Filed Pursuant to Rule 424(b)(3)
PROSPECTUS Registration No. 333-102019
TECO Energy, Inc.
Offer to Exchange
$380,000,000 10.50% Notes Due 2007
Which Have Been Registered Under The Securities Act of 1933
For Any And All Outstanding
10.50% Notes Due 2007
Which Have Not Been So Registered
- The exchange offer expires at 5:00 p.m., New York City time, on February
6, 2003, unless we extend the offer. If we extend the exchange offer, we
will not extend it beyond February 11, 2003.
- The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the terms of the original notes, except that
the exchange notes are registered under the Securities Act of 1933 and
the transfer restrictions and the registration rights applicable to the
original notes generally do not apply to the exchange notes.
- All original notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of original notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- We do not intend to apply for listing of the exchange notes on any
securities exchange or to arrange for them to be quoted on any quotation
system.
- The exchange offer is subject to customary conditions, including the
condition that the exchange offer not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission.
- We will not receive any proceeds from the exchange offer.
- This prospectus and the letter of transmittal are first being mailed to
all holders of the original notes on January 6, 2003.
INVESTING IN THE EXCHANGE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The exchange offer is not being made, nor will we accept surrender or
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.
Each broker-dealer that receives exchange notes for its own account
pursuant to this exchange offer must acknowledge that it will deliver a
prospectus 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 of 1933, as amended. 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. We have agreed that,
for a period of 180 days after the date this exchange offer expires, we will
make this prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
The date of this prospectus is January 2, 2003.
TECO ENERGY, INC.
702 NORTH FRANKLIN STREET
TAMPA, FLORIDA 33602
(813) 228-4111
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Note Regarding Forward-Looking Statements................... 13
Use of Proceeds............................................. 14
Capitalization.............................................. 15
Selected Consolidated Historical Financial Information...... 16
Consolidated Ratio of Earnings to Fixed Charges............. 19
The Exchange Offer.......................................... 19
Description of the Exchange Notes........................... 26
Book Entry; Delivery and Form............................... 45
Material Federal Income Tax Consequences.................... 46
Original Notes Registration Rights.......................... 51
Plan of Distribution........................................ 54
Legal Opinions.............................................. 55
Experts..................................................... 56
Where You Can Find More Information......................... 56
In this prospectus, "we," "our," "ours" and "us" refer to TECO Energy, Inc.
unless the context otherwise requires. The terms "note" or "notes" refer to both
the original notes and the exchange notes to be issued in the exchange offer.
The term "holders", when used in connection with the notes, refers to those
persons who are the registered holders of the notes on the books of the
registrar appointed under the indenture.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
should not rely on any unauthorized information or representations. This
prospectus is an offer to exchange only the notes offered by this prospectus,
and only under the circumstances and in those jurisdictions where it is lawful
to do so. The information contained in this prospectus is current only as of its
date.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this document. You may
request a copy of these filings, at no cost, by writing or telephoning us at the
following address:
Director of Investor Relations
TECO Energy, Inc.
702 North Franklin Street
Tampa, Florida 33602
(813) 228-4111
In order to obtain timely delivery, you must request information no later
than January 30, 2003.
PROSPECTUS SUMMARY
This summary contains basic information that is important to you in
deciding whether to participate in the exchange offer. This summary is not
complete and does not contain all of the information that you should consider.
TECO ENERGY
We are an electric and gas utility holding company, exempt from
registration under the Public Utility Holding Company Act of 1935, with
important unregulated activities. We have a balance of regulated utility
companies in the growing Florida market and profitable unregulated companies.
Our unregulated businesses include independent power generation and
distribution, marine transportation, coal mining, coalbed methane gas
production, the marketing of natural gas, energy and engineering services and,
indirectly, the sale of propane gas. You can find a more complete description of
our business and recent activities in the documents listed under "Where You Can
Find More Information." The address of our principal executive office is 702
North Franklin Street, Tampa, Florida 33602, and the telephone number is (813)
228-4111.
SUMMARY OF THE EXCHANGE OFFER
On November 20, 2002, we completed a private offering of $380,000,000
aggregate principal amount of 10.50% Notes Due 2007. Prior to the offering of
those original notes, we entered into a registration rights agreement with the
initial purchaser of those original notes in which we agreed to deliver this
prospectus to you and to complete an exchange offer for those original notes.
Below is a summary of the exchange offer.
Exchange Offer................ We are offering to exchange an aggregate of
$380,000,000 principal amount of exchange notes
for an aggregate of $380,000,000 principal
amount of original notes. The original notes
may be exchanged only in multiples of $1,000.
Expiration Date............... This exchange offer will expire at 5:00 p.m.,
New York City time, on February 6, 2003, unless
we extend the offer. We will not extend the
exchange offer beyond February 11, 2003.
Procedures for Tendering
Original Notes................ The procedures for exchanging original notes
involve notifying the exchange agent before the
expiration date of the exchange offer of your
intention to do so. The procedures for properly
providing notice are described in this
prospectus under the heading "The Exchange
Offer -- Exchange Offer Procedures -- How to
Tender."
Acceptance of Original Notes
and Delivery of Exchange
Notes....................... We will accept any original notes that are
properly tendered for exchange before 5:00
p.m., New York City time, on the day this
exchange offer expires. The exchange notes will
be delivered promptly after expiration of this
exchange offer.
Exchange Date................. We will notify the exchange agent of the date
of acceptance of the original notes for
exchange.
Withdrawal Rights............. If you tender your original notes for exchange
in this exchange offer and later wish to
withdraw them, you may do so at any time before
5:00 p.m., New York City time, on the day this
exchange offer expires.
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Effect on Holders of Original
Notes......................... Any original notes that remain outstanding
after this exchange offer will continue to be
subject to restrictions on their transfer.
After this exchange offer, holders of original
notes will not (with limited exceptions) have
any further rights under the registration
rights agreement. Any market for original notes
that are not exchanged could be adversely
affected by the completion of this exchange
offer. See "Risk Factors -- The original notes
are, and will continue to be, subject to
restrictions on transfer, and the trading
market, if any, for the original notes may be
adversely affected by completion of this
exchange offer."
Resale of the Exchange
Notes......................... Based on the position of the staff of the
Division of Corporation Finance of the SEC as
stated in certain interpretive letters issued
to third parties in other transactions, we
believe that the exchange notes acquired in
this exchange offer may be freely traded
without compliance with the provisions of the
Securities Act of 1933, as amended, that call
for registration and delivery of a prospectus,
except as described in the following
paragraphs. See "Plan of Distribution."
In order to participate in the exchange offer,
you will be required to make specified
representations in a letter of transmittal,
including that:
- you are not an "affiliate" of ours, as
defined in Rule 405 of the Securities
Act of 1933;
- you are not a broker-dealer who owns
original notes acquired directly from
us;
- you will acquire the exchange notes in
the ordinary course of business; and
- you have not agreed with anyone to
distribute the exchange notes.
If you are a broker-dealer that purchased
original notes for your own account as part of
market-making or other trading activities, you
may represent to us that you have not agreed
with us or our affiliates to distribute the
exchange notes. If you make this
representation, you must agree to deliver a
prospectus in connection with any resale of the
exchange notes and you need not make the last
representation provided for above.
Accrued Interest on the
Original Notes................ Any interest that has accrued on an original
note before its exchange in this exchange offer
will be payable on the exchange note on the
first interest payment date after the
completion of this exchange offer.
Tax Consequences.............. The exchange of the original notes for the
exchange notes should not be a taxable exchange
for United States federal income tax purposes.
See "Material Federal Income Tax Consequences."
Exchange Agent................ The Bank of New York is serving as the exchange
agent. Its address and telephone number are
provided in this prospectus under the heading
"The Exchange Offer -- Exchange Agent."
Use of Proceeds............... We will not receive any cash proceeds from this
exchange offer.
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SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The terms of the exchange notes will be essentially the same as the
original notes, except that the exchange notes will not contain language
restricting their transfer, and holders of the exchange notes generally will not
be entitled to further registration rights under the registration rights
agreement. The exchange notes will evidence the same debt as the outstanding
original notes for which they were exchanged, and the exchange notes will
replace such outstanding original notes. Both the original notes and the
exchange notes are governed by the same indenture. See the "Description of
Exchange Notes" section of this prospectus for more detailed information about
the terms and conditions of the exchange notes.
Notes Offered................. $380,000,000 principal amount of 10.50% Notes
Due 2007.
Maturity Date................. December 1, 2007.
Interest Rate................. The exchange notes will bear interest at the
rate of 10.50% per year from the exchange date
to, but excluding, December 1, 2007.
Interest Payment Dates........ June 1 and December 1 of each year, commencing
June 1, 2003. Interest payments will be made to
the persons in whose names the exchange notes
are registered on the 15th calendar day
immediately preceding the applicable interest
payment date.
Denominations................. $1,000 and integral multiples of $1,000.
Optional Redemption........... The exchange notes will be redeemable at our
option, in whole or in part at any time and
from time to time, at the redemption price
described in "Description of Exchange
Notes -- Optional Redemption." Except as
described in "Description of Exchange
Notes -- Purchase of Notes upon Change in
Control," the exchange notes may not be
redeemed at any time at the option of the
holders.
Change in Control............. In the event of a Change in Control and if the
exchange notes are rated below a specified
level at that time, each holder of the exchange
notes may require us to repurchase such
exchange notes, in whole or in part, at a
purchase price of 101% of the principal amount
thereof plus accrued and unpaid interest, if
any. See "Description of Exchange
Notes -- Purchase of Notes upon Change in
Control."
Certain Covenants............. The indenture contains covenants that, among
other things, in the event of certain ratings
downgrades, limit our ability to pay dividends
or distributions or make investments, incur
additional liens or issue additional
indebtedness. See "Description of Exchange
Notes -- Certain Restrictive Covenants."
Ranking....................... The exchange notes will be our unsecured debt
and will rank on a parity with our other
unsecured and unsubordinated indebtedness from
time to time outstanding, and would be
effectively subordinated to any secured
indebtedness we may incur. Because we are a
holding company that conducts our operations
through our subsidiaries, the exchange notes
will be structurally subordinated to any
indebtedness of our subsidiaries.
Additional Issuances.......... We may, at any time, without the consent of the
holders of the exchange notes, issue additional
notes having the same ranking
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and same interest rate, maturity and other
terms as the exchange notes. Any additional
notes, together with these exchange notes, may
constitute single series of notes under the
indenture.
Form.......................... The exchange notes will be represented by
registered global securities registered in the
name of Cede & Co., the partnership nominee of
The Depository Trust Company. Beneficial
interests in the exchange notes will be shown
on, and transfers will be effected through,
records maintained by The Depository Trust
Company and its participants.
Trustee....................... The Bank of New York.
4
RISK FACTORS
The following are certain factors that could affect our future operating
results and financial condition. These factors could cause our actual operating
results and financial condition to differ materially from our projections.
FINANCING RISKS
WE HAVE SUBSTANTIAL INDEBTEDNESS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND FINANCIAL FLEXIBILITY.
To support our growth to date, we have significantly expanded our
indebtedness. This increase in debt levels has increased the amount of fixed
charges we are obligated to pay. The level of our indebtedness and restrictive
covenants contained in our debt obligations could limit our ability to obtain
additional financing or refinance existing debt.
Some of our debt obligations contain financial covenants related to
debt-to-capital ratios and interest coverage that could prevent the repayment of
subordinated debt and the payment of dividends if those payments would cause a
violation of the covenants. Specifically, TECO Energy's credit facilities and
the financing arrangements of TECO Power Services' Gila River and Union Power
projects require that at each quarter-end TECO Energy's debt-to-capital ratio,
as defined in the applicable agreements, not exceed 65%. Similarly, Tampa
Electric's credit facility requires that at each quarter-end Tampa Electric's
debt-to-capital ratio not exceed 60%, and certain long-term debt at Peoples Gas
System contains a prohibition on the incurrence of funded debt if Tampa Electric
Company's debt-to-capital ratio, as defined in the applicable agreement, exceeds
65%. The Peoples Gas debt also carries a Tampa Electric Company interest
coverage requirement, as defined in the applicable agreement, of 2.0 times or
greater for four consecutive quarters, Tampa Electric's credit facility contains
an interest coverage covenant, as defined in the applicable agreement, of 2.5
times or greater for each twelve-month period ended each quarter, and certain
TECO Power Services financing arrangements require a TECO consolidated interest
coverage, as defined in the applicable agreement, equal to or exceeding 3.0
times for the twelve-month period ended each quarter. At September 30, 2002,
Tampa Electric Company's and our debt-to-capital ratios, as applicable, were
44.3% and 56.5%, respectively, and interest coverage, as applicable, was 7.8
times and 3.9 times, respectively. Our failure to comply with any of these
covenants, as well as our ratings maintenance covenants discussed below, or to
meet our payment obligations, could result in an event of default which, if not
cured or waived, could result in the acceleration of other outstanding debt
obligations. We may not have sufficient working capital or liquidity to satisfy
our debt obligations in the event of an acceleration of all or a significant
portion of our outstanding obligations. Additionally, such an acceleration would
also affect our ability to pay dividends. Furthermore, if we had to defer
interest payment on our subordinated notes that support the distributions on our
outstanding trust preferred securities, we would be prohibited from paying cash
dividends on our common stock until all unpaid distributions on the subordinated
notes were made.
We also incur obligations in connection with the operations of our
subsidiaries and affiliates, which do not appear on our balance sheet, including
in connection with the development of power projects by unconsolidated
affiliates. These obligations take the form of guarantees, letters of credit and
contractual commitments, as are described in the sections titled "Off Balance
Sheet Financing" and "Liquidity, Capital Resources" of the "Management's
Discussion & Analysis of Financial Condition & Results of Operations" section of
our periodic reports filed with the SEC, including our Annual Report on Form
10-K for the fiscal year ended December 31, 2001. In addition, our
unconsolidated affiliates from time to time incur non-recourse debt to finance
their power projects. Although we are not obligated on that debt, our
investments in those unconsolidated affiliates and our commitments with respect
to their power projects are at risk if the projects are not successfully
developed.
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OUR FINANCIAL CONDITION AND ABILITY TO ACCESS CAPITAL AND PAY DIVIDENDS MAY BE
MATERIALLY ADVERSELY AFFECTED BY FURTHER RATINGS DOWNGRADES.
On September 23, 2002, Fitch Ratings lowered the ratings on our senior
unsecured debt to BBB from A-. On September 24, 2002 Moody's Investor Services,
Inc. and Standard & Poor's Ratings Services, Inc. lowered their ratings on our
senior unsecured debt to Baa2 from A3 and to BBB- from BBB+, respectively. The
agencies also lowered the ratings on other of our securities, as well as those
of TECO Finance and Tampa Electric. In September 2002, the rating outlook from
Fitch was revised to stable from negative, while the outlook from Standard &
Poor's remained negative. On November 13, 2002, Moody's revised its rating
outlook to negative from stable.
These downgrades and any future downgrades may affect our ability to borrow
and may increase our financing costs, which may decrease our earnings. We are
also likely to experience greater interest expense than we may have otherwise
if, in future periods, we replace maturing debt with new debt bearing higher
interest rate spreads due to our lower credit ratings. In addition, such
downgrades could adversely affect our relationships with customers and
counterparties.
In addition to affecting our cost of borrowing, our lower credit ratings
may affect the amount of indebtedness, types of financing structures and debt
markets that are available to us. For example, TECO Energy and Tampa Electric
have historically accessed the commercial paper markets to satisfy the short-
term borrowing requirements of our unregulated and regulated operations,
respectively. The recent ratings actions by Standard & Poor's have limited TECO
Energy's access to the commercial paper markets. Tampa Electric continues to
maintain access to the commercial paper market. We are currently using our TECO
Energy credit facility for our short-term borrowing needs. Half of TECO Energy's
$700 million credit facility had a renewal date of November 13, 2002, which was
converted to a one year term loan while we work towards renewing that credit
facility with the banks. The second half has a renewal date of November 13,
2004. Tampa Electric's $300 million 364-day facility was renewed with higher
interest rates and a maturity date of November 12, 2003. In order to utilize the
credit facilities, we must meet the required debt-to-capital ratio, and in the
case of Tampa Electric the interest coverage test, referred to above. We have
implemented a plan of cash flow preservation and generation, which, in addition
to normal operating cash generation, includes sales of certain assets, capital
expenditure reductions and other financial transactions. This plan is designed
to cover our cash needs, but we cannot be sure that it will be sufficient to
cover any liquidity shortfall.
We guaranteed $500 million in fully-drawn equity bridge facilities and a
balance of approximately $100 million (net of estimated available reserves for
contingencies) in equity commitments as of September 30, 2002 for the
construction of the Gila River and Union Power projects. On October 31, 2002, we
paid $125 million of the $500 million on the equity bridge facilities, thereby
reducing the outstanding guaranteed amount under those facilities to $375
million. In addition, as a result of Enron's bankruptcy, we agreed to be the
guarantor of the contractor's payment and performance obligations under the
construction contracts for these two projects. Our guarantees of the equity
bridge facilities, the equity contribution agreements and the construction
contract guarantees for those projects require that we maintain senior unsecured
credit ratings from Standard & Poor's and Moody's of not less than ratings of
BBB and Baa3 or ratings of BBB- and Baa2. Our current ratings referred to above
are at the minimum required level. A further downgrade from either Standard &
Poor's or Moody's would trigger a failure to meet that requirement, thereby
requiring the delivery of letters of credit, which we estimate currently could
approximate $575 million.
In the event of a downgrade, under the terms of the construction contract
guarantees, we are required to deliver letters of credit in an amount equal to
the full construction contract price and any change orders and cost overruns or
such lesser amount satisfactory to the majority of the lenders for the Gila
River and Union Power projects. We believe that the amounts required would be
based on the estimated amounts reasonably necessary to cover the remaining
payment and performance obligations under the construction contracts. As of
January 2002, when documenting the construction contract guarantees with the
lenders for the Gila River and Union Power projects, the amount necessary to
cover the payment and performance
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obligations of the contractor was estimated to be approximately $310 million,
net of approximately $150 million in letters of credit previously issued to the
lenders as security for the projects. Based on the construction status as of
October 31, 2002, we estimate the amount necessary to cover the payment and
performance obligations of the contractor to be approximately $100 million, net
of the approximately $150 million in letters of credit previously issued as
security. This $100 million is included in the $575 million amount referenced
above.
The amount of the letters of credit that would be required to be delivered
as set forth above declines as equity is contributed to the projects and the
levels of construction completion increase. If we are required to post letters
of credit in the amounts set forth above, we would engage in discussions with
the lenders to negotiate arrangements to meet that commitment. If we were
unsuccessful, we would need to find alternate means of meeting that obligation,
and we cannot be sure that we would be able to do so. The failure to deliver
such letters of credit within the time allotted would constitute an event of
default under the terms of the credit facilities and the construction guarantees
relating to the Gila River and Union Power projects.
IF WE ARE UNABLE TO REDUCE CAPITAL EXPENDITURES OR SUCCESSFULLY COMPLETE
PLANNED MONETIZATION AND OTHER TRANSACTIONS TO THE EXTENT ANTICIPATED, OUR
FINANCIAL CONDITION AND RESULTS COULD BE ADVERSELY AFFECTED.
Part of our business plan for 2003 includes reducing previously anticipated
capital expenditures by approximately $250 million in order to maximize cash
flows and reduce the need for external financings. We cannot be sure that we
will be successful in achieving reductions in that amount. Our business plan
also includes plans to monetize material amounts of the Section 29 tax credits
related to TECO Coal's synthetic fuel production capability and Tampa Electric's
Polk Power Station's coal gasification unit and to realize cash from
repatriation and non-recourse refinancings on generating facilities in
Guatemala. We cannot be certain, however, that we will find purchasers or
realize the expected value of these transactions with the anticipated impact on
the our cash flow position. Depending on the success of these planned
expenditure reductions and monetization transactions, we may need to seek
external financings, which, in the case of debt financings, could adversely
affect our balance sheet strength and apply downward pressure on our credit
ratings, and in the case of equity financings, could have a dilutive effect to
our equity holders and our earnings-per-share results.
BECAUSE WE ARE A HOLDING COMPANY, WE ARE DEPENDENT ON CASH FLOW FROM OUR
SUBSIDIARIES, WHICH MAY NOT BE AVAILABLE IN THE AMOUNTS AND AT THE TIMES WE
NEED IT.
We are a holding company and dependent on cash flow from our subsidiaries
to meet our cash requirements that are not satisfied from external funding
sources. Some of our subsidiaries have indebtedness containing restrictive
covenants which, if violated, would prevent them from making cash distributions
to us. In particular, Tampa Electric Company's first mortgage bonds contain
restrictions on distributions on its common stock, and certain long-term debt at
Tampa Electric Company's Peoples Gas System division prohibits payment of
dividends to TECO Energy if Tampa Electric Company's consolidated shareholders'
equity is not at least $500,000,000. At September 30, 2002, Tampa Electric
Company's unrestricted retained earnings available for dividends on its common
stock were approximately $161.9 million and its consolidated shareholders'
equity was approximately $1.8 billion. Also, our wholly-owned subsidiary, TECO
Diversified, the holding company for TECO Transport, TECO Coal and TECO
Solutions, has a guaranty related to a coal supply agreement that could limit
the payment of dividends to us.
WE ARE VULNERABLE TO INTEREST RATE CHANGES AND MAY NOT HAVE ACCESS TO CAPITAL
AT FAVORABLE RATES, IF AT ALL.
Changes in interest rates and capital markets generally affect our cost of
borrowing and access to these markets. We cannot be sure that we will be able to
accurately predict the effect those changes will have on our cost of borrowing
or access to capital markets.
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INDEPENDENT POWER PROJECT RISKS
TECO POWER SERVICES' EXISTING AND PLANNED POWER PLANTS ARE AFFECTED BY MARKET
CONDITIONS, AND TECO POWER SERVICES MAY NOT BE ABLE TO SELL POWER AT PRICES
THAT ENABLE IT TO RECOVER ITS INVESTMENTS IN THE PLANTS.
TECO Power Services is currently operating, constructing and investing in
power plants that do not currently have long-term contracts for the sale of
power. These power plants may sell at least a portion of their power based on
market conditions at the time of sale, so TECO Power Services cannot predict
with certainty:
- the amount or timing of revenue it may receive from power sales from
operating plants;
- the differential between the cost of operations (in particular, natural
gas prices) and power sales revenue;
- the effect of competition from other suppliers of power;
- regulatory actions that may affect market behavior, such as price
limitations or bidding rules imposed by the Federal Energy Regulatory
Commission (FERC) or reimposition of regulation in power markets;
- the demand for power in a market served by our plants relative to
available supply;
- the availability of transmission to accommodate the sale of power; or
- whether TECO Power Services will recover its initial investment in these
plants.
At present, several of the wholesale markets supplied by so-called
"merchant" power plants are experiencing significant pricing declines due to
excess supply and weak economies. Consequently, only a portion of the projected
output of TECO Power Services' plants has been hedged for 2003 and 2004. TECO
Power Services' results could be adversely affected if it is unable to
sufficiently sell the output of its plants at a premium to forward curve prices
or if we need to write off any capital already invested in projects.
Our forecast assumes that TECO Power Services will manage these risks by:
- entering into negotiated contracts with power purchasers resulting in
higher revenues than the spot market for capacity payments and providing
ancillary services for a significant portion of the plants' output;
- avoiding short positions; and
- retaining flexibility to defer, if and where possible and advisable,
construction of output capacity in a market that has become oversupplied.
However, we cannot be sure how successfully we will be able to implement
these risk management measures. For instance, in oversupplied markets, entering
into forward contracts could be difficult.
TECO Power Services' position in the Odessa and Guadalupe power stations in
Texas is currently in the form of a $137 million loan to a Panda Energy
International subsidiary, which is a partner in Texas Independent Energy (TIE).
At January 3, 2003, either the borrower will repay the loan or the loan will
convert to an indirect equity interest in these projects. If the loan is not
paid and is converted to an indirect equity interest in these projects, TECO
Power Services will evaluate various options regarding its investment, including
renegotiating the terms of the investment or the ownership structure, selling
TECO Power Services' interest in the projects, or writing-off of the investment.
Any write-off or charge from a renegotiation or sale would adversely affect our
results and has not been included in our estimates for 2002 or 2003.
8
WE MAY BE UNABLE TO SUCCESSFULLY COMPLETE AND FINANCE CURRENT AND FUTURE
PROJECTS ON SCHEDULE AND WITHIN BUDGET.
TECO Power Services currently has new power generating facilities under
construction. The construction of these facilities, as well as any future
construction projects, involves risks of shortages and inconsistent qualities of
equipment and material, labor shortages and disputes, engineering problems, work
stoppages, unanticipated cost increases, and environmental or geological
problems. In addition, the development of independent power plants involves
considerable risks, including successful siting, permitting, financing and
construction, contracting for necessary services, fuel supplies and power sales
and performance by project partners. Any of these events could delay a project's
construction schedule or increase its costs, which may impact our ability to
generate sufficient cash flow and service our related project debt.
OUR MARKETING AND RISK MANAGEMENT POLICIES MAY NOT WORK AS PLANNED, AND WE MAY
SUFFER ECONOMIC LOSSES DESPITE SUCH POLICIES.
We actively manage the market risk inherent in our energy and fuel
positions. Nonetheless, adverse changes in energy and fuel prices may result in
losses in our earnings or cash flows and adversely affect our balance sheet. Our
marketing and risk management procedures may not always be followed or may not
work as planned. As a result, we cannot predict with precision the impact that
our marketing, trading and risk management decisions may have on our business,
operating results or financial position. In addition, to the extent we do not
cover the entire exposure of our assets or our positions to market price
volatility, or our hedging procedures do not work as planned, fluctuating
commodity prices could cause our sales and net income to be volatile.
Our marketing and risk management activities also are exposed to the credit
risk that counterparties to our transactions will not perform their obligations.
Should counterparties to these arrangements fail to perform, we may be forced to
enter into alternative hedging arrangements, honor underlying commitments at
then-current market prices or otherwise satisfy our obligations on unfavorable
terms. In that event, our financial results would likely be adversely affected.
GENERAL BUSINESS AND OPERATIONAL RISKS
GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR BUSINESSES.
Our businesses are affected by general economic conditions. In particular,
the projected growth in Tampa Electric's service area and in Florida is
important to the realization of Tampa Electric's and Peoples Gas System's
forecasts for annual energy sales growth. An unanticipated downturn in the local
area's or Florida's economy could adversely affect Tampa Electric's or Peoples
Gas System's expected performance.
Our unregulated businesses, particularly TECO Transport, TECO Coal and TECO
Power Services, are also affected by general economic conditions in the
industries and geographic areas they serve, both nationally and internationally.
TECO Power Services' investment in Empresa Electrica de Guatemala, S.A. depends
on growth in the relevant service areas and in annual energy sales.
POTENTIAL COMPETITIVE CHANGES MAY ADVERSELY AFFECT OUR GAS AND ELECTRICITY
BUSINESSES.
The U.S. electric power industry has been undergoing restructuring.
Competition in wholesale power sales has been introduced on a national level.
Some states have mandated or encouraged competition at the retail level and, in
some situations, required divestiture of generating assets. While there is
active wholesale competition in Florida, the retail electric business has
remained substantially free from direct competition. Changes in the competitive
environment occasioned by legislation, regulation, market conditions or
initiatives of other electric power providers, particularly with respect to
retail competition, could adversely affect Tampa Electric's business and its
performance.
9
The gas distribution industry has been subject to competitive forces for
several years. Gas services provided by Peoples Gas System are now unbundled for
all non-residential customers. Because Peoples Gas System earns margins on
distribution of gas, but not on the commodity itself, unbundling has not
negatively impacted Peoples Gas System results. However, future structural
changes that we cannot predict could adversely affect Peoples Gas System.
OUR GAS AND ELECTRICITY BUSINESSES ARE HIGHLY REGULATED AND ANY CHANGES IN
REGULATORY STRUCTURES COULD LOWER REVENUES OR INCREASE COSTS OR COMPETITION.
Tampa Electric and Peoples Gas System operate in highly regulated
industries. Their retail operations, including the prices charged, are regulated
by the Florida Public Service Commission (FPSC), and Tampa Electric's wholesale
power sales and transmission services are subject to regulation by the FERC.
Changes in regulatory requirements or adverse regulatory actions could have an
adverse effect on Tampa Electric's or Peoples Gas System's performance by, for
example, increasing competition or costs, threatening investment recovery or
impacting rate structure.
OUR BUSINESSES ARE SENSITIVE TO VARIATIONS IN WEATHER AND HAVE SEASONAL
VARIATIONS.
Most of our businesses are affected by variations in general weather
conditions and unusually severe weather. Tampa Electric's, Peoples Gas System's
and TECO Power Services' energy sales are particularly sensitive to variations
in weather conditions. Those companies forecast energy sales on the basis of
normal weather, which represents a long-term historical average. Significant
variations from normal weather could have a material impact on energy sales.
Unusual weather, such as hurricanes, could adversely affect operating costs and
sales.
Peoples Gas System, which has a single winter peak period, is more weather
sensitive than Tampa Electric, which has both summer and winter peak periods.
Mild winter weather in Florida can be expected to negatively impact results at
Peoples Gas System.
Variations in weather conditions also affect the demand and prices for the
commodities sold by TECO Coal, as well as electric power sales from TECO Power
Services' merchant power plants. TECO Transport is also impacted by weather
because of its effects on the supply of and demand for the products transported.
Severe weather conditions could interrupt or slow service and increase operating
costs of those businesses.
Electric power marketing may be seasonal. For example, in some parts of the
country, demand for, and market prices of, electricity peak during the hot
summer months, while in other parts of the country such peaks occur in the cold
winter months. As a result, our power marketing results may fluctuate on a
seasonal basis. The pattern of this fluctuation may change depending on the
nature and location of the facilities we operate and the terms under which we
sell electricity.
COMMODITY PRICE CHANGES MAY AFFECT THE OPERATING COSTS AND COMPETITIVE
POSITIONS OF OUR BUSINESSES.
Most of our businesses are sensitive to changes in coal, gas, oil and other
commodity prices. Any changes could affect the prices these businesses charge,
their operating costs and the competitive position of their products and
services.
In the case of Tampa Electric, currently fuel costs used for generation are
mostly affected by the cost of coal. Future fuel costs will be impacted by the
cost of natural gas as well as coal. Tampa Electric is able to recover the cost
of fuel through retail customers' bills, but increases in fuel costs affect
electric prices and, therefore, the competitive position of electricity against
other energy sources.
Regarding wholesale sales of electricity, the ability to make sales and
margins on power sales is currently affected by the cost of coal to Tampa
Electric, particularly as it compares to the cost of gas and oil to other power
producers.
10
In the case of TECO Power Services, results are impacted by changes in the
market price for electricity. The profitability of merchant power plants is
heavily dependent on the price for power in the markets they serve. Wholesale
power prices are set by the market assuming a cost for the input energy and
conversion efficiency, but the fixed costs may not be reflected in the price for
spot, or excess, power.
In the case of Peoples Gas System, costs for purchased gas and pipeline
capacity are recovered through retail customers' bills, but increases in gas
costs affect total retail prices and therefore the competitive position of
Peoples Gas System relative to electricity, other forms of energy and other gas
suppliers.
Changes in gas, oil and coal prices directly affect the margins at our
unregulated businesses. For example, TECO Coal is exposed to commodity price
risk through coal sales. A hypothetical 10% change in the market price of coal
in any one year would have an estimated earnings impact of between $15 million
and $20 million. TECO Transport is exposed to commodity price risk through fuel
purchases. A hypothetical 10% change in the market price of fuel in any one year
would have an estimated earnings impact of $1 million.
WE RELY ON SOME TRANSMISSION AND DISTRIBUTION ASSETS THAT WE DO NOT OWN OR
CONTROL TO DELIVER WHOLESALE ELECTRICITY, AS WELL AS NATURAL GAS. IF
TRANSMISSION IS DISRUPTED, OR IF CAPACITY IS INADEQUATE, OUR ABILITY TO SELL
AND DELIVER POWER AND NATURAL GAS MAY BE HINDERED.
We depend on transmission and distribution facilities owned and operated by
utilities and other energy companies to deliver the electricity and natural gas
we sell to the wholesale market, as well as the natural gas we sell and purchase
for use in our electric generation facilities. If transmission is disrupted, or
if capacity is inadequate, our ability to sell and deliver products and satisfy
our contractual and service obligations may be hindered.
The FERC has issued regulations that require wholesale electric
transmission services to be offered on an open-access, non-discriminatory basis.
Although these regulations are designed to encourage competition in wholesale
market transactions for electricity, there is the potential that fair and equal
access to transmission systems will not be available or that sufficient
transmission capacity will not be available to transmit electric power as we
desire. We cannot predict the timing of industry changes as a result of these
initiatives or the adequacy of transmission facilities in specific markets.
In addition, the independent system operators that oversee the transmission
systems in certain wholesale power markets have from time to time been
authorized to impose price limitations and other mechanisms to address
volatility in the power markets. These types of price limitations and other
mechanisms may adversely impact the profitability of our wholesale power
marketing business.
THE UNCERTAIN OUTCOME REGARDING THE CREATION OF REGIONAL TRANSMISSION
ORGANIZATIONS, OR RTOS, MAY IMPACT OUR OPERATIONS, CASH FLOWS OR FINANCIAL
CONDITION.
Tampa Electric is continuing to make progress towards the development of
its RTO, which would independently control the transmission assets of
participating utilities in peninsular Florida. Given the regulatory uncertainty
of the ultimate timing, structure and operations of GridFlorida or an alternate
combined transmission structure, we cannot predict what effect its creation will
have on our future consolidated results of operations, cash flow or financial
condition.
WE MAY BE UNABLE TO TAKE ADVANTAGE OF OUR EXISTING TAX CREDITS.
We derive a portion of our net income from Section 29 tax credits related
to the production of non-conventional fuels. Although, we currently plan to
monetize a significant amount of those credits, until and unless we successfully
do so, our use of these tax credits is dependent on our generating sufficient
taxable income against which to use the credits. Our forecast for 2002 assumes
that we will generate sufficient taxable income to use these credits. These
credits, and their monetization value, could be impacted by or
11
become unavailable due to actions of the Internal Revenue Service or the U.S.
Treasury or changes in law, regulation or administration.
PROBLEMS WITH OPERATIONS COULD CAUSE US TO INCUR SUBSTANTIAL COSTS.
Each of our subsidiaries is subject to various operational risks, including
accidents or equipment breakdown or failure and operations below expected levels
of performance or efficiency. As operators of power generation facilities, Tampa
Electric and TECO Power Services could incur problems such as the breakdown or
failure of power generation equipment, transmission lines, pipelines or other
equipment or processes which would result in performance below assumed levels of
output or efficiency. Our forecast assumes normal operations and normal
maintenance periods for our subsidiaries' facilities.
THE INTERNATIONAL PROJECTS AND OPERATIONS OF TECO POWER SERVICES AND TECO
OCEAN SHIPPING ARE SUBJECT TO RISKS THAT COULD RESULT IN LOSSES OR INCREASED
COSTS.
TECO Power Services is involved in several international projects. These
projects involve numerous risks that are not present in domestic projects,
including expropriation, political instability, currency exchange rate
fluctuations, repatriation restrictions, and regulatory and legal uncertainties.
Our forecast assumes that TECO Power Services will manage these risks through a
variety of risk mitigation measures, including specific contractual provisions,
teaming with strong international and local partners, obtaining non-recourse
financing and obtaining political risk insurance where appropriate.
TECO Ocean Shipping is exposed to operational risks in international ports,
primarily in the form of its need to obtain suitable labor and equipment to
safely discharge its cargoes in a timely manner. Our forecast assumes that TECO
Ocean Shipping will manage these risks through a variety of risk mitigation
measures, including retaining agents with local knowledge and experience in
successfully discharging cargoes and vessels similar to those used.
CHANGES IN THE ENVIRONMENTAL LAWS AND REGULATIONS TO WHICH OUR REGULATED
BUSINESSES ARE SUBJECT COULD INCREASE OUR COSTS OR CURTAIL OUR ACTIVITIES.
Our businesses are subject to regulation by various governmental
authorities dealing with air, water and other environmental matters. Changes in
compliance requirements or the interpretation by governmental authorities of
existing requirements may impose additional costs on us or require us to curtail
some of our businesses' activities.
RISKS RELATED TO THE EXCHANGE NOTES
THE EXCHANGE NOTES ARE EFFECTIVELY SUBORDINATED TO ALL EXISTING AND FUTURE
INDEBTEDNESS OF OUR SUBSIDIARIES, AND YOU MAY NOT RECEIVE FULL PAYMENT ON THE
EXCHANGE NOTES IN THE EVENT OF ANY LIQUIDATION, BANKRUPTCY, REORGANIZATION OR
SIMILAR PROCEEDING INVOLVING TECO ENERGY.
In any liquidation, bankruptcy, reorganization or similar proceeding, there
may not be sufficient assets to pay in full amounts due on the exchange notes.
The exchange notes are obligations exclusively of TECO Energy, which, as a
holding company, has no material assets other than its ownership of the common
stock of its subsidiaries, including Tampa Electric Company. We will rely
entirely upon distributions from our subsidiaries to meet the payment
obligations under the exchange notes. Our subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay amounts
due under the debt securities or otherwise to make any funds available to us,
including the payment of dividends or other distributions or the extension of
loans or advances. Further, the ability of our subsidiaries to make any payments
to us would be dependent upon the terms of any credit facilities of the
subsidiaries and upon the subsidiaries' earnings, which are subject to various
business risks. In a liquidation, bankruptcy, reorganization or similar
proceeding involving TECO Energy, claims of holders of the exchange notes would
be satisfied solely from our equity interests in our subsidiaries remaining
after the satisfaction of claims of creditors of the subsidiaries. Accordingly,
the exchange notes are effectively subordinated to existing and future
liabilities of our subsidiaries to their respective creditors.
12
THERE IS CURRENTLY NO PUBLIC MARKET FOR THE EXCHANGE NOTES.
The exchange notes are a new issue of securities for which there is
currently no public market. Although Credit Suisse First Boston Corporation has
informed us that it currently intends to make a market in the exchange notes,
CSFB 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
liquidity of any market that may develop for the exchange notes. We do not
currently intend to apply for listing of the exchange notes on any securities
exchange.
The liquidity of, and trading market for, the exchange notes or the
original notes, as the case may be, also may be adversely affected by general
declines in the market or by declines in the market for similar securities. Such
declines may adversely affect such liquidity and trading markets independent of
our financial performance and prospects.
THE ORIGINAL NOTES ARE, AND WILL CONTINUE TO BE, SUBJECT TO RESTRICTIONS ON
TRANSFER, AND THE TRADING MARKET, IF ANY, FOR ORIGINAL NOTES MAY BE ADVERSELY
AFFECTED BY COMPLETION OF THIS EXCHANGE OFFER.
The original notes have not been registered under the Securities Act of
1933 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 of 1933 and any other applicable securities laws, or pursuant
to an exemption from those laws or in a transaction not subject to those laws.
We do not intend to register under the Securities Act of 1933 the original notes
that remain outstanding after completion of this exchange offer (subject to
applicable limited exceptions). Original notes that remain outstanding after the
completion of this exchange offer will continue to bear a legend reflecting
those restrictions on transfer, and holders of those original notes will not be
entitled to any rights to have those original notes registered under the
Securities Act of 1933 or to any similar rights under the registration rights
agreement (subject to applicable limited exceptions). To the extent that
original notes are tendered and accepted in the exchange offer, the trading
market, if any, for remaining original notes may be adversely affected.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents we have incorporated by reference may
contain forward-looking statements. Such statements relate to future events or
our future financial performance. We use words such as "anticipate," "believe,"
"expect," "intend," "may," "project," "will" or other similar words to identify
forward-looking statements.
Without limiting the foregoing, any statements relating to our
- earnings estimates and outlooks;
- anticipated capital expenditures;
- future cash flows and borrowings;
- potential future merger opportunities and/or asset sales or
monetizations; and
- sources of funding
are forward-looking statements. These forward-looking statements are based on
numerous assumptions that we believe are reasonable, but they are open to a wide
range of uncertainties and business risks and actual results may differ
materially from those discussed in these statements.
Among the factors that could cause actual results to differ materially are:
- the effect of our substantial indebtedness on our financial condition and
financial flexibility;
- ratings downgrades that could affect our ability to access capital and to
make payments on subordinated debt or pay dividends, our ability to
maintain compliance with covenants in our borrowing arrangements and
increase our financing costs;
13
- our ability to reduce capital expenditures and complete monetizations and
other transactions to raise cash as planned;
- limitations on our ability to obtain cash flow on which we depend from
our subsidiaries;
- interest rates and other factors that could impact our ability to obtain
access to sufficient capital on satisfactory terms;
- the effect of market conditions on TECO Power Services' power plants,
which have no guaranteed rate of return;
- potential capital arrangements or write-offs associated with our
projects;
- our ability to successfully complete and finance our projects on schedule
and within budget;
- our ability to manage our market and credit risk;
- general economic conditions, particularly those affecting energy sales in
our service area;
- potential competitive changes in the electric and gas industries,
particularly in the area of retail competition;
- federal and state regulatory initiatives that increase competition or
costs, threaten investment recovery, or impact rate structure;
- variations in weather conditions and seasonal variations affecting energy
sales and operating costs;
- commodity price changes, including the price of energy affecting our
businesses;
- availability of transmission for sale of our power;
- any adverse changes in nonconventional fuel tax credit laws, regulations
or administration, or in our ability to generate sufficient taxable
income to utilize those credits;
- problems with our subsidiaries' operations such as accidents or equipment
failures that, if they occurred, would cause us to incur substantial
costs;
- adverse economic or political developments in the foreign countries in
which our shipping business or TECO Power Services have operation; and
- changes in environmental regulation that may impose additional costs or
curtail some of our activities.
When considering forward-looking statements, you should keep in mind the
cautionary statements in this prospectus, any prospectus supplement or term
sheet and the documents incorporated by reference, including the section
entitled "Risk Factors" of this prospectus and the Investment Considerations
included in our filings with the SEC.
USE OF PROCEEDS
This exchange offer is intended to satisfy some of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the issuance of the exchange notes in this exchange offer. In exchange for
issuing the exchange notes as described in this prospectus, we will receive an
equal principal amount of original notes, which will be canceled.
The net proceeds from the issuance and sale of the original notes were used
to retire $200,000,000 aggregate principal amount of our 7.00% Remarketable or
Redeemable Securities Due 2015 (ROARS Notes), to pay down short-term debt
previously drawn against our credit facility and for general corporate purposes.
Pending such uses, we have invested the remaining proceeds in short-term money
market instruments.
14
CAPITALIZATION
The following table summarizes:
- the historical capitalization of TECO Energy and its consolidated
subsidiaries at September 30, 2002 (as shown in the first column below);
- the capitalization on a pro forma basis reflecting the issuance and sale
of 19,384,800 shares of our common stock and receipt of aggregate
proceeds (after deducting underwriting discounts and commissions and
estimated offering expenses) of approximately $206.4 million in October
2002 and application of the net proceeds to repay short-term debt (as
shown in the second column below); and
- the capitalization on a pro forma as adjusted basis reflecting the
issuance of common stock described in the preceding bullet and as
adjusted to reflect the issuance and sale of the original notes and our
application of the net proceeds in the manner described in "Use of
Proceeds" (as shown in the third column below).
SEPTEMBER 30, 2002
--------------------------------------
ACTUAL PRO FORMA
AMOUNTS PRO FORMA AS ADJUSTED
-------- --------- -----------
($ IN MILLIONS)
(UNAUDITED)
Cash and cash equivalents........................ $ 187.4 $ 187.4 $ 287.6
Restricted cash.................................. 1.6 1.6 1.6
-------- -------- --------
Total cash related.......................... $ 189.0 $ 189.0 $ 289.2
======== ======== ========
Short-term debt.................................. $ 230.8 $ 24.4 $ --
Long-term debt due within one year............... 338.4(1) 338.4(1) 138.4
Long-term debt, less amount due within one
year........................................... 2,955.8 2,955.8 3,335.8
Redeemable preferred securities.................. 200.0 200.0 200.0
Mandatorily convertible preferred securities..... 449.1 449.1 449.1
Common equity, including the effect of unearned
compensation................................... 2,421.2 2,627.6 2,606.6(2)
-------- -------- --------
Total capitalization(3)..................... $6,595.3 $6,595.3 $6,729.9
======== ======== ========
---------------
(1) Includes $200 million in aggregate principal amount of our ROARS Notes which
were exchanged for original notes valued at $234.1 million in connection
with the original note offering. See also "Use of Proceeds."
(2) Includes an after-tax charge of $21.0 million, reflecting the $34.1 million
repurchase premium related to the ROARS Notes.
(3) Does not include guarantees and contingent obligations. See "Risk
Factors -- We have substantial indebtedness, which could adversely affect
our financial condition and financial flexibility," and "-- Our financial
condition and ability to access capital and pay dividends may be materially
adversely affected by further ratings downgrades."
15
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The tables below present selected historical consolidated income statement
data, cash flow information and balance sheet data of TECO Energy and its
subsidiaries. The information in the table was derived from our audited
financial statements for the years ended December 31, 1997 through December 31,
2001 (including our financial information for the years ended December 31, 1999
through December 31, 2001 included in our Current Report on Form 8-K filed
December 19, 2002). The information in these tables is only a summary. You
should read it in connection with our historical financial statements and
related notes and the sections titled "Management's Discussion & Analysis of
Financial Condition & Results of Operations" in our Annual Report on Form 10-K
for the year ended December 31, 2001 (including our Current Report on Form 8-K
filed on December 19, 2002) and our Quarterly Reports on Form 10-Q for the
periods ended March 31, 2002, June 30, 2002 and September 30, 2002. See "Where
You Can Find More Information."
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------------------
TABLE 1 2002(3) 2001 2001 2000 1999 1998 1997
------- --------- -------- --------- --------- -------- -------- --------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT
DATA(1)(2)
Operating revenues........ $ 2,015.3 $1,914.1 $ 2,488.1 $ 2,223.2 $1,932.6 $1,905.1 $1,809.5
Operating income.......... 329.4 330.1 398.2 400.5 411.5 386.5 397.0
Net income from continuing
operations.............. 263.6 214.7 273.8 227.5 179.2(4) 179.2(5) 183.7(6)
Earnings per share (basic)
from continuing
operations.............. 1.80 1.61 $ 2.04 $ 1.81 $ 1.37(4) $ 1.36(5) $ 1.40(6)
Dividends paid per
share................... 1.055 1.025 $ 1.370 $ 1.330 $ 1.285 $ 1.225 $ 1.165
CASH FLOW INFORMATION
EBITDA(7)................. $ 688.6 $ 627.8 $ 817.9 $ 732.2 $ 624.4 $ 603.5 $ 618.0
Cash interest............. 133.7 129.0 178.1 166.7 116.9 99.3 115.5
Cash flow from investing:
Capital expenditures.... (791.7) (711.2) (965.9) (688.4) (426.1) (296.1) (212.6)
Other capital
investments........... (518.1) (43.6) (140.1) (361.4) (78.8) (94.8) 2.2
--------- -------- --------- --------- -------- -------- --------
Total................. (1,309.8) (754.8) (1,106.0) (1,049.8) (504.9) (390.9) (210.4)
Cash flow from
financing............... 889.5 333.8 613.5 665.6 204.2 (98.2) (145.7)
Cash flow from
operations.............. 449.3 398.9 513.1 386.3 381.3 495.4 350.8
---------------
(1) All prior periods presented reflect the results of TECO Coalbed Methane as
discontinued operations. In September 2002, we announced our intention and
initiated a plan to sell the TECO Coalbed Methane gas assets. In December
2002, we sold the TECO Coalbed Methane gas assets. Also effective for the
quarter ended September 30, 2002, based on the deliberations of Emerging
Issues Task Force No. (EITF) 02-03, Issues Related to Accounting for
Contracts Involved in Energy Trading and Risk Management Activities, and
EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent, we will present revenues for energy marketing operations on a net
basis. All periods presented reflect these reclassifications to conform to
the current presentation.
(2) As described in Note J to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002, we adopted the Financial Accounting Standards Board's
FAS 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Our
adoption of FAS 142 resulted in the elimination of the amortization of
goodwill for periods beginning January 1, 2002. Goodwill amortization of
$3.7 million, $2.4 million, $0.4 million, $0.3 million and $0.3 million were
recorded for the years ended 2001, 2000, 1999, 1998 and 1997, respectively.
(3) Results include $6 million in after-tax income from a settlement agreement
with the Electric Reliability Council of Texas (ERCOT) relating to amounts
due for ancillary services provided by
16
TECO Power Services' Frontera Power Station in the second quarter and a $3.0
million after-tax charge for an aircraft leased to US Airways by our TECO
Investments subsidiary.
(4) Includes the effect of the following charges, which reduced net income by
$19.6 million and earnings per share by $0.15 in 1999:
Tampa Electric recorded a charge of $10.5 million ($6.4 million after tax)
based on Florida Public Service Commission audits of its 1997 and 1998
earnings which, among other things, limited its equity ratio to 58.7
percent, a decrease of 91 basis points and 224 basis points from 1997's and
1998's ratios, respectively. Tampa Electric also recorded a charge of $3.5
million after tax, representing management's estimate of additional expense
to resolve the litigation filed by the United States Environmental
Protection Agency, which was then pending. After-tax charges totaling $6.1
million were also recognized reflecting corporate income tax provisions and
settlements related to prior years' tax returns. These charges were recorded
at Tampa Electric (a $3.8-million net after-tax charge, after recovery under
the then current regulatory agreement), at TECO Investments (a $4.3-million
after-tax charge) and at the TECO Energy corporate level (a $2.0-million
after-tax benefit). A charge of $6.0 million ($3.6 million after tax) was
recorded to adjust the carrying value of certain investments in leveraged
aircraft leases to reflect lower anticipated residual values.
(5) Includes the effect of charges, which reduced net income by $19.6 million
and earnings per share by $0.15 in 1998.
(6) Includes the effect of merger-related transaction expenses, which reduced
net income by $5.3 million and earnings per share by $0.04 in 1997.
(7) EBITDA is defined as income from continuing operations before interest,
taxes (before application of the Section 29 synthetic fuel related
benefits), equity component of allowance for funds used during construction,
depreciation and amortization. EBITDA is not a measure of performance under
GAAP. While EBITDA should not be considered as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used as a
measure in evaluating companies.
AS OF
SEPT. 30, AS OF DECEMBER 31,
--------- ----------------------------------------------------
TABLE 2 2002 2001 2000 1999 1998 1997
------- --------- -------- -------- -------- -------- --------
($ IN MILLIONS)
BALANCE SHEET DATA
Total assets..................... $8,059.9 $6,722.1 $5,734.3 $4,690.1 $4,179.3 $3,960.4
Capitalization:
Short-term debt................ 230.8 638.9 1,208.9 813.7 319.0 447.5
Long-term debt due within one
year........................ 338.4(1) 788.8 237.3 155.8 36.0 12.7
Long-term debt, less amount due
within one year............. 2,955.8 1,842.5 1,374.6 1,207.8 1,279.6 1,080.2
Redeemable preferred
securities.................. 200.0 200.0 200.0 -- -- --
Mandatorily convertible
preferred securities........ 449.1 -- -- -- -- --
Common shareholders' equity
excluding the effects of
unearned compensation....... 2,457.8 2,015.9 1,559.5 1,472.5 1,569.2 1,512.2
Total capitalization(2).......... 6,631.9 5,486.1 4,580.3 3,649.8 3,203.8 3,052.6
---------------
(1) Includes $200 million in aggregate principal amount of our ROARS Notes which
were exchanged for original notes valued at $234.1 million in connection
with the original note offering. See also "Use of Proceeds."
17
(2) Does not include guarantees and contingent obligations. See "Risk
Factors -- We have substantial indebtedness, which could adversely affect
our financial condition and financial flexibility," and "-- Our financial
condition and ability to access capital and pay dividends may be materially
adversely affected by further ratings downgrades."
18
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to fixed
charges for each of the periods shown.
NINE MONTHS TWELVE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------------
2002 2002 2001 2000 1999 1998 1997
------------- ------------- ----- ----- ----- ----- -----
Ratio of Earnings to
Fixed Charges.......... 2.81x 2.55x 2.41x(1) 2.42x(1) 3.14x(1)(2) 3.55x(1)(3) 3.65x(1)(4)
For the purposes of calculating these ratios, earnings consist of income
from continuing operations before income taxes, income or loss from equity
investees and fixed charges. Fixed charges consist of interest on indebtedness,
excluding allowance for funds used during construction, amortization of debt
premium, the interest component of rentals and preferred stock dividend
requirements.
---------------
(1) All prior periods presented reflect the reclassification of TECO Coalbed
Methane's results from continuing operations to discontinued operations. In
September 2002, we announced our intention and initiated a plan to sell the
TECO Coalbed Methane gas assets. In December 2002, we sold the TECO Coalbed
Methane gas assets.
(2) Includes the effect of non-recurring pretax items totaling $21.0 million
recorded at Tampa Electric Company, TECO Investments, Inc. and TECO Energy.
The effect of these items was to reduce the ratio of earnings to fixed
charges. Had these items been excluded from the calculation, the ratio of
earnings to fixed charges would have been 3.48x for the year ended December
31, 1999.
(3) Includes the effect of non-recurring pretax items totaling $30.5 million
associated with write-offs at TECO Coal Corporation and Tampa Electric, and
$0.6 million pretax of merger-related costs. The effect of these items was
to reduce the ratio of earnings to fixed charges. Had these items been
excluded from the calculation, the ratio of earnings to fixed charges would
have been 3.83x for the year ended December 31, 1998.
(4) Includes a $2.6-million pretax charge for all transactions associated with
the mergers completed in June 1997. The effect of this charge was to reduce
the ratio of earnings to fixed charges. Had this charge been excluded from
the calculation, the ratio of earnings to fixed charges would have been
3.68x for the year ended December 31, 1997.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The original notes were initially issued and sold on November 20, 2002.
Those sales were not registered under the Securities Act of 1933, as amended, in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A under the Securities Act. We and the initial purchaser entered into a
registration rights agreement prior to the issuance of the original notes. Under
the registration rights agreement, we agreed to file and cause to become
effective with the SEC the registration statement of which this prospectus is a
part to effect the exchange of original notes for exchange notes.
The sole purpose of this exchange offer is to fulfill our obligations under
the registration rights agreement.
CONDITIONS TO EXCHANGE OFFER
Completion of the exchange offer is subject to the conditions that the
exchange offer not violate any applicable law or interpretation of the staff of
the Division of Corporation Finance of the SEC and that no injunction, order or
decree has been issued which would prohibit, prevent or materially impair our
ability to proceed with the exchange offer. The exchange offer is also subject
to various procedural requirements
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discussed below with which holders must comply. We reserve the right, in our
absolute discretion, to waive compliance with these requirements subject to
applicable law.
In addition, we will not accept for exchange any original notes tendered,
and no exchange notes will be issued in exchange for any such original notes, if
at such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus is a part or qualification of
the Indenture under the Trust Indenture Act of 1939, as amended.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange, upon the terms and subject to the conditions
described in this prospectus and the accompanying letter of transmittal, $1,000
principal amount of exchange notes for each $1,000 principal amount of original
notes. Based on the position of the staff of the Division of Corporation Finance
of the SEC as stated in certain interpretive letters issued to third parties in
other transactions, we believe that the exchange notes will generally be freely
transferable by holders thereof. See "Plan of Distribution." Holders of the
exchange notes will not be entitled to registration rights under the
registration rights agreement except under certain limited circumstances. See
"Original Notes Registration Rights." Otherwise, the terms of the exchange notes
are identical in all respects to the terms of the original notes for which they
may be exchanged pursuant to this exchange offer. The exchange notes will
evidence the same debt as the original notes and will be entitled to the
benefits of the indenture. See "Description of the Exchange Notes."
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where those 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 those exchange notes. See "Plan of Distribution."
If you are an affiliate of ours or if you intend to participate in the
exchange offer for the purpose of distributing the exchange notes, or if you are
a broker-dealer that purchased original notes from us to resell pursuant to Rule
144A or any other available exemption under the Securities Act, you will not be
permitted or entitled to tender those original notes in the exchange offer and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of those original notes
unless that sale is made pursuant to an exemption from such requirements. See
"Plan of Distribution."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of original notes being tendered or accepted for exchange.
Holders of original notes do not have any appraisal or dissenters' rights
in connection with this exchange offer.
Neither we nor our board of directors makes any recommendation to you as to
whether to tender or refrain from tendering all or any portion of your original
notes in this exchange offer. In addition, no one has been authorized to make
any recommendation as to whether you should tender notes in this exchange offer.
You must make your own decision whether to tender original notes in the exchange
offer and, if so, the aggregate amount of original notes to tender based on your
own financial positions and requirements.
If any tendered original notes are not accepted for exchange because of an
invalid tender, global securities for any such unaccepted original notes will be
returned, without expense, to the tendering holder promptly after completion of
this exchange offer.
Holders who tender original notes in connection with this 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 this exchange offer. We will pay
all charges and expenses in connection with this exchange offer. See "-- Fees
and Expenses."
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EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
February 6, 2003 unless we, in our sole discretion, extend the period during
which the exchange offer is open by giving written notice to the exchange agent
and by timely public announcement communicated no later than 9:00 a.m. on the
next business day following the date for expiration, unless otherwise required
by applicable law or regulation, by making a press release. We will not extend
the exchange offer beyond February 11, 2003. During any extension of the
exchange offer, all original notes previously tendered pursuant to the exchange
offer will remain subject to the exchange offer.
We expressly reserve the right to:
- terminate the exchange offer and not accept for exchange any original
notes if we determine, in our sole discretion, that the conditions to the
exchange offer have not been satisfied, and
- amend the terms of the exchange offer in any manner permitted by
applicable law, whether before or after any tender of original notes.
If any such termination or amendment occurs, we will notify the exchange
agent in writing and will either issue a press release or give written notice to
the holders of original notes as promptly as practicable. Unless we terminate
the exchange offer prior to 5:00 p.m., New York City time, on the date of
expiration, we will exchange the exchange notes for original notes on the first
business day following the expiration date.
If we waive any material condition to the exchange offer, or amend the
exchange offer in any other material respect, we will promptly disclose such
waiver or amendment by means of a prospectus supplement that will be distributed
to the holders of the original notes, and if at the time that such prospectus
supplement is first sent or given to holders of original notes, the exchange
offer is scheduled to expire at any time earlier than the expiration of a period
ending on the fifth business day from, and including, the date that such
prospectus supplement is first so sent or given, then the exchange offer will be
extended until the expiration of such period of five business days.
We will mail this prospectus and the related letter of transmittal and
other relevant materials to record holders of original notes and to brokers,
banks and similar persons whose names, or the names of whose nominees, appear on
the lists of holders for subsequent transmittal to beneficial owners of original
notes.
EXCHANGE OFFER PROCEDURES
HOW TO TENDER
Your tender to us of original notes pursuant to one of the procedures set
forth below will constitute an agreement between you and us in accordance with
the terms and subject to the conditions stated below and in the letter of
transmittal.
General Procedures
You may tender your original note by:
- properly completing and signing the letter of transmittal and delivering
it, together with the certificate or certificates representing the
original notes being tendered and any required signature guarantees (or a
timely confirmation of a book-entry transfer pursuant to the procedure
described below), to the exchange agent at its address set forth below on
or prior to the date the exchange offer expires, or
- complying with the guaranteed delivery procedures described below.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where those original notes were acquired by such
broker-dealer as a result of market-making activities or
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other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of those exchange notes. See "Plan of Distribution."
If tendered original notes are registered in the name of the signer of the
letter of transmittal and the exchange notes to be issued in exchange for those
original notes are to be issued (and any untendered original notes are to be
reissued) in the name of the registered holder, the signature of such signer
need not be guaranteed. In any other case, the tendered original notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to us and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
that is a member of a recognized signature guarantee medallion program within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended. If the exchange notes and/or original notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the original notes, the signature on the letter of
transmittal must be guaranteed by one of the institutions just described.
If your original notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender those
original notes, you should contact that holder promptly and instruct that holder
to tender those original notes on your behalf. If you wish to tender those
original notes yourself, you must, prior to completing and executing the letter
of transmittal and delivering those original notes, make appropriate
arrangements to register ownership of those original notes in your name and
follow the procedures described in the immediately preceding paragraph. The
transfer of record ownership may take considerable time.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the original notes at The Depository Trust Company (DTC) for purposes of the
exchange offer within two business days after receipt of this prospectus, and
any financial institution that is a participant in DTC's system may make
book-entry delivery of original notes by causing DTC to transfer such original
notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Although delivery of original notes may be effected
through book-entry transfer at DTC, you must send the letter of transmittal,
with any required signature guarantees and any other required documents, to the
exchange agent at the address specified below and it must be received by the
exchange agent on or prior to the date the exchange offer expires or you must
comply with the guaranteed delivery procedures described below.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use the Automated Tender Offer Program
procedures to tender original notes.
Any participant in DTC's system may make book-entry delivery of original
notes by causing DTC to transfer such original notes into the exchange agent's
account in accordance with the Automated Tender Offer Program procedures for
transfer. However, the exchange for original notes so tendered will be made only
after a book-entry confirmation of such book-entry transfer of original notes
into the exchange agent's account, and timely receipt by the exchange agent of
an agent's message and any other documents required by the letter of
transmittal. An agent's message is a message, transmitted by DTC and received by
the exchange agent and forming part of a book-entry confirmation, that states
that DTC has received an express acknowledgment from a participant tendering
original notes that are the subject of such book-entry confirmation that such
participant has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce that agreement against that participant.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS, INCLUDING
DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE THROUGH THE
AUTOMATED TENDER OFFER PROGRAM, IS AT YOUR ELECTION AND RISK. IF YOU SEND THESE
DOCUMENTS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT
REQUESTED, THAT YOU OBTAIN PROPER INSURANCE, AND THAT YOU MAIL THOSE DOCUMENTS
SUFFICIENTLY IN ADVANCE OF THE DATE ON WHICH THE EXCHANGE OFFER EXPIRES TO
PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE SUCH DATE.
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Guaranteed Delivery Procedures
If you wish to accept the exchange offer and time will not permit a letter
of transmittal or original notes to reach the exchange agent before the date on
which the exchange offer expires, you must deliver to the exchange agent a
letter, telegram or facsimile transmission from a bank, broker, dealer, credit
union, savings association, clearing agency or other institution that is a
member of a recognized guarantee medallion program within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, stating:
- the name and address of the tendering holder,
- the principal amount of the original notes being tendered,
- the names in which the original notes are registered,
- if possible, the certificate numbers of the original notes to be
tendered, and
- that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of such
letter, telegram or facsimile transmission by the appropriate submitting
institution, the original notes, in proper form for transfer, will be
delivered by such appropriate submitting institution together with a
properly completed and duly executed letter of transmittal (and any other
required documents).
Such a tender will be effective only if such notice is received by the
exchange agent before the exchange offer expires.
Unless original notes being tendered by the above-described method (or a
timely book-entry confirmation) are deposited with the exchange agent within the
time period set forth above (accompanied or preceded by a properly completed
letter of transmittal and any other required documents), we may, at our option,
reject the tender. Copies of a notice of guaranteed delivery which may be used
by appropriate submitting institutions for the purposes described in the
paragraphs above are available from the exchange agent.
A tender will be deemed to have been received as of the date when your
properly completed and duly signed letter of transmittal or agent's message
accompanied by the original notes (or a timely book-entry confirmation) is
received by the exchange agent. Issuances of exchange notes in exchange for
original notes tendered pursuant to a notice of guaranteed delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
appropriate submitting institution will be made only against deposit of the
letter of transmittal (and any other required documents) and the tendered
original notes (or a timely book-entry confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of original notes will be
determined by us, which determination will be final and binding. We reserve the
absolute right to reject any and all tenders not in proper form or the
acceptances for exchange of which may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right to waive any of the conditions of
the exchange offer or any defect or irregularities in tenders of any particular
holder whether or not similar defects or irregularities are waived in the case
of other holders. Neither we, the exchange agent nor any other person will be
under any duty to give notification of any defects or irregularities in tenders
or shall incur any liability for failure to give any such notification. Our
interpretation of the terms and conditions of the exchange offer (including the
letter of transmittal and the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
By tendering your original notes for exchange, you thereby exchange, assign
and transfer the original notes to us and irrevocably constitute and appoint the
exchange agent as your agent and attorney-in-fact to
23
cause the original notes to be assigned, transferred and exchanged. You will be
required to represent and warrant that you have full power and authority to
tender, exchange, assign and transfer the original notes and to acquire exchange
notes issuable upon the exchange of those tendered original notes, and that,
when the same are accepted for exchange, we will acquire good and unencumbered
title to the tendered original notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim or proxy. You will
also warrant that you will, upon request, execute and deliver any additional
documents deemed by us to be necessary or desirable to complete the exchange,
assignment and transfer of tendered original notes by us, and the issuance of
exchange notes in exchange for those notes shall constitute performance in full
by us of our obligations under the registration rights agreement and that we
will have no further obligations or liabilities under that agreement (except in
certain limited circumstances). All authority conferred by you will survive your
death or incapacity, and all of your obligations will be binding upon your
heirs, legal representatives, successors, assigns, executors and administrators.
By tendering original notes and executing the letter of transmittal, or
transmitting an agent's message, as the case may be, you represent that:
- you are not an affiliate of ours as defined in Rule 405 of the Securities
Act of 1933;
- you are not a broker-dealer that owns original notes acquired directly
from us or from an affiliate of ours;
- you are acquiring the exchange notes offered hereby in the ordinary
course of business; and
- you have not agreed with anyone to distribute the exchange notes.
If you are a broker-dealer that purchased original notes for your own
account as part of market-making or other trading activities, you represent that
you have not agreed with us or our affiliates to distribute the exchange notes
and agree to deliver a prospectus in connection with any resale of the exchange
notes; and you may exclude the representation in the last bullet point above.
WITHDRAWAL RIGHTS
You may withdraw any original notes you have tendered pursuant to the
exchange offer at any time prior to the date on which the exchange offer
expires.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the exchange agent at its
address set forth below in the "Exchange Agent" section prior to the date on
which the exchange offer expires. Any such notice of withdrawal must state:
- the person named in the letter of transmittal as having tendered original
notes to be withdrawn;
- if possible, the certificate numbers of original notes to be withdrawn;
- the principal amount of original notes to be withdrawn;
- a statement that such holder is withdrawing its election to have those
original notes exchanged, and
- the name of the registered holder of those original notes.
The withdrawal notice must be signed by the holder in the same manner as
the original signature on the letter of transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to us that the
person withdrawing the tender has succeeded to the beneficial ownership of the
original notes being withdrawn.
The exchange agent will return the properly withdrawn original notes
promptly following receipt of the notice of withdrawal. We will determine all
questions as to the validity of notices of withdrawal, including time of
receipt, and such determinations will be final and binding on all persons.
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ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the exchange offer, we will
choose and notify the exchange agent of the date on which the acceptance for
exchange of original notes validly tendered and not withdrawn and the issuance
of the exchange notes will be made. For the purposes of the exchange offer, we
will be deemed to have accepted for exchange validly tendered original notes
when we have given written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders of original
notes for the purposes of receiving exchange notes from us and causing the
original notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the exchange offer, delivery of the exchange notes
to be issued in exchange for accepted original notes will be made by the
exchange agent promptly after acceptance of the tendered original notes.
Original notes not accepted for exchange by us will be returned without expense
to the tendering holders (or in the case of original notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
procedures described above, such non-exchanged original notes will be credited
to an account maintained with DTC) promptly following the date on which the
exchange offer expires, or, if we terminate the exchange offer prior to such
date, promptly after the exchange offer is so terminated.
ACCRUED INTEREST ON EXCHANGE NOTES
You will not receive accrued but unpaid interest on original notes at the
time you tender them. Rather, that interest will be payable on the exchange
notes delivered in exchange for the original notes on the first interest payment
date after the exchange date.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
original notes for which they are exchanged, which is the aggregate principal
amount of the original notes, as reflected in our accounting records on the date
of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized in connection with the exchange offer. The cost of the exchange offer
will be amortized over the term of the exchange notes.
EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. You should direct questions and requests for assistance and
requests for additional copies of this prospectus or of the letter of
transmittal to the exchange agent as follows:
By Mail, Hand or Overnight Delivery: The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street
7th Floor East
New York, New York 10286
Attn: Bernard Arsenec
Telephone: (212) 815-5098
By Fax (for eligible institutions only): (212) 298-1915
Delivery to an address other than as stated above, or transmissions of
instructions to a facsimile number other than the one stated above, will not
constitute a valid delivery.
FEES AND EXPENSES
We have not retained any dealer-manager or similar agent in connection with
the exchange offer and will not make any payments to brokers, dealers or others
for soliciting acceptances of the exchange offer. We will, however, pay the
exchange agent reasonable and customary fees for its services and will
25
reimburse it for reasonable out-of-pocket expenses in connection with its
services. We will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
tenders for their customers. We will pay the expenses to be incurred in
connection with the exchange offer, including the fees and expenses of the
exchange agent, printing, accounting and legal fees.
Holders who tender their original notes for exchange notes will not be
obligated to pay any transfer taxes in connection with the exchange. 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 the
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
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption from such taxes is not submitted with the
letter of transmittal, the amount of such taxes will be billed directly to such
tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by us. Neither the delivery of this
prospectus nor any exchange made hereunder shall, under any circumstances,
create any implication that there has been no change in our business since the
respective dates as of which information is given herein. We are not making the
exchange offer to (nor will tenders be accepted from or on behalf of) holders of
original notes in any jurisdiction in which the making of the exchange offer or
the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, we may, at our discretion, take such action as we may
deem necessary to make the exchange offer in any such jurisdiction and extend
the exchange offer to holders of original notes in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the exchange
offer to be made by a licensed broker or dealer, the exchange offer may be made
on our behalf by one or more registered brokers or dealers which are licensed
under the laws of such jurisdiction.
DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes will be issued under an indenture, dated as of August
17, 1998, as amended and supplemented by an eighth supplemental indenture
thereto, between us and The Bank of New York, as trustee. The indenture was
filed as an exhibit to our Registration Statement on Form S-3 dated August 24,
1998. The eighth supplemental indenture was filed as an exhibit to our current
report on Form 8-K filed on November 20, 2002. The following description
summarizes only the material terms of the exchange notes. The description is not
complete, and we refer you to the indenture, which is incorporated by reference.
For purposes of the following description, unless otherwise indicated, a
business day is any day other than a Saturday or Sunday that is neither a legal
holiday nor a day on which banking institutions are authorized or obligated by
law or executive order to close in New York, New York.
GENERAL
The initial aggregate principal amount of the exchange notes offered under
this prospectus is $380,000,000. The exchange notes will mature on December 1,
2007.
The exchange notes do not have a sinking fund. The original notes and the
exchange notes will constitute a single series of notes under the indenture. We
may, at any time, issue additional notes having the same ranking, the same
interest rate, maturity and other terms, and the same CUSIP number, as the
original notes and the exchange notes, without the consent of the holders
thereof. Any additional notes having such similar terms, together with the
original notes and the exchange notes, may constitute a single series of notes
under the indenture.
Except as described in "-- Purchase of Notes Upon Change in Control," the
exchange notes do not provide special protection in the event we are involved in
a highly leveraged transaction.
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INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at the rate of 10.50% per year
(computed based on a 360-day year consisting of twelve 30-day months) for the
period from November 20, 2002 to, but excluding, December 1, 2007. Interest on
the exchange notes will be payable semi-annually on June 1 and December 1 of
each year, commencing June 1, 2003. Interest payments will be made to the
persons in whose names the exchange notes are registered on the 15th calendar
day (whether or not a business day) immediately preceding the related interest
payment date.
Interest on each exchange note issued pursuant to the exchange offer will
accrue from the last interest payment date to which interest was paid on the
original notes surrendered in exchange therefor or, if no interest has been paid
on the original notes, from the date of the initial issuance of the original
notes.
If we fail to pay any interest on the exchange notes when due or we fail to
pay principal of or premium, if any, on the exchange notes when due, interest
will accrue on such unpaid interest or principal or premium at the same interest
rate applicable to the exchange notes, until such unpaid interest or principal
or premium is paid in full.
RANKING
The exchange notes will be our unsubordinated and unsecured obligations and
will rank equally in right of payment with all of our other unsubordinated and
unsecured indebtedness from time to time outstanding and would be effectively
subordinated to any secured indebtedness that we may incur. Except as described
in "-- Certain Restrictive Covenants," the exchange notes will not limit other
indebtedness or securities that we or any of our subsidiaries may incur or issue
or contain financial or similar restrictions on us or any of our subsidiaries.
In addition, because we are a holding company that conducts our operations
through our subsidiaries, holders of the exchange notes will have a junior
position to the claims of creditors of our subsidiaries.
FORM
The exchange notes will be issued in fully registered form, without
coupons, in minimum denominations of $1,000 or integral multiples of $1,000 in
excess of $1,000. The exchange notes will be issued as global securities and
deposited with, or on behalf of DTC. See "BOOK-ENTRY; DELIVERY AND FORM" below
for additional information concerning the exchange notes and the book-entry
system. The exchange notes will trade in DTC's Same-Day Funds Settlement System
until maturity or earlier redemption, as the case may be, and secondary market
trading activity in the exchange notes will therefore settle in immediately
available funds. We will make all payments of principal and interest in
immediately available funds to DTC in the City of New York.
OPTIONAL REDEMPTION
The notes are redeemable at our option, in whole or in part, at any time
and from time to time, at a redemption price equal to the greater of:
- 100% of the principal amount of notes then outstanding to be redeemed, or
- the sum of the present values of the remaining scheduled payments of
principal and interest on the notes then outstanding to be redeemed (not
including any portion of such payments of interest accrued as of the
redemption date) discounted to the redemption date on a semi-annual basis
(computed based on a 360-day year consisting of twelve 30-day months) at
the Adjusted Treasury Rate, plus 50 basis points (0.50%), as calculated
by an independent investment banker,
plus, in both of the above cases, accrued and unpaid interest thereon to the
redemption date.
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"Adjusted Treasury Rate" means, with respect to any redemption date:
- the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal
Reserve System and which establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity corresponding to
the comparable treasury issue (if no maturity is within three months
before or after the Remaining Life, as defined below, yields for the two
published maturities most closely corresponding to the Comparable
Treasury Issue will be determined and the Adjusted Treasury Rate will be
interpolated or extrapolated from such yields on a straight line basis,
rounding to the nearest month), or
- if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the
rate per year equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
The Adjusted Treasury Rate will be calculated on the third business day
preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes to be redeemed that would be used, at the time
of selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of such notes (the "Remaining Life").
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer quotations for the redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (2) if an Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means Credit Suisse First Boston
Corporation (CSFB) or its successors, as designated by us, or if that firm is
unwilling or unable to serve as such, an independent investment and banking
institution of national standing appointed by us.
"Reference Treasury Dealer" means:
- CSFB and its successors; provided that, if CSFB ceases to be a primary
U.S. Government securities dealer in New York City (Primary Treasury
Dealer), we will substitute another Primary Treasury Dealer, and
- up to four other Primary Treasury Dealers selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
an Independent Investment Banker, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to an Independent Investment Banker at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
We will mail a notice of redemption at least 30 days but no more than 60
days before the redemption date to each holder of notes to be redeemed. If we
elect to partially redeem the notes, the trustee will select in a fair and
appropriate manner the notes to be redeemed.
If we plan to redeem the notes, before the redemption occurs, we are not
required to:
- issue, register the transfer of, or exchange any note during the period
beginning 15 days before the notice of redemption is mailed and ending on
the day the notice is mailed; or
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- after the notice of redemption is mailed, register the transfer of or
exchange any note selected for redemption, except, if we are redeeming
only a part of a note, we are required to register the transfer of or
exchange the unredeemed portion of the note if the holder so requests.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the notes or portions thereof
called for redemption.
CONSOLIDATION, MERGER, ETC.
We will not consolidate or merge with or into any other corporation or
other organization, or sell, convey or transfer all or substantially all of our
assets to any individual or organization, unless:
- the successor is an individual or organization organized under the laws
of the United States or any state thereof or the District of Columbia or
under the laws of a foreign jurisdiction and such successor consents to
the jurisdiction of the courts of the United States or any state thereof;
- the successor or transferee expressly assumes our obligations under the
indenture; and
- the consolidation, merger, sale or transfer does not cause the occurrence
of a default under the indenture.
Upon the assumption by the successor of our obligations under the indenture
and the notes, and the satisfaction of any other conditions required by the
indenture, the successor will succeed to and be substituted for us under the
indenture.
PURCHASE OF NOTES UPON CHANGE IN CONTROL
In the event of any Change in Control (as defined below) and if the notes
are rated below BBB- (or an equivalent rating) by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. or below Baa3 (or an
equivalent rating) by Moody's Investor's Service, Inc. at such time, each holder
of a note will have the right, at such holder's option, subject to the terms and
conditions of the indenture, to require us to repurchase all or any part of such
holder's notes on a date selected by us that is no earlier than 60 days nor
later than 90 days (the "Change in Control Purchase Date") after the mailing of
written notice by us of the occurrence of such Change in Control, at a
repurchase price payable in cash equal to 101% of the principal amount of such
notes plus accrued and unpaid interest, if any, thereon to the Change in Control
Purchase Date (the "Change in Control Purchase Price").
Within 30 days after the Change in Control, we will mail to each holder of
a note a notice regarding the Change in Control, which notice shall state, among
other things:
- that a Change in Control has occurred and that each such holder has the
right to require us to repurchase all or any part of such holder's notes
at the Change in Control Purchase Price;
- the Change in Control Purchase Price;
- the Change in Control Purchase Date;
- the name and address of the paying agent; and
- the procedures that holders must follow to cause the notes to be
repurchased.
To exercise this right, a holder must deliver a written notice (the "Change
in Control Purchase Notice") to the paying agent at its corporate trust office
in New York, New York, or any other office of the paying agent maintained for
such purposes, not later than 30 days prior to the Change in Control Purchase
Date. The Change in Control Purchase Notice shall state:
- the portion of the principal amount of any notes to be repurchased, which
must be $1,000 or an integral multiple thereof;
- that such notes are to be repurchased by us pursuant to the applicable
change-in-control provisions of the indenture; and
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- unless the notes are represented by one or more global notes, the
certificate numbers of the notes to be repurchased.
Any Change in Control Purchase Notice may be withdrawn by the holder by a
written notice of withdrawal delivered to the paying agent not later than three
business days prior to the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and, if applicable, the certificate
numbers of the notes as to which the withdrawal notice relates and the principal
amount, if any, which remains subject to a Change in Control Purchase Notice.
If a note is represented by a global note, DTC or its nominee will be the
holder of such note and therefore will be the only entity that can require us to
repurchase notes upon a Change in Control. To obtain repayment with respect to
such note upon a Change in Control, the beneficial owner of such note must
provide to the broker or other entity through which it holds the beneficial
interest in such note (1) the Change in Control Purchase Notice signed by such
beneficial owner, and such signature must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States and (2) instructions to such broker or
other entity to notify DTC of such beneficial owner's desire to cause us to
repurchase such notes. Such broker or other entity will provide to the paying
agent (1) a Change in Control Purchase Notice received from such beneficial
owner and (2) a certificate satisfactory to the paying agent from such broker or
other entity that it represents such beneficial owner. Such broker or other
entity will be responsible for disbursing any payments it receives upon the
repurchase of such notes by us.
Payment of the Change in Control Purchase Price for a note in registered,
certificated form for which a Change in Control Purchase Notice has been
delivered and not withdrawn is conditioned upon delivery of such certificated
note (together with necessary endorsements) to the paying agent at its office in
New York, New York, or any other office of the paying agent maintained for such
purpose, at any time (whether prior to, on or after the Change in Control
Purchase Date) after the delivery of such Change in Control Purchase Notice.
Payment of the Change in Control Purchase Price for such certificated note will
be made promptly following the later of the Change in Control Purchase Date and
the time of delivery of such certificated note.
If the paying agent holds, in accordance with the terms of the indenture,
money sufficient to pay the Change in Control Purchase Price of a note on the
business day following the Change in Control Purchase Date for such note, then,
on and after such date, interest on such note will cease to accrue, whether or
not such note is delivered to the paying agent, and all other rights of the
holder shall terminate (other than the right to receive the Change in Control
Purchase Price upon delivery of the note).
Under the indenture, a "Change in Control" means the occurrence of any of
the following:
- we cease to beneficially own, directly or indirectly, at least 80% of the
total voting power of all classes of Capital Stock then outstanding of
Tampa Electric (whether arising from issuance of securities of us or
Tampa Electric, any direct or indirect transfer of securities by us or
Tampa Electric, any merger, consolidation, liquidation or dissolution of
us or Tampa Electric or otherwise);
- any "entity", "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as such term is used in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934, except that a person or group shall
be deemed to have "beneficial ownership" of all shares that such person
or group has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than a majority of our voting stock;
- we consolidate or merge with another person pursuant to a transaction in
which our outstanding voting stock or the voting stock of such other
person is changed into or exchanged for cash, securities, or other
property, other than any such transaction where (A) our outstanding
voting stock is changed into or exchanged for, in whole or in part,
voting stock of the surviving or transferee person and (B) the holders of
our voting stock immediately prior to such transaction
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retain or receive, directly or indirectly, substantially proportionate
ownership of at least a majority of the voting stock of the surviving or
transferee person immediately after such transaction;
- the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of our properties or
assets and those of our Restricted Subsidiaries taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934), other than to an entity at least a majority of
whose voting stock is owned, directly or indirectly, substantially
proportionately by the holders of our voting stock;
- during any period of up to 24 consecutive months, commencing after the
date of issuance of the original notes, individuals who at the beginning
of such 24-month period were members of our board of directors shall
cease for any reason to constitute a majority of our board of directors,
provided that any person becoming a director subsequent to the date of
issuance of the original notes, whose election, or nomination for
election by our shareholders, was approved by a vote of at least a
majority of the directors who were either directors at the beginning of
such period or whose election or nomination for election was previously
so approved (other than the election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of our directors)
shall be, for purposes of this provision, considered as though such
person were a member of the board as of the beginning of such period; or
- the adoption of a plan relating to our liquidation or dissolution.
The indenture requires us to comply with the provisions of Regulation 14E
and any other tender offer rules under the Securities Exchange Act of 1934 which
may then be applicable in connection with any offer by us to purchase notes at
the option of holders upon a Change in Control. The Change in Control purchase
feature of the notes may in certain circumstances make more difficult or
discourage a takeover of us and, thus, the removal of incumbent management. The
Change in Control purchase feature, however, is not the result of management's
knowledge of any specific effort to accumulate shares of our common stock or to
obtain control of us by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. Instead, the Change in Control purchase feature is a term contained
in many similar debt offerings and the terms of such feature result from
negotiations between us and the initial purchaser of the original notes.
Management has no present intention to propose any anti-takeover measures
although it is possible that we may decide to do so in the future.
No note may be repurchased by us as a result of a Change in Control if
there has occurred and is continuing an event of default described under "Events
of Default" below (other than a default in the payment of the Change in Control
Purchase Price with respect to the notes). In addition, our ability to purchase
the notes may be limited by our financial resources and our inability to raise
the required funds because of restrictions on issuance of securities contained
in other contractual arrangements. The agreements governing our other
Indebtedness may contain prohibitions of certain events or provide that such
events are events of default, including events that would constitute a Change in
Control. In addition, the exercise by holders of notes of their right to require
us to repurchase the notes upon a Change in Control could cause a default under
these other agreements, even if the Change in Control itself does not, due to
the financial effect of such repurchases on us.
The definition of Change in Control includes a phrase relating to the
direct or indirect sale, transfer, conveyance or other disposition of "all or
substantially all" of our properties or assets and those of our Restricted
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise, established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase notes as a result of the sale,
transfer, conveyance or other disposition of less than all of our assets and
those of our Restricted Subsidiaries taken as a whole to another person or group
may be uncertain.
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CERTAIN RESTRICTIVE COVENANTS
The indenture contains the covenants described below, which will apply only
if either (a) the notes are rated below BBB- (or an equivalent rating) by
Standard & Poor's or below Baa3 (or an equivalent rating) by Moody's, or (b) the
notes are rated below the Special Ratings Trigger; provided, however, the
condition of clause (b) shall not apply when the TECO Construction Undertakings
have been discharged and we are no longer obligated with respect to Indebtedness
(including guarantees) that requires us to deliver, when our long-term unsecured
Indebtedness is rated below the Special Ratings Trigger, letters of credit in
the aggregate face amount of $50,000,000 or more. Certain capitalized terms used
below are defined under the heading "Certain Definitions" below.
Limitation on Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries,
directly or indirectly, to:
- declare or pay any dividend or make any distribution on our Capital Stock
to the direct or indirect holders of our Capital Stock (except dividends
or distributions payable solely in our Non-Convertible Capital Stock or
in options, warrants or other rights to purchase such Non-Convertible
Capital Stock and except dividends or distributions payable to us or a
Restricted Subsidiary);
- purchase, redeem or otherwise acquire or retire for value any of our
Capital Stock; or
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity or scheduled repayment thereof, any
Subordinated Indebtedness,
- make any Restricted Investment (any such dividend, distribution,
purchase, redemption, repurchase, defeasing, other acquisition or
retirement, payments and other actions set forth in this and the
preceding bullets above being collectively referred to as "Restricted
Payments"),
if at the time we or such Restricted Subsidiary makes such Restricted Payment:
(1) an event of default, or an event that with the lapse of time or the giving
of notice or both would constitute an event of default, shall have occurred and
be continuing (or would result therefrom); or (2) the aggregate amount of such
Restricted Payment and all other Restricted Payments made since the issuance
date of the original notes would exceed the sum (without duplication) of: (a)
the difference of (i) Operating Cash Flow minus (ii) an amount equal to the
product of (x) Consolidated Interest Expense multiplied by (y) 1.70, in each
case for the period from the beginning of the first fiscal quarter commencing
after the issuance date of the original notes to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such Restricted
Payment (or, in case such difference shall be a deficit, minus 100% of the
deficit), (b) the aggregate Net Cash Proceeds received by us from the issue or
sale of or contribution with respect to our Capital Stock after the issuance
date of the original notes (other than Capital Stock sold to one of our
subsidiaries), (c) to the extent that any Restricted Investment that was made
after the issuance date of the original notes is sold for cash or otherwise
liquidated, redeemed or repaid for cash, the lesser of (i) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (ii) the initial amount of such Restricted Investment
and (d) 100% of any dividends received by us or a Restricted Subsidiary after
the issuance date of the original notes from an Unrestricted Subsidiary, to the
extent that such dividends were not otherwise included in our Consolidated Net
Income for such period.
The foregoing provisions will not prohibit:
- dividends or other distributions paid in respect of any class of Capital
Stock issued by us in connection with the acquisition of any business or
assets by us or a Restricted Subsidiary where the dividends or other
distributions with respect to such Capital Stock are payable solely from
the net earnings of such business or assets;
- any purchase or redemption of our Capital Stock made by exchange for, or
out of the proceeds of the substantially concurrent sale of, our Capital
Stock (other than Redeemable Stock or Exchangeable Stock);
32
- dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividends would have complied with this
covenant;
- payments made by us or a Restricted Subsidiary to an Unrestricted
Subsidiary in satisfaction of obligations existing on the issuance date
of the original notes.
Limitation on Certain Liens
We will not, and will not permit any of our Restricted Subsidiaries to,
create, incur, assume or suffer to exist any lien upon or with respect to any of
its property of any character, including without limitation any shares of
Capital Stock of Tampa Electric, without making effective provision whereby the
notes will be (so long as any such other creditor shall be so secured) equally
and ratably secured. The foregoing restrictions shall not apply to (a) liens
securing Indebtedness of us or our Restricted Subsidiaries; provided, that on
the date such liens are created, and after giving effect to such Indebtedness,
the aggregate principal amount at maturity of all our secured Indebtedness at
such date shall not exceed 5% of Consolidated Net Tangible Assets, (b) liens for
taxes, pledges to secure workman's compensation, other statutory obligations and
materialman's, mechanic's and similar liens and purchase money liens and (c)
liens incurred by Tampa Electric that are not prohibited by applicable legal and
regulatory requirements, including without limitation the rules and regulations
of the Florida Public Service Commission.
Limitation on Indebtedness
We will not, and will not permit any of our Restricted Subsidiaries to,
issue, create, assume, guarantee, incur or otherwise become liable for
(collectively, "issue"), directly or indirectly, any Indebtedness, provided,
however, that we may issue Indebtedness if the Consolidated Coverage Ratio of us
and our Restricted Subsidiaries for the four consecutive fiscal quarters
immediately preceding the issuance of such Indebtedness (as shown by a pro forma
consolidated income statement of us and our Restricted Subsidiaries for the four
most recent fiscal quarters ending at least 30 days prior to the issuance of
such Indebtedness after giving effect to (1) the issuance of such Indebtedness
and (if applicable) the application of the net proceeds thereof to refinance
other Indebtedness as if such Indebtedness was issued at the beginning of the
period, (2) the issuance and retirement of any other Indebtedness since the
first day of the period as if such Indebtedness was issued or retired at the
beginning of the period and (3) the acquisition or disposition of any company or
business by us or any Restricted Subsidiary since the first day of the period
(including giving effect to the pro forma historical earnings and interest
expense of such company or business), including any acquisition or disposition
which will be consummated contemporaneously with the issuance of such
Indebtedness, as if in each case such acquisition or disposition occurred at the
beginning of the period) exceeds a ratio of 2.0 to 1.0.
The foregoing limitation is subject to exceptions for:
- our Indebtedness under Credit Facilities not to exceed $1,000,000,000 in
aggregate outstanding principal amount at any time;
- Indebtedness (other than Indebtedness described in the first bullet
above) outstanding on the issuance date of the original notes, and
Indebtedness issued in exchange for, or the proceeds of which are used to
refund or refinance, any Indebtedness permitted by this bullet; provided,
however, that (i) the principal amount (or accreted value in the case of
Indebtedness issued at a discount) of the Indebtedness so issued shall
not exceed the principal amount (or accreted value in the case of
Indebtedness issued at a discount) of, premium, if any, and accrued but
unpaid interest on, the Indebtedness so exchanged, refunded or refinanced
and (ii) the Indebtedness so issued (A) shall not mature prior to the
stated maturity of the Indebtedness so exchanged, refunded or refinanced,
(B) shall have an Average Life equal to or greater than the remaining
Average Life of the Indebtedness so exchanged, refunded or refinanced and
(C) if the Indebtedness to be exchanged, refunded or refinanced is
subordinated to the notes, the Indebtedness is subordinated to the notes
in right of payment;
33
- Indebtedness represented by the notes;
- our Indebtedness owed to and held by a Restricted Subsidiary and
Indebtedness of a Restricted Subsidiary owed to and held by us or a
Restricted Subsidiary; provided, however, that in the case of
Indebtedness of us or of a Restricted Subsidiary owed to and held by a
Restricted Subsidiary, (i) any subsequent issuance or transfer of any
Capital Stock that results in any such Restricted Subsidiary ceasing to
be a subsidiary or (ii) any transfer of such Indebtedness (except to us
or a Restricted Subsidiary) shall be deemed for these purposes to
constitute the issuance of such Indebtedness by us or a Restricted
Subsidiary, as the case may be;
- Indebtedness of us or a Restricted Subsidiary issued in exchange for, or
the proceeds of which are used to refund or refinance, Indebtedness of us
or of a Restricted Subsidiary issued in accordance with the first
paragraph of this section above; provided, however, that (i) the
principal amount (or accreted value in the case of Indebtedness issued at
a discount) of the Indebtedness so issued shall not exceed the principal
amount (or accreted value in the case of Indebtedness issued at a
discount) of, premium, if any, and accrued but unpaid interest on, the
Indebtedness so exchanged, refunded or refinanced and (ii) the
Indebtedness so issued (A) shall not mature prior to the stated maturity
of the Indebtedness so exchanged, refunded or refinanced, (B) shall have
an Average Life equal to or greater than the remaining Average Life of
the Indebtedness so exchanged, refunded or refinanced and (C) if the
Indebtedness to be exchanged, refunded or refinanced is subordinated to
the notes, the Indebtedness is subordinated to the notes in right of
payment;
- Indebtedness of a person existing at the time at which such person became
a subsidiary and not incurred in connection with, or in contemplation of,
such person becoming a subsidiary;
- Indebtedness of us or a Restricted Subsidiary represented by Capital
Lease Obligations or purchase money obligations;
- Indebtedness of Tampa Electric that is not prohibited by applicable legal
and regulatory requirements, including without limitation the rules and
regulations of the Florida Public Service Commission;
- Indebtedness for working capital of a Restricted Subsidiary (other than
Tampa Electric) under Credit Facilities not to exceed $100,000,000 in
aggregate outstanding principal amount at any time; and
- Indebtedness issued by us or any of our Restricted Subsidiaries not to
exceed $100,000,000 in aggregate outstanding principal amount at any
time.
Designation of Restricted and Unrestricted Subsidiaries
Our board of directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause an event of default
or an event that with notice or the passage of time or both would constitute an
event of default; provided, that in no event will any Restricted Subsidiary
existing on the issuance date of the original notes or any substantial portion
of any of such Restricted Subsidiary's businesses be transferred to or held by
an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an
Unrestricted Subsidiary, the aggregate fair market value of all outstanding
Investments owned by us and our Restricted Subsidiaries in the subsidiary
properly designated will be deemed to be an Investment made as of the time of
the designation and will reduce the amount available for Restricted Payments
under the first paragraph of the covenant described above under the caption
"-- Limitation on Restricted Payments" or Permitted Investments, as determined
by us. That designation will only be permitted if the Investment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. Our board of directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause an event of default or an event that with notice or the passage
of time or both would constitute an event of default.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
indenture. Reference is made to the indenture for a full definition of all terms
as well as any other capitalized terms used herein and not otherwise defined.
"Amortization Expense" means, for any period, amounts recognized during
such period as amortization of capital leases, depletion, fuel, goodwill and
assets classified as intangible assets in accordance with U.S. generally
accepted accounting principals (GAAP).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(x) the number of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness and (y) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Lease Obligation" of a person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty; and such obligation shall be deemed secured by a lien on any property
or assets to which such lease relates.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock or letter
stock; provided, that Hybrid Preferred Securities are not considered Capital
Stock for purposes of this definition.
"Cash Equivalents" means:
- United States dollars;
- securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the
United States government (provided that the full faith and credit of
the United States is pledged in support of those securities) having
maturities of not more than 270 days from the date of acquisition;
- certificates of deposit and eurodollar time deposits with maturities
of 270 days or less from the date of acquisition, bankers' acceptances
with maturities not exceeding 270 days and overnight bank deposits, in
each case, with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thomson Bank Watch Rating of
"B" or better;
- repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the second and third
bullets above entered into with any financial institution meeting the
qualifications specified in the third bullet above;
- commercial paper having the highest rating obtainable from Moody's or
Standard & Poor's and in each case maturing within six months after
the date of acquisition; and
- money market funds, substantially all of which constitute Cash
Equivalents of the kinds described in bullets one through five of this
definition.
"Consolidated Coverage Ratio" with respect to any period means the ratio of
(1) the aggregate amount of Operating Cash Flow for such period to (2) the
aggregate amount of Consolidated Interest Expense for such period.
"Consolidated Current Liabilities" means, for any period, the aggregate
amount of our liabilities and of our Restricted Subsidiaries which may properly
be classified as current liabilities (including taxes accrued as estimated),
after (1) eliminating all inter-company items between us and any Restricted
35
Subsidiary and (2) deducting all current maturities of long-term Indebtedness,
all as determined in accordance with GAAP.
"Consolidated Indebtedness" means, at any date of determination, the
aggregate our Indebtedness and of our Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the total interest
expense in respect of our Consolidated Indebtedness and of our Restricted
Subsidiaries, including, without duplication:
- interest expense attributable to capital leases,
- amortization of debt discount,
- capitalized interest,
- cash and noncash interest payments,
- commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing,
- net costs under Hedging Obligations (including amortization of
discount), and
- interest expense in respect of obligations of other persons deemed to
be our Indebtedness or Indebtedness of any Restricted Subsidiaries
under the fifth or sixth bullets of the definition of Indebtedness,
provided, however, that Consolidated Interest Expense shall exclude any costs
otherwise included in interest expense recognized on early retirement of debt.
"Consolidated Net Income" means, for any period, our net income and the net
income of our Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income:
- any net income of any person if such person is not us or a Restricted
Subsidiary, except that our equity in the net income of any such
person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
person during such period to us or a Restricted Subsidiary as a
dividend or other distribution;
- the net income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that net income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that subsidiary or its stockholders;
- any net income of any person acquired by us or a Restricted Subsidiary
in a pooling of interests transaction for any period prior to the date
of such acquisition;
- the cumulative effect of a change in accounting principles will be
excluded; and
- any gain or loss realized upon the sale or other disposition of any of
our property, plant or equipment or of a Restricted Subsidiaries which
is not sold or otherwise disposed of in the ordinary course of
business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any person.
"Consolidated Net Tangible Assets" means, for any period, the total amount
of assets (less accumulated depreciation or amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) as set forth on our and our Restricted Subsidiaries' most recently
available quarterly or annual consolidated balance sheet, determined on a
consolidated basis in accordance
36
with GAAP, and after giving effect to purchase accounting and after deducting
therefrom, to the extent otherwise included, the amounts of:
- Consolidated Current Liabilities;
- minority interests in Consolidated Subsidiaries held by persons other
than us or a Restricted Subsidiary;
- excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the board of directors as evidenced by
board resolutions;
- any revaluation or other write-up in value of assets subsequent to
December 31, 2001, as a result of a change in the method of valuation
in accordance with GAAP;
- unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items;
- treasury stock; and
- any cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities.
"Consolidated Net Worth" of any person means the total of the amounts shown
on the consolidated balance sheet of such person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
any date selected by such person not more than 90 days prior to the taking of
any action for the purpose of which the determination is being made (and
adjusted for any material events since such date), as (1) the par or stated
value of all outstanding Capital Stock plus (2) paid-in capital or capital
surplus relating to such Capital Stock plus (3) any retained earnings or earned
surplus less (A) any accumulated deficit, (B) any amounts attributable to
Redeemable Stock and (C) any amounts attributable to Exchangeable Stock.
"Consolidated Subsidiary" means, any subsidiary whose accounts are or are
required to be consolidated with our accounts in accordance with GAAP.
"Credit Facilities" means, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, supplemented, renewed, refunded,
restructured, replaced or refinanced in whole or in part from time to time.
"Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock nor Redeemable Stock).
"Hedging Obligations" means, with respect to any specified person, the
obligations of such person under:
- interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
- other agreements or arrangements designed to protect such person
against fluctuations in interest rates and foreign currency exchange
rates,
in each case, to the extent incurred in the ordinary course of business and not
for speculative purposes.
37
"Hybrid Preferred Securities" means any preferred securities issued by a
Hybrid Preferred Securities Subsidiary, where such preferred securities have the
following characteristics:
- such Hybrid Preferred Securities Subsidiary lends substantially all of
the proceeds from the issuance of such preferred securities to us in
exchange for subordinated debt issued by us or lends substantially all
of the proceeds from the issuance of such preferred securities to a
second Hybrid Preferred Securities Subsidiary, which in turn lends
substantially all of the proceeds from the issuance of its preferred
securities to us in exchange for subordinated debt issued by us;
- such preferred securities contain terms providing for the deferral of
distributions corresponding to provisions providing for the deferral
of interest payments on such subordinated debt; and
- we make periodic interest payments on such subordinated debt, which
interest payments are in turn used by the Hybrid Preferred Securities
Subsidiary or Hybrid Preferred Securities Subsidiaries to make
corresponding payments to the holders of the Hybrid Preferred
Securities.
"Hybrid Preferred Securities Subsidiary" means:
any business trust:
- all of the common equity interest of which is owned (either directly
or indirectly through one or more of our wholly-owned subsidiaries) at
all times by us or whose sole depositor is another Hybrid Preferred
Securities Subsidiary;
- that has been formed for the purpose of issuing Hybrid Preferred
Securities; and
- substantially all of the assets of which consist at all times solely
of subordinated debt issued by us or the preferred securities of a
second Hybrid Preferred Securities Subsidiary and payments made from
time to time on such subordinated debt or preferred securities, as the
case may be; or
any limited liability company (or similar entity):
- all of the common equity interest of which is owned (either directly
or indirectly through one or more of our wholly-owned subsidiaries) at
all times by us;
- that has been formed for the purpose of issuing Hybrid Preferred
Securities; and
- substantially all of the assets of which consist at all times solely
of subordinated debt issued by us and payments made from time to time
on such subordinated debt.
"Indebtedness" of any person means, without duplication:
- the principal of and premium (if any) in respect of (1) indebtedness
of such person for money borrowed and (2) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment
of which such person is responsible or liable;
- all Capital Lease Obligations of such person;
- all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business);
- all obligations of such person for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in the bullets
above) entered into in the ordinary course of business of such person
to the extent such letters of credit are not drawn upon or, if and to
the extent drawn upon, such drawing is reimbursed no later than the
third business day following receipt by such person of a demand for
reimbursement following payment on the letter of credit);
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- all obligations of the type referred to in the bullets above of other
persons and all dividends of other persons for the payment of which,
in either case, such person is responsible or liable as obligor,
guarantor or otherwise; and
- all obligations of the type referred to in the bullets above of other
persons secured by any lien on any property or asset of such person
(whether or not such obligation is assumed by such person), the amount
of such obligation being deemed to be the lesser of the value of such
property or assets and the amount of the obligation so secured.
"Investments" means, with respect to any person, all direct or indirect
investments by such person in other persons in the forms of loans (including
Support Obligations or other obligations), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Capital Stock or other securities, together with
all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If we or any of our subsidiaries sells or
otherwise disposes of any Capital Stock of any of our direct or indirect
subsidiaries, such that, after giving effect to any such sale or disposition,
such person is no longer our subsidiary, we will be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of our Investments in such subsidiary that were not sold or disposed of.
The acquisition by us or any of our subsidiaries of a person that holds an
Investment in a third person will be deemed to be an Investment by us or such
subsidiary in such third person in an amount equal to the fair market value of
the Investments held by the acquired person in such third person.
"Net Cash Proceeds" means, with respect to any issuance or sale or
contribution in respect of Capital Stock, the aggregate proceeds of such
issuance, sale or contribution, including the fair market value (as determined
by the board of directors and net of any associated debt and of any
consideration other than Capital Stock received in return) of property other
than cash, received by the Company or any Restricted Subsidiary, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof, provided, however, that if such fair market value as determined
by the board of directors of property other than cash is greater than $25
million, the value thereof shall be based upon an opinion from an independent
nationally recognized firm experienced in the appraisal or similar review of
similar types of transactions.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
"Non-Recourse Debt" means Indebtedness:
- as to which neither we nor any of our Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
- no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the
exchange notes or any Credit Facility) of us or any of our Restricted
Subsidiaries to declare a default on such other Indebtedness or cause
the payment of the Indebtedness to be accelerated or payable prior to
its stated maturity; and
- as to which the lenders have been notified in writing that they will
not have any recourse to our or any of our Restricted Subsidiaries'
stock or assets.
39
"Operating Cash Flow" means, for any period, with respect to us and our
Restricted Subsidiaries, the aggregate amount of Consolidated Net Income after
adding thereto Consolidated Interest Expense (adjusted to include costs
recognized on early retirement of debt), income taxes (before giving effect to
non-conventional fuel tax credits), depreciation expense, Amortization Expense
and any noncash amortization of debt issuance costs, any nonrecurring, non-cash
charges to earnings and any negative accretion recognition.
"Permitted Investments" means:
- any Investment in us or in a Restricted Subsidiary;
- any Investment in Cash Equivalents;
- any Investment by us or any Restricted Subsidiary in a person, if as a
result of such Investment:
- such person becomes our Restricted Subsidiary; or
- such person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, us or our Restricted Subsidiary;
- any Investment made as a result of the receipt of non-cash
consideration from an asset sale;
- any acquisition of assets solely in exchange for the issuance of our
Capital Stock (other than Redeemable Stock or Exchangeable Stock);
- any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant
to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer;
- Hedging Obligations;
- receivables owing to us or any one of our subsidiaries, if created or
acquired in the ordinary course of business;
- payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
- loans or advances to employees made in the ordinary course of our or
any of our subsidiaries' business, as the case may be, not to exceed
$100,000 per employee and $5 million in the aggregate at any one time
outstanding;
- Support Obligations otherwise permitted by the terms of the indenture;
- payments made by us or a Restricted Subsidiary to an Unrestricted
Subsidiary in satisfaction of obligations existing on the issuance
date of the exchange notes; and
- other Investments in any person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this bullet that are at the time
outstanding not to exceed $50 million, without giving effect to any
writedown or writeoff of such Investment or reduction to the extent
credit has already been given under clause 2(c) of the covenant
described above under the caption "Limitation on Restricted Payments".
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation; provided, that
Hybrid Preferred Securities are not considered Preferred Stock for purposes of
this definition.
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"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed prior to the first anniversary of the stated maturity
of the outstanding notes or is redeemable at the option of the holder thereof at
any time prior to the first anniversary of the stated maturity of the
outstanding notes.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a person means any subsidiary of the referent
person that is not an Unrestricted Subsidiary.
"Special Ratings Trigger" with respect to long-term unsecured indebtedness
means that such indebtedness is not rated at least (x) BBB- by Standard & Poor's
and Baa2 by Moody's Investor's Service, Inc. or (y) BBB by Standard & Poor's and
Baa3 by Moody's.
"Subordinated Indebtedness" means any of our Indebtedness or of any of our
Restricted Subsidiaries (whether outstanding on the issuance date of the
original notes or thereafter incurred) which is contractually subordinated or
junior in right of payment to the notes.
"Support Obligations" means, for any person, without duplication, any
financial obligation, contingent or otherwise, of such person guaranteeing or
otherwise supporting any debt or other obligation of any other person in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such person, direct or indirect:
- to purchase or pay (or advance or supply funds for the purchase or
payment of) such debt or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such debt;
- to purchase property, securities or services for the purpose of
assuring the owner of such debt of the payment of such debt;
- to maintain working capital, equity capital, available cash or other
financial statement condition of the primary obligor so as to enable
the primary obligor to pay such debt;
- to provide equity capital under or in respect of equity subscription
arrangements (to the extent that such obligation to provide equity
capital does not otherwise constitute debt); or
- to perform, or arrange for the performance of, any non-monetary
obligations or nonfunded debt payment obligations of the primary
obligor.
"TECO Construction Undertakings" means, collectively, the Amended and
Restated Construction Contract Undertaking dated as of May 14, 2002, as the same
may be amended from time to time, by us in favor of Panda Gila River, L.P., a
Delaware limited partnership ("Panda Gila River"), and Citibank, N.A., as
Administrative Agent (the "Panda Gila River Agent") under the Gila River Project
Credit Agreement dated as of May 31, 2001 among Panda Gila River, the banks a
party thereto, and the Panda Gila River Agent; and the Amended and Restated
Construction Contract Undertaking dated as of May 14, 2002, as the same may be
amended from time to time, by us in favor of Union Power Partners, L.P., a
Delaware limited partnership ("Union Power"), and Citibank, N.A., as
Administrative Agent (the "Union Power Agent") under the Union Power Project
Credit Agreement dated as of May 31, 2001 among Union Power, the banks a party
thereto, and the Union Power Agent.
"Unrestricted Subsidiary" means each of TECO Power Services Corporation and
its subsidiaries and any other subsidiary of us (other than any subsidiary
existing on the issuance date of the original notes or any successor to any of
them) that is designated by our board of directors as an Unrestricted Subsidiary
pursuant to a board resolution, but only to the extent that such subsidiary
being designated as an Unrestricted Subsidiary:
- has no Indebtedness other than Non-Recourse Debt;
- is not party to any agreement, contract, arrangement or understanding
with us or any of our Restricted Subsidiaries unless the terms of any
such agreement, contract, arrangement or
41
understanding are no less favorable to us or such Restricted
Subsidiary than those that might be obtained at the time from persons
who are not our affiliates;
- is a person with respect to which neither we nor any of our Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe
for additional Capital Stock or (b) to maintain or preserve such
person's financial condition or to cause such person to achieve any
specified levels of operating results;
- has not guaranteed or otherwise directly or indirectly provided credit
support for any of our Indebtedness or of any of our Restricted
Subsidiaries; and
- has at least one director on its board of directors that is not our
director or executive officer or a director or executive officer of
any of our Restricted Subsidiaries and has at least one executive
officer that is not our director or executive officer or a director or
executive officer of any of our Restricted Subsidiaries.
Any designation of one of our subsidiaries as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Limitation on Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such subsidiary will be deemed
to be incurred by our Restricted Subsidiary as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "Limitation on Indebtedness," we will be in default
of such covenant. Our board of directors may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that such
designation will be deemed to be an incurrence of Indebtedness by our Restricted
Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation will only be permitted if (1) such Indebtedness is permitted
under the covenant described under the caption "Limitation on Indebtedness,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no default or event of
default would be in existence following such designation.
MODIFICATION OF THE INDENTURE
The indenture provides that we or the trustee may modify or amend its terms
with the consent of (1) the holders of not less than a majority in aggregate
principal amount of the outstanding debt securities of each affected series and
(2) 66 2/3% in aggregate principal amount of the outstanding debt securities of
all affected series. However, without the consent of each holder of all of the
outstanding debt securities affected by a modification, we may not:
- change the date stated on the debt securities on which any payment of
principal or interest is stated to be due;
- reduce the principal amount or any premium or interest on, any debt
securities, including the amount payable upon acceleration of the
maturity thereof;
- change the place of payment or currency of payment of principal of, or
premium, if any, or interest on, any debt securities;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any debt securities after the stated maturity (or, in
the case of redemption, on or after the redemption date); or
- reduce the percentage in principal amount of outstanding debt securities
of any series, the consent of the holders of which is required for
modification or amendment of the indenture, for waiver of compliance with
some provisions of the indenture or for waiver of some defaults.
42
Under limited circumstances and only upon the fulfillment of conditions, we
and the trustee may make modifications and amendments of the indenture without
the consent of any holders of the debt securities.
The holders of not less than a majority in aggregate principal amount of
the outstanding notes may waive any past default under the indenture with
respect to the notes except:
- a default in the payment of principal of, or any premium or interest on,
any notes;
- in respect of a covenant or provision under the indenture which cannot be
modified or amended without the consent of the holder of each outstanding
note.
EVENTS OF DEFAULT
An event of default with respect to any of the notes is any one of the
following events:
- we fail to pay any interest (including additional interest on the
original notes) on any of the notes when due, and such failure has
continued for 30 days;
- we fail to pay principal of or premium, if any, on any of the notes when
due;
- we fail to comply with provisions described in the caption "-- Purchase
of Notes Upon Change in Control;"
- we or any of our subsidiaries fail to comply with the provisions
described under the captions "-- Certain Restrictive
Covenants -- Limitation on Restricted Payments" or "-- Certain
Restrictive Covenants -- Limitation on Indebtedness," and such failure
has continued for 30 days after we receive written notice as provided in
the indenture;
- we or any of our subsidiaries fail to perform any other covenant in the
indenture (other than a covenant included in the indenture solely for the
benefit of a series of debt securities other than the notes), and such
failure has continued for 90 days after we receive written notice as
provided in the indenture;
- a default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries (or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
- is caused by a failure to pay principal of, or interest or premium, if
any, on such Indebtedness at final maturity and the aggregate amount
of such Indebtedness exceeds $50,000,000; or
- results in the acceleration of Indebtedness aggregating $10,000,000
prior to its express maturity;
- we or any of our Restricted Subsidiaries fail to pay final judgments
aggregating in excess of $50,000,000, which judgments are not paid,
discharged or stayed for a period of 60 days;
- certain events of bankruptcy or insolvency described in the indenture
with respect to us or any of our Restricted Subsidiaries which are
Significant Subsidiaries or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary.
In the case of an event of default arising from certain events of
bankruptcy or insolvency, with respect to us, any Restricted Subsidiary that is
a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes will
become due and payable immediately without further action or notice. If any
other event of default occurs and is continuing, the trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare the
principal amount of all the notes to be immediately due and payable. Under some
43
circumstances, the holders of a majority in principal amount of the outstanding
notes may rescind and annul that declaration and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default occurs and is continuing, the trustee is not
obligated to exercise any of its rights or powers under the indenture at the
request or direction of any of the holders unless the holders have offered to
the trustee reasonable security or indemnity. Subject to such provisions for
security and indemnification of the trustee and other rights of the trustee, the
holders of a majority in principal amount of the outstanding notes have the
right to direct the time, method and place of conducting any proceedings for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee with respect to the notes.
The holder of a note will have an absolute and unconditional right to
receive payment of the principal of and any premium and, subject to limitations
specified in the indenture, interest on such note on its stated maturity date
(or, in the case of redemption, on the redemption date) and to institute suit
for the enforcement of any of these payments.
We must furnish to the trustee an annual statement that to the best of our
knowledge we are not in default in the performance and observance of any terms,
provisions or conditions of the indenture or, if there has been such a default,
specifying each default and its status.
SATISFACTION AND DISCHARGE OF THE INDENTURE
We will have satisfied and discharged the indenture and it will cease to be
in effect (except as to our obligations to compensate, reimburse and indemnify
the trustee pursuant to the indenture and some other obligations) when we
deposit or cause to be deposited with the trustee, in trust, an amount
sufficient to pay and discharge the entire indebtedness on the debt securities
issued under the indenture not previously delivered to the trustee for
cancellation, for the principal (and premium, if any) and interest to the date
of the deposit (or to the stated maturity date or earlier redemption date for
debt securities that have been called for redemption).
DEFEASANCE OF THE NOTES
We may cause ourselves (subject to the terms of the indenture) to be
discharged from any and all obligations with respect to the notes (except for
certain obligations to register the transfer or exchange of the notes, to
replace the notes if stolen, lost or mutilated, to maintain paying agencies and
to hold money for payment in trust) on and after the date the conditions set
forth in the indenture are satisfied. Such conditions include the deposit with
the trustee, in trust for such purpose, of money and/or U.S. government
obligations, which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of and any premium and interest on the notes on
the stated maturity date of such payments or upon redemption, as the case may
be, in accordance with the terms of the indenture and the notes.
Under current Federal income tax law, the defeasance of the notes would be
treated as a taxable exchange of the notes in which holders of the notes would
recognize gain or loss. In addition, thereafter, the amount, timing and
character of amounts that holders would be required to include in income might
be different from that which would be includable in the absence of such
defeasance. You are urged to consult your own tax advisor as to the specific
consequences of a defeasance, including the applicability and effect of tax laws
other than the federal income tax law.
THE TRUSTEE
The trustee is The Bank of New York, which maintains banking relationships
with us in the ordinary course of business and serves as trustee under other
indentures with us and some of our affiliates.
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GOVERNING LAW
The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York.
BOOK ENTRY; DELIVERY AND FORM
The exchange notes will be issued in the form of one or more securities in
global form. Each global security will be deposited on the date of the closing
of the exchange of the exchange notes with, or on behalf of DTC, and registered
in the name of Cede & Co., as DTC's nominee.
DTC is a limited-purpose trust company created to hold securities for its
participants and to facilitate the clearance and settlement of transactions in
those securities between those participants through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTC's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and 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 (referred to as 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.
We expect that under procedures established by DTC, (1) upon deposit of the
global securities, DTC will credit the accounts of participants designated by us
with portions of the principal amount of the global securities and (2) ownership
of such interests in the global securities will be shown on, and the transfer of
ownership thereof will be 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
securities).
Investors in the global securities may hold their interests directly
through DTC if they are participants in that system, or indirectly through
organizations which are participants in that system. All interests in a global
security may be subject to the procedures and requirements of DTC. The laws of
some states require that some persons take physical delivery in certificated
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a global security to those 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 some banks, the ability of a person
with beneficial interests in a global security to pledge that interest to
persons that do not participate in the DTC system, or to take other actions
regarding that interest, may be affected by the lack of a physical certificate
evidencing those interests.
Except as described below, owners of interests in the global securities
will not have notes registered in their name, will not receive physical delivery
of notes in certificated form and will not be considered the registered owners
or holders of notes for any purpose.
Payments on the global securities 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 notes, including the global securities, are
registered, as the owners for the purpose of receiving those payments and for
any and all other purposes.
Consequently, neither the trustee nor any agent of the trustee has or will
have any responsibility or liability for:
- 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 security 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 security, or
45
- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
DTC's current practice, upon receipt of any payment on securities such as
the notes, is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amounts 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 the payment date. Payments by the participants and the
indirect participants to the beneficial owners of the 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 us. Neither we nor the trustee will be liable for any
delay by DTC or any of its participants in identifying the beneficial owners of
the notes, and we and the trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
DTC will take any action permitted to be taken by a holder of the notes
only at the direction of one or more participants to whose account with DTC
interests in the global securities are credited and only in respect of such
portion of the notes as to which the participant or participants has or have
given such direction. However, if there is an event of default with respect to
the notes, DTC reserves the right to exchange the global securities for notes in
certificated form and to distribute the notes to its participants.
A global security is exchangeable for notes in registered certificated form
if:
- DTC notifies us that it is unwilling or unable to continue as clearing
agency for the global securities or has ceased to be a clearing agency
registered under the Securities Exchange Act of 1934 and we fail to
appoint a successor clearing agency,
- we in our sole discretion elect to cause the issuance of definitive
certificated notes, or
- there has occurred and is continuing an event of default under the
indenture.
Neither we nor the trustee will be liable for any delay by DTC or any
participant or indirect participant in DTC's system in identifying the
beneficial owners of the related notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from DTC for all
purposes (including with respect to the registration and delivery, and the
respective principal amounts, of the exchange notes to be issued).
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we have not
independently determined the accuracy thereof. We will not have any
responsibility for the performance by DTC or its participants of their
obligations under the rules and procedures governing their operations.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the exchange of original notes for exchange notes and of the
ownership and disposition of the exchange notes. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and final, temporary and proposed
regulations, all of which are subject to change. Any such change could be
applied retroactively in a way that could cause the tax consequences to differ
from the consequences described below, possibly with adverse effect.
This summary applies only to persons who hold the original notes and the
exchange notes as capital assets within the meaning of Section 1221 of the Code
(that is, for investment purposes). This summary does not discuss all aspects of
United States federal income taxation that may be relevant to holders in light
of their special circumstances or that may be relevant to holders subject to
special tax rules (such as banks, thrifts, and other financial institutions,
insurance companies, tax-exempt organizations, regulated investment companies,
real estate investment trusts or real estate mortgage investment conduits,
financial asset securitization investment trusts, dealers in securities or
currencies, persons who hold the notes
46
through a partnership or other pass-through entity, persons subject to
alternative minimum tax, persons holding the notes as a part of a hedge,
straddle, conversion, constructive sale or other integrated transaction, persons
whose functional currency is not the U.S. dollar, or persons who have ceased to
be U.S. citizens or to be taxed as resident aliens). This summary also does not
discuss any tax consequences arising under the United States federal estate and
gift tax laws or the law of any state, local, foreign or other taxing
jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR SITUATION, OF THE
EXCHANGE OF THE ORIGINAL NOTES FOR THE EXCHANGE NOTES AND THE OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES, AS WELL AS ANY CONSEQUENCES ARISING UNDER
UNITED STATES FEDERAL ESTATE AND GIFT TAX LAWS AND THE LAWS OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAXING JURISDICTION.
As used this summary, the term "U.S. holder" means a beneficial owner of a
note that is for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation (including an entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the laws of
the United States or of any political subdivision thereof;
- an estate, the income of which is subject to United States federal income
tax regardless of its source; or
- a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust or if a valid election is in place to treat the trust as a
United States person.
As used in this summary, the term "non-U.S. holder" means a beneficial
owner of a note that is not a U.S. holder.
TAX CONSEQUENCES TO U.S. HOLDERS
EXCHANGE OFFER
The exchange of the original notes for the exchange notes in connection
with the exchange offer will not be a taxable sale or exchange for U.S. federal
income tax purposes. Accordingly,
- holders will not recognize taxable gain or loss as a result of the
exchange;
- the adjusted tax basis of an exchange note immediately after the exchange
will be the same as the adjusted tax basis of the original note exchanged
therefor immediately before the exchange; and
- the holding period of the exchange note will include the holding period
of the original note.
Further, any original issue discount, market discount or bond premium (as
discussed below) applicable to the original notes will carry over to the
exchange notes.
STATED INTEREST PAYMENTS ON THE EXCHANGE NOTES
Stated interest payments on the exchange notes will generally be taxable as
ordinary interest income at the time the interest accrues or is received in
accordance with a holder's regular method of accounting for federal income tax
purposes.
ORIGINAL ISSUE DISCOUNT
The original notes were issued with original issue discount in an amount
equal to the excess of the par value of the original notes over their issue
price. As a result, each exchange note also will be treated as
47
having been issued with original issue discount in an amount equal to the excess
of the par value of the exchange note over its issue price. The issue price of
an exchange note will equal the first offering price to the public at which a
substantial amount of the original notes were sold. A holder of an exchange note
generally must include the original issue discount on the exchange note in
income as ordinary interest as it accrues under a constant yield method in
advance of the receipt of the cash payments attributable to such income,
regardless of the holder's regular method of accounting.
In general, the amount of original issue discount included in income by a
holder of an exchange note will be the sum of the daily portions of original
issue discount with respect to the exchange note for each day during the taxable
year (or portion of the taxable year) on which the holder held the exchange note
and the original note exchanged therefor. The daily portion of original issue
discount on any exchange note is determined by allocating to each day in any
accrual period a ratable portion of the original issue discount allocable to
that accrual period.
An accrual period may be of any length and the accrual periods may vary in
length over the term of the exchange notes, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs either on the final day of an accrual period or on the first day of an
accrual period.
The amount of original issue discount allocable to each accrual period is
generally equal to the difference between:
- the product of (x) the exchange notes' adjusted issue price at the
beginning of such accrual period and (y) the yield of the exchange notes
(appropriately adjusted to take into account the length of the particular
accrual period), and
- the amount of any qualified stated interest payments allocable to such
accrual period.
The adjusted issue price of an exchange note at the beginning of any
accrual period is the sum of the issue price of the note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the note that were not qualified stated interest
payments.
Under these rules, holders generally will have to include in income
increasingly greater amounts of original issue discount in successive accrual
periods.
If a holder acquires an exchange note (or purchased an original note which
such holder exchanges for an exchange note) after original issuance for an
amount that is less than or equal to the note's par value but greater than its
adjusted issue price, the holder will be considered to have acquired such note
at an "acquisition premium" equal in amount to the excess of the note's cost
over its adjusted issue price. Under the acquisition premium rules, the amount
of original issue discount which such holder must include in income in each
period with respect to the note will be reduced (but not below zero) by the
portion of the acquisition premium allocated to the period.
MARKET DISCOUNT
If a holder acquires an exchange note (or purchased an original note which
such holder exchanges for an exchange note) for an amount that is less than its
adjusted issue price, the difference will be treated as "market discount"
(unless such difference is less than a statutorily defined de minimis amount),
and the exchange note will be subject to the market discount rules. The holder
of an exchange note that is subject to the market discount rules will be
required to treat any full or partial principal payment or any gain recognized
on the maturity, sale or other disposition of the note as ordinary income, to
the extent that such gain does not exceed the accrued market discount on the
note. The amount of market discount treated as having accrued will be determined
either:
- on a straight-line basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the note was held
by the holder and the denominator of which is the total
48
number of days after the date such holder acquired the note up to (and
including) the note's maturity date, or
- if the holder so elects, on a constant interest rate method.
The holder of an exchange note subject to the market discount rules may
elect to include market discount in income currently, through the use of either
the straight-line inclusion method or the elective constant interest method, in
lieu of recharacterizing gain upon disposition as ordinary income to the extent
of accrued market discount at the time of disposition. Once made, this election
will apply to all debt instruments with market discount acquired by the electing
holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service (IRS). If an election is made to include market discount on a debt
instrument in income currently, the basis of the debt instrument in the hands of
the holder will be increased by the market discount thereon as it is included in
income.
A holder who does not elect to include the market discount on an exchange
note in income currently may be required to defer interest expense deductions
for a portion of the interest paid on indebtedness incurred or continued to
purchase or carry such note, until the maturity of the note, its earlier
disposition in a taxable transaction or, if the holder so elects, a subsequent
taxable year in which sufficient income exists with respect to the exchange
note.
AMORTIZABLE BOND PREMIUM
If a holder purchases an exchange note (or purchased an original note which
such holder exchanges for an exchange note) for an amount in excess of its par
value, such holder will not be required to include in income any original issue
discount with respect to the note. In addition, such holder may elect to treat
the excess as "amortizable bond premium," in which case the amount required to
be included in the holder's income each year with respect to stated interest on
such note will be reduced by the amount of amortizable bond premium allocable
(based on the yield to maturity of the note) to such year. Any election to
amortize bond premium will apply to all debt instruments (other than debt
instruments the interest on which is excludable from gross income) held or
subsequently acquired by the holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS.
SALE, EXCHANGE OR RETIREMENT OF EXCHANGE NOTES
A holder of an exchange note will recognize gain or loss upon the sale,
redemption, retirement or other disposition of the note equal to the difference
between:
- the amount of cash and the fair market value of any property received
(except to the extent attributable to accrued interest) and
- the holder's adjusted tax basis in the note.
A holder's adjusted tax basis in an exchange note generally will equal such
holder's initial investment in the original note or the exchange note, increased
by the amount of original issue discount and any accrued market discount
previously included in income and decreased by the amount of any payments, other
than qualified stated interest payments, received with respect to such note and
any amortized bond premium. If a holder disposes of an exchange note between
interest payment dates, a portion of the amount received represents interest
accrued to the date of disposition and must be reported as ordinary interest
income, and not as proceeds from the disposition, in accordance with the
holder's regular method of accounting for federal income tax purposes. Subject
to the market discount rules discussed above, any gain or loss recognized by a
holder on the disposition of an exchange note generally will be capital gain or
loss and will be long-term capital gain or loss if the holder's holding period
is more than one year. Under current law, holders who are individuals generally
are taxed on long-term capital gains at a maximum marginal rate of 20%;
corporate holders are taxed on long-term capital gains at a maximum marginal
rate of 35%. The deductibility of capital losses is subject to limitations.
49
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion applies only to non-U.S. holders. This discussion
does not address all aspects of United States federal income taxation that may
be relevant to such non-U.S. holders in light of their special circumstances.
For example, special rules may apply to a non-U.S. holder that is a "controlled
foreign corporation," "passive foreign investment company" or "foreign personal
holding company," and such holders should consult their own tax advisors to
determine the United States federal, state, local and other tax consequences
that may be relevant to them.
EXCHANGE OFFER
The exchange of the original notes for the exchange notes in the exchange
offer will not be a taxable sale or exchange for U.S. federal income tax
purposes.
INTEREST PAYMENTS ON THE EXCHANGE NOTES
Subject to the discussion below concerning effectively connected income and
backup withholding, the 30% United States federal withholding tax should not
apply to any payment of interest (including original issue discount) on the
exchange notes provided that:
- the holder does not own actually or constructively 10% or more of the
total combined voting power of TECO Energy;
- the holder is not a controlled foreign corporation related to TECO Energy
through actual or constructive stock ownership;
- the holder is not a bank whose receipt of interest on the exchange notes
is described in Section 881(c)(3)(A) of the Internal Revenue Code; and
- either
- the holder provides the holder's name and address on an IRS Form
W-8BEN (or other applicable form), and certifies, under penalty of
perjury that the holder is not a United States person, or
- a financial institution holding the notes on the holder's behalf
certifies, under penalty of perjury, that it has received an IRS Form
W-8BEN (or other applicable form) from the beneficial owner and
provides a copy or, in the case of certain foreign intermediaries,
satisfies other certification requirements under the applicable U.S.
Treasury regulations.
Special certification requirements apply to certain non-U.S. holders that are
entities rather than individuals.
If a holder cannot satisfy the requirements described above, payments of
interest (including original issue discount) made to the holder will be subject
to the 30% United States federal withholding tax, unless the holder qualifies
for a reduced rate of withholding under a tax treaty or the payments are exempt
from withholding because they are effectively connected with the holder's
conduct of a trade or business in the United States (or, where a tax treaty
applies, are attributable to a United States permanent establishment maintained
by the holder) and the holder satisfies the applicable certification and
disclosure requirements. In order to claim a reduction in or exemption from the
30% withholding tax under an applicable tax treaty, a holder must provide a
properly executed IRS Form W-8BEN (or a suitable substitute form). A holder must
provide an IRS Form W-8ECI (or a suitable substitute form) in order to claim
that the interest payments are exempt from the withholding tax because they are
effectively connected with the holder's conduct of a trade or business in the
United States.
A non-U.S. holder eligible for a reduced rate of United States withholding
tax pursuant to an income tax treaty may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the IRS.
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SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES
Subject to the discussion below concerning effectively connected income and
backup withholding, a holder will not be subject to U.S. federal income tax on
any gain (including gain attributable to market discount) realized on the sale,
exchange or retirement of an exchange note unless the holder is an individual
who is present in the U.S. for at least 183 days during the year of disposition
of the exchange note and other conditions are satisfied.
EFFECTIVELY CONNECTED INCOME
If a holder is engaged in a trade or business in the United States and the
holder's investment in an exchange note is effectively connected with such trade
or business, the holder will be exempt from the 30% withholding tax on interest
(provided a certification requirement, generally on IRS Form W-8ECI, is met) and
will instead generally be subject to regular U.S. federal income tax on a net
income basis on any interest and gain with respect to the exchange notes in the
same manner as if the holder were a U.S. Holder. In addition, if the holder is a
foreign corporation, the holder may be subject to a branch profits tax of 30%
(or the lower rate provided by an applicable income tax treaty) of the holder's
earnings and profits for the taxable year that are effectively connected with
the holder's conduct of a trade or business in the United States. If the holder
is eligible for the benefits of a tax treaty, any effectively connected income
or gain will generally be subject to U.S. federal income tax only if it is also
attributable to a permanent establishment maintained by the holder in the United
States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Interest on, and proceeds received from the sale of, an exchange note
generally will be reported to U.S. holders, other than certain exempt
recipients, such as corporations, on Internal Revenue Service Form 1099. In
addition, a backup withholding tax may apply to those amounts if the U.S. holder
fails to furnish the payor with a correct taxpayer identification number or
other required certification or fails to report interest or dividends required
to be shown on the holder's federal income tax returns.
In general, a non-U.S. holder will not be subject to backup withholding
with respect to interest payments on the exchange notes if such holder has
provided the statement described above under "-- United States Federal Income
Tax Consequences to Non-U.S. Holders -- Interest Payments on the Exchange Notes"
and the payor does not have actual knowledge or reason to know that such holder
is a U.S. person. In addition, a non-U.S. holder will not be subject to backup
withholding with respect to the proceeds of the sale of an exchange note made
within the United States or conducted through certain United States financial
intermediaries if the payor receives the statement described above and does not
have actual knowledge or reason to know that such holder is a United States
person or such holder otherwise establishes an exemption. Non-U.S. holders
should consult their tax advisors regarding the application of information
reporting and backup withholding in their particular situations, the
availability of exemptions and the procedure for obtaining such exemptions, if
available.
Backup withholding is not an additional tax, and amounts withheld as backup
withholding will be allowed as a refund or credit against a holder's federal
income tax liability, provided that the required information is furnished to the
IRS.
ORIGINAL NOTES REGISTRATION RIGHTS
We and Credit Suisse First Boston Corporation, the initial purchaser,
entered into a registration rights agreement prior to the issuance of the
original notes. The following description of the registration rights agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the registration rights agreement, a
copy of which has been filed as an exhibit to our current report on Form 8-K
filed with the SEC on November 20, 2002. See "WHERE YOU CAN FIND MORE
INFORMATION."
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EXCHANGE OFFER REGISTRATION STATEMENT
Pursuant to the registration rights agreement, we agreed to file and cause
to become effective the registration statement of which this prospectus is a
part to effect an exchange of the original notes for the exchange notes.
We also agreed to make available for a period of up to 180 days after the
completion of this exchange offer a prospectus to any broker-dealer for use in
connection with any resale of any such exchange notes. The 180-day period may be
suspended (to be offset by a commensurate extension) in the event of a possible
acquisition, business combination or other transaction involving us or if it
becomes necessary for us to amend or supplement such prospectus. If we suspend
use of the prospectus, we may require broker-dealers to discontinue the sale or
other disposition of the exchange notes for a period of not more than 20 days in
any 12-month period. We have also agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel to the holders of the
original notes) and to indemnify certain holders of the exchange notes
(including any broker-dealer) against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. A broker-dealer that delivers such
a prospectus to purchasers in connection with such resales may be subject to
certain of the civil liability provisions under the Securities Act of 1933 and
will be bound by the provisions of the registration rights agreement (including
certain indemnification rights and obligations).
RESALE SHELF REGISTRATION STATEMENT
We also agreed to file with the SEC a shelf registration statement to cover
resales of Transfer Restricted Securities if:
- because of any change in law or applicable interpretations of such law by
the staff of the SEC, we are not permitted to effect this exchange offer;
- this exchange offer is not completed by April 29, 2003;
- the initial purchaser requests that we file such a registration statement
covering original notes not eligible to be exchanged for exchange notes
in this exchange offer;
- any holder of original notes that is not eligible to participate in the
exchange offer requests that we file such a registration statement; or
- any holder of original notes (other than a broker-dealer exchanging
original notes acquired for its own account as a result of market-making
activities or other trading activities) that participates in the exchange
offer does not receive freely transferable exchange notes in exchange for
tendered original notes requests that we file such a registration
statement.
Each of the five bullets above is referred to in this prospectus as a
"Trigger Date."
"Transfer Restricted Security" means each original note until:
- the date on which such original note has been exchanged by a person other
than a broker-dealer for a freely transferable exchange note in this
exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an
original note for an exchange note, the date on which such exchange note
is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in this
exchange offer registration statement;
- the date on which such original note has been effectively registered
under the Securities Act of 1933 and disposed of in accordance with the
shelf registration statement; or
- the date on which such original note is distributed to the public
pursuant to Rule 144 under the Securities Act of 1933 or is saleable
pursuant to Rule 144(k) under the Securities Act.
52
If we file a shelf registration statement, we will use our reasonable best
efforts to keep the shelf registration statement effective until the earlier of:
- two years (or for such longer period if extended as provided below) from
the date of its effectiveness;
- the date on which all the notes covered by that registration statement
have been sold under that registration statement; or
- the date on which all the notes covered by the registration statement are
no longer restricted securities as defined in Rule 144A under the
Securities Act of 1933.
Holders of original notes will be required to deliver information to be
used in connection with the shelf registration statement in order to have their
notes included in the shelf registration statement. A holder who sells notes
pursuant to the shelf registration statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act of 1933 in connection with such sales and
will be bound by the provisions of the registration rights agreement which are
applicable to such a holder (including certain indemnification obligations).
NOTICE OF CERTAIN EVENTS
We have agreed to notify the initial purchaser, the holders of the original
notes and any known participating broker-dealer of:
- any request from the SEC for amendments or supplements to the
registration statement or the related prospectus or for additional
information;
- the SEC's issuance of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceeding for that
purpose;
- any notice of suspension of the qualification of the notes for sale in
any jurisdiction or the initiation or threatening of any proceeding for
that purpose; and
- any event that requires us to make changes to the registration statement
or the prospectus in order that the registration statement or the
prospectus do not contain an untrue statement of a material fact nor omit
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the prospectus, in the light
of the circumstances under which they were made) not misleading.
Upon such notification, the initial purchaser, the holders of the original
notes and any known participating broker-dealer agree to suspend use of such
prospectus and discontinue disposition of such notes until receipt of copies of
the supplemental or amended prospectus or until advised in writing by us that
use of the applicable prospectus may be resumed, and the period of effectiveness
of the registration statement above shall be extended by the number of days
from, and including, the date of giving such notice to, and including, the date
when the initial purchaser, the holders of the original notes and any known
participating broker-dealer have received such amended or supplemented
prospectus or our authorization to resume use of the applicable prospectus. The
period of effectiveness including any such extension shall not exceed the
holding period applicable under Rule 144(k) of the Securities Act.
ADDITIONAL INTEREST
We will pay additional interest over and above the stated interest rate of
the notes from and including the date on which any "registration default" occurs
to, but excluding, the date on which all registration defaults have been cured,
to each holder of Transfer Restricted Securities at a rate of 0.50% per year for
the first 90-day period immediately following the occurrence of the registration
default. The additional interest rate will increase by an additional 0.50% per
year for each subsequent 90-day period until all registration defaults have been
cured, up to a maximum additional interest rate of 2.0% per year. Any
53
amounts of additional interest will be paid to holders of Transfer Restricted
Securities in the same manner as interest payments on the notes on semi-annual
payment dates which correspond to interest payment dates for the notes.
For the purposes of this section, a "registration default" will be deemed
to occur if:
- this exchange offer is not consummated on or prior to April 29, 2003;
- we are required to file a shelf registration statement and we have not
filed that registration statement with the SEC on or prior to 60 days
after the applicable Trigger Date;
- the shelf registration statement we filed is not declared effective on or
prior to 120 days after the applicable Trigger Date;
- the exchange registration statement or shelf registration statement, as
the case may be, we filed was declared effective but has since ceased to
be effective; or
- the exchange registration statement or shelf registration statement, as
the case may be, or any related prospectus ceases to be usable in
connection with resales of Transfer Restricted Securities because either
(1) an event has occurred as a result of which the related prospectus
would include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading or (2) it is
necessary to amend such registration statement or supplement the related
prospectus to comply with the Securities Act of 1933.
A registration default described in the fourth and fifth bullets above will
be deemed not to have occurred and be continuing in relation to a shelf
registration statement or the related prospectus if such registration default
has occurred solely because:
- we have filed a post-effective amendment to that shelf registration
statement to incorporate annual audited financial information with
respect to us where such post-effective amendment is not yet effective
and needs to be declared effective to permit holders to use the related
prospectus, or
- other material events with respect to us have occurred that need to be
described in that shelf registration statement or the related prospectus
and, either, we are proceeding promptly and in good faith to amend or
supplement that shelf registration statement and the related prospectus
to describe such events or we have delayed filing and distributing any
such amendment or supplement if there is a possible acquisition or
business combination or other transaction involving us that would require
disclosure in the shelf registration statement or the related prospectus,
and we determine in the exercise of our reasonable judgment that such
disclosure is not in our best interests or the best interests of our
stockholders at such time.
We will not be entitled to delay filing or distributing any such supplement
or amendment for more than 20 days (whether or not consecutive) in any period of
12 consecutive months. If any registration default occurs for a continuous
period in excess of 30 days, we will pay additional interest from the day such
registration default occurs until such registration default is cured.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Division of Corporation
Finance of the SEC set forth in no-action letters issued to third parties, we
believe that the exchange notes issued pursuant to this exchange offer in
exchange for original notes generally may be offered for resale, resold or
otherwise transferred by holders without compliance with the registration and
prospectus delivery provisions of the Securities Act of 1933 if the exchange
notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in a distribution of
such exchange notes. We did not, and do not intend to, request an interpretation
from the SEC with respect to resales of the exchange notes, and we cannot be
sure that the staff of the Division of Corporation Finance of the SEC would make
a similar determination with respect to the resale of the exchange notes as it
did in
54
those interpretative letters to third-parties. Broker-dealers receiving exchange
notes in the exchange offer will be subject to a prospectus delivery requirement
with respect to resales of such exchange notes.
Any holder that is an "affiliate" of ours or a broker-dealer that acquired
original notes directly from us or that otherwise cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in order to resell the original notes and
will not be permitted or entitled to exchange original notes in the exchange
offer.
Based on the position taken by the staff of the Division of Corporation
Finance of the SEC in the no-action letters referred to above, we believe that
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 original sale of the original notes) with a
prospectus meeting the requirements of the Securities Act of 1933, 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 broker-dealer in connection
with resales of exchange notes received in exchange for original notes where
those original notes were acquired as a result of market-making activities or
other trading activities. However, a broker-dealer who intends to use this
prospectus in connection with the resale of exchange notes received in exchange
for original notes pursuant to this exchange offer, must notify us or cause us
to be notified, on or prior to the expiration of this exchange offer, that it is
a broker-dealer. Such notice may be given in the space provided for in the
letter of transmittal or may be delivered to the exchange agent. Further, 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. We have agreed that, for a period of 180
days after the exchange offer has been completed, we will make this prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale. The 180-day period may be suspended (to be offset by a
commensurate extension) in the event of a possible acquisition, business
combination or other transaction involving us or if it becomes necessary for us
to amend or supplement such prospectus. If we suspend use of the prospectus, we
may require broker-dealers to discontinue the sale or other disposition of the
exchange notes for a period of not more than 20 days in any 12-month period.
We 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 broker-dealer 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 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 on 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.
The initial purchaser and its respective affiliates perform various
commercial banking and investment banking services for us on a regular basis.
LEGAL OPINIONS
The validity of the exchange notes offered hereby will be passed upon for
us by Palmer & Dodge LLP, Boston, Massachusetts. In rendering its opinion,
Palmer & Dodge LLP will rely on the opinion of Ropes & Gray with respect to
matters of New York law.
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EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to our Current Report on Form 8-K filed December 19, 2002 and the
financial statement schedule incorporated by reference to our Annual Report on
Form 10-K for the year ended December 31, 2001 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any of these documents at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our SEC filings are also available on the SEC's website at
http://www.sec.gov. Copies of certain information filed by us with the SEC are
also available on our website at http://www.tecoenergy.com. Our website is not
part of this prospectus.
We have filed a registration statement on Form S-4 with the SEC relating to
the exchange notes to be issued in the exchange offer. For further information
on us, the notes and the exchange offer, you should refer to the registration
statement and its exhibits. This prospectus discusses material provisions of our
indenture dated August 17, 1998 entered into with The Bank of New York, as
trustee. Because the prospectus may not contain all the information that you may
find important, you should review the full text of the indenture and other
documents we have incorporated by reference into the registration statement.
The SEC allows us to "incorporate by reference" information that we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
- our Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 2002, June 30, 2002 and September 30, 2002; and
- our Current Reports on Form 8-K filed December 20, 2002, December 19,
2002, December 18, 2002, November 21, 2002, November 20, 2002, November
15, 2002, November 12, 2002, November 5, 2002, October 11, 2002, October
8, 2002, September 25, 2002, August 14, 2002, June 10, 2002, June 5,
2002, May 31, 2002, May 20, 2002 May 10, 2002, April 22, 2002, January
24, 2002, January 15, 2002, January 11, 2002 and January 9, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Director of Investor Relations
TECO Energy, Inc.
702 North Franklin Street
Tampa, Florida 33602
(813) 228-4111
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST INFORMATION NO LATER
THAN JANUARY 30, 2003.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any supplement is accurate as of any
date other than the date on the front of these documents.
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