agent as agent for the benefit of the
holder until the Equity Unit certificate is presented or the holder provides
the evidence and indemnity described above.
The purchase contract agent will have no obligation to invest or to pay
interest on any amounts held by the purchase contract agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the Equity Units, except for any tax or other governmental charge that may
be imposed in connection with a transfer or exchange.
Modification
The purchase contract agreement will contain provisions permitting us and
the purchase contract agent to modify the purchase contract agreement without
the consent of the holders for any of the following purposes:
. to evidence the permitted succession of another person to our
obligations;
. to evidence and provide for the acceptance of appointment of a successor
purchase contract agent;
. to add to the covenants for the benefit of holders;
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. to make provision with respect to the rights of holders pursuant to
adjustments in the settlement rate due to consolidations, mergers or
other reorganization events; or
. to cure any ambiguity, to correct or supplement any provisions that may
be inconsistent, or to make any other provisions with respect to such
matters or questions, provided that such action shall not adversely
affect the interest of the holders in any material respect.
The purchase contract agreement and the pledge agreement will contain
provisions permitting us and the purchase contract agent or collateral agent,
as the case may be, with the consent of the holders of not less than a majority
of the purchase contracts at the time outstanding, to modify the terms of the
purchase contracts, the purchase contract agreement and the pledge agreement.
However, no such modification may, without the consent of the holder of each
outstanding purchase contract affected by the modification,
. change any payment date,
. change the amount or type of pledged securities related to the purchase
contract, impair the right of the holder of any pledged securities to
receive distributions on the pledged securities or otherwise adversely
affect the holder's rights in or to those pledged securities,
. impair the right to institute suit for the enforcement of the purchase
contract, any contract adjustment payments or any deferred contract
adjustment payments,
. reduce the number of shares of common stock or the amount of any other
property purchasable under the purchase contract, increase the price to
purchase common stock or any other property upon settlement of the
purchase contract, change the purchase contract settlement date or the
right to early settlement or otherwise adversely affect the holder's
rights under the purchase contract,
. change the place or currency of payment or reduce any contract
adjustment payments or deferred contract adjustment payments, or
. reduce the number of outstanding purchase contracts, the consent of the
holders of which is required for the modification or amendment of the
provisions of the purchase contracts, the purchase contract agreement or
the pledge agreement to less than a majority.
If any amendment or proposal referred to above would adversely affect only
the Income Equity Units or the Growth Equity Units, then only the affected
class of holders will be entitled to vote on the amendment or proposal and the
amendment or proposal will not be effective except with the consent of the
holders of not less than a majority of the affected class or all of the holders
of the affected class, as applicable.
No Consent to Assumption
Each holder of Income Equity Units or Growth Equity Units, by acceptance of
these securities, will under the terms of the purchase contract agreement and
the Income Equity Units or Growth Equity Units, as applicable, be deemed
expressly to have withheld any consent to the assumption, i.e., affirmance, of
the related purchase contracts by us or our trustee if we become the subject of
a case, action or proceeding under the Bankruptcy Code or other similar state
or federal law provisions for reorganization or liquidation.
Consolidation, Merger, Sale or Conveyance
We will covenant in the purchase contract agreement that we will not merge
or consolidate with or into any other entity or sell, assign, transfer, lease
or convey all or substantially all of our properties and assets to any person
or entity, unless (1) we are the continuing corporation or the successor entity
is a corporation organized and existing under the laws of the United States of
America or a U.S. State or the District of Columbia and such corporation
expressly assumes our obligations under the purchase contracts, the notes, the
purchase contract agreement, the pledge agreement, the indenture, including any
supplemental indenture, and the remarketing agreement and (2) we or the
successor corporation is not, immediately after the merger,
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consolidation, sale, assignment, transfer, lease or conveyance, in default of
our or its payment obligations under the purchase contracts, the notes, the
purchase contract agreement, the pledge agreement, the indenture, including any
supplemental indenture, and the remarketing agreement or in material default in
the performance of any of our or its other obligations under these agreements.
Title
We, the purchase contract agent and the collateral agent may treat the
registered owner of any Equity Units as the absolute owner of the Equity Units
for the purpose of making payment and settling the related purchase contracts
and for all other purposes.
Replacement of Equity Unit Certificates
In the event that physical certificates have been issued, any mutilated
Equity Unit certificate will be replaced by us at the expense of the holder
upon surrender of the certificate to the purchase contract agent. Equity Unit
certificates that become destroyed, lost or stolen will be replaced by us at
the expense of the holder upon delivery to us and the purchase contract agent
of evidence of the destruction, loss or theft satisfactory to us and the
purchase contract agent. In the case of a destroyed, lost or stolen Equity Unit
certificate, an indemnity satisfactory to the purchase contract agent and us
may be required at the expense of the holder of the Equity Units evidenced by
the certificate before a replacement will be issued.
Notwithstanding the foregoing, we will not be obligated to issue any Income
Equity Units or Growth Equity Units on or after the business day immediately
preceding May 17, 2005, or after early settlement with respect to a particular
Income Equity Unit or Growth Equity Unit, or after the purchase contracts have
terminated. The purchase contract agreement will provide that, in lieu of the
delivery of a replacement Equity Unit certificate following May 17, 2005 or
early settlement with respect to a particular Income Equity Unit or Growth
Equity Unit, the purchase contract agent, upon delivery of the evidence and
indemnity described above, will deliver the common stock issuable pursuant to
the purchase contracts included in the Income Equity Units or Growth Equity
Units evidenced by the certificate. If the purchase contracts have terminated
prior to May 17, 2005, the purchase contract agent will deliver the notes, the
appropriate applicable ownership interest of the Treasury portfolio or the U.S.
Treasury securities, as the case may be, included in the Income Equity Units or
Growth Equity Units evidenced by that certificate.
Governing Law
The purchase contract agreement, the pledge agreement and the purchase
contracts will be governed by, and construed in accordance with, the laws of
the State of New York.
Information Concerning the Purchase Contract Agent
U.S. Bank Trust National Association will be the purchase contract agent.
The purchase contract agent will act as your agent. The purchase contract
agreement will not obligate the purchase contract agent to exercise any
discretionary actions in connection with a default under the terms of the
Income Equity Units and Growth Equity Units or the purchase contract agreement.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement will
contain provisions under which the purchase contract agent may resign or be
replaced. This resignation or replacement would be effective upon the
appointment of a successor.
Information Concerning the Collateral Agent
U.S. Bank Trust National Association will be the collateral agent. The
collateral agent will act solely as our agent and will not assume any
obligation or relationship of agency or trust for or with any of the holders of
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the Income Equity Units and Growth Equity Units except for the obligations owed
by a pledgee of property to the owner of the property under the pledge
agreement and applicable law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement will contain provisions under which the
collateral agent may resign or be replaced. This resignation or replacement
would be effective upon the appointment of a successor.
Since U.S. Bank Trust National Association is serving as both the collateral
agent and the purchase contract agent, if an event of default, except an event
of default occurring as a result of a failed remarketing on the third business
day immediately preceding May 17, 2005, occurs under the purchase contract
agreement or the pledge agreement, U.S. Bank Trust National Association will
resign as the collateral agent, but remain as the purchase contract agent. We
will then select a new collateral agent in accordance with the terms of the
pledge agreement.
Miscellaneous
The purchase contract agreement will provide that we will pay all fees and
expenses, other than underwriters' expenses (including counsel), related to the
offering of the Equity Units, the retention of the collateral agent and the
enforcement by the purchase contract agent of the rights of the holders of the
Equity Units.
Should you elect to substitute the related pledged securities, creating or
recreating Growth Equity Units or Income Equity Units, you shall be responsible
for any fees or expenses payable in connection with that substitution, as well
as any commissions, fees or other expenses incurred in acquiring the pledged
securities to be substituted, and we shall not be responsible for any of those
fees or expenses.
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DESCRIPTION OF THE NOTES
The notes offered by this prospectus supplement are a series of our senior
unsecured debt securities as described below and in the accompanying
prospectus. The notes will be issued under an indenture, as supplemented,
between Sempra Energy, as issuer, and U.S. Bank Trust National Association, as
trustee. We have summarized selected provisions of the notes and the indenture
below. The summary of selected provisions of the notes and the indenture
referred to below supplements, and to the extent inconsistent supersedes and
replaces, the description of the general terms and provisions of the senior
debt securities and the indenture contained in the accompanying prospectus.
This summary is not complete and is qualified by reference to provisions of the
notes and the indenture, as supplemented. The indenture has been filed and
forms of the notes and the supplemental indenture have been or will be filed
with the SEC and you may obtain copies as described under "Where You Can Find
More Information" in the accompanying prospectus.
In this section, references to "Sempra Energy," "we," "our," "us" and "the
Company" mean Sempra Energy excluding, unless otherwise expressly stated or the
context otherwise requires, its subsidiaries. Capitalized terms used in this
section but not defined have the meanings given to those terms in the
accompanying prospectus or, if not defined in the accompanying prospectus, in
the indenture.
General
The notes will constitute a separate series of senior debt securities under
the indenture, initially limited to $550,000,000 aggregate principal amount. If
the over-allotment option is exercised in full by the underwriters an
additional $50,000,000 of the notes will be issued.
The notes will mature on May 17, 2007. The notes will bear interest at the
rate of 5.60% per annum, accruing from April 30, 2002. Interest on the notes
will be payable quarterly in arrears on February 17, May 17, August 17 and
November 17 of each year, commencing August 17, 2002. Interest on the notes
will be computed on the basis of a 360-day year of twelve 30-day months.
If any interest payment date, redemption date or the maturity date of the
notes is not a business day at any place of payment, then payment of the
principal, premium, if any, and interest may be made on the next business day
at that place of payment. In that case, no interest will accrue on the amount
payable for the period from and after the applicable interest payment date,
redemption date or maturity date, as the case may be.
The notes will not be subject to a sinking fund provision. Unless a tax
event redemption has occurred prior to May 17, 2007, the entire principal
amount of the notes will mature and become due and payable, together with any
accrued and unpaid interest, on May 17, 2007. Except for a tax event
redemption, we may not redeem the notes.
Notes forming a part of the Income Equity Units will be issued in
certificated form, will be in denominations of $25 and integral multiples of
$25, without coupons, and may be transferred or exchanged, without service
charge but upon payment of any taxes or other governmental charges payable in
connection with the transfer or exchange, at the offices described below. Notes
that do not form a component of the Income Equity Units will be represented by
one or more global notes deposited with, or on behalf of, The Depository Trust
Company, as Depositary, and registered in the name of Cede & Co., its nominee,
and payments on those notes will be made to the depositary, a successor
depositary or, in the event no depositary is used, to a paying agent for the
notes. This means that you will not be entitled to receive a certificate for
the notes that you purchase except under the limited circumstances described
below under "Book-Entry, Clearance and Settlement."
So long as the notes are in book-entry form, you will receive payments and
may transfer notes only through the facilities of the Depositary and its direct
and indirect participants. See "Book-Entry, Clearance and Settlement." We will
maintain an office or agency in the Borough of Manhattan, The City of New York
where
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notices and demands in respect of the notes and the indenture may be delivered
to us and where certificated notes may be surrendered for payment, registration
of transfer or exchange. That office or agency will initially be the office of
the trustee, which is currently located at 100 Wall Street, Suite 1600, New
York, New York 10005.
So long as the notes are in book-entry form, we will make payments on the
notes to the Depositary or its nominee, as the registered owner of the notes,
by wire transfer of immediately available funds. With respect to notes issued
in definitive certificated form, we will have the option of paying interest by
check mailed to the addresses of the persons entitled to payment or by wire
transfer to bank accounts in the United States designated in writing to the
trustee at least 15 days before the applicable payment date by the persons
entitled to payment.
We will pay principal of and any premium on the notes at stated maturity,
upon redemption or otherwise, upon presentation of the notes at the office of
the trustee, who shall act as our paying agent. In our discretion, we may
appoint one or more additional paying agents and security registrars and
designate one or more additional places for payment and for registration of
transfer, but we are obligated at all times to maintain a place of payment of
the notes and a place for registration of transfer of the notes in the Borough
of Manhattan, The City of New York.
The notes will be our unsecured and unsubordinated obligations and will rank
on a parity in right of payment with all of our other unsecured and
unsubordinated indebtedness. The notes are our obligations exclusively, and are
not the obligations of any of our subsidiaries. Because we conduct our
operations primarily through our subsidiaries and substantially all of our
consolidated assets are held by our subsidiaries, the notes will be effectively
subordinated to all existing and future indebtedness and other liabilities of
our subsidiaries. On March 31, 2002, our subsidiaries had total consolidated
liabilities of $12,343 million. See "Description of Debt Securities--Guarantee
of Sempra Energy; Holding Company Structure" in the accompanying prospectus.
Any monies deposited with the trustee or any paying agent, or held by us in
trust, for the payment of principal of or interest on any note and remaining
unclaimed for two years after such principal or interest has become due and
payable shall, at our request, be repaid to us or released from trust, as
applicable, and the holder of the note shall thereafter look, as a general
unsecured creditor, only to us for the payment thereof.
The indenture does not contain provisions that afford holders of the notes
protection in the event of a highly leveraged transaction or other similar
transaction involving us that may adversely affect the holders.
Interest
Each note shall bear interest initially at the rate of 5.60% per year from
the original issue date, payable quarterly in arrears on February 17, May 17,
August 17 and November 17 of each year, each an "interest payment date,"
commencing August 17, 2002, to the person in whose name the note is registered
at the close of business on the first day of the month in which the interest
payment date falls. The original issue discount rules that apply to contingent
payment debt instruments should govern the income inclusions with respect to
the notes for United States federal income tax purposes.
The applicable interest rate on the notes will be reset on the third
business day immediately preceding February 17, 2005 to the reset rate
described below under "- Market Rate Reset," unless the remarketing of the
notes on that date fails. If the remarketing of the notes on the third business
day immediately preceding February 17, 2005 fails, the interest rate on the
notes will not be reset at that time. In these circumstances, the interest rate
on the notes outstanding will be reset on the third business day immediately
preceding April 17, 2005 to the reset rate described below if that remarketing
is successful. If the remarketing of the notes on the third business day
immediately preceding April 17, 2005 also fails, the interest rate on the notes
will not be reset at that time. In these circumstances, the interest rate on
the notes will be reset on the third business day
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immediately preceding May 17, 2005 to the reset rate described below, unless
the remarketing of the notes on that date also fails, in which case the
interest rate will not be reset.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months.
Market Rate Reset
The reset rate will be equal to the sum of the reset spread and the rate of
interest on the applicable benchmark Treasury in effect on the third business
day immediately preceding February 17, 2005, April 17, 2005 or May 17, 2005, as
the case may be, and will be determined by the reset agent. In the case of a
reset on the third business day immediately preceding February 17, 2005 or
April 17, 2005, the reset rate will be the rate determined by the reset agent
as the rate the notes should bear in order for the notes included in Income
Equity Units to have an approximate aggregate market value on the reset date of
100.5% of the Treasury portfolio purchase price described under "Description of
the Purchase Contracts--Remarketing." In the case of a reset on the third
business day immediately preceding May 17, 2005, the reset rate will be the
rate determined by the reset agent as the rate the notes should bear in order
for each note to have an approximate market value of 100.5% of the principal
amount of the notes. The reset rate will in no event exceed the maximum rate
permitted by applicable law.
The applicable benchmark Treasury means direct obligations of the United
States, as agreed upon by us and the reset agent, which may be obligations
traded on a when-issued basis only, having a maturity comparable to the
remaining term to maturity of the notes, which will be two and one-quarter
years, two years and one month or two years, as applicable. The rate for the
applicable benchmark Treasury will be the bid side rate displayed at 10:00
a.m., New York City time, on the third business day immediately preceding
February 17, 2005, April 17, 2005 or May 17, 2005, as applicable, in the
Telerate system, or if the Telerate system is (a) no longer available on that
date or (b) in the opinion of the reset agent, after consultation with us, no
longer an appropriate system from which to obtain the rate, such other
nationally recognized quotation system as, in the opinion of the reset agent,
after consultation with us, is appropriate. If this rate is not so displayed,
the rate for the applicable benchmark Treasury will be, as calculated by the
reset agent, the yield to maturity for the applicable benchmark Treasury,
expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis, and computed by taking the arithmetic
mean of the secondary market bid rates, as of 10:30 a.m., New York City time,
on the third business day immediately preceding February 17, 2005, April 17,
2005 or May 17, 2005, as applicable, of three leading United States government
securities dealers selected by the reset agent, after consultation with us.
These dealers may include the reset agent or an affiliate thereof. The reset
agent will be a nationally recognized investment banking firm selected by us.
On the seventh business day immediately preceding February 17, 2005, April
17, 2005 or May 17, 2005, as applicable, which we refer to as the reset
announcement date
(1) the applicable benchmark Treasury to be used to determine the reset
rate on the third business day prior to February 17, 2005, April 17,
2005 or May 17, 2005, as applicable, will be selected,
(2) the reset agent will establish the reset spread to be added to the
rate on the applicable benchmark Treasury in effect on the third
business day immediately preceding February 17, 2005, April 17, 2005
or May 17, 2005, as applicable, and
(3) we will announce the reset spread and the applicable benchmark
Treasury.
We will cause a notice of the reset spread and the applicable benchmark
Treasury to be published on the business day following the reset announcement
date by publication in a daily newspaper in the English language of general
circulation in New York City, which is expected to be The Wall Street Journal.
We will request, not later than seven nor more than 15 calendar days prior to
the reset announcement date, that the depositary notify its participants
holding notes, Income Equity Units or Growth Equity Units of the
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reset announcement date and of the procedures that must be followed if any
owner of Equity Units wishes to settle the related purchase contract with cash
on the business day immediately preceding May 16, 2005.
Optional Remarketing
On or prior to the fifth business day immediately preceding February 17,
2005, in the case of the remarketing to be conducted on the third business day
preceding February 17, 2005, April 17, 2005, in the case of the remarketing, if
any, to be conducted on the third business day preceding April 17, 2005, or May
17, 2005, in the case of the remarketing, if any, to be conducted on the third
business day preceding May 17, 2005, but no earlier than the interest payment
date immediately preceding February 17, 2005, April 17, 2005 or May 17, 2005,
as applicable, holders of notes that are not components of Income Equity Units
may elect to have their notes remarketed in the same manner as notes that are
components of Income Equity Units by delivering their notes along with a notice
of this election to the collateral agent. The collateral agent will hold the
notes in an account separate from the collateral account in which the pledged
securities will be held. Holders of notes electing to have their notes
remarketed will also have the right to withdraw the election on or prior to the
fifth business day immediately preceding February 17, 2005, April 17, 2005 or
May 17, 2005, as applicable.
Tax Event Redemption
If a tax event occurs and is continuing, we may, at our option, redeem the
notes in whole, but not in part, at any time at a price, which we refer to as
the redemption price, equal to, for each note, the redemption amount described
below plus accrued and unpaid interest, if any, to the date of redemption.
Installments of interest on notes which are due and payable on or prior to a
redemption date will be payable to the holders of the notes registered as such
at the close of business on the relevant record dates. If, following the
occurrence of a tax event, we exercise our option to redeem the notes, the
proceeds of the redemption will be payable in cash to the holders of the notes.
If the tax event redemption date occurs prior to February 17, 2005, or if the
notes are not successfully remarketed on the third business day immediately
preceding February 17, 2005, prior to April 17, 2005, or if the notes are not
successfully remarketed on the third business day preceding either February 17,
2005 or April 17, 2005, prior to May 17, 2005, the redemption price for the
notes forming a part of the Income Equity Units will be distributed to the
collateral agent, who in turn will purchase the Treasury portfolio described
below on behalf of the holders of Income Equity Units and remit the remainder
of the redemption price, if any, to the purchase contract agent for payment to
the holders. The Treasury portfolio will be substituted for the notes and will
be pledged to the collateral agent to secure the Income Equity Units holders'
obligations to purchase our common stock under the purchase contracts.
Tax event means the receipt by us of an opinion of nationally recognized
independent tax counsel experienced in such matters to the effect that, as a
result of
. any amendment to, change in, or announced proposed change in, the laws,
or any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation,
. any amendment to or change in an interpretation or application of any
such laws or regulations by any legislative body, court, governmental
agency or regulatory authority, or any interpretation or pronouncement
that provides for a position with respect to any such laws or
regulations that differs from the generally accepted position on the
date of this prospectus supplement, which amendment, change or proposed
change is effective or which interpretation or pronouncement is
announced on or after the date of this prospectus supplement, there is
more than an insubstantial risk that interest or original issue discount
on the notes would not be deductible, in whole or in part, by us for
United States federal income tax purposes.
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The Treasury portfolio to be purchased on behalf of the holders of Income
Equity Units will consist of:
. interest or principal strips of U.S. Treasury securities that mature on
or prior to May 16, 2005 in an aggregate amount equal to the aggregate
principal amount of the notes included in Income Equity Units; and
. with respect to each scheduled interest payment date on the notes that
occurs after the tax event redemption date and on or before May 17,
2005, interest or principal strips of U.S. Treasury securities that
mature prior to that interest payment date in an aggregate amount equal
to the aggregate interest payment that would be due on the aggregate
principal amount of the notes on that date if the interest rate of the
notes was not reset on the applicable reset date.
Solely for purposes of determining the Treasury portfolio purchase price in
the case of a tax event redemption date occurring after February 17, 2005, if
there was a successful remarketing of the notes on the third business day
preceding such date, April 17, 2005 if the remarketing of the notes on the
third business day preceding February 17, 2005 resulted in a failed
remarketing but there was a successful remarketing of the notes on the third
business day preceding April 17, 2005 or May 17, 2005, if each of the
preceding remarketings have failed, "Treasury portfolio" shall mean a
portfolio of zero-coupon U.S. Treasury securities consisting of:
. principal or interest strips of U.S. Treasury securities which mature on
or prior to May 16, 2007 in an aggregate amount equal to the aggregate
principal amount of the notes outstanding on the tax event redemption
date; and
. with respect to each scheduled interest payment date on the notes that
occurs after the tax event redemption date, interest or principal strips
of U.S. Treasury securities which mature prior to that interest payment
date in an aggregate amount equal to the aggregate interest payment that
would be due on the aggregate principal amount of the notes outstanding
on the tax event redemption date if the interest rate of the notes was
not reset on the applicable reset date.
Redemption amount means
. in the case of a tax event redemption date occurring prior to February
17, 2005, or prior to April 17, 2005 if the remarketing of the notes on
the third business day preceding February 17, 2005 resulted in a failed
remarketing, or prior to May 17, 2005 if the remarketing on the notes on
the third business day preceding April 17, 2005 also resulted in a
failed remarketing, for each note the product of the principal amount of
the note and a fraction whose numerator is the Treasury portfolio
purchase price and whose denominator is the aggregate principal amount
of notes included in Income Equity Units; and
. in the case of a tax event redemption date occurring on or after
February 17, 2005, or April 17, 2005, if the remarketing of the notes on
the third business day preceding February 17, 2005 resulted in a failed
remarketing, or May 17, 2005 if the remarketing of the notes on the
third business day preceding April 17, 2005 also resulted in a failed
remarketing, for each note the product of the principal amount of the
note and a fraction whose numerator is the Treasury portfolio purchase
price and whose denominator is the aggregate principal amount of the
notes outstanding on the tax event redemption date.
Treasury portfolio purchase price means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City to the
quotation agent on the third business day immediately preceding the tax event
redemption date for the purchase of the Treasury portfolio for settlement on
the tax event redemption date.
Quotation agent means Merrill Lynch, Pierce, Fenner & Smith Incorporated or
Salomon Smith Barney Inc. or any of their respective affiliates or successors
or any other primary U.S. government securities dealer in New York City
selected by us.
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Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of notes to be
redeemed at its registered address. Unless we default in payment of the
redemption price, on and after the redemption date interest shall cease to
accrue on the notes. In the event any notes are called for redemption, neither
we nor the trustee will be required to register the transfer of or exchange the
notes to be redeemed.
Book-Entry Clearance and Settlement
Notes which are released from the pledge following substitution or early
settlement will be issued in the form of one or more global certificates, which
we refer to as global securities, registered in the name of the depositary or
its nominee. Except under the limited circumstances described below or except
upon recreation of Income Equity Units, notes represented by the global
securities will not be exchangeable for, and will not otherwise be issuable as,
notes in certificated form. The global securities described above may not be
transferred except by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the
depositary or to a successor depositary or its nominee.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of the securities in certificated form. These
laws may impair the ability to transfer beneficial interests in such a global
security.
Except as provided below, owners of beneficial interests in such a global
security will not be entitled to receive physical delivery of notes in
certificated form and will not be considered the holders, as defined in the
indenture, thereof for any purpose under the indenture, and no global security
representing notes shall be exchangeable, except for another global security of
like denomination and tenor to be registered in the name of the depositary or
its nominee or a successor depositary or its nominee. Accordingly, each
beneficial owner must rely on the procedures of the depositary or 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.
In the event that
. the depositary notifies us that it is unwilling or unable to continue as
a depositary for the global security certificates and no successor
depositary has been appointed within 90 days after this notice, or
. the depositary at any time ceases to be a clearing agency registered
under the Securities Exchange Act at which time the depositary is
required to be so registered to act as the depositary and no successor
depositary has been appointed within 90 days after we learn that the
depositary has ceased to be so registered, or
. we determine in our sole discretion that we will no longer have debt
securities represented by global securities or permit the global
security certificates to be exchangeable or an event of default under
the indenture has occurred and is continuing,
certificates for the notes will be printed and delivered in exchange for
beneficial interests in the global security certificates. Any global note that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
note certificates registered in the names directed by the depositary. We expect
that these instructions will be based upon directions received by the
depositary from its participants with respect to ownership of beneficial
interests in the global security certificates.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the United States federal income
tax consequences of the purchase, ownership and disposition of the Equity
Units, notes and common stock acquired under a purchase contract, but does not
purport to be a complete analysis of all the potential tax considerations
relating thereto. This summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated
thereunder, administrative rulings and judicial decisions as of the date
hereof. These authorities may be changed, possibly retroactively, so as to
result in United States federal income tax consequences different from those
set forth below. We have not sought any ruling from the Internal Revenue
Service with respect to the statements made and the conclusions reached in the
following summary, and there can be no assurance that the Internal Revenue
Service will agree with such statements and conclusions.
This discussion is limited to holders who purchase Equity Units upon their
initial issuance at their initial issue price and who hold the Equity Units,
notes and common stock as capital assets. This discussion also does not address
the tax considerations arising under the laws of any foreign, state or local
jurisdiction, or under United States federal estate or gift tax laws (except as
specifically described below with respect to non-U.S. holders). In addition,
this discussion does not address all tax considerations that may be applicable
to a holder's particular circumstances or to holders that may be subject to
special tax rules, including, without limitation:
. holders subject to the alternative minimum tax;
. banks, insurance companies, or other financial institutions;
. foreign persons or entities (except to the extent specifically set forth
below);
. tax-exempt organizations;
. dealers in securities or commodities;
. traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
. holders whose "functional currency" is not the U.S. dollar;
. holders that hold Equity Units, notes or common stock as a position in a
hedging transaction, "straddle," "conversion transaction" or other risk
reduction transaction; or
. persons deemed to sell the Equity Units, notes or common stock under the
constructive sale provisions of the Internal Revenue Code.
In addition, if a partnership (including any entity treated as partnership
for United States tax purposes) holds Equity Units, notes or common stock, the
tax treatment of a partner in the partnership will generally depend upon the
status of the partner and the activities of the partnership. If you are a
partnership, or a partner of a partnership, holding our Equity Units, notes or
common stock, you should consult your tax advisor regarding the tax
consequences of the ownership and disposition of Equity Units, notes or common
stock.
No statutory, administrative or judicial authority directly addresses the
treatment of Equity Units or instruments similar to Equity Units for United
States federal income tax purposes. As a result, no assurance can be given that
the Internal Revenue Service will agree with the tax consequences described
herein. Each prospective investor is urged to consult its tax advisor as to the
particular tax consequences of purchasing, owning and disposing of the Equity
Units, notes or common stock, including the application and effect of United
States federal, state, local and foreign tax laws.
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U.S. Holders
The following is a summary of the U.S. federal income tax consequences that
will apply to you if you are a U.S. holder of Equity Units, notes or common
stock. Certain consequences to "non-U.S. holders" of Equity Units, notes or
common stock are described under "--Non-U.S. holders" below. You are a "U.S.
holder" if you are a beneficial owner of Equity Units, notes or common stock,
and you are:
. a citizen or resident of the U.S. as determined for federal income tax
purposes;
. a corporation or partnership created or organized in or under the laws of
the U.S. or any political subdivision of the U.S.;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust that (1) is subject to the supervision of a court within the U.S.
and the control of one or more U.S. persons or (2) has a valid election
in effect under applicable Treasury Regulations to be treated as a U.S.
person.
Equity Units
Ownership of Notes or Treasury Securities. You will be treated as owning the
notes or Treasury securities constituting a part of the Income Equity Units or
Growth Equity Units, respectively, for United States federal income tax
purposes. Under the terms of the units, we and, by acquiring Equity Units, you,
agree to treat the notes or Treasury securities constituting a part of the
Equity Units as owned by you for all tax purposes, and the remainder of this
summary assumes such treatment. The United States federal income tax
consequences of owning the notes or Treasury securities are discussed below
(see "Notes" and "Treasury Securities").
Allocation of Purchase Price. Your acquisition of an Income Equity Unit will
be treated as an acquisition of a unit consisting of the note and the purchase
contract that constitute the Income Equity Unit. If the fair market value of a
note does not exceed the purchase price of each Income Equity Unit at the time
of purchase, the purchase price of each Income Equity Unit will be allocated
between the note and the purchase contract constituting such unit in proportion
to their respective fair market values at the time of purchase. Such allocation
will establish your initial tax basis in the note and the purchase contract. We
expect to report the fair market value of each note as $25 and the fair market
value of each purchase contract as $0. This position will be binding upon you
(but not on the Internal Revenue Service) unless you explicitly disclose a
contrary position on a statement attached to your timely filed United States
federal income tax return for the taxable year in which you acquire an Income
Equity Unit. Thus, absent such disclosure, you should allocate the purchase
price for Income Equity Units in accordance with the foregoing. The remainder
of this discussion assumes that this allocation of purchase price will be
respected for United States federal income tax purposes.
Sales, Exchanges or Other Taxable Dispositions of Equity Units. Upon a sale,
exchange or other taxable disposition of an Equity Unit, you will be treated as
having sold, exchanged or disposed of the purchase contract and the note, the
Treasury portfolio or the Treasury securities that constitute such Equity Unit
and will generally recognize gain or loss equal to the difference between the
portion of the proceeds you receive allocable to the purchase contract and the
note, the Treasury portfolio or Treasury securities, as the case may be, and
your respective adjusted tax basis in the purchase contract and the note, the
Treasury portfolio or Treasury securities, except to the extent you are treated
as receiving an amount with respect to accrued acquisition discount on the
Treasury portfolio or Treasury securities, which amount will be treated as
ordinary income, or to the extent you are treated as receiving an amount with
respect to accrued contract adjustment payments or deferred contract adjustment
payments, which may be treated as ordinary income, in each case, to the extent
not previously included in income. In the case of the purchase contract,
interest in the Treasury portfolio and Treasury securities, such gain or loss
will generally be capital gain or loss, and such gain or loss will generally be
long-term capital gain or loss if you have held such purchase contract,
interest in the Treasury portfolio or Treasury securities, as applicable, for
more than one year at the time of such disposition. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
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If the disposition of an Equity Unit occurs when the purchase contract has a
negative value, you should be considered to have received additional
consideration for the note, the Treasury portfolio or Treasury securities, as
the case may be, in an amount equal to the amount of such negative value and to
have paid such amount to be released from your obligation under the purchase
contract. If such deemed additional consideration with respect to a note
results in income, such income should be ordinary and may not be offset by a
loss realized with respect to the purchase contract. U.S. holders should
consult their tax advisors regarding a disposition of an Equity Unit at a time
when the purchase contract has a negative value.
The rules that govern the determination of the character of gain or loss on
the disposition of the notes are summarized under "Notes--Sales, Exchanges or
Other Taxable Dispositions of Notes."
In determining gain or loss, payments to you of contract adjustment payments
or deferred contract adjustment payments that have not previously been included
in your income should either reduce your adjusted tax basis in the purchase
contract or result in an increase in the amount realized on the disposition of
the purchase contract. Any contract adjustment payments or deferred contract
adjustment payments included in your income but not paid to you should increase
your adjusted tax basis in the purchase contract. See "--Purchase Contracts--
Contract Adjustment Payments and Deferred Contract Adjustment Payments".
Notes
Classification of the Notes. We believe that under current law, the notes
will be classified as indebtedness for United States federal income tax
purposes. No assurance can be given, however, that such position will not be
challenged by the Internal Revenue Service or, if so challenged, that the
challenge would not be successful. We and, by acquiring Income Equity Units,
you agree to treat the notes as our indebtedness for all tax purposes. The
remainder of this discussion assumes that the notes will be classified for
United States federal income tax purposes as our indebtedness.
Interest Income and Original Issue Discount. Because of the manner in which
the interest rate on the notes is reset, we intend to treat the notes as
contingent payment debt instruments subject to the "noncontingent bond method"
for accruing original issue discount, as set forth in the applicable Treasury
regulations. The remainder of this discussion assumes that the notes will be so
treated for United States federal income tax purposes. As discussed more fully
below, the effects of applying such method will be:
. to require you, regardless of your usual method of tax accounting, to use
an accrual method with respect to the notes;
. for all accrual periods until February 17, 2005, to require you to accrue
interest income in excess of interest payments actually received by you;
and
. generally to result in ordinary, rather than capital, treatment of any
gain or loss on the sale, exchange or other taxable disposition of the
notes. See "--Sales, Exchanges or Other Taxable Dispositions of Notes."
You will accrue original issue discount on a constant yield to maturity
basis based on the "comparable yield" of the notes. The comparable yield of the
notes will generally be the rate at which we would issue a fixed rate debt
instrument with terms and conditions similar to the notes. We are required to
provide you the comparable yield and a projected payment schedule, based on the
comparable yield. We have determined that the comparable yield is 6.40% and the
projected payments for the notes per $25 of principal amount are $.42 on August
17, 2002, $.35 for each subsequent quarter ending on or prior to February 17,
2005, and $.47 for each quarter ending after February 17, 2005. We have also
determined that the projected payment for the notes, per $25 of principal
amount, at the maturity date is $25.47 (which includes the stated principal
amount of the notes as well as the final projected interest payment).
The amount of original issue discount on a note for each accrual period is
determined by multiplying the comparable yield of the note (adjusted for the
length of the accrual period) by the note's adjusted issue price at
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the beginning of the accrual period. Based on the allocation of the purchase
price of each Equity Unit described above, the adjusted issue price of each
note, per $25 of principal amount, at the beginning of the first accrual period
will be $25, and the adjusted issue price of each note at the beginning of each
subsequent accrual period will be equal to $25, increased by any original issue
discount previously accrued by you on such note and decreased by the projected
amount of any payments previously made on such note. The amount of original
issue discount so determined will then be allocated on a ratable basis to each
day in the accrual period that you hold the note.
If after February 17, 2005, the remaining amounts of principal and interest
payable on the notes differ from the payments set forth on the foregoing
projected payment schedule, negative or positive adjustments reflecting such
difference should generally be taken into account by you as adjustments to
interest income in a reasonable manner over the period to which they relate. We
expect to account for any such difference with respect to a period as an
adjustment for that period. We expect to use the foregoing comparable yield and
project payment schedule for purposes of determining our own taxable income and
for any required information reporting.
You are generally bound by the comparable yield and projected payment
schedule provided by us unless either is unreasonable. If you use your own
comparable yield and projected payment schedule, you must explicitly disclose
this fact and the reason that you have used your own comparable yield and
projected payment schedule. In general, this disclosure must be made on a
statement attached to your timely filed United States federal income tax return
for the taxable year that includes the date of your acquisition of the note.
The foregoing comparable yield and projected payment schedule are supplied
solely for computing income under the noncontingent bond method for United
States federal income tax purposes, and do not constitute a projection or
representation as to the amounts that you will actually receive as a holder of
Notes or Income Equity Units.
Adjustment to Tax Basis in Notes. Your tax basis in a note will be increased
by the amount of original issue discount you include in income with respect to
the note and decreased by the amount of projected payments with respect to the
note through the computation date.
Sales, Exchanges or Other Taxable Dispositions of Notes. You will recognize
gain or loss on a disposition of a note (including a redemption for cash or
upon the remarketing thereof) in an amount equal to the difference between the
amount realized by you on the disposition of the note and your adjusted tax
basis in such note. Selling expenses incurred by you, including the remarketing
fee, will reduce the amount of gain or increase the amount of loss you
recognize upon a disposition of a note. Gain recognized on the disposition of a
note prior to the purchase contract settlement date will be treated as ordinary
interest income. Loss recognized on the disposition of a note prior to the
purchase contract settlement date will be treated as ordinary loss to the
extent of your prior inclusions of original issue discount on the note and as
capital loss thereafter. In general, gain recognized on the disposition of a
note on or after the purchase contract settlement date will be ordinary
interest income to the extent attributable to the excess, if any, of the total
remaining principal and interest payments due on the note over the total
remaining payments set forth on the projected payment schedule for the note.
Any gain recognized in excess of such amount and any loss recognized on such a
disposition will generally be treated as a capital gain or loss. Long-term
capital gains of individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
Treasury Securities
Original Issue Discount. If you hold Growth Equity Units, you will be
required to treat your ownership interest in the Treasury securities comprising
Growth Equity Units as an interest in a bond that was originally issued on the
date you acquired the Treasury securities and that has original issue discount
equal to the excess of the amount payable at maturity of such Treasury
securities over the purchase price thereof. You will be required to include
such original issue discount in income on a constant yield to maturity basis
over the period between the purchase date of the Treasury securities and the
maturity date of the Treasury securities, regardless
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of your method of tax accounting and in advance of the receipt of cash
attributable to such original issue discount. Amounts of original issue
discount included in your gross income will increase your adjusted tax basis in
the Treasury securities. In the case of Treasury securities that are treated as
having a maturity date of one year or less ("short-term Treasury securities"),
see "--Remarketing and Tax Event Redemption of Notes--Interest Income and
Original Issue Discount" with regard to the treatment of short-term Treasury
securities.
Sales, Exchanges or Other Taxable Dispositions of Treasury Securities. As
discussed below, you will generally not recognize gain or loss in the event
that you obtain the release of Treasury securities by delivering notes to the
collateral agent. You will recognize gain or loss on a subsequent disposition
of the Treasury securities in an amount equal to the difference between the
amount realized by you on such disposition and your adjusted tax basis in the
Treasury securities, except to the extent you are treated as receiving an
amount with respect to accrued acquisition discount on the Treasury securities,
which amount will be treated as ordinary income. Such gain or loss will
generally be capital gain or loss and will generally be long-term capital gain
or loss if you have held such Treasury securities for more than one year at the
time of the disposition. Long-term capital gains of individuals are eligible
for reduced rates of taxation. The deductibility of capital losses is subject
to limitations.
Purchase Contracts
Contract Adjustment Payments and Deferred Contract Adjustment
Payments. There is no direct authority that addresses the treatment, under
current law, of contract adjustment payments or deferred contract adjustment
payments, and such treatment is, therefore, unclear. Contract adjustment
payments and deferred contract adjustment payments may constitute taxable
income to you, as a holder of Equity Units, when received or accrued, in
accordance with your regular method of tax accounting. To the extent we are
required to file information returns with respect to contract adjustment
payments or deferred contract adjustment payments, we intend to report such
payments as taxable income to you. You should consult your tax advisor
concerning the treatment of contract adjustment payments and deferred contract
adjustment payments, including the possibility that any contract adjustment
payment or deferred contract adjustment payment may be treated as a loan,
purchase price adjustment, rebate or payment analogous to an option premium,
rather than being includible in income on a current basis. The treatment of
contract adjustment payments and deferred contract adjustment payments could
affect your adjusted tax basis in a purchase contract or common stock received
under a purchase contract or the amount realized by a holder upon the sale or
disposition of an Equity Unit or the termination of a purchase contract. See
"Equity Units--Sales, Exchanges or Other Taxable Dispositions of Equity Units,"
"--Acquisition of Common Stock Under a Purchase Contract" and "--Termination of
Purchase Contract."
Acquisition of Common Stock Under a Purchase Contract. You will generally
not recognize gain or loss on the purchase of common stock under a purchase
contract, including upon an early settlement upon a cash merger, except with
respect to any cash paid in lieu of a fractional share of common stock. Subject
to the following discussion, your aggregate initial tax basis in the common
stock received under a purchase contract should generally equal the purchase
price paid for such common stock plus your adjusted tax basis in the purchase
contract, if any, less the portion of such purchase price and any adjusted tax
basis allocable to a fractional share. Your holding period for common stock
received under a purchase contract should commence on the date following your
acquisition of such common stock.
Ownership of Common Stock Acquired Under the Purchase Contract. Any
distribution on common stock we pay out of our current or accumulated earnings
and profits (as determined for United States federal income tax purposes) will
constitute a dividend and will be includible in your income when received by
you. Any such dividend will be eligible for the dividends received deduction
provided you are an otherwise qualifying corporate holder that meets the
holding period and other requirements for the dividends received deduction.
Upon a disposition of common stock, you will generally recognize capital gain
or loss equal to the difference between the amount realized and your adjusted
tax basis in the common stock. Such capital gain or loss will generally be
long-term capital gain or loss if you have held such common stock for more than
one year at the time of such disposition. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
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Termination of Purchase Contract. If a purchase contract terminates, you
will recognize gain or loss equal to the difference between the amount
realized, if any, upon such termination and your adjusted tax basis, if any, in
the purchase contract at the time of such termination. Any contract adjustment
payments or deferred contract adjustment payments you receive but have not
previously included in income should either reduce your adjusted tax basis in
the purchase contract or increase the amount realized on the termination of the
purchase contract. Any contract adjustment payments or deferred contract
adjustment payments you include in income but have not received should increase
your adjusted tax basis in the purchase contract. Also, if a purchase contract
terminates at a time when it has a negative value, such negative value may
increase your gain recognized. See "Equity Units--Sale, Exchange or Other
Taxable Disposition of an Equity Unit." Gain or loss you recognize will
generally be capital gain or loss and will generally be long-term capital gain
or loss if you have held such purchase contract for more than one year at the
time of such termination. Long-term capital gains of individuals are eligible
for reduced rates of taxation. The deductibility of capital losses is subject
to limitations. You will not recognize gain or loss on the receipt of your
proportionate share of the notes, Treasury securities or the Treasury portfolio
upon termination of the purchase contract and will have the same adjusted tax
basis and holding period in such notes, Treasury securities or the Treasury
portfolio, as the case may be, as before such termination.
Adjustment to Settlement Rate. You may be treated as receiving a
constructive dividend distribution from us if (l) the settlement rate is
adjusted and as a result of such adjustment your proportionate interest in our
assets or earnings and profits is increased and (2) the adjustment is not made
pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the
settlement rate would not be considered made pursuant to such a formula if the
adjustment were made to compensate you for certain taxable distributions with
respect to the common stock. Thus, under certain circumstances, an increase in
the settlement rate might give rise to a taxable dividend to you even though
you would not receive any cash related thereto.
Substitution of Treasury Securities to Create or Recreate Growth Equity Units
If you are a holder of Income Equity Units that delivers Treasury securities
to the collateral agent in substitution for notes or the Treasury portfolio,
you will generally not recognize gain or loss upon the delivery of such
Treasury securities or the release of the notes or the Treasury portfolio to
you. You will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by you with respect to such
Treasury securities and notes or the Treasury portfolio, and your adjusted tax
bases in the Treasury securities, and the notes or the Treasury portfolio and
the purchase contract will not be affected by such delivery and release.
Substitution of Notes to Recreate Income Equity Units
If you are a holder of Growth Equity Units that delivers notes to the
collateral agent in substitution for Treasury securities, you will generally
not recognize gain or loss upon the delivery of such notes or the release of
the Treasury securities to you. You will continue to take into account items of
income or deduction otherwise includible or deductible, respectively, by you
with respect to such Treasury securities and notes, and your adjusted tax bases
in the Treasury securities, the notes and the purchase contract will not be
affected by such delivery and release.
Remarketing and Tax Event Redemption of Notes
If you are a holder of notes, a remarketing or tax event redemption will be
a taxable event to you and will have the United States federal income tax
consequences described under "Notes--Sales, Exchanges or Other Taxable
Dispositions of Notes."
Ownership of Treasury Portfolio. We and, by acquiring Equity Units, you
agree to treat yourself as the owner, for United States federal income tax
purposes, of the applicable ownership interest of the Treasury portfolio
constituting a part of the Income Equity Units beneficially owned by you in the
event of a remarketing of the notes on the third business day preceding
February 17, 2005 or April 17, 2005 or a tax
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event redemption prior to the purchase contract settlement date. You will
include in income any amount earned on such pro rata portion of the Treasury
portfolio for all tax purposes. The remainder of this summary assumes that you,
as a holder of Income Equity Units, will be treated as the owner of the
applicable ownership interest of the Treasury portfolio that constitutes a part
of such Income Equity Units for United States federal income tax purposes.
Interest Income and Original Issue Discount. Following a remarketing of the
notes on the third business day preceding February 17, 2005 or April 17, 2005
or a tax event redemption prior to the purchase contract settlement date, as a
holder of Income Equity Units, you will be required to treat your pro rata
portion of each Treasury security in the Treasury portfolio as a bond that was
originally issued on the date the collateral agent acquired the relevant
Treasury securities and that has original issue discount (or, in the case of
short-term Treasury securities, as defined below, acquisition discount) equal
to your pro rata portion of the excess of the amounts payable on such Treasury
securities over the value of the Treasury securities at the time the collateral
agent acquired them on your behalf. Whether or not you use the cash or accrual
method of tax accounting, you will be required to include original issue
discount (other than original issue discount on short-term Treasury securities,
as defined below) in income for United States federal income tax purposes as it
accrues on a constant yield to maturity basis. The amount of such excess will
constitute only a portion of the total amounts payable in respect of the
Treasury portfolio. Consequently, a portion of each scheduled payment to you
will be treated as a return of your investment in the Treasury portfolio and
will not be considered current income for United States federal income tax
purposes.
In the case of any Treasury security with a maturity of one year or less
from the date of its issue (i.e., a short-term Treasury security), in general,
only accrual basis taxpayers will be required to include acquisition discount
in income as it accrues. Unless you are an accrual basis taxpayer and you elect
to accrue the acquisition discount on a short-term Treasury security on a
constant yield to maturity basis, you will accrue acquisition discount on a
straight-line basis. If you obtain the release of your applicable ownership
interest of the Treasury portfolio and subsequently dispose of such interest,
you will recognize ordinary income on such disposition to the extent of any
gain realized that does not exceed an amount equal to the ratable share of the
acquisition discount on the Treasury securities not previously included in
income.
Tax Basis of the Treasury Portfolio. Your initial tax basis in your
applicable ownership interest of the Treasury portfolio will equal your pro
rata portion of the amount paid by the collateral agent for the Treasury
portfolio. Your adjusted tax basis in the Treasury portfolio will be increased
by the amount of original issue discount or acquisition discount you include in
income with respect thereto and decreased by the amount of cash received with
respect to the Treasury portfolio.
Non-U.S. Holders
The following summary is addressed to non-U.S. holders. You are a non-U.S.
holder if you are not a U.S. holder as defined under "--U.S. holders." Special
rules may apply if you are a "controlled foreign corporation," "passive foreign
investment company" or "foreign personal holding company" and are subject to
special treatment under the Internal Revenue Code. In addition, this summary
does not address holders that at any time beneficially and/or constructively
own more than 5% of the Equity Units or the common stock. If we were at any
time during the past five years, we are or we become, a United States real
property holding corporation, such holders or, if our common stock ceases to be
regularly traded, any non-U.S. holder, may be subject to United States federal
withholding and/or income tax on the sale of an Equity Unit or common stock. If
you are a non-U.S. holder that falls within any of the foregoing categories,
you should consult your tax advisor to determine the United States federal,
state, local and foreign tax consequences that may be relevant to you.
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United States Federal Withholding Tax
United States federal withholding tax will not apply to any payment of
principal or interest (including original issue discount and acquisition
discount) on the notes, the Treasury securities or the Treasury portfolio
provided that:
. you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Internal Revenue Code and the Treasury regulations;
. you are not a bank whose receipt of interest on the notes is described in
section 881(c)(3)(A) of the Code;
. you are not a controlled foreign corporation that is related to us
through stock ownership; and
. (a) you provide your name, address and certain other information on an
Internal Revenue Service Form W-8BEN (or a suitable substitute form), and
certify, under penalties of perjury, that you are not a United States
person or (b) you hold notes, Treasury securities or an interest in the
Treasury portfolio through certain foreign intermediaries or certain
foreign partnerships and certain certification requirements are
satisfied.
We will generally withhold tax at a rate of 30% on the dividends, if any,
paid on the shares of common stock acquired under the purchase contract and on
any contract adjustment payments or deferred contract adjustment payments made
with respect to a purchase contract. If a tax treaty applies, you may be
eligible for a reduced rate of withholding. However, contract adjustment
payments, deferred contract adjustment payments or dividends that are
effectively connected with your conduct of a trade or business within the
United States (and, where a tax treaty applies, are also attributable to a
United States permanent establishment maintained by you) are not subject to the
withholding tax, but instead are subject to United States federal income tax,
as described below. In order to claim any such exemption or reduction in the
30% withholding tax, you should provide a properly executed Internal Revenue
Service Form W-8BEN (or suitable substitute form) claiming a reduction of or an
exemption from withholding under an applicable tax treaty or a properly
executed Internal Revenue Service Form W-8ECI (or a suitable substitute form)
stating that such payments are not subject to withholding tax because they are
effectively connected with your conduct of a trade or business in the United
States.
In general, United States federal withholding tax will not apply to any gain
or income you realize on the sale, exchange or other disposition of the Equity
Units, notes, purchase contracts, Treasury securities, your interest in the
Treasury portfolio or common stock acquired under the purchase contracts.
However, interest (including original issue discount and any gain treated as
interest) that you realize with respect to the notes (including those held as
part of an Equity Unit) will generally not be subject to withholding if you
satisfy the requirements enumerated above.
United States Federal Income Tax
If you are engaged in a trade or business in the United States (and, if a
tax treaty applies, if you maintain a permanent establishment within the United
States) and interest (including original issue discount and acquisition
discount) on the notes, the Treasury securities and the Treasury portfolio,
dividends on the common stock and, to the extent they constitute taxable
income, contract adjustment payments and deferred contract adjustment payments
made with respect to the purchase contracts are effectively connected with your
conduct of that trade or business (and, if a tax treaty applies, that permanent
establishment), you will be required to pay United States federal income tax
(but will be exempt from withholding tax provided the requisite certification
requirements are satisfied) on the interest, original issue discount,
acquisition discount, dividends, contract adjustment payments and deferred
contract adjustment payments on a net income basis in the same manner as if you
were a U.S. holder. In addition, a non-U.S. holder that is a foreign
corporation may be subject to a 30% branch profits tax or, if a tax treaty
applies, such lower rate as provided.
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Any gain or income realized on the disposition of an Equity Unit, a purchase
contract, a note, a Treasury security, the Treasury portfolio or common stock
acquired under the purchase contract generally will not be subject to United
States federal income tax unless:
. that gain or income is effectively connected with your conduct of a trade
or business in the United States;
. you are an individual who is present in the United States for 183 days or
more in the taxable year of the disposition and certain other conditions
are met; or
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes.
Special rules may apply to you if you are a "controlled foreign
corporation," "passive foreign investment company" or "foreign personal holding
company" and are subject to special treatment under the Code. If you are such
an entity, you should consult your tax advisor to determine the United States
federal, state, local and other tax consequences that may be relevant to you.
Backup Withholding
Unless a U.S. holder is an exempt recipient, such as a corporation, payments
under Equity Units, notes, purchase contracts, Treasury securities, the
Treasury portfolio or common stock, the proceeds received with respect to a
fractional share of common stock upon the settlement of a purchase contract,
and the proceeds received from sale of Equity Units, notes, purchase contracts,
Treasury securities, the Treasury portfolio or common stock may be subject to
United States federal backup withholding tax at the applicable statutory rate
(currently a maximum of 30%) if such U.S. holder fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements.
If you are a non-U.S. holder, no backup withholding will be required with
respect to payments we make with respect to the Equity Units or the notes if
you have provided us with an Internal Revenue Service Form W-8BEN (or a
suitable substitute form) described above, and we do not have actual knowledge
or reason to know that you are a United States person. In addition, no backup
withholding will be required regarding the sale of Equity Units, notes,
Treasury securities, the Treasury portfolio or common stock acquired under the
purchase contracts even if made within the United States or conducted though
certain United States financial intermediaries if the payor receives the
statement described above and does not have actual knowledge or reason to know
that you are a United States person or you can otherwise establish an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
credit against your United States federal income tax liability provided that
the required information is furnished to the Internal Revenue Service.
S-61
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the United States Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in
Section 3(3) of ERISA), (b) plans described in section 4975 (e) (1) of the
Code, including individual retirement accounts or Keogh plans, (c) any entities
whose underlying assets include plan assets by reason of a plan's investment in
such entities (each a "Plan") and (d) persons who have certain specified
relationships to such Plans ("Parties in Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and
Sav. Bank, 510 U.S. 86 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract), and the insurance company might
be treated as a Party in Interest with respect to a Plan by virtue of such
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA and prohibits certain transactions between a Plan and
Parties-in- Interest or Disqualified Persons with respect to such Plans.
If we were a Party in Interest or Disqualified Person with respect to an
investing Plan (or become a Party in Interest or Disqualified Person in
connection with this transaction), such Plan's acquisition or holding of the
Equity Units could be deemed to constitute a transaction prohibited under Title
I of ERISA or Section 4975 of the Code (e.g., a loan or other extension of
credit between a Plan and a Party in Interest or Disqualified Person, and/or a
purchase of our stock by a Plan from a Party in Interest or Disqualified
Person). Such transactions may, however, be subject to a statutory or
administrative exemption such as Prohibited Transaction Class Exemption
("PTCE") 90-1, which exempts certain transactions involving insurance company
pooled separate accounts; PTCE 95-60, which exempts certain transactions
involving insurance company general accounts; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; and PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager;" PTCE 96-23, which exempts certain transactions
effected on behalf of a Plan by an "in-house asset manager;" PTCE 81-8, which
exempts certain short-term investment transactions; Section 408(e) of ERISA and
4975(d) (13) of the Code, which exempt the acquisition or disposition of
"qualifying employer securities" (as such term is defined in Section 407(d) (5)
of ERISA) or pursuant to any other available exemption. There can be no
assurance, however, that all of the conditions of any such exemption will be
satisfied.
By its purchase of the Equity Units (or an interest therein), each purchaser
of the Equity Units will be deemed to have represented and agreed that either
(i) it is not purchasing the Equity Units with the assets of any Plan or (ii)
one or more exemptions apply such that the use of such assets will not
constitute a non-exempt prohibited transaction under ERISA or the Code.
Additionally, each purchaser of the Equity Units (or an interest therein) will
be deemed to have directed the remarketing agent to take such actions as set
forth in this prospectus supplement. Any Plan fiduciary that proposes to cause
a Plan to purchase the Equity Units should consult with its counsel with
respect to the potential applicability of ERISA and the Code to such investment
and whether any exemption would be applicable and determine on its own whether
all conditions of such exemption or exemptions have been satisfied.
Special Considerations Applicable to Insurance Company General Accounts
Any investor that is an insurance company using the assets of an insurance
company general account should note that the Small Business Job Protection Act
of 1996 added new Section 401 (c) of ERISA relating to the status of the assets
of insurance company general accounts under ERISA and Section 4975 of the Code.
Pursuant to Section 401 (c), the DOL issued final regulations effective January
5, 2000 (the "General Account Regulations") with respect to insurance policies
issued on or before December 31, 1998, that are supported by an insurer's
general account. As a result of the General Account Regulations, assets of an
insurance company general account will not be treated as "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975
of the Code to the extent such assets relate to contracts issued to employee
benefit plans on or before December 31, 1998 and the insurer satisfies various
conditions. The plan asset status of insurance company separate accounts is
unaffected by new Section 401 (c) of ERISA, and separate account assets
continue to be treated as the plan assets of any such plan invested in a
separate account.
S-62
UNDERWRITING
We intend to offer the Income Equity Units through Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Salomon Smith Barney Inc., who are acting as
representatives of the underwriters named below. Subject to the terms and
conditions in a purchase agreement between us and the underwriters, we have
agreed to sell to the underwriters, and the underwriters have severally agreed
to purchase from us, the number of Income Equity Units set forth opposite their
names below.
Number of
Income
Equity
Underwriter Units
----------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................. 7,920,000
Salomon Smith Barney Inc. ........................................ 7,920,000
Goldman, Sachs & Co............................................... 1,540,000
Morgan Stanley & Co. Incorporated................................. 1,540,000
ABN AMRO Rothschild LLC........................................... 308,000
A.G. Edwards & Sons, Inc. ........................................ 308,000
Banc One Capital Markets, Inc. ................................... 308,000
Credit Lyonnais Securities (USA) Inc. ............................ 308,000
Jefferies & Company, Inc. ........................................ 308,000
J.P. Morgan Securities Inc. ...................................... 308,000
Mizuho International plc.......................................... 308,000
The Royal Bank of Scotland plc.................................... 308,000
SG Cowen Securities Corporation................................... 308,000
Tokyo-Mitsubishi International plc................................ 308,000
----------
Total........................................................ 22,000,000
==========
The underwriters have agreed to purchase all of the Income Equity Units sold
pursuant to the purchase agreement if any of the Income Equity Units are
purchased. If an underwriter defaults, the purchase agreement provides that the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriters may be required to make in respect of
those liabilities. The underwriters are offering the Income Equity Units,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by their counsel, including the validity of the
Income Equity Units, and other conditions contained in the purchase agreement,
such as the receipt by the underwriters of officers' certificates and legal
opinions. The underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The underwriters have advised us that they propose initially to offer the
Income Equity Units to the public at the public offering price on the cover
page of this prospectus supplement and to dealers at that price less a
concession not in excess of $.45 per Income Equity Unit. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $.10 per Income
Equity Unit to other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The expenses of the offering, not including the underwriting commission, are
estimated to be $1.0 million and are payable by us.
S-63
The following table shows the per unit and total public offering price,
underwriting discount to be paid by us to the underwriters and proceeds before
expenses to us. The information is presented assuming either no exercise or
full exercise by the underwriters of the overallotment option.
Per Income
Equity Without
Unit Option With Option
---------- ------- -----------
Public offering price.................. $25.00 $550,000,000 $600,000,000
Underwriting discount.................. $ .75 $ 16,500,000 $ 18,000,000
Proceeds, before expenses, to us....... $24.25 $533,500,000 $582,000,000
Overallotment Option
We have granted an option to the underwriters to purchase up to an
additional 2,000,000 Income Equity Units at the public offering price less the
underwriting discount. If the underwriters exercise this option, solely to
cover any overallotments, they must purchase the additional Income Equity Units
within 30 days from the date of this prospectus supplement, subject to certain
limitations. If the underwriters exercise this option, each will be obligated,
subject to conditions contained in the purchase agreement, to purchase
approximately the same percentage of additional Income Equity Units as the
number set forth next to the underwriter's name in the preceding table bears to
the total number of Income Equity Units set forth next to the names of all
underwriters in the preceding table.
No Sale of Similar Securities
We have agreed, with some exceptions, not to directly or indirectly, without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Smith Barney Inc. on behalf of the underwriters, for a period of 90
days after the date of this prospectus supplement:
. offer, pledge, sell or contract to sell any Equity Units, purchase
contracts, common stock or any similar securities or any security
convertible into such securities;
. sell any option or contract to purchase any Equity Units, purchase
contracts, common stock or any similar securities or any security
convertible into such securities;
. purchase any option or contract to sell any Equity Units, purchase
contracts, common stock or any similar securities or any security
convertible into such securities;
. grant any option, right or warrant for the sale of any Equity Units,
purchase contracts, common stock or any similar securities or any
security convertible into such securities; or
. lend or otherwise dispose of or transfer any Equity Units, purchase
contracts, common stock or any similar securities or any security
convertible into such securities; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of Equity Units, purchase
contracts, common stock or any similar securities or any security
convertible into such securities.
This agreement does not apply to issuances under our employee or director
compensation plans or our employee or shareholder investment plans. Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. may
release any of the securities subject to these lock-up agreements at any time
without notice.
New York Stock Exchange Listing
The Income Equity Units are a new issue of securities with no established
trading market. We will endeavor to have the Income Equity Units approved for
listing on the NYSE, under the symbol "SRE Pr," subject to official notice of
issuance. We have been advised by the underwriters that they intend to make a
S-64
market in the securities, but they are not obligated to do so and may
discontinue market-making at any time without notice. We can provide no
assurance as to the liquidity of, or any trading market for, the securities.
Remarketing
This prospectus supplement, as amended or supplemented, may be used by the
remarketing agent for remarketing of the securities at such time as is
necessary or upon early settlement of the purchase contracts.
Price Stabilization and Short Positions
Until the distribution of the Income Equity Units offered hereby is
completed, SEC rules may limit the underwriters and selling group members from
bidding for or purchasing the Income Equity Units or shares of our common
stock. However, the representatives may engage in transactions that stabilize
the price of the Income Equity Units or our common stock, such as bids or
purchases that peg, fix or maintain the price of the Income Equity Units or our
common stock.
In connection with the offering, the representatives may make short sales of
our Income Equity Units. Short sales involve the sale by the underwriters, at
the time of the offering, of a greater number of Income Equity Units than they
are required to purchase in the offering. Covered short sales are sales made in
an amount not greater than the overallotment option. The underwriters may close
out any covered short position by either exercising the overallotment option or
purchasing Income Equity Units in the open market. In determining the source of
Income Equity Units to close out the covered short position, the
representatives will consider, among other things, the price of Income Equity
Units available for purchase in the open market as compared to the price at
which they may purchase the Income Equity Units through the overallotment
option. Naked short sales are sales in excess of the overallotment option. The
representatives must close out any naked short position by purchasing Income
Equity Units in the open market. A naked short position is more likely to be
created if the representatives are concerned that there may be downward
pressure on the price of the Income Equity Units or our common stock in the
open market after pricing that could adversely affect investors who purchase in
the offering. Similar to other purchase transactions, purchases by the
representatives to cover syndicate short positions may have the effect of
raising or maintaining the market price of the Income Equity Units and our
common stock or preventing or retarding a decline in the market price of the
Income Equity Units and our common stock. As a result, the prices of the Income
Equity Units and our common stock may be higher than they would otherwise be in
the absence of these transactions.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the Income Equity Units or our common stock. In
addition, neither we nor any of the underwriters make any representation that
the representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
Electronic Prospectus
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of Income Equity Units to
underwriters for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters that will make internet
distributions on the same basis as other allocations. Each of Merrill Lynch and
Salomon Smith Barney will be facilitating distribution for this offering to
certain of their internet subscription customers. Each of Merrill Lynch and
Salomon Smith Barney intend to allocate a limited number of Income Equity Units
for sale to their online brokerage customers. An electronic preliminary
prospectus supplement is available on the internet websites maintained by each
of Merrill Lynch and Salomon Smith Barney. Other than the preliminary
prospectus supplement in electronic format, the information on the respective
websites maintained by Merrill Lynch and Salomon Smith Barney is not intended
to be part of this prospectus supplement, as amended or supplemented.
S-65
Other Relationships
In the ordinary course of business, certain of the underwriters and their
affiliates have provided financial advisory, investment banking and general
financing and banking services to us and certain of our affiliates for
customary fees.
LEGAL MATTERS
Gary W. Kyle, Esq., Chief Corporate Counsel of Sempra Energy, and Latham &
Watkins, Los Angeles, California, will pass upon certain legal matters relating
to the issuance and sale of the securities on behalf of Sempra Energy. Sidley
Austin Brown & Wood llp, San Francisco, California, will pass upon certain
legal matters relating to the issuance and sale of the securities on behalf of
the underwriters. Paul C. Pringle, Esq., a partner of Sidley Austin Brown &
Wood llp, owns 2,227 shares of common stock of Sempra Energy.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and the related financial statement
schedule as of December 31, 2001 and 2000 and for each of the three years in
the period ended December 31, 2001 incorporated by reference into Sempra
Energy's registration statement on Form S-3 filed with the Securities and
Exchange Commission on November 13, 2001 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports.
S-66
$2,000,000,000
SEMPRA ENERGY
Debt Securities, Common Stock, Preferred Stock, Guarantees, Warrants to
Purchase Debt
Securities, Common Stock and Preferred Stock, Securities Purchase Contracts,
Securities
Purchase Units and Depositary Shares
SEMPRA ENERGY GLOBAL ENTERPRISES
Debt Securities Guaranteed by Sempra Energy and Warrants to Purchase Debt
Securities
SEMPRA ENERGY CAPITAL TRUST II
SEMPRA ENERGY CAPITAL TRUST III
Trust Preferred Securities Guaranteed by Sempra Energy
----------------
We may offer and sell the securities from time to time in one or more
offerings. This prospectus provides you with a general description of the
securities we may offer.
Each time we sell securities we will provide a supplement to this prospectus
that contains specific information about the offering and the terms of the
securities. The supplement may also add, update or change information contained
in this prospectus. You should carefully read this prospectus and the
accompanying prospectus supplement before you invest in any of our securities.
Sempra Energy
Sempra Energy may offer and sell the following securities:
. debt securities
. common stock
. preferred stock
. guarantees of debt securities and trust preferred securities
. warrants to purchase debt securities, common stock and preferred stock
. securities purchase contracts and securities purchase units
. depositary shares
Sempra Energy Global Enterprises
Sempra Energy Global Enterprises may offer and sell debt securities
guaranteed by Sempra Energy and warrants to purchase debt securities.
The Sempra Energy Trusts
Sempra Energy Capital Trust II and Sempra Energy Capital Trust III may offer
and sell trust preferred securities guaranteed by Sempra Energy.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is November 15, 2001.
TABLE OF CONTENTS
Page
----
ABOUT THIS PROSPECTUS..................................................... 1
FORWARD-LOOKING STATEMENTS................................................ 2
WHERE YOU CAN FIND MORE INFORMATION....................................... 2
SEMPRA ENERGY............................................................. 4
SEMPRA ENERGY GLOBAL ENTERPRISES.......................................... 4
SEMPRA ENERGY CAPITAL TRUST II AND SEMPRA ENERGY CAPITAL TRUST III........ 5
USE OF PROCEEDS........................................................... 7
RATIO OF SEMPRA ENERGY EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS.......................................................... 7
DESCRIPTION OF SECURITIES................................................. 8
DESCRIPTION OF DEBT SECURITIES............................................ 8
DESCRIPTION OF SEMPRA ENERGY'S COMMON STOCK AND PREFERRED STOCK........... 20
DESCRIPTION OF WARRANTS................................................... 24
DESCRIPTION OF SECURITIES PURCHASE CONTRACTS AND SECURITIES
PURCHASE UNITS........................................................... 27
DESCRIPTION OF DEPOSITARY SHARES.......................................... 28
DESCRIPTION OF TRUST PREFERRED SECURITIES................................. 31
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES OF SEMPRA ENERGY PURCHASED
WITH PROCEEDS OF TRUST SECURITIES........................................ 42
DESCRIPTION OF TRUST PREFERRED SECURITIES GUARANTEES...................... 54
RELATIONSHIP AMONG TRUST PREFERRED SECURITIES, PREFERRED SECURITIES
GUARANTEES AND SUBORDINATED DEBT SECURITIES HELD BY EACH TRUST........... 56
GLOBAL SECURITIES......................................................... 56
EXPERTS................................................................... 59
VALIDITY OF THE SECURITIES AND THE GUARANTEES............................. 59
PLAN OF DISTRIBUTION...................................................... 60
ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we filed
with the United States Securities and Exchange Commission, or the "SEC." By
using a shelf registration statement, we may sell up to $2,000,000,000 offering
price of any combination of the securities described in this prospectus from
time to time and in one or more offerings. This prospectus only provides you
with a general description of the securities that we may offer. Each time we
sell securities, we will provide a supplement to this prospectus that contains
specific information about the terms of the securities. The supplement may also
add, update or change information contained in this prospectus. Before
purchasing any securities, you should carefully read both this prospectus and
the accompanying prospectus supplement, together with the additional
information described under the heading "Where You Can Find More Information."
This prospectus does not contain separate financial statements for Sempra
Energy Global Enterprises or Sempra Energy Capital Trust II or Sempra Energy
Capital Trust III, (collectively, the "trusts"). Sempra Energy files
consolidated financial information with the SEC that includes Sempra Energy
Global Enterprises and each of the trusts. The trusts have no historical
operations and do not have any independent function other than to issue
securities and to purchase subordinated debt securities from Sempra Energy. We
do not believe that additional financial information regarding Sempra Energy
Global Enterprises or the trusts would be useful to you.
You should rely only on the information contained or incorporated by
reference in this prospectus and in any supplement. We have not authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. You
should assume that the information appearing in this prospectus and the
accompanying prospectus supplement is accurate as of the date on their
respective covers. Our business, financial condition, results of operations and
prospects may have changed since that date.
1
FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the documents
they incorporate by reference may contain statements that are not historical
fact and constitute "forward-looking statements." When we use words like
"believes," "expects," "anticipates," "intends," "plans," "estimates," "may,"
"should" or similar expressions, or when we discuss our strategy or plans, we
are making forward-looking statements. Forward-looking statements are not
guarantees of performance. They involve risks, uncertainties and assumptions.
Our future results may differ materially from those expressed in these forward-
looking statements. These statements are necessarily based upon various
assumptions involving judgments with respect to the future and other risks,
including, among others:
. national, international, regional and local economic, competitive,
technological, political, legislative and regulatory conditions and
developments;
. actions by the California Public Utilities Commission, the California
State Legislature, the California Department of Water Resources and the
Federal Energy Regulatory Commission;
. capital market conditions, inflation rates, exchange rates and interest
rates;
. energy markets, including the timing and extent of changes in commodity
prices;
. weather conditions;
. business, regulatory and legal decisions;
. the pace of deregulation of retail natural gas and electricity delivery;
. the timing and success of business development efforts; and
. other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
You are cautioned not to rely unduly on any forward-looking statements.
These risks and uncertainties are discussed in more detail under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the year ended December 31,
2000, our Quarterly Reports on Form 10-Q for the three-month periods ended
March 31, 2001 and June 30, 2001, and other documents on file with the SEC. You
may obtain copies of these documents as described under "Where You Can Find
More Information" in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Available Information
Sempra Energy files reports, proxy statements and other information with the
SEC. Information filed with the SEC by Sempra Energy can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington D.C. 20549.
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Further information on the operation of the
SEC's Public Reference Room in Washington, D.C. can be obtained by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy statements
and other information about issuers, such as Sempra Energy, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
Sempra Energy's common stock is listed on the New York Stock Exchange (NYSE:
SRE), and reports, proxy statements and other information concerning Sempra
Energy can also be inspected at the offices of the New York Stock Exchange at
20 Broad Street, New York, New York 10005.
2
This prospectus is part of a registration statement that we filed with the
SEC. The full registration statement may be obtained from the SEC or Sempra
Energy, as indicated below. Forms of the indentures, the declarations of trust
and other documents establishing the terms of the offered securities and the
guarantees are filed as exhibits to the registration statement. Statements in
this prospectus about these documents are summaries. You should refer to the
actual documents for a more complete description of the relevant matters.
Incorporation by Reference
The rules of the SEC allow us to "incorporate by reference" information into
this prospectus, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
and later information that we file with the SEC will automatically update and
supersede that information. The prospectus incorporates by reference the
documents set forth below that have been previously filed with the SEC. These
documents contain important information about Sempra Energy.
SEC Filings (File No. 1-14201) Period
------------------------------ ------
Annual Report on Form 10-K.......... Year ended December 31, 2000
Quarterly Reports on Form 10-Q...... Three-month periods ended March 31,
2001 and June 30, 2001
Current Reports on Form 8-K......... Filed January 24, 2001, January 30,
2001, February 16, 2001, April 27,
2001, June 19, 2001, June 29,
2001, July 16, 2001 and July 27,
2001
Registration Statement on Form 8-A.. Filed June 5, 1998
We are also incorporating by reference all additional documents that we file
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, between the date of this prospectus and the
termination of the offering of securities described in this prospectus.
Sempra Energy will provide without charge to each person to whom a copy of
this prospectus has been delivered a copy of any and all of these filings. You
may request a copy of these filings by writing or telephoning us at:
Sempra Energy
101 Ash Street
San Diego, California 92101
Attention: Corporate Secretary
Telephone: (619) 696-2034
3
SEMPRA ENERGY
Sempra Energy, based in San Diego, is a Fortune 500 energy services company.
We were formed in connection with a business combination of Pacific Enterprises
and Enova Corporation in which the shareholders of the two companies became our
shareholders. The combination was completed and our shares began trading in
June 1998.
Through two regulated utility subsidiaries, Southern California Gas Company
and San Diego Gas & Electric Company, we serve over 21 million consumers, the
largest customer base of any gas, electric or combination gas and electric
utility in the United States. Natural gas service is provided throughout
Southern California and portions of Central California through over 5.7 million
active meters. Electric service is provided throughout San Diego County and
portions of Orange County, both in Southern California, through over 1.2
million active meters.
Through other subsidiaries, we also provide other energy-related products
and services. These subsidiaries include Sempra Energy Solutions, Sempra Energy
Trading, Sempra Energy Resources, Sempra Energy Services Company and Sempra
Energy International. Sempra Energy Solutions is a provider of energy-related
products and services to commercial, industrial, governmental, institutional
and consumer markets. Sempra Energy Trading is a wholesale trader of physical
and financial energy products, including natural gas, power, crude oil and
associated commodities. Sempra Energy Trading serves a broad range of customer,
including electric and gas utilities, industrial and large commercial end
users, and major energy markets while specializing in high-volume transactions.
Sempra Energy Resources acquires and develops power plants for the competitive
market and operates natural gas storage, production and transportation assets.
Sempra Energy Resources' power plants use state-of-the-art, combined-cycle
power generation technology and natural gas to generate electricity for the
wholesale market and retail electric providers, including utilities, marketers
and large energy users. Sempra Energy Services Company is a provider of energy-
efficiency engineering services for government and institutional customers.
Sempra Energy International engages in energy-infrastructure projects outside
the United States. It currently has interests in companies that provide natural
gas and electricity services in Argentina, Canada, Chile, Mexico, Peru and
Uruguay.
Our principal executive offices are located at 101 Ash Street, San Diego,
California 92101 and our telephone number is (619) 696-2034.
SEMPRA ENERGY GLOBAL ENTERPRISES
Sempra Energy Global Enterprises is a wholly owned subsidiary of Sempra
Energy. It is a holding company for many of the subsidiaries of Sempra Energy
that are not subject to California utility regulation. Its principal direct and
indirect subsidiaries currently are:
. Sempra Energy Solutions, a provider of energy-related products and
services to commercial, industrial, governmental, institutional and
consumer markets. Its principal subsidiaries are Sempra Energy Trading,
Sempra Energy Resources and Sempra Energy Services Company.
. Sempra Energy Trading, a wholesale trader of physical and financial
energy products, including natural gas, power, crude oil and associated
commodities. Sempra Energy Trading serves a broad range of customers,
including electric and gas utilities, industrial and large commercial end
users, and major energy marketers. It specializes in high-volume
transactions and provides its customers with customized energy delivery
and pricing programs.
. Sempra Energy Resources, a company that acquires and develops power
plants for the competitive market and operates natural gas storage,
production and transportation assets. Sempra Energy Resources' power
plants use state-of-the-art, combined-cycle power generation technology
and natural gas to generate electricity for the wholesale market and
retail electric providers, including utilities, marketers and large
energy users.
4
. Sempra Energy Services Company, a provider of energy-efficiency
engineering services for government and institutional customers.
. Sempra Energy International, a company that engages in energy-
infrastructure projects outside the United States. It currently has
interests in companies that provide natural gas and electricity services
in Argentina, Chile, Mexico and Peru.
Sempra Energy Global Enterprises may, in the future, engage in other
businesses.
Sempra Energy Global Enterprises' offices are located at 101 Ash Street,
San Diego, California 92101 and the telephone number is (619) 696-2034.
SEMPRA ENERGY CAPITAL TRUST II AND SEMPRA ENERGY CAPITAL TRUST III
Sempra Energy created Sempra Energy Capital Trust II and Sempra Energy
Capital Trust III. Sempra Energy will file an Amended and Restated Declaration
of Trust (a "Declaration") for each trust, which will state the terms and
conditions for each trust to issue and sell its trust preferred securities and
trust common securities. A form of Declaration is filed as an exhibit to the
registration statement of which this prospectus forms a part.
Each trust exists solely to:
. issue and sell its trust preferred securities (representing undivided
beneficial interests in the trust) to investors;
. issue and sell its trust common securities (representing undivided
beneficial interests in the trust) to Sempra Energy;
. use the proceeds from the sale of its trust preferred and common
securities to purchase a series of Sempra Energy's subordinated debt
securities;
. distribute the cash payments it receives on the subordinated debt
securities it owns to the holders of its trust preferred and common
securities;
. maintain its status as a grantor trust for federal income tax purposes;
and
. engage in other activities that are necessary or incidental to these
purposes.
Sempra Energy will purchase all of the trust common securities of each
trust. The trust common securities will represent an aggregate liquidation
amount equal to at least 3% of each trust's total capitalization. The trust
preferred securities will represent the remaining portion of the trust's total
capitalization. The trust common securities will have terms substantially
identical to, and will rank equal in priority of payment with, the trust
preferred securities. However, if Sempra Energy defaults on the related
subordinated debt securities, then cash distributions and liquidation,
redemption and other amounts payable on the trust common securities will be
subordinate to the trust preferred securities in priority of payment.
The trust preferred securities will be guaranteed by Sempra Energy as
described later in this prospectus.
Sempra Energy has appointed six trustees to conduct each trust's business
and affairs:
. The Bank of New York ("property trustee");
. The Bank of New York ("Delaware trustee");
. The Bank of New York ("securities trustee"); and
. Three Sempra Energy officers ("regular trustees").
5
Only Sempra Energy, as owner of the trust common securities, can remove or
replace the trustees. In addition, Sempra Energy can increase or decrease the
number of trustees.
Sempra Energy will pay all fees and expenses related to each trust and each
offering of the related trust preferred securities and will pay all ongoing
costs and expenses of each trust, except the respective trust's obligations
under the related trust preferred and common securities.
The trusts will not have separate financial statements. The statements would
not be material to holders of the trust preferred securities because no trust
will have any independent operations. Each trust exists solely for the reasons
summarized above.
6
USE OF PROCEEDS
Unless stated otherwise in the applicable prospectus supplement, the net
proceeds from the sale of the offered securities will be:
. used by Sempra Energy and/or its subsidiaries for general corporate
purposes, including investing in unregulated business activities and
reducing short-term debt incurred to provide interim financing for such
purposes; and
. used by the respective trusts to purchase subordinated debt securities of
Sempra Energy, which will in turn use the proceeds from the issuance of
subordinated debt securities for the purposes stated above.
RATIO OF SEMPRA ENERGY EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends for Sempra Energy for each of the five
years in the five-year period ended December 31, 2000 and for each of the six-
month periods ended June 30, 2000 and 2001:
Six
Months
Ended
Year Ended December 31, June 30,
------------------------ ---------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.. 3.67 3.75 2.73 3.19 2.91 2.77 3.46
7
DESCRIPTION OF SECURITIES
The following is a general description of the terms and provisions of the
securities we may offer and sell by this prospectus. These summaries are not
meant to be a complete description of each security. This prospectus and any
accompanying prospectus supplement will contain the material terms and
conditions for each security. The accompanying prospectus supplement may add,
update or change the terms and conditions of the securities as described in
this prospectus. For more information about the securities offered by us,
please refer to:
. the indenture between Sempra Energy and U.S. Bank Trust National
Association, as trustee, relating to the issuance of each series of
senior debt securities by Sempra Energy (the "senior indenture");
. the indenture between Sempra Energy and The Bank of New York, as trustee,
relating to the issuance of each series of subordinated debt securities
by Sempra Energy (the "subordinated indenture");
. the indenture among Sempra Energy Global Enterprises, Sempra Energy, as
Guarantor, and U.S. Bank Trust National Association, as trustee, relating
to the issuance of each series of senior debt securities by Sempra Energy
Global Enterprises;
. the Declaration of each trust; and
. Sempra Energy's guarantee of the trust preferred securities issued by
each trust.
Forms of these documents are filed as exhibits to the registration
statement. The indentures listed above are sometimes collectively referred to
as the "indentures" and individually referred to as an "indenture." The
indentures are subject to and governed by the Trust Indenture Act of 1939, as
amended, and may be supplemented or amended from time to time following their
execution.
DESCRIPTION OF DEBT SECURITIES
Unless indicated differently in a prospectus supplement, the following
description sets forth the general terms and provisions of the debt securities
that Sempra Energy and Sempra Energy Global Enterprises may offer by this
prospectus. The debt securities may be issued as senior debt securities or
subordinated debt securities in the case of Sempra Energy and as senior debt
securities in the case of Sempra Energy Global Enterprises.
The senior debt securities will be governed by the senior indenture and the
subordinated debt securities will be governed by the subordinated indenture.
Each indenture gives the issuer broad authority to set the particular terms of
each series of debt securities, including the right to modify certain of the
terms contained in the indenture. The particular terms of a series of debt
securities and the extent, if any, to which the particular terms of the issue
modify the terms of the applicable indenture will be described in the
accompanying prospectus supplement relating to such series of debt securities.
Each indenture contains the full legal text of the matters described in this
section. Because this section is a summary, it does not describe every aspect
of the debt securities or the applicable indentures. This summary is subject to
and qualified in its entirety by reference to all the provisions of the
applicable indenture, including definitions of terms used in such indenture. We
also include references in parentheses to certain sections of the indentures.
Whenever we refer to particular sections or defined terms of the indentures in
this prospectus or in a prospectus supplement, these sections or defined terms
are incorporated by reference into this prospectus or into the prospectus
supplement. This summary also is subject to and qualified by reference to the
description of the particular terms of a particular series of debt securities
described in the applicable prospectus supplement or supplements.
8
General
Sempra Energy and Sempra Energy Global Enterprises may issue an unlimited
amount of debt securities under the indentures in one or more series. Neither
company is required to issue all debt securities of one series at the same time
and, unless otherwise provided in a prospectus supplement, either company may
reopen a series, without the consent of the holders of the debt securities of
that series, for issuances of additional debt securities of that series.
The debt securities of Sempra Energy and Sempra Energy Global Enterprises
will be unsecured obligations of the company issuing the security, and the debt
securities of Sempra Energy Global Enterprises will be unconditionally
guaranteed by Sempra Energy as to payment of principal, premium, if any, and
interest as described under the caption "--Guarantee of Sempra Energy; Holding
Company Structure" contained in this prospectus.
Prior to the issuance of each series of debt securities, the terms of the
particular securities will be specified in either a supplemental indenture
(including any pricing supplement) and a board resolution of the issuing
company or in one or more officers' certificates of the issuing company
pursuant to a supplemental indenture or a board resolution. We refer you to the
applicable prospectus supplement for a description of the following terms of
each series of debt securities:
(a) the title of the debt securities;
(b) any limit upon the principal amount of the debt securities;
(c) the date or dates on which principal will be payable or how to
determine the dates;
(d) the rate or rates or method of determination of interest; the date
from which interest will accrue; the dates on which interest will be
payable, which we refer to as the "interest payment dates"; and any record
dates for the interest payable on the interest payment dates;
(e) any obligation or option of the issuing company to redeem, purchase
or repay debt securities, or any option of the registered holder to require
the issuing company to redeem or repurchase debt securities, and the terms
and conditions upon which the debt securities will be redeemed, purchased
or repaid;
(f) the denominations in which the debt securities will be issuable (if
other than denominations of $1,000 and any integral multiple thereof);
(g) whether the debt securities are to be issued in whole or in part in
the form of one or more global debt securities and, if so, the identity of
the depositary for the global debt securities; and
(h) any other terms of the debt securities that may be different from
those described below.
(See Section 301.)
Ranking
The senior debt securities will be the unsecured and unsubordinated
obligations of the company issuing the security. The indebtedness represented
by the senior debt securities will rank equally with all other unsecured and
unsubordinated debt of the company issuing the senior debt security (either
Sempra Energy or Sempra Energy Global Enterprises). The indebtedness
represented by the subordinated debt securities will rank junior and
subordinate in right of payment to the prior payment in full of the senior debt
of Sempra Energy, to the extent and in the manner set forth under the caption
"--Subordination" below and as may be set forth in a prospectus supplement. The
debt securities are obligations of Sempra Energy and Sempra Energy Global
Enterprises exclusively, and are not the obligations of any of their respective
subsidiaries. Because each company conducts its operations primarily through
its respective subsidiaries and substantially all of its respective
consolidated assets are held by its respective subsidiaries, the debt
securities will be effectively subordinated to all existing and future
indebtedness and other liabilities of each issuing company's respective
subsidiaries.
9
Guarantee of Sempra Energy; Holding Company Structure
Sempra Energy will unconditionally guarantee the payment of principal of and
any premium and interest on the debt securities issued by Sempra Energy Global
Enterprises, when due and payable, whether at the stated maturity date, by
declaration of acceleration, call for redemption or otherwise, in accordance
with the terms of the debt securities and the applicable indenture. These
guarantees are referred to as the "debt securities guarantees" in this
prospectus. The debt securities guarantees will remain in effect until the
entire principal of and any premium and interest on the debt securities has
been paid in full or otherwise discharged in accordance with the provisions of
the applicable indenture.
Sempra Energy conducts its operations primarily through its subsidiaries and
substantially all of its consolidated assets are held by its subsidiaries.
Accordingly, Sempra Energy's cash flow and its ability to meet its obligations
under its debt securities and the debt securities guarantees are largely
dependent upon the earnings of its subsidiaries and the distribution or other
payment of these earnings to Sempra Energy in the form of dividends or loans or
advances and repayment of loans and advances from Sempra Energy. Except for
Sempra Energy Global Enterprises with respect to repayment of their debt
securities, the subsidiaries are separate and distinct legal entities and have
no obligation to pay any amounts due on the Sempra Energy debt securities or to
make any funds available for payment of amounts due on these debt securities or
the debt securities guarantees.
Because Sempra Energy is a holding company, its obligations under the debt
securities and the debt securities guarantees will be structurally subordinated
to all existing and future liabilities of its subsidiaries. Therefore, Sempra
Energy's rights and the rights of its creditors, including the rights of the
holders of the debt securities issued by Sempra Energy and any debt securities
guarantees, to participate in the assets of any subsidiary upon the liquidation
or reorganization of the subsidiary will be subject to the prior claims of the
subsidiary's creditors. To the extent that Sempra Energy may itself be a
creditor with recognized claims against any of its subsidiaries, Sempra
Energy's claims would still be effectively subordinated to any security
interest in, or mortgages or other liens on, the assets of the subsidiary and
would be subordinated to any indebtedness or other liabilities of the
subsidiary that are senior to the claims held by Sempra Energy. Sempra Energy
expects to incur, and that each of its subsidiaries will incur, substantial
additional amounts of indebtedness.
Sempra Energy Global Enterprises also conducts its operations primarily
through its subsidiaries and substantially all of its consolidated assets are
held by its subsidiaries. Accordingly, the discussion above is equally
applicable to Sempra Energy Global Enterprises and the debt securities it
issues.
Payment of Debt Securities--Interest
Unless indicated differently in a prospectus supplement, the issuing company
will pay interest on the debt securities on each interest payment date by check
mailed to the person in whose name the debt securities are registered as of the
close of business on the regular record date relating to the interest payment
date.
However, if the issuing company defaults in paying interest on a debt
security, the issuing company will pay defaulted interest in either of the two
following ways:
(a) The issuing company will first propose to the trustee a payment date
for the defaulted interest. Next, the trustee will choose a special record
date for determining which registered holders are entitled to the payment.
The special record date will be between ten and 15 days before the proposed
payment date. Finally, the issuing company will pay the defaulted interest
on the payment date to the registered holder of the debt security as of the
close of business on the special record date.
(b) Alternatively, the issuing company can propose to the trustee any
other lawful manner of payment that is consistent with the requirements of
any securities exchange on which the debt securities are listed for
trading. If the trustee thinks the proposal is practicable, payment will be
made as proposed.
(See Section 307.)
10
Payment of Debt Securities--Principal
The company issuing the debt securities will pay principal of and any
premium and interest on the debt securities at stated maturity, upon redemption
or otherwise, upon presentation of the debt securities at the office of the
paying agent, which initially will be the trustee or such other paying agent
designated in accordance with the applicable indenture. Any other paying agent
initially designated for the debt securities of a particular series will be
named in the applicable prospectus supplement.
If any interest payment date, redemption date or the maturity date of the
debt securities is not a business day at any place of payment, then payment of
the principal, premium, if any, and interest may be made on the next business
day at that place of payment. In that case, no interest will accrue on the
amount payable for the period from and after the applicable interest payment
date, redemption date or maturity date, as the case may be.
The issuing company will pay principal of and any premium on the debt
securities at stated maturity, upon redemption or otherwise, upon presentation
of the debt securities at the office of the paying agent. In the discretion of
the company issuing the debt securities, the issuing company may appoint one or
more additional paying agents and security registrars and designate one or more
additional places for payment and for registration of transfer, but must at all
times maintain a place of payment of the debt securities and a place for
registration of transfer of the debt securities in the Borough of Manhattan,
the City of New York. (See Section 1002.)
Form; Transfers; Exchanges
The debt securities will be issued
(a) only in fully registered form;
(b) without interest coupons; and
(c) on denominations that are even multiples of $1,000.
You may have your debt securities divided into debt securities of smaller
denominations (of at least $1,000) or combined into debt securities of larger
denominations, as long as the total principal amount is not changed. This is
called an "exchange." (See Section 305.)
You may exchange or transfer debt securities at the office of the trustee.
The trustee acts as our agent for registering debt securities in the names of
holders and transferring debt securities. The company issuing the debt
securities may appoint another agent or act as its own agent for this purpose.
The entity performing the role of maintaining the list of registered holders is
called the "security registrar." It will also perform transfers. (See Section
305.)
In the discretion of the company issuing the debt securities, the issuing
company may change the place for registration of transfer of the debt
securities and may remove and/or appoint one or more additional security
registrars. (See Sections 305 and 1002.)
There will be no service charge for any transfer or exchange of the debt
securities, but you may be required to pay a sum sufficient to cover any tax or
other governmental charge payable in connection with the transfer or exchange.
We may block the transfer or exchange of (a) debt securities during a period of
15 days prior to giving any notice of redemption or (b) any debt security
selected for redemption in whole or in part, except the unredeemed portion of
any debt security being redeemed in part. (See Section 305.)
11
Optional Redemption
Unless indicated differently in a prospectus supplement, all or a portion of
the debt securities may be redeemed at the option of the issuing company at any
time or from time to time. The redemption price for the debt securities to be
redeemed on any redemption date will be equal to the greater of the following
amounts:
. 100% of the principal amount of the debt securities being redeemed on the
redemption date; or
. the sum of the present values of the remaining scheduled payments of
principal and interest on the debt securities being redeemed on that
redemption date (not including any portion of any payments of interest
accrued to the redemption date) discounted to the redemption date on a
semiannual basis at the Adjusted Treasury Rate (as defined below) plus a
number of basis points as set forth in any accompanying prospectus
supplement, as determined by the Reference Treasury Dealer (as defined
below),
plus, in each case, accrued and unpaid interest thereon to the redemption date.
Notwithstanding the foregoing, installments of interest on the debt securities
that are due and payable on interest payment dates falling on or prior to a
redemption date will be payable on the interest payment date to the registered
holders as of the close of business on the relevant record date according to
the debt securities and the indenture. The redemption price will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
The company issuing the debt securities will mail notice of any redemption
at least 30 days but not more than 60 days before the redemption date to each
registered holder of the debt securities to be redeemed. Once notice of
redemption is mailed, the debt securities called for redemption will become due
and payable on the redemption date and at the applicable redemption price, plus
accrued and unpaid interest to the redemption date. If the issuing company
elects to redeem all or a portion of the debt securities, that redemption will
not be conditional upon receipt by the paying agent or the trustee of monies
sufficient to pay the redemption price. (See Section 1104.)
Debt securities will cease to bear interest on the redemption date. The
issuer of the debt securities will pay the redemption price and any accrued
interest once you surrender the debt security for redemption. (See
Section 1105.) If only part of a debt security is redeemed, the trustee will
deliver to you a new debt security of the same series for the remaining portion
without charge. (Section 1106.)
Unless the company issuing the debt securities defaults in payment of the
redemption price, on and after the redemption date interest will cease to
accrue on the debt securities or portions thereof called for redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Reference Treasury Dealer as having a maturity comparable to
the remaining term of the debt securities to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such debt securities.
"Comparable Treasury Price" means, with respect to any redemption date, (A)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the trustee receives fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations, or (C) if the
trustee receives only one Reference Treasury Dealer Quotation, such Quotation.
12
"Reference Treasury Dealer" means (A) the underwriters referenced in any
applicable prospectus supplement; provided, however, that if any of the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the company issuing the debt
securities will substitute therefor another Primary Treasury Dealer; and (B)
any other Primary Treasury Dealer(s) selected by the trustee after consultation
with the issuing company.
"Reference Treasury Dealer Quotation" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. (New York
City time) on the third business day preceding such redemption date.
Events of Default
An "event of default" occurs with respect to the debt securities of any
series if:
(a) the issuing company does not pay any interest on any debt securities
of the applicable series within 30 days of the due date;
(b) the issuing company does not pay any principal of or premium on any
debt securities of the applicable series on the due date;
(c) the issuing company or, if applicable, the guarantor of the debt
securities remains in breach of a covenant or warranty (excluding covenants
and warranties solely applicable to another series of debt securities
issued under the applicable indenture) in the applicable indenture or the
debt securities of the applicable series for 60 days after it receives a
written notice of default stating it is in breach and requiring remedy of
the breach; the notice must be sent by either the trustee or registered
holders of at least 25% of the principal amount of the outstanding debt
securities of the affected series;
(d) default occurs under any bond, note, debenture or other instrument
evidencing any indebtedness for money borrowed by the issuing company or,
if applicable, the guarantor of the debt securities, excluding any of the
issuing company's subsidiaries (including a default with respect to any
other series of debt securities issued under the applicable indenture), or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the issuing company (or the payment of which is
guaranteed by the issuing company or, if applicable, the guarantor of the
debt securities), excluding any of the issuing company's subsidiaries,
whether such indebtedness or guarantee exists on the date of the applicable
indenture or is issued or entered into following the date of the applicable
indenture, if:
(1) either:
. such default results from the failure to pay any such indebtedness
when due; or
. as a result of such default the maturity of such indebtedness has
been accelerated prior to its expressed maturity; and
(2) the principal amount of such indebtedness, together with the
principal amount of any other such indebtedness in default for
failure to pay any such indebtedness when due or the maturity of
which has been so accelerated, aggregates at least $25 million;
(e) the issuing company or, if applicable, the guarantor of the debt
securities files for bankruptcy or other specified events in bankruptcy,
insolvency, receivership or reorganization occur; or
(f) any other event of default specified in the applicable prospectus
supplement for such series occurs.
(See Section 501.)
13
No event of default with respect to a series of debt securities necessarily
constitutes an event of default with respect to the debt securities of any
other series issued under the applicable indenture.
Remedies
Acceleration
If an event of default occurs and is continuing with respect to any series
of debt securities, then either the trustee or the registered holders of at
least 25% in principal amount of the outstanding debt securities of that
series may declare the principal amount of all of the debt securities of that
series, together with accrued and unpaid interest thereon, to be due and
payable immediately. (See Section 502.)
Rescission of Acceleration
After the declaration of acceleration has been made with respect to any
series of debt securities and before the trustee has obtained a judgment or
decree for payment of the money due, the declaration and its consequences will
be rescinded and annulled, if:
(a) the company issuing the debt securities of that series pays or
deposits with the trustee a sum sufficient to pay:
(1) all overdue interest on the debt securities of that series, other
than interest which has become due by declaration of acceleration;
(2) the principal of and any premium on the debt securities of that
series which have become due, otherwise than by the declaration of
acceleration, and overdue interest on these amounts;
(3) interest on overdue interest, other than interest which has
become due by declaration of acceleration, on the debt securities of
that series to the extent lawful; and
(4) all amounts due to the trustee under the applicable indenture;
and
(b) all events of default with respect to the debt securities of that
series, other than the nonpayment of the principal and interest which has
become due solely by the declaration of acceleration, have been cured or
waived as provided in the applicable indenture.
(See Section 502.)
For more information as to waiver of defaults, see "--Waiver of Default and
of Compliance" below.
Control by Registered Holders; Limitations
If an event of default with respect to the debt securities of any series
occurs and is continuing, the registered holders of a majority in principal
amount of the outstanding debt securities of that series, voting as a single
class, without regard to the holders of outstanding debt securities of any
other series that may also be in default, will have the right to direct the
time, method and place of:
(a) conducting any proceeding for any remedy available to the trustee
with respect to the debt securities of that series; and
(b) exercising any trust or power conferred on the trustee with respect
to the debt securities of that series.
These rights of registered holders to give directions are subject to the
following limitations:
(a) the registered holders' directions do not conflict with any law or
the applicable indenture; and
(b) the direction is not unduly prejudicial to the rights of holders of
the debt securities of that series who do not join in that action.
14
The trustee may also take any other action it deems proper which is
consistent with the registered holders' direction. (See Sections 512 and 603.)
In addition, each indenture provides that no registered holder of debt
securities of any series will have any right to institute any proceeding,
judicial or otherwise, with respect to the applicable indenture or for the
appointment of a receiver or for any other remedy thereunder unless:
(a) that registered holder has previously given the trustee written
notice of a continuing event of default;
(b) the registered holders of at least 25% in aggregate principal amount
of the outstanding debt securities of that series have made written request
to the trustee to institute proceedings in respect of that event of default
and have offered the trustee reasonable indemnity against costs and
liabilities incurred in complying with the request; and
(c) for 60 days after receipt of the notice, the trustee has failed to
institute a proceeding and no direction inconsistent with the request has
been given to the trustee during the 60-day period by the registered
holders of a majority in aggregate principal amount of outstanding debt
securities of that series.
Furthermore, no registered holder will be entitled to institute any action if
and to the extent that the action would disturb or prejudice the rights of
other registered holders of debt securities. (See Section 507.)
However, each registered holder has an absolute and unconditional right to
receive payment when due and to bring a suit to enforce that right. (See
Section 508.)
Notice of Default
The trustee is required to give the registered holders of debt securities of
the affected series notice of any default under the applicable indenture to the
extent required by the Trust Indenture Act, unless the default has been cured
or waived; except that in the case of an event of default of the character
specified above in clause (c) under "--Events of Default," no notice shall be
given to such registered holders until at least 30 days after the occurrence of
the default. The Trust Indenture Act currently permits the trustee to withhold
notices of default (except for certain payment defaults) if the trustee in good
faith determines the withholding of the notice to be in the interests of the
registered holders. (See Section 602.)
The company issuing the debt securities will furnish the trustee with an
annual statement as to its compliance with the conditions and covenants in the
applicable indenture.
Waiver of Default and of Compliance
The registered holders of a majority in aggregate principal amount of the
outstanding debt securities of any series, voting as a single class, without
regard to the holders of outstanding debt securities of any other series, may
waive, on behalf of all registered holders of the debt securities of that
series, any past default under the applicable indenture, except a default in
the payment of principal, premium or interest, or with respect to compliance
with certain provisions of the applicable indenture that cannot be amended
without the consent of the registered holder of each outstanding debt security
of that series. (See Section 513.)
Unless indicated differently in a prospectus supplement, compliance with
certain covenants in the applicable indenture or otherwise provided with
respect to debt securities of any series may be waived prior to the time
specified for compliance by the registered holders of a majority in aggregate
principal amount of the debt securities of such series. (See Section 1006.)
15
Consolidation, Merger and Conveyance of Assets as an Entirety; No Financial
Covenants
Sempra Energy and Sempra Energy Global Enterprises have each agreed not to
consolidate or merge with or into any other entity, or to sell, transfer,
lease or otherwise convey its properties and assets as an entirety or
substantially as an entirety to any entity, unless:
(a) it is the continuing entity (in the case of a merger) or the
successor entity formed by such consolidation or into which it is merged or
which acquires by sale, transfer, lease or other conveyance its properties
and assets, as an entirety or substantially as an entirety, is a
corporation organized and existing under the laws of the United States of
America or any State thereof or the District of Columbia, and expressly
assumes, by supplemental indenture, (i) the due and punctual payment of the
principal, premium and interest on all the debt securities and the
performance of all of the covenants under the indenture and (ii) in the
case of Sempra Energy, the due and punctual payment of all amounts under
the debt securities guarantees; and
(b) immediately after giving effect to the transaction, no event of
default, and no event which after notice or lapse of time or both would
become an event of default, has or will have occurred and be continuing.
Neither the applicable indenture nor the debt securities guarantee contains
any financial or other similar restrictive covenants.
(See Section 801.)
Modification of Indenture
Without Registered Holder Consent. Without the consent of any registered
holders of debt securities, the company issuing the debt securities and the
trustee may enter into one or more supplemental indentures for any of the
following purposes:
(a) to evidence the succession of another entity to the company issuing
the debt securities; or
(b) to add one or more covenants for the benefit of the holders of all
or any series of debt securities or to surrender any right or power
conferred upon the company issuing the debt securities; or
(c) to add any additional events of default for all or any series of
debt securities; or
(d) to change or eliminate any provision of the applicable indenture so
long as the change or elimination does not apply to any debt securities
entitled to the benefit of such provision or to add any new provision to
the applicable indenture (in addition to the provisions which may otherwise
be added to the applicable indenture pursuant to the other clauses of this
paragraph) so long as the addition does not apply to any outstanding debt
securities; or
(e) to provide security for the debt securities of any series; or
(f) to establish the form or terms of debt securities of any series, as
permitted by the applicable indenture; or
(g) to evidence and provide for the acceptance of appointment of a
separate or successor trustee; or
(h) to cure any ambiguity, defect or inconsistency or to make any other
changes with respect to any series of debt securities that does not
adversely affect the interests of the holders of debt securities of that
series in any material respect.
(See Section 901.)
With Registered Holder Consent. Subject to the following sentence, the
company issuing the debt securities and the trustee may, with some exceptions,
amend or modify the applicable indenture with the consent of the registered
holders of at least a majority in aggregate principal amount of the debt
securities of
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each series affected by the amendment or modification. However, no amendment or
modification may, without the consent of the registered holder of each
outstanding debt security affected thereby:
(a) change the stated maturity of the principal or interest on any debt
security or reduce the principal amount, interest or premium payable or
change any place of payment where or the currency in which any debt
security is payable, or impair the right to bring suit to enforce any
payment;
(b) reduce the percentages of registered holders whose consent is
required for any supplemental indenture or waiver;
(c) modify or affect in any manner the terms and conditions of the
obligations of Sempra Energy in respect of the due and punctual payment of
the principal of, or premium, if any or interest on any debt securities
guarantees; or
(d) modify certain provisions in the applicable indenture relating to
supplemental indentures and waivers of certain covenants and past defaults.
A supplemental indenture which changes or eliminates any provision of the
applicable indenture expressly included solely for the benefit of holders of
debt securities of one or more particular series will be deemed not to affect
the interests under the applicable indenture of the holders of debt securities
of any other series.
(See Section 902.)
Defeasance
The indentures provide, unless the terms of the particular series of debt
securities provide otherwise, that the company issuing the debt securities or,
if applicable, the guarantor of the debt securities, may, upon satisfying
several conditions, cause it to be discharged from its respective obligations,
with some exceptions, with respect to any series of debt securities, which we
refer to as "defeasance."
One condition the issuing company or, if applicable, the guarantor of the
debt securities must satisfy is the irrevocable deposit with the trustee, in
trust, of money and/or government obligations which, through the scheduled
payment of principal and interest on those obligations, would provide
sufficient moneys to pay the principal of and any premium and interest on those
debt securities on the maturity dates of the payments or upon redemption.
In addition, the company issuing the debt securities or, if applicable, the
guarantor of the debt securities will be required to deliver an opinion of
counsel to the effect that a holder of debt securities will not recognize
income, gain or loss for federal income tax purposes as a result of the
defeasance and will be subject to federal income tax on the same amounts, at
the same times and in the same manner as if that defeasance had not occurred.
The opinion of counsel must be based upon a ruling of the Internal Revenue
Service or a change in law after the date of the applicable indenture.
(See Article XIII.)
Satisfaction and Discharge
The applicable indenture will cease to be of further effect with respect to
any series of debt securities, and we will be deemed to have satisfied and
discharged all of our obligations under the applicable indenture, except as
noted below, when:
. all outstanding debt securities of such series have become due or will
become due within one year at their stated maturity or on a redemption
date; and
. the issuing company deposits with the trustee, in trust, funds that are
sufficient to pay and discharge all remaining indebtedness on the
outstanding debt securities of such series.
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The company issuing the debt securities and, as applicable, guaranteeing the
debt securities, of such series will remain obligated to pay all other amounts
due under the applicable indenture and guarantee and to perform certain
ministerial tasks as described in the applicable indenture.
(See Section 401.)
Resignation and Removal of the Trustee; Deemed Resignation
The trustee with respect to any series of debt securities may resign at any
time by giving written notice to us. The trustee may also be removed with
respect to the debt securities of any series by act of the registered holders
of a majority in principal amount of the then outstanding debt securities of
such series. No resignation or removal of the 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 applicable
indenture. Under certain circumstances, the company issuing a series of debt
securities may appoint a successor trustee with respect to such series of debt
securities and if the successor trustee accepts, the trustee will be deemed to
have resigned. (See Section 610.)
Subordination
Unless indicated differently in a prospectus supplement, Sempra Energy's
subordinated debt securities will be subordinated in right of payment to the
prior payment in full of all its senior debt. This means that, upon:
(a) any distribution of the assets of Sempra Energy upon its
dissolution, winding-up, liquidation or reorganization in bankruptcy,
insolvency, receivership or other proceedings; or
(b) acceleration of the maturity of the subordinated debt securities; or
(c) a failure to pay any senior debt or interest thereon when due and
continuance of that default beyond any applicable grace period; or
(d) acceleration of the maturity of any senior debt as a result of a
default,
the holders of all of Sempra Energy's senior debt will be entitled to receive:
. in the case of clauses (a) and (b) above, payment of all amounts due or
to become due on all senior debt; and
. in the case of clauses (c) and (d) above, payment of all amounts due on
all senior debt,
before the holders of any of the subordinated debt securities are entitled to
receive any payment. So long as any of the events in clauses (a), (b), (c) or
(d) above has occurred and is continuing, any amounts payable on the
subordinated debt securities will instead by paid directly to the holders of
all senior debt to the extent necessary to pay the senior debt in full and, if
any payment is received by the subordinated indenture trustee under the
subordinated indenture or the holders of any of the subordinated debt
securities before all senior debt is paid in full, the payment or distribution
must be paid over to the holders of the unpaid senior debt. Subject to paying
the senior debt in full, the holders of the subordinated debt securities will
be subrogated to the rights of the holders of the senior debt to the extent
that payments are made to the holders of senior debt out of the distributive
share of the subordinated debt securities. (See Section 1401.)
"senior debt" means with respect to the subordinated debt securities, the
principal of, and premium, if any, and interest on and any other payment in
respect of indebtedness due pursuant to any of the following, whether
outstanding on the date the subordinated debt securities are issued or
thereafter incurred, created or assumed:
(a) all of the indebtedness of Sempra Energy evidenced by notes,
debentures, bonds or other securities sold by it for money or other
obligations for money borrowed;
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(b) all indebtedness of others of the kinds described in the preceding
clause (a) assumed by or guaranteed in any manner by Sempra Energy or in
effect guaranteed by Sempra Energy through an agreement to purchase,
contingent or otherwise, as applicable; and
(c) all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding clauses (a) and (b), unless, in the
case of any particular indebtedness, renewal, extension or refunding, the
instrument creating or evidencing the same or the assumption or guarantee
of the same by its terms provides that such indebtedness, renewal,
extension or refunding is not superior in right of payment to or is pari
passu with such securities. (See Section 101.)
Due to the subordination, if assets of Sempra Energy are distributed upon
insolvency, certain of its general creditors may recover more, ratably, than
holders of subordinated debt securities. The subordination provisions will not
apply to money and securities held in trust under the satisfaction and
discharge and the defeasance provisions of the applicable subordinated
indenture. (See Section 1410.)
The subordinated debt securities, the subordinated indenture and the trust
preferred securities guarantee do not limit Sempra Energy or any of its
subsidiaries' ability to incur additional indebtedness, including indebtedness
that will rank senior to subordinated debt securities and trust preferred
securities guarantees. Sempra Energy expects that it will incur, and that each
of its subsidiaries will incur, substantial additional amounts of indebtedness
in the future. (See Section 301.)
Conversion Rights
The terms and conditions of any series of debt securities being offered that
are convertible into common stock of Sempra Energy will be set forth in a
prospectus supplement. These terms will include the conversion price, the
conversion period, provisions as to whether conversion will be at the option of
the holder or the company issuing the debt securities, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event that such series of debt securities are redeemed.
Miscellaneous Provisions
Each indenture provides that certain debt securities, including those for
which payment or redemption money has been deposited or set aside in trust as
described under "--Satisfaction and Discharge" above, will not be deemed to be
"outstanding" in determining whether the registered holders of the requisite
principal amount of the outstanding debt securities have given or taken any
demand, direction, consent or other action under the indenture as of any date,
or are present at a meeting of registered holders for quorum purposes. (See
Section 101.)
The company issuing the debt securities will be entitled to set any day as a
record date for the purpose of determining the registered holders of
outstanding debt securities of any series entitled to give or take any demand,
direction, consent or other action under the applicable indenture, in the
manner and subject to the limitations provided in the applicable indenture. In
certain circumstances, the trustee also will be entitled to set a record date
for action by registered holders of any series of outstanding debt securities.
If a record date is set for any action to be taken by registered holders of
particular debt securities, the action may be taken only by persons who are
registered holders of the respective debt securities on the record date. (See
Section 104.)
Governing Law
Each indenture and the related debt securities will be governed by and
construed in accordance with the laws of the State of New York. (See Section
112.)
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DESCRIPTION OF SEMPRA ENERGY'S
COMMON STOCK AND PREFERRED STOCK
Unless indicated differently in a prospectus supplement, this section
describes the terms of Sempra Energy's common stock and preferred stock. The
following description of Sempra Energy's common stock and preferred stock is
only a summary and is qualified in its entirety by reference to the articles of
incorporation and bylaws of Sempra Energy. Therefore, you should read carefully
the more detailed provisions of Sempra Energy's Amended and Restated Articles
of Incorporation, Sempra Energy's Amended and Restated Bylaws, and Sempra
Energy's Rights Agreement, dated May 26, 1998, between Sempra Energy and
First Chicago Trust Company of New York, as rights agent, copies of which are
incorporated by reference as exhibits to the registration statement of which
this prospectus is a part.
General
The authorized capital stock of Sempra Energy consists of (1) 750,000,000
shares of Sempra Energy common stock, without par value, and (2) 50,000,000
shares of preferred stock, without par value. As of June 30, 2001, there were
206,836,453 issued and outstanding shares of Sempra Energy common stock and no
shares of Sempra Energy preferred stock. No other classes of capital stock are
authorized under the Sempra Energy articles of incorporation. The issued and
outstanding shares of Sempra Energy common stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights.
Sempra Energy Common Stock
The holders of Sempra Energy common stock are entitled to receive such
dividends as the Sempra Energy board of directors may from time to time
declare, subject to any rights of holders of outstanding shares of Sempra
Energy preferred stock. Except as otherwise provided by law, each holder of
Sempra Energy common stock is entitled to one vote per share on each matter
submitted to a vote of a meeting of shareholders, subject to any class or
series voting rights of holders of Sempra Energy preferred stock. Under the
Sempra Energy articles of incorporation, the Sempra Energy board of directors
is classified into three classes each consisting of a number as nearly equal as
possible to one-third of the total number of directors constituting the entire
Sempra Energy board of directors. The holders of shares of Sempra Energy
common stock are not entitled to cumulate votes for the election of directors.
In the event of any liquidation, dissolution or winding up of Sempra Energy,
whether voluntary or involuntary, the holders of shares of Sempra Energy common
stock, subject to any rights of the holders of outstanding shares of Sempra
Energy preferred stock, are entitled to receive any remaining assets of
Sempra Energy after the discharge of its liabilities.
Holders of Sempra Energy common stock are not entitled to preemptive rights
to subscribe for or purchase any part of any new or additional issue of stock
or securities convertible into stock. Sempra Energy common stock does not
contain any redemption provisions or conversion rights and is not liable to
assessment or further call.
Each outstanding share of Sempra Energy common stock is accompanied by a
right to purchase one one-hundredth of a share of Class A Junior Participating
Preferred Stock, without par value, of Sempra Energy at a price of $80 per
right, subject to certain anti-dilution adjustments. The Sempra Energy board of
directors has reserved 7,500,000 shares of such Class A preferred stock for
issuance upon exercise of the rights, as more fully discussed below under the
caption "--Description of Preferred Share Purchase Rights."
The registrar and transfer agent for the Sempra Energy common stock is First
Chicago Trust Company of New York.
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Sempra Energy Preferred Stock
The Sempra Energy board of directors is authorized, pursuant to the Sempra
Energy articles of incorporation, to issue up to 50,000,000 shares of Sempra
Energy preferred stock in one or more series and to fix and determine the
number of shares of Sempra Energy preferred stock of any series, to determine
the designation of any such series, to increase or decrease the number of
shares of any such series subsequent to the issue of shares of that series,
and to determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any such series. Currently there are no shares of
Sempra Energy preferred stock outstanding. However, the Sempra Energy board of
directors has reserved 7,500,000 shares of Class A preferred stock for
issuance in connection with rights issued under the Sempra Energy rights
agreement.
Prior to the issuance of shares of each series of Sempra Energy preferred
stock, the board of directors is required to adopt resolutions and file a
certificate of determination with the Secretary of State of the
State of California. The certificate of determination will fix for each series
the designation and number of shares and the rights, preferences, privileges
and restrictions of the shares including, but not limited to, the following:
(a) the title and stated value of the Sempra Energy preferred stock;
(b) voting rights, if any, of the Sempra Energy preferred stock;
(c) any rights and terms of redemption (including sinking fund
provisions);
(d) the dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation applicable to the Sempra Energy preferred stock;
(e) whether dividends are cumulative or non-cumulative and, if
cumulative, the date from which dividends on the Sempra Energy preferred
stock will accumulate;
(f) the relative ranking and preferences of the Sempra Energy preferred
stock as to dividend rights and rights upon the liquidation, dissolution or
winding up of Sempra Energy's affairs;
(g) the terms and conditions, if applicable, upon which the Sempra
Energy preferred stock will be convertible into Sempra Energy common stock,
including the conversion price (or manner of calculation) and conversion
period;
(h) the provision for redemption, if applicable, of the Sempra Energy
preferred stock;
(i) the provisions for a sinking fund, if any, for the Sempra Energy
preferred stock;
(j) liquidation preferences;
(k) any limitations on issuance of any class or series of Sempra Energy
preferred stock ranking senior to or on a parity with the class or series
of Sempra Energy preferred stock as to dividend rights and rights upon
liquidation, dissolution or winding up of Sempra Energy's affairs; and
(l) any other specific terms, preferences, rights, limitations or
restrictions of the Sempra Energy preferred stock.
All shares of Sempra Energy preferred stock will, when issued, be fully
paid and nonassessable and will not have any preemptive or similar rights.
In addition to the terms listed above, we will set forth in a prospectus
supplement the following terms relating to the class or series of Sempra
Energy preferred stock being offered:
(a) the number of shares of the Sempra Energy preferred stock offered,
the liquidation preference per share and the offering price of the Sempra
Energy preferred stock;
(b) the procedures for any auction and remarketing, if any, for the
Sempra Energy preferred stock;
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(c) any listing of the Sempra Energy preferred stock on any securities
exchange; and
(d) a discussion of any material and/or special United States federal
income tax considerations applicable to the Sempra Energy preferred stock.
Rank
The Sempra Energy preferred stock will rank, with respect to dividends and
upon our liquidation, dissolution or winding up:
(a) senior to all classes or series of Sempra Energy common stock and to
all of our equity securities ranking junior to the Sempra Energy preferred
stock;
(b) on a parity with all of Sempra Energy's equity securities the terms
of which specifically provide that the equity securities rank on a parity
with the Sempra Energy preferred stock; and
(c) junior to all of Sempra Energy's equity securities the terms of
which specifically provide that the equity securities rank senior to the
Sempra Energy preferred stock.
Description of Preferred Share Purchase Rights
On May 26, 1998, the Sempra Energy board of directors adopted a preferred
share purchase rights plan providing that one preferred share purchase right
will attach to each share of Sempra Energy common stock (each, a "purchase
right"). The description and terms of the rights are set forth in a rights
agreement, dated as of May 26, 1998, by and between Sempra Energy and First
Chicago Trust Company of New York, as rights agent. The purchase rights have an
anti-takeover effect that is intended to discourage coercive or unfair takeover
tactics and to encourage any potential acquirer to negotiate a fair price to
all Sempra Energy shareholders. The purchase rights may cause substantial
dilution to any party that may attempt to acquire Sempra Energy on terms not
approved by the Sempra Energy board of directors. However, the purchase rights
are structured in a way so as not to interfere with any negotiated merger or
other business combination. The purchase rights will expire on May 31, 2008.
Until a purchase right is exercised, the holder of the purchase right will have
no rights as a shareholder of Sempra Energy beyond those rights afforded to
existing shareholders, including the right to vote or to receive dividends.
The purchase rights are designed to assure that all of Sempra Energy's
shareholders receive fair and equal treatment in the event of any proposed
takeover of Sempra Energy and to guard against partial tender offers, open
market accumulations and other abusive tactics that may be deployed to gain
control of Sempra Energy without a control premium paid to all shareholders.
Any time prior to the first date that a person or group has become an
"acquiring person" as defined in the rights agreement, the purchase rights
should not interfere with any merger or other business combination as long as
it is approved by the Sempra Energy board of directors.
Anti-Takeover Provisions
The Sempra Energy articles of incorporation and bylaws contain provisions
that may have the effect of discouraging persons from acquiring large blocks of
Sempra Energy stock or delaying or preventing a change in control of Sempra
Energy. The material provisions that may have such an effect are:
(a) classification of the Sempra Energy board of directors into three
classes with the term of only one class expiring each year;
(b) a provision permitting the Sempra Energy board of directors to make,
amend or repeal the Sempra Energy bylaws;
(c) authorization for the Sempra Energy board of directors to issue
Sempra Energy preferred stock in series and to fix rights and preferences
of the series (including, among other things, whether, and to what extent,
the shares of any series will have voting rights and the extent of the
preferences of the shares of any series with respect to dividends and other
matters);
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(d) a provision that shareholders may take action only at annual or
special meetings or by unanimous written consent in lieu of a meeting;
(e) advance notice procedures with respect to nominations of directors
or proposals other than those adopted or recommended by the Sempra Energy
board of directors; and
(f) provisions permitting amendment of certain of these provisions only
by an affirmative vote of the holders of at least two-thirds of the
outstanding shares of Sempra Energy common stock entitled to vote.
Some acquisitions of Sempra Energy's outstanding voting shares would also
require approval of the SEC under the Public Utility Holding Company Act of
1935 and of various state and foreign regulatory authorities.
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DESCRIPTION OF WARRANTS
This section describes the general terms of the warrants that Sempra Energy
may offer and sell by this prospectus. This prospectus and any accompanying
prospectus supplement will contain the material terms and conditions for each
warrant. The accompanying prospectus supplement may add, update or change the
terms and conditions of the warrants as described in this prospectus. In this
section, references to "we," "our" and "us" mean Sempra Energy excluding,
unless otherwise expressly stated or the context otherwise requires, its
subsidiaries.
General
We, and/or Sempra Energy Global Enterprises, may issue warrants to purchase
debt securities, preferred stock or common stock. Warrants may be issued
independently or together with any securities and may be attached to or
separate from those securities. The warrants will be issued under warrant
agreements to be entered into between us and a bank or trust company, as
warrant agent, all of which will be described in the prospectus supplement
relating to the warrants we are offering. The warrant agent will act solely as
our agent in connection with the warrants and will not have any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
warrants. A copy of the warrant agreement will be filed with the SEC in
connection with the offering of the warrants.
Debt Warrants
We, and/or Sempra Energy Global Enterprises, may issue warrants for the
purchase of our debt securities, or in the case of warrants issued by Sempra
Energy Global Enterprises, their debt securities. As explained below, each debt
warrant will entitle its holder to purchase debt securities at an exercise
price set forth in, or to be determinable as set forth in, the related
prospectus supplement. Debt warrants may be issued separately or together with
debt securities.
The debt warrants are to be issued under debt warrant agreements to be
entered into between us, or, if applicable, Sempra Energy Global Enterprises,
and one or more banks or trust companies, as debt warrant agent, as will be set
forth in the prospectus supplement relating to the debt warrants being offered
by the prospectus supplement and this prospectus. A copy of the debt warrant
agreement, including a form of debt warrant certificate representing the debt
warrants, will be filed with the SEC in connection with the offering of the
debt warrants.
The particular terms of each issue of debt warrants, the debt warrant
agreement relating to the debt warrants and the debt warrant certificates
representing debt warrants will be described in the applicable prospectus
supplement, including, as applicable:
(a) the title of the debt warrants;
(b) the initial offering price;
(c) the title, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the debt warrants;
(d) the currency or currency units in which the offering price, if any,
and the exercise price are payable;
(e) the title and terms of any related debt securities with which the
debt warrants are issued and the number of the debt warrants issued with
each debt security;
(f) the date, if any, on and after which the debt warrants and the
related debt securities will be separately transferable;
(g) the principal amount of debt securities purchasable upon exercise of
each debt warrant and the price at which that principal amount of debt
securities may be purchased upon exercise of each debt warrant;
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(h) if applicable, the minimum or maximum number of warrants that may be
exercised at any one time;
(i) the date on which the right to exercise the debt warrants will
commence and the date on which the right will expire;
(j) if applicable, a discussion of United States federal income tax,
accounting or other considerations applicable to the debt warrants;
(k) whether the debt warrants represented by the debt warrant
certificates will be issued in registered or bearer form, and, if
registered, where they may be transferred and registered;
(l) anti-dilution provisions of the debt warrants, if any;
(m) redemption or call provisions, if any, applicable to the debt
warrants; and
(n) any additional terms of the debt warrants, including terms,
procedures and limitations relating to the exchange and exercise of the
debt warrants.
Debt warrant certificates will be exchangeable for new debt warrant
certificates of different denominations and, if in registered form, may be
presented for registration of transfer and debt warrants may be exercised at
the corporate trust office of the debt warrant agent or any other office
indicated in the related prospectus supplement. Before the exercise of debt
warrants, holders of debt warrants will not be entitled to payments of
principal, premium, if any, or interest, if any on the debt securities
purchasable upon exercise of the debt warrants, or to enforce any of the
covenants in the applicable indenture.
Equity Warrants
We may issue warrants for the purchase of our equity securities such as our
preferred stock or common stock. As explained below, each equity warrant will
entitle its holder to purchase equity securities at an exercise price set forth
in, or to be determinable as set forth in, the related prospectus supplement.
Equity warrants may be issued separately or together with equity securities.
The equity warrants are to be issued under equity warrant agreements to be
entered into between us and one or more banks or trust companies, as equity
warrant agent, as will be set forth in the prospectus supplement relating to
the equity warrants being offered by the prospectus supplement and this
prospectus. A copy of the equity warrant agreement, including a form of equity
warrant certificate representing the equity warranty, will be filed with the
SEC in connection with the offering of the equity warrants.
The particular terms of each issue of equity warrants, the equity warrant
agreement relating to the equity warrants and the equity warrant certificates
representing equity warrants will be described in the applicable prospectus
supplement, including, as applicable:
(a) the title of the equity warrants;
(b) the initial offering price;
(c) the aggregate number of equity warrants and the aggregate number of
shares of the equity security purchasable upon exercise of the equity
warrants;
(d) the currency or currency units in which the offering price, if any,
and the exercise price are payable;
(e) if applicable, the designation and terms of the equity securities
with which the equity warrants are issued, and the number of equity
warrants issued with each equity security;
(f) the date, if any, on and after which the equity warrants and the
related equity security will be separately transferable;
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(g) if applicable, the minimum or maximum number of the warrants that
may be exercised at any one time;
(h) the date on which the right to exercise the equity warrants will
commence and the date on which the right will expire;
(i) if applicable, a discussion of United States federal income tax,
accounting or other considerations applicable to the equity warrants;
(j) anti-dilution provisions of the equity warrants, if any;
(k) redemption or call provisions, if any, applicable to the equity
warrants; and
(l) any additional terms of the equity warrants, including terms,
procedures and limitations relating to the exchange and exercise of the
equity warrants.
Holders of equity warrants will not be entitled, solely by virtue of being
holders, to vote, to consent, to receive dividends, to receive notice as
shareholders with respect to any meeting of shareholders for the election of
directors or any other matter, or to exercise any rights whatsoever as a holder
of the equity securities purchasable upon exercise of the equity warrants.
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DESCRIPTION OF SECURITIES PURCHASE CONTRACTS AND SECURITIES PURCHASE UNITS
This section describes the general terms of the securities purchase
contracts and securities purchase units that Sempra Energy may offer and sell
by this prospectus. This prospectus and any accompanying prospectus supplement
will contain the material terms and conditions for each warrant. The
accompanying prospectus supplement may add, update or change the terms and
conditions of the securities purchase contracts and securities purchase units
as described in this prospectus. In this section, references to "we," "our" and
"us" mean Sempra Energy excluding, unless otherwise expressly stated or the
context otherwise requires, its subsidiaries.
Stock Purchase Contract and Stock Purchase Units
We may issue stock purchase contracts, representing contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of common stock or preferred stock at a future date
or dates, or a variable number of shares of common stock or preferred stock for
a stated amount of consideration. The price per share and the number of shares
of common stock or preferred stock may be fixed at the time the stock purchase
contracts are issued or may be determined by reference to a specific formula
set forth in the stock purchase contracts. Any such formula may include anti-
dilution provisions to adjust the number of shares of common stock or preferred
stock issuable pursuant to the stock purchase contracts upon certain events.
The stock purchase contracts may be issued separately or as a part of units
consisting of a stock purchase contract and, as security for the holder's
obligations to purchase the shares under the stock purchase contracts, either
(a) our senior debt securities or subordinated debt securities, (b) our debt
obligations of third parties, including U.S. Treasury securities, or (c)
preferred securities of a trust. The stock purchase contracts may require us to
make periodic payments to the holders of the stock purchase units or vice
versa, and such payments may be unsecured or prefunded on some basis. The stock
purchase contracts may require holders to secure their obligations in a
specified manner and in certain circumstances we may deliver newly issued
prepaid stock purchase contracts upon release to a holder of any collateral
securing such holder's obligations under the original stock purchase contract.
Debt Purchase Contracts and Debt Purchase Units
We may issue debt purchase contracts, representing contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified principal amount of debt securities at a future date or dates. The
purchase price and the interest rate may be fixed at the time the debt purchase
contracts are issued or may be determined by reference to a specific formula
set forth in the debt purchase contracts.
The debt purchase contracts may be issued separately or as a part of units
consisting of a debt purchase contracts and, as security for the holder's
obligations to purchase the securities under the debt purchase contracts,
either (a) our senior debt securities or subordinated debt securities, (b) our
debt obligations of third parties, including U.S. Treasury securities, or (c)
preferred securities of a trust. The debt purchase contracts may require us to
make periodic payments to the holders of the debt purchase units or vice versa,
and such payments may be unsecured or prefunded on some basis. The debt
purchase contracts may require holders to secure their obligations in a
specified manner and in certain circumstances we may deliver newly issued
prepaid debt purchase contracts upon release to a holder of any collateral
securing such holder's obligations under the original debt purchase contract.
The applicable prospectus supplement will describe the general terms of any
purchase contracts or purchase units and, if applicable, prepaid purchase
contracts. The description in the prospectus supplement will not purport to be
complete and will be qualified in its entirety by reference to (a) the purchase
contracts, (b) the collateral arrangements and depositary arrangements, if
applicable, relating to such purchase contracts or purchase units and (c) if
applicable, the prepaid purchase contracts and the document pursuant to which
such prepaid purchase contracts will be issued. Material United States federal
income tax considerations applicable to the purchase contracts and the purchase
units will also be discussed in the applicable prospectus supplement.
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DESCRIPTION OF DEPOSITARY SHARES
This section describes the general terms of the depositary shares Sempra
Energy may offer and sell by this prospectus. This prospectus and any
accompanying prospectus supplement will contain the material terms and
conditions for the depositary shares. The accompanying prospectus supplement
may add, update, or change the terms and conditions of the depositary shares as
described in this prospectus. In this section, reference to "we," "our" and
"us" mean Sempra Energy excluding, unless otherwise expressly stated or the
context requires, its subsidiaries.
General
We may, at our option, elect to offer depositary shares, each representing a
fraction (to be set forth in the prospectus supplement relating to a particular
series of preferred stock) of a share of a particular class or series of
preferred stock as described below. In the event we elect to do so, depositary
receipts evidencing depositary shares will be issued to the public.
The shares of any class or series of preferred stock represented by
depositary shares will be deposited under a deposit agreement among us, a
depositary selected by us and the holders of the depositary receipts. The
depositary will be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least
$50,000,000. Subject to the terms of the deposit agreement, each owner of a
depositary share will be entitled, in proportion to the applicable fraction of
a share of preferred stock represented by such depositary share, to all the
rights and preferences of the shares of preferred stock represented by the
depositary share, including dividend, voting, redemption and liquidation
rights.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of the related class or series
of preferred shares in accordance with the terms of the offering described in
the related prospectus supplement.
Pending the preparation of definitive depositary receipts the depositary
may, upon our written order, issue temporary depositary receipts substantially
identical to, and entitling the holders thereof to all the rights pertaining
to, the definitive depositary receipts but not in definitive form. Definitive
depositary receipts will be prepared without unreasonable delay, and temporary
depositary receipts will be exchangeable for definitive depositary receipts
without charge to the holder.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received for the preferred stock to the entitled record holders
of depositary shares in proportion to the number of depositary shares that the
holder owns on the relevant record date, provided, however, that if we or the
depositary is required by law to withhold an amount on account of taxes, then
the amount distributed to the holders of depositary shares shall be reduced
accordingly. The depositary will distribute only an amount that can be
distributed without attributing to any holder of depositary shares a fraction
of one cent. The depositary will add the undistributed balance to and treat it
as part of the next sum received by the depositary for distribution to holders
of the depositary shares.
If there is a non-cash distribution, the depositary will distribute property
received by it to the entitled record holders of depositary shares, in
proportion, insofar as possible, to the number of depositary shares owned by
the holders, unless the depositary determines, after consultation with us, that
it is not feasible to make such distribution. If this occurs, the depositary
may, with our approval, sell such property and distribute the net proceeds from
such sale to the holders. The deposit agreement also will contain provisions
relating to how any subscription or similar rights that we may offer to holders
of the preferred stock will be available to the holders of the depositary
shares.
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Withdrawal of Shares
Upon surrender of the depositary receipts at the corporate trust office of
the depositary unless the related depositary shares have previously been called
for redemption, converted or exchanged into our other securities, the holder of
the depositary shares evidenced thereby is entitled to delivery of the number
of whole shares of the related class or series of preferred stock and any money
or other property represented by such depositary shares. Holders of depositary
receipts will be entitled to receive whole shares of the related class or
series of preferred stock on the basis set forth in the prospectus supplement
for such class or series of preferred stock, but holders of such whole shares
of preferred stock will not thereafter be entitled to exchange them for
depositary shares. If the depositary receipts delivered by the holder evidence
a number of depositary shares in excess of the number of depositary shares
representing the number of whole shares of preferred stock to be withdrawn, the
depositary will deliver to such holder at the same time a new depositary
receipt evidencing such excess number of depositary shares. In no event will
fractional shares of preferred stock be delivered upon surrender of depositary
receipts to the depositary.
Conversion, Exchange and Redemption
If any class or series of preferred stock underlying the depositary shares
may be converted or exchanged, each record holder of depositary receipts
representing the shares of preferred stock being converted or exchanged will
have the right or obligation to convert or exchange the depositary shares
represented by the depositary receipts.
Whenever we redeem or convert shares of preferred stock held by the
depositary, the depositary will redeem or convert, at the same time, the number
of depositary shares representing the preferred stock to be redeemed or
converted. The depositary will redeem the depositary shares from the proceeds
it receives from the corresponding redemption of the applicable series of
preferred stock. The depositary will mail notice of redemption or conversion to
the record holders of the depositary shares that are to be redeemed between 30
and 60 days before the date fixed for redemption or conversion. The redemption
price per depositary share will be equal to the applicable fraction of the
redemption price per share on the applicable class or series of preferred
stock. If less than all the depositary shares are to be redeemed, the
depositary will select which shares are to be redeemed by lot on a pro rata
basis or by any other equitable method as the depositary may decide.
After the redemption or conversion date, the depositary shares called for
redemption or conversion will no longer be outstanding. When the depositary
shares are no longer outstanding, all rights of the holders will end, except
the right to receive money, securities or other property payable upon
redemption or conversion.
Voting the Preferred Stock
When the depositary receives notice of a meeting at which the holders of the
particular class or series of preferred stock are entitled to vote, the
depositary will mail the particulars of the meeting to the record holders of
the depositary shares. Each record holder of depositary shares on the record
date may instruct the depositary on how to vote the shares of preferred stock
underlying the holder's depositary shares. The depositary will try, if
practical, to vote the number of shares of preferred stock underlying the
depositary shares according to the instructions. We will agree to take all
reasonable action requested by the depositary to enable it to vote as
instructed.
Amendment and Termination of the Deposit Agreement
We and the depositary may agree at any time to amend the deposit agreement
and the depositary receipt evidencing the depositary shares. Any amendment that
(a) imposes or increases certain fees, taxes or other charges payable by the
holders of the depositary shares as described in the deposit agreement that (b)
otherwise materially adversely affects any substantial existing rights of
holders of depositary shares, will not take effect until such amendment is
approved by the holders of at least a majority of the depositary shares then
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outstanding. Any holder of depositary shares that continue to hold its shares
after such amendment has become effective will be deemed to have agreed to the
amendment.
We may direct the depositary to terminate the deposit agreement by mailing a
notice of termination of holders of depositary shares at least 30 days prior to
termination. The depositary may terminate the deposit agreement if 90 day have
elapsed after the depositary delivered written notice of its election to resign
and a successor depositary is not appointed. In addition, the deposit agreement
will automatically terminate if:
. the depositary has redeemed all related outstanding depositary shares;
. all outstanding shares of preferred stock have been converted into or
exchanged for common stock; or
. we have liquidated, terminated or wound up our business and the
depositary has distributed the preferred stock of the relevant series to
the holders of the related depositary shares.
Reports and Obligations
The depositary will forward to the holders of depositary shares all reports
and communications from us that are delivered to the depositary and that we are
required by law, the rules of an applicable securities exchange or our amended
and restated certificate of incorporation to furnish to the holders of the
preferred stock. Neither we nor the depositary will be liable if the depositary
is prevented or delayed by law or any circumstances beyond its control in
performing its obligations under the deposit agreement. The deposit agreement
limits our obligations to performance in good faith of the duties stated in the
deposit agreement. The depositary assumes no obligation and will not be subject
to liability under the deposit agreement except to perform such obligations as
are set forth in the deposit agreement without negligence or bad faith. Neither
we nor the depositary will be obligated to prosecute or defend any legal
proceeding connected with any depositary shares or class or series of preferred
stock unless the holders of depositary shares requesting us to do so furnish us
with a satisfactory indemnity. In performing our obligations, we and the
depositary may rely and act upon the advice of our counsel or accountants, on
any information provided to us by a person presenting shares for deposit, any
holder of a receipt, or any other document believed by us or the depositary to
be genuine and to have been signed or presented by the proper party or parties.
Payment of Fees and Expenses
We will pay all fees, charges and expenses of the depositary, including the
initial deposit of the preferred stock and any redemption of the preferred
stock. Holders of depositary shares will pay taxes and governmental charges and
any other charges as are stated in the deposit agreement for their accounts.
Resignation and Removal of Depositary
At any time, the depositary may resign by delivering notice to us, and we
may remove the depositary at any time. Resignations or removals will take
effect upon the appointment of a successor depositary and its acceptance of the
appointment. The successor depositary must be appointed within 90 days after
the delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
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DESCRIPTION OF TRUST PREFERRED SECURITIES
This section describes the general terms of the trust preferred securities
that Sempra Energy may offer and sell by this prospectus. This prospectus and
any accompanying prospectus supplement will contain the material terms and
conditions for each trust preferred security. The accompanying prospectus
supplement may add, update or change the terms and conditions of the trust
preferred securities as described in this prospectus. In this section,
references to "we," "our" and "us" mean Sempra Energy excluding, unless
otherwise expressly stated or the context otherwise requires, its subsidiaries.
General
Each Declaration authorizes the regular trustees to issue on behalf of each
trust one series of trust preferred securities which will have the terms
described below and in a prospectus supplement. Each trust will use the net
proceeds from the sale of trust preferred securities and trust common
securities to purchase a series of subordinated debt securities from us. The
property trustee will hold legal title to such subordinated debt securities in
trust for the benefit of the holders of the applicable trust preferred
securities. We will guarantee the payment of distributions and other amounts
payable on the trust preferred securities, but only to the extent that the
trust has funds legally and immediately available to make those payments. The
trust preferred securities and trust common securities of a trust are referred
to herein as the "trust securities."
Each trust preferred securities guarantee, when taken together with our
obligation under the related series of subordinated debt securities, the
subordinated indenture and the related Declaration, will provide a full and
unconditional guarantee of amounts due on the trust preferred securities issued
by a trust.
Each Declaration will be qualified as an indenture under the Trust Indenture
Act. Each property trustee will act as indenture trustee for the trust
preferred securities, in order to comply with the provisions of the Trust
Indenture Act.
The trust preferred securities will be represented by a global security that
will be deposited with and registered in the name of The Depository Trust
Company ("DTC") or its nominee. Whenever we refer to a "holder" of trust
preferred securities in this prospectus, we mean the registered holder, which,
for any trust preferred securities in book-entry form, will be DTC or its
nominee. We discuss various matters relevant to global securities under "Global
Securities--Book-Entry, Delivery and Form" below.
Each series of trust preferred securities will have the terms, including
distributions, redemption, voting, liquidation rights and the other preferred,
deferred or other special rights or other restrictions as described in the
relevant Declaration or made part of the Declaration by the Trust Indenture Act
or the Delaware Business Trust Act. The terms of the trust preferred securities
will mirror the terms of the subordinated debt securities held by the trust.
The prospectus supplement relating to the trust preferred securities of a
trust will describe the specific terms of the trust preferred securities,
including:
(a) the name of the trust preferred securities;
(b) the dollar amount and number of trust preferred securities issued;
(c) any provision relating to deferral of distribution payments, if
different from those described in this prospectus;
(d) the annual distribution rate(s) (or method of determining the
rate(s)), the payment date(s) and the record dates used to determine the
holders who are to receive distributions;
(e) the date from which distributions shall be cumulative;
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(f) the optional redemption provisions, if any, including the prices,
time periods and other terms and conditions for which the trust preferred
securities shall be purchased or redeemed, in whole or in part;
(g) the terms and conditions, if any, upon which the applicable series
of subordinated debt securities may be distributed to holders of the trust
preferred securities, if different from those described in this prospectus;
(h) the voting rights, if any, of holders of the trust preferred
securities, if different from those described in this prospectus;
(i) any securities exchange on which the trust preferred securities will
be listed;
(j) whether the trust preferred securities are to be issued in book-
entry form and represented by one or more global certificates and, if so,
the depository for the global certificates and the specific terms of the
depositary arrangements, if different from those described in this
prospectus; and
(k) any other relevant rights, preferences, privileges, limitations or
restrictions of the trust preferred securities, if different from those
described in this prospectus.
Each prospectus supplement will describe certain United States federal
income tax considerations applicable to the purchase, holding and disposition
of the series of trust preferred securities covered by the prospectus
supplement, if different from those described in this prospectus.
Distributions
Distributions will accumulate on each series of trust preferred securities
from the date they are first issued. Unless deferred as described below,
distributions will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, a "distribution date").
Distributions not paid when due will accumulate additional distributions,
compounded quarterly, at the annual rate stated in the related prospectus
supplement, to the extent permitted by law. Whenever we use the term
"distributions" in this prospectus, we are including any of these
distributions. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
The assets of a trust available for distribution to holders of trust
preferred securities will be limited to the interest payments the trust
receives from us with respect to the subordinated debt securities.
Consequently, if we defer or for any other reason fail to make interest
payments on the subordinated debt securities, the trust will not have funds to
pay distributions on the trust preferred securities.
As long as no Subordinated Indenture Event of Default (as defined in the
subordinated indenture for the subordinated debt securities held by a trust)
has occurred and has not been cured, we will have the right to defer interest
payments on the related subordinated debt securities at any time. We may defer
interest payments on the related subordinated debt securities in each case for
a period not exceeding 20 consecutive quarters (each, a "deferral period"). No
deferral period may extend beyond the stated maturity of the related
subordinated debt securities. Before a deferral period ends, we may extend it
further if that deferral period does not exceed 20 consecutive quarters or
extend beyond the stated maturity of the related subordinated debt securities.
When a deferral period ends and we have paid all accrued and unpaid interest on
the related subordinated debt securities, we may begin a new deferral period,
subject to the terms described above. There is no limit on the number of
deferral periods that we may begin.
If we defer interest payments on the related subordinated debt securities,
the trust also will defer the payment of distributions on the trust preferred
securities. During a deferral period, the holder of trust preferred securities
will still accumulate distributions at the annual rate specified in the related
prospectus supplement, plus the holder of trust preferred securities will
accumulate additional distributions on the deferred distributions at the same
rate, to the extent permitted by law. During a deferral period, the holder of
trust preferred securities will be required to accrue interest income for
United States federal income tax purposes as discussed under the
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caption "Certain United States Federal Income Tax Consequences--Trust Preferred
Securities--Interest Income and Original Issue Discount" below.
If we elect to begin a deferral period, we will be subject to specified
restrictions relating to paying dividends on or repurchasing our common stock
and making payments on certain of our debt securities. See "Description of the
Subordinated Debt Securities of Sempra Energy Purchased with Proceeds of Trust
Securities--Payments--Deferral Period Restrictions" below.
Redemption
Trust preferred securities will remain outstanding until the applicable
trust redeems them or distributes the subordinated debt securities in exchange
for the trust preferred securities. Any redemption of trust preferred
securities must occur as described below. Any exchange distribution must occur
as described below under the caption "--Exchange of Trust Preferred Securities
for Subordinated Debt Securities."
Redemption of Trust Preferred Securities
If we repay or redeem the related subordinated debt securities, whether at
their stated maturity, upon acceleration after a Subordinated Indenture Event
of Default or upon early redemption, the applicable property trustee will
redeem a Like Amount of trust preferred securities of the applicable trust on
the Redemption Date at the Redemption Price. In this context, "Like Amount"
means trust preferred securities having an aggregate liquidation amount equal
to the aggregate principal amount of the subordinated debt securities being
repaid or redeemed. "Redemption Date" means the date that the principal of the
subordinated debt securities being redeemed becomes due for payment under the
subordinated indenture. "Redemption Price" means the aggregate liquidation
amount of the trust preferred securities to be redeemed, plus any accumulated
and unpaid distributions on those securities to the Redemption Date.
Repayment and Redemption of Subordinated Debt Securities
We may redeem any series of subordinated debt securities, at our option,
before their stated maturity as follows:
. at any time on or after the date stated in an applicable prospectus
supplement, in whole or in part, provided that no partial redemption may
occur during a deferral period; and
. at any time in whole, but not in part, within 90 days after a Tax Event
or an Investment Company Act Event has occurred.
See "Description of the Subordinated Debt Securities of Sempra Energy
Purchased with Proceeds of Trust Securities--Optional Redemption" below for the
definitions of "Tax Event" and "Investment Company Act Event."
If a Tax Event is continuing and we do not elect to dissolve a trust or
redeem the related subordinated debt securities, we may be required to pay
additional sums on such subordinated debt securities. The provisions regarding
repayment and redemption of subordinated debt securities, as well as
information about the effect that possible tax law changes may have on the
subordinated debt securities and trust preferred securities, are discussed in
"Description of the Subordinated Debt Securities of Sempra Energy Purchased
with Proceeds of Trust Securities--Stated Maturity" and "--Optional
Redemption--Payment of Additional Sums" below.
Redemption Procedures
A property trustee will give at least 30 days, but not more than 60 days,
notice before the Redemption Date, unless the redemption results from
acceleration after a Subordinated Indenture Event of Default and the property
trustee is not able to give notice during this period. In that case, a property
trustee will give the notice
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as soon as practicable. A property trustee will give the notice of redemption
in the manner described below under the caption "--Notices."
The property trustee will irrevocably deposit with DTC (in the case of any
book-entry trust preferred securities) or the Paying Agent (as defined below)
(in the case of any non-book-entry trust preferred securities) funds sufficient
to pay the Redemption Price for all trust preferred securities being redeemed
on that date, to the extent that such funds are deposited with the property
trustee. The property trustee will deposit such funds by 2:00 p.m., New York
City time, on the Redemption Date provided that the property trustee has
received such funds by 10:00 a.m. New York City time on such Redemption Date.
DTC will pay the Redemption Price for trust preferred securities held in
book-entry form and called for redemption in accordance with the procedures of
DTC, to the extent the property trustee has deposited sufficient funds with
DTC. The Paying Agent will pay the Redemption Price for trust preferred
securities held in definitive form and called for redemption, to the extent the
property trustee has deposited sufficient funds with the Paying Agent, against
surrender of the certificates representing those trust preferred securities.
The trust preferred securities will be issued in definitive form only in the
special circumstances described under the caption "Book-Entry Issuance--Global
Securities" below. Any distributions that are due on a distribution date that
is on or before the Redemption Date will be payable to the holders of those
trust preferred securities on the record date for the related distribution
date.
Once the property trustee gives notice of redemption and deposits funds as
discussed above, all rights of the holders of the trust preferred securities
called for redemption will cease at the time of the deposit, except the right
of those holders to receive the Redemption Price, but without interest on that
amount. In addition, those trust preferred securities will no longer be
outstanding.
On the Redemption Date, distributions will stop accumulating on the
subordinated debt securities called for redemption. However, if payment of the
Redemption Price for any trust preferred securities is not made, distributions
on those trust preferred securities will continue to accumulate to the date the
Redemption Price is paid.
If a trust redeems less than all of its trust preferred securities, then the
liquidation amount of trust preferred securities to be redeemed will be
allocated pro rata between its outstanding trust preferred securities and its
outstanding trust common securities, based upon their respective aggregate
liquidation amounts. The applicable property trustee will select the trust
preferred securities to be redeemed from among the outstanding trust preferred
securities of such trust not previously called for redemption. A property
trustee may use any method of selection that it deems to be fair and
appropriate.
Other Purchases of Trust Preferred Securities
We or our subsidiaries may purchase outstanding trust preferred securities
by tender, in the open market or by private agreement, subject to applicable
laws, including United States federal securities laws.
Exchange of Trust Preferred Securities for Subordinated Debt Securities
We will have the right at any time, in our sole discretion, to dissolve a
trust. After a trust has satisfied all liabilities to its creditors, as
provided by law, the applicable property trustee will distribute a Like Amount
of subordinated debt securities to the holders of the related trust securities
in exchange for all such trust securities outstanding, in liquidation of the
trust. In this context, "Like Amount" means subordinated debt securities having
an aggregate principal amount equal to the aggregate liquidation amount of all
such trust securities outstanding.
If an exchange distribution with respect to a trust occurs, we must use our
best efforts to list the related subordinated debt securities on the New York
Stock Exchange or such other stock exchange or organization, if any, on which
the trust preferred securities of such trust are listed.
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Exchange Procedures
A property trustee will make the exchange distribution to holders of trust
preferred securities listed in a trust's records at the close of business on
the record date for the exchange distribution. If the trust preferred
securities are held in book-entry form, the record date will be one Business
Day (as defined below) before the date that we set as the exchange distribution
date (the "Exchange Date"). If the trust preferred securities are not held in
book-entry form, the record date will be the 15th day (whether or not a
Business Day) before the Exchange Date.
A property trustee will give holders at least 30 days, but not more than 60
days, notice before the Exchange Date. Property trustees will give the notice
of an Exchange Date in the manner described below under "--Notices."
On the Exchange Date with respect to a trust:
. the trust preferred securities of such trust will no longer be
outstanding;
. certificates representing a Like Amount of subordinated debt securities
will be issued to holders of trust preferred securities of such trust
upon their surrender to the property trustee or its agent for exchange;
. any certificates representing trust preferred securities of such trust
that are not surrendered for exchange will be deemed to represent a Like
Amount of subordinated debt securities (and until such certificates are
surrendered for exchange, no payments of interest or principal on such
subordinated debt securities will be made to the holders of those trust
preferred securities); and
. the holders of trust preferred securities of such trust will not have
any further rights with respect to such trust preferred securities,
except the right to receive certificates representing subordinated debt
securities upon surrender of their certificates as described above.
Certain Tax Consequences
Under current United States federal income tax law and interpretations and
assuming, as each trust expects, that it will not be classified as an
association taxable as a corporation, a holder of trust preferred securities
would not be taxed if a property trustee distributes subordinated debt
securities to it upon liquidation of the trust. However, if a Tax Event were to
occur and a trust were subject to taxation on income received or accrued on
subordinated debt securities, a holder of trust preferred securities and the
trust could be taxed on that distribution as described under the caption
"Certain United States Federal Income Tax Consequences-- Trust Preferred
Securities--Distribution of Subordinated Debt Securities to Holders of Trust
Preferred Securities Upon Liquidation of the Trust" below.
Ranking
The trust preferred securities of a trust will rank equally with the trust
common securities of that trust. A trust will make payments of distributions
and the Redemption Price on the trust preferred securities and the trust common
securities pro rata, based on the aggregate liquidation amounts of the trust
preferred securities and trust common securities, except as follows. If a
Subordinated Indenture Event of Default has occurred with respect to the series
of subordinated debt securities held by a trust and has not been cured, that
trust may not make any payments on its trust common securities until the trust
has paid in full or provided in full all unpaid amounts on its trust preferred
securities.
If a Subordinated Indenture Event of Default occurs with respect to the
series of subordinated debt securities held by a trust, the holders of the
trust common securities of that trust will be deemed to have waived all rights
to act with respect to the related Declaration Event of Default with respect to
that trust (as defined below) until all such Declaration Events of Default have
been cured, waived or eliminated. Until any such
35
Declaration Events of Default have been cured, waived or eliminated, the
property trustee of that trust will act solely on behalf of holders of the
trust preferred securities of that trust (and not on behalf of the holders of
the trust common securities of that trust), and only the holders of trust
preferred securities of that trust will have the right to direct the property
trustee to act on their behalf.
Status of Trust Preferred Securities Guarantees
Each trust preferred securities guarantee will constitute our unsecured
obligation and will rank:
(a) equal in rank with any other guarantee similar to the trust
preferred securities guarantees issued by us on behalf of the holders of
securities issued by any other trust established by us or our affiliates;
(b) subordinate and junior in right of payment to all of our other
liabilities, except those that rank equally or are subordinate by their
terms;
(c) equal with any guarantee now or hereafter issued by us in respect of
the most senior preferred or preference stock now or hereafter issued by
us, and with any guarantee now or hereafter issued by us in respect of any
preferred or preference stock of any of our affiliates; and
(d) senior to our common stock.
Each Declaration will require that the holders of the related trust
preferred securities accept the subordination provisions and other terms of the
related trust preferred securities guarantee. A trust preferred securities
guarantee will constitute a guarantee of payment and not of collection (in
other words the holder of a trust preferred securities guarantee may sue us, or
seek other remedies, to enforce its rights under the trust preferred securities
guarantee without first suing any other person or entity). A trust preferred
securities guarantee will not be discharged except by payment of the trust
preferred securities guarantee payments in full to the extent not previously
paid or upon distribution of subordinated debt securities to the holders of the
trust preferred securities pursuant to the related Declaration.
Liquidation Distribution Upon Dissolution
Each Declaration states that the related trust shall be dissolved:
(a) upon the expiration of the term of such trust;
(b) upon the bankruptcy of Sempra Energy;
(c) upon the filing of a certificate of dissolution or its equivalent
with respect to Sempra Energy;
(d) 90 days after the revocation of the articles of incorporation of
Sempra Energy (but only if the articles of incorporation are not reinstated
during that 90-day period);
(e) upon the written direction to the property trustee from Sempra
Energy at any time to dissolve such trust and distribute the related
subordinated debt securities to holders in exchange for the trust preferred
securities;
(f) upon the redemption of all of the trust securities of such trust; or
(g) upon entry of a court order for the dissolution of Sempra Energy or
such trust.
In the event of a dissolution, after a trust satisfies (whether by payment
or reasonable provision for payment) all amounts owed to creditors of the
trust, the holders of the trust securities of such trust will be entitled to
receive:
(a) cash equal to the aggregate liquidation amount of each trust
security, plus accumulated and unpaid distributions to the date of payment;
unless
(b) subordinated debt securities in an aggregate principal amount equal
to the aggregate liquidation amount of the trust securities are distributed
to the holders of the trust securities.
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If a trust cannot pay the full amount due on its trust securities because
insufficient assets are available for payment, then the amounts payable by the
trust on its trust securities shall be paid pro rata. However, if an event of
default under the related Declaration has occurred, the total amounts due on
the trust preferred securities will be paid before any distribution on the
trust common securities.
Declaration Events of Default
The term "Declaration Event of Default" with respect to a trust means any of
the following:
. Subordinated Indenture Event of Default occurs with respect to the
related series of subordinated debt securities (see "Description of the
Subordinated Debt Securities of Sempra Energy Purchased with Proceeds of
Trust Securities--Events of Default" below);
. such trust does not pay any distribution within 30 days of its due date,
provided that no deferral period is continuing;
. such trust does not pay any Redemption Price on its due date;
. the securities trustee of such trust remains in breach in a material
respect of any term of the related Declaration for 90 days after the
securities trustee receives notice of default stating the securities
trustee is in breach. The notice must be sent by the holders of at least
25% in liquidation amount of the outstanding trust preferred securities
of such trust; and
. the property trustee of such trust files for bankruptcy or certain other
events in bankruptcy or insolvency occur and a successor property
trustee of such trust is not appointed within 60 days.
If a Subordinated Indenture Event of Default occurs and the subordinated
indenture trustee and the holders of not less than 25% in principal amount of
the outstanding subordinated debt securities of the related series fail to
declare the principal of all of such subordinated debt securities to be
immediately due and payable, the holders of at least 25% in aggregate
liquidation amount of the outstanding trust preferred securities of the related
trust will have the right to declare such principal immediately due and
payable, by providing notice to us and the subordinated indenture trustee.
If we fail to pay principal, premium, if any, or interest on a series of
subordinated debt securities when payable, then a holder of the related trust
preferred securities may directly sue us or seek other remedies to collect its
pro rata share of payments owed.
Within 90 days after learning of a Declaration Event of Default with respect
to a trust, the related property trustee will notify the holders of the trust
securities of such trust, the regular trustees and us, unless the Declaration
Event of Default has been cured or waived.
We and a regular trustee of a trust must provide the property trustee of
such trust with an annual certificate stating whether they are in compliance
with all the conditions and covenants applicable to them under the related
Declaration.
If a Declaration Event of Default with respect to a trust has occurred and
has not been cured, the trust preferred securities of such trust will have a
preference in right of payment over the trust common securities of such trust
as discussed above. The holders of trust securities are not entitled to
accelerate the maturity of the trust preferred securities upon a Declaration
Event of Default.
Enforcement Rights
If a Subordinated Indenture Event of Default occurs with respect to a series
of subordinated debt securities, the holders of the related trust preferred
securities must rely on the applicable property trustee, as the
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holder of such subordinated debt securities, to enforce its rights under such
subordinated debt securities and the applicable subordinated indenture against
us, subject to the following:
Right of Direct Action
If we do not make full and timely payments on such subordinated debt
securities, the related trust will not have funds available to make payments of
distributions or other amounts due on the related trust preferred securities.
In this event, a holder of such trust preferred securities may sue us directly
to collect its pro rata share of payments owed. We may not amend the applicable
subordinated indenture to remove the right of any holder of trust preferred
securities to bring a direct action against us without the prior written
consent of all of the holders of the related series of trust preferred
securities. We will be able to set-off any payment made to a holder of trust
preferred securities in connection with a direct action.
Other Rights under the Subordinated Indenture
The holders of 25% or more in liquidation amount of the outstanding trust
preferred securities of a trust may accelerate the maturity of the related
series of subordinated debt securities when a Subordinated Indenture Event of
Default with respect to such series has occurred and has not been cured and
neither the subordinated indenture trustee nor the holders of the related
series of subordinated debt securities have exercised such acceleration rights.
In addition, the holders of a majority in liquidation amount of the outstanding
trust preferred securities of a trust may cancel a declaration of acceleration
of the related series of subordinated debt securities and may waive specified
Subordinated Indenture Events of Default with respect to such series. See
"Description of the Subordinated Debt Securities of Sempra Energy Purchased
with Proceeds of Trust Securities--Events of Default" and "--Remedies" below.
Voting Rights; Amendment of the Declaration
The holders of the trust preferred securities of a trust will have no voting
rights except as discussed below and under "Description of the Subordinated
Debt Securities of Sempra Energy Purchased with Proceeds of Trust Securities--
Consolidation, Merger and Conveyance of Assets as an Entirety; No Financial
Covenants" and "Description of Trust Preferred Securities Guarantees--
Amendments and Assignment" below, and as otherwise required by law or the
applicable Declaration.
With respect to a trust, if any proposed amendment to the applicable
Declaration provides for, or the regular trustees of such trust otherwise
propose to effect:
(a) any action that would adversely affect the powers, preferences or
special rights of the trust preferred securities of such trust in any
material respect, whether by way of amendment to the applicable Declaration
or otherwise; or
(b) the dissolution, winding-up or termination of such trust other than
pursuant to the terms of the applicable Declaration,
then the holders of the trust preferred securities of such trust as a class
will be entitled to vote on the amendment or proposal. In that case, the
amendment or proposal will be effective only if approved by the holders of at
least a majority in aggregate liquidation amount of such trust preferred
securities.
A Declaration may be amended from time to time by us and the applicable
property trustee and the applicable regular trustees without the consent of the
holders of trust preferred securities of the related trust, to:
(a) cure any ambiguity, correct or supplement any provision which may be
inconsistent with any other provision, or make provisions not inconsistent
with any other provisions with respect to matters or questions arising
under the applicable Declaration, in each case to the extent that the
amendment does not adversely affect the interests of any holder of trust
preferred securities of the related trust in any material respect; or
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(b) modify, eliminate or add to any provisions to the extent necessary
to ensure that the related trust will not be classified as other than a
grantor trust for United States federal income tax purposes or to ensure
that such trust will not be required to register as an "investment company"
under the Investment Company Act.
Except as provided in the next paragraph, other amendments to a Declaration
may be made by us or the securities trustees of the related trust upon:
(a) approval of the holders of a majority in aggregate liquidation
amount of the outstanding trust preferred securities of such trust; and
(b) receipt by the securities trustee of such trust of an opinion of
counsel to the effect that such amendment will not affect the trust's
status as a grantor trust for United States federal income tax purposes or
the trust's exemption from the Investment Company Act.
Notwithstanding the foregoing, without the consent of each affected holder
of the trust securities of the related trust, a Declaration may not be amended
to:
(a) change the amount or timing of any distribution on the trust
securities of such trust or otherwise adversely affect the amount of any
distribution required to be made in respect of the trust securities of such
trust as of a specified date; or
(b) restrict the right of a holder of the trust securities of such trust
to institute suit for the enforcement of any such payment on or after such
date.
In addition, no amendment may be made to a Declaration if the amendment
would:
(a) cause the related trust to be characterized as other than a grantor
trust for United States federal income tax purposes;
(b) cause the related trust to be deemed to be an "investment company"
which is required to be registered under the Investment Company Act; or
(c) impose any additional obligation on us, the property trustee of the
related trust or the Delaware trustee of the related trust without its
consent.
Without obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of the trust preferred securities of a trust, the
securities trustees of such trust may not:
(a) direct the time, method and place of conducting any proceeding for
any remedy available to the related subordinated indenture trustee or
executing any trust or power conferred on the related property trustee with
respect to the related series of subordinated debt securities;
(b) waive any default that is waivable under the subordinated indenture;
(c) cancel an acceleration of the principal of the related series of
subordinated debt securities; or
(d) consent to any amendment, modification or termination of the
subordinated indenture or the related series of subordinated debt
securities where such consent is required.
However, if a consent under the subordinated indenture requires the consent
of each affected holder of a series of subordinated debt securities, then the
applicable property trustee must obtain the prior consent of each holder of the
related trust preferred securities. In addition, before taking any of the
foregoing actions, the regular trustees of the related trust must obtain an
opinion of counsel stating that the action will not cause such trust to be
classified as other than a grantor trust for United States federal income tax
purposes.
The property trustee of a trust will notify all holders of the trust
preferred securities of such trust of any notice of default received from the
subordinated indenture trustee with respect to the subordinated debt securities
held by such trust.
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Notices
Notices to be given to holders of trust preferred securities held in book-
entry form will be given to DTC in accordance with its procedures. Notices to
be given to holders of trust preferred securities held in definitive form may
be given by mail to their addresses set forth in trust records.
Payment and Paying Agency
With respect to any trust preferred securities held in book-entry form,
distributions will be paid to DTC, which will credit the relevant accounts at
DTC on the applicable distribution dates in accordance with its procedures.
With respect to any trust preferred securities issued in definitive form,
distributions will be paid by check mailed to the address of the holder
entitled to such payments, as such address appears in trust records. The paying
agent of a trust (the "Paying Agent") will initially be the property trustee of
such trust. A Paying Agent of a trust may resign upon 30 days written notice to
the regular trustees and the property trustee of such trust. In such event, the
property trustee of such trust will appoint a successor acceptable to the
regular trustees of such trust to act as Paying Agent.
Persons holding their trust preferred securities in "street name" or
indirectly through DTC should consult their banks or brokers for information on
how they will receive payments. See "Global Securities--Book-Entry, Delivery
and Form" in this prospectus.
Any money paid to a property trustee or a Paying Agent for payments on trust
preferred securities that remains unclaimed at the end of two years after the
amount is due will be repaid to us. After that two-year period, you may look
only to us for payment of those amounts.
Business Day
If any payment is due on a day that is not a Business Day, the payment will
be made on the following Business Day (unless that Business Day is in a
different calendar year, in which case the payment will be made on the
preceding Business Day). Each payment made on the following or preceding
Business Day will have the same force and effect as if made on the original
payment due date. "Business Day" means any day other than a Saturday, a Sunday,
a day on which banking institutions in New York City are authorized or required
by law or executive order to remain closed or, with respect to such trust, a
day on which the corporate trust office of the property trustee of such trust
or the subordinated indenture trustee is closed for business.
Record Date
A trust will pay distributions to holders of trust preferred securities
listed in the trust's records on the record date for the payment. If trust
preferred securities are held in book-entry form, the record date will be one
Business Day before the relevant distribution date. If trust preferred
securities are issued in definitive form, the record date will be the 15th day,
whether or not a Business Day, before the relevant distribution date.
Registrar and Transfer Agent
The property trustee of a trust will initially act as such trust's agent for
registering trust preferred securities of such trust in the names of holders
and transferring such trust preferred securities. Such property trustee also
will perform the role of maintaining the list of registered holders of trust
preferred securities of such trust. Holders will not be required to pay a
service charge to transfer or exchange trust preferred securities, but may be
required to pay for any tax or other governmental charge associated with the
exchange or transfer.
Removal and Replacement of Trustees
Only the holder of trust common securities of a trust has the right to
remove, or replace the regular trustees and, prior to an event of default,
property and Delaware trustees of the trust. If an event of default
40
occurs, only the holders of trust preferred securities of a trust have the
right to remove or replace the property and Delaware trustees. The resignation
or removal of any trustee and the appointment of a successor trustee shall be
effective only on the acceptance of appointment by the successor trustee in
accordance with the provisions of the Declaration for such trust.
Information Concerning the Property Trustees
For matters relating to compliance with the Trust Indenture Act, the
property trustee of each trust will have all of the duties and responsibilities
of an indenture trustee under the Trust Indenture Act. Each property trustee,
other than during the occurrence and continuance of a Declaration Event of
Default under the applicable trust, undertakes to perform only the duties as
are specifically set forth in the applicable Declaration and, upon a
Declaration event of default, must use the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, a property trustee is under no obligation to
exercise any of the powers given it by the applicable Declaration at the
request of any holder of trust preferred securities unless it is offered
reasonable security or indemnity against the costs, expenses and liabilities
that it might incur. However, the holders of the trust preferred securities
will not be required to offer an indemnity where the holders, by exercising
their voting rights, direct the property trustee to take any action following a
Declaration event of default.
Miscellaneous
The regular trustees of each trust are authorized and directed to conduct
the affairs of and to operate the trust in such a way that:
(a) it will not be deemed to be an "investment company" required to be
registered under the Investment Company Act;
(b) it will be classified as a grantor trust for United States federal
income tax purposes; and
(c) the subordinated debt securities held by it will be treated as
indebtedness of us for United States federal income tax purposes.
We and the regular trustees of a trust are authorized to take any action (so
long as it is consistent with applicable law or the applicable certificate of
trust or Declaration) that we and the regular trustees of the trust determine
to be necessary or desirable for such purposes.
Registered holders of trust preferred securities have no preemptive or
similar rights.
A trust may not borrow money, issue debt, execute mortgages or pledge any of
its assets.
Governing Law
Each Declaration and the related trust preferred securities will be governed
by and construed in accordance with the laws of the State of Delaware.
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DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES OF SEMPRA ENERGY
PURCHASED WITH PROCEEDS OF TRUST SECURITIES
This section describes the general terms of the subordinated debt securities
of Sempra Energy purchased with the proceeds of trust securities that may be
offered and sold by this prospectus. This prospectus and any accompanying
prospectus supplement will contain the material terms and conditions for each
subordinated debt security. The accompanying prospectus supplement may add,
update or change the terms and conditions of the subordinated debt securities
as described in this prospectus. In this section, references to "we," "our" and
"us" mean Sempra Energy excluding, unless otherwise expressly stated or the
context otherwise requires, its subsidiaries.
General
Following the issuance of trust securities by a trust, the trust will use
the proceeds of such issuance to purchase a series of subordinated debt
securities. The property trustee of such trust will hold legal title to such
series of subordinated debt securities in trust for the benefit of the holders
of the trust securities of such trust.
The subordinated indenture will be qualified as an indenture under the Trust
Indenture Act. The subordinated indenture trustee will act as indenture trustee
for the subordinated debt securities, in order to comply with the provisions of
the Trust Indenture Act.
The subordinated debt securities will not be secured by any of our property
or assets. The subordinated debt securities will rank junior in priority of
payment to specified existing and future debt and other liabilities of ours
which are described below under "--Subordination."
Payments
We will pay interest to the direct holders of subordinated debt securities
listed in our records at the close of business on the record date, as discussed
below, in advance of each interest payment date. If a series of subordinated
debt securities is distributed in exchange for the trust securities of a trust,
we will make payments on such subordinated debt securities in accordance with
procedures similar to those described under "Description of the Trust Preferred
Securities--Payment and Paying Agency" above.
Any money paid to the subordinated indenture trustee or any paying agent, or
held in trust by us, for payments on any subordinated debt securities, that
remains unclaimed at the end of two years after the amount is due will be
repaid to us. After that two-year period, a holder of subordinated debt
securities may look only to us for payment of those amounts.
Business Day
If any payment is due on a day that is not a Business Day, the payment will
be made on the following Business Day unless that Business Day is in a
different calendar year, in which case the payment will be made on the
preceding Business Day. Each payment made on the following or preceding
Business Day will have the same force and effect as if made on the original
payment due date.
Record Date
If subordinated debt securities are held in book-entry form, the record date
will be one Business Day before the relevant interest payment date. If
subordinated debt securities are held in certificated form, the record date
will be as provided in a prospectus supplement.
Deferral Periods
With respect to any series of subordinated debt securities, as long as no
Subordinated Indenture Event of Default with respect to such series has
occurred and has not been cured, we will have the right to defer the
42
payment of interest on such series of subordinated debt securities as described
in "Description of the Trust Preferred Securities--Distributions" above. During
a deferral period, the holders of such series of subordinated debt securities
will continue to accrue interest at the stated annual rate of interest for such
series, plus will accrue additional interest on each deferred interest payment
at such stated annual rate, compounded quarterly, from the corresponding
interest payment date, to the extent permitted by law. Whenever we use the term
"interest" with respect to subordinated debt securities in this prospectus, we
are including any of this additional interest.
Deferral Period Restrictions
During a deferral period, we and our subsidiaries may not take any of the
following actions, except as described below:
. declare or pay any dividend or other distribution on, redeem, purchase or
acquire, or make a liquidation payment on any shares of our capital
stock;
. pay any amount on or repay, redeem or repurchase any debt securities
issued by us that rank equally with or junior to the subordinated debt
securities; or
. make any payments under any of our guarantees if such guarantee ranks
equally with or junior to the subordinated debt securities and guarantees
payments on any debt security of any of our subsidiaries.
Notwithstanding the foregoing, we may take any of the following actions
during a deferral period:
. declare dividends in, or make any payment in, shares of our common stock;
. redeem, purchase or acquire our common stock if related to the issuance
of common stock under any of our benefit plans for our directors,
officers or employees;
. declare or pay a dividend in connection with any shareholder's rights
plan, issue stock under such plan or redeem, repurchase or acquire any
rights distributed pursuant to the plan; or
. make payments under any trust preferred securities guarantee (as
described under "Description of the Trust Preferred Securities--Status of
Trust Preferred Securities Guarantees" above and under "Description of
Trust Preferred Securities Guarantees" below).
Deferral Period Procedures
We will give the property trustee and regular trustees of a trust and the
subordinated indenture trustee notice of our election to begin a deferral
period with respect to a series of subordinated debt securities held by such
trust at least one Business Day before the earlier of:
. the next distribution date for the trust preferred securities of such
trust; or
. the date the regular trustees of such trust are required to give notice
of the record date or the distribution date to (1) the New York Stock
Exchange or other applicable self-regulatory organization or (2) the
holders of the trust preferred securities of such trust.
The subordinated indenture trustee must notify the holders of a series of
subordinated debt securities in the manner described below in "--Notices" of
our election to begin a deferral period with respect to such series.
Stated Maturity
Each series of subordinated debt securities will have a stated maturity.
However, we may shorten such stated maturity to an earlier date stated in the
applicable prospectus supplement. You should expect that we will exercise this
option with respect to a series of subordinated debt securities if, for
example, a tax development occurs that prohibits us from deducting interest
payments on such series unless such series has a shorter maturity date.
43
We also will have the option to extend the stated maturity of any series of
subordinated debt securities if:
. we are not in bankruptcy, insolvent or in liquidation;
. we are not in default on the payment of interest or principal on such
series of subordinated debt securities;
. the trust which holds such series of subordinated debt securities is not
in arrears on payments of distributions on its trust preferred
securities;
. no deferred distributions are accumulated on the trust preferred
securities of the trust which holds such series of subordinated debt
securities; and
. the trust preferred securities of the trust which holds such series of
subordinated debt securities are rated at least BBB- by Standard & Poor's
Ratings Services or Baa3 by Moody's Investors Services, Inc., or an
equivalent rating by a successor rating agency.
You should assume that we will exercise our option to extend the stated
maturity of a series of subordinated debt securities if we are unable to
refinance such subordinated debt securities at a lower interest rate or it is
otherwise in our interest to defer the stated maturity of such subordinated
debt securities.
Procedures
We will pay principal of and any premium on subordinated debt securities at
stated maturity, upon redemption or otherwise, upon presentation of
subordinated debt securities at the office of the subordinated indenture
trustee, as our paying agent. In our discretion, we may appoint one or more
additional paying agents and security registrars and designate one or more
additional places for payment and for registration of transfer, but we must at
all times maintain a place of payment of the subordinated debt securities and a
place for registration of transfer of the subordinated debt securities in the
Borough of Manhattan, The City of New York.
We will give notice to the subordinated indenture trustee of our selection
of a new stated maturity for any series of subordinated debt securities at
least 30 days, but not more than 60 days, prior to the effective date of the
change. The subordinated indenture trustee will give holders of such
subordinated debt securities notice of the new stated maturity promptly upon
its receipt of the notice from us. The subordinated indenture trustee will give
the notice in the manner described below under "--Notices."
Optional Redemption
We may redeem any series of subordinated debt securities, at our option,
before their stated maturity as follows:
. at any time on or after the date stated in an applicable prospectus
supplement, in whole or in part, provided that no partial redemption may
occur during a deferral period with respect to such series of
subordinated debt securities; and
. at any time in whole, but not in part, within 90 days after a Tax Event
or an Investment Company Act Event has occurred with respect to such
series of subordinated debt securities.
We will pay the Redemption Price on the Redemption Date to the holders of
subordinated debt securities to be redeemed. In this context, "Redemption
Price" means the aggregate principal amount of the subordinated debt securities
to be redeemed, plus any accrued and unpaid interest on those securities to the
Redemption Date. Notwithstanding the foregoing, installments of interest on
those securities that are due and payable on interest payment dates falling on
or prior to a Redemption Date will be payable on the interest payment date to
the registered holders as of the close of business on the relevant record date
according to those securities and the subordinated indenture. The Redemption
Price will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
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We will mail notice of any redemption at least 30 days but not more than 60
days before the Redemption Date to each registered holder of the series of the
subordinated debt securities to be redeemed. Once notice of redemption is
mailed, the series of subordinated debt securities called for redemption will
become due and payable on the Redemption Date and at the applicable Redemption
Price, plus accrued and unpaid interest to the Redemption Date. If we elect to
redeem all or a portion of a series of subordinated debt securities, that
redemption will not be conditional upon receipt by the paying agent or the
subordinated indenture trustee of monies sufficient to pay the Redemption
Price. See "Description of Debt Securities--Optional Redemption" above.
Tax Event
"Tax Event" with respect to any trust means that we receive an opinion of
counsel, experienced in such matters, that as a result of any Tax Change (as
defined below), there is more than an insubstantial risk that:
. such trust is, or will be within 90 days after the date of the opinion of
counsel, subject to United States federal income tax with respect to
income received or accrued on the series of subordinated debt securities
held by such trust;
. interest payable by us or original issue discount accruing on such
subordinated debt securities is not, or within 90 days after the date of
the opinion, will not be, deductible by us, in whole or in part, for
United States federal income tax purposes; or
. such trust is, or will be within 90 days after the date of the opinion,
subject to more than a minimal amount of other taxes, duties or
governmental charges.
As used above, "Tax Change" means with respect to any trust any of the
following that are enacted, promulgated or announced on or after the date of
the prospectus supplement for the trust preferred securities of such trust:
. amendment to or change, including any announced prospective change, in
the laws or any regulations under the laws of the United States or of any
political subdivision or taxing authority of the United States; or
. official administrative pronouncement or judicial decision interpreting
or applying the laws or regulations stated above whether or not the
pronouncement or decision is issued to or in connection with a proceeding
involving us or such trust or subject to review or appeal.
Investment Company Act Event
"Investment Company Act Event" means with respect to any trust that we
receive an opinion of counsel, experienced in such matters, that as a result of
the occurrence of a change in law or regulation, or a written change in
interpretation or application of law or regulation, by any legislative body,
court, governmental agency or regulatory authority effective on or after the
date of the prospectus supplement for the trust preferred securities of such
trust, there is more than an insubstantial risk that such trust is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act of 1940, as amended.
Payment of Additional Sums
If a Tax Event with respect to any trust is continuing and we do not elect
to redeem the series of subordinated debt securities held by such trust or
liquidate such trust, we will pay additional amounts, if any, to
45
the holders of such subordinated debt securities so that, notwithstanding any
additional taxes, duties or charges imposed on such trust because of a Tax
Event, the trust will have sufficient funds to pay the full amount of
distributions due on the outstanding trust securities of such trust.
Redemption Procedures
We will give the holders of the series of subordinated debt securities to be
redeemed at least 30 days, but not more than 60 days, notice before the
Redemption Date, in the manner described below under "--Notices." Once notice
of redemption is mailed, the series of subordinated debt securities called for
redemption become due and payable on the Redemption Date and at the redemption
price, including accrued and unpaid interest and premium, if any, to the
Redemption Date. In all other respects, the procedures for redeeming
subordinated debt securities will be similar to those for redeeming trust
preferred securities. See "Description of the Trust Preferred Securities--
Redemption--Redemption Procedures" above.
On the Redemption Date, interest will stop accruing on the series of
subordinated debt securities called for redemption. However, if payment of the
Redemption Price for any such subordinated debt securities is not made,
interest on those subordinated debt securities will continue to accrue to the
date the Redemption Price is paid.
Exchange of Trust Preferred Securities for Subordinated Debt Securities
We will have the right at any time to dissolve a trust. In such event, the
applicable property trustee will distribute the series of subordinated debt
securities held by such trust to the holders of the trust preferred securities
of such trust in exchange for their securities. See "Description of Trust
Preferred Securities-- Exchange of Trust Preferred Securities for Subordinated
Debt Securities" above and procedures relating to such an exchange.
Restrictions on Payments
If any subordinated debt securities of a series are outstanding, we will be
prohibited from taking specified actions described below if:
(a) an event has occurred that constitutes a Subordinated Indenture
Event of Default for such series or, after notice or passage of time, or
both, would constitute a Subordinated Indenture Event of Default for such
series, and we have knowledge of such event but do not take reasonable
steps to cure the default;
(b) we do not pay any amount due under the trust preferred securities
guarantee relating to the trust preferred securities of such trust, if such
series of subordinated debt securities are held by such trust; or
(c) we have given notice of our election to begin a deferral period with
respect to such series and have not rescinded such notice, or any deferral
period with respect to such series is continuing.
In such event, we may not take any of the following actions, except as
described below:
(a) declare or pay any dividend or other distribution on, redeem,
purchase or acquire, or make a liquidation payment on any shares of our
capital stock;
(b) pay any amount on or repay, redeem or repurchase any debt securities
issued by us that rank equal with or junior to such series of subordinated
debt securities; or
(c) make any payments under any of our guarantees if such guarantee
ranks equal with or junior to such series of subordinated debt securities
and guarantees payments on any debt securities of any of our subsidiaries.
Notwithstanding the foregoing, we may:
(a) declare dividends in, or make any payment in, shares of our common
stock;
46
(b) redeem, purchase or acquire our common stock if related to the
issuance of common stock under any of our benefit plans for our directors,
officers or employees;
(c) declare or pay a dividend in connection with any shareholder's
rights plan, issue stock under such plan or redeem, repurchase or acquire
any rights distributed pursuant to the plan; or
(d) make payments under any trust preferred securities guarantee or any
other preferred securities guarantee (as described under "Description of
Trust Preferred Securities--Status of the Trust Preferred Securities
Guarantees" above and "Description of Trust Preferred Securities
Guarantees" below).
Events of Default
A "Subordinated Indenture Event of Default" occurs with respect to a series
of subordinated debt securities if:
(a) we do not pay any interest on any subordinated debt securities of
such series within 30 days of the due date, provided that, if we elect to
defer an interest payment, the date on which that payment is due will be
the date on which we are required to make payment following its deferral;
(b) we do not pay any principal of or premium on any subordinated debt
securities of such series on the due date;
(c) we remain in breach of a covenant or warranty (excluding covenants
and warranties solely applicable to another series of subordinated debt
securities issued under the subordinated indenture) in the subordinated
indenture or the subordinated debt securities of such series for 60 days
after we receive a written notice of default stating we are in breach and
requiring remedy of the breach; the notice must be sent by either the
subordinated indenture trustee or registered holders of at least 25% of the
principal amount of the outstanding subordinated debt securities of such
series; or
(d) we file for bankruptcy or other specified events in bankruptcy,
insolvency, receivership or reorganization occur.
Remedies
Acceleration
If a Subordinated Indenture Event of Default occurs and is continuing with
respect to the subordinated debt securities of a series, then either the
subordinated indenture trustee or the registered holders of at least 25% in
principal amount of the outstanding subordinated debt securities of such series
may declare the principal amount of all such subordinated debt securities,
together with accrued and unpaid interest thereon, to be due and payable
immediately.
Rescission of Acceleration
After the declaration of acceleration has been made with respect to a series
of subordinated debt securities and before the subordinated indenture trustee
has obtained a judgment or decree for payment of the money due, the declaration
and its consequences will be rescinded and annulled, if:
(a) we pay or deposit with the subordinated indenture trustee a sum
sufficient to pay:
(1) all overdue interest on the subordinated debt securities of such
series, other than interest which has become due by declaration of
acceleration;
(2) the principal of and any premium on the subordinated debt
securities of such series which have become due otherwise than by the
declaration of acceleration and overdue interest on these amounts;
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(3) interest on overdue interest, other than interest, which has become
due by declaration of acceleration, on the subordinated debt securities of
such series to the extent lawful;
(4) all amounts due to the subordinated indenture trustee under the
subordinated indenture; and
(b) all Subordinated Indenture Events of Default with respect to the
subordinated debt securities of such series, other than the nonpayment of
the principal and interest which has become due solely by the declaration
of acceleration, have been cured or waived as provided in the subordinated
indenture.
For more information as to waiver of defaults, see "--Waiver of Default and
of Compliance" below.
Control by Registered Holders; Limitations
If a Subordinated Indenture Event of Default with respect to a series of
subordinated debt securities occurs and is continuing, the registered holders
of a majority in principal amount of the outstanding subordinated debt
securities of such series, voting as a single class, without regard to the
holders of outstanding subordinated debt securities of any other series that
may also be in default, will have the right to direct the time, method and
place of:
(a) conducting any proceeding for any remedy available to the
subordinated indenture trustee with respect to the subordinated debt
securities of such series; and
(b) exercising any trust or power conferred on the subordinated
indenture trustee with respect to the subordinated debt securities of such
series.
These rights of registered holders to give directions are subject to the
following limitations:
(a) the registered holders' directions do not conflict with any law or
the subordinated indenture; and
(b) the direction is not unduly prejudicial to the rights of holders of
subordinated debt securities of such series who do not join in that action.
The subordinated indenture trustee may also take any other action it deems
proper which is consistent with the registered holders' direction.
In addition, the subordinated indenture provides that no registered holder
of subordinated debt securities of any series will have any right to institute
any proceeding, judicial or otherwise, with respect to the subordinated
indenture or for the appointment of a receiver or for any other remedy
thereunder unless:
(a) that registered holder has previously given the subordinated
indenture trustee written notice of a continuing Subordinated Indenture
Event of Default with respect to such series;
(b) the registered holders of at least 25% in aggregate principal amount
of the outstanding subordinated debt securities of such series have made
written request to the subordinated indenture trustee to institute
proceedings in respect of that Subordinated Indenture Event of Default and
have offered the subordinated indenture trustee reasonable indemnity
against costs and liabilities incurred in complying with the request; and
(c) for 60 days after receipt of the notice, the subordinated indenture
trustee has failed to institute a proceeding and no direction inconsistent
with the request has been given to the subordinated indenture trustee
during the 60-day period by the registered holders of a majority in
aggregate principal amount of outstanding subordinated debt securities of
such series.
Furthermore, no registered holder will be entitled to institute any action if
and to the extent that the action would disturb or prejudice the rights of
other registered holders of subordinated debt securities.
However, each registered holder has an absolute and unconditional right to
receive payment when due and to bring a suit to enforce that right.
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Notice of Default
The subordinated indenture trustee is required to give the registered
holders of subordinated debt securities notice of any default under the
subordinated indenture to the extent required by the Trust Indenture Act,
unless the default has been cured or waived; except that in the case of an
event of default of the character specified above in clause (c) under "--Events
of Default," no notice shall be given to the registered holders until at least
30 days after the occurrence of the default. The Trust Indenture Act currently
permits the subordinated indenture trustee to withhold notices of default
(except for certain payment defaults) if the subordinated indenture trustee in
good faith determines the withholding of the notice to be in the interests of
the registered holders.
We will furnish the subordinated indenture trustee with an annual statement
as to our compliance with the conditions and covenants in the subordinated
indenture.
Waiver of Default and of Compliance
The registered holders of a majority in aggregate principal amount of the
outstanding subordinated debt securities of any series, voting as a single
class, without regard to the holders of outstanding subordinated debt
securities of any other series, may waive, on behalf of all registered holders
of the subordinated debt securities of such series, any past default under the
subordinated indenture, except a default in the payment of principal, premium
or interest on any subordinated debt securities of such series, or with respect
to compliance with certain provisions of the subordinated indenture that cannot
be amended without the consent of the registered holder of each outstanding
trust preferred security of the trust which holds such series of subordinated
debt securities.
Unless indicated differently in a prospectus supplement, compliance with
certain covenants in the applicable indenture or otherwise provided with
respect to subordinated debt securities of any series may be waived prior to
the time specified for compliance by the registered holders of a majority in
aggregate principal amount of the subordinate debt securities of such series.
Consolidation, Merger and Conveyance of Assets as an Entirety; No Financial
Covenants
We have agreed not to consolidate or merge with or into any other entity, or
to sell, transfer, lease or otherwise convey our properties and assets as an
entirety or substantially as an entirety to any entity, unless:
(a) either we are the continuing entity (in the case of a merger) or the
successor entity formed by such consolidation or into which we are merged
or which acquires by sale, transfer, lease or other conveyance our
properties and assets, as an entirety or substantially as an entirety, is a
corporation is an entity organized and existing under the laws of the
United States of America or any State thereof or the District of Columbia,
and expressly assumes, by supplemental indenture, the due and punctual
payment of the principal, premium and interest on all the subordinated debt
securities and the performance of all of our covenants under the
subordinated indenture; and
(b) immediately after giving effect to the transaction, no Subordinated
Indenture Event of Default, and no event which after notice or lapse of
time or both would become a Subordinated Indenture Event of Default, has or
will have occurred and be continuing.
In addition to these conditions, the successor entity must assume all of our
obligations with respect to the trust preferred securities guarantees, and such
transaction must be permitted under, and not give rise to any violation of, any
Declaration or any trust preferred securities guarantee.
Neither the subordinated indenture nor the trust preferred securities
guarantees contain any financial or other similar restrictive covenants.
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Modification of Subordinated Indenture
Without Registered Holder Consent. Without the consent of any registered
holders of any subordinated debt securities which may in the future be issued
under the subordinated indenture, we, and the subordinated indenture trustee,
may enter into one or more supplemental indentures for any of the following
purposes:
(a) to evidence the succession of another entity to us; or
(b) to add one or more covenants for the benefit of the holders of all
or any series of subordinated debt securities, or to surrender any right or
power conferred upon us; or
(c) to add any additional events of default for all or any series of
subordinated debt securities; or
(d) to change or eliminate any provision of the subordinated indenture
so long as the change or elimination does not apply to any subordinated
debt securities entitled to the benefit of such provision or to add any new
provision to the subordinated indenture (in addition to the provisions
which may otherwise be added to the subordinated indenture pursuant to the
other clauses of this paragraph) so long as the addition does not apply to
any outstanding subordinated debt securities; or
(e) to provide security for the subordinated debt securities of any
series; or
(f) to establish the form or terms of subordinated debt securities of
any series as permitted by the subordinated indenture; or
(g) to evidence and provide for the acceptance of appointment of a
separate or successor subordinated indenture trustee; or
(h) to cure any ambiguity, defect or inconsistency or to make any other
changes with respect to any series of subordinated debt securities that do
not adversely affect the interests of the holders of that series of
subordinated debt securities in any material respect.
With Registered Holder Consent. Subject to the following sentence, we and
the subordinated indenture trustee may, with some exceptions, amend or modify
the subordinated indenture with the consent of the registered holders of at
least a majority in aggregate principal amount of the subordinated debt
securities of each series affected by the amendment or modification. However,
no amendment or modification may, without the consent of the registered holder
of each outstanding subordinated debt security affected thereby:
(a) change the stated maturity of the principal or interest on any
subordinated debt security or reduce the principal amount, interest or
premium payable, or change any place of payment where or the currency in
which any debt security is payable, or impair the right to bring suit to
enforce any payment;
(b) reduce the percentages of registered holders whose consent is
required for any supplemental indenture or waiver;
(c) modify certain of the provisions in the subordinated indenture
relating to supplemental indentures and waivers of certain covenants and
past defaults; or
(d) modify any provisions relating to subordination or the definition of
"senior debt" in a manner adverse to the holders of the subordinated debt
securities.
A supplemental indenture which changes or eliminates any provision of a
subordinated indenture expressly included solely for the benefit of holders of
subordinated debt securities of one or more particular series will be deemed
not to affect the interests under the subordinated indenture of the holders of
subordinated debt securities of any other series. However, any amendment that
adversely affects the holders of any series of trust preferred securities in
any material respect, as well as any termination of the subordinated indenture
and any waiver of a Subordinated Indenture Event of Default with respect to any
series of subordinated debt securities, will require the consent of the holders
of a majority in liquidation amount of each series of trust preferred
securities affected thereby.
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Subordination
The subordinated debt securities will be subordinated in right of payment to
the prior payment in full of all our senior debt. This means that, upon:
(a) any distribution of our assets upon our dissolution, winding-up,
liquidation or reorganization in bankruptcy, insolvency, receivership or
other proceedings; or
(b) acceleration of the maturity of any subordinated debt securities; or
(c) a failure to pay any senior debt or interest thereon when due and
continuance of that default beyond any applicable grace period; or
(d) acceleration of the maturity of any senior debt as a result of a
default, the holders of all of our senior debt will be entitled to receive:
(1) in the case of clauses (a) and (b) above, payment of all amounts due
or to become due on all senior debt; and
(2) in the case of clauses (c) and (d) above, payment of all amounts due
on all senior debt,
before the holders of any of the subordinated debt securities are entitled to
receive any payment. So long as any of the events in clauses (a), (b), (c) or
(d) above has occurred and is continuing, any amounts payable on the
subordinated debt securities will instead be paid directly to the holders of
all senior debt to the extent necessary to pay the senior debt in full and, if
any payment is received by the subordinated indenture trustee under the
subordinated indenture or the holders of any of the subordinated debt
securities before all senior debt is paid in full, the payment or distribution
must be paid over to the holders of the unpaid senior debt. Subject to paying
the senior debt in full, the holders of the subordinated debt securities will
be subrogated to the rights of the holders of the senior debt to the extent
that payments are made to the holders of senior debt out of the distributive
share of the subordinated debt securities.
"senior debt" means with respect to the subordinated debt securities, the
principal of, and premium, if any, and interest on any other payment in respect
of indebtedness due pursuant to any of the following, whether outstanding on
the date the subordinated debt securities are issued or thereafter incurred,
created or assumed:
(a) all of our indebtedness evidenced by notes, debentures, bonds or
other securities sold by us for money or other obligations for money
borrowed;
(b) all indebtedness of others of the kinds described in the preceding
clause (a) assumed by or guaranteed in any manner by us or in effect
guaranteed by us through an agreement to purchase, contingent or otherwise;
and
(c) all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding clauses (a) and (b), unless, in the
case of any particular indebtedness, renewal, extension or refunding, the
instrument creating or evidencing the same or the assumption or guarantee
of the same by its terms provides that such indebtedness, renewal,
extension or refunding is not superior in right of payment to or is pari
passu with such securities.
Due to the subordination, if our assets are distributed upon insolvency,
certain of our general creditors may recover more, ratably, than holders of
subordinated debt securities. The subordination provisions will not apply to
money and securities held in trust under the satisfaction and discharge and the
defeasance provisions of the subordinated indenture.
The subordinated debt securities, the subordinated indenture and the trust
preferred securities guarantees do not limit our or any of our subsidiaries'
ability to incur additional indebtedness, including indebtedness that ranks
senior to the subordinated debt securities and the trust preferred securities
guarantees. We expect that we and our subsidiaries will incur substantial
additional amounts of indebtedness in the future.
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Defeasance
The subordinated indenture provides, unless the terms of the particular
series of debt securities provide otherwise, that we may, upon satisfying
several conditions, cause ourselves to be discharged from our obligations, with
some exceptions, with respect to any series of subordinated debt securities,
which we refer to as "defeasance."
One condition we must satisfy is the irrevocable deposit with the
subordinated trustee, in trust, of money and/or government obligations which,
through the scheduled payment of principal and interest on those obligations,
would provide sufficient moneys to pay the principal of and any premium and
interest on those subordinated debt securities on the maturity dates of the
payments or upon redemption.
In addition, we will be required to deliver an opinion of counsel to the
effect that a holder of subordinated debt securities will not recognize income,
gain or loss for federal income tax purposes as a result of the defeasance and
will be subject to federal income tax on the same amounts, at the same times
and in the same manner as if that defeasance had not occurred. The opinion of
counsel must be based upon a ruling of the Internal Revenue Service or a change
in law after the date of the subordinated indenture.
Satisfaction and Discharge
The subordinated indenture will cease to be of further effect with respect
to any series of subordinated debt securities, and we will be deemed to have
satisfied and discharged all of our obligations under the subordinated
indenture, except as noted below, when:
(a) all outstanding subordinated debt securities of such series have
become due or will become due within one year at their stated maturity or
on a Redemption Date; and
(b) we deposit with the subordinated indenture trustee, in trust, funds
that are sufficient to pay and discharge all remaining indebtedness on the
outstanding subordinated debt securities of such series.
We will remain obligated to pay all other amounts due under the subordinated
indenture and to perform certain ministerial tasks as described in the
subordinated indenture.
Resignation and Removal of the Trustee; Deemed Resignation
The subordinated indenture trustee with respect to any series of
subordinated debt securities may resign at any time by giving written notice to
us. The subordinated indenture trustee may also be removed with respect to the
subordinated debt securities of any series by act of the registered holders of
a majority in principal amount of the then outstanding subordinated debt
securities of such series. No resignation or removal of the subordinated
indenture 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 subordinated indenture. Under certain
circumstances, we may appoint a successor trustee with respect to any series of
subordinated debt securities and if the successor trustee accepts, the
subordinated indenture trustee will be deemed to have resigned.
Registration of Trust Preferred Subordinated Debt Securities
The trust preferred subordinated debt securities initially will be issued in
certificated form and registered in the name of the applicable property
trustee. If in the future any trust preferred subordinated debt securities are
distributed to holders of trust preferred securities in exchange for trust
preferred securities and at that time such trust preferred securities are
represented by a global security, the subordinated debt securities would also
be represented by a global security. In this event, we expect that the book-
entry arrangements applicable to such subordinated debt securities would be
similar to those applicable to the trust preferred securities.
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Notices
Notices to be given to holders of subordinated debt securities held in
certificated form may be given by mail to their addresses as set forth in our
records. Notices to be given to holders of subordinated debt securities held in
book-entry form will be given to DTC in accordance with its procedures.
Governing Law
The subordinated indenture and the subordinated debt securities will be
governed by and construed in accordance with the laws of the State of New York.
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DESCRIPTION OF TRUST PREFERRED SECURITIES GUARANTEES
General
We will execute a trust preferred securities guarantee ("preferred
securities guarantee"), which benefits the holders of trust preferred
securities, at the time that a trust issues those trust preferred securities.
Each preferred securities guarantee will be qualified as an indenture under
the Trust Indenture Act. The Bank of New York will act as indenture trustee
("guarantee trustee") under each preferred securities guarantee for the
purposes of compliance with the Trust Indenture Act.
The guarantee trustee will hold each preferred securities guarantee for the
benefit of the trust preferred securities holders of the applicable trust.
We will irrevocably agree, as described in each preferred securities
guarantee, to pay in full, to the holders of the trust preferred securities
issued by the applicable trust, the preferred securities guarantee payments
(as defined below) (except to the extent previously paid), when and as due,
regardless of any defense, right of set-off or counterclaim which the trust
may have or assert. The following payments, to the extent not paid by a trust
("guarantee payments"), will be covered by the applicable preferred securities
guarantee:
(a) any accrued and unpaid distributions required to be paid on the
applicable trust preferred securities, to the extent that the trust has
funds available to make the payment;
(b) the redemption price, to the extent that the trust has funds
available to make the payment; and
(c) upon a voluntary or involuntary dissolution and liquidation of the
trust (other than in connection with a distribution of subordinated debt
securities to holders of the trust preferred securities or the redemption
of all the trust preferred securities), the lesser of:
(1) the aggregate of the liquidation amount specified in the
prospectus supplement for each trust preferred security plus all accrued
and unpaid distributions on the trust preferred security to the date of
payment, to the extent the trust has funds available to make the
payment; and
(2) the amount of assets of the trust remaining available for
distribution to holders of its trust preferred securities upon a
dissolution and liquidation of the trust.
Our obligation to make a guarantee payment may be satisfied by directly
paying the required amounts to the holders of the trust preferred securities
or by causing the trust to pay the amounts to the holders.
No single document executed by us relating to the issuance of trust
preferred securities will provide for its full, irrevocable and unconditional
guarantee of the trust preferred securities. It is only the combined operation
of our obligations under the subordinated indenture, the applicable series of
subordinated debt securities and the applicable preferred securities guarantee
and related Declaration that has the effect of providing a full, irrevocable
and unconditional guarantee of a trust's obligations under its trust preferred
securities.
Status of the Preferred Securities Guarantees
Each preferred securities guarantee will constitute our unsecured
obligation and will rank:
(a) subordinate and junior in right of payment to all of our other
liabilities, except any guarantee now or hereafter issued by us in respect
of any preferred or preference stock of any of our affiliates;
(b) equal with any guarantee now or hereafter issued by us in respect of
the most senior preferred or preference stock now or hereafter issued by
us, and with any guarantee now or hereafter issued by us in respect of any
preferred or preference stock of any of our affiliates; and
(c) senior to our common stock.
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Each Declaration will require that the holder of trust preferred securities
accept the subordination provisions and other terms of the preferred securities
guarantee. Each preferred securities guarantee will constitute a guarantee of
payment and not of collection. As a result, the holder of the guaranteed
security may sue us, or seek other remedies, to enforce its rights under the
preferred securities guarantee without first suing any other person or entity.
A preferred securities guarantee will not be discharged except by payment of
the preferred securities guarantee payments in full to the extent not
previously paid or upon distribution to the applicable trust preferred
securities holders of the corresponding series of subordinated debt securities
pursuant to the appropriate Declaration.
Amendments and Assignment
Except with respect to any changes which do not adversely affect the rights
of holders of a series of trust preferred securities in any material respect
(in which case no consent of the holders will be required), a preferred
securities guarantee may be amended only with the prior approval of the holders
of at least a majority in aggregate liquidation amount of the trust preferred
securities (excluding any trust preferred securities held by us or any of our
affiliates). A description of the way to obtain any approval is described under
"Description of Trust Preferred Securities--Voting Rights; Amendment of
Declaration." All guarantees and agreements contained in a preferred securities
guarantee will be binding on our successors, assigns, receivers, trustees and
representatives and are for the benefit of the holders of the applicable trust
preferred securities.
Preferred Securities Guarantee Events of Default
An event of default under a preferred securities guarantee occurs if we fail
to make any of our required payments or perform our obligations under the
preferred securities guarantee.
The holders of at least a majority in aggregate liquidation amount of the
trust preferred securities relating to each preferred securities guarantee,
excluding any trust preferred securities held by us or any of our affiliates,
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the guarantee trustee relating to the
preferred securities guarantee or to direct the exercise of any trust or power
given to the guarantee trustee under the preferred securities guarantee.
Information Concerning the Guarantee Trustees
The guarantee trustee under a preferred securities guarantee, other than
during the occurrence and continuance of a default under the preferred
securities guarantee, will perform only the duties that are specifically
described in the preferred securities guarantee. After such a default, the
guarantee trustee will exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, a guarantee trustee is under no obligation to exercise any
of its powers as described in the applicable preferred securities guarantee at
the request of any holder of covered trust preferred securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
it might incur.
Termination of the Preferred Securities Guarantees
Each preferred securities guarantee will terminate once the applicable trust
preferred securities are paid in full or upon distribution of the corresponding
series of subordinated debt securities to the holders of the trust preferred
securities. Each preferred securities guarantee will continue to be effective
or will be reinstated if at any time any holder of trust preferred securities
issued by the applicable trust must restore payment of any sums paid under the
trust preferred securities or the preferred securities guarantee.
Governing Law
The preferred securities guarantees will be governed by and construed in
accordance with the laws of the State of New York.
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RELATIONSHIP AMONG TRUST PREFERRED SECURITIES, PREFERRED SECURITIES GUARANTEES
AND SUBORDINATED DEBT SECURITIES HELD BY EACH TRUST
Payments of distributions and redemption and liquidation payments due on
each series of trust preferred securities, to the extent the applicable trust
has funds available for the payments, will be guaranteed by us to the extent
described under "Description of Trust Preferred Securities Guarantees." No
single document executed by us in connection with the issuance of any series of
trust preferred securities will provide for our full, irrevocable and
unconditional guarantee of the trust preferred securities. It is only the
combined operation of our obligations under the applicable preferred securities
guarantee, Declaration, subordinated indenture and subordinated debt securities
that has the effect of providing a full, irrevocable and unconditional
guarantee of a trust's obligations under its trust preferred securities.
As long as we make payments of interest and other payments when due on the
subordinated debt securities held by a trust, the payments will be sufficient
to cover the payment of distributions and redemption and liquidation payments
due on the trust preferred securities issued by that trust, primarily because:
(a) the aggregate principal amount of the subordinated debt securities
will be equal to the sum of the aggregate liquidation amount of the trust
preferred and common securities;
(b) the interest rate and interest and other payment dates on the
subordinated debt securities will match the distribution rate and
distribution and other payment dates for the trust preferred securities;
(c) we shall pay for any and all costs, expenses and liabilities of each
trust except the trust's obligations under its trust preferred securities
(and we have agreed to guarantee such payment); and
(d) each Declaration provides that the related trust will not engage in
any activity that is not consistent with the limited purposes of such
trust.
If and to the extent that we do not make payments on the related
subordinated debt securities, a trust will not have funds available to make
payments of distributions or other amounts due on its trust preferred
securities. In those circumstances, holders of such trust preferred securities
will not be able to rely upon the preferred securities guarantee for payment of
these amounts. Instead, holders of such trust preferred securities may directly
sue us or seek other remedies to collect their pro rata share of payments owed.
If holders of such trust preferred securities sue us to collect payment, then
we will assume their rights as a holder of trust preferred securities under
such trust's Declaration to the extent we make a payment to them in any legal
action.
A holder of any trust preferred security may sue us, or seek other remedies,
to enforce its rights under the applicable preferred securities guarantee
without first suing the applicable guarantee trustee, the trust which issued
the trust preferred security or any other person or entity.
GLOBAL SECURITIES
Book-Entry, Delivery and Form
Unless the company issuing the debt securities, trust preferred securities,
warrants, common stock, preferred stock, stock purchase contracts, stock
purchase units or depositary shares (the "securities") indicates differently in
a supplemental prospectus, the securities initially will be issued in book-
entry form and represented by one or more global notes or global securities
(collectively, "global securities"). The global securities will be deposited
with, or on behalf of, The Depositary Trust Company, New York, New York, as
depositary ("DTC"), and registered in the name of Cede & Co., the nominee of
DTC. Unless and until it is exchanged for individual certificates evidencing
securities under the limited circumstances described below, a global security
may not be transferred except as a whole by the depositary to its nominee or by
the nominee to the depositary, or by the depositary or its nominee to a
successor depositary or to a nominee of the successor depositary.
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DTC has advised each of the issuing companies that it is:
. a limited-purpose trust company organized under the New York Banking Law;
. a "banking organization" within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
. a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among its participants of securities transactions,
including transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, which eliminates the
need for physical movement of securities certificates. "Direct participants" in
DTC include securities brokers and dealers, including underwriters, banks,
trust companies, clearing corporations and other organizations. DTC is owned by
a number of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange LLC and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others, which we
sometimes refer to as "indirect participants," that clear transactions through
or maintain a custodial relationship with a direct participant either directly
or indirectly. The rules applicable to DTC and its participants are on file
with the SEC.
Purchases of securities within the DTC system must be made by or through
direct participants, which will receive a credit for those securities on DTC's
records. The ownership interest of the actual purchaser of a security, which we
sometimes refer to as a "beneficial owner," is in turn recorded on the direct
and indirect participants' records. Beneficial owners of securities will not
receive written confirmation from DTC of their purchases. However, beneficial
owners are expected to receive written confirmations providing details of their
transactions, as well as periodic statements of their holdings, from the direct
or indirect participants through which they purchased securities. Transfers of
ownership interests in global securities are to be accomplished by entries made
on the books of participants acting on behalf of beneficial owners. Beneficial
owners will not receive certificates representing their ownership interests in
the global securities except under the limited circumstances described below.
To facilitate subsequent transfers, all global securities deposited with DTC
will be registered in the name of DTC's nominee, Cede & Co. The deposit of
securities with DTC and their registration in the name of Cede & Co. will not
change the beneficial ownership of the securities. DTC has no knowledge of the
actual beneficial owners of the securities. DTC's records reflect only the
identity of the direct participants to whose accounts the securities are
credited, which may or may not be the beneficial owners. The participants are
responsible for keeping account of their holdings on behalf of their customers.
So long as the securities are in book-entry form, you will receive payments
and may transfer securities only through the facilities of the depositary and
its direct and indirect participants. The company issuing the securities will
maintain an office or agency in the Borough of Manhattan, the City of New York
where notices and demands in respect of the securities and the applicable
indenture may be delivered to us and where certificated securities may be
surrendered for payment, registration of transfer or exchange. That office or
agency, with respect to the applicable indenture, will initially be the office
of the trustee which is currently located at 100 Wall Street, Suite 1600, New
York, New York 10005, in the case of U.S. Bank Trust National Association, and
101 Barclay Street, Floor 21, New York, New York 10286, in the case of The Bank
of New York.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any legal requirements in effect from time
to time.
57
Redemption notices will be sent to DTC or its nominee. If less than all of
the securities of a particular series are being redeemed, DTC will determine
the amount of the interest of each direct participant in the securities of such
series to be redeemed in accordance with DTC's procedures.
In any case where a vote may be required with respect to securities of a
particular series, neither DTC nor Cede & Co. will give consents for or vote
the global securities. Under its usual procedures, DTC will mail an omnibus
proxy to us as soon as possible after the record date. The omnibus proxy
assigns the consenting or voting rights of Cede & Co. to those direct
participants to whose accounts the securities of such series are credited on
the record date identified in a listing attached to the omnibus proxy.
So long as securities are in book-entry form, the company issuing such
securities will make payments on those securities to the depositary or its
nominee, as the registered owner of such securities, by wire transfer of
immediately available funds. If securities are issued in definitive
certificated form under the limited circumstances described below, the company
issuing the securities will have the option of paying interest by check mailed
to the addresses of the persons entitled to payment or by wire transfer to bank
accounts in the United States designated in writing to the applicable trustee
at least 15 days before the applicable payment date by the persons entitled to
payment.
Principal and interest payments on the securities will be made to Cede &
Co., as nominee of DTC. DTC's practice is to credit direct participants'
accounts on the relevant payment date unless DTC has reason to believe that it
will not receive payment on the payment date. Payments by direct and indirect
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name." Those payments will be
the responsibility of participants and not of DTC or us, subject to any legal
requirements in effect from time to time. Payment of principal and interest to
Cede & Co. is our responsibility, disbursement of payments to direct
participants is the responsibility of DTC and disbursement of payments to the
beneficial owners is the responsibility of direct and indirect participants.
Except under the limited circumstances described below, purchasers of
securities will not be entitled to have securities registered in their names
and will not receive physical delivery of securities. Accordingly, each
beneficial owner must rely on the procedures of DTC and its participants to
exercise any rights under the securities and the applicable indenture.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. Those laws
may impair the ability to transfer or pledge beneficial interests in
securities.
DTC is under no obligation to provide its services as depositary for the
securities and may discontinue providing its services at any time. Neither the
company issuing the securities nor the applicable trustee will have any
responsibility for the performance by DTC or its direct participants or
indirect participants under the rules and procedures governing DTC.
As noted above, beneficial owners of a particular series of securities
generally will not receive certificates representing their ownership interests
in those securities. However, if:
. DTC notifies the company issuing such securities that it is unwilling or
unable to continue as a depositary for the global security or securities
representing such series of securities or if DTC ceases to be a clearing
agency registered under the Securities Exchange Act at a time when it is
required to be registered and a successor depositary is not appointed
within 90 days of the notification to us or of our becoming aware of
DTC's ceasing to be so registered, as the case may be;
. the company issuing such securities determines, in its sole discretion,
not to have such securities represented by one or more global securities;
or
. an Event of Default under the indenture has occurred and is continuing
with respect to such series of securities,
58
the company issuing such securities will prepare and deliver certificates for
such securities in exchange for beneficial interests in the global securities.
Any beneficial interest in a global security that is exchangeable under the
circumstances described in the preceding sentence will be exchangeable for
securities in definitive certificated form registered in the names that the
depositary directs. It is expected that these directions will be based upon
directions received by the depositary from its participants with respect to
ownership of beneficial interests in the global securities.
Each company has obtained the information in this section and elsewhere in
this prospectus concerning DTC and DTC's book-entry system from sources that
are believed to be reliable, but neither company takes responsibility for the
accuracy of this information.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated by reference in this prospectus from Sempra Energy's
Annual Report on Form 10-K for the year ended December 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
VALIDITY OF THE SECURITIES AND THE GUARANTEES
Latham & Watkins, Los Angeles, California, will pass upon certain legal
matters relating to the issuance and sale of the securities and the guarantees
on behalf of Sempra Energy. Gary W. Kyle, Esq., Chief Corporate Counsel of
Sempra Energy, will pass upon the validity of the securities and the
guarantees. Richards, Layton & Finger, P.A., special Delaware counsel to Sempra
Energy and the trusts, will pass upon certain matters of Delaware law relating
to the validity of the preferred securities. Sidley Austin Brown & Wood LLP,
San Francisco, California, will pass upon the validity of the securities and
the guarantees for any underwriters or agents. Paul C. Pringle, a partner of
Sidley Austin Brown & Wood LLP, owns 2,162 shares of common stock of Sempra
Energy.
59
PLAN OF DISTRIBUTION
We may sell the securities described in this prospectus from time to time in
one or more transactions
(a) to purchasers directly;
(b) to underwriters for public offering and sale by them;
(c) through agents;
(d) through dealers; or
(e) through a combination of any of the foregoing methods of sale.
We may distribute the securities from time to time in one or more
transactions at:
(a) a fixed price or prices, which may be changed;
(b) market prices prevailing at the time of sale;
(c) prices related to such prevailing market prices; or
(d) negotiated prices.
Direct Sales
We may sell the securities directly to institutional investors or others. A
prospectus supplement will describe the terms of any sale of securities we are
offering hereunder.
To Underwriters
The applicable prospectus supplement will name any underwriter involved in a
sale of securities. Underwriters may offer and sell securities at a fixed price
or prices, which may be changed, or from time to time at market prices or at
negotiated prices. Underwriters may be deemed to have received compensation
from us from sales of securities in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities for
whom they may act as 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 (which may be changed from time to time)
from the purchasers for whom they may act as agent.
Unless otherwise provided in a prospectus supplement, the obligations of any
underwriters to purchase securities or any series of securities will be subject
to certain conditions precedent, and the underwriters will be obligated to
purchase all such securities if any are purchased.
Through Agents and Dealers
We will name any agent involved in a sale of securities, as well as any
commissions payable by us to such agent, in a prospectus supplement. Unless we
indicate differently in the prospectus supplement, any such agent will be
acting on a reasonable efforts basis for the period of its appointment.
If we utilize a dealer in the sale of the securities being offered pursuant
to this prospectus, we will sell the securities to the dealer, as principal.
The dealer may then resell the securities to the public at varying prices to be
determined by the dealer at the time of resale.
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Delayed Delivery Contracts
If we so specify in the applicable prospectus supplement, we will authorize
underwriters, dealers and agents to solicit offers by certain institutions to
purchase securities pursuant to contracts providing for payment and delivery on
future dates. Such contracts will be subject to only those conditions set forth
in the applicable prospectus supplement.
The underwriters, dealers and agents will not be responsible for the
validity or performance of the contracts. We will set forth in the prospectus
supplement relating to the contracts the price to be paid for the securities,
the commissions payable for solicitation of the contracts and the date in the
future for delivery of the securities.
General Information
Underwriters, dealers and agents participating in a sale of the securities
may be deemed to be underwriters as defined in the Securities Act, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. We may have agreements with
underwriters, dealers and agents to indemnify them against certain civil
liabilities, including liabilities under the Securities Act, and to reimburse
them for certain expenses.
Underwriters or agents and their associates may be customers of, engage in
transactions with or perform services for us or our affiliates in the ordinary
course of business.
Unless we indicate differently in a prospectus supplement, we will not list
the securities on any securities exchange, other than shares of our common
stock. The securities, except for our common stock, will be a new issue of
securities with no established trading market. Any underwriters that purchase
securities for public offering and sale may make a market in such securities,
but such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. We make no assurance as to the
liquidity of or the trading markets for any securities.
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22,000,000 Equity Units
(Initially Consisting of 22,000,000 Income Equity Units)
[LOGO OF SEMPRA ENERGY]
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
Salomon Smith Barney
Goldman, Sachs & Co.
Morgan Stanley
ABN AMRO Rothschild LLC
A.G. Edwards & Sons, Inc.
Banc One Capital Markets, Inc.
Credit Lyonnais Securities (USA) Inc.
Jefferies & Company, Inc.
Mizuho International plc
The Royal Bank of Scotland
SG Cowen
Tokyo-Mitsubishi International plc
April 24, 2002
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