Prudential 2003 Annual Report Download - page 138

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
11. EQUITY SECURITY UNITS (continued)
Common Stock, defined as 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, 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 of 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.
Holders of the purchase contracts receive, from Prudential Financial, quarterly contract fee payments at an annual
rate of 1.41% of the stated amount of $50 per purchase contract through and including the settlement date. Prudential
Financial has the option to defer contract fee payments on the purchase contracts; however, the payments cannot be
deferred beyond the settlement date. Holders of the redeemable capital securities receive, from the Trust, quarterly
cumulative cash distributions at an annual rate of 5.34% of the stated liquidation amount of $50 per redeemable capital
security through and including August 15, 2004. The quarterly distribution rate on the redeemable capital securities
may be reset, in conjunction with a planned remarketing of the redeemable capital securities on August 15, 2004,
effective for distributions and interest accrued from August 16, 2004 to November 15, 2006. If Prudential Financial
defers interest payments on the debentures as noted above, the Trust will also defer distributions on the Trust securities.
During any period in which payments are deferred on the purchase contracts or on the debentures and Trust securities,
Prudential Financial cannot declare or pay any dividends or distributions on its capital stock, other than the Class B
stock, or make certain other payments relating to the capital stock, other than the Class B Stock, and debt of the
Company that is equal to or junior to the debentures. As of December 31, 2003, no payments have been deferred.
Prudential Financial has irrevocably guaranteed, on a senior and unsecured basis, distributions on and the stated
liquidation amount of the redeemable capital securities to the extent of available Trust funds. The guarantee is
unsecured and ranks equally in right of payment to all other senior unsecured debt of Prudential Financial. Prudential
Financial currently has no outstanding secured or other debt that would rank senior to this guarantee; however,
Prudential Financial’s guarantee is effectively junior to the debt and other liabilities of its subsidiaries. The guarantee,
when taken together with Prudential Financial’s obligations under the debentures and its obligations to the Trust, have
the effect of providing a full and unconditional guarantee of amounts due on the redeemable capital securities.
Growing and Protecting Your Wealth136