-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KM+YjtgAsZ/TMU6v77xaD/AUuKrdP+h8LRvxD35KM5/pFcrZPt7Kp7sWbwFFYzdy YvDLzY+/FoDLuleDYPrs+g== 0001047469-97-003465.txt : 19971111 0001047469-97-003465.hdr.sgml : 19971111 ACCESSION NUMBER: 0001047469-97-003465 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19971110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFECO CORP CENTRAL INDEX KEY: 0000086104 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 910742146 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-38207 FILM NUMBER: 97712078 BUSINESS ADDRESS: STREET 1: 4333 BROOKLYN AVE NE CITY: SEATTLE STATE: WA ZIP: 98185 BUSINESS PHONE: 2065455000 MAIL ADDRESS: STREET 1: 4333 BROOKLYN AVE NE CITY: SEATTLE STATE: WA ZIP: 98185 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL AMERICA CORP DATE OF NAME CHANGE: 19680529 S-4/A 1 S-4/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997. REGISTRATION NO. 333-38207 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SAFECO CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 6331 91-0742146 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) Number)
4333 BROOKLYN AVENUE N.E. SEATTLE, WASHINGTON 98185 (206) 545-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ JAMES W. RUDDY SENIOR VICE PRESIDENT AND GENERAL COUNSEL SAFECO CORPORATION 4333 BROOKLYN AVENUE N.E. SEATTLE, WASHINGTON 98185 (206) 545-5000 (Name, address and telephone number of agent for service) ------------------------ COPIES TO: EVELYN CRUZ SROUFE PERKINS COIE 1201 THIRD AVENUE, 40TH FLOOR SEATTLE, WASHINGTON 98101-3099 (206) 583-8888 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------------ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997 PROSPECTUS INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [LOGO] SAFECO CORPORATION OFFER TO EXCHANGE ITS 6 7/8% NOTES DUE JULY 15, 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 6 7/8% NOTES DUE JULY 15, 2007 ------------------ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 15, 1997 UNLESS EXTENDED. SAFECO Corporation, a Washington corporation (the "Corporation"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (as the same may be amended or supplemented from time to time, this "Prospectus") and in the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange up to $200,000,000 aggregate principal amount of its 6 7/8% Notes due July 15, 2007 (the "Exchange Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for a like principal amount of its outstanding 6 7/8% Notes due July 15, 2007 (the "Original Notes"), of which $200,000,000 aggregate principal amount are issued and outstanding. The Original Notes and the Exchange Notes are sometimes collectively referred to herein as the "Notes." See "The Exchange Offer" and "Description of Exchange Notes." The terms of the Exchange Notes are identical in all material respects to the terms of the Original Notes, except that (i) the Exchange Notes have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Original Notes, and (ii) the Exchange Notes will not provide for any increase in the interest rate thereon. See "Description of Exchange Notes." The Exchange Notes are being offered for exchange in order to satisfy certain obligations of the Corporation under the Registration Rights Agreement dated as of July 15, 1997 (the "Registration Rights Agreement") between the Corporation and the Initial Purchaser (as defined below). (CONTINUED ON THE FOLLOWING PAGE) This Prospectus and the Letter of Transmittal are first being mailed to all holders of the Original Notes on November 12, 1997. SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL NOTES IN THE EXCHANGE OFFER. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1997. The Exchange Notes will be unsecured indebtedness of the Corporation, will rank PARI PASSU in right of payment with all other unsubordinated and unsecured indebtedness of the Corporation and will mature on July 15, 2007. Interest on the Exchange Notes will accrue from July 15, 1997 and will be payable in cash on each January 15 and July 15, commencing January 15, 1998. In the event that the Exchange Offer is consummated, any Original Notes that remain outstanding after consummation of the Exchange Offer and the Exchange Notes issued in the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount thereof have taken certain actions or exercised certain rights under the Indenture dated as of July 15, 1997 between the Corporation and The Chase Manhattan Bank, as trustee (the "Trustee"), as amended and supplemented from time to time relating to the Notes (the "Indenture"). The Corporation sold the Original Notes in an offering exempt from the registration requirements of the Securities Act, which was consummated on July 15, 1997 (the "Closing Date"). On the Closing Date, a subsidiary trust of the Corporation also issued $850,000,000 aggregate liquidation amount of 8.072% Series A capital securities (the "Original 8.072% Capital Securities"), the proceeds of which were invested in junior subordinated deferrable interest debentures of the Corporation, and guaranteed payments of cash distributions and certain other payments by its subsidiary trust (such Original 8.072% Capital Securities, debentures and guarantee, the "Original Capital Securities"). The Corporation currently anticipates a separate exchange offer by the Corporation and its subsidiary trust of up to $850,000,000 aggregate liquidation amount of 8.072% Series B capital securities (the "Exchange 8.072% Capital Securities"), together with a like principal amount of junior subordinated deferrable interest debentures and a like guarantee in respect of the Exchange 8.072% Capital Securities (such Exchange 8.072% Capital Securities, debentures and guarantee, the "Exchange Capital Securities") which have been registered under the Securities Act, for the 8.072% Capital Securities. The Original 8.072% Capital Securities and the Exchange 8.072% Capital Securities are sometimes collectively referred to herein as the "8.072% Capital Securities"). The exchange offer for the Original 8.072% Capital Securities will be made through a separate prospectus, and the Exchange Offer made hereby is not contingent upon completion of the exchange offer for the Original 8.072% Capital Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes acquired by such broker-dealer as a result of market-making activities or other trading activities. The Corporation has agreed that, ending on the close of business on the 180th day following the Expiration Date (as defined below), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, a broker-dealer who acquired Original Notes for its own account, as a result of market-making activities or other trading activities (a "Participating Broker-Dealer"), and who intends to use this Prospectus in connection with the resale of Exchange Notes received in exchange for Original Notes pursuant to the Exchange Offer must notify the Corporation, or cause the Corporation to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under "The Exchange Offer-- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of the Corporation may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer--Resales of Exchange Capital Securities." In that regard, each Participating Broker-Dealer who surrenders Original Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal, that upon receipt of notice from the Corporation of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant to this Prospectus until the Corporation has amended or supplemented this Prospectus to correct such misstatement or omission 2 and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer, or the Corporation has given notice that the sale of the Exchange Notes may be resumed, as the case may be. If the Corporation gives such notice to suspend the sale of the Exchange Notes, it shall extend the 180-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of Exchange Notes by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker- Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the Exchange Notes or to and including the date on which the Corporation has given notice that the sale of Exchange Notes may be resumed, as the case may be. Prior to the Exchange Offer, there has been only a limited secondary market and no public market for the Original Notes. The Exchange Notes will be a new issue of securities for which there currently is no market. Although Smith Barney Inc., the initial purchaser of the Original Notes (the "Initial Purchaser'), has informed the Corporation that it currently intends to make a market in the Exchange Notes, it is not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The Corporation currently does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. Any Original Notes not tendered and accepted in the Exchange Offer will remain outstanding and will be entitled to all the same rights and will be subject to the same limitations applicable thereto under the Indenture (except for those rights which terminate upon consummation of the Exchange Offer). Following consummation of the Exchange Offer, the holders of Original Notes will continue to be subject to all of the existing restrictions upon transfer thereof and the Corporation will not have any further obligation to such holders (other than under certain limited circumstances) to provide for registration under the Securities Act of the Original Notes held by them. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Original Notes could be adversely affected. See "Risk Factors--Consequences of a Failure to Exchange Original Notes." THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER. Original Notes may be tendered for exchange on or prior to 5:00 p.m., New York City time, on December 15, 1997 (such time on such date being hereinafter called the "Expiration Date"), unless the Exchange Offer is extended by the Corporation (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). Tenders of Original Notes may be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered for exchange. However, the Exchange Offer is subject to certain events and conditions which may be waived by the Corporation and to the terms and provisions of the Registration Rights Agreement. Original Notes may be tendered in whole or in part in integral multiples of $1,000 principal amount. The Corporation has agreed to pay all expenses of the Exchange Offer. See "The Exchange Offer--Fees and Expenses." Holders of the Original Notes whose Original Notes are accepted for exchange will not receive interest on such Original Notes and will be deemed to have waived the right to receive any interest on such Original Notes accumulated from and after July 15, 1997. Accordingly, holders of Exchange Notes as of the record date for the payment of interest on January 15, 1998 will be entitled to receive interest accumulated from and after July 15, 1997. See "The Exchange Offer--Interest Payments on Exchange Notes." The Corporation will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. No dealer-manager is being used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." 3 FORWARD-LOOKING INFORMATION This Prospectus includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA provides a "safe harbor" for such statements to encourage companies to provide prospective information about themselves so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. All statements other than statements of historical fact made in this Prospectus or incorporated by reference are forward-looking. In particular, the statements under the headings "Prospectus Summary," and those located elsewhere herein regarding industry prospects, the Corporation's future results of operations or financial position and pro forma information are forward-looking statements. Forward-looking statements represent management's current expectations and are inherently uncertain. Investors are warned that the Corporation's actual results may differ significantly from management's expectations and, therefore, from the results discussed in such forward-looking statements. Factors that might cause such differences include, but are not limited to, the "Risk Factors" described herein. AVAILABLE INFORMATION Effective October 1, 1997, the Corporation acquired American States Financial Corporation ("American States"), through the merger of American States with a subsidiary of the Corporation (the "Acquisition"). Certain information about American States has been incorporated into this Prospectus by reference. See "Incorporation of Certain Documents by Reference" and "Prospectus Summary--SAFECO-- Acquisition of American States." The Corporation is, and American States prior to the Acquisition was, subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files (or filed with respect to American States prior to the Acquisition) reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such information may also be accessed electronically by means of the Commission's home page on the Internet (http://www.sec.gov). In addition, such reports, proxy statements and other information concerning the Corporation may be inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006 on which certain securities of the Corporation are quoted and such reports, proxy statements and other information concerning American States may be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which certain securities of American States were listed prior to the Acquisition. The Corporation has filed with the Commission a Registration Statement on Form S-4, of which this Prospectus forms a part (the "Registration Statement"), to register the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted from this Prospectus in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document do not purport to be complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Items omitted from this Prospectus but contained in the Registration Statement may be inspected and copied as described above. 4 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission are incorporated into this Prospectus by reference: 1. The Corporation's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-6563); 2. The Corporation's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 (File No. 1-6563) and June 30, 1997 (File No. 1-6563); 3. The Corporation's Current Reports on Form 8-K filed with the Commission on June 24, 1997 (File No. 1-6563), October 14, 1997 (File No. 1-6563), October 15, 1997 (File No. 1-6563) and November 10, 1997 (File No. 1-6563); 4. American States' Annual Report on Form 10-K, Form 10-K/A(1) and Form 10-K/A(2) for the year ended December 31, 1996 (File No. 1-11733); 5. American States' Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 (File No. 1-11733) and June 30, 1997 (File No. 1-11733); and 6. American States' Current Reports on Form 8-K filed with the Commission on March 28, 1997 (File No. 1-11733) and June 17, 1997 (File No. 1-11733). All documents subsequently filed by the Corporation pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of any offering of securities made by this Prospectus shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from their respective dates of filing. Any statement made in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that another statement contained made in this Prospectus or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any modified or superseded statement shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. As used herein, the terms "Prospectus" and "herein" mean this Prospectus, including the documents incorporated or deemed to be incorporated herein by reference, as the same may be amended, supplemented or otherwise modified from time to time. Unless otherwise indicated, all references in this Prospectus to documents "incorporated by reference" are to documents incorporated by reference into this Prospectus. The Corporation will provide without charge to any person to whom this Prospectus is delivered, on such person's request, a copy of any or all of the documents incorporated by reference (other than exhibits not specifically incorporated by reference into the texts of such documents). Requests for such documents should be directed to SAFECO Investor Relations, SAFECO Corporation, SAFECO Plaza, 4333 Brooklyn Avenue N.E., Seattle, Washington 98185. Telephone requests may be directed to SAFECO Investor Relations at (206) 545-5000. 5 PROSPECTUS SUMMARY THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. THE INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS THE OCTOBER 1, 1997 ACQUISITION (THE "ACQUISITION") OF AMERICAN STATES FINANCIAL CORPORATION THROUGH A MERGER OF AMERICAN STATES WITH A NEWLY FORMED SUBSIDIARY OF SAFECO CORPORATION. THE CORPORATION AND AMERICAN STATES ARE INSURANCE HOLDING COMPANIES. EACH CONDUCTS ITS OPERATIONS THROUGH ITS SUBSIDIARIES AND HAS NO DIRECT OPERATIONS. THE CORPORATION'S PRINCIPAL ASSETS ARE THE SHARES OF CAPITAL STOCK OF ITS SUBSIDIARIES. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, "SAFECO" REFERS TO SAFECO CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES, EXCLUDING AMERICAN STATES, "AMERICAN STATES" REFERS TO AMERICAN STATES FINANCIAL CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES, AND THE "CORPORATION" REFERS TO SAFECO, TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES, INCLUDING AMERICAN STATES. UNLESS THE CONTEXT OTHERWISE REQUIRES, HISTORICAL DATA FOR THE CORPORATION REFER TO COMBINED HISTORICAL DATA FROM SAFECO AND AMERICAN STATES ON A PRO FORMA BASIS GIVING EFFECT TO THE ACQUISITION. UNLESS OTHERWISE INDICATED, FINANCIAL INFORMATION AND OPERATING STATISTICS APPLICABLE TO THE CORPORATION, SAFECO AND AMERICAN STATES SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE ARE BASED ON UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"), NOT STATUTORY ACCOUNTING PRACTICES ("SAP"). IN CONFORMITY WITH INDUSTRY PRACTICE, FINANCIAL INFORMATION AND OPERATING STATISTICS APPLICABLE TO THE INSURANCE COMPANY SUBSIDIARIES OF THE CORPORATION AND DATA DERIVED FROM A.M. BEST CORPORATION, INC. ("A.M. BEST") AND NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS ("NAIC") SOURCES, GENERALLY USED FOR INDUSTRY COMPARISONS, ARE BASED ON SAP. INDUSTRY RANKINGS FOR THE CORPORATION, WHICH ARE BASED ON A.M. BEST 1996 DATA, HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE ACQUISITION. SEE "RISK FACTORS," IMMEDIATELY FOLLOWING THIS PROSPECTUS SUMMARY, FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL NOTES IN THE EXCHANGE OFFER. SAFECO CORPORATION OVERVIEW The Corporation is one of the largest property and casualty insurance companies in the United States. On a pro forma basis giving effect to the Acquisition and related financings, the Corporation had consolidated revenues of $5.9 billion in 1996, and total assets of $27.3 billion and total stockholders' equity of $5.0 billion at June 30, 1997. The Corporation provides a broad range of personal and commercial property and casualty insurance to individuals, businesses, government entities and associations. SAFECO and American States have each underwritten property and casualty insurance since the 1920s. Through its insurance subsidiaries, the Corporation is licensed as a property and casualty insurer in all 50 states and the District of Columbia, with a significant presence in the Pacific Northwest and the Midwest. The Corporation's property and casualty operations generated approximately 92% of the Corporation's insurance revenues in 1996. Of the Corporation's 1996 net written property and casualty premiums of $3.9 billion, personal and commercial lines accounted for 60% and 40%, respectively. The Corporation is the third largest writer of personal lines insurance through independent agents in the United States and one of the largest writers of personal lines insurance overall, based on 1996 net written premiums published by A.M. Best. The Corporation's principal personal lines are automobile and homeowners insurance, which accounted for 66% and 27%, respectively, of the Corporation's approximately $2.4 billion of 1996 personal lines net written premiums. SAFECO significantly expanded its commercial lines business through the Acquisition. Management believes that American States is one of the largest writers in the United States of property and casualty insurance for businesses with fewer than 50 employees. The Corporation's principal commercial lines are commercial multi-peril, commercial automobile, workers' compensation and surety, which accounted for 6 33%, 22%, 21% and 4%, respectively, of the Corporation's approximately $1.6 billion of 1996 commercial lines net written premiums. The Corporation also offers annuities, retirement services and group life and health and individual life insurance. In addition, the Corporation conducts commercial lending and leasing, asset management, insurance agency and financial services distribution operations, and real estate investment and management. RECENT DEVELOPMENTS On September 2, 1997, the Corporation agreed to acquire Washington Mutual, Inc.'s life insurance subsidiaries, WM Life Insurance Company and Empire Life Insurance Company, and Washington Mutual, Inc., agreed to distribute SAFECO Life annuity products through the Washington Mutual multi-state banking network. The transaction is valued at $140.0 million. It must be approved by state insurance regulators in the states of Arizona and Washington. On October 13, 1997, the Corporation announced, based on a preliminary review of results, that it expects its third quarter earnings from operations to be $0.20 to $0.25 lower than the consensus estimates of research analysts of $0.84 per share. Such consensus was based upon the earnings estimates survey by First Call Corporation, an independent compiler of research analyst estimates of public company results of operations. The variance relates primarily to several unusually large losses in commercial lines, reduced credit to operations from reserve adjustments on claims settled during the quarter, and net interest charges for funds accumulated during the quarter that were used to close the Acquisition. Based on the same preliminary review, the Corporation noted that claims severity and frequency in its core voluntary personal automobile line continue to be favorable and its overall loss reserve position continues to be sound. ACQUISITION OF AMERICAN STATES Effective October 1, 1997, SAFECO acquired American States through the merger of American States with a newly formed subsidiary of SAFECO. In connection with the Acquisition, each share of outstanding common stock of American States was converted into the right to receive $47.00 in cash, for an aggregate purchase price of approximately $2.8 billion. SAFECO also repaid approximately $300 million of outstanding debt obligations of American States. SAFECO financed the purchase price for the Acquisition from various sources, including proceeds from the issuance of the $200 million aggregate principal amount of Original Notes, $850 million aggregate liquidation amount of the 8.072% Capital Securities and $1.5 billion of commercial paper. The Corporation also repaid a portion of certain other indebtedness incurred to finance the Acquisition with the net proceeds of $595.5 million from the issuance of common stock, no par value (the "Common Stock"). See "Capitalization" and "Unaudited Pro Forma Combined Condensed Financial Statements." 7 THE EXCHANGE OFFER The Exchange Offer................ Up to $200,000,000 aggregate principal amount of Exchange Notes are being offered in exchange for a like aggregate principal amount of Original Notes. Original Notes may be tendered for exchange in whole or in part in an aggregate principal amount of $100,000 and integral multiples of $1,000 in excess thereof. The Corporation is making the Exchange Offer in order to satisfy its obligations under the Registration Rights Agreement relating to the Original Notes. For a description of the procedures for tendering Original Notes, see "The Exchange Offer--Procedures for Tendering Original Notes." Expiration Date................... 5:00 p.m., New York time, on December 15, 1997, unless the Exchange Offer is extended by the Corporation (in which case the Expiration Date will be the latest date and time to which the Exchange Offer is extended). See "The Exchange Offer--Terms of the Exchange Offer." Conditions to the Exchange The Exchange Offer is subject to certain conditions, Offer........................... which may be waived by the Corporation in its sole discretion. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered. See "The Exchange Offer--Conditions to the Exchange Offer." Offer............................. The Corporation reserves the right in its sole and absolute discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Original Notes for exchange, (ii) to terminate the Exchange Offer if certain specified conditions have not been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain all Original Notes tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Original Notes to withdraw their tendered Original Notes, or (iv) to waive any condition or otherwise amend the terms of the Exchange Offer in any respect. See "The Exchange Offer--Terms of the Exchange Offer." Withdrawal Rights................. Tenders of Original Notes may be withdrawn at any time on or prior to the Expiration Date by delivering a written notice of such withdrawal to the Exchange Agent (as defined herein) in conformity with certain procedures set forth below under "The Exchange Offer--Withdrawal Rights." Procedures for Tendering Original Notes.................. Brokers, dealers, commercial banks, trust companies and other nominees who hold Original Notes through The Depository Trust Company (the "Depository" or "DTC") may effect tenders by book-entry transfer in accordance with DTC's Automated Tender Offer Program ("ATOP"). Holders of such Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such person promptly if they wish to tender Original Notes. In order for Original Notes to be tendered by a means
8 other than by book-entry transfer, a Letter of Transmittal must be completed and signed in accordance with the instructions contained therein. The Letter of Transmittal and any other documents required by the Letter of Transmittal must be delivered to The Chase Manhattan Bank (the "Exchange Agent") by mail, facsimile, hand delivery or overnight courier and either such Original Notes must be delivered to the Exchange Agent or specified procedures for guaranteed delivery must be complied with. See "The Exchange Offer--Procedures for Tendering Original Notes." Letters of Transmittal and certificates representing Original Capital Securities should not be sent to the Corporation. Such documents should be sent only to the Exchange Agent. Resales of Exchange Notes......... The Corporation is making the Exchange Offer in reliance on the position of the staff of the Division of Corporation Finance of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Corporation has not sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance of the Commission, and subject to the two immediately following sentences, the Corporation believes that Exchange Notes issued pursuant to this Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Notes. However, any holder of Original Notes who is an "affiliate," as defined in Rule 405 under the Securities Act, of the Corporation or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Original Notes from the Corporation to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Original Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Original Notes unless such sale is made pursuant to an exemption from such requirements. In addition,
9 as described below, if any broker-dealer holds Original Notes acquired for its own account as a result of market-making or other trading activities and exchanges such Original Notes for Exchange Notes, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Notes. Each holder of Original Notes who wishes to exchange Original Notes for Exchange Notes in the Exchange Offer will be required to represent that (i) it is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Corporation, (ii) any Exchange Notes to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Notes, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Corporation believes that Participating Broker-Dealers who acquired Original Notes for their own accounts as a result of market-making activities or other trading activities may fulfill their prospectus deliver requirements with respect to the Exchange Notes received upon exchange of such Original Notes (other than Original Notes which represent an unsold allotment from the initial sale of the Original Notes) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement and to the limitations described below in "The Exchange Offer--Resales of Exchange Notes," the Corporation has agreed that this Prospectus, as it may be
10 amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Notes for a period ending 180 days after the Expiration Date (subject to extension under certain limited circumstances) or, if earlier, when all such Exchange Notes have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate" of the Corporation may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See "The Exchange Offer--Resales of Exchange Notes." Exchange Agent.................... The exchange agent with respect to the Exchange Offer is The Chase Manhattan Bank. The addresses, and telephone and facsimile numbers, of the Exchange Agent are set forth in "The Exchange Offer--Exchange Agent" and in the Letter of Transmittal. The Chase Manhattan Bank also serves as trustee under the Indenture. Use of Proceeds................... The Corporation will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. See "Use of Proceeds." Certain United States Federal Income Tax Consequences; ERISA Considerations............ Holders of Original Notes should review the information set forth in "Certain United States Federal Income Tax Consequences" and "ERISA Considerations" prior to tendering Original Notes in the Exchange Offer. THE EXCHANGE NOTES Securities Offered................ Up to $200,000,000 aggregate principal amount of the Corporation's Exchange Notes which have been registered under the Securities Act. The Exchange Notes will be issued and the Original Notes were issued under the Indenture. The Exchange Notes and any Original Notes which remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount thereof have taken certain actions or exercised certain rights under the Indenture. See "Description of Exchange Notes--Modification and Waiver." The terms of the Exchange Notes are identical in all material respects to the terms of the Original Notes, except that the Exchange Notes have been registered under the Securities Act and will not be subject to certain restrictions on transfer applicable to the Original Notes and will not provide for any increase in the interest rate thereon. See "The Exchange Offer--Purpose of the Exchange Offer" and "Description of Exchange Notes." Maturity Date..................... July 15, 2007.
11 Interest.......................... Interest on the Notes is payable semi-annually on each January 15 and July 15, commencing January 15, 1998. Ranking........................... The Notes are unsecured obligations of the Corporation and will rank PARI PASSU with all secured and unsubordinated indebtedness of the Corporation. Redemption........................ The Notes may not be redeemed prior to maturity. Ratings........................... The Exchange Notes are rated A3 by Moody's Investors Service, Inc. and A+ by Standard & Poor's Rating Services. Book-Entry, Delivery and Form..... It is expected that delivery of the Exchange Notes will be made in book-entry or certificated form. The Corporation expects that Exchange Notes exchanged for Original Notes currently represented by Global Notes (as defined under "Description of Exchange Notes") deposited with, or on behalf of the Depository and registered in the name of Cede & Co., its nominee, will be represented by Global Notes and deposited upon issuance with the Depository and registered in its name or the name of its nominee. Beneficial interests in Global Note(s) representing the Notes will be shown on, and transfers thereof will be effected through, records maintained by the Depository and its participants. Transfer Restrictions............. The Exchange Notes will be issued, and may be transferred, only in minimum denominations of not less than $1,000 principal amount. See "Description of Exchange Notes--Restrictions on Transfer." Any such transfer of Exchange Notes in denominations of less than $1,000 principal amount shall be deemed to be void and of no legal effect whatsoever. Absence of Market for the Notes... The Exchange Notes will be a new issue of securities for which there currently is no market. Although the Initial Purchaser has informed the Corporation that it currently intends to make a market in the Notes, the Initial Purchaser is not obligated to do so, and any such market-making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. The Corporation does not intend to apply for listing of the Notes on any securities exchange or for quotation through Nasdaq. See "Plan of Distribution."
For additional information regarding the Notes, see "Description of Exchange Notes" and "Certain Federal Income Tax Considerations." 12 RISK FACTORS THE CORPORATION IDENTIFIES THE FOLLOWING IMPORTANT FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS THAT MIGHT BE PROJECTED, FORECAST, ESTIMATED OR BUDGETED BY THE CORPORATION AS FORWARD-LOOKING INFORMATION. ALL SUCH FACTORS ARE DIFFICULT TO PREDICT AND THE MAJORITY ARE BEYOND THE CONTROL OF THE CORPORATION. HOLDERS OF ORIGINAL NOTES SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE INFORMATION STATED BELOW. SEE "FORWARD-LOOKING INFORMATION." CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL NOTES The Original Notes have not been registered under the Securities Act or any state securities laws and therefore may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in compliance with certain other conditions and restrictions. Original Notes which remain outstanding after consummation of the Exchange Offer will continue to bear a legend reflecting such restrictions on transfer. In addition, upon consummation of the Exchange Offer, holders of Original Notes that remain outstanding will not be entitled to any rights to have such Original Notes registered under the Securities Act or to any similar rights under the Registration Rights Agreement (subject to certain limited exceptions). The Corporation does not intend to register under the Securities Act any Original Notes which remain outstanding after consummation of the Exchange Offer (subject to such limited exceptions, if applicable). To the extent that Original Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Original Notes could be adversely affected. The Exchange Notes and any Original Notes which remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount of Notes have taken certain actions or exercised certain rights under the Indenture. See "Description of Exchange Notes--Modification and Waiver." The Original Notes provide, among other things, that, if a registration statement relating to the Exchange Offer has not been filed by December 8, 1997 and declared effective by January 21, 1998, the interest rate borne by the Original Notes will increase by 0.50% per annum until such registration statement has been filed or declared effective, as the case may be. Upon consummation of the Exchange Offer, holders of Original Notes will not be entitled to any increase in the interest rate thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Description of Exchange Notes." HOLDING CORPORATION STRUCTURE; DIVIDEND AND DISTRIBUTION RESTRICTIONS The Corporation's principal assets are the shares of capital stock of its insurance subsidiaries. The Corporation relies primarily on dividends from its subsidiaries to meet its obligations for paying principal and interest on outstanding debt obligations, distributions on capital securities, dividends to stockholders and corporate expenses. Except to the extent that a holding company may itself be a creditor with recognized claims against its subsidiaries, claims of creditors of such subsidiaries, including policyholders, have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the holding company, including claims under the Notes. At June 30, 1997 liabilities of the Corporation's subsidiaries, including provisions for outstanding losses and unearned premiums, totaled $16.4 billion and assets of the subsidiaries totaled $20.8 billion. In the event of the insolvency, liquidation or other reorganization of any of the Corporation's subsidiaries, the creditors and stockholders of the Corporation will have no right to proceed against the assets of such subsidiary or to cause the liquidation, bankruptcy or winding-up of such subsidiary under applicable liquidation, bankruptcy or winding-up laws. The applicable insurance laws of the domiciliary jurisdiction of each of the Corporation's insurance subsidiaries would govern any proceedings relating to 13 such insurance subsidiary, and the relevant insurance authority would act as a liquidator or rehabilitator for such subsidiary. Both creditors and policyholders of such subsidiary would be entitled to payment in full from such assets before the Corporation, as a stockholder, would be entitled to receive any distribution therefrom. The payment of dividends to the Corporation by its insurance subsidiaries is subject to limitations imposed by the insurance laws of the states in which such subsidiaries are domiciled or deemed to be commercially domiciled, which are Washington, Indiana, California, Missouri, Illinois, Texas, Pennsylvania and New York. It is generally the case that unless an insurance subsidiary receives advance approval from the Insurance Commissioner in its state of domicile, it may not pay a dividend which, together with any other dividends paid within the prior 12-month period, would exceed the greater of (i) 10% of such subsidiary's surplus as of the prior calendar year end and (ii) the net income from such subsidiary's operations for the prior calendar year. In the case of a Missouri-domiciled property and casualty insurance company, in the absence of advance approval, dividends cannot be paid if, together with any other dividends paid within the prior 12-month period, such aggregate dividends would exceed the insurance company's prior year investment income. Regulatory authorities may, from time to time, impose other restrictions which may affect the actual amounts available for dividends. Based on the applicable dividend restrictions, the annual limit on the amount of dividends available for payment by the Corporation's insurance subsidiaries for 1997 without regulatory approval is $665 million. Three of SAFECO's insurance subsidiaries received approval in July 1997 to pay dividends totaling $600 million to SAFECO to fund a portion of the purchase price for the Acquisition. CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION The Indenture does not contain provisions that afford holders of the Notes protection in the event of a highly leveraged transaction, including a change of control, or other similar transactions involving the Corporation that may adversely affect such holders. ABSENCE OF PUBLIC MARKET The Original Notes were issued to, and the Corporation believes such securities are currently owned by, a relatively small number of beneficial owners. The Original Notes have not been registered under the Securities Act and will be subject to restrictions on transferability if they are not exchanged for the Exchange Notes. Although the Exchange Notes may be resold or otherwise transferred by the holders (who are not affiliates of the Corporation) without compliance with the registration requirements under the Securities Act, they will constitute a new issue of securities with no established trading market. The Corporation has been advised by the Initial Purchaser that the Initial Purchaser presently intends to make a market in the Exchange Notes. However, the Initial Purchaser is not obligated to do so and any market-making activity with respect to the Exchange Notes may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer. Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Notes or the Original Notes, or as to the liquidity or the trading market for the Exchange Notes or the Original Notes. If an active public market does not develop, the market price and liquidity of the Exchange Notes may be adversely affected. If a public trading market develops for the Exchange Notes, future trading prices will depend on many factors, including, among other things, prevailing interest rates, the financial condition of the Corporation and the market for similar securities. Depending on these and other factors, the Exchange Notes may trade at a discount. Notwithstanding the registration of the Exchange Notes in the Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities Act) of the Corporation may publicly offer for sale or resell the Exchange Notes only in compliance with the provisions of Rule 144 under the Securities Act. 14 Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Capital Securities. See "Plan of Distribution." FLUCTUATION AND UNCERTAINTY OF PROPERTY AND CASUALTY INSURANCE INDUSTRY RESULTS The results of companies in the property and casualty insurance industry historically have been subject to significant fluctuations and uncertainties. The industry's profitability can be affected significantly by volatile and unpredictable developments (including catastrophes); changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers' liability develop; fluctuations in interest rates and other changes in the investment environment, which affect returns on invested capital; and inflationary pressures that affect the size of losses. The demand for property and casualty insurance can also vary significantly, generally rising as the overall level of economic activity increases and falling as such activity decreases. The property and casualty insurance industry historically has been cyclical, and the commercial lines business has been in a soft market since the late 1980s, primarily due to premium rate competition, which has resulted in lower underwriting profitability. The Corporation's results of operations may be adversely affected by these fluctuations. CATASTROPHE LOSSES Property and casualty insurers are subject to claims arising out of catastrophes that may have a significant effect on their results of operations and financial condition. Losses caused by catastrophes have had a significant impact on the Corporation's results. Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, hailstorms, explosions, severe winter weather and fires. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes and earthquakes may produce significant damage in large, heavily populated areas. Although catastrophes can cause losses in a variety of the Corporation's property and casualty lines, most of the Corporation's past catastrophe-related claims have related to homeowners and other personal lines coverage. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. Subject to restrictions imposed by insurance regulatory authorities and as dictated by business considerations, the Corporation attempts to limit its exposure to acceptable risk levels through selective underwriting practices, catastrophe reinsurance and higher deductibles on earthquake coverage in certain states. There can be no assurance, however, that such attempts will be successful. It is therefore possible that a catastrophic event or multiple catastrophic events could have a material adverse effect on the Corporation. PROPERTY AND CASUALTY LOSS RESERVES The Corporation maintains property and casualty loss reserves to cover the estimated liability for unpaid losses and loss adjustment expenses for reported and unreported claims incurred as of the end of each accounting period. Reserves do not represent an exact calculation of liability. Rather, reserves represent estimates of what the Corporation expects the ultimate settlement and administration of claims will cost. These estimates, which generally involve actuarial projections, are based on the Corporation's assessment of facts and circumstances then known, as well as estimates of future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by both internal and external events, such as changes in claims handling procedures, inflation, judicial trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may be a significant reporting lag between the occurrence of the insured event and the time it is reported to the Corporation. The inherent uncertainties of estimating reserves are greater for certain types 15 of property and casualty liabilities, particularly for environmental, asbestos and construction defect claims where the technological, judicial and political considerations affecting these types of claims are subject to change and long periods of time may elapse before a definitive determination of liability is made. Reserve estimates are continually refined in a regular and ongoing process as experience develops and further claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which such estimates are changed. Because setting reserves is inherently uncertain, there can be no assurance that current reserves will prove adequate for the Corporation in light of subsequent actual experience. INTEGRATION; ACHIEVEMENT OF REVENUE ENHANCEMENTS AND EXPENSE SAVINGS The pro forma combined results of operations of SAFECO and American States do not necessarily indicate the Corporation's future results. Since SAFECO and American States both engage in the property and casualty insurance business and write many of the same lines of insurance throughout the United States, it is possible that, despite the differences in geographic and product line concentrations of SAFECO and American States, the Corporation could experience a loss of customers and agents as a result of the Acquisition. Management has estimated that capitalizing on cross-selling opportunities and capturing a larger share of business generated by existing agents will produce incremental annual revenues that will increase to approximately $170 million for the year 2000. In addition, management is working to integrate the operations of SAFECO and American States and to achieve significant expense savings by eliminating redundant expenses and facilities, streamlining corporate infrastructure and improving efficiency. Management has identified annual cost savings from the Acquisition that will increase to approximately $80 million for the year 2000. There can be no assurance that the Corporation will generate the projected revenues or achieve the projected savings. INSURANCE REGULATION The Corporation and its insurance subsidiaries are subject to extensive regulation and supervision. This regulation is generally designed to protect the interests of policyholders rather than stockholders and other investors. Such regulation, generally administered by a department of insurance in each state in which the insurance subsidiaries do business, relates to, among other things, the standards of solvency that must be met and maintained; the licensing of insurers and their agents; the nature of and limitations on investments; the ability to withdraw from the state; the approval of premium rates; restrictions on the size of risks that may be insured under a single policy; reserves and provisions for unearned premiums, losses and other purposes; deposits of securities for the benefit of policyholders; approval of policy forms; and the regulation of market conduct, including underwriting and claims practices. State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to the financial condition of insurance companies, holding company issues and other matters. The Corporation's insurance subsidiaries are collectively licensed to transact insurance business in all 50 states and the District of Columbia. See "--Holding Company Structure; Dividend and Distribution Restrictions." An insurance company's capacity for premium growth is in part a function of the amount of its statutory surplus. Maintaining appropriate levels of statutory surplus is considered important by state insurance regulatory authorities and the private agencies that rate insurers' claims-paying abilities and financial strength. Failure to maintain certain levels of statutory surplus could result in increased regulatory scrutiny, action by state regulatory authorities or a downgrade by rating agencies. The NAIC has adopted a system of assessing minimum capital adequacy which is applicable to the Corporation's insurance subsidiaries. This system, known as risk-based capital ("RBC"), develops a risk profile of the insurer by comparing its adjusted surplus to its required surplus in order to determine whether the insurer merits further regulatory action. At June 30, 1997, the RBC ratios of the Corporation's insurance subsidiaries were substantially in excess of levels that would require regulatory action. 16 In recent years the state insurance regulatory framework has come under increased federal scrutiny, and certain state legislatures have considered or enacted laws that altered and, in many cases, increased state authority to regulate insurance companies and insurance holding companies. Further, the NAIC and state insurance regulators are reexamining existing laws and regulations, specifically focusing on investment laws and regulations, modifications to holding company regulations, codification of statutory accounting practices, RBC guidelines, interpretations of existing laws and the development of new laws. Finally, various consumer movements have exerted pressure on elected officials to regulate or roll back property and casualty insurance rates. While most of these provisions have failed to become law, these initiatives may continue as legislators and regulators try to respond to insurance availability and affordability concerns. The Corporation cannot predict with certainty the effect any proposed or future legislation or NAIC initiative may have on the conduct of its business, its financial condition or its results of operations. All 50 states of the United States and the District of Columbia have laws requiring all property and casualty insurance companies doing business within the jurisdiction to participate in guaranty funds or associations, which are organized to pay contractual obligations under insurance policies issued by impaired or insolvent insurance companies and are funded by assessments based on a proportionate share of certain premiums written by such companies. These assessments may increase in the future depending on the rate of insurance company insolvencies. In addition, as a condition to the ability to conduct business in various states, the Corporation's insurance subsidiaries are required to participate in mandatory property and casualty shared market mechanisms or pooling arrangements, which provide various types of insurance coverage to individuals or other entities that otherwise are unable to purchase such coverage voluntarily from private insurers. The underwriting results of these pools traditionally have been unprofitable. COMPETITION The insurance business is highly competitive. Competition is based on many factors, including the perceived overall financial strength of the insurer, pricing and other terms and conditions of products offered, levels of customer service (including the speed with which claims are paid) and experience in the business. Some of the insurers that compete with the Corporation have greater financial resources or lower cost structures than the Corporation. The Corporation also competes with insurance companies that use captive agents or salaried employees to sell their products. Because these companies generally do not pay commissions, they may be able to obtain business at a lower cost than the Corporation. In addition, the Corporation competes with organizations offering alternative forms of risk protection, including self-insurance and large-deductible programs. Finally, in recent years marketwide premium rates have leveled or been reduced in certain lines of business in which the Corporation competes. EXCHANGE OFFER PROCEDURES Subject to the conditions set forth in "The Exchange Offer--Conditions to the Exchange Offer," delivery of Exchange Notes in exchange for Original Notes tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for Original Notes or a book-entry confirmation of a book-entry transfer of Original Notes into the Exchange Agent's account at DTC, including an Agent's Message (as defined in "The Exchange Offer--Acceptance for Exchange and Issuance of Exchange Notes") if the tendering holder does not deliver a Letter of Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal, and (iii) any other documents required by the Letter of Transmittal. Therefore, holders of Original Notes desiring to tender such Original Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. The Corporation is not under a duty to give notification of defects or irregularities with respect to the tenders of Original Notes for exchange. 17 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed statements of income of the Corporation for the six months ended June 30, 1997 and for the year ended December 31, 1996 present results for the Corporation as if the Acquisition, the issuance of the 8.072% Capital Securities, the issuance of the Notes and the other financings consummated by the Corporation in connection with the Acquisition (including the Related Financings, as hereinafter defined) had occurred at January 1, 1996. See "Capitalization." The accompanying unaudited pro forma combined condensed balance sheet as of June 30, 1997 gives effect to the Acquisition, the issuance of the 8.072% Capital Securities, the issuance of the Notes and the other financings consummated by the Corporation in connection with the Acquisition (including the Related Financings) as if they had occurred as of June 30, 1997. The unaudited pro forma combined condensed financial statements do not purport to represent the Corporation's financial position or the operating results that would have been achieved had the Acquisition been consummated as of the dates indicated and should not be construed as projecting the Corporation's future financial position or operating results. The unaudited pro forma combined condensed financial statements do not reflect any projected revenue increases or cost savings. The pro forma adjustments are based on available information and certain assumptions that the Corporation currently believes are reasonable under the circumstances. The unaudited pro forma combined condensed financial statements should be read in conjunction with the accompanying notes thereto, the historical consolidated financial statements of SAFECO as of and for the year ended December 31, 1996 and the six months ended June 30, 1997 and the historical consolidated financial statements of American States as of and for the year ended December 31, 1996 and the six months ended June 30, 1997, in each case incorporated by reference in this Prospectus. See "Incorporation of Certain Documents by Reference." The pro forma adjustments are applied to the historical financial statements to account for, among other things, the Acquisition using the purchase method of accounting. Under purchase accounting, the total purchase cost for the Acquisition has been allocated to the assets and liabilities of American States based on their fair values. Allocations are subject to valuations as of the date of the Acquisition based on appraisals and other studies which are not yet completed. Accordingly, the final allocations will be different from the amounts reflected herein. Although the final allocations will differ, the unaudited pro forma combined condensed financial statements reflect management's best estimates based on currently available information as of the date of this Prospectus. As part of the Acquisition, SAFECO and Lincoln National Corporation, as the majority stockholder of American States, jointly elected to treat the purchase of American States by SAFECO as an asset acquisition for federal income tax purposes pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. This election allows the Corporation to deduct the amortization of goodwill recorded in the Acquisition, thereby significantly improving the Corporation's future cash flows. 18 PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF JUNE 30, 1997 (UNAUDITED)
HISTORICAL PRO FORMA ---------------------- ADJUSTMENTS PRO AMERICAN INCREASE NOTE FORMA SAFECO STATES (DECREASE) REFERENCE COMBINED --------- ----------- ----------- --------- ----------- (IN MILLIONS) ASSETS: Investments: Fixed maturities available-for-sale, at market value............................................ $12,238.2 $ 3,787.6 $ (600.0) (a) $15,425.8 Fixed maturities held-to-maturity, at amortized cost............................................. 2,698.1 -- 2,698.1 Marketable equity securities, at market value...... 1,501.1 460.6 1,961.7 Mortgage loans..................................... 460.3 21.9 482.2 Real estate........................................ 614.6 -- 614.6 Short-term investments............................. 110.1 74.2 184.3 Other invested assets.............................. 59.4 39.4 98.8 --------- ----------- ----------- ----------- Total investments................................ 17,681.8 4,383.7 (600.0) 21,465.5 Cash................................................. 80.5 19.3 (42.0) (b) 57.8 Accrued investment income............................ 247.6 64.9 312.5 Finance receivables.................................. 913.8 -- 913.8 Premiums and other service fees receivable........... 486.9 482.8 969.7 Reinsurance recoverables............................. 129.9 175.1 305.0 Deferred policy acquisition costs.................... 411.6 212.3 623.9 Deferred federal income taxes recoverable............ -- 121.1 102.5 (b) 0.0 (223.6) (b) Land, buildings and equipment for company use........ 171.7 31.8 203.5 Cost in excess of net assets of acquired subsidiaries....................................... 41.1 96.1 (96.1) (b) 1,525.1 1,484.0 (b) Other assets......................................... 223.9 64.8 288.7 Separate account assets.............................. 662.2 -- 662.2 --------- ----------- ----------- ----------- Total assets..................................... $21,051.0 $ 5,651.9 $ 624.8 $27,327.7 --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY: Losses, adjustment expense and future policy benefits........................................... $ 2,128.8 $ 2,854.7 (c) $ 4,983.5 Unearned premiums.................................... 981.7 746.1 1,727.8 Funds held under deposit contracts................... 10,402.8 -- 10,402.8 Short-term debt...................................... 906.3 66.7 (66.7) (a) 1,644.8 738.5 (a) Long-term debt....................................... 434.9 232.9 (232.9) (a) 634.9 200.0 (a) Other liabilities.................................... 669.3 334.5 41.0 (b) 1,044.8 (d) Current federal income taxes payable................. 12.3 -- 12.3 Deferred federal income taxes payable................ 482.1 -- (223.6) (b) 258.5 Separate account liabilities......................... 662.2 -- 662.2 --------- ----------- ----------- ----------- Total liabilities................................ 16,680.4 4,234.9 456.3 21,371.6 Corporation-obligated, mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated debentures of the Corporation........................................ 990.0 (a) 990.0 --------- ----------- ----------- ----------- Common stock......................................... 227.9 304.5 (304.5) (e) 823.4 595.5 (a) Retained earnings.................................... 3,190.4 941.0 (941.0) (e) 3,190.4 Unrealized appreciation of investment securities, net of tax............................................. 956.6 171.5 (171.5) (e) 956.6 Unrealized loss from foreign currency translation, net of tax......................................... (4.3) -- (4.3) --------- ----------- ----------- ----------- Total stockholders' equity....................... 4,370.6 1,417.0 (821.5) 4,966.1 --------- ----------- ----------- ----------- Total liabilities and stockholders' equity....... $21,051.0 $ 5,651.9 $ 624.8 $27,327.7 --------- ----------- ----------- ----------- --------- ----------- ----------- -----------
19 PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
HISTORICAL PRO FORMA ------------------------ ADJUSTMENTS PRO AMERICAN INCREASE NOTE FORMA SAFECO STATES (DECREASE) REFERENCE COMBINED ----------- ----------- ------------- --------- ----------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) REVENUES: Insurance: Property and casualty earned premiums.............. $ 1,176.4 $ 824.1 $ 2,000.5 Life and health premiums and other revenues........ 134.9 29.0 163.9 ----------- ----------- ----------- Total............................................ 1,311.3 853.1 2,164.4 Real estate.......................................... 32.7 -- 32.7 Finance.............................................. 41.0 -- 41.0 Asset management..................................... 11.7 -- 11.7 Other................................................ 25.1 6.7 31.8 Net investment income................................ 583.7 133.0 $ (16.2) (f) 700.5 Realized investment gain............................. 40.8 19.4 60.2 ----------- ----------- ------ ----------- Total revenues................................... 2,046.3 1,012.2 (16.2) 3,042.3 ----------- ----------- ------ ----------- ----------- ----------- ------ ----------- EXPENSES: Losses, adjustment expense and policy benefits....... 1,210.3 620.9 1,831.2 Commissions.......................................... 226.6 148.3 374.9 Interest............................................. 37.4 10.4 17.9 (f) 65.7 Other................................................ 284.9 122.4 24.8 (f) 431.3 (0.8) (f) Amortization of deferred policy acquisition costs.... 223.1 169.0 392.1 Deferral of policy acquisition costs................. (236.1) (178.1) (414.2) ----------- ----------- ------ ----------- Total expenses................................... 1,746.2 892.9 41.9 2,681.0 ----------- ----------- ------ ----------- Income before income taxes............................. 300.1 119.3 (58.1) 361.3 Provision (benefit) for federal income taxes................................................ 71.4 21.0 (13.1) (g) 79.3 ----------- ----------- ------ ----------- Income before distributions on capital securities...... 228.7 98.3 (45.0) 282.0 Distributions on capital securities, net of tax............................................... -- -- 26.8 (h) 26.8 ----------- ----------- ------ ----------- Net income available to common stockholders......................................... $ 228.7 $ 98.3 $ (71.8) $ 255.2 ----------- ----------- ------ ----------- ----------- ----------- ------ ----------- Net income per share of common stock: Income before realized gain.......................... $ 1.60 $ 1.56 Realized gain........................................ .21 .27 ----------- ----------- Net income per share................................... $ 1.81 $ 1.83 ----------- ----------- ----------- ----------- Weighted average shares outstanding.................... 126.3 (i) 139.3
20 PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
HISTORICAL PRO FORMA ------------------------ ADJUSTMENTS PRO AMERICAN INCREASE NOTE FORMA SAFECO STATES (DECREASE) REFERENCE COMBINED ----------- ----------- ------------- --------- ----------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) REVENUES: Insurance: Property and casualty earned premiums.............. $ 2,275.4 $ 1,617.2 $ 3,892.6 Life and health premiums and other revenues........ 265.9 56.9 322.8 ----------- ----------- ----------- Total............................................ 2,541.3 1,674.1 4,215.4 Real estate.......................................... 79.9 -- 79.9 Finance.............................................. 75.7 -- 75.7 Asset management..................................... 23.2 -- 23.2 Other................................................ 38.5 -- 38.5 Net investment income................................ 1,116.7 274.3 $ (32.4) (f) 1,358.6 Realized investment gain............................. 90.1 35.6 125.7 ----------- ----------- ------------- ----------- Total revenues................................... 3,965.4 1,984.0 (32.4) 5,917.0 ----------- ----------- ------------- ----------- EXPENSES: Losses, adjustment expense and policy benefits....... 2,362.7 1,248.9 3,611.6 Commissions.......................................... 415.7 283.0 698.7 Interest............................................. 72.4 12.4 35.8 (f) 120.6 Other................................................ 552.6 243.8 49.5 (f) 844.4 (1.5) (f) Amortization of deferred policy acquisition costs.... 426.9 338.0 764.9 Deferral of policy acquisition costs................. (443.4) (337.8) (781.2) ----------- ----------- ------------- ----------- Total expenses................................... 3,386.9 1,788.3 83.8 5,259.0 ----------- ----------- ------------- ----------- Income before income taxes............................. 578.5 195.7 (116.2) 658.0 Provision (benefit) for federal income taxes................................................ 139.5 26.0 (26.2) (g) 139.3 ----------- ----------- ------------- ----------- Income before distributions on capital securities...... 439.0 169.7 (90.0) 518.7 Distributions on capital securities, net of tax............................................... -- -- 53.6 (h) 53.6 ----------- ----------- ------------- ----------- Net income available to common stockholders......................................... $ 439.0 $ 169.7 $ (143.6) $ 465.1 ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Net income per share of common stock: Income before realized gain.......................... $ 3.02 $ 2.75 Realized gain........................................ .46 .59 ----------- ----------- Net income per share................................... $ 3.48 $ 3.34 ----------- ----------- ----------- ----------- Weighted average shares outstanding.................... 126.1 (i) 139.1
21 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT SHARE AMOUNTS) (a) The following adjustments reflect the funding of the Acquisition: SOURCES: Proceeds from issuance of commercial paper (after application of the net proceeds of $595.5 from issuance of common stock and the issuance of an additional $150 aggregate liquidation amount of capital securities)........... $ 738.5 Proceeds from issuance of Notes................................................. 200.0 Net proceeds from issuance of capital securities................................ 990.0 Net proceeds from issuance of common stock...................................... 595.5 Dividend from SAFECO's property and casualty subsidiaries....................... 600.0 --------- Total......................................................................... $ 3,124.0 --------- --------- USES: Purchase price of outstanding shares of common stock of American States (60,093,615 shares x $47)..................................................... $ 2,824.4 Retirement of American States debt.............................................. 299.6 --------- Total......................................................................... $ 3,124.0 --------- ---------
(b) The following adjustments result from the allocation of the purchase price for the Acquisition based on the fair value of the net assets acquired:
DEBIT (CREDIT) --------- ASSETS: Record the direct out-of-pocket costs of the Acquisition............................................. $ (42.0) Adjustment to reflect the deferred tax benefit of purchase accounting adjustments.................... 102.5 Net American States' deferred tax asset against SAFECO's deferred tax liability...................... (223.6) Eliminate American States' goodwill.................................................................. (96.1) Record the excess of the cost to acquire American States over the fair value of net assets acquired (goodwill)......................................................................................... 1,484.0 LIABILITIES: Adjustments to other liabilities: Record lease-related fair value adjustments........................................................ $ (18.0) Record the estimated liability for change of control and other costs for certain executive officers and employees of American States.................................................................. (30.0) Increase liability for pension obligations......................................................... (9.6) Reduce liability for postretirement obligations.................................................... 16.6 --------- Total adjustments to other liabilities........................................................... $ (41.0) --------- ---------
(c) Adjustments of unpaid loss and loss adjustment expense resulting from the Corporation's evaluation of American States' reserves will be recorded in operations in the period determined. The Corporation expects to record $40.0 of additional reserves in the fourth quarter of 1997, which will result in an after-tax charge of $26.0 for such quarter. (d) The Corporation expects to accrue in the fourth quarter of 1997 an estimated liability of $23.0 ($15.0 after-tax) for first-year incentive commissions on certain American States' personal lines business. (CONTINUED ON NEXT PAGE) 22 (CONTINUED FROM PREVIOUS PAGE) (e) Adjustment to eliminate American States' equity: Common stock........................................................ $ (304.5) Retained earnings................................................... (941.0) Unrealized gain..................................................... (171.5)
(f) The following adjustments reflect the annual income statement effect of the pro forma adjustments. The income statement adjustments for the six-month period ended June 30, 1997 are equal to one-half of the annual amounts presented:
ANNUAL INCREASE (DECREASE) IN PRETAX INCOME --------------- INVESTMENT INCOME: Loss of investment income due to dividend from SAFECO's property and casualty subsidiaries ($600.0 x 5.4%, rate based on market yields for tax-exempt securities at September 5, 1997)........................................................................................ $ (32.4) INTEREST EXPENSE: Retire existing American States debt ($100.0 x 7 1/8%, $200.0 x 6.7%).......................... $ 20.5 Commercial paper interest expense ($738.5 x 5.7%).............................................. (42.1) Notes interest expense ($200.0 x 7.1%)......................................................... (14.2) ------- Total interest expense effect................................................................ (35.8) ------- Record the amortization of goodwill over 30 years.............................................. (49.5) Record amortization of unfavorable lease obligation............................................ 1.5 ------- Total pretax income effect................................................................... $ (116.2) ------- (g) Record income tax expense (benefit) of the pro forma adjustments......................... $ (26.2) (h) Distributions on capital securities, net of tax ($1,000 x 8.25% = 82.5) x (100% - 35%)................................................... $ 53.6
The interest rate on the Notes and the distribution rate on the capital securities are based on effective cost, including the cost of an interest rate lock, of the Notes and the Capital Securities. The Corporation issued $1,500 of commercial paper in late September 1997 ($750 on September 26, 1997 and $750 on September 29, 1997) at interest rates ranging from 5.65% to 5.70% and maturities ranging from October 20, 1997 to January 29, 1998 and used all but $16 to finance the Acquisition. The Corporation, through a subsidiary trust, may issue an additional $150 aggregate liquidation amount of capital securities in 1997 to retire a like amount of commercial paper. (i) Reflects the issuance of shares of Common Stock at a public offering price of $47.50 per share and gross proceeds of $617.5. 23 SAFECO CORPORATION The Corporation is one of the largest property and casualty insurance companies in the United States. On a pro forma basis giving effect to the Acquisition and the Related Financings, the Corporation had consolidated revenues of $5.9 billion in 1996, and total assets of $27.3 billion and total stockholders' equity of $5.0 billion at June 30, 1997. The Corporation provides a broad range of personal and commercial property and casualty insurance to individuals, businesses, government entities and associations. SAFECO and American States have each underwritten property and casualty insurance since the 1920s. Through its insurance subsidiaries, the Corporation is licensed as a property and casualty insurer in all 50 states and the District of Columbia, with a significant presence in the Pacific Northwest and the Midwest. The Corporation's property and casualty operations generated approximately 92% of the Corporation's insurance revenues in 1996. Of the Corporation's 1996 net written property and casualty premiums of $3.9 billion, personal and commercial lines accounted for 60% and 40%, respectively. The Corporation also offers annuities, retirement services and group life and health and individual life insurance. In addition, the Corporation conducts commercial lending and leasing, asset management, insurance agency and financial services distribution operations, and real estate investment and management. The Corporation's principal executive officers are located at 4333 Brooklyn Avenue N.E., Seattle, Washington 98185, and its telephone number is (206) 545-5000. The Corporation is subject to the information requirements of the Exchange Act, and in accordance therewith files reports, proxy statements and other information with the Commission. For further information regarding the Corporation, holders of Original Notes may refer to such reports, proxy statements and other information which are available as described in "Available Information" and "Incorporation of Certain Documents by Reference." USE OF PROCEEDS This Exchange Offer is intended to satisfy certain obligations of the Corporation under the Registration Rights Agreement. The Corporation will not receive any proceeds from the issuance of the Exchange Notes offered hereby and has agreed to pay the expenses of the Exchange Offer. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Corporation will receive, in exchange, Original Notes representing an equal aggregate principal amount at maturity. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Original Notes, except as otherwise described in "The Exchange Offer--Terms of the Exchange Offer." The Original Notes surrendered in the exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in the outstanding debt of the Corporation. 24 RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED CHARGES AND DISTRIBUTIONS ON CAPITAL SECURITIES The following table sets forth the Corporation's ratios of earnings to fixed charges and earnings to fixed charges and distributions on capital securities:
PRO FORMA ---------------------------------- SIX MONTHS YEAR ENDED SIX MONTHS YEARS ENDED DECEMBER 31, ENDED DEC. 31, ENDED --------------------------------- JUNE 30,1997 1996 JUNE 30, 1997 1996 1995 1994 ----------------- --------------- --------------- --------- --------- ----- Ratio of earnings to fixed charges(1)........................ 6.0 6.0 8.4 8.6 6.7 6.2 Ratio of earnings to fixed charges and distributions on capital securities........................ 3.8 3.7 8.4 8.6 6.7 6.2 Ratio of earnings to fixed charges excluding SAFECO Credit Company, Inc.(1)........................... 8.8 8.7 22.0 20.5 11.5 9.5 Ratio of earnings to fixed charges and distributions on capital securities, excluding SAFECO Credit Company, Inc............... 4.6 4.4 22.0 20.5 11.5 9.5 1993 1992 --------- --------- Ratio of earnings to fixed charges(1)........................ 10.1 7.0 Ratio of earnings to fixed charges and distributions on capital securities........................ 10.1 7.0 Ratio of earnings to fixed charges excluding SAFECO Credit Company, Inc.(1)........................... 16.1 10.6 Ratio of earnings to fixed charges and distributions on capital securities, excluding SAFECO Credit Company, Inc............... 16.1 10.6
- ------------------------ (1) Excludes distributions on capital securities. For purposes of computing the ratios of earnings to fixed charges, earnings represent net income before extraordinary items and cumulative effect of changes in accounting principles plus applicable income taxes and fixed charges. Fixed charges include all interest expense, distributions on capital securities (except where noted) and the proportion deemed representative of the interest factor of rent expense. The table also presents the pro forma ratios of earnings to fixed charges for the six months ended June 30, 1997 and for the year ended December 31, 1996 as if the Acquisition and related transactions had been consummated on January 1, 1996. 25 CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of SAFECO as of June 30, 1997, as adjusted to reflect the consummation of the Acquisition and the issuance of an additional $150 million aggregate liquidation amount of capital securities, $1,334 million of commercial paper and the issuance of Common Stock in an equity offering with net proceeds of $595.5 million (collectively, the "Related Financings"), and as further adjusted to reflect the issuance of the 8.072% Capital Securities and the Notes and the application of the net proceeds therefrom. The issuance of the Exchange Notes and the Exchange Capital Securities will have no effect on the capitalization of the Corporation. The information presented below should be read in conjunction with the historical consolidated financial statements of SAFECO and the related notes thereto, the historical consolidated financial statements of American States and the related notes thereto and the unaudited pro forma combined condensed financial statements of the Corporation, included elsewhere in this Prospectus or incorporated by reference herein from the SAFECO Annual Report and the American States Annual Report (each as defined in "Selected Financial Information"), as the case may be.
JUNE 30, 1997 ---------------------------------------------- AS ADJUSTED FOR AS ADJUSTED FOR THE ACQUISITION THE 8.072% CAPITAL SAFECO AND THE RELATED SECURITIES AND THE ACTUAL FINANCINGS NOTES -------- --------------- ------------------ (IN MILLIONS) Credit company debt............................... $ 907.7 $ 907.7 $ 907.7 Commercial paper(1)............................... -- 1,334.0 738.5 7 7/8% Notes due 2005............................. 200.0 200.0 200.0 Notes............................................. -- 200.0 200.0 Other notes and mortgages......................... 233.5 233.5 233.5 -------- --------------- -------- Total debt................................ 1,341.2 2,875.2 2,279.7 Corporation-obligated, mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated debentures of the Corporation..................................... -- 990.0 990.0 Total stockholders' equity........................ 4,370.6 4,370.6 4,966.1 -------- --------------- -------- Total capitalization...................... $5,711.8 $8,235.8 $8,235.8 -------- --------------- -------- -------- --------------- --------
- ------------------------ (1) The Corporation issued $1,500 million of commercial paper in late September 1997 and used all but $16 million to finance the Acquisition. The $1,334 million of commercial paper is net of the $16 million not used to finance the Acquisition and the $150 million aggregate liquidation amount of capital securities that may be issued in the fourth quarter of 1997. 26 SELECTED FINANCIAL INFORMATION SELECTED GAAP CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF SAFECO The selected consolidated financial information presented below is derived from the consolidated financial statements of SAFECO and its subsidiaries. Such financial statements have been audited by Ernst & Young LLP, independent auditors, for each of the three years in the period ended December 31, 1996. The consolidated financial statements of SAFECO and its subsidiaries as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 are incorporated by reference to the SAFECO Annual Report on Form 10-K for the year ended December 31, 1996 (the "SAFECO Annual Report"), and the information set forth below should be read in conjunction with such consolidated financial statements and the notes thereto. See "Incorporation of Certain Documents by Reference." The selected consolidated financial information as of June 30, 1997 and for the six months ended June 30, 1997 and 1996 are derived from unaudited consolidated financial statements of SAFECO which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial information. The results for the six months ended June 30, 1997 do not necessarily indicate the results for the entire year.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, -------------------- ------------------------------- 1997 1996 1996 1995 1994 --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Revenues: Insurance: Property and casualty earned premiums............... $ 1,176.4 $ 1,112.4 $ 2,275.4 $ 2,162.1 $ 2,053.4 Life and health premiums and other revenues......... 134.9 132.3 265.9 261.6 276.8 --------- --------- --------- --------- --------- Total............................................. 1,311.3 1,244.7 2,541.3 2,423.7 2,330.2 Other................................................. 110.5 106.3 217.3 191.6 201.8 Net investment income................................. 583.7 549.8 1,116.7 1,075.3 991.6 Realized investment gain.............................. 40.8 52.8 90.1 64.3 39.0 --------- --------- --------- --------- --------- Total revenues.................................... 2,046.3 1,953.6 3,965.4 3,754.9 3,562.6 --------- --------- --------- --------- --------- Expenses: Losses, adjustment expense and policy benefits........ 1,210.3 1,167.7 2,362.7 2,250.4 2,202.3 Commissions........................................... 226.6 201.4 415.7 401.2 394.1 Interest.............................................. 37.4 35.4 72.4 85.4 70.3 Other................................................. 271.9 264.3 536.1 504.1 506.2 --------- --------- --------- --------- --------- Total expenses.................................... 1,746.2 1,668.8 3,386.9 3,241.1 3,172.9 --------- --------- --------- --------- --------- Income before income taxes.............................. 300.1 284.8 578.5 513.8 389.7 Provision for federal income taxes...................... 71.4 68.1 139.5 114.8 75.3 --------- --------- --------- --------- --------- Net income.............................................. $ 228.7 $ 216.7 $ 439.0 $ 399.0 $ 314.4 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income per share of common stock: Income before realized gain........................... $ 1.60 $ 1.45 $ 3.02 $ 2.84 $ 2.29 Realized gain......................................... .21 .27 .46 .33 .21 --------- --------- --------- --------- --------- Net income per share.................................... $ 1.81 $ 1.72 $ 3.48 $ 3.17 $ 2.50 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding..................... 126.3 126.0 126.1 126.0 125.9
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AT DECEMBER 31, AT JUNE 30, ---------------------------------- 1997 1996 1995 1994 ----------- ---------- ---------- ---------- (IN MILLIONS, EXCEPT RATIOS) BALANCE SHEET DATA: Assets: Investments: Fixed maturities available-for-sale, at market value........ $12,238.2 $ 11,936.2 $ 11,928.1 $ 9,509.1 Fixed maturities held-to-maturity, at amortized cost........ 2,698.1 2,488.3 2,044.5 2,053.1 Marketable equity securities, at market value............... 1,501.1 1,298.8 1,119.4 855.1 Other invested assets....................................... 1,244.4 1,166.2 1,040.2 1,049.7 ----------- ---------- ---------- ---------- Total investments......................................... 17,681.8 16,889.5 16,132.2 13,467.0 Finance receivables........................................... 913.8 829.1 741.2 619.1 Premiums and other service fees receivable.................... 486.9 467.2 444.6 418.7 Deferred policy acquisition costs............................. 411.6 396.1 356.4 388.8 Other assets.................................................. 894.7 844.6 817.0 849.8 Separate account assets....................................... 662.2 491.2 276.4 158.3 ----------- ---------- ---------- ---------- Total assets.............................................. $21,051.0 $ 19,917.7 $ 18,767.8 $ 15,901.7 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- Liabilities and Stockholders' Equity: Losses, adjustment expense and future policy benefits......... $ 2,128.8 $ 2,237.8 $ 2,361.3 $ 2,421.2 Unearned premiums............................................. 981.7 946.9 910.8 867.0 Funds held under deposit contracts............................ 10,402.8 9,792.7 8,756.4 7,988.5 Short-term debt............................................... 906.3 793.4 608.6 639.3 Long-term debt................................................ 434.9 440.1 458.9 343.6 Other liabilities............................................. 1,163.7 1,100.3 1,412.8 654.3 Separate account liabilities.................................. 662.2 491.2 276.4 158.3 ----------- ---------- ---------- ---------- Total liabilities......................................... 16,680.4 15,802.4 14,785.2 13,072.2 ----------- ---------- ---------- ---------- Common stock.................................................. 227.9 225.3 217.4 211.2 Retained earnings............................................. 3,190.4 3,042.2 2,755.5 2,495.8 Unrealized appreciation of investment securities, net of tax/other................................................... 952.3 847.8 1,009.7 122.5 ----------- ---------- ---------- ---------- Total stockholders' equity................................ 4,370.6 4,115.3 3,982.6 2,829.5 ----------- ---------- ---------- ---------- Total liabilities and stockholders' equity................ $21,051.0 $ 19,917.7 $ 18,767.8 $ 15,901.7 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- OTHER PROPERTY AND CASUALTY DATA-- STATUTORY BASIS: Policyholders' surplus(1)....................................... $ 2,431.1 $ 2,166.2 $ 1,864.7 $ 1,506.1 Ratio of net written premiums to policyholders' surplus(2)...... 1.0x 1.1x 1.2x 1.4x Combined ratio(3)............................................... 97.6% 98.8% 99.6% 103.6% Industry combined ratio(4)...................................... N/A 105.8% 106.5% 108.4%
- -------------------------- (1) Excludes surplus of SAFECO's life and health subsidiaries of $619.0, $587.7, $504.7 and $416.8 at June 30, 1997 and December 31, 1996, 1995 and 1994, respectively. (2) Annual ratios represent statutory net written premiums for the year divided by statutory policyholders' surplus at the end of the year attributable to the property and casualty business. The six-month ratio is based on annualized statutory net written premiums divided by statutory policyholders' surplus at the end of the six-month period. (3) The combined ratio is an industry measurement of the results of property and casualty insurance underwriting. This ratio is the sum of the ratio of incurred losses and loss adjustment expenses to net earned premiums (the "loss and LAE ratio"), the ratio of underwriting expenses incurred to net written premiums (the "underwriting expense ratio") and, where applicable, the ratio of dividends to policyholders to net earned premiums. A combined ratio under 100% generally indicates an underwriting profit; a combined ratio over 100% generally indicates an underwriting loss. (4) Source: A.M. Best; data for 1997 are not yet available. 28 SELECTED GAAP CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF AMERICAN STATES The selected consolidated financial information presented below is derived from the consolidated financial statements of American States and its subsidiaries. Such financial statements have been audited by Ernst & Young LLP, independent auditors, for each of the three years in the period ended December 31, 1996. The consolidated financial statements of American States and its subsidiaries as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 are included in the American States Annual Report on Form 10-K, Form 10-K/A(1) and Form 10-K/A(2) for the year ended December 31, 1996 (collectively, the "American States Annual Report"), and the information set forth below should be read in conjunction with such consolidated financial statements and the notes thereto. See "Incorporation of Certain Documents by Reference." The selected consolidated financial information as of June 30, 1997 and for the six months ended June 30, 1997 and 1996 are derived from unaudited consolidated financial statements of American States which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial information. The results for the six months ended June 30, 1997 do not necessarily indicate the results for the entire year.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, -------------------- ------------------------------- 1997 1996 1996 1995 1994 --------- --------- --------- --------- --------- (IN MILLIONS) INCOME STATEMENT DATA: Revenues: Insurance: Property and casualty earned premiums............... $ 824.1 $ 819.6 $ 1,617.2 $ 1,689.6 $ 1,693.5 Life and health premiums and other revenues......... 29.0 28.9 56.9 56.8 52.5 --------- --------- --------- --------- --------- Total............................................. 853.1 848.5 1,674.1 1,746.4 1,746.0 Other................................................. 6.7 -- -- (28.4) -- Net investment income................................. 133.0 134.5 274.3 266.6 260.5 Realized investment gain.............................. 19.4 28.4 35.6 41.0 19.9 --------- --------- --------- --------- --------- Total revenues.................................... 1,012.2 1,011.4 1,984.0 2,025.6 2,026.4 --------- --------- --------- --------- --------- Expenses: Losses, adjustment expense and policy benefits........ 620.9 655.9 1,248.9 1,242.3 1,272.0 Commissions........................................... 140.8 144.4 283.0 291.6 296.9 Interest.............................................. 10.4 1.8 12.4 -- -- Other................................................. 120.8 122.4 244.0 282.6 257.2 --------- --------- --------- --------- --------- Total expenses.................................... 892.9 924.5 1,788.3 1,816.5 1,826.1 --------- --------- --------- --------- --------- Income before income taxes.............................. 119.3 86.9 195.7 209.1 200.3 Provision for federal income taxes...................... 21.0 10.2 26.0 30.8 15.7 --------- --------- --------- --------- --------- Net income.............................................. $ 98.3 $ 76.7 $ 169.7 $ 178.3 $ 184.6 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income before realized investment gain.............. $ 88.0 $ 59.6 $ 146.2 $ 156.7 $ 171.6
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AT DECEMBER 31, AT JUNE 30, ------------------------------- 1997 1996 1995 1994 ----------- --------- --------- --------- (IN MILLIONS, EXCEPT RATIOS) BALANCE SHEET DATA: Assets: Investments: Fixed maturities available-for-sale, at market value.......... $ 3,787.6 $ 3,763.9 $ 3,860.9 $ 3,429.9 Marketable equity securities, at market value................. 460.6 435.1 437.7 522.5 Other invested assets......................................... 135.5 143.6 131.6 188.9 ----------- --------- --------- --------- Total investments........................................... 4,383.7 4,342.6 4,430.2 4,141.3 Premiums receivable............................................. 482.8 413.4 377.8 384.0 Deferred policy acquisition costs............................... 212.3 202.2 199.2 210.8 Other assets.................................................... 573.1 582.9 532.0 683.2 ----------- --------- --------- --------- Total assets................................................ $ 5,651.9 $ 5,541.1 $ 5,539.2 $ 5,419.3 ----------- --------- --------- --------- ----------- --------- --------- --------- Liabilities and Stockholders' Equity: Losses, adjustment expense and future policy benefits........... $ 2,854.7 $ 2,868.3 $ 2,828.3 $ 2,878.2 Unearned premiums............................................... 746.1 712.0 718.5 725.4 Short-term debt................................................. 66.7 66.7 -- -- Long-term debt.................................................. 232.9 232.9 -- -- Other liabilities............................................... 334.5 325.2 323.7 347.1 ----------- --------- --------- --------- Total liabilities........................................... 4,234.9 4,205.1 3,870.5 3,950.7 ----------- --------- --------- --------- Common stock.................................................... 304.5 304.5 387.5 387.5 Retained earnings............................................... 941.0 867.9 1,069.4 1,090.1 Unrealized appreciation (depreciation) of investment securities, net of tax.................................................... 171.5 163.6 211.8 (9.0) ----------- --------- --------- --------- Total stockholders' equity.................................. 1,417.0 1,336.0 1,668.7 1,468.6 ----------- --------- --------- --------- Total liabilities and stockholders' equity.................. $ 5,651.9 $ 5,541.1 $ 5,539.2 $ 5,419.3 ----------- --------- --------- --------- ----------- --------- --------- --------- OTHER PROPERTY AND CASUALTY DATA--STATUTORY BASIS: Policyholders' surplus(1)......................................... $ 1,092.9 $ 966.0 $ 1,011.0 $ 980.7 Ratio of net written premiums to policyholders' surplus(2)........ 1.5x 1.7x 1.7x 1.7x Combined ratio(3)................................................. 102.9% 105.8% 103.6% 104.6% Industry combined ratio(4)........................................ N/A 105.8% 106.5% 108.4%
- ------------------------ (1) Excludes surplus of American States Life Insurance Company of $60.6, $57.4, $51.7 and $61.2 at June 30, 1997 and December 31, 1996, 1995 and 1994, respectively. (2) Annual ratios represent statutory net written premiums for the year divided by statutory policyholders' surplus at the end of the year attributable to the property and casualty business. The six-month ratio is based on annualized statutory net written premiums divided by statutory policyholders' surplus at the end of the six-month period. (3) The combined ratio is an industry measurement of the results of property and casualty insurance underwriting. This ratio is the sum of the loss and LAE ratio, the underwriting expense ratio and, where applicable, the ratio of dividends to policyholders to net earned premiums. A combined ratio under 100% generally indicates an underwriting profit; a combined ratio over 100% generally indicates an underwriting loss. (4) Source: A.M. Best; data for 1997 are not yet available. 30 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the sale of the Original Notes, the Corporation entered into the Registration Rights Agreement with the Initial Purchaser, pursuant to which the Corporation agreed to file and to use reasonable efforts to cause to become effective with the Commission a registration statement with respect to the exchange of the Original Notes for notes with terms identical in all material respects to the terms of the Original Notes. A copy of the Registration Rights Agreement has been filed as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. The Exchange Offer is being made to satisfy the contractual obligations of the Corporation under the Registration Rights Agreement. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes except that the Exchange Notes have been registered under the Securities Act and will not be subject to certain restrictions on transfer applicable to the Original Notes, and will not provide for any increase in the interest rate thereon. In that regard, the Original Notes provide, among other things, that, if a registration statement relating to the Exchange Offer has not been filed by December 8, 1997 and declared effective by January 21, 1998, the interest rate borne by the Original Notes will increase by 0.50% per annum until such registration statement is filed or declared effective, as the case may be. Upon consummation of the Exchange Offer, holders of Original Notes will not be entitled to any increase in the interest rate thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Risk Factors--Consequences of a Failure to Exchange Original Notes" and "Description of Exchange Notes." The Exchange Offer is not being made to, nor will the Corporation accept tenders for exchange from, holders of Original Notes in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Unless the context requires otherwise, the term "holder" with respect to the Exchange Offer means any person in whose name the Original Notes are registered on the books of the Corporation or any other person who has obtained a properly completed bond power from the registered holder, or any person whose Original Notes are held of record by DTC who desires to deliver such Original Notes by book-entry transfer at DTC. TERMS OF THE EXCHANGE OFFER The Corporation hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, to exchange up to $200,000,000 aggregate principal amount of Exchange Notes for a like aggregate principal amount of Original Notes properly tendered on or prior to the Expiration Date and not properly withdrawn in accordance with the procedures described below. The Corporation will issue, promptly after the Expiration Date, an aggregate principal amount of up to $200,000,000 of Exchange Notes in exchange for a like principal amount of outstanding Original Notes tendered and accepted in connection with the Exchange Offer. Holders may tender their Original Notes in whole or in part in an aggregate principal amount of $100,000 and integral multiples of $1,000 in excess thereof. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered. As of the date of this Prospectus, $200,000,000 aggregate principal amount of the Original Notes is outstanding. Holders of Original Notes do not have any appraisal or dissenters' rights in connection with the Exchange Offer. Original Notes which are not tendered for or are tendered but not accepted in connection with the Exchange Offer will remain outstanding and be entitled to the benefits of the Indenture, but will not be entitled to any further registration rights under the Registration Rights Agreement, except under 31 limited circumstances. See "Risk Factors--Consequences of a Failure to Exchange Original Notes" and "Description of Exchange Notes." If any tendered Original Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Original Notes will be returned, without expense, to the tendering holder thereof promptly after the Expiration Date. Holders who tender Original Notes in connection with the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Original Notes in connection with the Exchange Offer. The Corporation will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "--Fees and Expenses." NEITHER THE CORPORATION NOR THE BOARD OF DIRECTORS OF THE CORPORATION MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF ORIGINAL NOTES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL POSITIONS AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" means 5:00 p.m., New York City time, on December 15, 1997 unless the Exchange Offer is extended by the Corporation (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). The Corporation expressly reserves the right in its sole and absolute discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Original Notes for exchange, (ii) to terminate the Exchange Offer (whether or not any Original Notes have theretofore been accepted for exchange) if the Corporation determines, in its sole and absolute discretion, that any of the events or conditions referred to in "--Conditions to the Exchange Offer" have occurred or exist or have not been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain all Original Notes tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Original Notes to withdraw their tendered Original Notes as described in "--Withdrawal Rights," and (iv) to waive any condition or otherwise amend the terms of the Exchange Offer in any respect. If the Exchange Offer is amended in a manner determined by the Corporation to constitute a material change, or if the Corporation waives a material condition of the Exchange Offer, the Corporation will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the holders of the Original Notes, and the Corporation will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. Any such delay in acceptance, extension, termination or amendment will be followed promptly by oral or written notice thereof to the Exchange Agent and by making a public announcement thereof, and such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Corporation may choose to make any public announcement and subject to applicable law, the Corporation shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to an appropriate news agency. 32 ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES Upon the terms and subject to the conditions of the Exchange Offer, the Corporation will exchange Exchange Notes for Original Notes validly tendered and not withdrawn (pursuant to the withdrawal rights described in "--Withdrawal Rights") promptly after the Expiration Date. Subject to the conditions set forth in "--Conditions to the Exchange Offer," delivery of Exchange Notes in exchange for Original Notes tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for Original Notes or a book-entry confirmation of a book-entry transfer of Original Notes into the Exchange Agent's account at DTC, including an Agent's Message if the tendering holder does not deliver a Letter of Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal, and (iii) any other documents required by the Letter of Transmittal. Accordingly, the delivery of Exchange Notes might not be made to all tendering holders at the same time, and will depend upon when certificates for Original Notes, book-entry confirmations with respect to Original Notes and other required documents are received by the Exchange Agent. The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of Original Notes into the Exchange Agent's account at DTC. See "--Procedures for Tendering Original Notes-- Book-Entry Transfer." The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by the Letter of Transmittal and that the Corporation may enforce such Letter of Transmittal against such participant. Subject to the terms and conditions of the Exchange Offer, the Corporation will be deemed to have accepted for exchange, and thereby exchanged, Original Notes validly tendered and not withdrawn as, if and when the Corporation gives oral or written notice to the Exchange Agent of the Corporation's acceptance of such Original Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent for the Corporation for the purpose of receiving tenders of Original Notes, Letters of Transmittal and related documents, and as agent for tendering holders for the purpose of receiving Original Notes, Letters of Transmittal and related documents and transmitting Exchange Notes which will not be held in global form by DTC or a nominee of DTC to validly tendering holders. Such exchange will be made promptly after the Expiration Date. If for any reason whatsoever, acceptance for exchange or the exchange of any Original Notes tendered pursuant to the Exchange Offer is delayed (whether before or after the Corporation's acceptance for exchange of Original Notes) or the Corporation extends the Exchange Offer or is unable to accept for exchange or exchange Original Notes tendered pursuant to the Exchange Offer, then, without prejudice to the Corporation's rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the Corporation and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Original Notes and such Original Notes may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described in "--Withdrawal Rights." Pursuant to an Agent's Message or a Letter of Transmittal, a holder of Original Notes will represent, warrant and agree in the Letter of Transmittal that it has full power and authority to tender, exchange, sell, assign and transfer Original Notes, that the Corporation will acquire good, marketable and unencumbered title to the tendered Original Notes, free and clear of all liens, restrictions, charges and encumbrances, and the Original Notes tendered for exchange are not subject to any adverse claims or proxies. The holder also will warrant and agree that it will, upon request, execute and deliver any additional documents deemed by the Corporation or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment, and transfer of the Original Notes tendered pursuant to the Exchange Offer. 33 PROCEDURES FOR TENDERING ORIGINAL NOTES VALID TENDER Except as set forth below, in order for Original Notes to be validly tendered by book-entry transfer, an Agent's Message or a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and in either case any other documents required by the Letter of Transmittal, must be delivered to the Exchange Agent by mail, facsimile, hand delivery or overnight courier at one of the Exchange Agent's addresses set forth in "--Exchange Agent" on or prior to the Expiration Date and either (i) such Original Notes must be tendered pursuant to the procedures for book-entry transfer set forth below or (ii) the guaranteed delivery procedures set forth below must be complied with. Except as set forth below, in order for Original Notes to be validly tendered by a means other than by book-entry transfer, a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal must be delivered to the Exchange Agent by mail, facsimile, hand delivery or overnight courier at one of the Exchange Agent's addresses set forth in "--Exchange Agent" on or prior to the Expiration Date and either (i) such Original Notes must be delivered to the Exchange Agent on or prior to the Expiration Date or (ii) the guaranteed delivery procedures set forth below must be complied with. If less than all Original Notes are tendered, a tendering holder should fill in the amount of Original Notes being tendered in the appropriate box on the Letter of Transmittal. The entire amount of Original Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER The Exchange Agent and DTC have confirmed that any Participant (as defined in "Description of Exchange Notes--Description of the Exchange Notes--Depositary Procedures") in DTC's book-entry transfer facility system may utilize DTC's ATOP procedures to tender Original Notes. The Exchange Agent will establish an account with respect to the Original Notes at DTC for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any Participant may make a book-entry delivery of the Original Notes by causing DTC to transfer such Original Notes into the Exchange Agent's account at DTC in accordance with DTC's ATOP procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message or a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, must in any case be delivered to and received by the Exchange Agent at one of its addresses set forth in "--Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure set forth below must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. SIGNATURE GUARANTEES Certificates for the Original Notes need not be endorsed and signature guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate for the Original Notes is registered in a name other 34 than that of the person surrendering the certificate or (b) such holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b) above, such certificates for Original Notes must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the Letter of Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association (an "Eligible Institution"), unless surrendered on behalf of such Eligible Institution. See Instruction 1 to the Letter of Transmittal. GUARANTEED DELIVERY If a holder desires to tender Original Notes pursuant to the Exchange Offer and the certificates for such Original Notes are not immediately available or time will not permit all required documents to reach the Exchange Agent on or prior to the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such Original Notes may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with: (a) such tenders are made by or through an Eligible Institution; (b) properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form accompanying the Letter of Transmittal, is received by the Exchange Agent, as provided below, on or prior to the Expiration Date; and (c) the certificates (or a book-entry confirmation) representing all tendered Original Notes, in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by facsimile or mail to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such notice. Notwithstanding any other provision hereof, the delivery of Exchange Notes in exchange for Original Notes tendered and accepted for exchange pursuant to the Exchange Offer will in all cases be made only after timely receipt by the Exchange Agent of Original Notes, or of a book-entry confirmation with respect to such Original Notes, and a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other documents required by the Letter of Transmittal. Accordingly, the delivery of Exchange Notes might not be made to all tendering holders at the same time, and will depend upon when Original Notes, book-entry confirmations with respect to Original Notes and other required documents are received by the Exchange Agent. The Corporation's acceptance for exchange of Original Notes tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering holder and the Corporation upon the terms and subject to the conditions of the Exchange Offer. DETERMINATION OF VALIDITY All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tendered Original Notes will be determined by the Corporation, in its sole discretion, whose determination shall be final and binding on all parties. The Corporation reserves the absolute right, in its sole and absolute discretion, to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the opinion of counsel to the 35 Corporation, be unlawful. The Corporation also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer as set forth under "--Conditions to the Exchange Offer" or any condition or irregularity in any tender of Original Notes of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The interpretation by the Corporation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. No tender of Original Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Corporation, any affiliates or assigns of the Corporation, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in tenders or incur any liability for failure to give any such notification. If any Letter of Transmittal, endorsement, bond power, power of attorney, or any other document required by the Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Corporation, proper evidence satisfactory to the Corporation, in its sole discretion, of such person's authority to so act must be submitted. A beneficial owner of Original Notes that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian is urged to contact such entity promptly if such beneficial holder wishes to participate in the Exchange Offer. RESALES OF EXCHANGE NOTES The Corporation is making the Exchange Offer for the Exchange Notes in reliance on the position of the staff of the Division of Corporation Finance of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Corporation has not sought its own interpretive letter and there can be no assurance that the staff of the Division of Corporation Finance of the Commission would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff of the Division of Corporation Finance of the Commission, and subject to the two immediately following sentences, the Corporation believes that Exchange Notes issued pursuant to this Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Notes. However, any holder of Original Notes who is an "affiliate" of the Corporation or who intends to participate in the Exchange Offer for the purpose of distributing Exchange Notes, or any broker-dealer who purchased Original Notes from the Corporation to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the staff of the Division of Corporation Finance of the Commission set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Original Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Original Notes unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Original Notes acquired for its own account as a result of market-making or other trading activities and exchanges such Original Notes for Exchange Notes, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such Exchange Notes. Each holder of Original Notes who wishes to exchange Original Notes for Exchange Notes in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Corporation, (ii) any Exchange Notes to be received by it are being acquired in the ordinary course of its business, (iii) it has no 36 arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Notes, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such Exchange Notes. In addition, the Corporation may require such holder, as a condition to such holder's eligibility to participate in the Exchange Offer, to furnish to the Corporation (or an agent thereof) in writing information as to the number of "beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the Notes to be exchanged in the Exchange Offer. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Original Notes for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the staff of the Division of Corporation Finance of the Commission in the interpretive letters referred to above, the Corporation believes that Participating Broker-Dealers who acquired Original Notes for their own accounts as a result of market-making activities or other trading activities may fulfill their prospectus delivery requirements with respect to the Exchange Notes received upon exchange of such Original Notes (other than Original Notes which represent an unsold allotment from the initial sale of the Original Notes) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the period referred to below in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Corporation has agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such Exchange Notes for a period ending 180 days after the Expiration Date (subject to extension under certain limited circumstances described below) or, if earlier, when all such Exchange Notes have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." However, a Participating Broker-Dealer who intends to use this Prospectus in connection with the resale of Exchange Notes received in exchange for Original Notes pursuant to the Exchange Offer must notify the Corporation, or cause the Corporation to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth in "--Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of the Corporation may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In that regard, each Participating Broker-Dealer who surrenders Original Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal, that upon receipt of notice from the Corporation of the occurrence of any event or the discovery of (i) any fact which makes any statement contained or incorporated by reference in this Prospectus untrue in any material respect or (ii) any fact which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading, or (iii) of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Exchange Notes, pursuant to this Prospectus until the Corporation has amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer, or the Corporation has given notice that the sale of the Exchange Notes may be resumed, as the case may be. If the Corporation gives such notice to suspend the sale of the Exchange 37 Notes, it shall extend the 180-day period referred to above during which Participating Broker-Dealers are entitled to use this Prospectus in connection with the resale of Exchange Notes by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the amended or supplemented Prospectus necessary to permit resales of the Exchange Notes or to and including the date on which the Corporation has given notice that the sale of Exchange Notes may be resumed, as the case may be. WITHDRAWAL RIGHTS Except as otherwise provided herein, tenders of Original Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth in "--Exchange Agent" on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Original Notes to be withdrawn, the aggregate principal amount of Original Notes to be withdrawn, and (if certificates for such Original Notes have been tendered) the name of the registered holder of the Original Notes as set forth on the Original Notes, if different from that of the person who tendered such Original Notes. If Original Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the physical release of such Original Notes, the tendering holder must submit the serial numbers shown on the particular Original Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Original Notes tendered for the account of an Eligible Institution. If Original Notes have been tendered pursuant to the procedures for book-entry transfer set forth in "--Procedures for Tendering Original Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Original Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Original Notes may not be rescinded. Original Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described above in "--Procedures for Tendering Original Notes." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Corporation, in its sole discretion, whose determination shall be final and binding on all parties. Neither the Corporation, any affiliates or assigns of the Corporation, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Original Notes which have been tendered but which are withdrawn will be returned to the holder thereof promptly after withdrawal. INTEREST PAYMENTS ON EXCHANGE NOTES Holders of Original Notes whose Original Notes are accepted for exchange will not receive interest payments on such Original Notes and will be deemed to have waived the right to receive any interest payments on such Original Notes accumulated from and after July 15, 1997. Accordingly, holders of Exchange Notes as of the record date for the payment of interest on January 15, 1998 will be entitled to receive interest accumulated from and after July 15, 1997. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Corporation will not be required to accept for exchange, or to exchange, any Original Notes for any Exchange Notes, and, as described below, may terminate the Exchange Offer (whether or not any Original Notes have theretofore been accepted for exchange) or may waive any conditions to or amend the Exchange Offer, if any of the following conditions have occurred or exists or have not been satisfied: 38 (a) there shall occur a change in the current interpretation by the staff of the Commission which permits the Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes to be offered for resale, resold and otherwise transferred by holders thereof (other than broker-dealers and any such holder which is an "affiliate" of the Corporation within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes; or (b) any law, statute, rule or regulation shall have been adopted or enacted which, in the judgment of the Corporation, would reasonably be expected to impair its ability to proceed with the Exchange Offer; or (c) a stop order shall have been issued by the Commission or any state securities authority suspending the effectiveness of the Registration Statement, or proceedings shall have been initiated or, to the knowledge of the Corporation, threatened for that purpose, or any governmental approval has not been obtained, which approval the Corporation shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Corporation determines in its sole and absolute discretion that any of the foregoing events or conditions has occurred or exists or has not been satisfied, it may, subject to applicable law, terminate the Exchange Offer (whether or not any Original Notes have theretofore been accepted for exchange) or may waive any such condition or otherwise amend the terms of the Exchange Offer in any respect. If such waiver or amendment constitutes a material change to the Exchange Offer, the Corporation will promptly disclose such waiver or amendment by means of a prospectus supplement that will be distributed to the registered holders of the Original Notes and will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. EXCHANGE AGENT The Chase Manhattan Bank has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND: The Chase Manhattan Bank (FOR ELIGIBLE INSTITUTIONS ONLY) The Chase Manhattan Bank 450 West 33rd Street, 15th Floor (212) 946-8154 450 West 33rd Street, 15th Floor New York, New York 10001-2697 New York, New York 10001-2697 Attention: John T. Needham, Jr. CONFIRM BY TELEPHONE: Attention: John T. Needham, Jr. (212) 946-3041 BY OVERNIGHT DELIVERY: The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001-2697
Delivery to other than the above addresses or facsimile number will not constitute a valid delivery. The Chase Manhattan Bank also serves as Trustee under the Indenture. 39 FEES AND EXPENSES The Corporation has agreed to pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Corporation will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and related documents to the beneficial owners of Original Notes, and in handling or tendering for their customers. Holders who tender their Original Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, Exchange Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Original Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Original Notes in connection with the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. The Corporation will not make any payment to brokers, dealers or other nominees soliciting acceptances of the Exchange Offer. CONSEQUENCE OF FAILURE TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. Original Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain "restricted securities" within the meaning of Rule 144(a)(3)(iv) of the Securities Act. Accordingly, such Original Notes may not be offered, sold, pledged or otherwise transferred except (i) to a person whom the seller reasonably believes is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S under the Securities Act, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant to an effective registration statement under the Securities Act or (v) to institutional accredited investors in a transaction exempt from the registration requirements of the Securities Act, and, in each case, in accordance with all other applicable securities laws and the transfer restrictions set forth in the Indenture. ACCOUNTING TREATMENT For accounting purposes, the Corporation will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the remaining term of the Notes. 40 DESCRIPTION OF EXCHANGE NOTES The terms of the Original Notes are identical in all materials respects to the Exchange Notes, except that (i) the Original Notes have not been registered under the Securities Act, are subject to certain restrictions on transfer and are entitled to certain rights under the Registration Rights Agreement (which rights will terminate upon consummation of the Exchange Offer, except under limited circumstances) and (ii) the Exchange Notes will not contain the $100,000 minimum principal amount transfer restriction and certain other restrictions on transfer applicable to Original Notes and (iii) the Exchange Notes will not provide for any increase in the interest rate thereon. The Original Notes provide that, in the event that a registration statement relating to the Exchange Offer has not been filed by December 8, 1997 and been declared effective by January 21, 1998, or, in certain limited circumstances, in the event a shelf registration statement with respect to the resale of the Original Notes is not declared effective by the time required by the Registration Rights Agreement, then liquidated damages ("Additional Interest") will accrue at the rate of 0.50% per annum on the principal amount of the Original Notes for the period from the occurrence of such event until such time as such registration statement has been filed or declared effective, as the case may be. The Exchange Notes are not, and upon consummation of the Exchange Offer the Original Notes will not be, entitled to any such Additional Interest. Accordingly, holders of Original Notes should review the information set forth in "Risk Factors--Consequences of a Failure to Exchange Original Notes." DESCRIPTION OF THE EXCHANGE NOTES The Corporation is offering up to $200,000,000 aggregate principal amount of its 6 7/8% Exchange Notes due July 15, 2007 (the "Exchange Notes"). The Exchange Notes will be, and the Original Notes were, issued under an indenture, dated as of July 15, 1997 (the "Indenture"), between the Corporation and The Chase Manhattan Bank, as Trustee (the "Trustee"), a copy of which is available upon request to the Corporation. The statements under this caption are brief summaries of certain provisions of the Indenture, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture, including the definitions therein of certain terms. Wherever particular terms that are defined in the Indenture are referred to herein, it is intended that such defined terms shall be incorporated by reference herein or therein, as the case may be. The Exchange Notes will be limited to $200,000,000 aggregate principal amount. The Exchange Notes will be unsecured obligations of the Corporation, will rank PARI PASSU with all other unsecured and unsubordinated indebtedness of the Corporation, and will mature on July 15, 2007. The Indenture does not limit the incurrence or issuance of other secured or unsecured indebtedness of the Corporation. The Exchange Notes will bear interest at the rate per annum shown on the cover page of this Offering Memorandum, payable semi-annually on January 15 and July 15 of each year (each an "Interest Payment Date") commencing January 15, 1998 to the Persons in whose names the Exchange Notes (or any predecessor Notes) are registered at the close of business on January 1 and July 1, as the case may be, next preceding such Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Exchange Notes is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally payable. Accrued interest that is not paid on the applicable Interest Payment Date will bear Additional Interest on the amount thereof (to the extent permitted by law) at the rate per annum of 6 7/8% thereof, compounded semi-annually. The term "interest," as used herein, shall include semi-annual interest payments and interest on semi-annual interest payments not paid on the applicable Interest Payment Date. The Exchange Notes may not be redeemed prior to maturity and will not be subject to any sinking fund. 41 CERTAIN RESTRICTIONS LIMITATIONS ON MORTGAGES AND LIENS. The Corporation will not be permitted to issue, assume, guarantee or permit to exist any indebtedness secured by a mortgage, pledge, lien or other encumbrance ("liens") on any of its property or assets, whether now owned or hereafter acquired, without effectively providing that the Exchange Notes (and, if the Corporation so elects, any other indebtedness ranking on a parity with the Exchange Notes) shall be equally and ratably secured with any such indebtedness, so long as any such other indebtedness shall be secured, except that the foregoing shall not apply to (a) liens in existence on the date of the Indenture, (b) liens on real estate (including those existing on property at the time of acquisition) in any amount not exceeding 100% of the fair value of the property at the time of creation of such indebtedness, (c) liens arising from the acquisition of a business as a going concern (whether by merger, acquisition of a controlling stock interest, acquisition of assets or otherwise) or to which assets acquired by the Corporation in partial or complete satisfaction of secured indebtedness are subject, (d) liens to secure extensions, renewals and replacements of indebtedness secured by any of the liens referred to in (a), (b) and (c) above, without increase in the amount of such indebtedness, and (e) certain mechanics, landlords, tax or other statutory liens, including liens and deposits required or provided for under state insurance laws and similar regulatory statutes. LIMITATIONS ON SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. Neither the Corporation nor any Restricted Subsidiary will be permitted to issue, sell, transfer or dispose of (except to a Restricted Subsidiary of the Corporation) capital stock of a Restricted Subsidiary, unless the entire capital stock of such Subsidiary at the time owned by the Corporation and its Restricted Subsidiaries is disposed of at the same time for a consideration of cash or property, which in the opinion of the Board of Directors of the Corporation is at least equal to the fair value of such capital stock. For the purposes of the foregoing restrictions, "Restricted Subsidiary" shall mean a subsidiary, including subsidiaries of any such subsidiary, which meets any of the following conditions: (a) the Corporation's and its other subsidiaries' investments in and advances to the subsidiary exceed 10% of the total assets of the Corporation and its subsidiaries consolidated as of the end of the most recently completed fiscal year; (b) the Corporation's and its other subsidiaries' proportionate share of the total assets (after inter-company eliminations) of the subsidiary exceeds 10% of the total assets of the Corporation and its subsidiaries consolidated as of the end of the most recently completed fiscal year; or (c) the Corporation's and its other subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the subsidiary exceeds 10% of such income of the Corporation and its subsidiaries consolidated for the most recently completed fiscal year. For purposes of making the prescribed income test in clause (c) of the preceding sentence, when a loss has been incurred by either the Corporation and its subsidiaries consolidated or the tested subsidiary, but not both, the equity in the income or loss of the tested subsidiary shall be excluded from the income of the Corporation and its subsidiaries consolidated for purposes of the computation and if income of the Corporation and its subsidiaries consolidated for the most recent fiscal year is at least 10% lower than the average of the income for the last five fiscal years, such average income shall be substituted for purposes of the computation and any loss years shall be omitted for purposes of computing average income. CONSOLIDATION, MERGER AND SALE OF ASSETS The Corporation shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Corporation or convey or transfer its properties and assets substantially as an entirety to the Corporation, unless: (i) in case the Corporation consolidates with or merges into another corporation or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor corporation is organized under the laws of the United States of America, or any state or the District of Columbia, and the successor corporation assumes the Corporation's obligations under the Exchange 42 Notes; (ii) immediately after giving effect thereto, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (iii) certain other conditions are met. The Corporation shall not lease its properties and assets substantially as an entirety to any Person. MODIFICATION AND WAIVER Modification and amendments of the Indenture may be made by the Corporation and the Trustee with the consent of the Holders of 66 2/3% in aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each outstanding Note affected thereby: (a) change the Stated Maturity of the principal of, or any installment of interest on, any outstanding Note; (b) reduce the principal amount of, or interest on, any outstanding Note; (c) change the place or currency of payment of principal or interest on any outstanding Note; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any outstanding Note after the Stated Maturity; or (e) reduce the percentage in principal amount of outstanding Notes, the consent of the Holders of which is required for modification or amendment of the Indenture, for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. The Corporation may obtain a waiver of compliance with certain restrictive covenants with respect to the Notes if the Holders of 66 2/3% in aggregate principal amount of the outstanding Notes consent to such waiver. The Holders of not less than a majority in principal amount of the outstanding Notes may, on behalf of the Holders of all outstanding Notes, waive any past default under the Indenture with respect to such outstanding Notes, except a default in the payment of the principal of or any interest on any outstanding Note or in respect of a provision which under the Indenture cannot be modified or amended without the consent of the Holder of each outstanding Note affected. The Exchange Notes and any Original Notes that remain outstanding after consummation of the Exchange Offer will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount thereof have taken certain actions or exercised certain rights under the Indenture, including the right to vote on waivers and amendments as described above or take certain actions upon an event of default as described below. EVENTS OF DEFAULT The Indenture provides that the following shall constitute Events of Default: (i) default for 30 days in the payment of any interest when due; (ii) default in the payment of principal; (iii) default in the performance of any other covenant in the Indenture for 60 days after written notice; (iv) a failure to pay when due, or a default resulting in the acceleration of maturity of, any other indebtedness for borrowed money of the Corporation or a Restricted Subsidiary in which the principal amount of any such indebtedness, together with the principal amount of any other such indebtedness which is presently in Payment Default or the maturity of which has been so accelerated, aggregates $25 million or more, without such acceleration having been rescinded, stayed or annulled, or such indebtedness having been discharged or, in the case of indebtedness contested in good faith by the Corporation, a bond, letter of credit, escrow deposit or other cash equivalent in an amount sufficient to discharge such indebtedness having been set aside, within 10 days after written notice of default is given to the Corporation; and (v) certain events in bankruptcy, insolvency or reorganization. The Corporation is required to furnish the Trustee annually with a statement as to the fulfillment by the Corporation of its obligations under the Indenture. The Indenture provides that the Trustee may withhold notice to the Holders of the Notes of any Default (except in payment of principal or interest on the Notes) if it considers it in the interest of the Holders to do so. If an Event of Default with respect to debt securities of any series outstanding under the Indenture occurs and is continuing, then and in any every such case the Trustee or the Holders of not less than 25% in 43 principal amount of the outstanding Notes may declare the principal amount to be due and payable immediately, by notice in writing to the Corporation (and to the Trustee if given by the Holders), and upon any such declaration such principal shall become immediately due and payable. However, at any time after a declaration of acceleration with respect to Notes has been made, but before a judgment or decree based on such acceleration has been obtained, the Holders of a majority in principal amount of outstanding Notes of that series may, subject to certain conditions, rescind and annul such acceleration. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee shall be under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity. Subject to such provisions for the security or indemnification of the Trustee, the Holders of a majority in principal amount of the outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or powers conferred on the Trustee with respect to the Notes. No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default with respect to such Note and unless also the Holders of at least 25% in principal amount of the outstanding Notes shall have made written request, and offered reasonable security or indemnity, to the Trustee to institute such proceeding as trustee, and the Trustee shall not have received from the Holders of a majority in principal amount of the outstanding Notes a direction inconsistent with such request, and the Trustee shall have failed to institute such proceeding within 60 days. However, the Holder of any Note will have an absolute right to receive payment of the principal of and any interest on such Note on or after the due dates expressed in such Note and to institute a proceeding for the enforcement of any such payment. SATISFACTION AND DISCHARGE OF THE INDENTURE The Indenture provides that when, among other things, all Notes not previously delivered to the Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at their Stated Maturity within one year and the Corporation deposits or causes to be deposited with the Trustee as trust funds in trust for the purpose an amount in money sufficient to pay and discharge the entire indebtedness on the Notes not previously delivered to the Trustee for cancellation, for the principal and interest to the date of the deposit or to the stated maturity, as the case may be, then the Indenture will cease to be of further effect (except as to the Corporation's obligations to compensate, reimburse and indemnify the Trustee pursuant to the Indenture and certain other obligations), and the Corporation will be deemed to have satisfied and discharged the Indenture. FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER The Exchange Notes and beneficial interests therein will be issued only in fully registered form, without exception, in denominations of $1,000 and integral multiples thereof. Exchange Notes initially will be represented by one or more Exchange Notes in registered, global form (collectively, the "Global Exchange Notes"). The Global Exchange Notes will be deposited upon issuance with the Trustee as custodian for DTC, in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Exchange Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Exchange Notes may not be exchanged for Exchange Notes in certificated form except in the 44 limited circumstances described below. See "Depositary Procedures Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes." DEPOSITARY PROCEDURES DTC has advised the Corporation that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Corporation that, pursuant to procedures established by it, (i) upon deposit of the Global Exchange Notes, DTC will credit the accounts of Participants designated by the Initial Purchaser with portions of the principal amount of the Global Exchange Notes and (ii) ownership of such interests in the Global Exchange Notes will be shown on, and the transfer of ownership thereof will effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Exchange Notes). Investors in the Global Exchange Notes may hold their interests therein directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. All interests in a Global Exchange Note may be subject to the procedures and requirements of DTC. The laws of some states require that certain persons take physical delivery in certificated form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Exchange Note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in the Global Exchange Notes to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Exchange Notes, see "Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes." Except as described below, owners of interests in the Global Exchange Notes will not have Exchange Notes registered in their names, will not receive physical delivery of Exchange Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Payments in respect of the Global Exchange Notes registered in the name of DTC or its nominee will be payable by the Trustee to DTC in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Trustee will treat the persons in whose names the Exchange Notes, including the Global Exchange Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Trustee nor any agent thereof has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Exchange Notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Exchange Notes or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Corporation that its current practice, upon receipt of any payment in respect of securities such as the Exchange Notes, is to credit the 45 accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of Exchange Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Corporation. Neither the Trustee nor the Corporation will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Exchange Notes, and the Trustee and the Corporation may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Secondary market trading activity in interests in the Global Exchange Notes will settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. DTC has advised the Corporation that it will take any action permitted to be taken by a holder of Exchange Notes only at the direction of one or more Participants to whose account with DTC interests in the Global Exchange Notes are credited and only in respect of such portion of the principal amount of the Exchange Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC reserves the right to exchange the Global Exchange Notes for Exchange Notes in certificated form and to distribute such Exchange Notes to its Participants. The information in this section concerning DTC and its book-entry systems has been obtained from sources that the Corporation believes to be reliable, but the Corporation takes no responsibility for the accuracy thereof. Although DTC has agreed to the foregoing procedures to facilitate transfers of interest in the Global Exchange Notes among participants in DTC, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Corporation nor the Trustee will have any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. A Global Exchange Note is exchangeable for Exchange Notes in registered certificated form if (i) DTC (x) notifies the Corporation that it is unwilling or unable to continue as Depositary for the Global Exchange Notes and the Corporation thereupon fails to appoint a successor Depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Corporation in its sole discretion elects to cause the issuance of the Exchange Notes in certificated form, or (iii) there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default under the Indenture. In addition, beneficial interests in a Global Exchange Note may be exchanged for certificated Exchange Notes upon request but only upon at least 20 days' prior written notice given to the Trustee by or on behalf of DTC in accordance with customary procedures. In all cases, certificated Exchange Notes delivered in exchange for any Global Exchange Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). PAYMENT AND PAYING AGENCY Payments in respect of the Global Exchange Notes held in global form shall be made to the Depositary, which shall credit the relevant accounts at the Depositary on the applicable Interest Payment Dates. In respect of the Exchange Notes that are not held by the Depositary, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the register. The paying agent (the "Paying Agent") shall initially be the Trustee and any co-paying agent chosen by the Trustee and acceptable to the Corporation. The Paying Agent shall be permitted to resign as Paying Agent 46 upon 30 days' written notice to the Trustee and the Corporation. In the event that the Trustee shall no longer be the Paying Agent, the Corporation shall appoint a successor (which shall be a bank or trust company) to act as Paying Agent. Any moneys deposited with the Trustee or any Paying Agent, or then held by the Corporation in trust, for the payment of the principal of (and premium, if any) or interest on any Exchange Notes and remaining unclaimed for two years after such principal or interest has become due and payable shall, at the request of the Corporation, be repaid to the Corporation and the holder of such Exchange Note shall thereafter look, as a general unsecured creditor, only to the Corporation for payment thereof. REGISTRAR AND TRANSFER AGENT The Trustee will act as registrar and transfer agent for the Exchange Notes. Registration of transfers of the Exchange Notes will be effected without charge by or on behalf of the Corporation, but upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. GOVERNING LAW The Indenture and the Exchange Notes will be governed by and construed in accordance with the laws of the State of New York. INFORMATION CONCERNING THE TRUSTEE Following the Exchange Offer and the qualification of the Indenture under the Trust Indenture Act, the Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Exchange Notes, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Chase Manhattan Bank acts as property trustee for SAFECO Capital Trust I (the issuer of the 8.072% Capital Securities) and for the 8.072% Capital Securities and the underlying junior subordinated deferrable interest debentures as well as the related indenture and guarantees. Chase Manhattan Delaware, an affiliate of The Chase Manhattan Bank, acts as Delaware trustee for SAFECO Capital Trust I. The Chase Manhattan Bank is also the trustee for the Corporation's 7.875% Notes due 2005 and its medium term note program, the custodian for the SAFECO's life and health companies' portfolios of investments, a lender under the Corporation's bank revolving credit facilities and a dealer under the Corporation's commercial paper program. In addition, the Corporation and its subsidiaries maintain various depository and disbursement accounts with The Chase Manhattan Bank. CERTAIN TAX CONSIDERATIONS Perkins Coie, special tax counsel to the Corporation, has advised the Corporation that because the Exchange Notes should not be considered to differ materially from the Original Notes, the exchange of the Exchange Notes for the Original Notes pursuant to the Offer should not result in any material federal income tax consequences to holders. For a full description of the basis of, and limitations on, this opinion, see "Certain Federal Income Tax Consequences." 47 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion, which was prepared by Perkins Coie, special tax counsel to the Corporation, summarizes the material United States federal income tax consequences of the exchange of the Original Notes for the Exchange Notes pursuant to the Exchange Offer. This discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), its legislative history, judicial authority, current administrative rulings and practice, and existing and proposed Treasury Regulations, all as in effect and existing on the date hereof. Legislative, judicial or administrative changes or interpretations after the date hereof could alter or modify the validity of this discussion and the conclusions set forth below. Any such changes or interpretations may be retroactive and could adversely affect a holder of the Original Notes or the Exchange Notes. This discussion does not purport to deal with all aspects of U.S. federal income taxation that might be relevant to particular holders in light of their personal investment or tax circumstances or status, nor does it discuss the U.S. federal income tax consequences to certain types of holders subject to special treatment under the U.S. federal income tax laws, such as certain financial institutions, insurance companies, dealers in securities or foreign currency, tax-exempt organizations, foreign corporations or nonresident alien individuals, or persons holding Original Notes or Exchange Notes that are a hedge against, or that are hedged against, currency risk or that are part of a straddle or conversion transaction, or persons whose functional currency is not the United States dollar. Moreover, the effect of any state, local or foreign tax laws is not discussed. THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF AN ORIGINAL NOTE THAT IS PARTICIPATING IN THE EXCHANGE OFFER IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH HOLDER'S PARTICULAR TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE EXCHANGE OF THE ORIGINAL NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER. EXCHANGE OFFER The exchange of the Original Notes by any holder for the Exchange Notes pursuant to the Exchange Offer should not be treated as an "exchange" for federal income tax purposes because the Exchange Notes should not be considered to differ materially in kind or extent from the Original Notes. Rather, the Exchange Notes received by any holder should be treated as a continuation of the Original Notes in the hands of such holder. As a result, there should be no federal income tax consequences to holders exchanging the Original Notes for the Exchange Notes pursuant to the Exchange Offer, and the federal income tax consequences of holding and disposing of the Exchange Notes should be the same as the federal income tax consequences of holding and disposing of the Original Notes. Accordingly, a holder's adjusted tax basis in the Exchange Notes will be the same as its adjusted tax basis in the Original Notes exchanged therefor and its holding period for the Original Notes will be included in its holding period for the Exchange Notes. Thus, the determination of gain on a sale or other disposition of the Exchange Notes will be the same as for the Original Notes. ERISA CONSIDERATIONS ERISA and the Code impose certain restrictions on (a) employee benefit plans (as defined in Section 3(3) of ERISA) subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (b) plans (as defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code, including individual retirement accounts and Keogh plans, (c) entities whose underlying assets include plan assets by reason of a plan's investment in such entities (each of (a), (b) and (c), a "Plan") and (d) persons who have certain specified relationships to such Plans ("Parties in Interest" under ERISA and 48 "Disqualified Persons" under the Code). Moreover, based on the reasoning of the United States Supreme Court in JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST AND SAVINGS BANK, 114 S. Ct. 517 (1993), an insurance company's general account may be deemed to include the assets of the Plans investing in the general account (e.g., through the purchase of an annuity contract), and the insurance company might be treated as a Party In Interest and a Disqualified Person with respect to such Plans by virtue of such investment. ERISA also imposes certain duties on persons who are fiduciaries of Plans, and both ERISA and the Code prohibit certain transactions involving "plan assets" between a Plan and Parties in Interest or Disqualified Persons with respect to such Plans. Each of the Corporation, the Trustee and the affiliates of either of them may be considered a Party in Interest or a Disqualified Person with respect to many Plans. The purchase and/or holding of Notes by (or on behalf of) a Plan with respect to which the Corporation, the Trustee or any affiliate of either of them is a service provider (or otherwise is a Party in Interest or a Disqualified Person) may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless such Notes are acquired and held pursuant to and in accordance with an applicable exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain transactions determined by an independent qualified professional asset manager), PTCE 91-38 (an exemption for certain transactions involving bank collective investment funds), PTCE 90-1 (an exemption for certain transactions involving insurance company pooled separate accounts), PTCE 95-60 (an exemption for transactions involving certain insurance company general accounts), or PTCE 96-23 (an exemption for certain transactions determined by an in-house asset manager). Any purchaser proposing to acquire Notes with assets of any Plan should consult with its legal counsel concerning the impact of ERISA and the Code and the potential consequences of acquiring and holding Notes with respect to its specific circumstances. Moreover, each Plan fiduciary should take into account, among other considerations, whether the fiduciary has the authority to make the investment; the composition of the Plan's portfolio with respect to diversification by type of asset; the Plan's funding objectives; the tax effects of the investment; and whether under the general fiduciary standards of investment prudence and diversification an investment in the Notes is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Corporation has agreed that, starting on the Expiration Date and ending on the close of business on the 180th day following the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until June 15, 1998, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Corporation will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions, in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that 49 participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Corporation will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Corporation has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Notes) other than Commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. VALIDITY OF EXCHANGE SECURITIES The validity of the Exchange Notes will be passed upon for the Corporation by James W. Ruddy, Senior Vice President and General Counsel of the Corporation. Certain matters relating to United States federal income tax considerations will be passed upon for the Corporation by Perkins Coie, Seattle, Washington. INDEPENDENT AUDITORS The consolidated financial statements of SAFECO at December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, incorporated by reference in the SAFECO Annual Report on Form 10-K for the year ended December 31, 1996, have been incorporated by reference into this Prospectus and the Registration Statement and have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon also incorporated by reference in the SAFECO Annual Report on Form 10-K and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of American States at December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, included in the American States Annual Report on Form 10-K, Form 10-K/A(1) and Form 10-K/A(2) for the year ended December 31, 1996, have been incorporated by reference into this Prospectus and the Registration Statement and have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon also included in the American States Annual Report on Form 10-K, Form 10-K/A(1) and Form 10-K/A(2) and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 50 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE OFFER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Forward-Looking Information............................................... 4 Available Information..................................................... 4 Incorporation of Certain Documents by Reference........................... 5 Prospectus Summary........................................................ 6 Risk Factors.............................................................. 13 Unaudited Pro Forma Combined Condensed Financial Statements............... 18 SAFECO Corporation........................................................ 24 Use of Proceeds........................................................... 24 Ratios of Earnings to Fixed Charges and Earnings to Fixed Charges and Distributions on Capital Securities..................................... 25 Capitalization............................................................ 26 Selected Financial Information............................................ 27 The Exchange Offer........................................................ 31 Description of Exchange Notes............................................. 41 Certain Federal Income Tax Consequences............................................................ 48 ERISA Considerations...................................................... 48 Plan of Distribution...................................................... 49 Validity of Exchange Securities........................................... 50 Independent Auditors...................................................... 50
[LOGO] SAFECO CORPORATION --------------- OFFER TO EXCHANGE ITS 6 7/8% NOTES DUE JULY 15, 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 6 7/8% NOTES DUE JULY 15, 2007 --------------------- PROSPECTUS --------------------- NOVEMBER 10, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation Act (the "WBCA") authorize a court to award, or a corporation's board of directors to grant, indemnification to directors and officers on terms sufficiently broad to permit indemnification under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). Article VII of the registrant's Bylaws, as amended (the "Bylaws"), provides for indemnification of the registrant's directors, officers, employees and agents to the maximum extent permitted by Washington law. Section 23B.08.320 of the WBCA authorizes a corporation to eliminate or limit a director's personal liability to the corporation or its shareholders for monetary damages for conduct as a director, except in certain circumstances involving acts or omissions, intentional midsconduct by a director or knowing violations of law by a director or distributions illegal under Washington law, or any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. Article VIII of the registrant's Restated Articles of Incorporation (the "Articles of Incorporation") contains provisions implementing, to the fullest extent permitted by Washington law, such limitations on a director's liability to the registrant and its shareholders. Officers and directors of the registrant are covered by insurance (with certain exceptions and certain limitations) that indemnifies them against losses and liabilities arising from certain alleged "wrongful acts," including alleged errors or misstatements, or certain other alleged wrongful acts or omissions constituting neglect or breach of duty. The above discussion of the WBCA and the registrant's Bylaws and Articles of Incorporation is not intended to be exhaustive and is qualified in its entirety by reference to such statute, the Bylaws and the Articles of Incorporation. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS 4.1 Indenture dated as of July 15, 1997 between SAFECO Corporation and The Chase Manhattan Bank, as Trustee 4.2* Form of Certificate of Exchange Notes 4.3* Registration Rights Agreement (filed as Exhibit 10.3 to SAFECO Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-6563) and incorporated herein by reference) 5.1 Opinion and Consent of James W. Ruddy, General Counsel of SAFECO Corporation as to legality of the Exchange Notes issued by SAFECO Corporation 8* Opinion and Consent of Perkins Coie, special tax counsel, as to certain federal income tax matters 12.1 Computation of ratio of earnings to fixed charges 23.1 Consent of Ernst & Young LLP 23.2* Consent of Perkins Coie (included in Exhibit 5.1) 23.4* Consent of Perkins Coie (included in Exhibit 8) 24.1* Power of Attorney 25.1* Form T-1 Statement of Eligibility of The Chase Manhattan Bank to act as trustee under the Indenture
II-1 99.1* Form of Letter of Transmittal 99.2* Form of Notice of Guaranteed Delivery 99.3* Form of Exchange Agent Agreement
- ------------------------ * Previously filed. (b) FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are inapplicable or the requested information is shown in the financial statements of the registrant or related notes thereto. ITEM 22. UNDERTAKINGS Each of the undersigned Registrants hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, as amended, each filing of a Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of each undersigned Registrant pursuant to the provisions, or otherwise, each Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by each undersigned Registrant of expenses incurred or paid by a director, officer of controlling person or each Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each Registrant will, unless in the opinion of its counsel the matter has been settled by the controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on the 10th day of November, 1997. SAFECO CORPORATION By: /s/ BOH A. DICKEY ----------------------------------------- Boh A. Dickey PRESIDENT AND CHIEF OPERATING OFFICER Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities indicated below on the 10th day of November, 1997.
SIGNATURE TITLE - ------------------------------ -------------------------- Chairman of the Board and * ROGER H. EIGSTI Chief Executive Officer - ------------------------------ (Principal Executive Roger H. Eigsti Officer) /s/ BOH A. DICKEY - ------------------------------ President, Chief Operating Boh A. Dickey Officer, Director Senior Vice President, * ROD A. PIERSON Chief Financial Officer, - ------------------------------ Secretary and Controller Rod A. Pierson (Principal Financial Officer) * H. PAUL LOWBER Vice President and - ------------------------------ Controller (Principal H. Paul Lowber Accounting Officer) - ------------------------------ Phyllis J. Campbell Director * ROBERT S. CLINE - ------------------------------ Director Robert S. Cline * JOHN W. ELLIS - ------------------------------ Director John W. Ellis
II-3
SIGNATURE TITLE - ------------------------------ -------------------------- * WILLIAM P. GERBERDING - ------------------------------ Director William P. Gerberding * JOSHUA GREEN III - ------------------------------ Director Joshua Green III * WILLIAM W. KRIPPAEHNE, JR. - ------------------------------ Director William W. Krippaehne, Jr. * WILLIAM G. REED, JR. - ------------------------------ Director William G. Reed, Jr. * JUDITH M. RUNSTAND - ------------------------------ Director Judith M. Runstad * PAUL W. SKINNER - ------------------------------ Director Paul W. Skinner * GEORGE H. WEYERHAEUSER - ------------------------------ Director George H. Weyerhaeuser
*By: /s/ BOH A. DICKEY ------------------------- Boh A. Dickey ATTORNEY-IN-FACT II-4 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------ --------- 4.1 Indenture dated as of July 15, 1997 between SAFECO Corporation and The Chase Manhattan Bank, as Trustee 4.2* Form of Certificate of Exchange Notes 4.3* Registration Rights Agreement (filed as Exhibit 10.3 to SAFECO Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-6563) and incorporated herein by reference) 5.1 Opinion and Consent of James W. Ruddy, General Counsel of SAFECO Corporation as to legality of the Exchange Notes issued by SAFECO Corporation 8* Opinion and Consent of Perkins Coie, special tax counsel, as to certain federal income tax matters 12.1 Computation of ratio of earnings to fixed charges 23.1 Consent of Ernst & Young LLP 23.2* Consent of Perkins Coie (included in Exhibit 5.1) 23.4* Consent of Perkins Coie (included in Exhibit 8) 24.1* Power of Attorney 25.1* Form T-1 Statement of Eligibility of The Chase Manhattan Bank to act as trustee under the Indenture 99.1* Form of Letter of Transmittal 99.2* Form of Notice of Guaranteed Delivery 99.3* Form of Exchange Agent Agreement
- ------------------------ * Previously filed II-5 EX-4.1 2 EXHIBIT4-1 - ------------------------------------------------------------------------------ ------------------------------ SAFECO CORPORATION ------------------------------ INDENTURE DATED AS OF JULY 15, 1997 ------------------------------ THE CHASE MANHATTAN BANK AS TRUSTEE ------------------------------ 6 7/8% NOTES DUE JULY 15, 2007 - ------------------------------------------------------------------------------ TIE-SHEET of provisions of Trust Indenture Act of 1939 with Indenture dated as of July 15 , 1997 between SAFECO Corporation and The Chase Manhattan Bank as Trustee: ACT SECTION INDENTURE SECTION 310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 (a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 310(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A (a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 310(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10, 6.11 310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 311(a) and (b) . . . . . . . . . . . . . . . . . . . . . . . . . N/A 311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.01, 4.02(a) 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02 312(b) and (c) . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03 314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 314(c)(1) and (2). . . . . . . . . . . . . . . . . . . . . . . . 6.07 314(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07 314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 315(a)(c) and (d). . . . . . . . . . . . . . . . . . . . . . . . 6.01 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.08 315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.09 316(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07 316(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 316(a) last sentence . . . . . . . . . . . . . . . . . . . . . . 2.09 316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.02 317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.05 317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.08 - --------------------------------- THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED. CONTENTS Page ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2. Execution and Authentication. . . . . . . . . . . . . . . . . . 6 2.3. Form and Payment. . . . . . . . . . . . . . . . . . . . . . . . 6 2.4. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.5. Global Security . . . . . . . . . . . . . . . . . . . . . . . . 7 2.6. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.7. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 8 2.8. Replacement Securities. . . . . . . . . . . . . . . . . . . . . 14 2.9. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . 14 2.10. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.11. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . 15 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE III PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . 16 3.1. Payment of Principal and Interest . . . . . . . . . . . . . . . 16 3.2. Offices for Notices and Payments, etc.. . . . . . . . . . . . . 16 3.3. Appointments to Fill Vacancies in Trustee's Office. . . . . . . 17 3.4. Provision as to Paying Agent. . . . . . . . . . . . . . . . . . 17 3.5. Certificate to Trustee. . . . . . . . . . . . . . . . . . . . . 17 3.6. Compliance with Consolidation Provisions. . . . . . . . . . . . 18 3.7. Limitation Upon Sales of Capital Stock of Restricted Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.8. Limitation Upon Mortgages and Liens . . . . . . . . . . . . . . 19 3.9. Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . 20 ARTICLE IV SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.1. Securityholders' Lists. . . . . . . . . . . . . . . . . . . . . 20 4.2. Preservation and Disclosure of Lists. . . . . . . . . . . . . . 20 4.3. Reports by Company. . . . . . . . . . . . . . . . . . . . . . . 21 4.4. Reports by the Trustee. . . . . . . . . . . . . . . . . . . . . 22 ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 22 5.2. Acceleration of Maturity; Rescission and Annulment. . . . . . . 24 5.3. Payment of Securities on Default; Suit Therefor . . . . . . . . 25 5.4. Application of Moneys Collected by Trustee. . . . . . . . . . . 27 5.5. Proceedings by Securityholders. . . . . . . . . . . . . . . . . 27 5.6. Unconditional Right of Holders to Receive Principal and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.7. Proceedings by Trustee. . . . . . . . . . . . . . . . . . . . . 28 i Page ---- 5.8. Remedies Cumulative and Continuing. . . . . . . . . . . . . . . 28 5.9. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders. . . . . . . . . . . . . . . . . . . . . . . 28 5.10. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . 29 5.11. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . 29 5.12. Undertaking to Pay Costs. . . . . . . . . . . . . . . . . . . . .29 ARTICLE VI CONCERNING THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . 30 6.1. Duties and Responsibilities of Trustee. . . . . . . . . . . . . 30 6.2. Reliance on Documents, Opinions, etc. . . . . . . . . . . . . . 31 6.3. No Responsibility for Recitals, etc.. . . . . . . . . . . . . . 32 6.4. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Securities . . . . . . . . . . . . . . . . 32 6.5. Moneys to be Held in Trust. . . . . . . . . . . . . . . . . . . 32 6.6. Compensation and Expenses of Trustee. . . . . . . . . . . . . . 32 6.7. Officers' Certificate as Evidence . . . . . . . . . . . . . . . .33 6.8. Conflicting Interest of Trustee . . . . . . . . . . . . . . . . .33 6.9. Eligibility of Trustee. . . . . . . . . . . . . . . . . . . . . 33 6.10. Resignation or Removal of Trustee . . . . . . . . . . . . . . . 34 6.11. Acceptance by Successor Trustee . . . . . . . . . . . . . . . . 35 6.12. Succession by Merger, etc.. . . . . . . . . . . . . . . . . . . 35 6.13. Limitation on Rights of Trustee as a Creditor . . . . . . . . . 36 6.14. Authenticating Agents . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE VII CONCERNING THE SECURITYHOLDERS. . . . . . . . . . . . . . . . . 37 7.1. Action by Securityholders . . . . . . . . . . . . . . . . . . . 37 7.2. Proof of Execution by Securityholders . . . . . . . . . . . . . 37 7.3. Who Are Deemed Absolute Owners. . . . . . . . . . . . . . . . . 38 7.4. Securities Owned by Company Deemed Not Outstanding. . . . . . . 38 7.5. Revocation of Consents; Future Holders Bound. . . . . . . . . . 38 ARTICLE VIII SECURITYHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . 39 8.1. Purposes of Meetings. . . . . . . . . . . . . . . . . . . . . . 39 8.2. Call of Meetings by Trustee . . . . . . . . . . . . . . . . . . 39 8.3. Call of Meetings by Company or Securityholders. . . . . . . . . 39 8.4. Qualifications for Voting . . . . . . . . . . . . . . . . . . . 39 8.5. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.6. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE IX AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 9.1. Without Consent of Securityholders. . . . . . . . . . . . . . . 41 9.2. Supplemental Indentures with Consent of Holders . . . . . . . . 42 9.3. Compliance with Trust Indenture Act; Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . 42 9.4. Notation on Securities. . . . . . . . . . . . . . . . . . . . . 43 9.5. Evidence of Compliance of Supplemental Indenture to be Furnished Trustee . . . . . . . . . . . . . . . . . . . . . . . 43 ii Page ---- ARTICLE X CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE . . . . . . . 43 10.1. Company May Consolidate, Etc., Only on Certain Terms. . . . . . 43 10.2. Successor Corporation Substituted . . . . . . . . . . . . . . . 44 10.3. Limitation on Lease of Properties as an Entirety. . . . . . . . 44 ARTICLE XI SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . . . . 45 11.1. Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . 45 11.2. Deposited Moneys and U.S. Government Obligations to be Held in Trust by Trustee . . . . . . . . . . . . . . . . . . . . . . 46 11.3. Paying Agent to Repay Moneys Held . . . . . . . . . . . . . . . 46 11.4. Return of Unclaimed Moneys. . . . . . . . . . . . . . . . . . . 46 11.5. Defeasance Upon Deposit of Moneys or U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE XII IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.1. Indenture and Securities Solely Corporate Obligations . . . . . 48 ARTICLE XIII MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . 48 13.1. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . 48 13.2. Official Acts by Successor Corporation. . . . . . . . . . . . . 48 13.3. Surrender of Company Powers . . . . . . . . . . . . . . . . . . 48 13.4. Addresses for Notices, etc. . . . . . . . . . . . . . . . . . . 48 13.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 49 13.6. Evidence of Compliance with Conditions Precedent. . . . . . . . 49 13.7. Business Days . . . . . . . . . . . . . . . . . . . . . . . . . 49 13.8. Trust Indenture Act to Control. . . . . . . . . . . . . . . . . 49 13.9. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . 50 13.10. Execution in Counterparts . . . . . . . . . . . . . . . . . . . 50 13.11. Separability. . . . . . . . . . . . . . . . . . . . . . . . . . 50 13.12. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 EXHIBIT A (FORM OF FACE OF ORIGINAL SECURITY) . . . . . . . . . . . . . . A-1 EXHIBIT B (FORM OF FACE OF EXCHANGE SECURITY) . . . . . . . . . . . . . . B-1 Testimonium Signatures Acknowledgements iii THIS INDENTURE, dated as of July 15, 1997, between SAFECO Corporation, a Washington corporation (hereinafter sometimes called the "Company"), and The Chase Manhattan Bank, a New York banking corporation, as trustee (hereinafter sometimes called the "Trustee"), W I T N E S S E T H : In consideration of the premises, and the purchase of the Securities by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Securities, as follows: ARTICLE I DEFINITIONS 1.1. DEFINITIONS The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture which are defined in the Trust Indenture Act or which are by reference therein defined in the Securities Act, shall (except as herein otherwise expressly provided or unless the context otherwise requires) have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this Indenture as originally executed. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles and the term "generally accepted accounting principles" means such accounting principles as are generally accepted at the time of any computation. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Headings are used for convenience of reference only and do not affect interpretation. The singular includes the plural and vice versa. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding the power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any officer or director of the specified Person, and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" shall mean any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 6.14. "Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" shall mean either the Board of Directors of the Company or any duly authorized committee of that board. "Board Resolution" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" shall mean, with respect to any series of Securities, any day other than a Saturday or a Sunday or a day on which banking institutions in The City of New York or in The City of Seattle, Washington are authorized or required by law or executive order to close. "Commission" shall mean the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" shall mean SAFECO Corporation, a Washington corporation, and, subject to the provisions of Article X, shall include its successors and assigns. "Company Request" or "Company Order" shall mean a written request or order signed in the name of the Company by the Chairman, the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Treasurer or an Assistant Treasurer, the Controller or an Assistant Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Custodian" shall mean any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Definitive Securities" shall mean those securities issued in fully registered certificated form not otherwise in global form. "Depositary" shall mean, with respect to Securities the Company shall determine will be issued as a Global Security, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Exchange Act or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to Section 2.5(c). "Event of Default" shall mean any event specified in Section 5.1, continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the offer that may be made pursuant to the Registration Rights Agreement by the Company to exchange Exchange Securities for Original Securities. "Exchange Securities" shall mean the 6 7/8% Notes due July 15, 2007, as authenticated and issued under this Indenture in exchange for an Original Security or Original Securities pursuant to the offer to be made pursuant to the Registration Rights Agreement to exchange Exchange Securities for Original Securities. 2 "Global Security" shall mean, with respect to the Securities, a Security executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "Indenture" shall mean this instrument as originally executed or, if amended as herein provided, as so amended. "Interest Payment Date" shall have the meaning set forth in Section 2.6. "Issue Date" shall mean July 15, 1997. The term "lien" shall have, for purposes of Section 3.8, the meaning set forth therein. "Liquidated Damages" shall have the meaning set forth in the Registration Rights Agreement. "Maturity Date" shall mean July 15, 2007. "Officers" shall mean any of the Chairman, the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Treasurer, any Assistant Treasurer, the Controller or the Secretary of the Company. "Officers' Certificate" shall mean a certificate signed by two Officers and delivered to the Trustee. "Opinion of Counsel" shall mean a written opinion of counsel, who may be an employee of the Company, and who shall be acceptable to the Trustee. "Original Securities" shall mean the 6 7/8% Notes due July 15, 2007, as authenticated and issued under this Indenture on the Issue Date. The term "outstanding" when used with reference to Securities, shall, subject to the provisions of Section 7.4, mean, as of any particular time, all Securities authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except (a) Securities theretofore cancelled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation; (b) Securities for whose payment moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); and (c) Securities in lieu of or in substitution for which other Securities shall have been authenticated and delivered pursuant to the terms of Section 2.8 unless proof satisfactory to the Company and the Trustee is presented that any such Securities are held by bona fide holders in due course. 3 "Payment Default" shall have the meaning set forth in Section 5.1. "Person" shall mean any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.8 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Purchase Agreement" shall mean the Purchase Agreement dated July 10, 1997 between the Company and Smith Barney Inc. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Issue Date, by and among the Company and the Initial Purchaser named therein as such agreement may be amended, modified or supplemented from time to time. "Responsible Officer" means, with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Restricted Security" shall mean any Security that is subject to the transfer restrictions set forth in Section 2.7 (a). "Restricted Subsidiary" shall have the meaning set forth in Section 3.7. "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or under any similar rule or regulation hereafter adopted by the Commission. "Securities" means, collectively, the Original Securities and the Exchange Securities. "Securities Act" shall mean the Securities Act of 1933, as amended. "Securityholder", "holder of Securities", or other similar terms, shall mean any person in whose name at the time a particular Security is registered on the register kept by the Company or the Trustee for that purpose in accordance with the terms hereof. "Security Register" shall mean the list of holders provided to the Trustee pursuant to Section 4.1 or any security register maintained by a security registrar for the Securities appointed by the Company. 4 "Stated Maturity" shall mean, when used with respect to any Security or any installment of interest thereon, the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" shall mean with respect to any Person, (i) any corporation at least a majority of whose outstanding voting stock is owned, directly or indirectly, by such Person or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. For the purposes of this definition, "voting stock" means shares, interests, participation or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participation or other equivalents having such power only by reason of the occurrence of a contingency. "Trustee" shall mean the Person identified as "Trustee" in the first paragraph hereof, and, subject to the provisions of Article VI hereof, shall also include its successors and assigns as Trustee hereunder. The term "Trustee" as used with respect to a particular series of the Securities shall mean the trustee with respect to that series. "Trust Indenture Act of 1939" shall mean the Trust Indenture Act of 1939 as in force at the date of execution of this Indenture, except as provided in Section 9.3. "U.S. Government Obligations" shall mean securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clauses (i) or (ii) are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. ARTICLE II SECURITIES 2.1. FORMS GENERALLY The Original Securities and related Trustee's certificate of authentication shall be substantially in the form of Exhibit A and the Exchange Securities and related Trustee's certificate of authentication shall be substantially in the form of Exhibit B, the terms of each of which are incorporated in and 5 made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issued in denominations of $1,000 and integral multiples thereof. Notwithstanding the foregoing Definitive Securities issued to any "institutional accredited investor" within the meaning of Rule 502 (A) (1), (2), (3) or (7) under the Securities Act shall be issued only in minimum denominations of $100,000 and any amount in excess thereof that is an integral multiple of $1,000. 2.2. EXECUTION AND AUTHENTICATION Two Officers shall sign the Securities for the Company by manual or facsimile signature in the manner set forth in Exhibits A and B. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of an authorized officer of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Exhibits A and B hereto. The Trustee shall, upon a Company Order, authenticate for original issue up to, and the aggregate principal amount of Securities outstanding at any time may not exceed the sum of, $200,000,000 principal amount of the Securities, except as provided in Sections 2.7, 2.8 and 2.9. The series of Securities to be initially issued hereunder shall be the Original Securities. 2.3. FORM AND PAYMENT Except as provided in Section 2.5, the Securities shall be issued in fully registered certificated form without interest coupons. Principal of and interest on the Securities issued in certificated form will be payable, the transfer of such Securities will be registrable and such Securities will be exchangeable for Securities bearing identical terms and provisions at the office or agency of the Company maintained for such purpose under Section 3.2; PROVIDED, HOWEVER, that payment of interest with respect to the Securities may be made at the option of the Company (i) by check mailed to the holder at such address as shall appear in the Security Register or (ii) by transfer to an account maintained by the Person entitled thereto, provided that proper transfer instructions have been received in writing by the relevant record date. 6 2.4. LEGENDS (a) Except as permitted by subsection (b) of this Section 2.4 or as otherwise determined by the Company in accordance with applicable law, each Security shall bear the applicable legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth in Section 2.7 (g) (1). (b) The Company shall issue and the Trustee shall authenticate Exchange Securities in exchange for Original Securities accepted for exchange in the Exchange Offer, which Exchange Securities shall not bear the legends required by subsection (a) above. Pursuant to the terms of the Exchange Offer as set forth in the Registration Rights Agreement, certain Persons are not eligible to tender their Original Securities in the Exchange Offer. Accordingly, a holder of Original Securities who is either (A) a broker-dealer who purchased such Original Securities directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act, (B) a Person participating in the distribution of the Original Securities or (C) a Person who is an affiliate (as defined in Rule 144 under the Securities Act) of the Company shall, pursuant to the terms of the Registration Rights Agreement, only receive Exchange Securities other than in connection with the Exchange Offer, which Exchange Securities, notwithstanding anything else herein to the contrary, shall bear the legends required by subsection (a) above and shall not be represented by a Global Security. 2.5. GLOBAL SECURITY (a) The Global Securities shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon; PROVIDED, that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, redeemed, repurchased or cancelled, such Global Security shall be returned to or retained and cancelled by the Trustee. Any endorsement of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee, in accordance with instructions given by the Company as required by this Section 2.5. (b) The Global Securities may be transferred, in whole but not in part, only to the Depositary, another nominee of the Depositary, or to a successor Depositary selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time the Depositary notifies the Company that it is unwilling or unable to continue as Depositary or the Depositary has ceased to be a clearing agency registered under the Exchange Act, and a successor Depositary is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, the Company will execute, and the Trustee, upon written notice from the Company, will authenticate and make available for delivery the Definitive Securities, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security. If there is an Event of Default, the Depositary shall have the right to exchange the Global Securities for Definitive Securities. In addition, the Company may at any time determine that the Securities shall no longer be represented by a Global Security. In the event of such an Event of Default or such a determination, the Company shall execute, and subject to Section 2.7, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenti- 7 cate and make available for delivery the Definitive Securities, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security, in exchange for such Global Security. Upon the exchange of the Global Security for such Definitive Securities, in authorized denominations, the Global Security shall be cancelled by the Trustee. Such Definitive Securities issued in exchange for the Global Security shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Securities to the Depositary for delivery to the Persons in whose names such Definitive Securities are so registered. 2.6. INTEREST (a) Each Security will bear interest at the rate of 6 7/8% per annum from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the Issue Date, until the principal thereof becomes due and payable, and at the rate of 6 7/8% per annum on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest, compounded semi-annually, payable semi-annually in arrears on January 15 and July 15 of each year (each, an "Interest Payment Date") commencing on January 15, 1998 to the Person in whose name such Security or any Predecessor Security is registered, at the close of business on the regular record date for such interest installment, which shall be the first day of the month in which the relevant Interest Payment Date occurs. (b) Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months and, for any period of less than a full calendar month, the number of days lapsed in such month. In the event that any Interest Payment Date falls on a day that is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. (c) The Company will not be responsible for, and will not be required to compensate holders of or investors in the Securities for, any withholding taxes that are imposed on interest payments on the Securities. 2.7. TRANSFER AND EXCHANGE (a) TRANSFER RESTRICTIONS. The Original Securities, and those Exchange Securities with respect to which any Person described in Section 2.4(b)(A), (B) or (C) is the beneficial owner, may not be transferred except in compliance with the legend contained in Exhibit A unless otherwise determined by the Company in accordance with applicable law. (b) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. Upon surrender for registration of transfer of any Security at the office or agency of the Company maintained for such purpose pursuant to Section 3.2, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount. 8 All Definitive Securities and Global Securities issued upon any registration of transfer or exchange of Definitive Securities or Global Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Securities or Global Securities surrendered upon such registration of transfer or exchange. No service charge shall be made to a holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. Prior to due presentment for registration or transfer of any Security, the Trustee and the Company may deem and treat the Person in whose name the Security is registered as the absolute owner of such Security, and neither the Trustee nor the Company shall be affected by notice to the contrary. (c) TRANSFER AND EXCHANGE OF DEFINITIVE SECURITIES. When Definitive Securities are presented to the Security registrar with a request: (y) to register the transfer of such Definitive Securities; or (z) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Security registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; PROVIDED, HOWEVER, that the Definitive Securities surrendered for registration of transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Security registrar duly executed by the Securityholder or such holder's attorney duly authorized in writing; and (2) in the case of Definitive Securities that are Restricted Securities, such request shall be accompanied by the following additional information and documents, as applicable: (A) if such Restricted Securities are being delivered to the Security registrar by a Securityholder for registration in the name of such Securityholder, without transfer, a certification from such Securityholder to that effect (in substantially the form set forth on the reverse of the Security); or (B) if such Restricted Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A) in accordance with Rule 144A a certification to that effect (in substantially the form set forth on the reverse of the Security); or (C) if such Restricted Security is being transferred (i) pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act or (ii) pursuant to an effective registration statement under the Securities Act, or (iii) in a minimum principal amount of $100,000 to an "institutional accredited investor" within the meaning of Rule 501(A)(1), (2), (3) or (7) under the Securities 9 Act that is acquiring the security for its own account, or for the account of such an institutional accredited investor, not with a view to or for offer or sale in connection with any distribution in violation of the Securities Act, or (iv) in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form set forth on the reverse of the Security) and in the case of (i), (iii) and (iv) above, if the Company or the Security registrar so request, an Opinion of Counsel reasonably acceptable to the Company and to the Security registrar to the effect that such transfer is in compliance with the Securities Act. (d) RESTRICTIONS ON TRANSFER OF A DEFINITIVE SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Security registrar of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Security registrar, together with: (1) if such Definitive Security is a Restricted Security, certification, substantially in the form set forth on the reverse of the Security, that such Definitive Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A) in accordance with Rule 144A; and (2) whether or not such Definitive Security is a Restricted Security, written instructions of the Securityholder directing the Security registrar to make, or to direct the Trustee to make, an endorsement on the Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, then the Security registrar shall cancel such Definitive Security and cause, or direct the Trustee to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Trustee, the aggregate principal amount of Securities represented by the Global Security to be increased accordingly. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Security in the appropriate principal amount. (e) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (f) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR A DEFINITIVE SECURITY. (1) Any Person having a beneficial interest in a Global Security may upon request exchange such beneficial interest for a Definitive Security. Upon receipt by the Security registrar of written instructions or such other form of instructions as is customary for the Depositary from the Depositary or its nominee on behalf of any Person having a beneficial interest in a Global Security and upon receipt by the Security registrar of a written order or such other form of instructions as is customary for the Depositary or the Person designated by the Depositary as having such a beneficial interest in a Restricted Security only, the following additional information and documents (all of which may be submitted by facsimile): 10 (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification from such person to that effect (in substantially the form set forth on the reverse of the Security); or (B) if such beneficial interest is being transferred to a "qualified institutional buyer" (as defined in Rule 144A) in accordance with Rule 144A a certification to that effect from the transferor (in substantially the form set forth on the reverse of the Security); or (C) if such beneficial interest is being transferred (i) pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act or (ii) pursuant to an effective registration statement under the Securities Act, or (iii) in a minimum principal amount of $100,000 to an "institutional accredited investor" within the meaning of Rule 501(A)(1), (2), (3) or (7) under the Securities Act that is acquiring the security for its own account, or for the account of such an institutional accredited investor, not with any distribution in violation of the Securities Act, or (iv) in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferee or transferor (in substantially the form set forth on the reverse of the Security) and in the case of (i), (iii) and (iv) above, if the Company or the Security registrar so requests, an Opinion of Counsel from the transferee or transferor reasonably acceptable to the Company and to the Security registrar to the effect that such transfer is in compliance with the Securities Act; then the Security registrar, or the Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Trustee, the aggregate principal amount of the Global Security to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate, the Trustee or the Trustee's authenticating agent will authenticate and deliver to the transferee a Definitive Security. (2) Definitive Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.7(f) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Security registrar. The Security registrar shall deliver such Definitive Securities to the persons in whose names such Securities are so registered. (g) LEGENDS. (1) Except as permitted by the following paragraph (2), each Security certificate evidencing the Global Securities and the Definitive Securities (and all securities issued in exchange therefor or substitution thereof, but not including Exchange Securities as defined herein) shall bear legends in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICI- 11 PATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) IN A MINIMUM PRINCIPAL AMOUNT OF $100,000 TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE COMPANY. SUCH HOLDER FURTHER AGREES THAT IT 12 WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. (2) Upon any sale or transfer of a Restricted Security (including any Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act: (A) in the case of any Restricted Security that is a Definitive Security, the Security registrar shall permit the Securityholder to exchange such Restricted Security for a Definitive Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Restricted Security in the case of a sale or transfer pursuant to Rule 144 under the Securities Act, after the Resale Restriction Termination Date (as defined in clause (g)(1) above) or delivery of an Opinion of Counsel; and (B) any such Restricted Security represented by a Global Security shall not be subject to the provisions set forth in (1) above (such sales or transfers being subject only to the provisions of Section 2.7(e) hereof); PROVIDED, HOWEVER, that with respect to any request for an exchange of a Restricted Security that is represented by a Global Security for a Definitive Security that does not bear a legend, which request is made in reliance upon Rule 144 under the Securities Act, the Securityholder shall certify in writing (to be accompanied by an Opinion of Counsel) to the Security registrar that such request is being made pursuant to Rule 144 under the Securities Act (such certification to be substantially in the form set forth on the reverse of the Security). (h) EXCHANGE OF ORIGINAL SECURITIES FOR EXCHANGE SECURITIES. The Original Securities may be exchanged for Exchange Securities pursuant to the terms of the Exchange Offer and in accordance with the provisions set forth in this Section 2.7, as may be applicable. The Trustee shall make the exchange as follows: The Company shall present the Trustee with an Officers' Certificate certifying the following: (A) upon issuance of the Exchange Securities, the transactions contemplated by the Exchange Offer have been consummated; and (B) the principal amount of Original Securities properly tendered in the Exchange Offer that are represented by a Global Security and the principal amount of Original Securities properly tendered in the Exchange Offer that are represented by Definitive Securities, the name of each holder of such Definitive Securities, the principal amount properly tendered in the Exchange Offer by each such holder and the name and address to which Definitive Securities representing Exchange Securities shall be registered and sent for each such holder. The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an Opinion of Counsel (x) to the effect that the Exchange Securities have been registered under Section 5 of the Securities Act and the Indenture has been qualified under the Trust Indenture Act and (y) with respect to the matters set forth in Section 3(p) of the Registration Rights Agreement and (iii) a Company Order, shall authenticate (A) a Global Security representing Exchange Securities in aggregate principal amount equal to the aggregate principal amount of Original Securities represented by a Global Security indicated in such 13 Officers' Certificate as having been properly tendered and (B) Definitive Securities representing Exchange Securities registered in the names of, and in the principal amounts indicated in, such Officers' Certificate. If the principal amount of the Global Security representing Exchange Securities is less than the principal amount of the Global Security representing Original Securities, the Trustee shall make an endorsement on such Global Security representing Original Securities indicating a reduction in the principal amount represented thereby. The Trustee shall deliver such Definitive Securities representing Exchange Securities to the holders thereof as indicated in such Officers' Certificate. 2.8. REPLACEMENT SECURITIES If any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. An indemnity bond must be supplied by the holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any agent thereof or any authenticating agent from any loss that any of them may suffer if a Security is replaced. The Company or the Trustee may charge for its expenses in replacing a Security. Every replacement Security is an obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Securities duly issued hereunder. 2.9. TEMPORARY SECURITIES Pending the preparation of Definitive Securities, the Company may execute, and upon receipt of a Company Order the Trustee shall authenticate and make available for delivery, temporary Securities that are printed, lithographed, typewritten, mimeographed or otherwise reproduced, in any authorized denomination, substantially of the tenor of the Definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company shall cause Definitive Securities to be prepared without unreasonable delay. The Definitive Securities shall be printed, lithographed or engraved, or provided by any combination thereof, or in any other manner permitted by the rules and regulations of any applicable securities exchange, all as determined by the officers executing such Definitive Securities. After the preparation of Definitive Securities, the temporary Securities shall be exchangeable for Definitive Securities upon surrender of the temporary Securities at the office or agency maintained by the Company for such purpose pursuant to Section 3.2 hereof, without charge to the holder of Securities. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in exchange therefor the same aggregate principal amount of Definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as Definitive Securities. 14 2.10. CANCELLATION The Company at any time may deliver Securities to the Trustee for cancellation. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall retain or dispose of cancelled Securities in accordance with its normal practices (subject to the record retention requirement of the Exchange Act) unless the Company directs them to be returned to it. The Company may not issue new Securities to replace Securities that have been paid or that have been delivered to the Trustee for cancellation. 2.11. DEFAULTED INTEREST Any interest on any Security that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the holder of Securities on the relevant regular record date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (a) or clause (b) below: (a) The Company may make payment of any Defaulted Interest on Securities to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Securityholder at his or her address as it appears in the Security Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such special record date and shall be no longer payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest on any Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. 15 2.12. CUSIP NUMBERS The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use). The Company will promptly notify the Trustee of any change in the CUSIP numbers of the Securities. ARTICLE III PARTICULAR COVENANTS OF THE COMPANY 3.1. PAYMENT OF PRINCIPAL AND INTEREST The Company covenants and agrees for the benefit of the holders of the Securities that it will duly and punctually pay or cause to be paid the principal of and interest on the Securities at the place, at the respective times and in the manner provided herein. Except as provided in Section 2.3, each installment of interest on the Securities may be paid by mailing checks for such interest payable to the order of the holders of the Securities entitled thereto as they appear in the Security Register. The Company further covenants to pay any and all amounts including, without limitation, Liquidated Damages, if any, on the dates and in the manner required under the Registration Rights Agreement. 3.2. OFFICES FOR NOTICES AND PAYMENTS, ETC. So long as any of the Securities remain outstanding, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Securities may be presented for payment, an office or agency where the Securities may be presented for registration of transfer and for exchange as in this Indenture provided and an office or agency where notices and demands to or upon the Company in respect of the Securities or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, any such office or agency for all of the above purposes shall be the Principal Office of the Trustee. In case the Company shall fail to maintain any such office or agency in the Borough of Manhattan, The City of New York, or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the principal office of the Trustee. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside the Borough of Manhattan, The City of New York, where the Securities may be presented for payment, registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in the Borough of Manhattan, The City of New York, for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof. 16 3.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee hereunder. 3.4. PROVISION AS TO PAYING AGENT (a) If the Company shall appoint a paying agent other than the Trustee with respect to the Securities, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provision of this Section 3.4, (1) that it will hold all sums held by it as such agent for the payment of the principal of or interest on the Securities (whether such sums have been paid to it by the Company or by any other obligor on the Securities of such series) in trust for the benefit of the holders of the Securities; (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities) to make any payment of the principal of and premium or interest on the Securities when the same shall be due and payable; and (3) that it will at any time during the continuance of any such failure, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by it as such paying agent. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of or interest on the Securities, set aside, segregate and hold in trust for the benefit of the holders of the Securities a sum sufficient to pay such principal or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Securities) to make any payment of the principal of or interest on the Securities when the same shall become due and payable. (c) Anything in this Section 3.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to the Securities hereunder, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust for any such series by the Trustee or any paying agent hereunder, as required by this Section 3.4, such sums to be held by the Trustee upon the trusts herein contained. (d) Anything in this Section 3.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.4 is subject to Sections 11.3 and 11.4. 3.5. CERTIFICATE TO TRUSTEE The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Controller or an Assistant Controller of the Company, stating, as to each signer thereof, that 17 (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under such signer's supervision, and (2) to the best of such signer's knowledge, based on such review, (a) the Company has fulfilled all its obligations under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such signer and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default under Section 5.1(c) or (d), or, if such an event has occurred and is continuing, specifying each such event known to such signer and the nature and status thereof. 3.6. COMPLIANCE WITH CONSOLIDATION PROVISIONS The Company will not, while any of the Securities remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other Person unless the provisions of Article X hereof are complied with. 3.7. LIMITATION UPON SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES The Company will not sell, transfer or otherwise dispose of (except to a Restricted Subsidiary), and it will not permit any Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the Company or to a Restricted Subsidiary), any shares of capital stock of a Restricted Subsidiary, unless the entire capital stock of such Restricted Subsidiary at the time owned by the Company and its Restricted Subsidiaries shall be disposed of at the same time for a consideration consisting of cash or other property, which, in the opinion of the Board of Directors, is at least equal to the fair value thereof. For the purposes of the foregoing paragraph, "Restricted Subsidiary" shall mean a Subsidiary including Subsidiaries of any such Subsidiary, which meets any of the following conditions: (a) the Company's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10% of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; (b) the Company's and its other Subsidiaries' proportionate share of the total assets (after inter-company eliminations) of the Subsidiary exceeds 10% of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (c) the Company's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10% of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal year. For purposes of making the prescribed income test in clause (c) of the preceding sentence, when a loss has been incurred by either the Company and its Subsidiaries consolidated or the tested Subsidiary, but not both, the equity in the income or loss of the tested subsidiary shall be excluded from the income of the Company and its Subsidiaries consolidated for purposes of the computation and if income of the Company and its Subsidiaries consolidated for the most recent fiscal year is at 18 least 10% lower than the average of the income for the last five fiscal years, such average income shall be substituted for purposes of the computation and any loss years shall be omitted for purposes of computing average income. 3.8. LIMITATION UPON MORTGAGES AND LIENS The Company will not at any time directly or indirectly issue, assume, guarantee or permit to exist any indebtedness secured by a mortgage, pledge, lien or other encumbrance (any mortgage, pledge, lien or other encumbrance being hereinafter in this Section referred to as a "lien") on any of its property or assets, whether now owned or hereafter acquired, without making effective provisions whereby the Securities then outstanding (and, if the Company so elects, any other indebtedness ranking on a parity with the Securities) shall be equally and ratably secured with any such secured indebtedness, so long as any such other indebtedness shall be secured; PROVIDED, HOWEVER, that the foregoing covenant shall not be applicable to the following: (a) liens in existence at the Issue Date; (b) liens on real estate (including liens existing in respect of such real estate at the time of acquisition thereof) securing indebtedness in an amount not in excess of 100% of the fair value of the real estate at the time of creation of such indebtedness (as determined by the Board of Directors); (c) liens arising from the acquisition of a business as a going concern (whether by merger, acquisition of a controlling stock interest, acquisition of assets or otherwise) or to which assets acquired by the Company in partial or complete satisfaction of secured indebtedness are subject; (d) liens to secure the extension, renewal or replacement of any indebtedness secured by any of the liens referred to in (a), (b) and (c) above, provided that there shall not be an increase in the amount of indebtedness secured by such extension, renewal or replacement; and (e) liens of taxes or assessments or governmental charges or levies not then due and delinquent or the validity of which is being contested in good faith or which are less than $10,000,000 in amount; pledges or deposits to secure public or statutory obligations including liens and deposits required or provided for under state insurance laws and similar regulatory statutes; materialmen's, mechanics', carrier's, workmen's, repairmen's, or other like liens, and pledges or deposits made in the ordinary course of business to obtain the release of such liens; liens created by or resulting from any litigation or legal proceeding which is being contested in good faith by appropriate proceedings or which involve claims of less than $10,000,000; deposits to secure (or in lieu of) surety, stay, appeal or customs bonds; deposits to secure the payment of taxes, assessments, customs duties or other similar charges; landlords, liens on property held under lease; and any other liens similar to those described in this Subsection, the existence of which does not, in the opinion of the Company, materially impair the use by the Company of the affected property in the operation of its business, or the value of such property for the purpose of such business. 3.9. WAIVER OF CERTAIN COVENANTS The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 3.7 and 3.8, with respect to the Securities if before or after the time for such 19 compliance the Holders of at least 66-2/3% in principal amount of the outstanding Securities shall, by act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Companies in respect of any such covenant or condition shall remain in full force and effect. ARTICLE IV SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 4.1. SECURITYHOLDERS' LISTS The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee: (a) on a semi-annual basis on each regular record date for the Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Securityholders as of such record date; and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company, of any such request, a list of similar form and content with respect to the Securityholders as of a date not more than 15 days prior to the time such list is furnished, except that, no such lists need be furnished so long as the Trustee is in possession thereof by reason of its acting as Security registrar. 4.2. PRESERVATION AND DISCLOSURE OF LISTS (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of the Securities (1) contained in the most recent list furnished to it as provided in Section 4.1 or (2) received by it in the capacity of Securities registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in Section 4.1 upon receipt of a new list so furnished. (b) In case three or more holders of Securities (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Securities or with holders of all Securities with respect to their rights under this Indenture and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within 5 Business Days after the receipt of such application, at its election, either: (1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2, or (2) inform such applicants as to the approximate number of holders of all Securities, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2, and as to the approximate cost 20 of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Securities of such series or all Securities, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Securities in accordance with the provisions of subsection (b) of this Section 4.2, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b). 4.3. REPORTS BY COMPANY (a) The Company covenants and agrees to file with the Trustee, within 15 days after the date on which the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as said Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by said Commission, such additional information, documents and reports with respect to compliance by the Company with the 21 conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit by mail to all holders of Securities, as the names and addresses of such holders appear upon the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 4.3 as may be required by rules and regulations prescribed from time to time by the Commission. (d) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (e) So long as is required for an offer or sale of the Securities to qualify for an exemption under Rule 144A under the Securities Act, the Company shall, upon request, provide the information required by clause (d)(4) thereunder to each Holder and to each beneficial owner and prospective purchaser of Securities identified by any holder of Restricted Securities, unless such information is furnished to the Commission pursuant to Section 13 or 15(d) of the Exchange Act. 4.4. REPORTS BY THE TRUSTEE (a) The Trustee shall transmit to Securityholders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within 60 days after each December 31 following the date of this Indenture, commencing December 31, 1997, deliver to Securityholders a brief report which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Securityholders, be filed by the Trustee with each stock exchange, if any, upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange. ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT 5.1. EVENTS OF DEFAULT "Event of Default", wherever used herein means with respect to the Securities, any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): 22 (a) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (b) default in the payment of the principal of any Security as and when the same shall become due and payable either at maturity, by declaration or otherwise; or (c) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in principal amount of the outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (d) a default occurs under any bond, mortgage, indenture (including this Indenture) or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for money borrowed of the Company or any Restricted Subsidiary, whether such indebtedness now exists or shall hereafter be created, which default (a) is caused by a failure to pay principal on such indebtedness prior to the expiration of the grace period provided in such indebtedness (a "Payment Default") or (b) results in the acceleration of such indebtedness prior to its express maturity, and in each case, the principal amount of any such indebtedness together with the principal amount of any other such indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25 million or more, without such acceleration having been rescinded, stayed or annulled, or such indebtedness having been discharged or, in the case of indebtedness contested in good faith by the Company, a bond, letter of credit, escrow deposit or other cash equivalent in an amount sufficient to discharge such indebtedness having been set aside by the Company, within a period of 10 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities a written notice specifying such event of default and requiring the Company to cause such acceleration to be rescinded or annulled or to cause such indebtedness to be discharged and stating that such notice is a "Notice of Default" hereunder; or (e) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Bankruptcy Law or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or (f) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Bankruptcy Law or any other applicable Federal or State law, or the consent by it to 23 the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action. Upon receipt by the Trustee of any Notice of Default pursuant to this Section 5.1 with respect to Securities all or part of which are represented by a Global Security, a record date shall be established for determining Holders of outstanding Securities entitled to join in such Notice of Default, which record date shall be at the close of business on the day the Trustee receives such Notice of Default. The holders as of such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such Notice of Default, whether or not such holders remain holders after such record date; PROVIDED, that unless holders of at least 25% in principal amount of the outstanding Securities, or their proxies, shall have joined in such Notice of Default prior to the day which is 90 days after such record date, such Notice of Default shall automatically and without further action by any holder be cancelled and of no further effect. Nothing in this paragraph shall prevent a holder, or a proxy of a holder, from giving, after expiration of such 90-day period, a new Notice of Default identical to a Notice of Default which has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.1. 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT If an Event of Default with respect to Securities outstanding occurs and is continuing, then and in every such case the Trustee or the holders of not less than 25% in principal amount of the outstanding Securities may declare the principal of all Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by holders), and upon any such declaration such principal shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the holders of a majority in principal amount of the outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue installments of interest on all Securities, (B) the principal of any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, (C) to the extent that payment of such interest is legally enforceable, interest upon overdue installments of interest at the rate borne by the Securities, and 24 (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to the Securities, other than the non-payment of the principal of Securities which have become due solely by such acceleration, have been cured or waived as provided in Section 5.10. No such rescission shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, with respect to Securities all or part of which are represented by a Global Security, a record date shall be established for determining holders of outstanding Securities entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such holders remain holders after such record date; PROVIDED, that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any holder be cancelled and of no further effect. Nothing in this paragraph shall prevent a holder, or a proxy of a holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.2. Notwithstanding anything to the contrary herein, the Trustee shall not be deemed to have notice of defaults or Events of Default until a Responsible Officer has received written notice of such default or Event of Default. 5.3. PAYMENT OF SECURITIES ON DEFAULT; SUIT THEREFOR The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon any of the Securities as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of the principal of any of the Securities as and when the same shall have become due and payable, whether at maturity of the Securities or by declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Securities, the whole amount that then shall have become due and payable on all such Securities for principal or interest, or both, as the case may be, with interest upon the overdue principal and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest at the rate borne by the Securities; and, in addition thereto, such further amount as shall be sufficient to cover all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such 25 judgment or final decree against the Company or any other obligor on the Securities and collect in the manner provided by law out of the property of the Company or any other obligor on the Securities wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Securities under the Bankruptcy Law, or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or other obligor upon the Securities, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.3, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Securities and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including for all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Securityholders allowed in such judicial proceedings relative to the Company or any other obligor on the Securities, or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. Nothing herein contained shall be construed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Securities, may be enforced by the Trustee without the possession of any of the Securities, or the production thereof on any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Securities. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Securities, and it shall not be necessary to make any holders of the Securities parties to any such proceedings. 26 5.4. APPLICATION OF MONEYS COLLECTED BY TRUSTEE Any moneys collected by the Trustee shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the Securities in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; Second: To the payment of the amounts then due and unpaid upon Securities for principal of and interest on the Securities, in respect of which or for the benefit of which money has been collected, ratably, without preference of priority of any kind, according to the amounts due on such Securities for principal and interest, respectively; and Third: To the Company. 5.5. PROCEEDINGS BY SECURITYHOLDERS No holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless (1) such holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities; (2) the holders of not less than 25% in principal amount of the outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such holder or holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the holders of a majority in principal amount of the outstanding Securities; it being understood and intended that no one or more holders of Securities shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other holders of Securities, or to obtain or to seek to obtain priority or preference over any other holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the holders of Securities. 27 5.6. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST Notwithstanding any other provision in this Indenture, the holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of and (subject to Section 2.11) interest on such Security on the Stated Maturity and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. 5.7. PROCEEDINGS BY TRUSTEE In case an Event of Default occurs with respect to Securities and is continuing, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. 5.8. REMEDIES CUMULATIVE AND CONTINUING All powers and remedies given by this Article V to the Trustee or to the Securityholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to the Securities, and no delay or omission of the Trustee or of any holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 5.5, every power and remedy given by this Article V or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. 5.9. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF SECURITYHOLDERS The holders of a majority in principal amount of the outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities, PROVIDED that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if the Trustee in good faith shall determine that the proceeding so directed would be unjustly prejudicial to the holders not joining in any such direction or would involve the Trustee in personal liability. 28 Upon receipt by the Trustee of any written notice directing the time, method or place of conducting any such proceeding or exercising any such trust or power, with respect to Securities all or part of which are represented by a Global Security, a record date shall be established for determining holders of outstanding Securities entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such holders remain holders after such record date; PROVIDED, that unless the holders of a majority in principal amount of the outstanding Securities shall have joined in such notice prior to the day which is 90 days after such record date, such notice shall automatically and without further action by any holder be cancelled and of no further effect. Nothing in this paragraph shall prevent a holder, or a proxy of a holder, from giving, after expiration of such 90-day period, a new notice identical to a notice which has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.9. 5.10. WAIVER OF PAST DEFAULTS The Holders of not less than a majority in principal amount of the outstanding Securities may on behalf of the holders of all the Securities waive any past default hereunder with respect to such Securities and its consequences, except a default (1) in the payment of the principal of or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the holder of each outstanding Security. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 5.11. NOTICE OF DEFAULTS Within 90 days after the occurrence of any default hereunder with respect to the Securities, the Trustee shall transmit by mail to all holders of Securities, as their names and addresses appear in the Securities Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a default in the payment of the principal of or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the holders of Securities; and PROVIDED, FURTHER, that in the case of any default of the character specified in Section 5.1(c) or (d) no such notice to holders of Securities shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities. 5.12. UNDERTAKING TO PAY COSTS All parties to this Indenture agree, and each holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the 29 enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.12 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in aggregate principal amount of the Securities outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on any Security against the Company on or after the same shall have become due and payable. ARTICLE VI CONCERNING THE TRUSTEE 6.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE With respect to the holders of the Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and 30 (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith, in accordance with the direction of the Securityholders pursuant to Section 5.5, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. 6.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, indenture, Security or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible 31 for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. 6.3. NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained herein and in the Securities (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be taken as the statements of the Company and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company of any Securities or the proceeds of any Securities authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture. 6.4. TRUSTEE, AUTHENTICATING AGENT, PAYING AGENTS, TRANSFER AGENTS OR REGISTRAR MAY OWN SECURITIES The Trustee or any Authenticating Agent or any paying agent or any transfer agent or any Security registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent, transfer agent or Security registrar. 6.5. MONEYS TO BE HELD IN TRUST Subject to the provisions of Section 11.4, all moneys received by the Trustee or any paying agent shall, until used or applied as herein provided, be held in trust for the purpose for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee and any paying agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by the Chairman of the Board of Directors, the President, the Chief Financial Officer or a Vice President or the Treasurer or an Assistant Treasurer of the Company. 6.6. COMPENSATION AND EXPENSES OF TRUSTEE The Company, as borrower, covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed to in writing between the Company and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify each of the Trustee or any predecessor Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any and all loss, damage, claim, liability or expense including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee and arising out of or in 32 connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company under this Section 6.6 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Securities. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(d) or Section 5.1(e), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture. 6.7. OFFICERS' CERTIFICATE AS EVIDENCE Except as otherwise provided in Sections 6.1 and 6.2, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof is herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. 6.8. CONFLICTING INTEREST OF TRUSTEE If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. 6.9. ELIGIBILITY OF TRUSTEE The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia or a corporation or other Person permitted to act as trustee by the Commission authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000) and subject to supervision or examination by federal, state, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 6.9 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. 33 In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.9, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.10. 6.10. RESIGNATION OR REMOVAL OF TRUSTEE (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof to the holders of the Securities at their addresses as they shall appear on the Security register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee or trustees by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 60 days after the mailing of such notice of resignation to the Securityholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Securityholder who has been a bona fide holder of a Security for at least six months may, subject to the provisions of Section 5.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with the provisions of Section 6.8 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Security or Securities for at least six months, or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Securityholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 5.9, any Securityholder who has been a bona fide holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Securities at the time outstanding may at any time remove the Trustee and nominate a successor trustee, which shall be deemed appointed as successor trustee unless within 10 days after such nomination the Company objects thereto or if no successor trustee shall have been so appointed and shall have accepted appointment within 30 days after such removal, in which case the Trustee so removed or any 34 Securityholder, upon the terms and conditions and otherwise as in subsection (a) of this Section 6.10 provided, may petition any court of competent jurisdiction for an appointment of a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 6.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.11. 6.11. ACCEPTANCE BY SUCCESSOR TRUSTEE Any successor trustee appointed as provided in Section 6.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the retiring trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 6.6, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring trustee thereunder. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 6.6. No successor trustee shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 6.8 and eligible under the provisions of Section 6.9. Upon acceptance of appointment by a successor trustee as provided in this Section 6.11, the Company shall mail notice of the succession of such trustee hereunder to the holders of Securities at their addresses as they shall appear on the Security Register. If the Company fails to mail such notice within 10 days after the acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. 6.12. SUCCESSION BY MERGER, ETC. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificates 35 shall have the full force which the Securities or this Indenture elsewhere provides that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. 6.13. LIMITATION ON RIGHTS OF TRUSTEE AS A CREDITOR The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. 6.14. AUTHENTICATING AGENTS There may be one or more Authenticating Agents appointed by the Trustee upon the request of the Company with power to act on its behalf and subject to its direction in the authentication and delivery of Securities issued upon exchange or transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Securities; PROVIDED, that the Trustee shall have no liability to the Company for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Securities. Any such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States or of any state or territory thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least $5,000,000 and being subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.14 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 6.14 without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.14, the Trustee may, and upon the request of the Company shall, promptly appoint a successor Authenticating Agent eligible under this Section 6.14, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all Securityholders as the names and addresses of such holders appear on the Security Register. Any successor Authenticating Agent upon acceptance of its appointment 36 hereunder shall become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein. The Company, as borrower, agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee. ARTICLE VII CONCERNING THE SECURITYHOLDERS 7.1. ACTION BY SECURITYHOLDERS Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Securities may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Securities voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article VIII, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders. If the Company shall solicit from the Securityholders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action or to revoke any such action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action or revocation may be given before or after the record date, but only the Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of Securities outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Securities outstanding shall be computed as of the record date; PROVIDED, HOWEVER, that no such authorization, agreement or consent by such Securityholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. 7.2. PROOF OF EXECUTION BY SECURITYHOLDERS Subject to the provisions of Sections 6.1, 6.2 and 8.5, proof of the execution of any instrument by a Securityholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Securities shall be proved by the Security Register or by a certificate of the Security registrar. The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. 37 The record of any Securityholders' meeting shall be proved in the manner provided in Section 8.6. 7.3. WHO ARE DEEMED ABSOLUTE OWNERS Prior to due presentment for registration of transfer of any Security, the Company, the Trustee, any Authenticating Agent, any paying agent, any transfer agent and any Security registrar may deem the person in whose name such Security shall be registered upon the Security Register to be, and may treat him or her as, the absolute owner of such Security (whether or not such Security shall be overdue) for the purpose of receiving payment of or on account of the principal of and (subject to Section 2.6) interest on such Security and for all other purposes; and neither the Company nor the Trustee nor any Authenticating Agent nor any paying agent nor any transfer agent nor any Security registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon his order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security. 7.4. SECURITIES OWNED BY COMPANY DEEMED NOT OUTSTANDING In determining whether the holders of the requisite aggregate principal amount of Securities have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Company or any other obligor on the Securities or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination; PROVIDED THAT for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Securities which the Trustee actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 7.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Securities and that the pledgee is not the Company or any such other obligor or person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. 7.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action, any holder of a Security (or any Security issued in whole or in part in exchange or substitution therefor), subject to Section 7.1, the serial number of which is shown by the evidence to be included in the Securities the holders of which have consented to such action may, by filing written notice with the Trustee at its principal office and upon proof of holding as provided in Section 7.2, revoke such action so far as concerns such Security (or so far as concerns the principal amount represented by any exchanged or substituted Security). Except as aforesaid any such action taken by the holder of any Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Security, and of any Security issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon such Security or any Security issued in exchange or substitution therefor. 38 ARTICLE VIII SECURITYHOLDERS' MEETINGS 8.1. PURPOSES OF MEETINGS A meeting of Securityholders may be called at any time and from time to time pursuant to the provisions of this Article VIII for any of the following purposes: (a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article V; (b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VI; (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.2; or (d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of such Securities under any other provision of this Indenture or under applicable law. 8.2. CALL OF MEETINGS BY TRUSTEE The Trustee may at any time call a meeting of Securityholders to take any action specified in Section 8.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of the Securityholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Securities at their addresses as they shall appear on the Securities Register. Such notice shall be mailed not less than 20 nor more than 180 days prior to the date fixed for the meeting. 8.3. CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS In case at any time the Company pursuant to a resolution of the Board of Directors, or the holders of at least 10% in aggregate principal amount of the Securities then outstanding, shall have requested the Trustee to call a meeting of Securityholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place in said Borough of Manhattan for such meeting and may call such meeting to take any action authorized in Section 8.1, by mailing notice thereof as provided in Section 8.2. 8.4. QUALIFICATIONS FOR VOTING To be entitled to vote at any meeting of Securityholders a person shall (a) be a holder of one or more Securities or (b) a person appointed by an instrument in writing as proxy by a holder of one 39 or more Securities. The only persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. 8.5. REGULATIONS Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 8.3, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting. Subject to the provisions of Section 8.4, at any meeting each holder of Securities or proxy therefor shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chair of the meeting shall have no right to vote other than by virtue of Securities held by him or her or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.2 or 8.3 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. 8.6. VOTING The vote upon any resolution submitted to any meeting of holders of Securities shall be by written ballots on which shall be subscribed the signatures of such holders or of their representatives by proxy and the serial number or numbers of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.2. The record shall show the serial numbers of the Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. The holders of the Original Securities and the Exchange Securities shall vote for all purposes as a single class. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 40 ARTICLE IX AMENDMENTS 9.1. WITHOUT CONSENT OF SECURITYHOLDERS The Company and the Trustee may from time to time and at any time amend the Indenture, without the consent of the Securityholders, for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article X hereof; (b) to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the Securityholders as the Board of Directors and the Trustee shall consider to be for the protection of the Securityholders, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the remedies provided in this Indenture as herein set forth; PROVIDED, HOWEVER, that in respect of any such additional covenant, restriction or condition such amendment may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (c) to provide for the issuance under this Indenture of Securities in coupon form (including Securities registrable as to principal only) and to provide for exchangeability of such Securities with the Securities issued hereunder in fully registered form and to make all appropriate changes for such purpose; (d) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture; PROVIDED THAT any such action shall not materially adversely affect the interests of the holders of the Securities; (e) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities; (f) to provide for the issuance and authentication of the Exchange Securities in exchange for the Original Securities in compliance with this Indenture and the Registration Rights Agreement; (g) to qualify or maintain qualification of this Indenture under the Trust Indenture Act; or (h) to make any change that does not adversely affect the rights of any Securityholder in any material respect. 41 The Trustee is hereby authorized to join with the Company in the execution of any supplemental indenture to effect such amendment, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any amendment to the Indenture authorized by the provisions of this Section 9.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 9.2. 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS With the consent of the Holders of not less than 66-2/3% in principal amount of the outstanding Securities affected by such supplemental indenture, by act of said holders delivered to the Company and the Trustee, the Company, when authorized by Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the holder of each outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any outstanding Security, or reduce the principal amount thereof or the interest thereon, or change the place of payment, or the coin or currency in which any outstanding Security or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof, or (2) reduce the percentage in principal amount of the outstanding Securities, the consent of whose holders is required for any such supplemental indenture, or the consent of whose holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 5.10 or Section 3.9, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security affected thereby. It shall not be necessary for any act of holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such act shall approve the substance thereof. 9.3. COMPLIANCE WITH TRUST INDENTURE ACT; EFFECT OF SUPPLEMENTAL INDENTURES Any supplemental indenture executed pursuant to the provisions of this Article IX shall comply with the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article IX, this Indenture shall be and be deemed to be modified and amended in 42 accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. 9.4. NOTATION ON SECURITIES Securities authenticated and delivered after the execution of any supplemental indenture affecting such series pursuant to the provisions of this Article IX may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Securities then outstanding. 9.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE FURNISHED TRUSTEE The Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article IX. The Trustee may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article is authorized or permitted by, and conforms to, the terms of this Article and that it is proper for the Trustee under the provisions of this Article to join in the execution thereof. ARTICLE X CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE 10.1. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS The Company shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey or transfer its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another corporation or convey or transfer its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any state or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and interest on all the Securities 43 and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 10.1. 10.2. SUCCESSOR CORPORATION SUBSTITUTED Upon any consolidation or the merger by the Company with or into any other corporation, or any conveyance or transfer by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 10.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein; and in the event of any such conveyance or transfer, the Company (which term shall for this purpose mean any Person named as the "Company" in the first paragraph of this Indenture or any successor corporation which shall theretofore become such in the manner described in Section 10.1) shall be discharged from all obligations and covenants under the Indenture and the Securities and may be dissolved and liquidated. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Company prior to such successor, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee on its behalf for that purpose pursuant to such provisions. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale or conveyance, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. 10.3. LIMITATION ON LEASE OF PROPERTIES AS AN ENTIRETY The Company shall not lease its properties and assets substantially as an entirety to any Person. 44 ARTICLE XI SATISFACTION AND DISCHARGE OF INDENTURE 11.1. DISCHARGE OF INDENTURE This Indenture shall cease to be of further effect (except as to (i) any surviving rights of transfer, substitution and exchange of Securities, (ii) rights hereunder of Holders to receive payments of principal of and interest on the Securities and other rights, duties and obligations of the Holders as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights and obligations of the Trustee hereunder), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.8 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 3.4) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, and the Company, in the case of (i) or (ii) above, have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee and any predecessor Trustee under Section 6.6 shall survive. 45 11.2. DEPOSITED MONEYS AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST BY TRUSTEE Subject to the provisions of Section 11.4, all moneys and U.S. Government Obligations deposited with the Trustee pursuant to Sections 11.1 or 11.5 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Securities for the payment of which such moneys or U.S. Government Obligations have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 11.5 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the holders of outstanding Securities. 11.3. PAYING AGENT TO REPAY MONEYS HELD Upon the satisfaction and discharge of this Indenture all moneys then held by any paying agent of the Securities (other than the Trustee) shall, upon written demand of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such moneys. 11.4. RETURN OF UNCLAIMED MONEYS Any moneys deposited with or paid to the Trustee or any paying agent for payment of the principal of or interest on Securities and not applied but remaining unclaimed by the holders of Securities for two years after the date upon which the principal of or interest on such Securities, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee or such paying agent on Company Request; and the holder of any of the Securities shall thereafter look only to the Company for any payment which such holder may be entitled to collect and all liability of the Trustee or such paying agent with respect to such moneys shall thereupon cease. 11.5. DEFEASANCE UPON DEPOSIT OF MONEYS OR U.S. GOVERNMENT OBLIGATIONS The Company shall be deemed to have been Discharged (as defined below) from its obligations with respect to the Securities on the 91st day after the conditions set forth below have been satisfied: (1) The Company shall have deposited or caused to be deposited irrevocably with the Trustee or the Defeasance Agent (as defined below) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (iii) a combination of (i) and (ii), sufficient, in the opinion (with respect to (ii) and (iii)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee and the Defeasance Agent, if any, to pay and discharge each installment of principal of and interest and premium, if any, on the outstanding Securities on the dates such installments of principal, interest or premium are due; 46 (2) if the Securities are then listed on any national securities exchange, the Company shall have delivered to the Trustee and the Defeasance Agent, if any, an Opinion of Counsel to the effect that the exercise of the option under this Section 11.5 would not cause such Securities to be delisted from such exchange; (3) no Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit; and (4) the Company shall have delivered to the Trustee and the Defeasance Agent, if any, an Opinion of Counsel to the effect that holders of the Securities will not recognize income, gain or loss for United States federal income tax purposes as a result of the exercise of the option under this Section 11.5 and will be subject to United States federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised, and such opinion shall be based on a statute so providing or be accompanied by a private letter ruling to that effect received from the United States Internal Revenue Service or a revenue ruling pertaining to a comparable form of transaction to that effect published by the United States Internal Revenue Service. "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities and to have satisfied all the obligations under this Indenture relating to the Securities (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of holders of Securities to receive, from the trust fund described in clause (1) above, payment of the principal of and the interest and premium, if any, on the Securities when such payments are due; (B) the Company's obligations with respect to the Securities under Sections 2.2, 2.7, 2.8, 3.2, 3.4, 6.10 and 11.4; and (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder. "Defeasance Agent" means another financial institution which is eligible to act as Trustee hereunder and which assumes all of the obligations of the Trustee necessary to enable the Trustee to act under this Article. In the event such a Defeasance Agent is appointed pursuant to this Section, the following conditions shall apply: (1) The Trustee shall have approval rights over the document appointing such Defeasance Agent and the document setting forth such Defeasance Agent's rights and responsibilities; (2) The Defeasance Agent shall provide verification to the Trustee acknowledging receipt of sufficient money and/or U.S. Government Obligations to meet the applicable conditions set forth in this Section 11.5. 47 ARTICLE XII IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS 12.1. INDENTURE AND SECURITIES SOLELY CORPORATE OBLIGATIONS No recourse for the payment of the principal of or interest on any Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture, or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any successor Person to the Company, either directly or through the Company or any successor Person to the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. ARTICLE XIII MISCELLANEOUS PROVISIONS 13.1. SUCCESSORS All the covenants, stipulations, promises and agreements in this Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. 13.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. 13.3. SURRENDER OF COMPANY POWERS The Company by instrument in writing executed by authority of 2/3 (two-thirds) of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company, and thereupon such power so surrendered shall terminate both as to the Company, as the case may be, and as to any successor Person. 13.4. ADDRESSES FOR NOTICES, ETC. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Securities on the Company may be given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee for the purpose) to the Company, SAFECO Plaza, 4333 Brooklyn Ave. N.E., Seattle, Washington 98185, Attention: Chief Financial 48 Officer, Treasurer or Secretary. Any notice, direction, request or demand by any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of the Trustee, The Chase Manhattan Bank, Attention: Global Trust Services (unless another address is provided by the Trustee to the Company for the purpose). Any notice or communication to a Holder shall be mailed by first class mail to his or her address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. 13.5. GOVERNING LAW This Indenture and each Security shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State, without regard to conflicts of laws principles thereof. 13.6. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that in the opinion of the signers all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture (except pursuant to Section 3.5) shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. 13.7. BUSINESS DAYS In any case where the date of payment of principal of or interest on the Securities will not be a Business Day, the payment of such principal of or interest on the Securities need not be made on such date but may be made on the next succeeding Business Day, with the same force and effect as if made on the date of payment and no interest shall accrue for the period from and after such date. 13.8. TRUST INDENTURE ACT TO CONTROL If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. 49 13.9. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. 13.10. EXECUTION IN COUNTERPARTS This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 13.11. SEPARABILITY In case any one or more of the provisions contained in this Indenture or in the Securities shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of the Securities, but this Indenture and the Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. 13.12. ASSIGNMENT The Company will have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, PROVIDED that, in the event of any such assignment, the Company will remain primarily liable for all its obligations. Subject to the foregoing, the Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. 50 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. SAFECO CORPORATION By /s/ Rodney A. Pierson ------------------------------ Name: Rodney A. Pierson Title: Chief Financial Officer THE CHASE MANHATTAN BANK as Trustee By /s/ John T. Needham, Jr. ------------------------------ Name: John T. Needham, Jr. Title: Trust Officer EXHIBIT A (FORM OF FACE OF ORIGINAL SECURITY) [IF THE SECURITY IS A GLOBAL SECURITY, INSERT: - THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES A-1 WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) IN A MINIMUM PRINCIPAL AMOUNT OF $100,000 TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE COMPANY. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. No. ___________ CUSIP No. 786429 AA 2 A-2 SAFECO CORPORATION 6 7/8% NOTES DUE JULY 15, 2007 SAFECO Corporation, a Washington corporation (the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of (__________) on July 15, 2007 (the "Maturity Date"), and to pay interest on the outstanding principal amount hereof from July 15, 1997, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on January 15 and July 15 of each year, commencing January 15, 1998 at the rate of 6 7/8% per annum until the principal hereof shall have become due and payable, and at the same rate per annum on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded semi-annually. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months and, for any period less than a full calendar month, the number of days elapsed in such month. In the event that any date on which the principal of or interest on this Security is payable is not a Business Day, then the payment payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. Pursuant to the Registration Rights Agreement, in certain limited circumstances the Company will be required to pay Liquidated Damages (as defined in the Registration Rights Agreement) with respect to this Security. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Security (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the January 1 or July 1 immediately preceding the relevant interest payment date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the holders on such regular record date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the holders of Securities not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of and interest on this Security shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that, payment of interest may be made at the option of the Company by (i) check mailed to the holder at such address as shall appear in the Security Register or (ii) by transfer to an account maintained by the Person entitled thereto, provided that proper written transfer instructions have been received by the relevant record date. A-3 This Security shall not be entitled to any benefit under the Indenture hereinafter referred to, or be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Security are continued on the reverse side hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. SAFECO CORPORATION By _______________________________ Name: Title: Attest: By: ________________________________ Name: Title: A-4 (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. Dated _______________________ The Chase Manhattan Bank as Trustee By_____________________________________ Authorized Officer A-5 (FORM OF REVERSE OF SECURITY) This Security is one of the Securities of the Company (herein sometimes referred to as the "Securities"), specified in the Indenture, all issued or to be issued under and pursuant to an Indenture, dated as of July 15, 1997 (the "Indenture"), duly executed and delivered between the Company and The Chase Manhattan Bank, as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Securities. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Securities may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of a majority in aggregate principal amount of the Securities at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the holders of the Securities; provided, however, that no such supplemental indenture shall, without the consent of each holder of Securities then outstanding and affected thereby, (i) extend the Stated Maturity of any Securities, or reduce the principal amount thereof, or reduce the rate of payment of interest thereon, or make the principal of, or interest on, the Securities payable in any coin or currency other than U.S. dollars, or impair or affect the right of any holder of Securities to institute suit for the payment thereof, or (ii) reduce the aforesaid percentage of Securities, the holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Securities at the time outstanding, on behalf of all of the holders of the Securities, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or interest on any of the Securities or a default in respect of any covenant or provision under which the Indenture cannot be modified or amended without the consent of each holder of Securities then outstanding. Any such consent or waiver by the holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future holders and owners of this Security and of any Security issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the time and place and at the rate and in the money herein prescribed. The Securities are issuable only in registered form without coupons in denominations of $1,000.00 and any integral multiple thereof. As provided in the Indenture and subject to the transfer restrictions limitations as may be contained herein and therein from time to time, this Security is transferable by the holder hereof on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Company in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the A-6 Company or the Security registrar duly executed by the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Security, the Company, the Trustee, any authenticating agent, any paying agent, any transfer agent and the registrar may deem and treat the holder hereof as the absolute owner hereof (whether or not this Security shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and (subject to the Indenture) interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any authenticating agent nor any paying agent nor any transfer agent nor any registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or interest on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. A-7 EXHIBIT B (FORM OF FACE OF EXCHANGE SECURITY)(1) [IF THE SECURITY IS A GLOBAL SECURITY, INSERT: - THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] No.____________ _____________________________ (1) Except as provided in Section 2.4(b) of the Indenture. B-1 SAFECO CORPORATION 6 7/8% NOTES DUE JULY 15, 2007 SAFECO Corporation, a Washington corporation (the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of (__________) on July 15, 2007 (the "Maturity Date"), and to pay interest on the outstanding principal amount hereof from July 15, 1997, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on January 15 and July 15 of each year, commencing January 15, 1998 at the rate of 6 7/8% per annum until the principal hereof shall have become due and payable, and at the same rate per annum on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded semi-annually. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months and, for any period less than a full calendar month, the number of days elapsed in such month. In the event that any date on which the principal of or interest on this Security is payable is not a Business Day, then the payment payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Security (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the January 1 or July 1 immediately preceding the relevant interest payment date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the holders on such regular record date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the holders of Securities not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of and interest on this Security shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that, payment of interest may be made at the option of the Company by (i) check mailed to the holder at such address as shall appear in the Security Register or (ii) by transfer to an account maintained by the Person entitled thereto, provided that proper written transfer instructions have been received by the relevant record date. This Security shall not be entitled to any benefit under the Indenture hereinafter referred to, or be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. B-2 The provisions of this Security are continued on the reverse side hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. SAFECO CORPORATION By _______________________________ Name: Boh A. Dickey Title: President Attest: By: ________________________________ Name: Rodney A. Pierson Title: Senior Vice President and Chief Financial Officer B-3 (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. Dated _________________ The Chase Manhattan Bank as Trustee By_____________________________________ Authorized Officer B-4 (FORM OF REVERSE OF SECURITY) This Security is one of the Securities of the Company (herein sometimes referred to as the "Securities"), specified in the Indenture, all issued or to be issued under and pursuant to an Indenture, dated as of July 15, 1997 (the "Indenture"), duly executed and delivered between the Company and The Chase Manhattan Bank as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Securities. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Securities may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of a majority in aggregate principal amount of the Securities at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the holders of the Securities; provided, however, that no such supplemental indenture shall, without the consent of each holder of Securities then outstanding and affected thereby, (i) extend the Stated Maturity of any Securities, or reduce the principal amount thereof, or reduce the rate of payment of interest thereon, or make the principal of, or interest on, the Securities payable in any coin or currency other than U.S. dollars, or impair or affect the right of any holder of Securities to institute suit for the payment thereof, or (ii) reduce the aforesaid percentage of Securities, the holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Securities at the time outstanding, on behalf of all of the holders of the Securities, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or interest on any of the Securities or a default in respect of any covenant or provision under which the Indenture cannot be modified or amended without the consent of each holder of Securities then outstanding. Any such consent or waiver by the holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future holders and owners of this Security and of any Security issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the time and place and at the rate and in the money herein prescribed. The Securities are issuable only in registered form without coupons in denominations of $1,000.00 and any integral multiple thereof. As provided in the Indenture and subject to the transfer restrictions limitations as may be contained herein and therein from time to time, this Security is transferable by the holder hereof on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Company in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the B-5 Company or the Security registrar duly executed by the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Security, the Company, the Trustee, any authenticating agent, any paying agent, any transfer agent and the registrar may deem and treat the holder hereof as the absolute owner hereof (whether or not this Security shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and (subject to the Indenture) interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any authenticating agent nor any paying agent nor any transfer agent nor any registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or interest on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. B-6 EX-5.1 3 EXHIBIT 5.1 [Letterhead of SAFECO] October 17, 1997 SAFECO Corporation 4333 Brooklyn Avenue N.E. Seattle, WA 98185 RE: EXCHANGE OFFER RELATING TO 6 7/8% NOTES DUE JULY 15, 2007 Ladies and Gentlemen: I am General Counsel of SAFECO Corporation, a Washington corporation (the "Company"), and in that capacity I have acted as counsel to the Company in connection with its offer to exchange its 6 7/8% Notes due July 15, 2007 (the "Exchange Notes"), which are being registered under the Securities Act of 1933, as amended (the "Act"), pursuant to a Registration Statement on Form S-4 (the "Registration Statement"), for an equal principal amount at maturity of the outstanding 6 7/8% Notes due July 15, 2007 (the "Original Notes"). In rendering the opinions set forth herein, I have examined, among other things, (i) the Indenture dated as of July 15, 1997, between the Company and The Chase Manhattan Bank, as Trustee (the "Indenture"); (ii) the form of Exchange Notes; (iii) the Registration Rights Agreement dated as of July 15, 1997 (the "Registration Rights Agreement") between the Company and Smith Barney Inc.; and (iv) the Amended and Restated Articles of Incorporation and Bylaws of the Corporation. I have examined original or reproduced or certified copies of such Company records, certificates of public officials and Company officers, and other instruments and documents, and have made such other investigations, as I have deemed necessary or appropriate to enable me to express the opinions set forth herein. In rendering such opinions, I have assumed the genuineness of all signatures on original documents, the completeness and authenticity of all records and documents submitted to me as originals and the conformity to authentic originals of all copies submitted to me as conformed or photostatic copies. In examining documents executed by parties other than the Company, I have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. Subject to the qualifications and limitations expressed above, and on the basis of the foregoing, I am of the opinion that: SAFECO Corporation October 17, 1997 Page 2 (a) The Indenture has been duly authorized, executed and delivered by, and is a binding agreement of, the Company enforceable in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity); and (b) The Exchange Notes have been duly authorized and, when authenticated in accordance with the provisions of the Indenture and issued and delivered pursuant to the Registration Rights Agreement, will constitute valid and binding obligations of the Company enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). The opinions expressed above also are subject to the following exclusions and qualifications: 1. I express no opinion as to any laws other than the federal laws of the United States and the internal laws of the State of Washington ordinarily applicable to transactions contemplated by the Indenture and Registration Rights Agreement. 2. This opinion is being furnished solely to you in connection with the filing of the Registration Statement and may be relied upon by you, but may not otherwise be relied upon by any other person. No other use or distribution of this opinion may be made without my prior written consent. I hereby consent to the filing of this opinion with the Securities and Exchange Commission (the "Commission") as an exhibit to the Registration Statement. I also consent to the reference to myself under the caption "Validity of Exchange Securities" in the Registration Statement. In giving this consent, I do not hereby admit that I am included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Very truly yours, /s/ James W. Ruddy James W. Ruddy General Counsel cc: Boh A. Dickey, President EX-12.1 4 COMPUTATION OF RATIO EARNINGS EXHIBIT 12 SAFECO CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Distributions on Capital Securities - -------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT RATIOS) Ratio of Earnings to Fixed Charges, Excluding Distributions on Capital Securities:
Pro Forma ----------------------------- Six Months Six Months Years Ended December 31, Ended Year Ended Ended -------------------------------------- June 30, 1997 Dec. 31, 1996 June 30, 1997 1996 1995 1994 1993 1992 ------------- ------------- ------------- ------ ------ ------ ------ ------ Earnings: Income Before Income Taxes and Distributions on Capital Securities $361.3 $658.0 $300.1 $578.5 $513.8 $389.7 $576.9 $403.2 Total Fixed Charges Below 71.6 130.3 40.5 76.3 89.7 75.1 63.6 67.8 Less Interest Capitalized (1.0) (0.1) (0.9) (0.1) (0.3) (0.8) (1.4) (0.2) Less Loss from Unconsolidated Subsidiary -- -- -- 0.9 1.0 0.2 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL EARNINGS $431.9 $788.2 $339.7 $655.6 $604.2 $464.2 $639.7 $471.4 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ Fixed Charges: Interest $ 65.7 $120.6 $ 37.5 $ 72.4 $ 85.4 $ 70.3 $ 58.8 $ 64.1 Interest Capitalized 1.0 0.1 0.9 0.1 0.3 0.8 1.4 0.2 Interest Portion of Rental Expenses 4.3 9.0 1.5 3.3 3.2 3.1 2.8 2.9 Amortization of Deferred Debt Expenses 0.6 0.6 0.6 0.5 0.8 0.9 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL FIXED CHARGES $ 71.6 $130.3 $ 40.5 $ 76.3 $ 89.7 $ 75.1 $ 63.6 $ 67.8 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES, EXCLUDING DISTRIBUTIONS ON CAPITAL SECURITIES 6.0 6.0 8.4 8.6 6.7 6.2 10.1 7.0 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------
SAFECO CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Distributions on Capital Securities - -------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT RATIOS) Ratio of Earnings to Fixed Charges, and Distributions on Capital Securities:
Pro Forma ----------------------------- Six Months Six Months Years Ended December 31, Ended Year Ended Ended -------------------------------------- June 30, 1997 Dec. 31, 1996 June 30, 1997 1996 1995 1994 1993 1992 ------------- ------------- ------------- ------ ------ ------ ------ ------ Earnings: Income Before Income Taxes $320.0 $575.5 $300.1 $578.5 $513.8 $389.7 $576.9 $403.2 Total Fixed Charges Below 112.9 212.8 40.5 76.3 89.7 75.1 63.6 67.8 Less Interest Capitalized (1.0) (0.1) (0.9) (0.1) (0.3) (0.8) (1.4) (0.2) Less Loss from Unconsolidated Subsidiary -- -- -- 0.9 1.0 0.2 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL EARNINGS $431.9 $788.2 $339.7 $655.6 $604.2 $464.2 $639.7 $471.4 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ Fixed Charges: Interest $ 65.7 $120.6 $ 37.5 $ 72.4 $ 85.4 $ 70.3 $ 58.8 $ 64.1 Distributions on Capital Securities 41.3 82.5 -- -- -- -- -- -- Interest Capitalized 1.0 0.1 0.9 0.1 0.3 0.8 1.4 0.2 Interest Portion of Rental Expenses 4.3 9.0 1.5 3.3 3.2 3.1 2.8 2.9 Amortization of Deferred Debt Expenses 0.6 0.6 0.6 0.5 0.8 0.9 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL FIXED CHARGES $112.9 $212.8 $ 40.5 $ 76.3 $ 89.7 $ 75.1 $ 63.6 $ 67.8 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES AND DISTRIBUTIONS ON CAPITAL SECURITIES 3.8 3.7 8.4 8.6 6.7 6.2 10.1 7.0 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------
SAFECO CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Distributions on Capital Securities - -------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT RATIOS) Ratio of Earnings to Fixed Charges, Excluding Distributions on Capital Securities and Excluding SAFECO Credit Company, Inc.:
Pro Forma ----------------------------- Six Months Six Months Years Ended December 31, Ended Year Ended Ended -------------------------------------- June 30, 1997 Dec. 31, 1996 June 30, 1997 1996 1995 1994 1993 1992 ------------- ------------- ------------- ------ ------ ------ ------ ------ Earnings: Income Before Income Taxes and Distributions on Capital Securities (Excluding SAFECO Credit) $351.5 $638.9 $290.3 $559.4 $500.5 $378.9 $566.7 $394.2 Total Fixed Charges Below 44.9 82.7 13.8 28.8 47.8 44.3 37.6 41.1 Less Interest Capitalized (1.0) (0.1) (0.9) (0.1) (0.3) (0.8) (1.4) (0.2) Less Undistributed Loss from Unconsolidated Subsidiary -- -- -- 0.9 1.0 0.2 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL EARNINGS $395.4 $721.5 $303.2 $589.0 $549.0 $422.6 $603.5 $435.7 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ Fixed Charges (Excluding SAFECO Credit Company, Inc.): Interest $ 39.0 $ 73.1 $ 10.8 $ 25.0 $ 43.6 $ 39.6 $ 32.9 $ 37.5 Interest Capitalized 1.0 0.1 0.9 0.1 0.3 0.8 1.4 0.2 Interest Portion of Rental Expenses 4.3 8.9 1.5 3.2 3.1 3.0 2.7 2.8 Amortization of Deferred Debt Expenses 0.6 0.6 0.6 0.5 0.8 0.9 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL FIXED CHARGES $ 44.9 $ 82.7 $ 13.8 $ 28.8 $ 47.8 $ 44.3 $ 37.6 $ 41.1 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES, EXCLUDING DISTRIBUTIONS ON CAPITAL SECURITIES AND EXCLUDING SAFECO CREDIT COMPANY, INC. 8.8 8.7 22.0 20.5 11.5 9.5 16.1 10.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------
SAFECO CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Distributions on Capital Securities - -------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT RATIOS) Ratio of Earnings to Fixed Charges and Distributions on Capital Securities, Excluding SAFECO Credit Company, Inc.:
Pro Forma ----------------------------- Six Months Six Months Years Ended December 31, Ended Year Ended Ended -------------------------------------- June 30, 1997 Dec. 31, 1996 June 30, 1997 1996 1995 1994 1993 1992 ------------- ------------- ------------- ------ ------ ------ ------ ------ Earnings: Income Before Income Taxes (Excluding SAFECO Credit Company, Inc.) $310.2 $556.4 $290.3 $559.4 $500.5 $378.9 $566.7 $394.2 Total Fixed Charges Below 86.2 165.2 13.8 28.8 47.8 44.3 37.6 41.1 Less Interest Capitalized (1.0) (0.1) (0.9) (0.1) (0.3) (0.8) (1.4) (0.2) Less Undistributed Loss from Unconsolidated Subsidiary -- -- -- 0.9 1.0 0.2 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL EARNINGS $395.4 $721.5 $303.2 $589.0 $549.0 $422.6 $603.5 $435.7 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ Fixed Charges (Excluding SAFECO Credit Company, Inc.): Interest $ 39.0 $ 73.1 $ 10.8 $ 25.0 $ 43.6 $ 39.6 $ 32.9 $ 37.5 Distributions on Capital Securities 41.3 82.5 -- -- -- -- -- -- Interest Capitalized 1.0 0.1 0.9 0.1 0.3 0.8 1.4 0.2 Interest Portion of Rental Expenses 4.3 8.9 1.5 3.2 3.1 3.0 2.7 2.8 Amortization of Deferred Debt Expenses 0.6 0.6 0.6 0.5 0.8 0.9 0.6 0.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ TOTAL FIXED CHARGES $ 86.2 $165.2 $ 13.8 $ 28.8 $ 47.8 $ 44.3 $ 37.6 $ 41.1 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES AND DISTRIBUTIONS ON CAPITAL SECURITIES, EXCLUDING SAFECO CREDIT COMPANY, INC. 4.6 4.4 22.0 20.5 11.5 9.5 16.1 10.6 ------------- ------------- ------------- ------ ------ ------ ------ ------ ------------- ------------- ------------- ------ ------ ------ ------ ------
EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the headings "Selected Financial Information" and "Independent Auditors" in the Registration Statement (Form S-4 No. 333-38207) of SAFECO Corporation for the registration of $200,000,000 of 6.875% Notes due July 15, 2007 and to the incorporation by reference therein of our report dated February 14, 1997, with respect to the consolidated financial statements of SAFECO Corporation and subsidiaries incorporated by reference in its Annual Report (Form 10-K) for the year ended December 31, 1996 and the related financial statement schedules included in the Annual Report (Form 10-K), filed with the Securities and Exchange Commission, and to the incorporation by reference therein of our report dated January 28, 1997 with respect to the consolidated financial statements and schedules of American States Financial Corporation and subsidiaries included in its Annual Report (Form 10-K, Form 10-K/A(1) and Form 10-K/A(2)) for the year ended December 31, 1996, filed with the Securities and Exchange Commission. Ernst & Young LLP Seattle, Washington November 10, 1997 -----END PRIVACY-ENHANCED MESSAGE-----