FILED PURSUANT TO RULE 424B2
REGISTRATION NO. 333-20069 AND 333-20069-02
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 27, 1997
$100,000,000
HL&P CAPITAL TRUST II
8.257% CAPITAL SECURITIES, SERIES B
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
HOUSTON LIGHTING & POWER COMPANY
---------------
The 8.257% Capital Securities, Series B (the "Series B Capital Securities"),
offered hereby represent undivided beneficial interests in the assets of HL&P
Capital Trust II, a statutory business trust created under the laws of the
State of Delaware (the "Series B Issuer"). Houston Lighting & Power Company, a
Texas corporation ("HL&P" or the "Corporation"), will be the owner of all the
undivided beneficial interests in the assets of the Series B Issuer
represented by common securities of the Series B Issuer ("Series B Common
Securities" and, collectively with the Series B Capital Securities, the
"Series B Securities"). The Bank of New York is the Property Trustee of the
Series B Issuer. The Series B Issuer exists for the sole purpose of issuing
the Series B Securities and investing the proceeds thereof in 8.257% Junior
Subordinated Deferrable Interest Debentures, Series B (the "Series B
Subordinated Debentures"), to be issued by the Corporation. The Series B
Subordinated Debentures will mature on February 1, 2037 (the "Stated
Maturity"). Under certain conditions, the Company has the right to advance the
Stated Maturity. See "Certain Terms of Series B Subordinated Debentures--
Conditional Right to Advance Maturity". The Series B Capital Securities will
have a preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation or redemption over the Series
B Common Securities. See "Description of Securities--Subordination of Common
Securities" in the accompanying Prospectus.
(Continued on next page)
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE SERIES B CAPITAL SECURITIES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING THE SERIES B
OFFERING PRICE COMMISSION(1) ISSUER(2)(3)
-------------- ------------- ------------
Per Series B Capital Security........ $1,000 (2) $1,000
Total................................ $100,000,000 (2) $100,000,000
- -------
(1) The Series B Issuer and the Corporation have each agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the Series B Capital
Securities will be invested in the Series B Subordinated Debentures, the
Corporation has agreed to pay to the Underwriters as compensation for
their arranging the investment therein of such proceeds $10.00 per Series
B Capital Security (or $1,000,000 in the aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by the Corporation, are
estimated to be $140,000.
---------------
The Series B Capital Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that the Series B Capital Securities will be ready for delivery in
book-entry form only through the facilities of The Depository Trust Company in
New York, New York, on or about February 4,1997, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
---------------
The date of this Prospectus Supplement is January 30, 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES B
CAPITAL SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
(cover page continued)
Holders of the Series B Capital Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of original
issuance and payable semi-annually in arrears on the first day of February and
August of each year, commencing August 1, 1997, at the annual rate of 8.257%
of the Liquidation Amount (as defined in the accompanying Prospectus) of
$1,000 per Series B Capital Security ("Distributions"). The ability of the
Series B Issuer to make timely payments of Distributions on the Series B
Capital Securities is solely dependent upon the Corporation making interest
payments on the Series B Subordinated Debentures as and when required. Subject
to certain exceptions, as described herein, the Corporation has the right to
defer payment of interest on the Series B Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each deferral period (each, an "Extension Period");
provided that no Extension Period may extend beyond the Stated Maturity of the
Series B Subordinated Debentures. If interest payments on the Series B
Subordinated Debentures are so deferred, Distributions on the Series B Capital
Securities will also be deferred, and the Corporation will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to the Corporation's capital stock or debt
securities that rank pari passu in all respects with or junior to the Series B
Subordinated Debentures. During an Extension Period, interest on the Series B
Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Series B Capital Securities are entitled
will accumulate) at the rate of 8.257% per annum, compounded semi-annually
from the relevant payment date for such interest, and holders of Series B
Capital Securities will be required to accrue interest income for United
States federal income tax purposes. Upon the termination of any such Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the annual rate of 8.257%, compounded semi-annually, to
the extent permitted by applicable law), the Corporation may elect to begin a
new Extension Period subject to the requirements set forth herein. See
"Certain Terms of Series B Subordinated Debentures--Option to Defer Interest
Payments" and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount".
The Series B Subordinated Debentures (and therefore the Series B Capital
Securities) are unsecured and subordinated to all existing and future Senior
Debt (as defined in the accompanying Prospectus) of the Corporation.
Substantially all of the Corporation's existing indebtedness constitutes
Senior Debt. At September 30, 1996, the Senior Debt of the Corporation
aggregated approximately $3.0 billion. If the Transaction (as defined in the
accompanying Prospectus) is consummated using the Alternative Merger (as
defined in the accompanying Prospectus), Senior Debt of the Corporation will
be substantially increased. See "Recent Developments; NorAm Merger" in the
accompanying Prospectus. None of the Indenture, the Series B Guarantee, the
Trust Agreement or the Expense Agreement places any limitation on the amount
of secured or unsecured debt, including Senior Debt, that may be incurred by
the Corporation. See "Description of Junior Subordinated Debentures--
Subordination" in the accompanying Prospectus.
The Corporation has, through the Series B Guarantee, the Trust Agreement,
the Series B Subordinated Debentures, the Indenture and the Expense Agreement
(each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of the Series B Issuer's obligations
S-2
under the Series B Capital Securities. See "Relationship Among the Securities,
the Corresponding Junior Subordinated Debentures, the Expense Agreement and
the Guarantees--Full and Unconditional Guarantee" in the accompanying
Prospectus. The Series B Guarantee of the Corporation (the "Series B
Guarantee") guarantees the payment of Distributions and payments on
liquidation of the Series B Issuer or redemption of the Series B Capital
Securities, but only in each case to the extent of funds held by the Series B
Issuer, as described herein. See "Description of Guarantees" in the
accompanying Prospectus. If the Corporation does not make interest payments on
the Series B Subordinated Debentures held by the Series B Issuer, the Series B
Issuer will have insufficient funds to pay Distributions on the Series B
Capital Securities. The Series B Guarantee does not cover payment of
Distributions when the Series B Issuer has insufficient funds to pay such
Distributions. In such event, a holder of Series B Capital Securities may
institute a legal proceeding directly against the Corporation pursuant to the
terms of the Indenture to enforce payment of amounts equal to such
Distributions to such holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Securities" in the
accompanying Prospectus.
The obligations of the Corporation under the Series B Guarantee issued by
the Corporation for the benefit of the holders of Series B Securities and
under the Series B Subordinated Debentures are subordinate and junior in right
of payment to all Senior Debt of the Corporation.
The Series B Capital Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Series B Subordinated Debentures at
their Stated Maturity or earlier redemption. The Series B Subordinated
Debentures are redeemable prior to their Stated Maturity at the option of the
Corporation (i) on or after February 4, 2007, in whole at any time or in part
from time to time, or (ii) prior to February 4, 2007, in whole (but not in
part) within 90 days following the occurrence of a Special Event (as defined
herein). For a description of redemption prices for the Series B Capital
Securities pursuant to clause (i) or (ii) above, see "Certain Terms of Series
B Capital Securities--Redemption" and "Certain Terms of Series B Subordinated
Debentures--Redemption".
The Corporation will have the right at any time to direct the Property
Trustee to dissolve the Series B Issuer. See "Certain Terms of Series B
Capital Securities--Liquidation of Series B Issuer and Distribution of Series
B Subordinated Debentures to Holders". In the event of the dissolution of the
Series B Issuer, after satisfaction of liabilities to creditors of the Series
B Issuer as required by applicable law, the holders of the Series B Capital
Securities will be entitled to receive a Liquidation Amount of $1,000 per
Series B Capital Security plus accumulated and unpaid Distributions thereon to
the date of payment, which may be in the form of a distribution of such amount
in Series B Subordinated Debentures, subject to certain exceptions. See
"Description of Securities--Liquidation Distribution Upon Termination" in the
accompanying Prospectus.
The Corporation will have the right, subject to certain restrictions as
described herein, to advance the Stated Maturity of the Series B Subordinated
Debentures upon the occurrence of a Tax Event (as defined herein). See
"Certain Terms of Series B Subordinated Debentures--Conditional Right to
Advance Maturity".
The Series B Capital Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Series B Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described in the accompanying Prospectus,
Series B Capital Securities in certificated form will not be issued in
exchange for the global certificates. See "Certain Terms of Series B Capital
Securities--Registration of Series B Capital Securities".
S-3
The information in this Prospectus Supplement supplements and should be read
in conjunction with the information contained in the accompanying Prospectus.
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture,
as amended and supplemented from time to time, between the Corporation and The
Bank of New York, as trustee (the "Debenture Trustee"), and (ii) the "Trust
Agreement" means the Amended and Restated Trust Agreement relating to the
Series B Issuer among the Corporation, as Depositor, The Bank of New York, as
Property Trustee (the "Property Trustee"), The Bank of New York (Delaware), as
Delaware Trustee (the "Delaware Trustee"), and the Administrative Trustees
named therein (collectively with the Property Trustee and Delaware Trustee,
the "Issuer Trustees"). Each of the other capitalized terms used in this
Prospectus Supplement and not otherwise defined in this Prospectus Supplement
has the meaning set forth in the accompanying Prospectus.
RISK FACTORS
Prospective purchasers of the Series B Capital Securities should carefully
review the information contained elsewhere in this Prospectus Supplement and
in the accompanying Prospectus and should particularly consider the following
matters. In addition, because the Series B Capital Securities will be paid
with proceeds of the Series B Subordinated Debentures and because holders of
Series B Capital Securities may receive Series B Subordinated Debentures upon
liquidation of the Series B Issuer, prospective purchasers of Series B Capital
Securities are also making an investment decision with regard to the Series B
Subordinated Debentures and should carefully review all the information
regarding the Series B Subordinated Debentures contained herein.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES B GUARANTEE AND THE
SERIES B SUBORDINATED DEBENTURES
The obligations of the Corporation under the Series B Guarantee issued by
the Corporation for the benefit of the holders of Series B Securities and
under the Series B Subordinated Debentures are unsecured and rank subordinate
and junior in right of payment to all existing and future Senior Debt of the
Corporation. Substantially all of the Corporation's existing indebtedness
constitutes Senior Debt. At September 30, 1996, the Senior Debt of the
Corporation aggregated approximately $3.0 billion. If the Transaction is
consummated using the Alternative Merger, Senior Debt of the Corporation will
be substantially increased. See "Recent Developments; NorAm Merger" in the
accompanying Prospectus. None of the Indenture, the Series B Guarantee, the
Trust Agreement or the Expense Agreement places any limitation on the amount
of secured or unsecured debt, including Senior Debt, that may be incurred by
the Corporation. See "Description of Guarantees--Status of the Guarantees" and
"Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus.
The ability of the Series B Issuer to make timely payments of Distributions
on the Series B Capital Securities is solely dependent upon the Corporation
making interest payments on the Series B Subordinated Debentures as and when
required.
OPTION TO DEFER INTEREST PAYMENT; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture to defer payment
of interest on the Series B Subordinated Debentures at any time or from time
to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period; provided that no Extension Period may extend
beyond the Stated Maturity of the Series B Subordinated Debentures. As a
consequence of any such deferral of interest payments by the Corporation,
semi-annual Distributions on the Series B Capital Securities by the Series B
Issuer will also be deferred during any such Extension Period. Distributions
to which holders of the Series B Capital Securities are entitled will
accumulate additional Distributions thereon at the rate of 8.257% per annum,
compounded semi-annually from the relevant payment date for such
Distributions. During any such Extension Period, the Corporation may not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect
S-4
to, any of the Corporation's capital stock or (ii) make any payment of
principal or of interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Corporation (including other series of Junior
Subordinated Debentures) that, in either case, rank pari passu with or junior
in interest to the Series B Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Corporation of the debt
securities of any subsidiary of the Corporation if such guarantee ranks pari
passu with or junior in interest to the Series B Securities (other than (a)
dividends or distributions in capital stock of the Corporation, (b) any
declaration of a dividend under a stockholders' rights plan or in connection
with the implementation of a stockholders' rights plan, the issuance of
capital stock of the Corporation under a stockholders' rights plan or the
redemption or repurchase of any such rights distributed pursuant to a
stockholders' rights plan, (c) payments under the Series B Guarantee and (d)
purchases of common stock related to the issuance of common stock or rights
under any of the Corporation's benefit plans for its directors, officers or
employees, related to the issuance of common stock or rights under a dividend
reinvestment and stock purchase plan or related to the issuance of common
stock (or securities convertible into or exchangeable for common stock) as
consideration in an acquisition transaction that was entered into prior to the
commencement of such Extension Period). Prior to the termination of any such
Extension Period, the Corporation may further defer the payment of interest on
the Series B Subordinated Debentures; provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Series B Subordinated Debentures. During an Extension Period, the
Corporation will have the right to make partial payments of interest on any
Interest Payment Date. Upon the termination of any Extension Period and the
payment of all interest then accrued and unpaid (together with interest
thereon at the annual rate of 8.257%, compounded semi-annually from the
Interest Payment Date for such interest, to the extent permitted by applicable
law), the Corporation may elect to begin a new Extension Period subject to the
above requirements. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period. See "Certain Terms of
Series B Capital Securities--Distributions" and "Certain Terms of Series B
Subordinated Debentures--Option to Defer Interest Payments".
Should an Extension Period occur, a holder of Series B Capital Securities
will be required to accrue income (in the form of original issue discount) in
respect of its pro rata share of the Series B Subordinated Debentures held by
the Series B Issuer for United States federal income tax purposes. As a
result, a holder of Series B Capital Securities will be required to include
such income in gross income for United States federal income tax purposes in
advance of the receipt of cash attributable to such income and will not
receive the cash related to such income from the Series B Issuer if the holder
disposes of the Series B Capital Securities prior to the record date for the
payment of Distributions. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount" and "--Sale or Redemption of
Series B Capital Securities". PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR
OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE
SERIES B CAPITAL SECURITIES.
The Corporation has no current intention of exercising its right to defer
payments of interest on the Series B Subordinated Debentures. However, should
the Corporation elect to exercise such right in the future, the market price
of the Series B Capital Securities is likely to be affected. A holder that
disposes of its Series B Capital Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder
that continues to hold its Series B Capital Securities.
SPECIAL EVENT REDEMPTION; PAYMENT OF ADDITIONAL SUMS; CONDITIONAL RIGHT TO
ADVANCE MATURITY
Upon the occurrence and continuation of a Special Event (as defined below)
prior to February 4, 2007, the Corporation has the right to redeem the Series
B Subordinated Debentures in whole (but not in part) within 90 days following
the occurrence of such Special Event and thereby cause a mandatory redemption
of the Series B Securities in whole (but not in part) at the Redemption Price.
S-5
See "Certain Terms of Series B Capital Securities--Redemption". In addition to
the foregoing redemption right, upon the occurrence of a Tax Event (as defined
below), the Corporation will have the right, subject to certain conditions, to
advance the Stated Maturity of the Series B Subordinated Debentures. See
"Certain Terms of Series B Subordinated Debentures--Conditional Right to
Advance Maturity". If a Special Event has occurred and is continuing and the
Corporation does not elect either option discussed above, the Series B
Securities will remain outstanding and Additional Sums (as defined below) may
be payable on the Series B Subordinated Debentures. See "Certain Terms of
Series B Subordinated Debentures--Additional Sums". At any time, the
Corporation has the right to direct the Property Trustee to dissolve the
Series B Issuer and, after satisfaction of the liabilities of creditors of the
Series B Issuer as provided by applicable law, cause the Series B Subordinated
Debentures to be distributed to the holders of the Series B Securities.
A "Special Event" means a Tax Event or an Investment Company Act Event.
A "Tax Event" means the receipt by the Series B Issuer of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such proposed change, pronouncement or decision is announced on or after the
date of issuance of the Series B Capital Securities under the Trust Agreement,
there is more than an insubstantial risk that (i) the Series B Issuer is, or
will be within 90 days of the date of such opinion, subject to United States
federal income tax with respect to income received or accrued on the Series B
Subordinated Debentures, (ii) interest payable by the Corporation on the
Series B Subordinated Debentures is not, or within 90 days of the date of such
opinion, will not be, deductible by the Corporation, in whole or in part, for
United States federal income tax purposes or (iii) the Series B Issuer is, or
will be within 90 days of the date of the opinion, subject to more than a
de minimis amount of other taxes, duties or other governmental charges.
An "Investment Company Act Event" means the receipt by the Series B Issuer
of an opinion of counsel experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act
Law"), there is more than an insubstantial risk that the Series B Issuer is or
will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended, which Change in 1940 Act
Law becomes effective on or after the date of original issuance of the Series
Capital Securities.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Series B Issuer
on the outstanding Series B Securities shall not be reduced as a result of any
additional taxes, duties and other governmental charges to which the Series B
Issuer has become subject as a result of a Special Event.
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's 1996 budget proposal, was introduced to
the 104th Congress. The Bill would have, among other things, generally denied
interest deductions for interest accrued on an instrument issued by a
corporation that had a maximum term of more than 20 years and that was not
shown as indebtedness on the separate balance sheet of the issuer or, where
the instrument was issued to a related party (other than a corporation), where
the holder or some other related party issued a related instrument that was
not shown as indebtedness on the issuer's consolidated balance sheet. The Bill
would have also generally denied interest deductions for interest on an
instrument issued by a corporation that had a maximum weighted-average
maturity of more than 40 years. The above-described provisions of the Bill
were proposed to be effective generally for instruments issued on or
S-6
after December 7, 1995. If this provision were to apply to the Series B
Subordinated Debentures, the Corporation would not be able to deduct interest
on the Series B Subordinated Debentures. However, on March 29, 1996, the
Chairmen of the Senate Finance and House Ways and Means Committees issued a
joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, would be no earlier
than the date of appropriate Congressional action. Under current law, the
Corporation will be able to deduct interest on the Series B Subordinated
Debentures. Although the 104th Congress adjourned without enacting the above-
described provisions of the Bill, there can be no assurance that current or
future legislative proposals or final legislation will not adversely affect
the ability of the Corporation to deduct interest on the Series B Subordinated
Debentures. Such a change could give rise to a Tax Event, which would permit
the Corporation to cause a redemption of the Series B Capital Securities
before February 4, 2007. See "Certain Terms of Series B Subordinated
Debentures--Redemption" and "Certain Terms of the Series B Subordinated
Debentures--Conditional Right to Advance Maturity" in this Prospectus
Supplement and "Description of Securities--Redemption or Distribution--
Distribution of Corresponding Junior Subordinated Debentures" in the
accompanying Prospectus. See also "Certain Federal Income Tax Consequences--
Possible Tax Law Changes".
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES FOR SERIES B CAPITAL
SECURITIES
The Corporation will have the right at any time to direct the Property
Trustee to dissolve the Series B Issuer and, after satisfaction of liabilities
to creditors of the Series B Issuer as required by applicable law, cause the
Series B Subordinated Debentures to be distributed to the holders of the
Series B Securities. See "Certain Terms of Series B Capital Securities--
Liquidation of Series B Issuer and Distribution of Series B Subordinated
Debentures to Holders".
Under current United States federal income tax law and interpretations, a
distribution of the Series B Subordinated Debentures upon dissolution and
winding up of the Series B Issuer should not be a taxable event to holders of
the Series B Capital Securities. Should there be a change in law, a change in
legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to the holders of the Series B Capital
Securities. See "Certain Federal Income Tax Consequences--Distribution of
Series B Subordinated Debentures to Holders of Series B Capital Securities".
RIGHTS UNDER THE SERIES B GUARANTEE; LIMITATION AS TO FUNDS AVAILABLE TO THE
SERIES B ISSUER
The Series B Guarantee guarantees to the holders of the Series B Securities
the following payments, to the extent not paid by the Series B Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Series B
Securities, to the extent that the Series B Issuer has funds on hand available
therefor at such time; (ii) the redemption price with respect to any Series B
Securities called for redemption, to the extent that the Series B Issuer has
funds on hand available therefor at such time; and (iii) upon a voluntary or
involuntary dissolution and winding up of the Series B Issuer (unless the
Series B Subordinated Debentures are distributed to holders of the Series B
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment and (b) the amount
of assets of the Series B Issuer remaining available for distribution to
holders of the Series B Securities in liquidation of the Series B Issuer after
payment of creditors of the Series B Issuer as required by applicable law. The
Series B Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Bank of New York will
act as the indenture trustee under the Series B Guarantee (the "Guarantee
Trustee") for the purpose of compliance with the Trust Indenture Act and will
hold the Series B Guarantee for the benefit of the holders of the Series B
Securities. The Bank of New York will also act as Debenture Trustee for the
Series B Subordinated Debentures and as Property Trustee and The Bank of New
York (Delaware) will act as Delaware Trustee under the Trust Agreement.
S-7
The Series B Guarantee is subordinated as described under "--Ranking of
Subordinated Obligations Under the Series B Guarantee and the Series B
Subordinated Debentures".
The holders of not less than a majority in aggregate Liquidation Amount of
the Series B Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Series B Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Series B Guarantee. Any
holder of the Series B Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series B
Guarantee without first instituting a legal proceeding against the Series B
Issuer, the Guarantee Trustee or any other person or entity. If the
Corporation were to default on its obligation to pay amounts payable under the
Series B Subordinated Debentures, the Series B Issuer would lack funds for the
payment of Distributions or amounts payable on redemption of the Series B
Securities or otherwise, and, in such event, holders of the Series B
Securities would not be able to rely upon the Series B Guarantee for payment
of such amounts. Instead, if a Debenture Event of Default shall have occurred
and be continuing and such event is attributable to the failure of the
Corporation to pay interest or premium, if any, on or principal of the Series
B Subordinated Debentures on the applicable payment date, then a holder of
Series B Capital Securities may institute a legal proceeding directly against
the Corporation pursuant to the terms of the Indenture for enforcement of
payment to such holder of the principal of or interest or premium, if any, on
such Series B Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Series B Capital Securities held by such
holder (a "Direct Action"). In connection with such Direct Action, the
Corporation will have a right of set-off under the Indenture to the extent of
any payment made by the Corporation to such holder of Series B Capital
Securities in the Direct Action. Except as described herein, holders of Series
B Capital Securities will not be able to exercise directly any other remedy
available to the holders of the Series B Subordinated Debentures or assert
directly any other rights in respect of the Series B Subordinated Debentures.
See "Description of Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of Securities", "--Debenture Events of Default" and
"Description of Guarantees" in the accompanying Prospectus. The Trust
Agreement provides that each holder of Series B Securities by acceptance
thereof agrees to the provisions of the Series B Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Series B Capital Securities generally will have limited voting
rights relating only to the modification of the Series B Capital Securities
and to the exercise of the Series B Issuer's rights as holder of Series B
Subordinated Debentures and the Series B Guarantee. Holders of Series B
Capital Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee, the Delaware Trustee or any Administrative Trustee, and
such voting rights are vested exclusively in the holder of the Series B Common
Securities except, with respect to the Property Trustee and the Delaware
Trustee, upon the occurrence of certain events described in the accompanying
Prospectus. The Property Trustee, the Administrative Trustees and the
Corporation may amend the Trust Agreement without the consent of holders of
Series B Capital Securities to ensure that the Series B Issuer will be
classified for United States federal income tax purposes as a grantor trust
unless such action materially and adversely affects the interests of such
holders. See "Description of Securities--Voting Rights; Amendment of Each
Trust Agreement" and "--Removal of Issuer Trustees" in the accompanying
Prospectus.
TRADING CHARACTERISTICS OF SERIES B CAPITAL SECURITIES
The Corporation and the Series B Issuer do not intend to have the Series B
Capital Securities listed on any securities exchange. If the underwriters do
not make a market for the Series B Capital Securities, the liquidity of the
Series B Capital Securities could be adversely affected. See "Certain
S-8
Federal Income Tax Consequences--Interest Income and Original Issue Discount"
and "--Sale or Redemption of Series B Capital Securities" for a discussion of
the United States federal income tax consequences that may result from a
taxable disposition of the Series B Capital Securities.
MARKET PRICES
There can be no assurance as to the market prices for Series B Capital
Securities or Series B Subordinated Debentures that may be distributed upon
dissolution and winding up of the Series B Issuer. Accordingly, the Series B
Capital Securities that an investor may purchase, whether pursuant to the
offer made hereby or in the secondary market, or the Series B Subordinated
Debentures that a holder of Series B Capital Securities may receive upon
dissolution and winding up of the Series B Issuer, may trade at a discount to
the price that the investor paid to purchase the Series B Capital Securities
offered hereby. As a result of the existence of the Corporation's right to
defer interest payments, the market price of the Series B Capital Securities
(which represent undivided beneficial interests in the assets of the Series B
Issuer) may be more volatile than the market prices of other securities that
are not subject to such optional deferrals. See "Certain Terms of Series B
Subordinated Debentures" herein and "Description of Junior Subordinated
Debentures--Corresponding Junior Subordinated Debentures" in the accompanying
Prospectus.
HL&P CAPITAL TRUST II
HL&P Capital Trust II (the "Series B Issuer") is a statutory business trust
created under Delaware law pursuant to (i) the Trust Agreement executed by the
Corporation, as Depositor, and The Bank of New York (Delaware), as Delaware
Trustee, and (ii) the filing of a certificate of trust with the Delaware
Secretary of State on January 10, 1997. The Series B Issuer's business and
affairs are conducted by the Issuer Trustees: The Bank of New York, as
Property Trustee, and The Bank of New York (Delaware), as Delaware Trustee,
and three individual Administrative Trustees who will be selected by the
Corporation. The Series B Issuer exists for the exclusive purposes of (i)
issuing and selling the Series B Capital Securities and Series B Common
Securities, (ii) using the proceeds from the sale of such Series B Securities
to acquire Series B Subordinated Debentures issued by the Corporation and
(iii) engaging in only those other activities necessary, convenient or
incidental thereto set forth in the Trust Agreement (such as registering the
transfer of the Series B Capital Securities). Accordingly, the Series B
Subordinated Debentures and the right to reimbursement under the Expense
Agreement will be substantially all the assets of the Series B Issuer, and
payments under the Series B Subordinated Debentures and the Expense Agreement
will be the only revenues of the Series B Issuer. All of the Series B Common
Securities will be owned by the Corporation. The Series B Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Series B Capital Securities, except that upon the occurrence and continuance
of an event of default under the Trust Agreement resulting from an event of
default under the Indenture, the rights of the Corporation as holder of the
Series B Common Securities to payment in respect of Distributions and payments
upon liquidation, redemption or otherwise will be subordinated to the rights
of the holders of the Series B Capital Securities. See "Description of
Securities--Subordination of Common Securities" in the accompanying
Prospectus. The Corporation will acquire Series B Common Securities in an
aggregate Liquidation Amount equal to 3% of the total capital of the Series B
Issuer. The Series B Issuer has a term of approximately 55 years, but may be
dissolved earlier as provided in the Trust Agreement. The principal executive
office of the Series B Issuer is 200 West 9th Street Plaza, Box 2105,
Wilmington, Delaware 19899, and its telephone number is (302) 655-8894. See
"The Issuers" in the accompanying Prospectus.
It is anticipated that the Series B Issuer will not be subject to the
reporting requirements under the Exchange Act.
S-9
HOUSTON LIGHTING & POWER COMPANY
SELECTED FINANCIAL INFORMATION OF THE CORPORATION
The following table presents summary financial data derived from the
financial statements of the Corporation. This summary is qualified in its
entirety by the detailed information and financial statements included in the
documents incorporated herein by reference. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. The Corporation is a
party to an Agreement and Plan of Merger, dated as of August 11, 1996, as
amended, among the Corporation, Houston Industries Incorporated ("Houston
Industries"), HI Merger, Inc. and NorAm Energy Corp. ("NorAm"). For more
information regarding the Corporation and the proposed merger, see "Houston
Lighting & Power Company" and "Recent Developments; NorAm Merger" in the
accompanying Prospectus. No adjustment has been made to reflect the potential
impact of the Transaction.
AS OF OR FOR THE
NINE MONTHS ENDED AS OF OR FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
Revenues................ $ 3,142,234 $ 2,896,180 $ 3,680,297 $ 3,746,085 $ 4,079,863 $ 3,826,841 $ 3,674,543
Income after preferred
dividends but before
cumulative effect of
change in
accounting(1).......... $ 374,129 $ 416,941 $ 450,977 $ 461,381 $ 449,750 $ 375,955 $ 472,712
Cumulative effect of
change in
accounting(2).......... (8,200) 94,180
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income after preferred
dividends.............. $ 374,129 $ 416,941 $ 450,977 $ 453,181 $ 449,750 $ 470,135 $ 472,712
=========== =========== =========== =========== =========== =========== ===========
Return on average common
equity................. 9.6% 10.7% 11.8% 12.0% 12.3% 13.3% 13.8%
Total assets............ $10,486,947 $10,928,449 $10,665,259 $10,850,981 $10,753,616 $10,790,052 $10,620,642
Long-term obligations
including current
maturities(3).......... $ 2,932,064 $ 3,239,499 $ 3,220,015 $ 3,356,789 $ 3,402,032 $ 3,796,719 $ 4,150,454
Capitalization:
Common stock equity.... 55% 53% 52% 51% 50% 47% 44%
Cumulative preferred
stock (including
current maturities)... 5% 5% 6% 7% 7% 7% 6%
Long-term debt
(including current
maturities)........... 40% 42% 42% 42% 43% 46% 50%
Capital and nuclear fuel
expenditures (excluding
AFUDC)................. $ 224,844 $ 287,593 $ 391,550 $ 412,899 $ 329,016 $ 337,082 $ 365,486
Percent of capital
expenditures financed
internally from
operations............. 183% 148% 110% 216% 158% 137% 126%
- -------
(1) A one-time after-tax charge of $62 million was recorded in the first
quarter of 1996 in connection with the settlement of litigation relating
to the South Texas Project Electric Generating Station.
(2) The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. The 1992 cumulative effect relates to the change
in accounting for revenues from a cycle billing to a full accrual method
effective January 1, 1992.
(3) Includes Cumulative Preferred Stock subject to mandatory redemption.
S-10
RECENT DEVELOPMENTS OF HL&P
On January 24, 1997, HL&P announced financial results for the quarter and
year ended December 31, 1996. HL&P reported income after preferred dividends
of $407 million for 1996 compared with $451 million the previous year. The
decrease was due to a $62 million one-time charge associated with the
settlement of litigation claims related to the South Texas Project Electric
Generating Station and $33 million amortization of its investment in certain
lignite reserves, under the terms of its last rate order. Increased sales
resulting from favorable weather and economic conditions helped offset the
effects discussed above. Total kilowatt-hour sales rose 6% during 1996, with
increases of 4% in the residential class, 3% in commercial and 7% in
industrial sales.
HL&P's fourth quarter income after preferred dividends was $33 million in
1996 compared to $34 million in 1995. Fourth quarter 1996 earnings reflect $22
million of the amortization discussed above.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Corporation's ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred stock dividend
requirements for each of the periods indicated:
FOR THE
NINE MONTHS
ENDED FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
Ratio of earnings to fixed charges
before cumulative effect of change in
accounting(1)......................... 4.27 4.30 3.75 3.80 3.40 2.73 2.97
Ratio of earnings to fixed charges and
preferred dividend requirements before
cumulative effect of change in
accounting(1)......................... 3.73 3.66 3.20 3.20 2.90 2.34 2.53
- --------
(1) The Corporation believes that the ratios for the nine-month periods are
not necessarily indicative of the ratios for twelve-month periods due to
the seasonal nature of the Corporation's business and, with regard to the
ratio for the nine months ended September 30 1996, the recording of a $62
million after-tax charge to earnings for the first quarter of 1996.
USE OF PROCEEDS
All of the proceeds from the sale of the Series B Capital Securities will be
invested by the Series B Issuer in Series B Subordinated Debentures. The
Corporation intends that the proceeds from the sale of the Series B
Subordinated Debentures, together with proceeds from the concurrent sale of a
second series of Corresponding Junior Subordinated Debentures to HL&P Capital
Trust I, will be added to its general corporate funds and will be used for
general corporate purposes, including funding the redemption or repurchase of
shares of its outstanding preferred stock, including, without limitation, the
following: 250,000 shares of the Corporation's $6.72 Cumulative Preferred
Stock at a price of $102.51 per share, plus the amount of any dividends
accrued or in arrears thereon to the date fixed for redemption; 500,000 shares
of the Corporation's $7.52 Cumulative Preferred Stock at a price of $102.35
per share, plus the amount of any dividends accrued or in arrears thereon to
the date fixed for redemption; and 500,000 shares of the Corporation's $8.12
Cumulative Preferred Stock at a price of $102.25 per share, plus the amount of
any dividends accrued or in arrears thereon to the date fixed for redemption.
S-11
CAPITALIZATION
The following table sets forth the capitalization of the Corporation as of
September 30, 1996 and as adjusted to give effect to the consummation of the
offering of an aggregate of $350 million of the Series B Capital Securities,
other Capital Securities or Preferred Securities and the redemption of
preferred stock having an aggregate fixed liquidation value of $220 million in
the fourth quarter of 1996. By separate prospectus, HL&P Capital Trust I is
offering to sell $250,000,000 liquidation amount of Preferred Securities with
an anticipated closing date of February 4, 1997. No adjustment has been made
to reflect (i) the potential impact of the Transaction or (ii) the issuance of
$118 million aggregate principal amount of revenue refunding bonds by the
Corporation in the first quarter of 1997, which issuance had no effect on the
total long-term debt (including current maturities) of the Corporation. The
following data should be read in conjunction with the financial statements and
notes thereto of the Corporation incorporated herein by reference.
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
---------- -----------
(THOUSANDS OF DOLLARS)
Common Stock Equity:
Common stock, class A; no par value.................. $1,524,949 $1,524,949
Common stock, class B; no par value.................. 150,978 150,978
Retained earnings.................................... 2,277,465 2,277,465
---------- ----------
Total common stock equity.......................... 3,953,392 3,953,392
---------- ----------
Cumulative Preferred Stock (excluding current portion):
Not subject to mandatory redemption(1)............... 351,345 135,178
Subject to mandatory redemption...................... 0 0
---------- ----------
Total cumulative preferred stock................... 351,345 135,178
---------- ----------
Company Obligated Mandatorily Redeemable Trust
Securities(2)......................................... 0 350,000
---------- ----------
Long-Term Debt (excluding current maturities):
First mortgage bonds................................. 2,704,848 2,704,848
Pollution control revenue bonds...................... 5,000 5,000
Other................................................ 2,756 2,756
---------- ----------
Total long-term debt............................... 2,712,604 2,712,604
---------- ----------
Total capitalization............................... $7,017,341 $7,151,174
========== ==========
- --------
(1) The adjusted amount reflects the redemption in the fourth quarter of 1996
of the Corporation's Variable Term Cumulative Preferred Stock, Series A,
B, C and D having an aggregate fixed liquidation value of $220 million.
Such preferred stock was reflected on the Corporation's financial
statements at $216 million as a result of expenses of the original
issuance.
(2) As described herein and in the accompanying Prospectus, substantially all
of the assets of the respective Issuers will be Junior Subordinated
Debentures of the Corporation with an aggregate principal amount not
exceeding $360,825,000, and upon redemption of such debt, the related
Securities will be mandatorily redeemable.
ACCOUNTING TREATMENT
For financial reporting purposes, the Series B Issuer will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Series B
Issuer will be included in the financial statements of the Corporation. The
Series B Capital Securities will be reflected in the consolidated balance
sheets of the Corporation as "Company Obligated Mandatorily Redeemable Trust
Securities", and appropriate disclosures about the Series B Capital
Securities, the Series B Guarantee and the Series B Subordinated Debentures
and the Expense Agreement will be included in the notes to the consolidated
financial statements. For financial reporting purposes, the Corporation will
record Distributions payable on the Series B Capital Securities as an expense.
S-12
CERTAIN TERMS OF SERIES B CAPITAL SECURITIES
GENERAL
The following summary of certain terms and provisions of the Series B
Capital Securities supplements the description of the terms and provisions of
the Securities set forth in the accompanying Prospectus under the heading
"Description of Securities", to which description reference is hereby made.
The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee with
respect to the Series B Issuer for purposes of compliance with the Trust
Indenture Act. This summary of certain terms and provisions of the Series B
Capital Securities, which describes the material provisions thereof, does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Agreement to which description reference is hereby
made. The form of the Trust Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and accompanying
Prospectus form a part.
DISTRIBUTIONS
The Series B Capital Securities represent undivided beneficial interests in
the assets of the Series B Issuer. The ability of the Series B Issuer to make
timely payments of Distributions on the Series B Capital Securities is solely
dependent upon the Corporation making interest payments on the Series B
Subordinated Debentures as and when required. Distributions on Series B
Capital Securities will be payable at the annual rate of 8.257% of the stated
Liquidation Amount of $1,000, payable semi-annually in arrears on February 1
and August 1 of each year, to the holders of the Series B Capital Securities
on the relevant record dates. The record dates for the Series B Capital
Securities will be, for so long as the Series B Capital Securities remain in
book-entry form, one Business Day (as defined in the accompanying Prospectus)
prior to the relevant Distribution payment date and, in the event the Series B
Capital Securities are not in book-entry form, the 15th day of the month
immediately preceding the relevant Distribution payment date. Distributions
will accumulate from the date of original issuance. The first Distribution
payment date for the Series B Capital Securities will be August 1, 1997. The
amount of Distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of Distributions for any
partial period will be computed on the basis of a 360-day year of twelve 30-
day months and the number of days elapsed in a partial month. In the event
that any date on which Distributions are payable on the Series B Capital
Securities is not a Business Day, then payment of the Distributions payable on
such date will be made on the next succeeding day that is a Business Day (and
without any additional Distributions or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such payment
was originally payable. See "Description of Securities--Distributions" in the
accompanying Prospectus.
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture to defer payment
of interest on the Series B Subordinated Debentures at any time or from time
to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period; provided that no Extension Period may extend
beyond the Stated Maturity of the Series B Subordinated Debentures. As a
consequence of any such deferral of interest payments by the Corporation,
semi-annual Distributions on the Series B Capital Securities by the Series B
Issuer will also be deferred during any such Extension Period. Distributions
to which holders of the Series B Capital Securities are entitled will
accumulate additional Distributions thereon at the rate of 8.257% per annum,
compounded semi-annually from the relevant payment date for such
Distributions. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Corporation
may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of
S-13
the Corporation's capital stock or (ii) make any payment of principal or of
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation (including other series of Junior Subordinated
Debentures) that, in either case, rank pari passu with or junior in interest
to the Series B Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Corporation of the debt securities of any
subsidiary of the Corporation if such guarantee ranks pari passu with or
junior in interest to the Series B Securities (other than (a) dividends or
distributions in capital stock of the Corporation, (b) any declaration of a
dividend under a stockholders' rights plan or in connection with the
implementation of a stockholders' rights plan, the issuance of capital stock
of the Corporation under a stockholders' rights plan or the redemption or
repurchase of any such rights distributed pursuant to a stockholders' rights
plan, (c) payments under the Series B Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Corporation's benefit plans for its directors, officers or employees, related
to the issuance of common stock or rights under a dividend reinvestment and
stock purchase plan or related to the issuance of common stock (or securities
convertible into or exchangeable for common stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of
such Extension Period). Prior to the termination of any such Extension Period,
the Corporation may further defer the payment of interest on the Series B
Subordinated Debentures; provided that no Extension Period may exceed 10
consecutive semi-annual periods or extend beyond the Stated Maturity of the
Series B Subordinated Debentures. During an Extension Period, the Corporation
will have the right to make partial payments of interest on any Interest
Payment Date. Upon the termination of any such Extension Period and the
payment of all interest then accrued and unpaid (together with interest
thereon at the annual rate of 8.257%, compounded semi-annually from the
Interest Payment Date for such interest, to the extent permitted by applicable
law), the Corporation may elect to begin a new Extension Period. There is no
limitation on the number of times that the Corporation may elect to begin an
Extension Period. See "Certain Terms of Series B Subordinated Debentures--
Option to Defer Interest Payments" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount".
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series B
Subordinated Debentures.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Series B
Subordinated Debentures, whether at Stated Maturity or upon earlier redemption
as provided in the Indenture, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
in the accompanying Prospectus) of the Series B Securities. See "Description
of Securities--Redemption or Distribution--Mandatory Redemption" in the
accompanying Prospectus. The Corporation has the right to redeem the Series B
Subordinated Debentures (i) on or after February 4, 2007, in whole at any time
or in part from time to time, or (ii) prior to February 4, 2007, in whole (but
not in part) within 90 days following the occurrence of a Special Event. A
redemption of the Series B Subordinated Debentures would cause a mandatory
redemption of the Series B Securities. At any time, the Corporation has the
right to direct the Property Trustee to dissolve the Series B Issuer and,
after satisfaction of the liabilities of creditors of the Series B Issuer as
provided by applicable law, cause the Series B Subordinated Debentures to be
distributed to the holders of the Series B Securities. If a Special Event has
occurred and is continuing and the Corporation does not elect either option
discussed above, the Series B Securities will remain outstanding and
Additional Sums may be payable on the Series B Subordinated Debentures.
S-14
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices expressed in percentages of the Liquidation Amount
together with accrued Distributions to but excluding the Redemption Date. If
redeemed during the 12-month period beginning February 4:
REDEMPTION
YEAR PRICE
---- ----------
2007.......................................................... 104.1285%
2008.......................................................... 103.7157
2009.......................................................... 103.3028
2010.......................................................... 102.8810
2011.......................................................... 102.4771
2012.......................................................... 102.0643
2013.......................................................... 101.6514
2014.......................................................... 101.2386
2015.......................................................... 100.8257
2016.......................................................... 100.4129
and at 100% on or after February 4, 2017.
The Redemption Price, in the case of a redemption following a Special Event
as described under (ii) above, shall equal for Series B Capital Securities the
Make-Whole Amount for a corresponding $1,000 principal amount of Series B
Subordinated Debentures together with accrued Distributions to but excluding
the Redemption Date. The "Make-Whole Amount" shall be equal to the greater of
(i) 100% of the principal amount of such Series B Subordinated Debentures or
(ii) as determined by a Quotation Agent (as defined below), the sum of the
present values of the principal amount and premium payable as part of the
Redemption Price with respect to an optional redemption of such Series B
Subordinated Debentures on February 4, 2007, together with scheduled payments
of interest from the Redemption Date to February 4, 2007 (the "Remaining
Life"), in each case discounted to the Redemption Date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined below).
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate (as defined below) plus (i) 1.10% if such Redemption Date occurs
on or before February 4, 1998 or (ii) 0.50% if such Redemption Date occurs
after February 4, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior 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 Remaining Life (if
no maturity is within three months before or after the Remaining Life, yields
for the two published maturities most closely corresponding to the Remaining
Life shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) 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 annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue (as defined below), 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 Treasury Rate shall be calculated on the third Business Day
preceding the Redemption Date.
"Comparable Treasury Issue" means, with respect to any Redemption Date, the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time
of selection and in accordance with customary financial practice,
S-15
in pricing new issues of corporate debt securities of comparable maturity to
the Remaining Life. If no United States Treasury security has a maturity which
is within a period from three months before to three months after February 4,
2007, the two most closely corresponding United States Treasury securities
shall be used as the Comparable Treasury Issue, and the Treasury Rate shall be
interpolated or extrapolated on a straight-line basis, rounding to the nearest
month using such securities.
"Comparable Treasury Price" means (i) the average of five Reference Treasury
Dealer Quotations (as defined below) for such Redemption Date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (ii)
if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means Goldman, Sachs & Co. and its successors; provided,
however, that if the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), the
Corporation shall substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Corporation.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted
in writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such Redemption
Date.
LIQUIDATION OF SERIES B ISSUER AND DISTRIBUTION OF SERIES B SUBORDINATED
DEBENTURES TO HOLDERS
The Corporation will have the right at any time to direct the Property
Trustee to dissolve the Series B Issuer and, after satisfaction of liabilities
to creditors of the Series B Issuer as required by applicable law, cause the
Series B Subordinated Debentures to be distributed to the holders of the
Series B Securities. See "Description of Securities--Liquidation Distribution
Upon Termination" in the accompanying Prospectus.
Under current United States federal income tax law and interpretations, a
distribution of the Series B Subordinated Debentures upon dissolution and
winding up of the Series B Issuer should not be a taxable event to holders of
the Series B Capital Securities. Should there be a change in law, a change in
legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Series B Capital
Securities. See "Certain Federal Income Tax Consequences--Distribution of
Series B Subordinated Debentures to Holders of Series B Capital Securities".
If the Corporation elects neither to redeem the Series B Subordinated
Debentures prior to maturity nor to liquidate the Series B Issuer and
distribute the Series B Subordinated Debentures to holders of the Series B
Capital Securities, the Series B Capital Securities will remain outstanding
until the Stated Maturity of the Series B Subordinated Debentures.
LIQUIDATION VALUE
The amount payable on each of the Series B Capital Securities in the event
of any liquidation of the Series B Issuer is $1,000 plus accumulated and
unpaid Distributions, which amount may be paid in the form of a distribution
of a Like Amount in Series B Subordinated Debentures, subject to certain
exceptions. See "Description of Securities--Liquidation Distribution Upon
Termination" in the accompanying Prospectus.
EVENTS OF DEFAULT; NOTICE; REMOVAL OF TRUSTEES
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement with respect to the Series B Securities issued thereunder
(whatever the reason for such Event of Default
S-16
and whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures--Debenture Events of
Default" in the accompanying Prospectus);
(ii) default by the Series B Issuer in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days;
(iii) default by the Series B Issuer in the payment of any Redemption
Price of any Series B Security when it becomes due and payable;
(iv) default in the performance or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 90 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees and the Corporation by the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Series B Capital
Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Series B Issuer.
Within ten Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee (as defined in
the Trust Agreement), the Property Trustee shall transmit notice of such Event
of Default to the holders of the Series B Securities, the Administrative
Trustees and the Corporation, as Depositor, unless such Event of Default shall
have been cured or waived. If an Event of Default shall have occurred and is
continuing, the Property Trustee shall enforce the Trust Agreement for the
benefit of the holders of the Series B Securities. The Corporation, as
Depositor, and the Administrative Trustees are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If an Event of Default resulting from any Debenture Event of Default occurs
and is continuing, then, pursuant to the Trust Agreement, holders of a
majority in aggregate Liquidation Amount of Series B Capital Securities will
have the right to direct the exercise of any trust or power conferred upon the
Property Trustee under the Trust Agreement. Upon a Debenture Event of Default
specified in clause (i) or clause (ii) in the list of Debenture Events of
Default, a holder of Series B Capital Securities may institute a legal
proceeding directly against the Corporation, without first instituting a legal
proceeding against the Property Trustee or any other person or entity, for
enforcement of payment to such holder of principal of or interest on the
Series B Subordinated Debentures having a principal amount equal to the
aggregate stated Liquidation Amount of the Series B Capital Securities of such
holder. See "Relationship Among the Securities, the Corresponding Junior
Subordinated Debentures, the Expense Agreement and the Guarantees" in the
accompanying Prospectus.
If a Debenture Event of Default has occurred and is continuing, the Series B
Capital Securities shall have a preference over the Series B Common
Securities. See "Description of Securities--Subordination of Common
Securities" and "--Liquidation Distribution Upon Termination" in the
accompanying Prospectus. The existence of an Event of Default, other than an
Event of Default described in clause (i) above, does not entitle the holders
of Series B Capital Securities to accelerate the maturity thereof. Following
an Event of Default as described in clause (i) above, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Series B Capital
Securities will have the
S-17
right to declare the principal of all of the Series B Subordinated Debentures
to be immediately due and payable as set forth in the Indenture.
Unless a Debenture Event of Default shall have occurred and be continuing,
each of the Property Trustee, the Delaware Trustee and the Administrative
Trustees of the Series B Issuer may be removed at any time by act of the
Corporation as the holder of the Series B Common Securities. If a Debenture
Event of Default has occurred and is continuing with regard to the Series B
Issuer, the Property Trustee and the Delaware Trustee may be removed at such
time by act of the holders of a majority in Liquidation Amount of the Series B
Capital Securities, delivered to such Trustee (in its individual capacity and,
in the case of the Property Trustee, on behalf of the Series B Issuer). No
resignation or removal of any Trustee and no appointment of a successor
Trustee will be effective until the acceptance of appointment by the successor
Trustee in accordance with the requirements of the Trust Agreement.
REGISTRATION OF SERIES B CAPITAL SECURITIES
The Series B Capital Securities will be represented by global certificates
registered in the name of DTC or its nominee. Beneficial interests in the
Series B Capital Securities will be shown on, and transfers thereof will be
effected only through, records maintained by participants in DTC. Except as
described below and in the accompanying Prospectus, Series B Capital
Securities in certificated form will not be issued in exchange for the global
certificates. See "Book-Entry Issuance" in the accompanying Prospectus.
A global security shall be exchangeable for Series B Capital Securities
registered in the names of persons other than DTC or its nominee only if (i)
DTC notifies the Series B Issuer that it is unwilling or unable to continue as
a depositary for such global security and no successor depositary shall have
been appointed, or if at any time DTC ceases to be a clearing agency
registered under the Exchange Act at a time when DTC is required to be so
registered to act as such depositary, (ii) the Series B Issuer in its sole
discretion determines that such global security shall be so exchangeable or
(iii) there shall have occurred and be continuing an event of default under
the Indenture with respect to the Series B Subordinated Debentures. Any global
security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for definitive certificates registered in such names as DTC shall
direct. It is expected that such instructions will be based upon directions
received by DTC from its Participants (as defined in the accompanying
Prospectus) with respect to ownership of beneficial interests in such global
security. In the event that Series B Capital Securities are issued in
definitive form, such Series B Capital Securities will be in denominations of
$1,000 and integral multiples thereof and may be transferred or exchanged at
the offices described below.
Payments on Series B Capital Securities represented by a global security
will be made to DTC, as the depositary for the Series B Capital Securities. In
the event Series B Capital Securities are issued in certificated form, the
Liquidation Amount and Distributions will be payable, the transfer of the
Series B Capital Securities will be registrable, and Series B Capital
Securities will be exchangeable for Series B Capital Securities of other
denominations of a like aggregate Liquidation Amount, at the corporate office
of the Property Trustee in New York, New York, or at the offices of any paying
agent or transfer agent appointed by the Administrative Trustees; provided
that payment of any Distribution may be made at the option of the
Administrative Trustees by check mailed to the address of the persons entitled
thereto or by wire transfer. In addition, if the Series B Capital Securities
are issued in certificated form, the record dates for payment of Distributions
will be the 15th day of the month immediately preceding the relevant
Distribution payment date. For a description of DTC and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance" in
the accompanying Prospectus.
S-18
CERTAIN TERMS OF SERIES B SUBORDINATED DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Series B
Subordinated Debentures supplements the description of the terms and
provisions of the Corresponding Junior Subordinated Debentures (as defined in
the accompanying Prospectus) set forth in the accompanying Prospectus under
the heading "Description of Junior Subordinated Debentures", to which
description reference is hereby made. The summary of certain terms and
provisions of the Series B Subordinated Debentures set forth below, which
describes the material provisions thereof, does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the Indenture to
which description reference is hereby made. The form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and accompanying Prospectus form a part.
Concurrently with the issuance of the Series B Capital Securities, the
Series B Issuer will invest the proceeds thereof, together with the
consideration paid by the Corporation for the Series B Common Securities, in
the Series B Subordinated Debentures issued by the Corporation. The Series B
Subordinated Debentures will bear interest at the annual rate of 8.257% of the
principal amount thereof, payable semi-annually in arrears on February 1 and
August 1 of each year (each, an "Interest Payment Date"), commencing August 1,
1997, to the person in whose name each Series B Subordinated Debenture is
registered at the close of business on the Business Day next preceding such
Interest Payment Date. It is anticipated that, until the liquidation, if any,
of the Series B Issuer, each of the Series B Subordinated Debentures will be
held by the Property Trustee in trust for the benefit of the holders of the
Series B Capital Securities. The amount of interest payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months. The
amount of interest payable for any partial period will be computed on the
basis of a 360-day year of twelve 30-day months and the number of days elapsed
in a partial month. In the event that any date on which interest is payable on
the Series B Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on the
date such payment was originally payable. Accrued interest that is not paid on
the applicable Interest Payment Date will bear additional interest on the
amount thereof (to the extent permitted by law) at the rate of 8.257% per
annum, compounded semi-annually from the relevant Interest Payment Date. The
term "interest" as used herein shall include semi-annual interest payments,
interest on semi-annual interest payments not paid on the applicable Interest
Payment Date and Additional Sums, as applicable.
The Series B Subordinated Debentures will be issued as a series of junior
subordinated deferrable interest debentures under the Indenture. The Series B
Subordinated Debentures will be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiples thereof.
The Series B Subordinated Debentures will mature on February 1, 2037,
subject to advancement as described under "--Conditional Right to Advance
Maturity".
The Series B Subordinated Debentures are not subject to any sinking fund
provisions.
The Series B Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all existing and future Senior Debt
of the Corporation. Substantially all of the Corporation's existing
indebtedness constitutes Senior Debt. At September 30, 1996, the Senior Debt
of the Corporation aggregated approximately $3.0 billion. If the Transaction
is consummated using the Alternative Merger, Senior Debt of the Corporation
will be substantially increased. See "Recent Developments; NorAm Merger" in
the accompanying Prospectus. None of the Indenture, the
S-19
Guarantee, the Trust Agreement or the Expense Agreement places any limitation
on the incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Debt, whether under the Indenture, any existing
indenture or any other indenture that the Corporation may enter into in the
future or otherwise. See "Risk Factors--Ranking of Subordinated Obligations
Under the Series B Guarantee and the Series B Subordinated Debentures" herein
and "Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus.
OPTION TO DEFER INTEREST PAYMENTS
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture at any time or
from time to time during the term of the Series B Subordinated Debentures to
defer payment of interest on the Series B Subordinated Debentures for a period
not exceeding 10 consecutive semi-annual periods with respect to each
Extension Period; provided that no Extension Period may extend beyond the
Stated Maturity of the Series B Subordinated Debentures. During an Extension
Period, the Corporation will have the right to make partial payments of
interest on any Interest Payment Date. At the end of such Extension Period,
the Corporation must pay all interest then accrued and unpaid on the Series B
Subordinated Debentures (together with interest on such unpaid interest, to
the extent permitted by applicable law, at the annual rate of 8.257%,
compounded semi-annually from the relevant Interest Payment Date). During an
Extension Period, a holder of Series B Subordinated Debentures (or a holder of
Series B Capital Securities while such series is outstanding) will be required
to accrue income (in the form of original issue discount) for United States
federal income tax purposes. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount".
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Corporation's capital stock or
(ii) make any payment of principal or of interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation (including
other series of Junior Subordinated Debentures) that, in either case, rank
pari passu with or junior in interest to the Series B Subordinated Debentures
or make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation if
such guarantee ranks pari passu with or junior in interest to the Series B
Securities (other than (a) dividends or distributions in capital stock of the
Corporation, (b) any declaration of a dividend under a stockholders' rights
plan or in connection with the implementation of a stockholders' rights plan,
the issuance of capital stock of the Corporation under a stockholders' rights
plan or the redemption or repurchase of any such rights distributed pursuant
to a stockholders' rights plan, (c) payments under the Series B Guarantee and
(d) purchases of common stock related to the issuance of common stock or
rights under any of the Corporation's benefit plans for its directors,
officers or employees, related to the issuance of common stock or rights under
a dividend reinvestment and stock purchase plan or related to the issuance of
common stock (or securities convertible into or exchangeable for common stock)
as consideration in an acquisition transaction that was entered into prior to
the commencement of such Extension Period). Prior to the termination of any
such Extension Period, the Corporation may further defer the payment of
interest on the Series B Subordinated Debentures; provided that no Extension
Period may exceed 10 consecutive semi-annual periods or extend beyond the
Stated Maturity of the Series B Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all interest then accrued and
unpaid (together with interest thereon at the annual rate of 8.257%,
compounded semi-annually from the relevant Interest Payment Date, to the
extent permitted by applicable law), the Corporation may elect to begin a new
Extension Period subject to the above requirements. No interest shall be due
and payable during an Extension Period, except at the end thereof. The
Corporation must give the Property Trustee, the Administrative Trustees and
the Debenture Trustee notice of its election to begin such Extension Period at
least one Business Day prior to the earliest of (i) the date Distributions on
the Series B Capital Securities would have been payable
S-20
except for the election to begin such Extension Period, (ii) the date the
Administrative Trustees are required to give notice to the New York Stock
Exchange, the Nasdaq National Market or other applicable stock exchange or
automated quotation system on which the Series B Capital Securities are then
listed or quoted or to holders of Series B Subordinated Debentures on the
record date for such Distributions or (iii) the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Debenture Trustee shall give notice of the Corporation's election to
begin a new Extension Period to the holders of the Series B Subordinated
Debentures. There is no limitation on the number of times that the Corporation
may elect to begin an Extension Period. See "Description of Junior
Subordinated Debentures--Option to Defer Interest Payments" in the
accompanying Prospectus.
ADDITIONAL SUMS
If the Series B Issuer is required to pay any additional taxes, duties or
other governmental charges as a result of a Special Event, the Corporation
will pay as additional amounts on the Series B Subordinated Debentures such
amounts as shall be required so that the Distributions payable by the Series B
Issuer shall not be reduced as a result of any such additional taxes, duties
or other governmental charges.
In the Expense Agreement, the Corporation, as the holder of the Series B
Common Securities, has agreed to pay all debts and other obligations, other
than with respect to the Series B Capital Securities, and all costs and
expenses of the Series B Issuer. Such obligations, costs and expenses will
include, among others, costs and expenses relating to the organization of the
Series B Issuer, the fees and expenses of the Trustees and the costs and
expenses relating to the operation of the Series B Issuer.
REDEMPTION
The Series B Subordinated Debentures are redeemable prior to maturity at the
option of the Corporation (i) on or after February 4, 2007, in whole at any
time or in part from time to time, or (ii) prior to February 4, 2007, in whole
(but not in part) within 90 days following the occurrence of a Special Event
in each case at the Redemption Price described below. The proceeds of any such
redemption will be used by the Series B Issuer to redeem the Series B
Securities.
The Redemption Price in the case of a redemption under (i) above shall equal
the following prices, expressed in percentages of the principal amount,
together with accrued interest to but excluding the Redemption Date. If
redeemed during the 12-month period beginning February 4:
REDEMPTION
YEAR PRICE
---- ----------
2007.......................................................... 104.1285%
2008.......................................................... 103.7157
2009.......................................................... 103.3028
2010.......................................................... 102.8810
2011.......................................................... 102.4771
2012.......................................................... 102.0643
2013.......................................................... 101.6514
2014.......................................................... 101.2386
2015.......................................................... 100.8257
2016.......................................................... 100.4129
and at 100% on or after February 4, 2017.
The Redemption Price, in the case of a redemption following a Special Event
as described under (ii) above, shall equal the Make-Whole Amount (as defined
under "Certain Terms of Series B Capital Securities--Redemption"), together
with accrued interest to but excluding the Redemption Date.
S-21
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES
As described under "Certain Terms of Series B Capital Securities--
Liquidation of Series B Issuer and Distribution of Series B Subordinated
Debentures to Holders", under certain circumstances involving the termination
of the Series B Issuer, Series B Subordinated Debentures may be distributed to
the holders of the Series B Capital Securities upon liquidation of the Series
B Issuer after satisfaction of liabilities to creditors of the Series B Issuer
as provided by applicable law. If distributed to holders of Series B Capital
Securities, the Series B Subordinated Debentures will initially be issued in
the form of one or more global securities and DTC, or any successor depositary
for the Series B Capital Securities, will act as depositary for the Series B
Subordinated Debentures. There can be no assurance as to the market price of
any Series B Subordinated Debentures that may be distributed to the holders of
Series B Capital Securities.
CONDITIONAL RIGHT TO ADVANCE MATURITY
If a Tax Event occurs, then the Corporation will have the right (a) prior to
the dissolution of the Series B Issuer, to advance the Stated Maturity of the
Series B Subordinated Debentures to the minimum extent required, but not less
than 19 and one-half years from the date of original issuance thereof, or (b)
to direct the Property Trustee to dissolve the Series B Issuer (if not
previously dissolved) and advance the Stated Maturity of the Series B
Subordinated Debentures to the minimum extent required, but not less than 19
and one-half years from the date of original issuance thereof, in each case
such that in the opinion of counsel to the Corporation experienced in such
matters, after advancing the Stated Maturity, interest paid on the Series B
Subordinated Debentures will be deductible for federal income tax purposes.
REGISTRATION OF SERIES B SUBORDINATED DEBENTURES
The Series B Subordinated Debentures will be registered in the name of the
Property Trustee on behalf of the Series B Issuer. In the event that the
Series B Subordinated Debentures are distributed to holders of Series B
Capital Securities, it is anticipated that the depositary and other
arrangements for the Series B Subordinated Debentures will be substantially
identical to those in effect for the Series B Capital Securities. See "Certain
Terms of Series Capital Securities--Registration of Series B Capital
Securities".
CERTAIN TERMS OF SERIES B GUARANTEE
Pursuant to the Series B Guarantee, the Corporation guarantees to the
holders of the Series B Securities the following payments, to the extent not
paid by the Series B Issuer: (i) any accumulated and unpaid Distributions
required to be paid on the Series B Securities, to the extent that the Series
B Issuer has funds on hand available therefor at such time, (ii) the
Redemption Price with respect to any Series B Securities called for
redemption, to the extent that the Series B Issuer has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution
and winding-up of the Series B Issuer (unless the Series B Subordinated
Debentures are distributed to holders of the Series B Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment and (b) the amount of assets of the
Series B Issuer remaining available for distribution to holders of the Series
B Securities in liquidation of the Series B Issuer after payment of creditors
of the Series B Issuer as required by applicable law. The Series B Guarantee
will be qualified as an indenture under the Trust Indenture Act. The Bank of
New York will act as the Guarantee Trustee for the purposes of compliance with
the Trust Indenture Act and will hold the Series B Guarantee for the benefit
of the holders of the Series B Securities. The Bank of New York will also act
as Debenture Trustee for the Series B Subordinated Debentures and as Property
Trustee.
S-22
The holders of not less than a majority in aggregate Liquidation Amount of
the Series B Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect to the Series B Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Series B Guarantee. Any
holder of the Series B Securities may institute a legal proceeding directly
against the Corporation to enforce its rights under the Series B Guarantee
without first instituting a legal proceeding against the Series B Issuer, the
Guarantee Trustee or any other person or entity. If the Corporation were to
default on its obligation to pay amounts payable under the Series B
Subordinated Debentures, the Series B Issuer would lack funds for the payment
of Distributions or amounts payable on redemption of the Series B Securities
or otherwise, and, in such event, holders of the Series B Securities would not
be able to rely upon the Series B Guarantee for payment of such amounts.
Instead, if any Debenture Event of Default shall have occurred and be
continuing and such event is attributable to the failure of the Corporation to
pay interest or premium, if any, on or principal of the Series B Subordinated
Debentures on the applicable payment date, then a holder of Series B
Securities may institute a Direct Action against the Corporation pursuant to
the terms of the Indenture for enforcement of payment to such holder of the
principal of or interest or premium, if any, on such Series B Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Series B Securities of such holder. In connection with such Direct
Action, the Corporation will have a right of set-off under the Indenture to
the extent of any payment made by the Corporation to such holder of Series B
Securities in the Direct Action. Except as described herein, holders of Series
B Securities will not be able to exercise directly any other remedy available
to the holders of the Series B Subordinated Debentures or assert directly any
other rights in respect of the Series B Subordinated Debentures. See
"Description of Guarantees" in the accompanying Prospectus. The Trust
Agreement provides that each holder of Series B Securities by acceptance
thereof agrees to the provisions of the Series B Guarantee, the Expense
Agreement and the Indenture.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Series B Capital
Securities. This summary only addresses the tax consequences to a person that
acquires Series B Capital Securities on their original issue at their original
offering price and that is (i) an individual citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any state thereof or the District of Columbia or (iii) an
estate or trust, the income of which is subject to United States federal
income tax regardless of source (a "United States Person"). This summary does
not address all tax consequences that may be applicable to a United States
Person that is a beneficial owner of Series B Capital Securities, nor does it
address the tax consequences to (i) persons that are not United States
Persons, (ii) persons that may be subject to special treatment under United
States federal income tax law such as banks, insurance companies, thrift
institutions, regulated investment companies, real estate investment trusts,
tax-exempt organizations and dealers in securities or currencies, (iii)
persons that will hold Series B Capital Securities as part of a position in a
"straddle" or as part of a "hedging", "conversion" or other integrated
investment transaction for federal income tax purposes, (iv) persons whose
functional currency is not the United States dollar or (v) persons that do not
hold Series B Capital Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Baker & Botts, L.L.P., counsel to the Corporation
and the Series B Issuer. This summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue
Service rulings and pronouncements and judicial decisions in effect on the
date of this Prospectus Supplement, all of which are subject to change at any
time. Such changes may be applied retroactively in a manner that could cause
the tax consequences to vary substantially from the consequences
S-23
described below, possibly adversely affecting a beneficial owner of Series B
Capital Securities. In particular, legislation was previously proposed that
could have adversely affected the Corporation's ability to deduct interest on
the Series B Subordinated Debentures, which would in turn have permitted the
Corporation to cause a redemption of the Series B Capital Securities or to
advance the Stated Maturity of the Series B Subordinated Debentures. See
"--Possible Tax Law Changes" and "Certain Terms of Series B Subordinated
Debentures--Conditional Right to Advance Maturity". The authorities on which
this summary is based are subject to various interpretations, and it is
therefore possible that the federal income tax treatment of the purchase,
ownership and disposition of Series B Capital Securities may differ from the
treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS IN LIGHT
OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES B CAPITAL SECURITIES, AS
WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE SERIES B ISSUER
Assuming compliance with the terms of the Trust Agreement and certain
similar factual matters, the Series B Issuer will be classified as a grantor
trust and will not be classified as an association taxable as a corporation
for United States federal income tax purposes. As a result, each beneficial
owner of Series B Capital Securities (a "Securityholder") will be required to
include in its gross income its pro rata share of the interest income,
including original issue discount, paid or accrued with respect to the Series
B Subordinated Debentures whether or not cash is actually distributed to the
Securityholders. See "--Interest Income and Original Issue Discount".
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury Regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with original issue discount ("OID"). The
Corporation believes that the likelihood of its exercising its option to defer
payments is remote. Based on the foregoing, the Series B Subordinated
Debentures will not be considered to be issued with OID at the time of their
original issuance and, accordingly, a Securityholder should include in gross
income such Securityholder's allocable share of interest on the Series B
Subordinated Debentures in accordance with such Securityholder's method of tax
accounting.
Under the Regulations, if the Corporation exercised its option to defer any
payment of interest, the Series B Subordinated Debentures would at that time
be treated as issued with OID, and all stated interest on the Series B
Subordinated Debentures would thereafter be treated as OID as long as the
Series B Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Series B
Subordinated Debentures would be accounted for as OID on an economic accrual
basis regardless of such Securityholder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a Securityholder would be required to include in gross income
OID even though the Corporation would not make any actual cash payments during
an Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service (the "IRS"), and it is
possible that the IRS could take a position contrary to the interpretation
herein.
Because income on the Series B Capital Securities will constitute interest
or OID, corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Series B
Capital Securities.
Subsequent uses of the term "interest" in this summary include income in the
form of OID.
S-24
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES TO HOLDERS OF SERIES B
CAPITAL SECURITIES
A distribution by the Series B Issuer of the Series B Subordinated
Debentures, as described under the caption "Certain Terms of Series B Capital
Securities--Liquidation of Series B Issuer and Distribution of Series B
Subordinated Debentures to Holders", will be non-taxable and will result in
the Securityholder receiving directly its pro rata share of the Series B
Subordinated Debentures previously held indirectly through the Series B
Issuer, with a holding period and aggregate tax basis equal to the holding
period and aggregate tax basis such Securityholder had in its Series B Capital
Securities before such distribution. If, however, the liquidation of the
Series B Issuer were to occur because the Series B Issuer is subject to United
States federal income tax with respect to income accrued or received on the
Series B Subordinated Debentures, the distribution of Series B Subordinated
Debentures to Securityholders by the Series B Issuer would be a taxable event
to the Series B Issuer and each Securityholder, and the Securityholder would
recognize gain or loss as if the Securityholder had exchanged its Series B
Capital Securities for the Series B Subordinated Debentures it received upon
the liquidation of the Series B Issuer. A Securityholder will include interest
income in respect of Series B Subordinated Debentures received from the Series
B Issuer in the manner described above under "--Interest Income and Original
Issue Discount".
Under certain circumstances described herein (see "Certain Terms of Series B
Subordinated Debentures--Redemption" and "Certain Terms of Series B Capital
Securities--Redemption"), the Series B Subordinated Debentures may be redeemed
by the Corporation for cash and the proceeds of such redemption distributed by
the Series B Issuer to holders in redemption of their Series B Capital
Securities. Under current law, such a redemption would, for United States
federal income tax purposes, constitute a taxable disposition of the redeemed
Series B Capital Securities, and a holder could recognize gain or loss as if
it sold such redeemed Series B Capital Securities for cash. See "--Sale or
Redemption of Series B Capital Securities".
SALE OR REDEMPTION OF SERIES B CAPITAL SECURITIES
A Securityholder that sells (including a redemption for cash) Series B
Capital Securities will recognize gain or loss equal to the difference between
its adjusted tax basis in the Series B Capital Securities and the amount
realized on the sale of such Series B Capital Securities. The amount realized
is equal to the cash received, less the amount of accrued and unpaid interest
with respect to the Securityholder's pro rata share of the Series B
Subordinated Debentures. A Securityholder must include his share of such
accrued and unpaid interest as ordinary income. Assuming that the Corporation
does not exercise its option to defer payment of interest on the Series B
Subordinated Debentures and the Series B Capital Securities are not considered
issued with OID, a Securityholder's adjusted tax basis in the Series B Capital
Securities generally will be its initial purchase price. If the Series B
Subordinated Debentures are deemed to be issued with OID as a result of the
Corporation's deferral of any interest payment or otherwise, a
Securityholder's tax basis in the Series B Capital Securities generally will
be its initial purchase price, increased by OID previously includible in such
Securityholder's gross income to the date of disposition and decreased by
distributions or other payments received on the Series B Capital Securities
since and including the date of the first Extension Period. Such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Series B Capital Securities have been held for
more than one year.
Should the Corporation exercise its option to defer any payment of interest
on the Series B Subordinated Debentures, the Series B Capital Securities may
trade at a price that does not accurately reflect the value of accrued but
unpaid interest with respect to the underlying Series B Subordinated
Debentures. In the event of such a deferral, a Securityholder who disposes of
its Series B Capital Securities between record dates for payments of
distributions thereon will be required to include in income as ordinary income
accrued but unpaid interest on the Series B Subordinated Debentures to the
date of disposition as OID and to add such amount to its adjusted tax basis in
its pro rata share of
S-25
the underlying Series B Subordinated Debentures deemed disposed of. To the
extent the selling price is less than the Securityholder's adjusted tax basis,
such Securityholder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid or accrued on the Series B Capital
Securities held of record by United States Persons (other than corporations
and other exempt Securityholders) will be reported to the IRS. "Backup"
withholding at a rate of 31% will apply to payments of interest to non-exempt
United States Persons unless the Securityholder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Series B Capital Securities
to or through the United States office of a broker is subject to information
reporting and backup withholding unless the Securityholder or beneficial owner
establishes an exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability; provided the required information
is furnished to the IRS.
It is anticipated that income on the Series B Capital Securities will be
reported to holders on Form 1099 and mailed to holders of the Series B Capital
Securities by January 31 following each calendar year.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's 1996 budget proposal, was introduced to
the 104th Congress. The Bill would have, among other things, generally denied
interest deductions for interest accrued on an instrument issued by a
corporation that had a maximum term of more than 20 years and that was not
shown as indebtedness on the separate balance sheet of the issuer or, where
the instrument was issued to a related party (other than a corporation), where
the holder or some other related party issued a related instrument that was
not shown as indebtedness on the issuer's consolidated balance sheet. The Bill
would have also generally denied interest deductions for interest on an
instrument issued by a corporation that had a maximum weighted-average
maturity of more than 40 years. The above-described provisions of the Bill
were proposed to be effective generally for instruments issued on or after
December 7, 1995. If this provision were to apply to the Series B Subordinated
Debentures, the Corporation would not be able to deduct interest on the Series
B Subordinated Debentures. However, on March 29, 1996, the Chairmen of the
Senate Finance and House Ways and Means Committees issued a joint statement to
the effect that it was their intention that the effective date of the
President's legislative proposals, if adopted, would be no earlier than the
date of appropriate Congressional action. Under current law, the Corporation
will be able to deduct interest on the Series B Subordinated Debentures.
Although the 104th Congress adjourned without enacting the above-described
provisions of the Bill, there can be no assurance that current or future
legislative proposals or final legislation will not adversely affect the
ability of the Corporation to deduct interest on the Series B Subordinated
Debentures. Such a change could give rise to a Tax Event, which would permit
the Corporation to cause a redemption of the Series B Capital Securities
before February 4, 2007. See "Certain Terms of Series B Subordinated
Debentures--Redemption" and "Certain Terms of the Series B Subordinated
Debentures--Conditional Right to Advance Maturity" in this Prospectus
Supplement and "Description of Securities--Redemption or Distribution--
Distribution of Corresponding Junior Subordinated Debentures" in the
accompanying Prospectus.
S-26
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit plan (an
"ERISA Plan") subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), should consider the fiduciary standards of ERISA in the
context of the ERISA Plan's particular circumstances before authorizing an
investment in the Series B Capital Securities. Among other factors, the
fiduciary should consider whether such an investment is in accordance with the
documents governing the ERISA Plan and whether the investment is appropriate
for the ERISA Plan in view of its overall investment policy and
diversification of its portfolio.
Certain provisions of ERISA and the Code prohibit ERISA Plans, as well as
individual retirement accounts and Keogh plans subject to section 4975 of the
Code (collectively, "Plans"), from engaging in certain transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the Plan. The U.S.
Department of Labor has issued a final regulation (the "Regulation") with
regard to whether the underlying assets of an entity in which employee benefit
plans acquire equity interests are deemed to be plan assets.
Under such Regulation, for purposes of ERISA and section 4975 of the Code,
the assets of the Series B Issuer would be deemed to be "plan assets" of a
Plan whose assets were used to purchase Series B Capital Securities if the
Series B Capital Securities were considered to be equity interests in the
Series B Issuer and no exception to plan asset status were applicable under
the Regulation.
If the assets of the Series B Issuer were deemed to be plan assets of Plans
that are holders of the Series B Capital Securities, a Plan's investment in
the Series B Capital Securities might be deemed to constitute a delegation
under ERISA of the duty to manage plan assets by a fiduciary investing in
Series B Capital Securities. In addition, the Corporation might be considered
a "party in interest" or "disqualified person" with respect to Plans whose
assets were used to purchase Series B Capital Securities. If this were the
case, an investment in Series B Capital Securities by a Plan might constitute
or, in the course of the operation of the Series B Issuer, give rise to a
prohibited transaction under ERISA or the Code. In particular, it is likely
that, under such circumstances, a prohibited "extension of credit" to the
Corporation would be considered to occur under ERISA and the Code.
Because of the possibility that the assets of the Series B Issuer would be
considered plan assets of Plans whose assets were invested in the Series B
Capital Securities, and the likelihood that under such circumstances a
prohibited extension of credit would occur, the Series B Capital Securities
may be not purchased or held by any Plan or any person investing "plan assets"
of any Plan, unless such purchaser or holder is eligible for the exemptive
relief available under PTCE 96-23 (for certain transactions determined by in-
house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts), or PTCE 84-14
(for certain transactions determined by independent qualified asset managers).
Any purchaser or holder of the Series B Capital Securities or any interest
therein will be deemed to have represented by its purchase and holding thereof
that it either (a) is not a Plan and is not purchasing such securities on
behalf of or with "plan assets" of any Plan or (b) is eligible for the
exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is important that any person
considering the purchase of Series B Capital Securities with Plan assets
consult with its counsel regarding the consequences under ERISA and the Code
of the acquisition and ownership of Series B Capital Securities and the
availability of exemptive relief under the class exemptions listed above.
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) generally are not subject to ERISA requirements.
S-27
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Corporation and the Series B Issuer have agreed that the Series B Issuer will
sell to each of the Underwriters named below, and each of such Underwriters
has severally agreed to purchase from the Series B Issuer, the respective
Liquidation Amount of Series B Capital Securities set forth opposite its name
below:
LIQUIDATION AMOUNT
OF SERIES B
UNDERWRITER CAPITAL SECURITIES
----------- -------------------
Goldman, Sachs & Co...................................... $50,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 50,000,000
------------
Total.................................................. $100,000,000
============
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Series B Capital
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Series B Capital Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain dealers at
such price less a concession of $6.00 per Series B Capital Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $2.50 per Series B Capital Security to certain brokers and dealers.
After the Series B Capital Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
In view of the fact that the proceeds from the sale of the Series B Capital
Securities will be used to purchase the Series B Subordinated Debentures
issued by the Corporation, the Underwriting Agreement provides that the
Corporation will pay as Underwriters' compensation for the Underwriters'
arranging the investment therein of such proceeds an amount of $10.00 per
Series B Capital Security for the accounts of the several Underwriters.
The Corporation and the Series B Issuer have agreed that, during the period
beginning on the date of the Underwriting Agreement and continuing to and
including the date of delivery of the Series B Capital Securities to the
Underwriters in accordance with the Underwriting Agreement, they will not
offer, sell, contract to sell or otherwise dispose of any Series B Capital
Securities, any security convertible into or exchangeable into or exercisable
for Series B Capital Securities or Series B Subordinated Debentures or any
debt securities substantially similar to the Series B Subordinated Debentures
or any equity securities substantially similar to the Series B Capital
Securities (except for the Series B Subordinated Debentures and the Series B
Capital Securities issued pursuant to the Underwriting Agreement), without the
prior written consent of the Underwriters.
S-28
Prior to this offering, there has been no public market for the Series B
Capital Securities. The Underwriters have advised the Corporation that they
intend to make a market in the Series B Capital Securities, but are not
obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market
for the Series B Capital Securities.
The Corporation and the Series B Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to the Corporation and its affiliates, for which such Underwriters or
their affiliates have received or will receive customary fees and commissions.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Series B
Capital Securities, the enforceability of the Trust Agreement and the
formation of the Series B Issuer will be passed upon by Richards, Layton &
Finger, Wilmington, Delaware, special Delaware counsel to the Corporation and
the Series B Issuer. The validity of the Series B Guarantee and the Series B
Subordinated Debentures will be passed upon for the Corporation by Baker &
Botts, L.L.P., Houston, Texas. Certain legal matters will be passed upon for
the Corporation by Hugh Rice Kelly, Esq., Executive Vice President, General
Counsel and Corporate Secretary of the Corporation, and for the Underwriters
by Dewey Ballantine, New York, New York. Certain matters relating to United
States federal income tax considerations described in this Prospectus
Supplement will be passed upon for the Corporation by Baker & Botts, L.L.P.
S-29
$350,000,000
HOUSTON LIGHTING & POWER COMPANY
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
HL&P CAPITAL TRUST I
HL&P CAPITAL TRUST II
HL&P CAPITAL TRUST III
HL&P CAPITAL TRUST IV
TRUST PREFERRED SECURITIES AND CAPITAL SECURITIES, FULLY AND UNCONDITIONALLY
GUARANTEED, AS DESCRIBED HEREIN, BY
HOUSTON LIGHTING & POWER COMPANY
Houston Lighting & Power Company, a Texas corporation ("HL&P" or the
"Corporation"), may from time to time offer in one or more series or issuances
its junior subordinated deferrable interest debentures (the "Junior
Subordinated Debentures"). The Junior Subordinated Debentures will be
unsecured and subordinate and junior in right of payment to all Senior Debt
(as defined in "Description of Junior Subordinated Debentures--Subordination")
of the Corporation. If provided in an accompanying Prospectus Supplement, the
Corporation will have the right to defer payments of interest on any series of
Junior Subordinated Debentures by extending the interest payment period
thereon at any time or from time to time for up to such number of consecutive
interest payment periods (which shall not extend beyond the Stated Maturity
(as defined herein) of the Junior Subordinated Debentures) with respect to
each deferral period as may be specified in such Prospectus Supplement (each,
an "Extension Period"). In such circumstances, however, the Corporation would
not be permitted, subject to certain exceptions set forth herein, to declare
or pay any dividends, distributions or other payments with respect to, or
repay, repurchase, redeem or otherwise acquire, the Corporation's capital
stock or debt securities that rank pari passu in all respects with or junior
to such series of Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures--Option to Defer Interest Payments" and "--
Restrictions on Certain Payments".
HL&P Capital Trust I, HL&P Capital Trust II, HL&P Capital Trust III and HL&P
Capital Trust IV, each a statutory business trust created under the laws of
the State of Delaware (each, an "Issuer", and collectively, the "Issuers"),
may severally offer, from time to time, preferred securities (collectively,
the "Preferred Securities") or capital securities (collectively, the "Capital
Securities" and, together with the Preferred Securities, the "Securities")
representing undivided beneficial interests in the assets of such Issuer. The
Corporation will be the owner of common securities (the "Common Securities"
and, together with the Securities, the "Trust Securities") representing common
undivided beneficial interests in the assets of such Issuer. Holders of the
Securities will be entitled to receive preferential cumulative cash
distributions ("Distributions") accumulating from the date of original
issuance and payable periodically as specified in an accompanying Prospectus
Supplement. Concurrently with the issuance by an Issuer of its Securities,
such Issuer will invest the proceeds thereof and of contributions received in
respect of the Common Securities in a corresponding series of the
Corporation's Junior Subordinated Debentures (the "Corresponding Junior
Subordinated Debentures") with terms corresponding to the terms of that
Issuer's Securities (the "Related Securities").
Accordingly, if as provided in an accompanying Prospectus Supplement, the
Corporation has the right to defer the payment of interest on a series of
Corresponding Junior Subordinated Debentures, then, if interest payments are
so deferred, Distributions on the Related Securities would also be deferred,
but would continue to accumulate at the rate per annum set forth in the
related Prospectus Supplement. See "Description of Securities--Distributions".
(continued on next page)
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is January 27, 1997.
(cover page continued)
Taken together, the Corporation's obligations under each series of
Corresponding Junior Subordinated Debentures, the Indenture, the related Trust
Agreement, the related Expense Agreement and the related Guarantee (each as
defined herein), in the aggregate, provide a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Related Securities. See "Relationship Among the Securities, the
Corresponding Junior Subordinated Debentures, the Expense Agreement and the
Guarantees--Full and Unconditional Guarantee". The payment of Distributions
with respect to the Securities of each Issuer and payments on liquidation of
such Issuer or redemption of such Securities, in each case to the extent of
funds held by such Issuer, are each irrevocably guaranteed by the Corporation
as described herein (each, a "Guarantee"). See "Description of Guarantees".
The obligations of the Corporation under each Guarantee will be unsecured and
subordinated and junior in right of payment to all Senior Debt of the
Corporation.
The Corresponding Junior Subordinated Debentures and the right to
reimbursement of expenses under the related Expense Agreement will be
substantially all of the assets of each Issuer, and payments under the
Corresponding Junior Subordinated Debentures and the related Expense Agreement
will be the only revenues of each Issuer. If so provided in an accompanying
Prospectus Supplement, the Corporation may redeem the Corresponding Junior
Subordinated Debentures (and thereby cause the redemption of the Trust
Securities) or may direct each Property Trustee (as defined herein) to
dissolve each Issuer and, after satisfaction of liabilities to the creditors
of such Issuer as required by applicable law, cause the Corresponding Junior
Subordinated Debentures to be distributed to the holders of Securities upon
liquidation of their interests in such Issuer. See "Description of
Securities--Liquidation Distribution Upon Termination".
The Junior Subordinated Debentures and Securities may be offered in amounts,
at prices and on terms to be determined at the time of offering; provided,
however, the aggregate initial public offering price of all Junior
Subordinated Debentures and Securities issued pursuant to the Registration
Statement of which this Prospectus forms a part shall not exceed $350,000,000.
Certain specific terms of the Junior Subordinated Debentures or Securities in
respect of which this Prospectus is being delivered will be described in an
accompanying Prospectus Supplement, including without limitation and where
applicable and to the extent not set forth herein, (a) in the case of Junior
Subordinated Debentures, the specific designation, aggregate principal amount,
denominations, Stated Maturity (including any provisions for the advancement
or extension thereof), interest payment dates, interest rate or method of
calculating interest, if any, applicable Extension Period or interest deferral
terms, if any, place or places where principal, premium, if any, and interest,
if any, will be payable, any terms of redemption, any sinking fund provisions,
terms for any conversion or exchange into other securities, initial offering
or purchase price, methods of distribution and any other special terms and (b)
in the case of Securities, the identity of the Issuer, specific title,
aggregate stated liquidation amount, number of securities, Distribution rate
or method of calculating such rate, Distribution payment dates, applicable
Distribution deferral terms, if any, place or places where Distributions will
be payable, any terms of redemption, exchange, initial offering or purchase
price, methods of distribution and any other special terms.
The Prospectus Supplement also will contain information, as applicable,
about certain United States federal income tax consequences relating to the
Junior Subordinated Debentures or Securities.
The Junior Subordinated Debentures and Securities may be sold to or through
underwriters, through dealers, remarketing firms or agents or directly to
purchasers. See "Plan of Distribution". The names of any underwriters,
dealers, remarketing firms or agents involved in the sale of Junior
Subordinated Debentures or Securities in respect of which this Prospectus is
being delivered and any applicable fee, commission or discount arrangements
with them will be set forth in a Prospectus Supplement. The Prospectus
Supplement will state whether the Junior Subordinated Debentures or Securities
will be listed on any national securities exchange or automated quotation
system. If the Junior Subordinated Debentures or Securities are not listed on
any national securities exchange or automated quotation system, there can be
no assurance that there will be a secondary market for the Junior Subordinated
Debentures or Securities.
This Prospectus may not be used to consummate sales of Junior Subordinated
Debentures or Securities unless accompanied by a Prospectus Supplement.
2
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
The Corporation and the Issuers have filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Corporation and the securities offered hereby,
reference is made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission at the addresses set forth above or
through the Commission's home page on the Internet. Statements made in this
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement.
No separate financial statements of any Issuer have been included herein.
The Corporation and the Issuers do not consider that such financial statements
would be material to holders of the Securities because each Issuer is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Corresponding Junior
Subordinated Debentures and issuing the Trust Securities. Furthermore, taken
together, the Corporation's obligations under each series of Corresponding
Junior Subordinated Debentures, the Indenture, the related Trust Agreement,
the related Expense Agreement and the related Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Related Securities of an Issuer.
See "The Issuers", "Description of Securities", "Description of Junior
Subordinated Debentures--Corresponding Junior Subordinated Debentures" and
"Description of Guarantees". In addition, the Corporation does not expect that
any of the Issuers will be filing reports under the Exchange Act with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Commission are
incorporated into this Prospectus by reference:
(1) The Corporation's Annual Report on Form 10-K for its fiscal year
ended December 31, 1995;
(2) The Corporation's Quarterly Reports on Form 10-Q for its quarterly
periods ended March 31, 1996, June 30, 1996 and September 30, 1996;
and
(3) The Corporation's Current Report on Form 8-K filed on August 12,
1996.
Each document or report filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part
of this Prospectus from the date of filing of such document. Any statement
contained herein, or in
3
any document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
the Registration Statement or this Prospectus.
The Corporation will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein
(other than exhibits not specifically incorporated by reference into the texts
of such documents). Requests for such documents should be directed to:
Corporate Secretary, Houston Lighting & Power Company, 1111 Louisiana,
Houston, Texas 77002, telephone number (713) 207-1111.
HOUSTON LIGHTING & POWER COMPANY
The Corporation is engaged in the generation, transmission, distribution and
sale of electric energy and serves approximately 1.5 million residential,
commercial and industrial customers in a 5,000 square-mile area of the Texas
Gulf Coast, including Houston. The address of the Corporation's principal
executive offices is 1111 Louisiana, Houston, Texas 77002. Its telephone
number is (713) 207-1111.
The Corporation is a subsidiary of Houston Industries Incorporated ("Houston
Industries"), which, directly or indirectly, owns all of the Corporation's
outstanding common stock. Houston Industries is a holding company as defined
in the Public Utility Holding Company Act of 1935, as amended (the "1935
Act"); however, based upon the intrastate operations of the Corporation and
the exemptions applicable to certain other subsidiaries of Houston Industries,
Houston Industries is exempt from regulation as a "registered" holding company
under the 1935 Act except with respect to the acquisition of voting securities
of other domestic public utility companies and holding companies.
RECENT DEVELOPMENTS; NORAM MERGER
The Corporation is a party to an Agreement and Plan of Merger, dated as of
August 11, 1996, as amended (the "Merger Agreement"), among the Corporation,
Houston Industries, a subsidiary of Houston Industries ("Merger Sub") and
NorAm Energy Corp. ("NorAm"). The Merger Agreement provides for (i) the merger
of Houston Industries into the Corporation (the "HI/HL&P Merger"), as a result
of which each outstanding share of common stock of Houston Industries will be
converted into one share of common stock of the Corporation, which will be
renamed "Houston Industries Incorporated" ("Houston") and will continue to
conduct the Corporation's electric utility business under the Corporation's
name, and (ii) the merger of NorAm into Merger Sub (the "NorAm Merger", and
together with the HI/HL&P Merger, the "Basic Mergers"), as a result of which
NorAm will become a wholly owned subsidiary of Houston and the outstanding
shares of common stock of NorAm will be converted into the right to receive
cash or Houston common stock. The Merger Agreement also provides that other
alternative merger structures could be used rather than the Basic Mergers in
certain circumstances. In one such alternative, Houston Industries and NorAm
would both be merged into the Corporation, with the Corporation surviving (the
"Alternative Merger"). The term "Transaction" refers to the business
combination pursuant to the Merger Agreement whether implemented using the
Basic Mergers or any other alternative merger structure. Consummation of the
Transaction is subject to certain customary conditions, including receipt of
certain regulatory approvals. The shareholders of each of Houston Industries
and NorAm approved the Transaction on December 17, 1996.
THE ISSUERS
Each Issuer is a statutory business trust created under Delaware law
pursuant to (i) a trust agreement executed by the Corporation, as depositor of
the Issuer, and the Delaware Trustee (as defined herein) of such Issuer and
(ii) the filing of a certificate of trust with the Delaware Secretary of
State. Each trust agreement will be amended and restated in its entirety
(each, as so amended and
4
restated, a "Trust Agreement") substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. Each
Trust Agreement will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Each Issuer exists for
the exclusive purposes of (i) issuing and selling its Trust Securities, (ii)
using the proceeds from the sale of such Trust Securities to acquire a series
of Corresponding Junior Subordinated Debentures issued by the Corporation and
(iii) engaging in only those activities necessary, convenient or incidental
thereto set forth in the related Trust Agreement (such as registering the
transfer of the Trust Securities). Accordingly, the Corresponding Junior
Subordinated Debentures and the right to reimbursement of expenses under the
related Expense Agreement will be substantially all of the assets of each
Issuer, and payments under the Corresponding Junior Subordinated Debentures
and the related Expense Agreement will be the only revenues of each Issuer.
All of the Common Securities of each Issuer will be owned by the
Corporation. The Common Securities of an Issuer will rank pari passu, and
payments will be made thereon pro rata, with the Securities of such Issuer,
except that upon the occurrence and continuance of an event of default under a
Trust Agreement resulting from an event of default under the Indenture, the
rights of the Corporation as holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation or redemption will be
subordinated to the rights of the holders of the Securities of such Issuer.
See "Description of Securities--Subordination of Common Securities". The
Corporation will acquire Common Securities in an aggregate Liquidation Amount
equal to not less than 3% of the total capital of each Issuer.
Unless otherwise specified in the applicable Prospectus Supplement, each
Issuer has a term of approximately 55 years, but may be dissolved earlier as
provided in the applicable Trust Agreement. Each Issuer's business and affairs
are conducted by its trustees, each appointed by the Corporation as holder of
the Common Securities. The trustees for each Issuer are The Bank of New York,
as the Property Trustee (the "Property Trustee"), The Bank of New York
(Delaware), as the Delaware Trustee (the "Delaware Trustee"), and three
individual trustees (the "Administrative Trustees") who will be selected by
the Corporation (collectively, the "Issuer Trustees"). The Bank of New York,
as Property Trustee, will act as sole trustee under each Trust Agreement for
purposes of compliance with the Trust Indenture Act. The Bank of New York will
also act as trustee under the Guarantees and the Indenture. See "Description
of Guarantees" and "Description of Junior Subordinated Debentures". The holder
of the Common Securities of an Issuer, or, if an event of default under the
Indenture has occurred and is continuing, the holders of a majority in
Liquidation Amount of the Related Securities will be entitled to appoint,
remove or replace the Property Trustee and/or the Delaware Trustee for such
Issuer. In no event will the holders of the Securities have the right to vote
to appoint, remove or replace the Administrative Trustees; such voting rights
are vested exclusively in the holder of the Common Securities. The duties and
obligations of each Issuer Trustee are governed by the applicable Trust
Agreement. The Corporation will pay all fees and expenses related to each
Issuer and the offering of the Securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of each Issuer.
The principal executive office of each Issuer is 200 West 9th Street Plaza,
Box 2105, Wilmington, Delaware 19899 and the telephone number of each Issuer
is (302) 655-8894.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Corporation intends to use the proceeds from the sale of its Junior
Subordinated Debentures (including Corresponding Junior Subordinated
Debentures issued to the Issuers in connection with the investment by the
Issuers of all of the proceeds from the sale of Trust Securities) for general
corporate purposes, including redemption or repurchase of shares of its
outstanding preferred stock, the satisfaction of other obligations or for such
other purposes as may be specified in the applicable Prospectus Supplement.
5
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued in one or more series
under a Junior Subordinated Indenture, as supplemented from time to time (as
so supplemented, the "Indenture"), between the Corporation and The Bank of New
York, as trustee (the "Debenture Trustee"). This summary of certain terms and
provisions of the Junior Subordinated Debentures, Corresponding Junior
Subordinated Debentures and the Indenture, which summarizes the material
provisions thereof, does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture, the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, and to the Trust Indenture Act, to each of which description
reference is hereby made. The Indenture is qualified under the Trust Indenture
Act. Whenever particular defined terms of the Indenture (as supplemented or
amended from time to time) are referred to herein or in a Prospectus
Supplement, such defined terms are incorporated herein or therein by
reference.
GENERAL
Each series of Junior Subordinated Debentures will rank pari passu with all
other series of Junior Subordinated Debentures unless otherwise provided in
the applicable Prospectus Supplement and will be unsecured and subordinate and
junior in right of payment to the extent and in the manner set forth in the
Indenture to all Senior Debt (as defined below) of the Corporation. See "--
Subordination". Except as otherwise provided in the applicable Prospectus
Supplement, the Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Corporation, including Senior Debt, whether
under the Indenture, any other existing indenture or any other indenture that
the Corporation may enter into in the future or otherwise. See "--
Subordination" and the applicable Prospectus Supplement relating to any
offering of Securities or Junior Subordinated Debentures.
The Junior Subordinated Debentures will be issuable in one or more series
pursuant to an indenture supplemental to the Indenture or a resolution of the
Corporation's Board of Directors or a committee thereof.
The applicable Prospectus Supplement will describe the following terms of
the Junior Subordinated Debentures: (1) the title of the Junior Subordinated
Debentures; (2) any limit upon the aggregate principal amount of the Junior
Subordinated Debentures; (3) the date or dates on which the principal of the
Junior Subordinated Debentures is payable (the "Stated Maturity") or the
method of determination thereof and the right of the Corporation, if any, to
advance or extend the Stated Maturity; (4) the rate or rates, if any, at which
the Junior Subordinated Debentures shall bear interest, the dates on which any
such interest shall be payable (the "Interest Payment Dates"), the rate or
rates and extent to which interest, if any, shall accrue on any interest the
payment of which is not made on the applicable Interest Payment Date, the
right, if any, of the Corporation to defer or extend an Interest Payment Date
and the record dates for any interest payable on any Interest Payment Date
(the "Regular Record Dates") or the method by which any of the foregoing shall
be determined; (5) the place or places where, subject to the terms of the
Indenture as described below under "--Payment and Paying Agents", the
principal of and premium, if any, and interest on the Junior Subordinated
Debentures will be payable, the place or places where, subject to the terms of
the Indenture as described below under "--Denominations, Registration and
Transfer", the Junior Subordinated Debentures may be presented for
registration of transfer or exchange and the place or places where notices and
demands to or upon the Corporation in respect of the Junior Subordinated
Debentures and the Indenture may be made ("Place of Payment"); (6) any period
or periods within, or date or dates on which, the price or prices at which and
the terms and conditions upon which the Junior Subordinated Debentures may be
redeemed, in whole or in part, at the option of the Corporation; (7) the
obligation or the right, if any, of the Corporation to redeem, repay or
purchase the Junior
6
Subordinated Debentures pursuant to any sinking fund, amortization or
analogous provisions, or at the option of the holder thereof, and the period
or periods within which, the price or prices at which, the currency or
currencies (including currency unit or units) in which and the other terms and
conditions upon which the Junior Subordinated Debentures shall be redeemed,
repaid or purchased, in whole or in part, pursuant to such obligation; (8) the
denominations in which any Junior Subordinated Debentures shall be issuable,
if other than $25 and any integral multiple thereof; (9) if other than U.S.
Dollars, the currency or currencies (including currency unit or units) in
which the principal of (and premium, if any) and interest, if any, on the
Junior Subordinated Debentures shall be payable, or in which the Junior
Subordinated Debentures shall be denominated; (10) any additions,
modifications or deletions in the events of default under the Indenture or
covenants of the Corporation set forth therein with respect to the Junior
Subordinated Debentures; (11) if other than the principal amount thereof, the
portion of the principal amount of Junior Subordinated Debentures that shall
be payable upon declaration of acceleration of the maturity thereof; (12) any
additions or changes to the Indenture with respect to a series of Junior
Subordinated Debentures as shall be necessary to permit or facilitate the
issuance of such series in bearer form, registrable or not registrable as to
principal, and with or without interest coupons; (13) any index or indices
used to determine the amount of payments of principal of and premium, if any,
on the Junior Subordinated Debentures or the manner in which such amounts will
be determined; (14) whether the Junior Subordinated Debentures, or any portion
thereof, shall initially be issuable in the form of a temporary Global
Security representing all or such portion of the Junior Subordinated
Debentures of such series and provisions for the exchange of such temporary
Global Security for definitive Junior Subordinated Debentures of such series;
(15) subject to the terms described herein under "--Global Junior Subordinated
Debentures", whether the Junior Subordinated Debentures of the series shall be
issued in whole or in part in the form of one or more Global Securities and,
in such case, the respective depositaries for such Global Securities; (16) the
appointment of any paying agent or agents; (17) the terms of any right to
convert or exchange the Junior Subordinated Debentures into any other
securities or property of the Corporation and any additions or changes to the
Indenture with respect to the series of Junior Subordinated Debentures to
permit or facilitate such conversion or exchange; (18) the relative degree, if
any, to which such Junior Subordinated Debentures of the series shall be
senior to or be subordinated to other series of Junior Subordinated Debentures
in right of payment, whether such other Junior Subordinated Debentures are
outstanding or not; and (20) any other terms of the Junior Subordinated
Debentures not inconsistent with the provisions of the Indenture.
Junior Subordinated Debentures may be sold at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates. Certain United States federal
income tax consequences and special considerations applicable to any such
Junior Subordinated Debentures will be described in the applicable Prospectus
Supplement.
If the purchase price of any of the Junior Subordinated Debentures is
payable in one or more foreign currencies or currency units or if any Junior
Subordinated Debentures are denominated in one or more foreign currencies or
currency units or if the principal of, premium, if any, or interest on any
Junior Subordinated Debentures is payable in one or more foreign currencies or
currency units, the restrictions, elections, certain United States federal
income tax consequences, specific terms and other information with respect to
such series of Junior Subordinated Debentures and such foreign currency or
currency units will be set forth in the applicable Prospectus Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Junior Subordinated Debentures,
special United States federal income tax, accounting and other considerations
applicable thereto will be described in the applicable Prospectus Supplement.
7
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be issuable in registered form
without coupons in denominations specified in the applicable Prospectus
Supplement. Junior Subordinated Debentures of any series will be exchangeable
for other Junior Subordinated Debentures of the same series of any authorized
denominations, of a like aggregate principal amount, of the same original
issue date and Stated Maturity and having the same terms.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the appropriate securities registrar or at
the office of any transfer agent designated by the Corporation for such
purpose with respect to any series of Junior Subordinated Debentures and
referred to in the applicable Prospectus Supplement, without service charge
and upon payment of any taxes and other governmental charges as described in
the Indenture. The Corporation will appoint the Debenture Trustee as
securities registrar under the Indenture. If the applicable Prospectus
Supplement refers to any transfer agents (in addition to the securities
registrar) initially designated by the Corporation with respect to any series
of Junior Subordinated Debentures, the Corporation may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, provided that the Corporation
maintains a transfer agent in each Place of Payment for such series. The
Corporation may at any time designate additional transfer agents with respect
to any series of Junior Subordinated Debentures.
In the event of any redemption, neither the Corporation nor the Debenture
Trustee shall be required to (i) issue, transfer or exchange Junior
Subordinated Debentures of any series during a period beginning at the opening
of business 15 days before the day of mailing of a notice of redemption of
Junior Subordinated Debentures of that series and ending at the close of
business on the day of such mailing of notice of redemption or (ii) transfer
or exchange any Junior Subordinated Debentures so selected for redemption,
except, in the case of any Junior Subordinated Debentures to be redeemed in
part, any portion thereof not to be redeemed.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures of a series may be issued in whole or in
part in the form of one or more Global Junior Subordinated Debentures that
will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global Junior
Subordinated Debentures may be issued only in fully registered form and in
either temporary or permanent form. Global Junior Subordinated Debentures may
not be exchanged in whole or in part for the individual Junior Subordinated
Debentures represented thereby, and no transfer of a Global Junior
Subordinated Debenture in whole or in part may be registered in the name of
any person other than the Depositary or a nominee thereof unless (A) the
Depositary (i) has notified the Corporation that it is unwilling or unable to
continue as depositary for such Global Junior Subordinated Debenture or (ii)
has ceased to be a clearing agency registered under the Exchange Act at a time
when the Depositary is required to be so registered to act as depositary, in
each case unless the Corporation has approved a successor depositary within 90
days, (B) there shall have occurred and be continuing an event of default
under the Indenture with respect to such Global Junior Subordinated Debenture,
(C) the Corporation in its sole discretion determines that such Global Junior
Subordinated Debenture will be so exchangeable or transferable or (D) there
shall exist such circumstances, if any, in addition to or in lieu of the
foregoing as have been specified for this purpose as contemplated in the
Indenture. Subject to the foregoing, any exchange of a Global Junior
Subordinated Debenture for other Junior Subordinated Debentures may be made in
whole or in part, and all Junior Subordinated Debentures issued in exchange
for a Global Junior Subordinated Debenture or any portion thereof shall be
registered in such names as the Depositary for such Global Junior Subordinated
Debenture shall direct.
8
The specific terms of the depositary arrangement with respect to a series of
Junior Subordinated Debentures will be described in the Prospectus Supplement
relating to such series. The Corporation anticipates that the following
provisions will generally apply to depositary arrangements.
Upon the issuance of a Global Junior Subordinated Debenture and the deposit
of such Global Junior Subordinated Debenture with or on behalf of the
Depositary, the Depositary for such Global Junior Subordinated Debenture or
its nominee will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Junior Subordinated
Debentures represented by such Global Junior Subordinated Debenture to the
accounts of persons that have accounts with such Depositary ("Participants").
Such accounts shall be designated by the dealers, underwriters or agents with
respect to such Junior Subordinated Debentures or by the Corporation if such
Junior Subordinated Debentures are offered and sold directly by the
Corporation. Ownership of beneficial interests in a Global Junior Subordinated
Debenture will be limited to Participants or persons that may hold interests
through Participants. Ownership of beneficial interests in such Global Junior
Subordinated Debenture will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the applicable Depositary
or its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the transfer of beneficial interests in a
Global Junior Subordinated Debenture.
So long as the Depositary for a Global Junior Subordinated Debenture or its
nominee is the registered owner of such Global Junior Subordinated Debenture,
such Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Junior Subordinated Debentures represented by such
Global Junior Subordinated Debenture for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Junior
Subordinated Debenture will not be entitled to have any of the individual
Junior Subordinated Debentures of the series represented by such Global Junior
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated
Debentures of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Junior Subordinated Debentures represented by a Global Junior Subordinated
Debenture registered in the name of a Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner
of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures. None of the Corporation, the Debenture Trustee, any
Paying Agent, or the Securities Registrar for such Junior Subordinated
Debentures will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Corporation expects that the Depositary for a series of Junior
Subordinated Debentures or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of a permanent Global
Junior Subordinated Debenture representing any of such Junior Subordinated
Debentures, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the principal
amount of such Global Junior Subordinated Debenture for such Junior
Subordinated Debentures as shown on the records of such Depositary or its
nominee. The Corporation also expects that payments by Participants to owners
of beneficial interests in such Global Junior Subordinated Debenture held
through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for
9
the accounts of customers in bearer form or registered in "street name". Such
payments will be the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Junior Subordinated Debentures is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Corporation within 90 days, the Corporation
will issue individual Junior Subordinated Debentures of such series in
exchange for the Global Junior Subordinated Debenture representing such series
of Junior Subordinated Debentures. In addition, the Corporation may at any
time and in its sole discretion, subject to any limitations described in the
Prospectus Supplement relating to such Junior Subordinated Debentures,
determine not to have any Junior Subordinated Debentures of such series
represented by one or more Global Junior Subordinated Debentures and, in such
event, will issue certificated Junior Subordinated Debentures of such series
in exchange for the Global Junior Subordinated Debenture. Further, if the
Corporation so specifies with respect to the Junior Subordinated Debentures of
a series, an owner of a beneficial interest in a Global Junior Subordinated
Debenture representing Junior Subordinated Debentures of such series may, on
terms acceptable to the Corporation, the Debenture Trustee and the Depositary
for such Global Junior Subordinated Debenture, receive certificated Junior
Subordinated Debentures of such series in exchange for such beneficial
interests, subject to any limitations described in the Prospectus Supplement
relating to such Junior Subordinated Debentures. In any such instance, an
owner of a beneficial interest in a Global Junior Subordinated Debenture will
be entitled to physical delivery of certificated Junior Subordinated
Debentures of the series represented by such Global Junior Subordinated
Debenture equal in principal amount to such beneficial interest and to have
such Junior Subordinated Debentures registered in its name. Individual Junior
Subordinated Debentures of such series so issued will be issued in
denominations, unless otherwise specified by the Corporation, of $25 and
integral multiples thereof if the Related Securities are Preferred Securities
or $1,000 and integral multiples thereof if the Related Securities are Capital
Securities.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in the City of
New York or at the office of such paying agent or paying agents as the
Corporation may designate from time to time in the applicable Prospectus
Supplement, except that at the option of the Corporation payment of any
interest may be made, except in the case of Global Junior Subordinated
Debentures, (i) by check mailed to the address of the person entitled thereto
as such address shall appear in the securities register or (ii) by transfer to
an account designated by the person entitled thereto as specified in the
securities register. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of any interest on Junior Subordinated Debentures will be
made to the person in whose name such Junior Subordinated Debenture is
registered at the close of business on the Regular Record Date for such
interest, except in the case of defaulted interest. The Corporation may at any
time designate additional paying agents or rescind the designation of any
paying agent; however, the Corporation will at all times be required to
maintain a paying agent in each Place of Payment for each series of Junior
Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent, or then
held by the Corporation in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the written request of the
Corporation, be repaid to the Corporation and discharged from the trust of the
Indenture, and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Corporation for
payment thereof.
10
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, so long as no event of
default has occurred under the Indenture, the Corporation will have the right
at any time and from time to time during the term of any series of Junior
Subordinated Debentures to defer payment of interest for up to such number of
consecutive interest payment periods as may be specified in the applicable
Prospectus Supplement (each, an "Extension Period"), subject to the terms,
conditions and covenants, if any, specified in such Prospectus Supplement;
provided that such Extension Period may not extend beyond the Stated Maturity
of such series of Junior Subordinated Debentures. Certain United States
federal income tax consequences and special considerations applicable to any
such Junior Subordinated Debentures will be described in the applicable
Prospectus Supplement.
REDEMPTION
Unless otherwise indicated in the applicable Prospectus Supplement, Junior
Subordinated Debentures will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporation may, at its option, redeem the Junior Subordinated Debentures of
any series in whole at any time or in part from time to time. If the Junior
Subordinated Debentures of any series are so redeemable only on or after a
specified date or upon the satisfaction of additional conditions, the
applicable Prospectus Supplement will specify such date or describe such
conditions. Junior Subordinated Debentures in denominations larger than $25
may be redeemed in part but only in integral multiples of $25. Except as
otherwise specified in the applicable Prospectus Supplement, the redemption
price for any Junior Subordinated Debenture so redeemed shall equal any
accrued and unpaid interest thereon to the redemption date, plus 100% of the
principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Corporation
defaults in payment of the redemption price, on and after the redemption date
interest will cease to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
The Corporation will also covenant, as to each series of Junior Subordinated
Debentures, that it will not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect
to, any of the Corporation's capital stock or (ii) make any payment of
principal or of interest or premium, if any, on or repay, repurchase or redeem
any debt security of the Corporation (including other series of Junior
Subordinated Debentures) that, in either case, rank pari passu with or junior
in interest to the Junior Subordinated Debentures of such series or make any
guarantee payments with respect to any guarantee by the Corporation of the
debt securities of any subsidiary of the Corporation if such guarantee ranks
pari passu with or junior in interest to the Junior Subordinated Debentures of
such series (other than (a) dividends or distributions in capital stock of the
Corporation, (b) any declaration of a dividend under a stockholders' rights
plan or in connection with the implementation of a stockholders' rights plan,
the issuance of capital stock of the Corporation under a stockholders' rights
plan or the redemption or repurchase of any such rights pursuant to a
stockholders' rights plan, (c) payments under any Guarantee with respect to
the series of Related Securities and (d) purchases of common stock related to
the issuance of common stock or rights under any of the Corporation's benefit
plans for its directors, officers or employees, related to the issuance of
common stock or rights under a dividend reinvestment and stock purchase plan
or related to the issuance of common stock (or securities convertible into or
exchangeable for common stock) as consideration in an acquisition transaction
that was entered into prior to the commencement of such Extension Period) if
at such time (i) a Debenture Event of Default with respect to such series of
Junior
11
Subordinated Debentures shall have occurred and be continuing, (ii) if such
Junior Subordinated Debentures are held by an Issuer of a series of Related
Securities, the Corporation shall be in default with respect to its payment of
any obligations under the Guarantee relating to such Related Securities or
(iii) the Corporation shall have given notice of its selection of an Extension
Period as provided in the Indenture with respect to the Junior Subordinated
Debentures of such series and shall not have rescinded such notice, or an
Extension Period, or any extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without the
consent of the holders of any series of Junior Subordinated Debentures, enter
into an indenture or indentures supplemental to the Indenture for specified
purposes, including, among other things, (i) curing ambiguities, defects or
inconsistencies; provided, that any such action does not materially adversely
affect the interest of the holders of any series of Junior Subordinated
Debentures or, in the case of Corresponding Junior Subordinated Debentures,
the holders of the Related Securities so long as they remain outstanding, and
(ii) qualifying, or maintaining the qualification of, the Indenture under the
Trust Indenture Act. The Indenture contains provisions permitting the
Corporation and the Debenture Trustee, with the consent of the holders of not
less than a majority in principal amount of each outstanding series of Junior
Subordinated Debentures affected, to enter into an indenture or indentures
supplemental thereto for the purpose of adding any provisions to or changing
in any manner or eliminating any provisions of the Indenture or of modifying
in any manner the rights of holders of the Junior Subordinated Debentures of
any series; provided, that no such supplemental indenture may, without the
consent of the holder of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity of any series of Junior Subordinated
Debentures (except as otherwise specified in the applicable Prospectus
Supplement), reduce the principal amount thereof or reduce the rate or extend
the time of payment of interest (except as otherwise specified in the
applicable Prospectus Supplement) thereon or reduce any premium payable upon
the redemption thereof or (ii) reduce the percentage of principal amount of
Junior Subordinated Debentures of any series, the holders of which are
required to consent to any such modification of the Indenture; provided
further that, in the case of Corresponding Junior Subordinated Debentures, so
long as any Related Securities remain outstanding, (a) no such modification
may be made that adversely affects the holders of such Related Securities in
any material respect, no termination of the Indenture may occur and no waiver
of any event of default or compliance with any covenant under the Indenture
may be effective without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of all outstanding Related
Securities and (b) no modification may be made to certain provisions of the
Indenture that would impair the rights of the holders of the Related
Securities without the consent of each holder of Related Securities unless and
until the principal of the Corresponding Junior Subordinated Debentures and
all accrued and unpaid interest thereon have been paid in full and certain
other conditions have been satisfied.
In addition, the Corporation and the Debenture Trustee may execute, without
the consent of any holder of Junior Subordinated Debentures, any supplemental
indenture for the purpose of creating any new series of Junior Subordinated
Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to a series of Junior Subordinated Debentures that has
occurred and is continuing constitutes a "Debenture Event of Default" with
respect to such series of Junior Subordinated Debentures:
(i) failure for 30 days to pay interest on such series of Junior
Subordinated Debentures, including any Additional Interest (as defined in
the Indenture), when due (subject to the deferral of any interest payment
in the case of an Extension Period);
12
(ii) failure to pay any principal or premium, if any, on any series of
Junior Subordinated Debentures when due, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise;
(iii) failure to observe or perform in any material respect any covenant
or warranty of the Corporation contained in the Indenture (other than a
covenant or warranty a default in the performance of which or the breach of
which is elsewhere specifically dealt with) for 90 days after written
notice to the Corporation from the Debenture Trustee or to the Corporation
and the Debenture Trustee by the holders of at least 25% in aggregate
principal amount of such series of outstanding Junior Subordinated
Debentures;
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation; or
(v) any other event provided with regard to a particular series of Junior
Subordinated Debentures.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures of each series affected have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee. The Debenture Trustee or the holders of
not less than 25% in aggregate outstanding principal amount of Junior
Subordinated Debentures of each series affected may declare the principal and
premium, if any, due and payable immediately upon a Debenture Event of Default
(other than a Debenture Event of Default specified in clause (iv) above), and,
in the case of Corresponding Junior Subordinated Debentures, should the
Debenture Trustee or such holders of such Corresponding Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate Liquidation Amount of the Related Securities shall have such right.
Provided certain conditions are satisfied, the holders of a majority in
aggregate outstanding principal amount of Junior Subordinated Debentures of an
affected series may annul such declaration. In the case of Corresponding
Junior Subordinated Debentures, should the holders of such Corresponding
Junior Subordinated Debentures fail to annul such declaration and waive such
default, the holders of a majority in aggregate Liquidation Amount of the
Related Securities affected shall have such right.
If a Debenture Event of Default specified in clause (iv) with respect to any
series of Junior Subordinated Debentures occurs, the principal amount of all
the Junior Subordinated Debentures of that series shall automatically, and
without any declaration or other action on the part of the Debenture Trustee
or any holder of the Junior Subordinated Debentures, become immediately due
and payable.
The holders of not less than a majority in aggregate outstanding principal
amount of any series of the Junior Subordinated Debentures affected thereby
may, on behalf of the holders of all the Junior Subordinated Debentures of
such series, waive any default, except a default in the payment of principal,
premium, if any, or interest (including Additional Interest) or a default in
respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture. In the case of Corresponding Junior
Subordinated Debentures, should the holders of such Corresponding Junior
Subordinated Debentures fail to waive such default, the holders of a majority
in aggregate Liquidation Amount of the Related Securities affected shall have
such right. The Corporation is required to file annually with the Debenture
Trustee a certificate as to whether or not the Corporation is in compliance
with all the conditions and covenants applicable to it under the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF SECURITIES
If a Debenture Event of Default with respect to a series of Corresponding
Junior Subordinated Debentures has occurred and is continuing and such event
is attributable to the failure of the Corporation to pay interest or principal
or premium, if any, on such Corresponding Junior Subordinated Debentures on
the date such interest or principal or premium, if any, is due and payable, a
holder of Related Securities may institute a legal proceeding directly against
the Corporation for enforcement of
13
payment to such holder of the principal of or premium, if any, or interest on
such Corresponding Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Related Securities of such
holder (a "Direct Action"). The Corporation may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Securities outstanding. If the right to
bring a Direct Action is removed, the applicable Issuer may become subject to
the reporting obligations under the Exchange Act. The Corporation shall have
the right under the Indenture to set off any payment made to such holder of
Securities by the Corporation in connection with a Direct Action.
The holders of the Securities will not be able to exercise directly any
remedies other than those set forth in the preceding paragraph available to
the holders of the Junior Subordinated Debentures unless there shall have been
an event of default under the Trust Agreement. See "Description of
Securities--Events of Default; Notice".
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation shall not consolidate with or
merge into any other Person (as defined in the Indenture) or convey, transfer
or lease its properties and assets substantially as an entirety to any Person,
and no Person shall consolidate with or merge into the Corporation or convey,
transfer or lease its properties and assets substantially as an entirety to
the Corporation, unless (i) in case the Corporation consolidates with or
merges into another Person or conveys, transfers or leases its properties and
assets substantially as an entirety to any Person, the successor Person is a
corporation, partnership, or trust organized under the laws of the United
States or any state or the District of Columbia and such successor Person
expressly assumes the due and punctual payment of the principal of (and
premium, if any) and interest (including any Additional Interest) on all the
Junior Subordinated Debentures issued under the Indenture and the performance
of every covenant of the Indenture on the part of the Corporation to be
performed or observed; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would become a Debenture Event of Default, shall have occurred and be
continuing; (iii) in the case of Corresponding Junior Subordinated Debentures,
such transaction is permitted under the related Trust Agreement and Guarantee
and does not give rise to any breach or violation of the related Trust
Agreement or Guarantee; and (iv) certain other conditions as prescribed by the
Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable, (ii) will become due and payable
at their Stated Maturity within one year or (iii) are to be called for
redemption within one year under arrangements satisfactory to the Debenture
Trustee for the giving of notice of redemption by the Debenture Trustee in the
name and at the expense of the Corporation, and the Corporation deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if
any) and interest (including Additional Interest) to the date of the deposit
or to the Stated Maturity or date fixed for redemption, as the case may be,
then the Indenture will cease to be of further effect (except as to the
Corporation's obligations to pay all other sums due pursuant to the Indenture
and to provide the officers' certificates and opinions of counsel described
therein), and the Corporation will be deemed to have satisfied and discharged
the Indenture.
14
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable Prospectus Supplement, the
Junior Subordinated Debentures of any series may be convertible or
exchangeable into Junior Subordinated Debentures of another series or into
other securities of the Corporation or an Issuer. The specific terms on which
Junior Subordinated Debentures of any series may be so converted or exchanged
will be set forth in the applicable Prospectus Supplement. Such terms may
include provisions for conversion or exchange, either mandatory, at the option
of the holder, or at the option of the Corporation, in which case the amount
of Junior Subordinated Debentures of another series or the number of shares of
other securities to be received by the holders of Junior Subordinated
Debentures would be calculated as of a time and in the manner stated in the
applicable Prospectus Supplement.
SUBORDINATION
In the Indenture, the Corporation has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets of the Corporation to creditors
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, marshaling of assets or any bankruptcy, insolvency,
debt restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Debt will
first be entitled to receive payment in full of all amounts due or to become
due on such Senior Debt before the holders of Junior Subordinated Debentures
or, in the case of Corresponding Junior Subordinated Debentures, the Property
Trustee, on behalf of the holders of Trust Securities, will be entitled to
receive or retain any payment in respect of the principal of (and premium, if
any) or interest, if any, on the Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon (including any amounts due upon acceleration) before the holders
of Junior Subordinated Debentures will be entitled to receive or retain any
payment in respect of the principal of (or premium, if any) or interest, if
any, on the Junior Subordinated Debentures.
No payments on account of principal (or premium, if any) or interest in
respect of the Junior Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior
Debt or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person; (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
Person; (vi) every obligation of such Person for claims in respect of
derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, swaps and similar arrangements; and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed or is responsible or liable for, directly or
indirectly, as obligor or otherwise.
15
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Corporation whether or not
such claim for post-petition interest is allowed in such proceeding), on Debt
of the Corporation, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; provided, however, that Senior Debt shall not
be deemed to include (i) any Debt of the Corporation which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Corporation;
(ii) any Debt of the Corporation to any of its subsidiaries; (iii) Debt to any
employee of the Corporation; (iv) Debt which by its terms is subordinated to
trade accounts payable or accrued liabilities arising in the ordinary course
of business to the extent that payments made to the holders of such Debt by
the holders of the Junior Subordinated Debentures as a result of the
subordination provisions of the Indenture would be greater than such payments
otherwise would have been (absent giving effect to this clause (iv)) as a
result of any obligation of such holders of such Debt to pay amounts over to
the obligees on such trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions to
which such Debt is subject; and (v) any other debt securities issued pursuant
to the Indenture; provided further, however, that with respect to
Corresponding Junior Subordinated Debentures relating to Preferred Securities,
Senior Debt shall include all Debt of the Corporation to any of its
subsidiaries.
The Indenture places no limitation on the amount of Senior Debt that may be
incurred by the Corporation. The Corporation expects from time to time to
incur substantial additional indebtedness and other obligations constituting
Senior Debt including, without limitation, any additional indebtedness and
other obligations to be incurred by the Corporation upon the consummation of
the Transaction referenced in "Recent Developments; NorAm Merger".
The Indenture provides that the foregoing subordination provisions, insofar
as they relate to any particular issue of Junior Subordinated Debentures, may
be changed prior to such issuance. Any such change would be described in the
applicable Prospectus Supplement.
TRUST EXPENSES
Pursuant to the Agreement as to Expenses and Liabilities (the "Expense
Agreement"), the Corporation, as holder of the Common Securities, will
irrevocably and unconditionally agree with each Issuer that holds Junior
Subordinated Debentures that the Corporation will pay to such Issuer, and
reimburse such Issuer for, the full amount of any costs, expenses or
liabilities of the Issuer, other than obligations of the Issuer to pay to the
holders of any Securities or other similar interests in the Issuer the amounts
due such holders pursuant to the terms of the Securities or such other similar
interests, as the case may be. Such payment obligation will include any such
costs, expenses or liabilities of the Issuer that are required by applicable
law to be satisfied in connection with a termination of such Issuer.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at
16
the request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
The Corresponding Junior Subordinated Debentures may be issued in one or
more series of Junior Subordinated Debentures under the Indenture with terms
corresponding to the terms of a series of Related Securities. In that event,
concurrently with the issuance of each Issuer's Securities, such Issuer will
invest the proceeds thereof and the consideration paid by the Corporation for
the Common Securities of such Issuer in such series of Corresponding Junior
Subordinated Debentures issued by the Corporation to such Issuer. Each series
of Corresponding Junior Subordinated Debentures will be in the principal
amount equal to the aggregate stated Liquidation Amount of the Related
Securities and the Common Securities of such Issuer and will rank pari passu
with all other series of Junior Subordinated Debentures. Holders of the
Related Securities for a series of Corresponding Junior Subordinated
Debentures will have the rights in connection with modifications to the
Indenture or upon occurrence of Debenture Events of Default, as described
under "--Modification of Indenture" and "--Debenture Events of Default",
unless provided otherwise in the Prospectus Supplement for such Related
Securities.
The Corporation will have the right to redeem any series of Corresponding
Junior Subordinated Debentures on or after such date as may be specified in
the applicable Prospectus Supplement, in whole at any time or in part from
time to time, or as may be otherwise specified in the applicable Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, the redemption price for any Corresponding Junior Subordinated
Debentures shall be equal to 100% of the principal amount of such
Corresponding Junior Subordinated Debentures then outstanding plus accrued and
unpaid interest to the date fixed for redemption. For so long as the
applicable Issuer is the holder of all the outstanding Corresponding Junior
Subordinated Debentures of such series, the proceeds of any such redemption
will be used by the Issuer to redeem the corresponding Trust Securities in
accordance with their terms. The Corporation may not redeem a series of
Corresponding Junior Subordinated Debentures in part unless all accrued and
unpaid interest has been paid in full on all outstanding Corresponding Junior
Subordinated Debentures of such series for all interest periods terminating on
or prior to the Redemption Date.
DESCRIPTION OF SECURITIES
Each Issuer may issue only one series of Securities, the terms of which will
be set forth in the Prospectus Supplement relating thereto. Pursuant to the
terms of the Trust Agreement for each Issuer, the Issuer Trustees on behalf of
such Issuer will issue the Preferred Securities or the Capital Securities and
the Common Securities. The Securities of a particular issue will represent
undivided beneficial interests in the assets of such Issuer and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on redemption or liquidation over the
Common Securities of such Issuer, as well as other benefits as described in
the corresponding Trust Agreement. This summary of certain provisions of the
Securities and each Trust Agreement, which summarizes the material terms
thereof, does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of each Trust Agreement,
including the definitions therein of certain terms, and the Trust Indenture
Act, to each of which description reference is hereby made. Wherever
particular defined terms of a Trust Agreement (as amended or supplemented from
time to time) are referred to herein or in a Prospectus Supplement, such
defined terms are incorporated herein or therein by reference. The form of the
Trust Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Each of the Issuers is a legally separate
entity and the assets of one are not available to satisfy the obligations of
any of the others.
17
GENERAL
The Securities of an Issuer will rank pari passu, and payments will be made
thereon pro rata, with the Common Securities of that Issuer except as
described under "--Subordination of Common Securities". Legal title to the
Corresponding Junior Subordinated Debentures will be held by the Property
Trustee in trust for the benefit of the holders of the Related Securities and
Common Securities. Each Guarantee Agreement executed by the Corporation for
the benefit of the holders of an Issuer's Trust Securities (the "Guarantee")
will be a guarantee on a subordinated basis with respect to the related Trust
Securities but will not guarantee payment of Distributions or amounts payable
on redemption or liquidation of such Trust Securities when the related Issuer
does not have funds on hand available to make such payments. See "Description
of Guarantees".
The Securities of each Issuer will have such terms, including distribution,
redemption, voting, liquidation rights and such other preferred, deferral or
other special rights or such restrictions as shall be set forth in the Trust
Agreement of such Issuer. Reference is made to the Prospectus Supplement
relating to the Securities of an Issuer for specific terms, including (i) the
distinctive designation of such Securities; (ii) the number of Securities to
be issued by such Issuer; (iii) the annual distribution rate (or method of
determining such rate) for Securities of such Issuer and the date or dates on
which such distributions shall be payable; (iv) whether distributions on such
Securities shall be cumulative and, in the case of Securities having
cumulative distribution rights, the date or dates, or method of determining
the date or dates, from which distributions on such Securities shall be
cumulative; (v) the amount or amounts that shall be paid out of the assets of
such Issuer to the holders of the Securities of such Issuer upon voluntary or
involuntary dissolution, winding-up or termination of such Issuer; (vi) the
obligation or right, if any, of such Issuer to purchase or redeem such
Securities and the price or prices at which, the period or periods within
which, and the terms and conditions upon which such Securities shall or may be
purchased or redeemed, in whole or in part, pursuant to such obligation or
right; (vii) the rights, if any, to defer distributions on the Securities by
extending the interest payment period on the Corresponding Junior Subordinated
Debentures; and (viii) any other relative rights, preferences, privileges,
limitations or restrictions of such Securities not inconsistent with the Trust
Agreement of such Issuer or applicable law. Any material United States federal
income tax considerations applicable to an offering of Securities will be
described in the Prospectus Supplement relating thereto.
DISTRIBUTIONS
Distributions on the Securities will be cumulative, will accumulate from the
date of original issuance and will be payable on such dates as specified in
the applicable Prospectus Supplement. In the event that any date on which
Distributions are payable on the Securities is not a Business Day (as defined
below), payment of the Distribution payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect to any such delay) except that, if such Business Day is in
the next succeeding calendar year, payment of such Distribution shall be made
on the immediately preceding Business Day, in either case with the same force
and effect as if made on such date (each date on which Distributions are
payable in accordance with the foregoing, a "Distribution Date"). A "Business
Day" shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee is closed for
business.
Each Issuer's Securities represent undivided beneficial interests in the
assets of the applicable Issuer, and the Distributions on each Trust Security
will be payable at a rate specified in the applicable Prospectus Supplement
for such Securities. The amount of Distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months unless
otherwise specified in the applicable Prospectus Supplement. Distributions to
which holders of Securities are entitled will accumulate additional
Distributions (to the extent permitted by applicable law) at the rate per
annum if
18
and as specified in the applicable Prospectus Supplement. The term
"Distributions" as used herein includes any such additional Distributions
unless otherwise stated.
If provided in the applicable Prospectus Supplement, the Corporation has the
right under the Indenture, pursuant to which it will issue the Corresponding
Junior Subordinated Debentures, to defer the payment of interest at any time
or from time to time on any series of the Corresponding Junior Subordinated
Debentures for up to such number of consecutive interest payment periods which
will be specified in such Prospectus Supplement relating to such series (each,
an "Extension Period"); provided that no Extension Period may extend beyond
the Stated Maturity of the Corresponding Junior Subordinated Debentures. As a
consequence of any such deferral, Distributions on the Related Securities
would be deferred (but would continue to accumulate additional Distributions
thereon at the rate per annum set forth in the Prospectus Supplement for such
Securities) by the Issuer of such Securities during any such Extension Period.
During such Extension Period, the Corporation may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Corporation's capital stock or
(ii) make any payment of principal or of interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation that, in
either case, rank pari passu with or junior in interest to the Corresponding
Junior Subordinated Debentures (other than (a) dividends or distributions in
capital stock of the Corporation, (b) any declaration of a dividend under a
stockholders' rights plan or in connection with the implementation of a
stockholders' rights plan, the issuance of capital stock of the Corporation
under a stockholders' rights plan or the redemption or repurchase of any such
rights pursuant to a stockholders' rights plan, (c) payments under the
Guarantee with respect to such Securities and (d) purchases of common stock
related to the issuance of common stock or rights under any of the
Corporation's benefit plans for its directors, officers or employees, related
to the issuance of common stock or rights under a dividend reinvestment and
stock purchase plan or related to the issuance of common stock (or securities
convertible into or exchangeable for common stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of
such Extension Period).
The revenue of each Issuer available for distribution to holders of its
Securities will be limited to payments under the Corresponding Junior
Subordinated Debentures in which the Issuer will invest the proceeds from the
issuance and sale of its Trust Securities and the related Expense Agreement.
See "Description of Junior Subordinated Debentures--Corresponding Junior
Subordinated Debentures". If the Corporation does not make interest payments
on such Corresponding Junior Subordinated Debentures, the Property Trustee
will not have funds available to pay Distributions on the Related Securities.
The payment of Distributions (to the extent the Issuer has funds on hand
available therefor at such time) is guaranteed by the Corporation on the basis
set forth herein under "Description of Guarantees".
Distributions on the Securities will be payable to the holders thereof as
they appear on the register of such Issuer on the relevant record dates,
which, as long as the Securities remain in book-entry form, will be one
Business Day prior to the relevant Distribution Date. Subject to any
applicable laws and regulations and the provisions of the applicable Trust
Agreement, each such payment will be made as described under "Book-Entry
Issuance". In the event any Securities are not in book-entry form, the
relevant record date for such Securities shall be the close of business on the
15th day of the month immediately preceding the relevant Distribution Date.
REDEMPTION OR DISTRIBUTION
MANDATORY REDEMPTION. Unless otherwise specified in the applicable
Prospectus Supplement, upon the repayment or redemption, in whole or in part,
of any Corresponding Junior Subordinated Debentures, whether at maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a
Like Amount
19
(as defined below) of the Trust Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Trust Securities plus accumulated but
unpaid Distributions thereon to the date of redemption (the "Redemption Date")
and, to the extent specified in the Prospectus Supplement, the related amount
of the premium, if any, paid by the Corporation upon the concurrent redemption
of such Corresponding Junior Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Redemption". If less than all of any series of
Corresponding Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption will be
allocated to the redemption pro rata on the Related Securities and the Common
Securities. The amount of premium, if any, paid by the Corporation upon the
redemption of all or any part of any series of any Corresponding Junior
Subordinated Debentures to be repaid or redeemed on a Redemption Date will be
allocated to the redemption pro rata on the Related Securities and the Common
Securities.
"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount equal
to the principal amount of Corresponding Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Securities pro rata based upon the relative
Liquidation Amounts of such securities, the proceeds of which will be used to
pay the Redemption Price of such Trust Securities and (ii) with respect to a
distribution of Corresponding Junior Subordinated Debentures to holders of any
series of Trust Securities in connection with a dissolution and winding-up of
the related Issuer, Corresponding Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of
the holder to whom such Corresponding Junior Subordinated Debentures are
distributed.
The Corporation will have the right to redeem any series of Corresponding
Junior Subordinated Debentures (i) on or after such date as may be specified
in the applicable Prospectus Supplement, in whole at any time or in part from
time to time, or (ii) as may be otherwise specified in the applicable
Prospectus Supplement.
DISTRIBUTION OF CORRESPONDING JUNIOR SUBORDINATED DEBENTURES. At any time,
the Corporation has the right to direct the Property Trustee to dissolve an
Issuer and, after satisfaction of the liabilities of creditors of such Issuer
as provided by applicable law, cause the Corresponding Junior Subordinated
Debentures held by such Issuer to be distributed to the holders of the Related
Securities and Common Securities of such Issuer. If provided in the applicable
Prospectus Supplement and subject to the conditions contained therein, the
Corporation may have the right to extend or shorten the maturity of any series
of Corresponding Junior Subordinated Debentures to be distributed to the
holders of the Related Securities and Common Securities in liquidation of the
Issuer.
Generally, after the liquidation date fixed for any distribution of
Corresponding Junior Subordinated Debentures, (i) such series of Securities
will no longer be deemed to be outstanding and the rights of the holders of
such Securities, as such, will cease, (ii) the Depositary or its nominee, as
the recordholder of such series of Securities, will receive a registered
global certificate or certificates representing the Corresponding Junior
Subordinated Debentures to be delivered upon such distribution, (iii) any
certificates representing such series of Securities not held by the Depositary
or its nominee will be deemed to represent the Corresponding Junior
Subordinated Debentures having a principal amount equal to the stated
Liquidation Amount of such series of Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
such series of Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance and (iv) the
Corporation shall use its best efforts to have the Corresponding Junior
Subordinated Debentures listed on the national stock exchange or automated
quotation system on which the Securities are then listed or traded, if any.
There can be no assurance as to the market prices for the Securities or the
Corresponding Junior Subordinated Debentures that may be distributed if a
dissolution and liquidation of an Issuer were to
20
occur. Accordingly, the Securities that an investor may purchase, or the
Corresponding Junior Subordinated Debentures that the investor may receive on
dissolution and winding-up of an Issuer, may trade at a discount to the price
that the investor paid to purchase the Securities offered hereby.
REDEMPTION PROCEDURES
Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Corresponding Junior Subordinated Debentures. Redemptions of
the Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the related Issuer has funds on hand
available for the payment of such Redemption Price. See also "--Subordination
of Common Securities".
If a Property Trustee gives a notice of redemption in respect of any
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are available, the Property Trustee will, so long as such
Securities are in book-entry form, deposit irrevocably with the Depositary
funds sufficient to pay the applicable Redemption Price, and an Administrative
Trustee or the Property Trustee will give the Depositary irrevocable
instructions and authority to pay the Redemption Price to the holders of such
Securities. See "Book-Entry Issuance". If such Securities are no longer in
book-entry form, the Property Trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for such Securities funds sufficient
to pay the applicable Redemption Price and will give such paying agent
irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing such
Securities. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Trust Securities called for redemption shall be
payable to the holders of such Trust Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of such Trust Securities so called for redemption will
cease, except the right of the holders of such Trust Securities to receive the
Redemption Price and any Distribution payable on or prior to the Redemption
Date, but without interest thereon, and such Trust Securities will cease to be
outstanding. In the event that any date fixed for redemption of such Trust
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay),
except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day, in each case,
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of Trust Securities called for
redemption is improperly withheld or refused and not paid either by the Issuer
or by the Corporation pursuant to the Guarantee as described under
"Description of Guarantees", Distributions on such Trust Securities will
continue to accumulate at the then-applicable rate, from the Redemption Date
originally established by the Issuer for such Trust Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding Securities by tender, in the open
market or by private agreement.
Payment of the Redemption Price on the Trust Securities shall be made to the
applicable recordholders thereof as they appear on the register for such Trust
Securities on the relevant record date, which shall be one Business Day prior
to the Redemption Date; provided, however, that in the event that any Trust
Securities are not in book-entry form, the relevant record date for such Trust
Securities shall be the close of business on the date 15 days prior to the
relevant Redemption Date, unless otherwise specified in the applicable
Prospectus Supplement.
21
If less than all of the Securities and Common Securities issued by an Issuer
are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount
of such Securities and Common Securities to be redeemed shall be allocated on
a pro rata basis (based on Liquidation Amounts) among the Securities and the
Common Securities. The particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Property Trustee
from the outstanding Securities not previously called for redemption, by lot
or by such other method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof for Preferred
Securities and equal to $1,000 or an integral multiple of $1,000 in excess
thereof for Capital Securities, unless otherwise specified in the applicable
Prospectus Supplement) of the Liquidation Amount of Securities of a
denomination larger than $25 for Preferred Securities and $1,000 for Capital
Securities. The Property Trustee shall promptly notify the trust registrar in
writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the Liquidation Amount thereof to
be redeemed. For all purposes of each Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the aggregate Liquidation Amount of Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Issuer's
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amount of such Securities and Common Securities; provided,
however, that if on any Distribution Date or Redemption Date a Debenture Event
of Default shall have occurred and be continuing, no payment of any
Distribution on, or Redemption Price of, any of the Issuer's Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
Issuer's outstanding Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price, the full
amount of such Redemption Price on all of the Issuer's outstanding Securities
then called for redemption, shall have been made or provided for, and all
funds immediately available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or the Redemption Price
of, the Issuer's Securities then due and payable.
In the case of any event of default under the applicable Trust Agreement
resulting from a Debenture Event of Default, the holder of such Issuer's
Common Securities will be deemed to have waived any right to act with respect
to any such event of default under the applicable Trust Agreement until the
effect of all such events of default with respect to such Securities have been
cured, waived or otherwise eliminated. Until any such event of default under
the applicable Trust Agreement with respect to the Securities has been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of such Securities and not on behalf of the holder of
the Issuer's Common Securities, and only the holders of such Securities will
have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to each Trust Agreement, each Issuer shall automatically dissolve
upon expiration of its term, and may dissolve earlier on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the holder
of the Common Securities; (ii) the written direction to the Property Trustee
from the holder of Common Securities to dissolve such Issuer and, after
satisfaction of liabilities to creditors of such Issuer as provided by
applicable law, to distribute Corresponding Junior Subordinated
22
Debentures to the holders of the Issuer's Securities in exchange for such
Securities; (iii) the redemption of all of the Issuer's Securities as
described under "--Redemption or Distribution--Mandatory Redemption"; and (iv)
the entry of an order for the dissolution of the Issuer by a court of
competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, or upon the expiration of its term, the Issuer shall be wound up by the
Property Trustee as expeditiously as the Property Trustee determines to be
possible by distributing, after satisfaction of liabilities to creditors of
such Issuer as provided by applicable law, to the holders of such Trust
Securities a Like Amount of the Corresponding Junior Subordinated Debentures,
unless such distribution is determined by the Property Trustee not to be
practical, or if early dissolution occurs as described in clause (iii) above,
in which event such holders will be entitled to receive out of the assets of
the Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of such Issuer as provided by applicable law, an
amount equal to, in the case of holders of Securities, the aggregate of the
Liquidation Amount plus accrued and unpaid Distributions thereon to the date
of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because such Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by such Issuer on its
Securities shall be paid on a pro rata basis. The holder(s) of such Issuer's
Common Securities will be entitled to receive Liquidation Distributions upon
any such liquidation pro rata with the holders of such Issuer's Securities,
except that, if a Debenture Event of Default relating to the payment of
principal, premium, if any, or interest on Corresponding Junior Subordinated
Debentures has occurred and is continuing, the Securities shall have a
priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under each
Trust Agreement with respect to the Securities issued thereunder (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default");
(ii) default by the Issuer in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days;
(iii) default by the Issuer in the payment of any Redemption Price of any
Trust Security when it becomes due and payable;
(iv) default in the performance or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above) and
continuation of such default or breach for a period of 90 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees and the Corporation by the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Securities of the
applicable Issuer, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under such Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Issuer.
Within ten Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer (as defined in the applicable Trust
Agreement) of the Property Trustee, the Property Trustee shall transmit notice
of such Event of Default to the holders of such Issuer's Securities, the
Administrative Trustees and the Corporation, as Depositor, unless such Event
of Default
23
shall have been cured or waived. If an Event of Default has occurred and is
continuing, the Property Trustee shall enforce the applicable Trust Agreement
for the benefit of the holders of the Trust Securities. The Corporation, as
Depositor, and the Administrative Trustees are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under each Trust
Agreement.
If an Event of Default resulting from any Debenture Event of Default occurs
and is continuing, then, pursuant to the applicable Trust Agreement, holders
of a majority in aggregate Liquidation Amount of Securities will have the
right to direct the exercise of any trust or power conferred upon the related
Property Trustee under the related Trust Agreement. Upon a Debenture Event of
Default specified in clause (i) or clause (ii) in the list of Debenture Events
of Default, a holder of Securities may institute a legal proceeding directly
against the Corporation, without first instituting a legal proceeding against
the Property Trustee or any other person or entity, for enforcement of payment
to such holder of principal of or interest on the Corresponding Junior
Subordinated Debentures having a principal amount equal to the aggregate
stated Liquidation Amount of the Securities of such holder. See "Relationship
Among the Securities, the Corresponding Junior Subordinated Debentures, the
Expense Agreement and the Guarantees".
If a Debenture Event of Default has occurred and is continuing, the
Securities shall have a preference over the Common Securities as described
above. See "--Subordination of Common Securities" and "--Liquidation
Distribution Upon Termination". The existence of an Event of Default, other
than an Event of Default described in clause (i) above, does not entitle the
holders of Securities to accelerate the maturity thereof. Following an Event
of Default as described in clause (i) above, the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Securities of the applicable
Issuer will have the right to declare the principal of all of the
Corresponding Junior Subordinated Debentures to be immediately due and payable
as set forth in the Indenture.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee or the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Securities.
In no event will the holders of the Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting rights
are vested exclusively in the Corporation as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment
by the successor trustee in accordance with the provisions of the applicable
Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, for the purpose of meeting the legal requirements
of the Trust Indenture Act or of any jurisdiction in which any part of the
Trust Property may at the time be located, the Corporation, as the holder of
the Common Securities, and the Administrative Trustees shall have power to
appoint one or more Persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as a
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
Persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the applicable Trust Agreement. In
case a Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment.
24
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Trustee
shall be a party, or any Person succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such
Trustee under each Trust Agreement, provided such Person shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUERS
An Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other Person, except as
described below. An Issuer may, at the request of the holder of Common
Securities, with the consent of the Administrative Trustees and without the
consent of the holders of the Securities, the Property Trustee or the Delaware
Trustee, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to a trust organized as such under the laws of any state; provided,
that (i) such successor entity either (a) expressly assumes all of the
obligations of such Issuer with respect to the Securities or (b) substitutes
for the Securities other securities having substantially the same material
terms as the Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii)
the Corporation expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder of
the Corresponding Junior Subordinated Debentures, (iii) the Successor
Securities are listed or traded, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or other
organization on which the Securities are then listed or traded, if any, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization which
gives ratings on the Securities, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
material rights, preferences and privileges of the holders of the Securities
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially identical to that of the Issuer,
(vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Property Trustee has received an opinion
from counsel to the Issuer experienced in such matters to the effect that (a)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the material rights, preferences and
privileges of the holders of the Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither the Issuer nor such successor entity will be required to register as
an investment company under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), and (viii) the Corporation or any permitted
transferee owns all of the Common Securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding
the foregoing, an Issuer shall not, except with the consent of holders of 100%
in Liquidation Amount of the Securities, consolidate, amalgamate, merge with
or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Issuer or the successor entity to be classified as an
association taxable as a corporation or as other than a grantor trust for
United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
Except as provided below and under "Description of Guarantees--Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Securities will have no voting rights.
25
Each Trust Agreement may be amended from time to time by the Corporation,
the Property Trustee and the Administrative Trustees, without the consent of
the holders of the Securities, (i) to cure any ambiguity, to correct or
supplement any provisions in such Trust Agreement that may be inconsistent
with any other provision or to make any other provisions with respect to
matters or questions arising under such Trust Agreement which shall not be
inconsistent with the other provisions of such Trust Agreement or (ii) to
modify, eliminate or add to any provisions of such Trust Agreement to such
extent as shall be necessary to ensure that the Issuer will not be classified
for United States federal income tax purposes as an association taxable as a
corporation or as other than a grantor trust at all times that any Trust
Securities are outstanding or to ensure that the Issuer will not be required
to register as an "investment company" under the Investment Company Act;
provided, however, that in the case of either clause (i) or clause (ii), such
action shall not adversely affect in any material respect the interests of any
holder of Securities and any amendments of such Trust Agreement shall become
effective when notice thereof is given to the holders of Trust Securities.
Each Trust Agreement may be amended by the Administrative Trustees and the
Corporation with (a) the consent of holders representing not less than a
majority (based upon Liquidation Amounts) of the outstanding Trust Securities
and (b) receipt by the Issuer Trustees of an opinion of counsel to the effect
that such amendment or the exercise of any power granted to the Issuer
Trustees in accordance with such amendment will not affect the Issuer's status
as a grantor trust or cause the Issuer to be an association taxable as a
corporation for United States federal income tax purposes or the Issuer's
exemption from status as an "investment company" under the Investment Company
Act; provided, that without the consent of each affected holder of Trust
Securities, such Trust Agreement may not be amended to (i) change the amount
or timing of any Distribution on the Trust Securities or otherwise adversely
affect the amount of any Distribution required to be made in respect of the
Trust Securities as of a specified date or (ii) restrict the right of a holder
of Trust Securities to institute suit for the enforcement of any such payment
on or after such date; and provided further, that the consent requirement for
actions set forth in clauses (i) and (ii) above may not be amended without the
unanimous consent of the holders of Trust Securities.
So long as any Corresponding Junior Subordinated Debentures are held by the
Property Trustee, the Property Trustee shall not (i) direct the time, method
and place of conducting any proceeding for any remedy available to the
Debenture Trustee or executing any trust power conferred on the Property
Trustee with respect to such Corresponding Junior Subordinated Debentures,
(ii) waive any past default that is waivable under the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Corresponding Junior Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
such Corresponding Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders
of a majority in aggregate Liquidation Amount of all outstanding Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Corresponding Junior Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee
without the prior consent of each holder of the Related Securities. The Issuer
Trustees shall not revoke any action previously authorized or approved by a
vote of the holders of the Securities except by subsequent vote of the holders
of the Securities. The Property Trustee shall notify each holder of Securities
of any notice of default with respect to the Corresponding Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of the holders of
the Securities, prior to taking any of the foregoing actions, the Issuer
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that the Issuer will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of such
action and such action would not cause the Issuer to be classified as other
than a grantor trust for United States federal income tax purposes.
Any required approval of holders of Securities may be given at a meeting of
holders of Securities convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of
26
any meeting at which holders of Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each holder of record of Securities in the manner set forth in
each Trust Agreement.
No vote or consent of the holders of Securities will be required for an
Issuer to redeem and cancel its Securities in accordance with the applicable
Trust Agreement.
Notwithstanding that holders of Securities are entitled to vote or consent
under any of the circumstances described above, any of the Securities that are
owned by the Corporation, the Issuer Trustees or any affiliate of the
Corporation or any Issuer Trustees shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in the form of
one or more Global Securities that will be deposited with, or on behalf of,
the Depositary identified in the Prospectus Supplement relating to such
series. Global Securities may be issued only in fully registered form and in
either temporary or permanent form. Unless and until it is exchanged in whole
or in part for the individual Securities represented thereby, a Global
Security may not be transferred except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
The specific terms of the depositary arrangement with respect to a series of
Securities will be described in the Prospectus Supplement relating to such
series. The Corporation anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Security and the deposit of such Global
Security with or on behalf of the Depositary, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate Liquidation Amounts of the
individual Securities represented by such Global Securities to the accounts of
Participants. Such accounts shall be designated by the dealers, underwriters
or agents with respect to such Securities or by the Corporation if such
Securities are offered and sold directly by the Corporation. Ownership of
beneficial interests in a Global Security will be limited to Participants or
persons that may hold interests through Participants. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the transfer of beneficial interests in a
Global Security.
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Security
will not be entitled to have any of the individual Securities of the series
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of any such Securities of
such series in definitive form and will not be considered the owners or
holders thereof under the Indenture.
27
Payments of principal of (and premium, if any) and interest on individual
Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Securities. None of the Corporation, the Property Trustee, any Paying
Agent or the Securities Registrar for such Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Security representing such Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Corporation expects that the Depositary for a series of Securities or
its nominee, upon receipt of any payment of Liquidation Amount, Redemption
Price, premium or Distributions in respect of a permanent Global Security
representing any of such Securities, immediately will credit Participants'
accounts with payments in amounts proportionate to their respective beneficial
interest in the aggregate Liquidation Amount of such Global Security for such
Securities as shown on the records of such Depositary or its nominee. The
Corporation also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name". Such payments will be the responsibility of such
Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Securities is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not
appointed by the Issuer within 90 days, the Issuer will issue individual
Securities of such series in exchange for the Global Security representing
such series of Securities. In addition, the Issuer may at any time and in its
sole discretion, subject to any limitations described in the Prospectus
Supplement relating to such Securities, determine not to have any Securities
of such series represented by one or more Global Securities and, in such
event, will issue individual Securities of such series in exchange for the
Global Security or Securities representing such series of Securities. Further,
if the Issuer so specifies with respect to the Securities of a series, an
owner of a beneficial interest in a Global Security representing Securities of
such series may, on terms acceptable to the Issuer, the Property Trustee and
the Depositary for such Global Security, receive individual Securities of such
series in exchange for such beneficial interests, subject to any limitations
described in the Prospectus Supplement relating to such Securities. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery of individual Securities of the series
represented by such Global Security equal in principal amount to such
beneficial interest and to have such Securities registered in its name.
Individual Securities of such series so issued will be issued in
denominations, unless otherwise specified by the Issuer, of $25 and integral
multiples thereof if such Securities are Preferred Securities or $1,000 and
integral multiples thereof if such Securities are Capital Securities.
PAYMENT AND PAYING AGENT
Payments in respect of the Securities shall be made to the Depositary, which
shall credit the relevant accounts at the Depositary on the applicable
Distribution Dates or, if any Issuer's Securities are not held by the
Depositary, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address shall appear on the Register. Unless
otherwise specified in the applicable Prospectus Supplement, the paying agent
(the "Paying Agent") shall initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrative
Trustees and the Corporation. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees, the
Property Trustee and the Corporation. In the event that the Property Trustee
shall no longer be the Paying Agent, the Administrative Trustees shall
28
appoint a successor (which shall be a bank or trust company acceptable to the
Property Trustee and the Corporation) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Securities.
Registration of transfers of Securities will be effected without charge by
or on behalf of each Issuer, but upon payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. The
registrar will not be required to register the transfer of any Securities that
have been called for redemption. The Administrative Trustees will not be
required to issue, transfer or exchange any Securities that have been called
for redemption. In addition, in the event of any redemption, neither the
Corporation nor the Debenture Trustee shall be required to (i) issue, transfer
or exchange Junior Subordinated Debentures of any series during a period
beginning at the opening of business 15 days before the day of mailing of a
notice of redemption of Junior Subordinated Debentures of that series and
ending at the close of business on the day of such mailing of notice of
redemption or (ii) transfer or exchange any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures to be redeemed in part, any portion thereof not to be redeemed.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in each Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the applicable Trust Agreement at the request of any holder of
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action or construe ambiguous provisions
in the applicable Trust Agreement or is unsure of the application of any
provision of the applicable Trust Agreement, and the matter is not one on
which holders of Securities are entitled under such Trust Agreement to vote,
then the Property Trustee shall take such action as is directed by the
Corporation and, if not so directed, shall take such action as it deems
advisable and in the best interests of the holders of the Trust Securities and
will have no liability except for its own bad faith, negligence or willful
misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuers in such a way so that (i) no Issuer will
be deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a
corporation or as other than a grantor trust for United States federal income
tax purposes and (ii) the Corresponding Junior Subordinated Debentures will be
treated as indebtedness of the Corporation for United States federal income
tax purposes. In this connection, the Corporation and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of each Issuer or each Trust Agreement, that the
Corporation and the Administrative Trustees determine in their discretion to
be necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Related
Securities.
Holders of the Securities have no preemptive or similar rights.
No Issuer may borrow money or issue debt or mortgage or pledge any of its
assets.
29
BOOK-ENTRY ISSUANCE
The Depository Trust Company ("DTC") will act as securities depositary for
all of the Securities and the Junior Subordinated Debentures, unless otherwise
provided in the applicable Prospectus Supplement. The Securities and the
Junior Subordinated Debentures will be issued only as fully registered
securities registered in the name of Cede & Co. (DTC's nominee). One or more
fully registered global certificates will be issued for the Securities of each
Issuer and the Junior Subordinated Debentures, representing in the aggregate
the total number of such Issuer's Securities or aggregate principal balance of
Junior Subordinated Debentures, respectively, and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. "Direct Participants" include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain custodial
relationships with Direct Participants, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of Securities or Junior Subordinated Debentures within the DTC
system must be made by or through Direct Participants, which will receive a
credit for the Securities or Junior Subordinated Debentures on DTC's records.
The ownership interest of each actual purchaser of each Preferred Security and
each Junior Subordinated Debenture ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Securities or Junior Subordinated Debentures. Transfers of ownership
interests in the Securities or Junior Subordinated Debentures are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Securities or Junior Subordinated
Debentures, except in the event that use of the book-entry system for the
Securities of such Issuer or Junior Subordinated Debentures is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Securities or
Junior Subordinated Debentures; DTC's records reflect only the identity of the
Direct Participants to whose accounts such Securities or Junior Subordinated
Debentures are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
30
Redemption notices will be sent to Cede & Co. as the registered holder of
the Securities or Junior Subordinated Debentures. If less than all of an
Issuer's Securities or the Junior Subordinated Debentures are being redeemed,
DTC's current practice is to determine by lot the amount of the interest of
each Direct Participant to be redeemed.
Although voting with respect to the Securities or the Junior Subordinated
Debentures is limited to the holders of record of the Securities or Junior
Subordinated Debentures, in those instances in which a vote is required,
neither DTC nor Cede & Co. will itself consent or vote with respect to
Securities or Junior Subordinated Debentures. Under its usual procedures, DTC
would mail an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts
such Securities or Junior Subordinated Debentures are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Securities or the Junior Subordinated
Debentures will be made by the relevant Trustee to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the relevant Trustee, the Issuer thereof or the
Corporation, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions to DTC is the
responsibility of the relevant Trustee. Disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct Participants
and Indirect Participants.
DTC may discontinue providing its services as a securities depositary with
respect to any of the Securities or the Junior Subordinated Debentures at any
time by giving reasonable notice to the relevant Trustee and the Corporation.
In the event that a successor securities depositary is not obtained,
definitive Security or Junior Subordinated Debenture certificates representing
such Securities or Junior Subordinated Debentures are required to be printed
and delivered. The Corporation, at its option, may decide to discontinue use
of the system of book-entry transfers through DTC (or a successor depositary).
After a Debenture Event of Default, the holders of a majority in liquidation
preference of Securities or in aggregate principal amount of Junior
Subordinated Debentures may determine to discontinue the system of book-entry
transfers through DTC. In any such event, definitive certificates for such
Securities or Junior Subordinated Debentures will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers and the Corporation believe to
be accurate, but the Issuers and the Corporation assume no responsibility for
the accuracy thereof. Neither the Issuers nor the Corporation has any
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
31
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by the Corporation concurrently
with the issuance by each Issuer of its Securities for the benefit of the
holders from time to time of such Securities and the Common Securities. The
Bank of New York will act as indenture trustee ("Guarantee Trustee") under
each Guarantee for the purposes of compliance with the Trust Indenture Act and
each Guarantee will be qualified as an indenture under the Trust Indenture
Act. This summary of certain provisions of the Guarantees, which summarizes
the material terms thereof, does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of each
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act, to each of which description reference is hereby made. The form
of each Guarantee has been filed as an exhibit to the Registration Statement
of which this Prospectus forms a part. Reference in this summary to Securities
means that Issuer's Securities to which a Guarantee relates. The Guarantee
Trustee will hold each Guarantee for the benefit of the holders of the related
Issuer's Securities and Common Securities.
GENERAL
The Corporation will irrevocably and unconditionally agree to pay in full on
a subordinated basis, to the extent set forth herein, the Guarantee Payments
(as defined below) to the holders of the Trust Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that such Issuer
may have or assert other than the defense of payment. The following payments
with respect to the Securities, to the extent not paid or made by or on behalf
of the related Issuer (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
such Trust Securities, to the extent that such Issuer has funds on hand
available therefor at such time; (ii) the Redemption Price with respect to any
Securities called for redemption, to the extent that such Issuer has funds on
hand available therefor at such time; or (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of such Issuer (unless the
Corresponding Junior Subordinated Debentures are distributed to holders of
such Securities), the lesser of (a) the Liquidation Distribution and (b) the
amount of assets of such Issuer remaining available for distribution to
holders of Trust Securities in liquidation of such Issuer after satisfaction
of liabilities to creditors of such Issuer as required by applicable law. The
Corporation's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Corporation to the holders of
the applicable Trust Securities or by causing the Issuer to pay such amounts
to such holders.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
the related Issuer's obligations under the Securities, but will apply only to
the extent that such related Issuer has funds sufficient to make such payments
and is not a guarantee of collection.
If the Corporation does not make interest payments on the Corresponding
Junior Subordinated Debentures held by the Issuer, the Issuer will not be able
to pay Distributions on the Securities and will not have funds legally
available therefor. Each Guarantee will rank subordinate and junior in right
of payment to all Senior Debt of the Corporation. See "--Status of the
Guarantees". Except as otherwise provided in the applicable Prospectus
Supplement, the Guarantees do not limit the incurrence or issuance of other
secured or unsecured debt of the Corporation, including Senior Debt, whether
under the Indenture, any other existing indenture or any other indenture that
the Corporation may enter into in the future or otherwise. See the applicable
Prospectus Supplement relating to any offering of Securities.
The Corporation has, through the applicable Guarantee, the applicable Trust
Agreement, the applicable series of Corresponding Junior Subordinated
Debentures, the Indenture and the applicable Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the
Issuer's obligations under the Securities. No single document standing alone
or operating in
32
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Issuer's obligations under the Securities. See "Relationship Among the
Securities, the Corresponding Junior Subordinated Debentures, the Expense
Agreement and the Guarantees".
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Corporation
and will rank subordinate and junior in right of payment to all Senior Debt of
the Corporation in the same manner as Junior Subordinated Debentures.
Each Guarantee will rank pari passu with all other Guarantees issued by the
Corporation. Each Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Guarantor to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). Each Guarantee will be held for the benefit of the holders of the
related Securities. Each Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by the Issuer or upon
distribution to the holders of the Securities of the Corresponding Junior
Subordinated Debentures. None of the Guarantees places a limitation on the
amount of additional Senior Debt that may be incurred by the Corporation. The
Corporation expects from time to time to incur substantial additional
indebtedness and other obligations constituting Senior Debt, including,
without limitation, such additional indebtedness and other obligations to be
incurred by the Corporation upon the consummation of the Transaction. See
"Recent Developments; NorAm Merger".
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related Securities (in which case no vote will be
required), no Guarantee may be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of
such outstanding Securities. The manner of obtaining any such approval will be
as set forth under "Description of Securities--Voting Rights; Amendment of
Each Trust Agreement". All guarantees and agreements contained in each
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the
holders of the related Securities then outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of the
Corporation to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
related Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under such Guarantee.
Any holder of the Securities may institute a legal proceeding directly
against the Corporation to enforce its rights under such Guarantee without
first instituting a legal proceeding against the Issuer, the Guarantee Trustee
or any other person or entity.
The Corporation, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
33
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Corporation in performance of any Guarantee, undertakes to
perform only such duties as are specifically set forth in each Guarantee and,
after default with respect to any Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by any Guarantee at
the request of any holder of any Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of all Related Securities, upon full
payment of the amounts payable upon liquidation of the related Issuer or upon
distribution of Corresponding Junior Subordinated Debentures to the holders of
the Related Securities. Each Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any holder of the Related
Securities must restore payment of any sums paid under such Securities or such
Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement, the Corporation, as holder of the Common
Securities, will irrevocably and unconditionally agree with each Issuer that
holds Junior Subordinated Debentures that the Corporation will pay to such
Issuer, and reimburse such Issuer for, the full amount of any costs, expenses
or liabilities of the Issuer, other than obligations of the Issuer to pay to
the holders of any Securities or other similar interests in the Issuer the
amounts due such holders pursuant to the terms of the Securities or such other
similar interests, as the case may be. Such payment obligation will include
any such costs, expenses or liabilities of the Issuer that are required by
applicable law to be satisfied in connection with a termination of such
Issuer.
RELATIONSHIP AMONG THE SECURITIES,
THE CORRESPONDING JUNIOR SUBORDINATED DEBENTURES,
THE EXPENSE AGREEMENT AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Securities (to the
extent the Issuer has funds available for the payment of such Distributions)
are irrevocably guaranteed by the Corporation as and to the extent set forth
under "Description of Guarantees". Taken together, the Corporation's
obligations under each series of Corresponding Junior Subordinated Debentures,
the Indenture, the related Trust Agreement, the related Expense Agreement and
the related Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Securities. No single document standing alone or operating in conjunction
with fewer than all of the other documents constitutes such guarantee. It is
only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer's
obligations under the Related Securities. If and to the extent that the
Corporation does not make payments on any series of Corresponding Junior
Subordinated Debentures, such Issuer will not pay Distributions or other
amounts due on the Securities. The Guarantees do not cover payment of
Distributions when the related Issuer does not have sufficient funds to pay
such Distributions. In such
34
event, the remedy of a holder of a series of Securities is to institute a
legal proceeding directly against the Corporation pursuant to the terms of the
Indenture for enforcement of payment of amounts equal to such Distributions to
such holder. The obligations of the Corporation under each Guarantee are
subordinate and junior in right of payment to all Senior Debt of the
Corporation.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on each
series of Corresponding Junior Subordinated Debentures, such payments will be
sufficient to cover Distributions and other payments due on the Related
Securities, primarily because (i) the aggregate principal amount of each
series of Corresponding Junior Subordinated Debentures will be equal to the
sum of the aggregate stated Liquidation Amount of the Related Securities and
related Common Securities; (ii) the interest rate and interest and other
payment dates on each series of Corresponding Junior Subordinated Debentures
will match the Distribution rate and Distribution and other payment dates for
the Related Securities; (iii) the Corporation shall pay for all and any costs,
expenses and liabilities of such Issuer except the Issuer's obligations to
holders of its Securities under such Securities; and (iv) each Trust Agreement
further provides that the Issuer will not engage in any activity that is not
consistent with the limited purposes of such Issuer.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set off any payment it is otherwise required to make
thereunder with and to the extent the Corporation has theretofore made, or is
concurrently on the date of such payment making, a payment under the related
Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF SECURITIES
A holder of any Security may institute a legal proceeding directly against
the Corporation to enforce its rights under the related Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the
related Issuer or any other person or entity.
A default or event of default under any Senior Debt of the Corporation would
not constitute a default or Event of Default under the Indenture. However, in
the event of payment defaults under, or acceleration of, Senior Debt of the
Corporation, the subordination provisions of the Indenture provide that no
payments may be made in respect of the Corresponding Junior Subordinated
Debentures until such Senior Debt has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on any
series of Corresponding Junior Subordinated Debentures would constitute an
Event of Default under the Indenture.
LIMITED PURPOSE OF ISSUERS
Each Issuer's Securities evidence an undivided beneficial interest in the
assets of such Issuer, and each Issuer exists for the sole purpose of issuing
its Securities and Common Securities and investing the proceeds thereof in
Corresponding Junior Subordinated Debentures. A principal difference between
the rights of a holder of a Security and a holder of a Corresponding Junior
Subordinated Debenture is that a holder of a Corresponding Junior Subordinated
Debenture is entitled to receive from the Corporation the principal amount of
and interest accrued on Corresponding Junior Subordinated Debentures held,
while a holder of Securities is entitled to receive Distributions from such
Issuer (or from the Corporation under the applicable Guarantee) if and to the
extent such Issuer has funds available for the payment of such Distributions.
However, taken together, the Corporation's obligations under each series of
Corresponding Junior Subordinated Debentures, the Indenture, the related Trust
Agreement, the related Expense Agreement and the related Guarantee provide, in
the aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Related Securities. See "--Full and
Unconditional Guarantee".
35
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
any Issuer involving the liquidation of the Corresponding Junior Subordinated
Debentures, the holders of the Related Securities will be entitled to receive,
out of the assets held by such Issuer, the Liquidation Distribution in cash.
See "Description of Securities--Liquidation Distribution Upon Termination".
Upon any voluntary or involuntary liquidation or bankruptcy of the
Corporation, the Property Trustee, as holder of the Corresponding Junior
Subordinated Debentures, would be a subordinated creditor of the Corporation,
subordinated in right of payment to all Senior Debt as set forth in the
Indenture, but entitled to receive payment in full of principal and interest,
before any stockholders of the Corporation receive payments or distributions.
Since the Corporation is the guarantor under each Guarantee and has agreed to
pay for all costs, expenses and liabilities of each Issuer (other than the
Issuer's obligations to the holders of its Securities), the positions of a
holder of such Securities and a holder of such Corresponding Junior
Subordinated Debentures relative to other creditors and to stockholders of the
Corporation in the event of liquidation or bankruptcy of the Corporation are
expected to be substantially the same.
PLAN OF DISTRIBUTION
The Junior Subordinated Debentures or the Securities may be sold in a public
offering to or through underwriters or dealers designated from time to time or
may be sold, from time to time, to investors directly or through agents. The
Corporation and each Issuer may sell its Junior Subordinated Debentures or
Securities as soon as practicable after effectiveness of the Registration
Statement of which this Prospectus forms a part or from time to time
thereafter. The names of any underwriters, dealers or agents involved in the
sale of the Junior Subordinated Debentures or Securities in respect of which
this Prospectus is delivered, the amount or number of Junior Subordinated
Debentures and Securities to be purchased by any such underwriters and any
applicable commissions or discounts will be set forth in the applicable
Prospectus Supplement.
Underwriters may offer and sell Junior Subordinated Debentures or Securities
at a fixed price or prices, which may be changed, or from time to time at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. In connection with the sale
of Securities, underwriters may be deemed to have received compensation from
the Corporation and/or the applicable Issuer in the form of underwriting
discounts or commissions and may also receive commissions for purchasers of
Junior Subordinated Debentures or Securities for whom they may act as agent.
Underwriters may sell Junior Subordinated Debentures or Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
(which may be changed from time to time) from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Corporation and/or the applicable
Issuer to underwriters or agents in connection with the offering of Junior
Subordinated Debentures or Securities, and any discounts, concessions or
commissions allowed by such underwriters to participating dealers, will be
described in an accompanying Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of Junior Subordinated Debentures or
Securities may be deemed to be underwriters under the Securities Act, and any
discounts and commissions received by them and any profit realized by them on
resale of such Junior Subordinated Debentures or Securities may be deemed to
be underwriting discounts and commissions thereunder. Underwriters, dealers
and agents may be entitled, under an agreement with the Corporation and the
applicable Issuer, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act, and to
reimbursement by the Corporation for certain expenses.
If so indicated in an applicable Prospectus Supplement, the Corporation will
authorize dealers acting as the Corporation's agents to solicit offers by
certain institutions to purchase Junior Subordinated Debentures or Securities
from the Corporation at the public offering price set forth in
36
such Prospectus Supplement pursuant to delayed delivery contracts
("Contracts") providing for payment and delivery on the date or dates stated
in such Prospectus Supplement. Each Contract will be for an amount not less
than, and the aggregate principal amount or Liquidation Amount, as the case
may be, of Junior Subordinated Debentures or Securities sold pursuant to
Contracts shall be not less nor more than, the respective amounts stated in
such Prospectus Supplement. Institutions with whom Contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to the approval of the
Corporation. Contracts will not be subject to any conditions except (i) the
purchase by an institution of the Junior Subordinated Debentures or Securities
covered by its Contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject and (ii) if the Junior Subordinated Debentures or Securities are being
sold to underwriters, the Corporation shall have sold to such underwriters the
total principal amount or Liquidation Amount, as the case may be, of the
Junior Subordinated Debentures or Securities less the principal amount or
Liquidation Amount thereof covered by Contracts. Agents and underwriters will
have no responsibility in respect of the delivery or performance of Contracts.
In connection with the offering of the Securities of any Issuer, such Issuer
may grant to the underwriters an option to purchase additional Securities to
cover over-allotments, if any, at the initial public offering price (with an
additional underwriting commission), as may be set forth in the accompanying
Prospectus Supplement. If such Issuer grants any over-allotment option, the
terms of such over-allotment option will be set forth in the Prospectus
Supplement for such Securities.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, the Corporation, the applicable Issuer and/or any of their
affiliates in the ordinary course of business.
The Junior Subordinated Debentures and the Securities will be new issues of
securities and will have no established trading market. Any underwriters to
whom Junior Subordinated Debentures or Securities are sold for public offering
and sale may make a market in such Junior Subordinated Debentures or
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. Such Junior
Subordinated Debentures or Securities may or may not be listed on a national
securities exchange or the Nasdaq National Market. No assurance can be given
as to the liquidity of or the existence of trading markets for any Junior
Subordinated Debentures or Securities.
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, certain
matters of Delaware law relating to the validity of the Securities, the
enforceability of the Trust Agreements and the formation of the Issuers will
be passed upon by Richards, Layton & Finger, Wilmington, Delaware, special
Delaware counsel to the Corporation and the Issuers. Unless otherwise
indicated in the applicable Prospectus Supplement, the validity of the
Guarantees and the Junior Subordinated Debentures will be passed upon for the
Corporation by Baker & Botts, L.L.P., Houston, Texas. Certain legal matters
will be passed upon for the Corporation by Hugh Rice Kelly, Esq., Executive
Vice President, General Counsel and Corporate Secretary of the Corporation,
and for the Underwriters by Dewey Ballantine, New York, New York. Certain
matters relating to United States federal income tax considerations will be
passed upon for the Corporation by Baker & Botts, L.L.P.
EXPERTS
The financial statements of the Corporation appearing in the Corporation's
Annual Report (Form 10-K) for the year ended December 31, 1995, have been
audited by Deloitte & Touche LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
37
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PRO-
SPECTUS SUPPLEMENT AND PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE CORPORATION SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Risk Factors.............................................................. S-4
HL&P Capital Trust II..................................................... S-9
Houston Lighting & Power Company Selected Financial Information of the
Corporation.............................................................. S-10
Recent Developments of HL&P............................................... S-11
Ratio of Earnings to Fixed Charges........................................ S-11
Use of Proceeds........................................................... S-11
Capitalization............................................................ S-12
Accounting Treatment...................................................... S-12
Certain Terms of Series B Capital Securities.............................. S-13
Certain Terms of Series B Subordinated Debentures......................... S-19
Certain Terms of Series B Guarantee....................................... S-22
Certain Federal Income Tax Consequences................................... S-23
ERISA Considerations...................................................... S-27
Underwriting.............................................................. S-28
Validity of Securities.................................................... S-29
PROSPECTUS
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Houston Lighting & Power Company.......................................... 4
Recent Developments; NorAm Merger......................................... 4
The Issuers............................................................... 4
Use of Proceeds........................................................... 5
Description of Junior Subordinated Debentures............................. 6
Description of Securities................................................. 17
Book-Entry Issuance....................................................... 30
Description of Guarantees................................................. 32
Relationship Among the Securities, the Corresponding Junior Subordinated
Debentures, the Expense Agreement and the Guarantees..................... 34
Plan of Distribution...................................................... 36
Validity of Securities.................................................... 37
Experts................................................................... 37
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
HL&P CAPITAL TRUST II
8.257% CAPITAL SECURITIES, SERIES B
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
HOUSTON LIGHTING & POWER COMPANY
-----------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
