++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus supplement is not complete and may be +
+ changed. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
FILED PURSUANT TO
RULE 424(b)(5)
REGISTRATION NO. 333-52192
Subject to Completion, dated June 22, 2001
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 10, 2001)
$ ,000,000
[LOGO OF SEMPRA ENERGY]
Floating Rate Notes due 200
-----------
The notes will bear interest at a floating rate equal to three-month LIBOR
plus a spread of % per year, subject to adjustment as set forth in this
prospectus supplement. Interest on the notes is payable on , ,
and of each year, beginning on , 2001. The notes will
mature on , 200 . Sempra Energy may redeem the notes, in whole, on
any interest payment date beginning on , 2002 at a redemption price
equal to 100% of the unpaid principal amount plus accrued and unpaid interest
on such notes to, but excluding, the date of redemption.
-----------
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.
-----------
Per Note Total
-------- ------
Public Offering Price % $
Underwriting Discount % $
Proceeds to Sempra Energy (before our estimated expenses) % $
Interest on the notes will accrue from the date of issuance. Purchasers of
notes must pay the accrued interest if they take delivery of the notes after
the date of issuance.
-----------
The underwriters expect to deliver the notes to purchasers on or about
, 2001.
-----------
JPMorgan Salomon Smith Barney
, 2001
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information 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 the date on
the front of the accompanying prospectus.
----------------
TABLE OF CONTENTS
Prospectus Supplement
Forward-Looking Statements................................................. S-1
Summary Information........................................................ S-2
Recent Developments........................................................ S-4
Use of Proceeds............................................................ S-8
Capitalization............................................................. S-8
Ratio of Earnings to Combined Fixed Charges................................ S-8
Summary Historical Condensed Consolidated Financial Information............ S-9
Description of the Notes................................................... S-10
Certain United States Federal Income Tax Consequences...................... S-16
Underwriting............................................................... S-20
Legal Matters.............................................................. S-21
Independent Accountants.................................................... S-21
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........................................................... 6
Ratio of Sempra Energy Earnings to Combined Fixed Charges and Preferred
Stock Dividends.......................................................... 6
Description of Securities................................................. 7
Description of Debt Securities............................................ 7
Description of Sempra Energy's Common Stock and Preferred Stock........... 19
Description of Trust Preferred Securities................................. 22
Description of the Subordinated Debt Securities of Sempra Energy Purchased
with Proceeds of Trust Securities........................................ 33
Description of Trust Preferred Securities Guarantees...................... 44
Global Securities......................................................... 47
Certain United States Federal Income Tax Consequences..................... 50
Experts................................................................... 59
Validity of the Securities and the Guarantees............................. 59
Plan of Distribution...................................................... 60
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 guarantees 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, including those with respect to the
recently announced Memorandum of Understanding among us, San Diego Gas &
Electric Company and the California Department of Water Resources;
. 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 Report on Form 10-Q for the three-month period ended March
31, 2001, our Current Reports on Form 8-K filed on January 24, 2001, January
30, 2001, February 16, 2001, April 27, 2001, and June 19, 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 Floating Rate Notes due 200 . In this
prospectus supplement we refer to the Floating Rate Notes due 200 , as the
"notes." You should carefully read this prospectus supplement and the
accompanying prospectus, as well as the documents they incorporate by
reference, to understand fully the terms of the notes and other considerations
that are important to you in making a decision about whether to invest in the
notes. 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 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. In 2000, Southern California Gas Company and San Diego
Gas & Electric Company collectively accounted for 57% of our consolidated
assets, 87% of our consolidated EBITDA (income before interest, income taxes,
depreciation and amortization) and 82% of our consolidated net income.
Through other subsidiaries, we also provide other energy-related products
and services. These subsidiaries include Sempra Energy Solutions, Sempra Energy
Trading, Sempra Energy Resources and Sempra Energy International. Sempra Energy
Solutions is a provider of energy-related products and services, including
energy efficiency engineering services, to various markets. Sempra Energy
Trading is a wholesale trader of physical and financial energy products,
including natural gas, power, crude oil and associated commodities and serves 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 currently has interests
in companies that provide natural gas and electricity services in Argentina,
Canada, Chile, Mexico and Peru.
Our principal executive offices are located at 101 Ash Street, San Diego,
California 92101 and our telephone number is (619) 696-2034.
S-2
The Offering
Issuer.............................. Sempra Energy.
Amount of Notes Offered............. $ ,000,000 in principal amount of
Floating Rate Notes due 200 .
Maturity............................ , 200 .
Interest Rate....................... Floating rate equal to three-month LIBOR
plus an initial spread of % per
annum, accruing from , 2001.
Spread Adjustment................... The initial spread of % will be
subject to adjustment. In the event of a
downgrade in our debt rating by Moody's
Investors Services, Inc. below A3, or
Standard & Poor's Rating Service below A-
, and in the event of subsequent upgrades
or downgrades, the spread will be
adjusted as described in this prospectus
supplement. Our current senior unsecured
long-term debt rating by Moody's
Investors Services, Inc. is A2 with a
negative outlook and by Standard & Poor's
Rating Service is A with a negative
outlook.
Interest Payment Dates.............. , , and
, beginning , 2001.
Ranking............................. The notes are our unsecured senior
obligations. The notes will rank senior
to all of our existing and future
indebtedness that is subordinated to the
notes and equally with all of our other
existing and future unsecured senior
indebtedness. The notes will be
effectively subordinated to all
liabilities of our subsidiaries.
Optional Redemption................. We may redeem the notes, in whole, on any
interest payment date beginning on
, 2002 at a redemption price
equal to 100% of the unpaid principal
amount plus accrued and unpaid interest
on such notes to, but excluding, the date
of redemption.
Covenants........................... The notes and the related indenture do
not contain any financial or other
similar restrictive covenants. However,
we will be subject to the covenant
described under the caption "Description
of the Notes--Consolidation, Merger and
Conveyance of Assets as an Entirety; No
Financial Covenants" in the accompanying
prospectus.
Use of Proceeds..................... We estimate the net proceeds from this
offering will be approximately $
million. We intend to use the net
proceeds of the offering for general
corporate purposes. In the interim, we
intend to use substantially all of such
net proceeds to reduce a portion of the
amounts outstanding under our credit
facility.
S-3
RECENT DEVELOPMENTS
San Diego Gas & Electric Company
On June 18, 2001, we and our subsidiary, San Diego Gas & Electric Company
("SDG&E"), entered into a Memorandum of Understanding ("MOU") with the
California Department of Water Resources ("CDWR") that contemplates a series of
transactions, regulatory settlements and actions to resolve many of the issues
affecting SDG&E and its customers arising from the California energy crisis.
Representatives of the California Governor participated in the negotiations,
and the Governor recommended the implementation of the MOU.
Overview
The MOU contemplates, subject to the necessary approvals of the California
Public Utilities Commission ("CPUC"):
. the elimination from SDG&E's rate ceiling balancing account of the
approximately $750 million of undercollected costs that otherwise would
be recovered in future rates charged to its customers;
. settlement of reasonableness reviews, electricity purchase contract
issues and various other regulatory matters affecting SDG&E;
. the sale to the CDWR of power purchased by SDG&E under certain
intermediate term contracts; and
. other various related matters.
As contemplated by the MOU, SDG&E and the CDWR have entered into a revised
agreement that provides for the continued procurement by the CDWR for SDG&E
customers of SDG&E's "full net short" (consisting of substantially all of the
power and ancillary services not provided by SDG&E's retained generation)
through December 31, 2002. The CDWR's procurement obligations are subject to
earlier termination if certain regulatory and other conditions intended to
assure SDG&E's timely recovery of costs incurred in resuming power procurement
for its customers are satisfied. We believe that the implementation of the
foregoing elements of the MOU will, by themselves, favorably resolve many of
the financial and other uncertainties affecting SDG&E and its customers arising
from the California energy crisis and would not adversely affect SDG&E's
financial position, liquidity or results of operations.
The MOU also contemplates the sale of SDG&E's transmission system to the
CDWR or another state agency for a purchase price equal to 2.3 times SDG&E's
net book value, plus the discharge or assumption of related debt. The
implementation of this element of the MOU would require the enactment of
California legislation as well as various regulatory approvals. The sale of the
transmission system is not a condition to the implementation of the other
elements of the MOU, but the implementation of the other elements of the MOU is
a condition to the transmission system sale.
Summary of Principal Provisions
The principal provisions of the MOU are briefly summarized below. This
summary only highlights selected provisions of the MOU and you are urged to
read the full text of the MOU which was filed as Exhibit 99.1 to our Current
Report on Form 8-K filed with the SEC on June 19, 2001. The implementation of
the following elements of the MOU requires various implementing decisions by
the CPUC. These elements are independent of the sale of SDG&E's transmission
system also contemplated by the MOU and, if the requisite authorizations are
timely obtained, would be implemented whether or not the sale of the
transmission system is effected.
Settlement of Reasonableness Review. The CPUC's review of the reasonableness
of SDG&E's procurement practices through February 7, 2001 would be settled by
reducing the undercollected costs (otherwise accumulated for recovery in future
customer rates) in SDG&E's rate ceiling balancing
S-4
account by $100 million. The CPUC's Office of Ratepayer Advocates ("ORA") has
entered into a separate memorandum of understanding with SDG&E providing for
this settlement. The MOU contemplates the execution of a definitive settlement
agreement with the ORA by August 1, 2001 and a CPUC decision approving the
settlement by the later of (i) 90 days after SDG&E's application for approval
or (ii) November 1, 2001.
Intermediate Term Contract Settlement and Sale. The regulatory issues with
respect to the treatment of several intermediate term contracts for fixed price
electricity purchases by SDG&E through 2001, which are the subject of a pending
court appeal, would be settled by an additional reduction of undercollected
costs (otherwise accumulated for recovery in future customer rates) in the rate
ceiling balancing account by $219 million. The remaining power provided by the
contracts would be sold by SDG&E to the CDWR, for a total price of
approximately $120 million above the prices to be paid under the contracts. The
MOU contemplates the execution of a definitive settlement agreement between
SDG&E and the CPUC and a CPUC decision approving the settlement and sale no
later than July 16, 2001.
Equalization Adjustment. Effective January 1, 2002, SDG&E's rate ceiling
balancing account would be further reduced by $146 million of undercollected
costs (otherwise accumulated for recovery in future customer rates), and an
equalization adjustment of $133 million would be credited as a regulatory asset
to SDG&E's investment in the SONGS 2 and 3 nuclear generating facility and
depreciated over a period ending December 31, 2010.
Other Rate Ceiling Balancing Account Adjustments. SDG&E's rate ceiling
balancing account would be further reduced by approximately $150 million of
undercollected costs (otherwise accumulated for recovery in future customer
rates), by crediting against the account overcollections in other regulatory
balancing accounts that would otherwise be refunded to customers. Any remaining
balance in the rate ceiling balancing account would be transferred to SDG&E's
transition cost balancing account and recovered in existing rates.
Retained Generation. SDG&E's utility generating assets would be committed to
cost-based ratemaking for its bundled service customers, and SDG&E would not
seek authority to sell these assets through at least 2010.
Cost Recovery. The CPUC would adopt implementing decisions confirming
SDG&E's entitlement to recover its reasonable procurement costs and costs of
retained generation on a timely basis consistent with SDG&E continuing to be an
investment grade credit and providing mechanisms to mitigate potential risks of
retroactive reasonableness reviews.
Utility Investment. We would cause our utility subsidiaries to make capital
investments in their businesses during the six-year period from 2001 through
2006 of at least $3.0 billion in the aggregate (exclusive of capital
investments in SDG&E's transmission system) plus, if the sale of SDG&E's
transmission system does not occur, an additional $200 million in its
transmission system, and an additional $300 million if SDG&E funds a proposed
transmission project. The equity component of these investments would be funded
by utility retained earnings or, if retained earnings are insufficient, by our
equity investment in the utilities.
Ratemaking Proceedings. SDG&E would hold in abeyance its application for a
rate surcharge until the earlier of (i) the CPUC's adoption of decisions
implementing regulatory settlements and actions contemplated by the MOU or (ii)
November 1, 2001 and would withdraw its application if the CPUC decisions are
timely adopted. In addition, ratemaking proceedings relating to cost of service
and performance based regulation of SDG&E and Southern California Gas Company
would be postponed by one year until test-year 2004.
The CDWR has been purchasing SDG&E's full net short position under an
agreement terminable by either the CDWR or SDG&E upon six months' prior notice.
As contemplated by the MOU, SDG&E and the CDWR have entered into a revised
agreement under which the CDWR will continue to purchase SDG&E's full net short
position and also pay certain related ancillary service and other purchased
power costs through
S-5
December 31, 2002, subject to earlier termination upon the satisfaction of
conditions intended to assure timely recovery by SDG&E of its costs of resuming
power procurement for its customers. These conditions include (i) CPUC approval
of the settlement of the reasonableness review discussed above, (ii) CPUC
adoption of satisfactory guidelines for power procurement and cost recovery
mechanisms, (iii) 180 days prior written notice by the CDWR, and (iv) the
resumption of customer power procurement by at least one of the other two
major, California-based, investor-owned utilities.
The MOU also provides that the CDWR or another agency of the State of
California would purchase SDG&E's transmission system for a price of 2.3 times
SDG&E's net book value as of December 31, 2000 (for a total purchase price of
approximately $1 billion, subject to adjustment for subsequent additions and
depreciation) plus up to $180 million to discharge or assume related debt. The
transmission sale would be subject to the CPUC's adoption of decisions
implementing the other elements of the MOU and would require the enactment of
California enabling legislation and approval by the Federal Energy Regulatory
Commission.
The MOU may be terminated by either party if the reasonableness review or
intermediate term contract settlements discussed above have not been approved
by the CPUC by the dates specified or if any other implementing approvals
required of the CPUC have not been obtained within 75 days after SDG&E files
the last of its applications for such approvals. In addition, after December
31, 2001 either party may terminate the MOU as to any elements that have not
become binding prior to December 31, 2001.
Sempra Energy Resources
Sempra Energy Resources ("SER"), our subsidiary engaged in developing and
operating power plants, has entered into an agreement with the CDWR to supply
electricity to the State of California until 2011. By the end of the ten-year
agreement, SER expects to supply the CDWR with up to 1,900 megawatts during
peak-usage periods. SER intends to deliver this electricity from a portfolio of
power plants being developed by SER with these deliveries comprising
approximately one-half of its projected Western portfolio capacity. At SER's
option, this amount may be reduced if SER does not build the generation plants
expected to comprise its Western portfolio. For the period beginning in June
2003, CDWR has agreed to bear all risk related to prices of the natural gas
needed to power SER's facilities to produce electricity contemplated by the
agreement. Under the agreement, SER began providing 250 megawatts of summer
capacity to California on June 1, 2001. SER will supply this electricity
through market purchases and its 220 megawatt share of our El Dorado facility.
Sempra Energy Trading
Sempra Energy Trading Corp. ("SET"), our subsidiary engaged in trading
natural gas, electricity and other energy commodities, is involved in a
contractual dispute with Pacific Gas & Electric Company ("PG&E") relating to
SET's obligations to deliver to PG&E certain quantities of natural gas. SET
believes that its obligations to deliver these quantities were extinguished
(prior to PG&E's filing for bankruptcy protection) by its exercise of a
contractual right to set off these obligations against amounts owed by PG&E to
SET under other contracts. PG&E has asserted that the setoff was impermissible
and that SET remains obligated with respect to the quantities of gas that are
the subject of the dispute. In light of PG&E's subsequent bankruptcy, SET has
offered to deliver these quantities pending the resolution of its setoff claim
subject to adequate protection for the value of the gas, but PG&E has declined
that offer. Instead, in addition to any purported actual damages that it may
have suffered, PG&E has asserted that it is also entitled to receive
approximately $15 million in "imbalance charges" for the gas that was to have
been delivered plus daily charges totaling approximately $63 million at April
23, 2001 which PG&E contends are continuing to accrue at a rate of approximately
$1 million per day since that date. PG&E also has asserted that SET is liable to
it for additional amounts that have not yet been quantified. SET has applied to
the court administering PG&E's bankruptcy proceedings for relief from an
automatic stay in bankruptcy so that arbitration of this dispute may proceed as
contemplated by the related contracts.
S-6
Other
We believe that several of our non-utility subsidiaries may not be properly
valued by the equity market at this time, as a result of the inclusion of these
businesses within the overall Sempra Energy enterprise. Accordingly, we are
seeking on an ongoing basis to evaluate and potentially implement strategies
intended to increase the value of one or more of these subsidiaries. These
strategies may include, for example, an initial public offering, a spin-off, a
split-off, a business combination or other sale of stock or assets involving
one or more of these businesses, or a combination of some of these strategic
transactions.
The 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.
S-7
USE OF PROCEEDS
We intend to use the net proceeds of approximately $ million from the
sale of the notes for general corporate purposes. In the interim, we intend to
use substantially all of such net proceeds to reduce a portion of the amounts
outstanding under our credit facility. We estimate that our expenses for this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of March 31, 2001, (i) on a historical basis and (ii) on an as adjusted basis
to give effect to the sale of $ ,000,000 aggregate principal amount of notes
pursuant to this offering and the application of the estimated $
million net proceeds as described under the caption "Use of Proceeds" above.
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.
March 31, 2001
----------------------
Historical As Adjusted
---------- -----------
(Dollars in Millions)
Cash and cash equivalents............................... $1,438 $1,438
====== ======
Short-term debt......................................... $1,532 $
Current portion of long-term debt....................... 280 280
Long-term debt.......................................... 3,280
------ ------
Total debt (a)........................................ 5,092
Preferred stock of subsidiaries......................... 204 204
Mandatorily redeemable trust preferred securities....... 200 200
Total shareholders' equity.............................. 2,629 2,629
------ ------
Total capitalization.................................. $8,125 $
====== ======
--------
(a) Includes $443 million of Rate Reduction Bonds.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth our ratio of earnings to combined fixed
charges for each of the years in the five-year period ended December 31, 2000
and for each of the three-month periods ended March 31, 2000 and 2001:
Three Months
Ended
Years Ended December 31, March 31,
------------------------ -------------
2000 1999 1998 1997 1996 2001 2000
---- ---- ---- ---- ---- ------ ------
Ratio of Earnings to Combined Fixed
Charges............................... 2.91 3.19 2.73 3.75 3.67 4.01 3.15
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.
S-8
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, 2000 and 1999 and as of December
31, 2000 has been derived from our audited consolidated financial statements
for the years ended December 31, 2000 and 1999. The summary historical
condensed consolidated financial information for the three months ended March
31, 2001 and 2000 and as of March 31, 2001 has been derived from our unaudited
consolidated financial statements for the three-month periods ended March 31,
2001 and 2000. In the opinion of management, the interim condensed consolidated
financial information reflects all adjustments necessary for a fair
presentation. These adjustments are only of a normal recurring nature. The
summary historical condensed consolidated financial information should be read
in conjunction with and is qualified in its entirety by reference to the
audited and unaudited 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.
Statements of Income
(Dollars in Millions)
For the
For the Three Months
Years Ended Ended March
December 31, 31,
------------- -------------
2000 1999 2001 2000
------ ------ ------ ------
Revenue and other income........................... $7,143 $5,410 $3,319 $1,460
Expenses........................................... 6,147 4,597 2,916 1,203
Preferred dividends by subsidiaries................ 11 11 3 3
------ ------ ------ ------
Income before interest and income taxes............ 985 802 400 254
Interest........................................... 286 229 90 73
Income taxes....................................... 270 179 132 68
------ ------ ------ ------
Net income......................................... $ 429 $ 394 $ 178 $ 113
====== ====== ====== ======
Balance Sheet
(Dollars in Millions)
March 31, December 31,
2001 2000
--------- ------------
Assets
Current assets.......................................... $ 8,815 $ 6,425
Investments and other assets............................ 4,927 3,461
Property, plant and equipment........................... 5,740 5,726
------- -------
Total assets.......................................... $19,482 $15,612
======= =======
Liabilities and Shareholders' Equity
Liabilities
Current liabilities..................................... $ 9,939 $ 7,467
Long-term debt.......................................... 3,280 3,268
Deferred credits and other liabilities.................. 3,230 1,979
------- -------
Total liabilities..................................... 16,449 12,714
Preferred stock of subsidiaries......................... 204 204
Mandatorily redeemable trust preferred securities....... 200 200
Shareholders' Equity
Common stock............................................ 1,425 1,420
Retained earnings....................................... 1,291 1,162
Other................................................... (87) (88)
------- -------
Total shareholders' equity............................ 2,629 2,494
------- -------
Total liabilities and shareholders' equity............ $19,482 $15,612
======= =======
S-9
DESCRIPTION OF THE NOTES
The notes offered by this prospectus supplement are a series of senior debt
securities of Sempra Energy as described below and in the accompanying
prospectus. The notes will be issued under an indenture between Sempra Energy,
as issuer, and U.S. Bank Trust National Association, as trustee. 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. Forms of the notes and the 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 $ ,000,000 aggregate principal amount. We
may, from time to time, without giving notice to or seeking the consent of the
holders of the debt securities, issue additional notes having the same ranking,
interest rate, maturity and other terms as the notes issued in this offering.
Any additional notes having such similar terms together with the previously
issued notes will constitute a single series of debt securities under the
indenture.
The notes will mature on , 200 . The notes will bear interest
at a floating rate equal to the three-month London InterBank Offering Rate
("LIBOR") plus an initial spread of % per annum accruing from
, 2001, as described below under the caption "Interest Rate". The
spread will be subject to adjustment in the event of a downgrade of our senior
unsecured long-term debt rating by Moody's Investors Services, Inc. below A3,
or Standard & Poor's Rating Service below A-, and in the event of subsequent
upgrades or downgrades of the ratings of our senior unsecured debt by these
rating agencies, as described below under the caption "Spread Adjustment."
Interest on the notes will be computed by dividing the actual number of days
in the Interest Period (as defined below) by 360 days. Interest on the notes
will be payable quarterly in arrears on , , and
of each year (including at stated maturity), commencing
, 2001. On each interest payment date, interest will be paid to
the registered holders of the notes 15 calendar days prior to the applicable
interest payment date. The period beginning on, and including, ,
2001, and ending on, but excluding the next interest payment date thereafter,
and each successive period beginning on and including an interest payment date
and ending on, but excluding, the next succeeding interest payment date is an
"Interest Period."
If any interest payment date, other than at maturity, for the notes would
otherwise be a day that is not a business day, the interest payment date will
be postponed to the next day that is a business day, except that if the next
business day is in the next succeeding calendar month, the interest payment
date will be the immediately preceding business day. If the maturity or any
redemption date for the notes falls on a day that is not a business day,
payment of principal and interest with respect to the notes will be paid on the
next succeeding business day with the same force and effect as if made on that
date and no interest on the payment will accrue from and after that date.
The notes initially will be issued in book-entry form and 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.
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
the caption "Book-Entry, Delivery and
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Form." If any of the notes are issued in certificated form they will be issued
only in fully registered form without coupons, in denominations of $1,000 and
integral multiples of $1,000.
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, Delivery and Form." We will
maintain an office or agency in the Borough of Manhattan, The City of New York
where 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. If notes are issued in
definitive certificated form under the limited circumstances described under
the caption "Book-Entry, Delivery and 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, 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 notes and a place for registration
of transfer of the notes in the Borough of Manhattan, The City of New York.
We will be entitled to redeem the notes at our option as described below
under the caption "Optional Redemption." The notes will not be subject to a
sinking fund. You will not be permitted to require us to redeem or repurchase
the notes at your option.
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, 2001, our subsidiaries had total consolidated
liabilities of $13.6 billion. See "Description of Debt Securities--Guarantee of
Sempra Energy; Holding Company Structure" in the accompanying prospectus.
Interest Rate
Each note will bear interest at the rate calculated with reference to LIBOR,
in the manner described herein and as determined by the Calculation Agent (as
defined herein), pursuant to a Calculation Agent Agreement dated as of the date
of this prospectus supplement. The interest rate will be three-month LIBOR plus
an adjustable spread initially set at %. The initial spread is thereafter
subject to adjustment as described below under the caption "Spread Adjustment."
All percentages resulting from any calculation on the notes will be rounded
to the nearest one hundred-thousandth of a percentage point with five one-
millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation on the notes will be rounded to the
nearest cent (with one-half cent being rounded upward).
On any date that the interest rate for the notes needs to be determined (the
"Interest Determination Date," as more particularly defined herein) for the
Interest Period following such Interest Determination Date, LIBOR will be
determined to be the rate for three-month U.S. dollar deposits appearing on the
Telerate Page (as
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defined below) as of 11:00 a.m., London time, on such Interest Determination
Date. The "Interest Determination Date" shall be two London Banking Days (as
defined below) prior to , 2001 and each interest payment date other than
the maturity date.
If no such rate appears on the Telerate Page, LIBOR for that date will be
determined as follows:
(1) LIBOR will be determined based on the rates at approximately 11:00
a.m., London time, on such Interest Determination Date at which three-
month U.S. dollar deposits are offered to prime banks in the London
interbank market by four major banks in the London interbank market
selected by the Calculation Agent after consulting with us for a single
transaction in that market at that time (a "Representative Amount");
(2) The Calculation Agent will request that the principal London office of
each of the four banks mentioned above provides a quotation of its
rate. If at least two such quotations are provided, LIBOR will equal
the average of all quotations provided;
(3) If fewer than two quotations are provided, LIBOR will equal the average
of the rates quoted as of 11:00 a.m. New York time on that date by at
least three major banks in New York, New York, selected by the
Calculation Agent after consultation with us. The rates will be for
U.S. dollar loans to leading banks having a three-month maturity and in
a Representative Amount; and
(4) If fewer than three of the banks are quoting as mentioned, the interest
rate in effect for the applicable period will be the same as the
interest rate in effect for the prior Interest Period.
"Telerate Page" means the display on the Dow Jones Telerate Page 3750 (or
such other page as may replace that page on that service or such other service
or services as may be nominated by the British Bankers Association) for the
purpose of displaying LIBOR.
"London Banking Day" means any day on which dealings in deposits in United
States dollars are transacted in the London interbank market.
Determination of Interest Rate and Calculation of Interest Amount
The Calculation Agent will, as soon as practicable after 11:00 a.m., London
time, on each Interest Determination Date, determine the interest rate and
calculate the amount of interest payable for the following Interest Period (the
"Interest Amount"). The Interest Amount shall be calculated by applying the
interest rate to the principal amount of each note outstanding at the
commencement of the Interest Period, multiplying each such amount by the actual
number of days in each Interest Period divided by 360 days and rounding the
resultant figure to the nearest cent. The determination of the interest rate
and the Interest Amount by the Calculation Agent shall, in the absence of
willful misconduct, bad faith or manifest error, be final and binding on all
parties. Notwithstanding anything herein to the contrary, the interest rate on
the notes will in no event be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law of general
application.
Calculation Agent
So long as any of the notes remain outstanding, we will maintain under
appointment a calculation agent (the "Calculation Agent"), which will initially
be the trustee, to calculate the interest rate payable on the notes in respect
to each Interest Period. If the Calculation Agent fails to establish the
interest rate for any Interest Period, or if we remove the Calculation Agent,
we will appoint another bank to act as the Calculation Agent. We may change the
Calculation Agent without notice.
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Certificates to be Final
All certificates, communications, opinions, determinations, calculations,
quotations and decisions given, expressed, made or obtained for the purposes of
the provisions relating to the payment and calculation of interest on the notes
by the Calculation Agent shall, in the absence of willful misconduct, bad faith
or manifest error, be binding on us, the Calculation Agent and all of the
holders and owners of beneficial interests in the notes, and no liability
shall, in the absence of willful misconduct, bad faith or manifest error,
attach to the Calculation Agent in connection with the exercise or non-exercise
by it of its powers, duties and discretions.
Spread Adjustment
Our current senior unsecured long-term debt rating (the "Rating") by Moody's
Investors Service, Inc. ("Moody's") is A2 with a negative outlook, and by
Standard & Poor's Rating Service ("S&P") is A with a negative outlook.
The initial spread of % will be subject to adjustment. In the event of a
downgrade in the Rating below A3 by Moody's, or below A- by S&P, and in the
event of subsequent upgrades or downgrades, the spread will be adjusted in
accordance with the table below. Following an adjustment, the annual interest
rate on the notes will be equal to the floating rate of three-month LIBOR plus
a spread equal to (i) the initial spread of % plus (ii) the sum of the
applicable Moody's spread adjustment amount and the applicable S&P spread
adjustment amount set forth in the table below.
If either Moody's or S&P changes our Rating subsequent to an adjustment in
the spread as a result of a previous Rating change by Moody's or S&P, the
spread will be re-adjusted in accordance with the table below.
Moody's Spread S&P Spread
Moody's Rating Adjustment Amount S&P Rating Adjustment Amount
-------------- ----------------- ------------ -----------------
A3 0.000% A- 0.000%
Baa1 0.125% BBB+ 0.125%
Baa2 0.250% BBB 0.250%
Baa3 0.375% BBB- 0.375%
Ba1 or lower 0.875% BB+ or lower 0.875%
Beginning with the first interest payment date for the notes after a Rating
change, the notes will bear interest at an adjusted interest rate. Subsequent
interest rate adjustments, whether the adjustment is up or down, will also
become effective on the first interest payment date after such Rating change.
In no event will the annual interest rate on the notes be less than the
floating rate of three-month LIBOR plus the initial spread of % or
greater than the floating rate of three-month LIBOR plus a spread of %.
Optional Redemption
The notes will be redeemable at our option, in whole, on any interest
payment date beginning on , 2002 at a redemption price equal to 100% of the
unpaid principal amount plus accrued and unpaid interest on such notes to, but
excluding, the date of redemption. The redemption price will be calculated on
the basis of a 360-day year. We will mail notice of any redemption at least 15
days but not more than 30 days before the redemption date to each registered
holder of the notes to be redeemed. Once notice of redemption is mailed, the
notes called for redemption will become due and payable on the redemption date
and at the redemption price. If we elect to redeem the notes, that redemption
will not be conditional upon receipt by the paying agent or the trustee of
monies sufficient to pay the redemption price. See "Description of Debt
Securities--Redemption" in the accompanying prospectus.
S-13
Book-Entry, Delivery and Form
The notes initially will be issued in book-entry form and represented by one
or more global notes. The global notes will be deposited with, or on behalf of,
The Depository Trust Company ("DTC"), New York, New York, as Depositary, and
registered in the name of Cede & Co., the nominee of DTC. Unless and until it
is exchanged for individual certificates evidencing notes under the limited
circumstances described below, a global note 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.
DTC has advised us 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, Inc. 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 notes within the DTC system must be made by or through direct
participants, which will receive a credit for those notes on DTC's records. The
ownership interest of the actual purchaser of a note, which we sometimes refer
to as a "beneficial owner," is in turn recorded on the direct and indirect
participants' records. Beneficial owners of notes 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 notes. Transfers of
ownership interests in global notes are to be accomplished by entries made on
the books of participants acting on behalf of beneficial owners. Beneficial
owners will not receive certificates representing their ownership interests in
the global notes except under the limited circumstances described below.
To facilitate subsequent transfers, all global notes deposited with DTC will
be registered in the name of DTC's nominee, Cede & Co. The deposit of notes
with DTC and their registration in the name of Cede & Co. will not change the
beneficial ownership of the notes. DTC has no knowledge of the actual
beneficial owners of the notes. DTC's records reflect only the identity of the
direct participants to whose accounts the notes 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.
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.
S-14
Redemption notices will be sent to DTC or its nominee. If less than all of
the notes are being redeemed, DTC will determine the amount of the interest of
each direct participant in the notes to be redeemed in accordance with DTC's
procedures.
In any case where a vote may be required with respect to the notes, neither
DTC nor Cede & Co. will give consents for or vote the global notes. 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 notes
are credited on the record date identified in a listing attached to the omnibus
proxy.
Principal and interest payments on the notes 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 notes
will not be entitled to have notes registered in their names and will not
receive physical delivery of notes. Accordingly, each beneficial owner must
rely on the procedures of DTC and its participants to exercise any rights under
the notes and the 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 notes.
DTC is under no obligation to provide its services as Depositary for the
notes and may discontinue providing its services at any time. Neither we nor
the 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 notes generally will not receive
certificates representing their ownership interests in the notes. However, if:
. DTC notifies us that it is unwilling or unable to continue as a
Depositary for the global notes 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;
. we determine, in our sole discretion, not to have the notes represented
by one or more global notes; or
. an Event of Default, as defined in "Description of Debt Securities--
Events of Default" in the accompanying prospectus, under the indenture
has occurred and is continuing with respect to the notes,
we will prepare and deliver certificates for the notes in exchange for
beneficial interests in the global notes. Any beneficial interest in a global
note that is exchangeable under the circumstances described in the preceding
sentence will be exchangeable for notes 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
notes.
We obtained the information in this section and elsewhere in this prospectus
supplement concerning DTC and DTC's book-entry system from sources that we
believe to be reliable, but we take no responsibility for the accuracy of this
information.
S-15
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income and
estate tax considerations relating to the purchase, ownership and disposition
of the notes by holders thereof, 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, Treasury
Regulations promulgated under the Internal Revenue Code, rulings and judicial
decisions as of the date hereof. These authorities may be changed, perhaps
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 or an opinion of counsel 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 summary assumes that the notes are held as capital assets and holders
are initial purchasers of the notes who purchased the notes at their initial
offering price. This summary also does not address the tax considerations
arising under the laws of any foreign, state or local jurisdiction. In
addition, this discussion does not address tax considerations 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;
. tax-exempt organizations;
. insurance companies;
. dealers in securities or commodities;
. traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
. financial institutions;
. holders whose "functional currency" is not the United States dollar;
. persons that will hold the notes as a position in a hedging transaction,
"straddle", "conversion transaction" or other risk reduction transaction;
or
. persons deemed to sell the notes under the constructive sale provisions
of the Internal Revenue Code.
If a partnership holds notes, 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 partner of a partnership holding
our notes, you should consult your tax advisor.
THIS SUMMARY OF CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. YOU ARE URGED TO CONSULT YOUR
TAX ADVISOR WITH RESPECT TO THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX
LAWS TO YOUR PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
Consequences to United States Holders
The following is a summary of the United States federal tax consequences
that will apply to you if you are a United States holder of the notes. Certain
consequences to "non-United States holders" of the notes are described under
"-- Consequences to Non-United States Holders" below. "United States holder"
means a beneficial owner of a note that is:
. a citizen or resident of the United States;
S-16
. a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
. a trust that (1) is subject to the supervision of a court within the
United States and the control of one or more United States persons or (2)
has a valid election in effect under applicable Treasury Regulations to
be treated as a United States person.
Payments of Interest
Stated interest on the notes will generally be taxable to you as ordinary
income at the time it is paid or accrues in accordance with your method of
accounting for tax purposes. We expect that the notes will not be issued with
more than a de minimis amount of original issue discount.
Sale, Exchange or Other Taxable Disposition of Notes
You will generally recognize gain or loss upon the sale, exchange or other
taxable disposition of a note equal to the difference between the amount
realized upon the sale, exchange or other disposition (less an amount
attributable to any accrued stated interest not previously included in income,
which will be taxable as ordinary income) and your adjusted tax basis in the
note. Your adjusted tax basis in a note will generally equal the amount you
paid for the note. Any gain or loss recognized on a disposition of the note
will be capital gain or loss. If you are an individual and have held the note
for more than one year, such capital gain will generally be subject to tax at a
maximum rate of 20%. Your ability to deduct capital losses may be limited.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal and interest on the notes and the proceeds of sale of a
note unless you are an exempt recipient (such as a corporation). A backup
withholding tax at a maximum rate of 31% will apply to such payments if you
fail to provide your taxpayer identification number or certification of exempt
status or have been notified by the Internal Revenue Service that you are
subject to backup withholding.
Any amounts withheld under the backup withholding rules will generally be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished to the Internal
Revenue Service.
Consequences to Non-United States Holders
The following is a summary of the United States federal tax consequences
that will apply to you if you are a non-United States holder of notes. The term
"non-United States holder" means a beneficial owner of a note that is not a
United States holder.
Special rules may apply to certain non-United States holders such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies." Such entities should consult their own
tax advisors to determine the United States federal, state, local and other tax
consequences that may be relevant to them.
S-17
Payment of Interest
The 30% United States federal withholding tax will not apply to any payment
to you of principal or interest on a note provided that:
. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock that are entitled to
vote within the meaning of section 871(h)(3) of the Internal Revenue
Code;
. you are not a controlled foreign corporation that is related to us
through stock ownership;
. you are not a bank whose receipt of interest on a note is described in
section 881(c)(3)(A) of the Internal Revenue Code; and
. (a) you provide your name and address, and certify, under penalties of
perjury, that you are not a United States person (which certification may
be made on an Internal Revenue Service Form W-8BEN) or (b) a securities
clearing organization, bank, or other financial institution that holds
customers' securities in the ordinary course of its business holds the
note on your behalf and certifies, under penalties of perjury, that it
has received Internal Revenue Service Form W-8BEN from you or from
another qualifying financial institution intermediary, and provides a
copy of the Internal Revenue Service Form W-8BEN. If you hold your notes
through certain foreign intermediaries or certain foreign partnerships,
such foreign intermediaries or partnerships must also satisfy the
certification requirements of applicable Treasury Regulations.
If you cannot satisfy the requirements described above, payments of interest
will be subject to the 30% United States federal withholding tax, unless you
provide us with a properly executed (1) Internal Revenue Service Form W-8BEN
claiming an exemption from or reduction in withholding under the benefit of an
applicable tax treaty or (2) Internal Revenue Service Form W-8ECI stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States.
If you are engaged in a trade or business in the United States and interest
on a note is effectively connected with the conduct of that trade or business,
you will be required to pay United States federal income tax on that interest
on a net income basis (although exempt from the 30% withholding tax provided
the certification requirement described above is met) in the same manner as if
you were a United States person as defined under the Internal Revenue Code. In
addition, if you are a foreign corporation, you may be subject to a branch
profits tax equal to 30% (or lower applicable treaty rate) of your earnings and
profits for the taxable year, subject to adjustments, that are effectively
connected with your conduct of a trade or business in the United States. For
this purpose, interest will be included in the earnings and profits of such
foreign corporation.
Sale, Exchange or Other Taxable Disposition of Notes
Any gain realized upon the sale, exchange or other taxable disposition of a
note (except with respect to accrued and unpaid interest, which would be
taxable as described above) generally will not be subject to United States
federal income tax unless:
. that gain 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 that disposition, and certain other
conditions are met; or
. you are subject to Internal Revenue Code provisions applicable to certain
United States expatriates.
A holder described in the first bullet point above will be required to pay
United States federal income tax on the net gain derived from the sale, and if
such holder is a foreign corporation, it may also be required to pay a branch
profits tax at a 30% rate or a lower rate if so specified by an applicable
income tax treaty. A holder
S-18
described in the second bullet point above will be subject to a flat 30% United
States federal income tax on the gain derived from the sale, which may be
offset by United States source capital losses, even though the holder is not
considered a resident of the United States.
United States Federal Estate Tax
The United States federal estate tax will not apply to the notes owned by
you at the time of your death, provided that (1) you do not own actually or
constructively 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) and (2) interest on the note would not have been, if
received at the time of your death, effectively connected with your conduct of
a trade or business in the United States.
Information Reporting and Backup Withholding
The amount of interest paid to you on the note and the amount of tax
withheld, if any, will generally be reported to you and the Internal Revenue
Service. You will generally not be subject to backup withholding with respect
to payments that we make to you provided that you have made appropriate
certifications as to your foreign status, or you otherwise establish an
exemption.
You will generally not be subject to backup withholding or information
reporting with respect to any payment of the proceeds of the sale of a note
effected outside the United States by a foreign office of a foreign "broker"
(as defined in applicable Treasury Regulation), provided that such broker:
. derives less than 50% of its gross income for certain periods from the
conduct of a trade or business in the United States,
. is not a controlled foreign corporation for United States federal income
tax purposes, and
. is not a foreign partnership that, at any time during its taxable year,
has more than 50% of its income or capital interests owned by United
States persons or is engaged in the conduct of a United States trade or
business.
You will be subject to information reporting, but not backup withholding,
with respect to any payment of the proceeds of a sale of a note effected
outside the United States by a foreign office of any other broker unless such
broker has documentary evidence in its records that you are not a United States
person and certain other conditions are met, or you otherwise establish an
exemption. You will be subject to backup withholding and information reporting
with respect to any payment of the proceeds of a sale of a note effected by the
United States office of a broker unless you properly certify under penalties of
perjury as to your foreign status and certain other conditions are met or you
otherwise establish an exemption.
Currently applicable Treasury Regulations establish reliance standards with
regard to the certification requirements described above.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
S-19
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, each underwriter named below has
agreed to purchase, severally, and we have agreed to sell to that underwriter,
the principal amount of notes set forth opposite the underwriter's name.
Principal
Amount
Name of Notes
---- ---------
J.P. Morgan Securities Inc. ....................................... $
Salomon Smith Barney Inc. .........................................
--------
Total............................................................ $
========
The underwriting agreement provides that the obligations of the underwriters
to purchase the notes included in this offering are subject to approval of
legal matters by counsel and to other conditions. The underwriters are
obligated to purchase all the notes if they purchase any of the notes.
The underwriters propose to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the notes to dealers at the public offering price less a
concession not to exceed % of the principal amount of the notes. The
underwriters may allow, and dealers may reallow a concession not to exceed
% of the principal amount of the notes on sales to other dealers. After
the initial offering of the notes to the public, the representatives may change
the public offering price and concessions.
The notes will not have an established trading market when issued. There can
be no assurance of a secondary market for the notes or the continued liquidity
of such market if one develops. It is not anticipated that the notes will be
listed on any securities exchange.
The following table shows the underwriting discounts and commissions that we
are to pay to the underwriters in connection with this offering (expressed as a
percentage of the principal amount of the notes).
Paid by Sempra Energy
---------------------
Per note............................................... %
In connection with the offering the underwriters may purchase and sell notes
in the open market. These transactions may include over-allotment, syndicate
covering transactions and stabilizing transactions. Over-allotment involves
syndicate sales of notes in excess of the principal amount of notes to be
purchased by the underwriters in the offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of notes made for the purpose of preventing or retarding a decline in
the market price of the notes while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
underwriters, in covering syndicate short positions or making stabilizing
purchases, repurchase notes originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the notes. They may also cause the price of the
notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in the over-the-counter market or otherwise. If the underwriters
commence any of these transactions, they may discontinue them at any time.
S-20
We estimate that our total expenses for this offering will be $ ,
excluding underwriting discounts and commissions.
The underwriters and their affiliates have performed commercial banking,
investment banking and/or advisory services for us from time to time for which
they have received customary fees and expenses. The underwriters may, from time
to time, engage in transactions with and perform services for us in the
ordinary course of their business.
The Chase Manhattan Bank, an affiliate of J.P. Morgan Securities Inc., and
Citibank, N.A., an affiliate of Salomon Smith Barney Inc., are lenders under
our credit facility and may receive a portion of the net proceeds from this
offering as a result of our interim use of substantially all of such net
proceeds to reduce amounts outstanding under our credit facility. Because more
than ten percent of the net proceeds of the offering may be paid to such
affiliates, the offering will be conducted in accordance with NASD Conduct
Rule 2710(c)(8).
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.
LEGAL MATTERS
Latham & Watkins, Los Angeles, California, will pass upon certain legal
matters relating to the issuance and sale of the notes on behalf of Sempra
Energy. Gary W. Kyle, Chief Corporate Counsel of Sempra Energy, will pass upon
the validity of the notes and various other legal matters relating to the
issuance and sale of the notes. Sidley Austin Brown & Wood LLP, San Francisco,
California, will act as counsel for the Underwriters. Paul Pringle is a partner
of Sidley Austin Brown & Wood LLP and owns 2,144 shares of common stock of
Sempra Energy.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and the related financial statement
schedule as of December 31, 2000 and 1999 and for each of the three years in
the period ended December 31, 2000 incorporated by reference into Sempra
Energy's registration statement on Form S-3 filed with the Securities an
Exchange Commission on January 8, 2001 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports.
S-21
PROSPECTUS
$1,000,000,000
SEMPRA ENERGY
Debt Securities, Common Stock, Preferred Stock and Guarantees
SEMPRA ENERGY GLOBAL ENTERPRISES
Debt Securities Guaranteed by Sempra Energy
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
Sempra Energy Global Enterprises
Sempra Energy Global Enterprises may offer and sell debt securities
guaranteed by Sempra Energy.
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 January 10, 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.......................................................... 6
RATIO OF SEMPRA ENERGY EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS......................................................... 6
DESCRIPTION OF SECURITIES................................................ 7
DESCRIPTION OF DEBT SECURITIES........................................... 7
DESCRIPTION OF SEMPRA ENERGY'S COMMON STOCK AND PREFERRED STOCK.......... 19
DESCRIPTION OF TRUST PREFERRED SECURITIES................................ 22
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES OF SEMPRA ENERGY
PURCHASED WITH PROCEEDS OF TRUST SECURITIES............................. 33
DESCRIPTION OF TRUST PREFERRED SECURITIES GUARANTEES..................... 44
GLOBAL SECURITIES........................................................ 47
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................... 50
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 $1,000,000,000 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 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;
. 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,
1999, our Quarterly Reports on Form 10-Q for the three-month periods ended
March 31, 2000, June 30, 2000 and September 30, 2000, 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 and at the Regional
Offices of the SEC as follows:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2551
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.
2
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.
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, 1999
Quarterly Reports on Form 10-Q...... Three-month periods ended March 31,
2000, June 30, 2000 and September 30,
2000
Current Reports on Form 8-K......... Filed January 28, 2000, February 8,
2000, February 22, 2000, March 9,
2000, March 30, 2000, April 28, 2000,
August 2, 2000, October 27, 2000,
December 5, 2000 and December 13,
2000
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.
Through two regulated utility subsidiaries, Southern California Gas Company and
San Diego Gas & Electric Company, Sempra Energy serves 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, Sempra Energy also
provides other energy-related products and services.
The information above concerning Sempra Energy and its subsidiaries is only
a summary and does not purport to be comprehensive. For additional information
concerning Sempra Energy and its subsidiaries, you should refer to the
information described under the caption "Where You Can Find More Information"
in this prospectus.
Sempra Energy's offices are located at 101 Ash Street, San Diego, California
92101 and the 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 which 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, a provider of energy-efficiency
engineering services for government and institutional customers.
. Sempra Energy International, a company which 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.
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.
4
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 97% 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").
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.
5
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 Sempra Energy 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, 1999 and for each
of the nine-month periods ended September 30, 1999 and 2000:
Nine Months
Ended
December 31, September 30,
------------------------ -------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ------ ------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.. 3.13 3.67 3.75 2.73 3.19 2.84 2.89
6
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.
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
7
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.
8
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. 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, except for
Sempra Energy Global Enterprises, the debt securities guarantees.
Because Sempra Energy is a holding company, its obligations under the debt
securities and the debt securities guarantees will be effectively 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.)
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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
trustee, as the paying agent. 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 trustee, as 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) in 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.)
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Optional Redemption
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 notes 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 notes.
"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.
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"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 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,
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), 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 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.)
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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.
The trustee may also take any other action it deems proper which is
consistent with the registered holders' direction. (See Sections 512 and 603.)
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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.)
Compliance with certain covenants in the applicable indenture or otherwise
provided with respect to debt securities of any series may be waived by the
registered holders of a majority in aggregate principal amount of the debt
securities of such series. (See Section 1006.)
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
14
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 of any series, 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 do 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 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;
15
(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;
(d) modify certain of the applicable provisions in the 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 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 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 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.
The company issuing the debt securities of such series will remain obligated
to pay all other amounts due under the applicable indenture 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
16
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;
(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.)
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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.)
18
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 September 30, 2000, there
were 204,208,173 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.
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
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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;
(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 preferred Sempra Energy 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;
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(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 which 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);
(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 TRUST PREFERRED SECURITIES
Unless indicated differently in a prospectus supplement, this section
describes the terms of the trust preferred securities. The following
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to the Declaration and the related guarantee. We
have filed a form of the Declaration with the SEC and you may obtain copies as
described under the caption "Where You Can Find More Information." 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;
(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;
22
(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 caption
"Certain United States Federal Income Tax Consequences--Trust Preferred
Securities--Interest Income and Original Issue Discount" below.
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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 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)
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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.
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
25
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 will 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 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.
26
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.
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.
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Declaration Events of Default
The term "Declaration Event of Default" with respect to a trust means any of
the following:
. a 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 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
28
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
(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.
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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
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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
Unless indicated differently in a prospectus supplement, this section
describes the terms of the subordinated debt securities issuable to the trusts
with the proceeds of trust securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the subordinated indenture. We have filed a form of the
subordinated indenture with the SEC and you may obtain copies as described
under the caption "Where You Can Find More Information" 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 the 15th day, whether or not a Business Day, before the relevant
interest payment date.
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
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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 rates 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.
34
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.
35
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.
Please see "Certain United States Federal Income Tax Consequences--Trust
Preferred Securities--Possible Tax Law Changes" in this prospectus for a
description of certain tax law developments that could result in a Tax Event.
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 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.
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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 does 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;
(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
37
(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;
(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.
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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.
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
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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.
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.
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
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(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 of any series.
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.
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,
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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 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.
"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.
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.
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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.
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 (in other words 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 makes 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.
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GLOBAL SECURITIES
Book-Entry, Delivery and Form
Unless the company issuing the debt securities or trust preferred securities
(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, DTC, New York,
New York, as Depositary, 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.
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, Inc. 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
47
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.
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.
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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 a particular series of the 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 securities,
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 each such company does not take responsibility
for the accuracy of this information.
Registration of Subordinated Debt Securities
The 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 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.
49
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain United States federal income and estate tax
consequences of the purchase, ownership and disposition of our securities is
based upon the following materials, all as of the date hereof:
. the Internal Revenue Code;
. current, temporary and proposed Treasury Regulations promulgated under
the Internal Revenue Code;
. the legislative history of the Internal Revenue Code;
. current administrative interpretations and practices of the Internal
Revenue Service; and
. court decisions.
Legislation, judicial decisions or administrative changes may be forthcoming
that could affect the accuracy of the statements included in this summary,
possibly on a retroactive basis. We have not requested, and do not plan to
request, any rulings from the Internal Revenue Service concerning the tax
treatment of the securities. The statements in this prospectus are not binding
on the Internal Revenue Service or any court. Thus, we can provide no assurance
that the statements contained in this discussion will not be challenged by the
Internal Revenue Service, or that they would be sustained by a court if they
were to be challenged by the Internal Revenue Service.
You are urged to consult your tax advisor regarding the specific tax
consequences to you of the acquisition, ownership and sale or other disposition
of the securities offered under this prospectus, including the federal, state,
local, foreign and other tax consequences and potential changes in the tax
laws.
Scope of Discussion. This general discussion of certain United States
federal income and estate tax consequences applies to you if you acquire the
securities at original issue for cash and hold the securities as a "capital
asset," generally, for investment, under section 1221 of the Internal Revenue
Code. This summary, however, does not consider state, local or foreign tax
laws. In addition, it does not include all of the rules which may affect the
United States tax treatment of your investment in the securities. For example,
special rules not discussed here may apply to you if you are:
. a broker-dealer, a dealer in securities or a financial institution;
. an S corporation;
. a bank;
. a thrift;
. an insurance company;
. a tax-exempt organization;
. subject to the alternative minimum tax provisions of the Internal Revenue
Code;
. holding the securities as part of a hedge, straddle or other risk
reduction or constructive sale transaction;
. a person with a "functional currency" other than the United States
dollar; or
. a United States expatriate.
This discussion only represents our best attempt to describe certain United
States federal tax consequences that may apply to you based on current United
States federal tax law. This discussion may, in the end, inaccurately describe
the United States federal tax consequences which are applicable to you because
the law may change, possibly retroactively, and because the Internal Revenue
Service or any court may disagree with this discussion.
50
This summary may not cover your particular circumstances because it does not
consider foreign, state, local or other tax rules, disregards certain federal
tax rules, and does not describe future changes in federal tax rules. Please
consult your tax advisor rather than relying on this general description.
Definition of United States Holder. You are a "United States holder" if you
hold securities and you are:
. an individual citizen or resident of the United States;
. a corporation organized under the laws of the United States, any state or
the District of Columbia;
. an estate the income of which is subject to United States federal income
tax without regard to its source;
. a trust if a United States court is able to exercise primary supervision
over administration of the trust and one or more United States persons
have authority to control all substantial decisions of the trust or if
the trust was in existence on August 20, 1996 and has elected to continue
to be treated as a United States person; or
. otherwise subject to United States federal income tax on your worldwide
income on a net income basis.
A "Non-United States holder" is a holder of securities that is not a United
States holder. Each of the discussions set forth below states whether it
addresses certain United States tax consequences applicable to United States
holders or Non-United States holders.
Debt Securities
This summary addresses only the tax consequences to a holder that acquires
debt securities (for purposes of this discussion, the "notes") upon their
original issue date at their original offering price.
United States Holders
Taxation of Stated Interest. You must generally include interest on the
notes in your federal taxable income as ordinary income:
. when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
. when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
Original Issue Discount. Original Issue Discount ("OID") with respect to a
note is the excess, if any, of the note's "stated redemption price at maturity"
over the note's "issue price." A note's "stated redemption price at maturity"
is the sum of all payments provided by the note (whether designated as interest
or as principal) other than payments of qualified stated interest. The "issue
price" of a note is the first price at which a substantial amount of the notes
in the issuance that includes the note is sold for money (excluding sales to
bond houses, brokers or similar persons or organizations acting in the capacity
of underwriters, placement agents or wholesalers).
The amount of OID with respect to a note will be treated as zero if the OID
is less than an amount equal to .0025 multiplied by the product of the stated
redemption price at maturity and the number of complete years to maturity (or,
in the case of a note that provides for payment of any amount other than
qualified stated interest prior to maturity, the weighted average maturity of
the note). If the amount of OID with respect to a note is less than that
amount, the OID that is not included in payments of stated interest is
generally included in income as capital gain as principal payments are made.
The amount of a principal payment that will be included equals the product of
the total amount of OID and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the stated principal
amount of the note.
51
Otherwise, United States holders of notes with OID generally will be
required to include such OID in income as it accrues in accordance with the
constant yield method described below, irrespective of the receipt of the
related cash payments. A United States holder's tax basis in a note is
increased by each accrual of OID and decreased by each payment other than a
payment of qualified stated interest.
In general, the amount of OID you would include in your income is the sum of
the daily portions of OID with respect to the note for each day during the
taxable year (or portion of the taxable year) on which you held such note. The
"daily portion" of OID on any note is determined by allocating to each day in
any accrual period a ratable portion of the OID allocable to that accrual
period. An "accrual period" may be of any length and the accrual periods may
vary in length over the term of the note, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs either on the final day of an accrual period or on the first day of an
accrual period. The amount of OID allocable to each accrual period is generally
equal to the difference between:
(1) the product of the note's adjusted issue price at the beginning of such
accrual period and its yield to maturity, determined on the basis of
compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual
period, and
(2) the amount of any qualified stated interest payments allocable to such
accrual period.
The "adjusted issue price" of a note at the beginning of any accrual period
is the sum of the issue price of the note plus the amount of OID allocable to
all prior accrual periods minus the amount of any prior payments on the note
that were not qualified stated interest payments. Under these rules, you
generally will have to include in income increasingly greater amounts of OID in
successive accrual periods.
Sale or Other Taxable Disposition of the Notes. You must recognize taxable
gain or loss on the sale, exchange, redemption, retirement or other taxable
disposition of a note. The amount of your gain or loss generally equals the
difference between the amount you receive for the note in cash or other
property, valued at fair market value, minus the amount attributable to accrued
interest on the note, minus your adjusted tax basis in the note. Your initial
tax basis in a note equals the price you paid for the note.
Your gain or loss will generally be a long-term capital gain or loss if you
have held the note for more than one year. Otherwise, it will be a short-term
capital gain or loss. Payments attributable to accrued interest which you have
not yet included in income will be taxed as ordinary interest income. The
maximum rate of tax on long term capital gain on most capital assets held by an
individual is 20%. The deductibility of capital losses is subject to
limitations.
Non-United States Holders
The following general discussion is limited to certain United States federal
income and estate tax consequences relevant to a Non-United States holder.
Taxation of Stated Interest--Portfolio Interest Exemption. You will
generally not have to pay United States federal income tax on interest paid on
the notes because of the "portfolio interest exemption" if either:
. you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us
or our paying agent on a properly executed Internal Revenue Service Form
W-8BEN, or a suitable substitute form, signed under penalties of perjury;
or
. a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the note on your behalf, certifies to us or our agent under
penalties of perjury that it has received the appropriate certification
form from you or from another qualifying financial institution
intermediary, and provides a copy to us or our agent.
52
Special rules apply to foreign partnerships, estates and trusts, and in certain
circumstances certifications as to foreign status may have to be provided by
partners, owners or beneficiaries of such entities. In addition, special rules
apply to qualified intermediaries that enter into a withholding agreement with
the Internal Revenue Service, and such intermediaries generally are not
required to forward the certification forms received from you. A holder of
notes will not, however, qualify for the portfolio interest exemption described
above if:
(1) it does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of our voting stock;
(2) it is not a controlled foreign corporation that is related to us through
stock ownership; and
(3) either (A) it certifies, under penalty of perjury, that it is not a
United States holder and provides its name and address on a Form W-8BEN
or suitable substitute form, or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business, and holds notes in such
capacity, certifies to us, under penalty of perjury, that it has
received such statement from the beneficial owner or from another entity
described in (B) between it and the beneficial owner and furnishes us
with a copy thereof. Treasury Regulations that are generally effective
with respect to payments after December 31, 2000 provide that in the
case of notes held by a foreign partnership, this certification must be
provided by the partners rather than by the foreign partnership and the
partnership must provide certain information, including a United States
taxpayer identification number. For purposes of this certification, a
look-through rule would apply in the case of tiered partnerships.
Taxation of Stated Interest--Withholding Tax if the Interest Is Not
Portfolio Interest. If you do not claim or do not qualify for the benefit of
the portfolio interest exemption, a 30% withholding tax may apply to interest
payments made on the notes. You may, however, be able to claim the benefit of a
reduced withholding tax rate under an applicable income tax treaty. If the Non-
United States holder is claiming a benefit under an income tax treaty and not
relying on the portfolio interest exemption, the holder should be aware that
the holder may be required to obtain a taxpayer identification number and to
certify the holder's eligibility under the applicable treaty's limitations on
benefits article in order to comply with the new withholding regulations'
certification requirements.
In addition, if the payments of interest on a note are effectively connected
with your conduct of a trade or business in the United States, the payments
will be subject to United States federal income tax on a net basis at the rates
applicable to United States persons generally, and, if you are a corporate
holder, you may also be subject to a 30% branch profits tax). If payments are
subject to United States federal income tax on a net basis in accordance with
the rules described in the preceding sentence, those payments will not be
subject to United States withholding tax so long as you provide us or our agent
with a properly executed Internal Revenue Service Form W-8ECI.
Sale or Other Disposition of the Notes. A Non-United States holder of notes
will generally not be subject to United States federal income tax or
withholding tax on any gain realized upon the sale, redemption, retirement, or
other disposition of a note (other than gain attributable to accrued interest,
which is addressed in the preceding paragraph) unless:
. the Non-United States holder is an individual who is present in the
United States for a period or periods aggregating 183 days or more during
the taxable year of disposition, and either such holder has a "tax home"
in the United States or the disposition is attributable to an office or
other fixed place of business maintained by such holder in the United
States; or
. the Non-United States holder is subject to tax under provisions of United
States tax law applicable to United States expatriates, including former
citizens or residents of the United States.
53
United States Federal Estate Taxes. If you qualify for the portfolio
interest exemption under the rules described above when you die, the notes will
not be included in your estate for United States federal estate tax purposes,
unless the income on the notes is effectively connected with your conduct of a
trade or business in the United States.
Trust Preferred Securities
This summary addresses only the tax consequences to a United States holder
that acquires trust preferred securities on their original issue date at their
original offering price.
General
Classification of the Subordinated Debt Securities and the Trust. We, the
trusts and the holders of the trust preferred securities (by the acceptance of
a beneficial interest in a trust preferred securities) have agreed to treat the
subordinated debt securities as indebtedness for all United States tax purposes
and the trust preferred securities as evidence of an indirect beneficial
ownership interest in the subordinated debt securities. Given such treatment
and assuming full compliance with the terms of the related Declaration, the
applicable indenture and certain other documents, each trust will be treated as
a "grantor trust" and not as an association taxable as a corporation and the
subordinated debt securities will be treated as indebtedness for United States
federal income tax purposes. As a result, each beneficial owner of trust
preferred securities will be required to include in its gross income its pro
rata share of the interest income, including OID, paid or accrued with respect
to the subordinated debt securities, whether or not cash is actually
distributed to the holders. See "--Interest Income and Original Issue Discount"
below.
Interest Income and Original Issue Discount. Under Treasury Regulations
applicable to debt instruments issued on or after August 13, 1996, a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether the debt instrument is issued with OID. As a result of
terms and conditions of the subordinated debt securities that prohibit certain
payments with respect to our capital stock and indebtedness if we elect to
defer interest payment periods, we believe that the likelihood of our
exercising our option to defer payments is remote. See "Description of Trust
Preferred Securities--Distributions." Based on the foregoing, we believe that
the subordinated debt securities will not be considered to be issued with OID
at the time of their original issuance. Accordingly, the following discussion
assumes that unless and until we exercise our option to defer any payment of
interest, the subordinated debt securities will not be treated as issued with
OID.
Under the Treasury Regulations, if we exercise our option to defer any
payment of interest, the subordinated debt securities would at that time be
treated as issued with OID, and all stated interest on the subordinated debt
securities would thereafter be treated as OID as long as the subordinated debt
securities remained outstanding. In this event, all of a holder's taxable
interest income with respect to the subordinated debt securities would be
accounted for as OID on an economic accrual basis regardless of such holder's
method of tax accounting. Consequently, a holder would be required to include
OID in gross income even though we would not make any actual cash payments
during a deferral period and actual distributions of stated interest would not
be reported as taxable income.
The Treasury Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service, and it is possible that the
Internal Revenue Service could take a position contrary to the interpretation
described above.
Because income on the trust preferred securities will constitute interest or
OID, corporate United States holders of the trust preferred securities will not
be entitled to a dividends-received deduction with respect to any income taken
into account with respect to the trust preferred securities.
Subsequent uses of the term "interest" in this summary include income in the
form of OID.
54
Distribution of Subordinated Debt Securities to Holders of Trust Preferred
Securities Upon Liquidation of the Trust. A distribution by a trust of the
subordinated debt securities as described under the caption "Description of
Trust Preferred Securities--Exchange of Trust Preferred Securities for
Subordinated Debt Securities" will be nontaxable. This distribution will result
in the holder of trust preferred securities receiving directly its pro rata
share of the subordinated debt securities, with a holding period and aggregate
tax basis equal to the aggregate tax basis the holder had in its trust
preferred securities before the distribution.
If, however, the liquidation of a trust were to occur because the trust is
subject to United States federal income tax with respect to income accrued or
received on the subordinated debt securities, the distribution of subordinated
debt securities to a holder of trust preferred securities would be a taxable
event to the trust and each holder of trust preferred securities, and each such
holder would recognize gain or loss as if the holder had exchanged its trust
preferred securities for the subordinated debt securities upon liquidation of
the trust. A holder of trust preferred securities will include interest in
income in respect of subordinated debt securities received from the trust in
the manner described above under "--Interest Income and Original Issue
Discount."
Sale or Redemption of Trust Preferred Securities. A holder that sells trust
preferred securities, including through a redemption for cash, will recognize
gain or loss equal to the difference between such holder's adjusted tax basis
in the trust preferred securities and the amount realized on the sale of such
trust preferred securities. Assuming that we do not defer interest payments on
the subordinated debt securities, a holder's adjusted tax basis in the trust
preferred securities generally will be such holder's initial purchase price. If
the subordinated debt securities are deemed to be issued with OID as a result
of our deferral of interest payments, a holder's adjusted tax basis in the
trust preferred securities generally will be such holder's initial purchase
price, increased by OID previously includible in such United States holder's
gross income to the date of disposition and decreased by distributions or other
payments received on the trust preferred securities from, and including, the
date of the first deferral period.
This gain or loss generally will be a capital gain or loss, except to the
extent any amount realized is treated as a payment of accrued interest with
respect to such holder's pro rata share of the subordinated debt securities
required to be included in income, and generally will be long-term capital gain
or loss if the trust preferred securities have been held for more than one
year. Long-term capital gain of a non-corporate holder is generally subject to
a maximum tax rate of 20%.
If we defer any interest payment on the subordinated debt securities, the
trust preferred securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the subordinated debt
securities. A holder who sells trust preferred securities between record dates
for payments of distributions will be required to include accrued but unpaid
interest on the subordinated debt securities through the date of disposition as
ordinary income and to add the amount of the accrued but unpaid interest to the
holder's adjusted tax basis in the trust preferred securities. To the extent
the selling price is less than the holder's adjusted tax basis, such holder
will recognize a capital loss. Subject to certain limited exceptions, a holder
cannot offset ordinary income against capital losses for United States federal
income tax purposes.
Possible Law Change. You should be aware that legislation has been proposed
by the Clinton Administration in the past that, if enacted, would have denied
an interest expense deduction to issuers of instruments such as the
subordinated debt securities. While legislation of that kind is not currently
pending, the trusts can give no assurance that similar legislation will not
ultimately be enacted into law, or that other developments will not occur on or
after the date of this prospectus that would adversely affect the tax treatment
of the subordinated debt securities or the applicable trust. Changes of that
kind also could give rise to a Tax Event.
Common Stock and Preferred Stock
This summary addresses only the tax consequences to a Non-United States
holder that acquires common stock or preferred stock upon its original issue
date at their original offering price. For purposes of this discussion, common
stock and preferred stock shall be referred to as "stock."
55
Dividends. If you are a Non-United States holder of our stock, dividends
paid to you will generally be subject to withholding of United States federal
income tax at a 30% rate or a lower rate as may be specified by an applicable
income tax treaty. Under United States Treasury Regulations, a Non-United
States holder must satisfy certification requirements in order to claim the
benefit of a lower treaty rate. In addition, after December 31, 2000, if the
Non-United States holder is a partner in a foreign partnership, the holder, as
well as the foreign partnership, must satisfy the certification requirements,
and the partnership must provide certain information, including a taxpayer
identification number. A look through rule will apply in the case of tiered
partnerships.
A Non-United States holder of stock that is eligible for a reduced rate of
United States withholding tax under a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the Internal Revenue Service.
If the dividends are effectively connected with a Non-United States holder's
conduct of a trade or business within the United States, and, if an income tax
treaty applies, are attributable to a United States permanent establishment of
the Non-United States holder in the United States, then dividends paid to a
Non-United States holder will generally not be subject to withholding tax,
provided that the Non-United States holder complies with applicable
certification and disclosure requirements. Instead, the effectively connected
dividends will be subject to United States federal income tax in the same
manner as dividends paid to United States citizens, resident aliens and
domestic United States corporations. Any effectively connected dividends
received by a corporate Non-United States holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or a lower rate as may be specified by an applicable income tax treaty.
Gain on Disposition of Stock. A Non-United States holder generally will not
be required to pay United States federal income tax with respect to gain
recognized on a sale or other disposition of stock unless one of the following
conditions is satisfied:
. the gain is effectively connected with the conduct of a trade or business
in the United States, and, if an income tax treaty applies, is
attributable to a permanent establishment maintained in the United States
by the Non-United States holder;
. in the case of a Non-United States holder who is an individual and holds
the stock as a capital asset, the holder is present in the United States
for a period or periods aggregating 183 days or more during the taxable
year of disposition, and either such holder has a "tax home" in the
United States or the disposition is attributable to an office or other
fixed place of business maintained by such holder in the United States;
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes; or
. the Non-United States holder is required to pay tax under certain
provisions of the Internal Revenue Code applicable to United States
expatriates.
Individual Non-United States holders described in the first bullet point
above will be required to pay tax on the net gain derived from the sale of our
stock at the regular graduated United States federal income tax rates.
Individual Non-United States holders described in the second bullet point above
will be subject to a 30% tax on the gain derived from the sale or other
disposition of our stock, which may be offset by United States source capital
losses (even though the Non-United States holder is not considered a resident
of the United States). Amounts received by corporate Non-United States holders
described in the first bullet point above may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or a lower rate as may be specified by an applicable income tax treaty.
We believe we are not currently, and do not anticipate becoming, a "United
States real property holding corporation" for United States federal income tax
purposes. If we were to become a "United States real property holding
corporation," gain recognized by a Non-United States holder would not be
subject to
56
United States tax if the Non-United States holder were eligible for a treaty
exemption or if the shares were considered to be "regularly traded on an
established securities market," and the Non-United States holder did not hold,
directly or indirectly, at any time during the shorter of the periods described
above, more than 5% of our stock.
United States Federal Estate Tax Consequences. Stock held by an individual
Non-United States holder at the time of death will be included in the holder's
gross estate for United States federal estate tax purposes, and may be subject
to United States federal estate tax, unless an applicable estate tax treaty
provides otherwise.
Information Reporting and Backup Withholding
Debt Securities and Trust Preferred Securities
United States Holders. A 31% backup withholding tax may apply when you
receive interest payments on trust preferred securities or notes or proceeds
upon the sale or other disposition of such securities. Certain holders
(including, among others, corporations, financial institutions and certain tax-
exempt organizations) are generally not subject to backup withholding. In
addition, the 31% backup withholding tax will not apply to you if you provide
your social security or other taxpayer identification number in the prescribed
manner unless:
. the Internal Revenue Service notifies us or our agent that the taxpayer
identification number you provided is incorrect;
. you fail to report interest and dividend payments that you receive on
your tax return and the Internal Revenue Service notifies us or our agent
that withholding is required; or
. you fail to certify under penalties of perjury that backup withholding
does not apply to you.
If the 31% backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide required information to the Internal Revenue
Service. United States holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedures for
obtaining the exemption.
For certain noncorporate holders, we will be required to furnish annually to
the Internal Revenue Service and to those holders information relating to the
amount of interest paid on the trust preferred securities or notes, and that
information reporting may also apply to payments to those holders of proceeds
from the sale of such securities.
Non-United States Holders. A 31% backup withholding tax may apply when you
receive interest payments on trust preferred securities or notes or proceeds
upon the sale or other disposition of such securities. However, United States
information reporting requirements and backup withholding tax will not apply to
payments on trust preferred securities or notes if the beneficial owner (1)
certifies its non-United States status under penalties of perjury and, for
payments made after December 31, 2000, also satisfies documentary evidence
requirements for establishing that it is a non-United States person, or (2)
otherwise establishes an exemption.
Backup withholding tax will not apply to the payment of the proceeds of the
sale of trust preferred securities or notes effected outside the United States
by a foreign office of any broker. Information reporting requirements will not
apply to any payment of the proceeds of the sale of trust preferred securities
or notes effected outside the United States by a foreign office of a foreign
broker, provided that such broker derives less than 50% of its gross income for
particular periods from the conduct of a trade or business in the United
States; is not a controlled foreign corporation for United States federal
income tax purposes; and for payments made after December 31, 2000, is not a
foreign partnership that, at any time during its taxable year is 50% or more,
by income or capital interest, owned by United States holders or is engaged in
the conduct of a United States trade or business. However, information
reporting requirements will be applicable to such payment unless (1) such
broker has documentary evidence in its records that the beneficial owner is a
non-United States person and other conditions are met or (2) the beneficial
owner otherwise establishes an exemption.
57
Information reporting requirements and backup withholding tax will apply to
the payment of the proceeds of a sale of trust preferred securities or notes by
the United States office of a broker, unless the beneficial owner certifies its
non-United States person status under penalties of perjury or otherwise
establishes an exemption.
For payments made after December 31, 2000, for purposes of applying the
above rules for Non-United States holders to an entity that is treated as
fiscally transparent, e.g., a partnership or trust, the beneficial owner means
each of the ultimate beneficial owners of the entity.
Common Stock and Preferred Stock
Non-United States Holders. We must report annually to the United States
Internal Revenue Service and to each Non-United States holder the amount of
dividends paid to, and the tax withheld with respect to, any holder, regardless
of whether any tax was actually withheld. This information may also be made
available to the tax authorities in the Non-United States holder's country of
residence.
Under current law, United States information reporting requirements, other
than reporting of dividend payments for purposes of the withholding tax noted
above, and backup withholding tax generally will not apply to dividends paid to
Non-United States holders that are either subject to the 30% withholding
discussed above or that are not subject to withholding because an applicable
tax treaty reduces or eliminates the withholding. Otherwise, backup withholding
of United States federal income tax at a rate of 31% may apply to dividends
paid with respect to stock to holders that are not "exempt recipients" and that
fail to provide certain information including the holder's United States
taxpayer identification number.
Prior to December 31, 2000, unless the payor of dividends had actual
knowledge that the payee was a United States person, the payor generally could
treat dividend payments to a payee with a foreign address as exempt from
information reporting and backup withholding. However, dividend payments made
after December 31, 2000 generally will be subject to information reporting and
backup withholding unless applicable certification requirements are satisfied.
In general, United States information reporting and backup withholding
requirements also will not apply to the payment of sales proceeds where the
transaction is effected through an office outside the United States of a Non-
United States broker. However, United States information reporting, but not
backup withholding, will apply to a payment of sales proceeds, even if made
outside the United States, through an office of a broker that is (i) a United
States person, (ii) a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States, (iii) a controlled foreign corporation for United States federal
income tax purposes, or (iv) in the case of payments made after December 31,
2000, a foreign partnership with certain connections to the United States,
unless the broker has documentary evidence in its records that the holder or
beneficial owner is a Non-United States holder and that certain conditions are
met, or the holder or beneficial owner otherwise establishes an exemption, in
each case unless such broker has documentary evidence in its files of the
holder's non-United States status and has no actual knowledge to the contrary
or unless the holder establishes an exemption. Payment of the proceeds of the
sale of stock to or through a United States office of a broker is currently
subject to both United States backup withholding and information reporting
unless the holder certifies its Non-United States holder status under penalties
of perjury or otherwise establishes an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
a Non-United States holder's federal income tax liability, if any, provided
that the required information is furnished to the Internal Revenue Service.
These withholding regulations are complex and this summary does not
completely describe them. Please consult your tax advisor to determine how
these withholding regulations will apply to you in light of your particular
circumstances.
58
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus from Sempra Energy's Annual Report on
Form 10-K for the year ended December 31, 1999 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 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. Brown & Wood LLP, San Francisco,
California, will pass upon the validity of the securities and the guarantees
for any underwriters or agents.
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 who
may be deemed to be underwriters within the meaning of the Securities Act with
respect to any resale of the securities. 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.
60
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. 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.
61
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$ ,000,000
Sempra Energy
Floating Rate Notes due 200
[LOGO OF SEMPRA ENERGY]
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PROSPECTUS SUPPLEMENT
, 2001
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JPMorgan
Salomon Smith Barney
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