Prudential 2002 Annual Report Download - page 122
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Please find page 122 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
12. SHORT-TERM AND LONG-TERM DEBT (continued)
Prudential Financial is a holding company and is a legal entity separate and distinct from its subsidiaries. The
rights of Prudential Financial to participate in any distribution of assets of any subsidiary, including upon its
liquidation or reorganization, are subject to the prior claims of creditors of that subsidiary, except to the extent
that Prudential Financial may itself be a creditor of that subsidiary and its claims are recognized. PHLLC and its
subsidiaries have entered into covenants and arrangements with third parties in connection with the issuance of
the IHC debt which are intended to confirm their separate, “bankruptcy-remote” status, by assuring that the assets
of PHLLC and its subsidiaries are not available to creditors of Prudential Financial or its other subsidiaries,
except and to the extent that Prudential Financial and its other subsidiaries are, as shareholders or creditors of
PHLLC and its subsidiaries, or would be, entitled to those assets.
At December 31, 2002, the Company was in compliance with all IHC debt covenants.
13. EQUITY SECURITY UNITS
On the date of demutualization, Prudential Financial issued 13,800,000 6.75% equity security units (the
“Units”) to the public at an offering price of $50 per Unit for gross proceeds of $690 million. The Units are traded
on the New York Stock Exchange under the symbol “PFA.” Each Unit has a stated amount of $50 and initially
consists of (1) a contract requiring the holder to purchase (the “purchase contract”), for $50, shares of Common
Stock of Prudential Financial on November 15, 2004 (the “settlement date”), and (2) a redeemable capital security
of Prudential Financial Capital Trust I (the “Trust”), a statutory business trust created under Delaware law, with a
stated liquidation amount of $50. The redeemable capital securities are initially pledged to secure the obligations
of the Unit holders to purchase Common Stock under the purchase contracts. The number of shares of Common
Stock that will be received upon settlement of the purchase contracts (the “settlement rate”) will be based upon
the “applicable market value” of the Common Stock. The “applicable market value” means the average of the
closing price per share of Common Stock on each of the twenty consecutive trading days ending on the third
trading day preceding the settlement date. If the “applicable market value” of the Common Stock is equal to or
greater than $34.10, then the settlement rate will be 1.47 shares of Common Stock per purchase contract. If the
“applicable market value” of the Common Stock is less than or equal to $27.50, then the settlement rate will be
1.82 shares of Common Stock per purchase contract. If the “applicable market value” of the Common Stock is
greater than $27.50 but less than $34.10, the settlement rate will be equal to $50 divided by the “applicable
market value” of Common Stock per purchase contract.
At the time of issuance of the Units by Prudential Financial, the Trust also issued 426,805 shares of common
securities to Prudential Financial at a price of $50 per common security for gross proceeds of $21 million. The
combined proceeds to the Trust from the issuances of the redeemable capital securities and the common securities
(collectively, the “Trust securities”), or $711 million, were invested by the Trust in $711 million aggregate
principal amount 5.34% debentures of Prudential Financial maturing on November 15, 2006. The interest rate
payable on the debentures will be reset to, and at the time of, any reset to the distribution rate on the redeemable
capital securities as noted below. Prudential Financial may defer interest payments on the debentures; however,
the payments cannot be deferred beyond the maturity date of the debentures of November 15, 2006. Upon
repayment of the debentures by Prudential Financial to the Trust on their maturity date, the Trust will use the cash
proceeds, after satisfaction of any liabilities to creditors of the Trust, to repay the redeemable capital securities at
their aggregate stated liquidation amount plus any accrued and unpaid distributions. The Trust may not redeem
the redeemable capital securities at any other time, for any reason or under any other circumstances. The
debentures represent the sole assets of the Trust and the redeemable capital securities and common securities
represent an undivided beneficial ownership interest in the assets of the Trust. The redeemable capital securities
rank equally with the common securities except that, in the event of default by Prudential Financial on the
debentures, the redeemable capital securities become senior to the common securities. The debentures are
unsecured obligations of Prudential Financial and rank equally in right of payment to all other senior unsecured
debt of Prudential Financial. Prudential Financial is dependent on dividends and other distributions from its
subsidiaries in order to make the principal and interest payments on the debentures.
Prudential Financial 2002 Annual Report 121