Filed pursuant to Rule 424(b)(5)
Registration No. 333-56055
Information contained herein is subject to completion or amendment.
This prospectus shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there by any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities
laws of any such jurisdiction.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 6, 1998
PROSPECTUS SUPPLEMENT
---------------------
(TO PROSPECTUS DATED JUNE 29, 1998)
13,000,000 FELINE PRIDES(SM)
(CONSISTING OF INCOME PRIDES(SM) AND GROWTH PRIDES(SM))
TEXAS UTILITIES COMPANY
$ SERIES D SENIOR NOTES DUE 2003
$ SERIES E SENIOR NOTES DUE 2004
------------------------
The securities offered hereby are 13,000,000 FELINE PRIDES(SM) (FELINE
PRIDES) of Texas Utilities Company, a Texas corporation (Company),
consisting of separately offered and separately traded units referred to
as "Income PRIDES(SM)" and "Growth PRIDES(SM)," $ aggregate
principal amount of the Company's separately offered and separately traded
Series D Senior Notes due August 16, 2003 (Series D Notes) and $
aggregate principal amount of the Company's separately offered and
separately traded Series E Senior Notes due August 16, 2004 (Series E
Notes, and together with the Series D Notes, Senior Notes; and the
Senior Notes together with the FELINE PRIDES, Securities). Initially,
$ aggregate principal amount of Series D Notes and $
aggregate principal amount of Series E Notes
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-24 OF THIS PROSPECTUS
SUPPLEMENT FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE
SECURITIES.
Prior to the offering made hereby, there has been no public market for
the Securities. The Company intends to apply for listing of the Income
PRIDES and the Growth PRIDES on The New York Stock Exchange (NYSE). Unless
and until substitution is made as described in "Description of the FELINE
PRIDES -- Creating Growth PRIDES" or "-- Creating Income PRIDES," neither
the Senior Note component of an Income PRIDES nor the Treasury Security
component of a Growth PRIDES will trade separately from such Income PRIDES
or Growth PRIDES, and such Senior Note component will trade as a unit with
the Purchase Contract component of the Income PRIDES and such Treasury
Security component will trade as a unit with the Purchase Contract
component of the Growth PRIDES. The Company does not intend to apply for
the separate listing of any Senior Notes on the NYSE or any other
securities exchange. On July , 1998, the last reported sale price of
the Common Stock on the NYSE was $ per share.
-------------------------
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.
PRICE TO PUBLIC(1)
$ per Income PRIDES
$ per Growth PRIDES
100% of aggregate principal amount of Series D Notes
100% of aggregate principal amount of Series E Notes
==========================================================================
UNDERWRITING PROCEEDS TO
COMMISSION(2) COMPANY(3)
--------------------------------------------------------------------------
Total(4) . . . . . . . . . . $ $
==========================================================================
(1) Plus, as applicable, accrued distributions, interest and Contract
Adjustment Payments, if any, from July , 1998. The purchase
price of each Income PRIDES and Growth PRIDES will be allocated
between the related Purchase Contract and the related Senior Notes, in
the case of Income PRIDES, and between the related Purchase Contract
and the related interest in the Treasury Securities, in the case of
Growth PRIDES, as applicable, in proportion to their respective fair
market values at the time of purchase. See CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- "FELINE PRIDES -- Allocation of Purchase Price."
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended (Securities
Act). See UNDERWRITING.
(3) Such amount does not include $ used to purchase the
Treasury Securities component of the Growth PRIDES.
(4) The Company has granted to the Underwriters a 30-day option to
purchase up to additional Securities to cover over-allotments,
if any; provided, however, that the Underwriters must purchase equal
amounts of the Senior Notes of each series, having an aggregate
principal amount greater than or equal to the aggregate Stated Amount
of Growth PRIDES purchased. If such options are exercised in full,
the total Underwriting Commission and Proceeds to the Company will be
$ and $ (such amount does not include
approximately $ used to purchase the Treasury Securities
component of the Growth PRIDES), respectively. See UNDERWRITING.
----------------------
The Securities are offered by the Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected
that delivery of the Securities offered hereby will be made in New York,
New York on or about July , 1998.
----------------------
MERRILL LYNCH & CO. LEHMAN BROTHERS
----------------------
The date of this Prospectus Supplement is July , 1998.
---------------------
(SM) Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
SECURITIES AND THE COMMON STOCK OF THE COMPANY. SUCH TRANSACTIONS MAY
INCLUDE STABILIZING TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE UNDERWRITING.
_____________________________
(cover continued from previous page)
will be issued and held as a component of the FELINE PRIDES. The FELINE
PRIDES offered hereby will initially consist of (A) units referred
to as Income PRIDES with a Stated Amount, per Income PRIDES, of $50 (Stated
Amount) and (B) units referred to as Growth PRIDES with a face
amount, per Growth PRIDES, equal to the Stated Amount. Each Income PRIDES
will initially consist of a unit comprised of (a) a stock purchase contract
(Purchase Contract) under which (i) the holder will purchase from the
Company not later than August 16, 2001 (First Purchase Contract Settlement
Date), for $25 in cash, a number of newly issued shares of common stock,
without par value, of the Company (Common Stock) equal to the Settlement
Rate (as defined herein), (ii) the holder will purchase from the Company
not later than August 16, 2002 (Second Purchase Contract Settlement Date,
and with the First Purchase Contract Settlement Date, each a Purchase
Contract Settlement Date), for $25 in cash, a number of newly issued shares
of Common Stock equal to the Settlement Rate and (iii) the Company will pay
the holder unsecured contract adjustment payments (Contract Adjustment
Payments) at the rate of % of the Stated Amount ($50) per annum
prior to the First Purchase Contract Settlement Date, and at the rate of
% of $25 (which is equal to one-half of the Stated Amount and is
intended to reflect the settlement of one-half of each Purchase Contract on
or prior to the First Purchase Contract Settlement, the Remaining Stated
Amount) per annum thereafter until the Second Purchase Contract Settlement
Date, subject to the right of the Company to defer such payments, and (b)
(i) prior to the First Purchase Contract Settlement Date, beneficial
ownership of a Series D Note, having a principal amount of $25, and a
Series E Note, having a principal amount of $25, and (ii) from the First
Purchase Contract Settlement Date to the Second Purchase Contract
Settlement Date, beneficial ownership of a Series E Note, having a
principal amount of $25. Upon the occurrence of a Tax Event Redemption (as
defined herein) prior to the Second Purchase Contract Settlement Date, the
appropriate Applicable Ownership Interest in the Treasury Portfolio (in
each case, as defined herein) will be substituted for the related redeemed
Senior Notes. Each Growth PRIDES will initially consist of a unit with a
Stated Amount of $50 comprised of (a) a Purchase Contract under which (i)
the holder will purchase from the Company not later than the First Purchase
Contract Settlement Date, for $25 in cash, a number of newly issued shares
of Common Stock equal to the Settlement Rate, (ii) the holder will purchase
from the Company not later than the Second Purchase Contract Settlement
Date, for $25 in cash, a number of newly issued shares of Common Stock of
the Company equal to the Settlement Rate, and (iii) the Company will pay
the holder Contract Adjustment Payments at the rate of % of the
Stated Amount ($50) per annum prior to the First Purchase Contract
Settlement Date, and at the rate of % of the Remaining Stated
Amount ($25) per annum thereafter until the Second Purchase Contract
Settlement Date, subject to the right of the Company to defer such
payments, and (b) (i) prior to the First Purchase Contract Settlement Date
a 1/40 undivided beneficial ownership interest in a % zero-coupon
U.S. Treasury Security having a principal amount at maturity equal to
$1,000 and maturing on August 15, 2001 (CUSIP No. ) (3-year
Treasury Security) and a 1/40 undivided beneficial interest in a Treasury
Security having a principal amount at maturity equal to $1,000 and maturing
on August 15, 2002 (CUSIP No. ) (4-year Treasury Security, and with
the 3-year Treasury Security, each, a Treasury Security), or (ii) from the
First Purchase Contract Settlement Date to the Second Purchase Contract
Settlement Date, a 1/40 undivided beneficial interest in a 4-year Treasury
Security having a principal amount at maturity equal to $1,000. The Series
D Notes initially will bear interest at a rate of % per annum and
the Series E Notes initially will bear interest at a rate of % per
annum. As long as the FELINE PRIDES are in the form of Income PRIDES or
Growth PRIDES, the related Senior Notes or Treasury Securities or the
Treasury Portfolio (as defined herein), as applicable, will be pledged to
the Collateral Agent (as defined herein), to secure the holder's obligation
to give certain notices and purchase Common Stock under the related
Purchase Contracts as described herein.
S-2
<PAGE>
The number of shares of Common Stock issuable upon settlement of the
applicable portion of each Purchase Contract on each Purchase Contract
Settlement Date (Settlement Rate) will be calculated as follows (subject to
adjustment under certain circumstances): (a) if the Applicable Market Value
(as defined herein) is equal to or greater than $ (Threshold
Appreciation Price, which is approximately % above the last
reported sale price of the Common Stock set forth on the cover page of this
Prospectus Supplement (Reference Price)), the Settlement Rate will be
; (b) if the Applicable Market Value is less than the Threshold
Appreciation Price but greater than the Reference Price, the Settlement
Rate will be equal to $25 divided by the Applicable Market Value; and (c)
if the Applicable Market Value is less than or equal to the Reference
Price, the Settlement Rate will be .
Payments of % of the Stated Amount ($50) per annum will be
made or accrue on each Income PRIDES quarterly in arrears on February 16,
May 16, August 16 and November 16 of each year, commencing 16,
1998, until the First Purchase Contract Settlement Date. These payments
will consist of interest payments on equal $25 principal amounts of Series
D Notes and Series E Notes payable at the rate of % per annum with
respect to the Series D Notes, and at the rate of % per annum with
respect to the Series E Notes, or distributions on the Treasury Portfolio,
payable at the rate of % of the Stated Amount ($50) per annum, as
applicable, and Contract Adjustment Payments payable by the Company at the
rate of % of the Stated Amount ($50) per annum subject, in the case
of the Contract Adjustment Payments, to the Company's right to defer
payment of such amounts. From and after the First Purchase Contract
Settlement Date, holders of Income PRIDES will be entitled to receive cash
distributions at a rate of % of the Remaining Stated Amount ($25)
per annum, payable quarterly in arrears on February 16, May 16, August 16
and November 16, consisting of interest payments on a $25 principal amount
of Series E Notes payable at the rate of % per annum, or
distributions on the Treasury Portfolio, payable at the rate of %
of the Remaining Stated Amount ($25) per annum, as applicable, and Contract
Adjustment Payments, payable by the Company at the rate of % of the
Remaining Stated Amount ($25) per annum, subject, in the case of the
Contract Adjustment Payments, to the Company's right to defer payments of
such amounts.
Contract Adjustment Payments, payable by the Company at the rate of
% of the Stated Amount ($50) per annum prior to the First Purchase
Contract Settlement Date, and at a rate of % of the Remaining
Stated Amount ($25) per annum thereafter, will be made or accrue on each
Growth PRIDES quarterly in arrears on February 16, May 16, August 16 and
November 16 of each year, commencing 16, 1998, subject to the
Company's right to defer such payments. In addition, original issue
discount (OID) will accrue on the related Treasury Security for United
States federal income tax purposes.
Holders of Senior Notes will receive interest payments, payable
quarterly in arrears, on February 16, May 16, August 16 and November 16 of
each year, commencing 16, 1998, at the rate of % of the
aggregate principal amount per annum in the case of Series D Notes, and at
the rate of % of the aggregate principal amount per annum in the
case of Series E Notes.
The Company will have the right to defer Contract Adjustment Payments.
As a consequence of such deferral, such portion of the quarterly cash
distribution on the Income PRIDES that is comprised of Contract Adjustment
Payments and the quarterly cash distributions on the Growth PRIDES would be
deferred; however, such deferred Contract Adjustment Payments would accrue
at the rate of % per annum, compounded quarterly. All Contract
Adjustment Payments deferred prior to the First Purchase Contract
Settlement Date must be paid (or settled in Common Stock) not later than
such date; all other deferred Contract Adjustment Payments must be paid (or
settled in Common Stock) no later than the Second Purchase Contract
Settlement Date.
The interest rate for the Series D Notes outstanding on and after the
First Purchase Contract Settlement Date will be reset on the third Business
Day (as defined herein) immediately preceding the First Purchase Contract
Settlement Date to a rate per annum (Series D Reset Rate) to be determined
by a reset agent (Reset Agent) equal to the sum of (x) a spread amount for
the Series D Notes (Series D Reset Spread) and (y) the rate of interest on
the Two-Year Benchmark Treasury (as defined herein). The Company may limit
the Series D Reset Rate to be no higher than basis points over the
rate of interest on the Two-Year Benchmark Treasury. The interest rate for
S-3
<PAGE>
the Series E Notes outstanding on and after the Second Purchase Contract
Settlement Date will be reset on the third Business Day immediately
preceding the Second Purchase Contract Settlement Date to a rate per annum
(the Series E Reset Rate, and with the Series D Reset Rate, each a Reset
Rate) to be determined by the Reset Agent equal to the sum of (x) a spread
amount for the Series E Notes (Series E Reset Spread, and with the Series D
Reset Spread, each a Reset Spread) and (y) the rate of the interest on the
Two-Year Benchmark Treasury. The Company may limit the Series E Reset Rate
to be no higher than basis points over the rate of interest on the
Two-Year Benchmark Treasury.
The Senior Notes will be senior unsecured obligations of the Company.
The Contract Adjustment Payments will be subordinated and junior in right
of payment to the Company's obligations under its Senior Indebtedness (as
defined herein). "Senior Indebtedness" means indebtedness of any kind of
the Company (including the Senior Notes) unless the instrument under which
such indebtedness is incurred expressly provides that it is in parity or
subordinate in right of payment to the Contract Adjustment Payments.
Unless a Tax Event Redemption has occurred, if the holder of an Income
PRIDES has not notified the Purchase Contract Agent (as defined herein), in
the manner described herein, of its intention to settle the applicable
portion of the related Purchase Contract with separate cash, the Collateral
Agent or the Company will exercise its rights as a secured party with
respect to the related Senior Notes and the Remarketing Agent (as defined
herein), pursuant to the terms of a Remarketing Agreement (as defined
herein) and in connection with each Purchase Contract Settlement Date, will
use its reasonable efforts to remarket the related Series D Notes (bearing
interest at the Series D Reset Rate), in the case of the First Purchase
Contract Settlement Date or the related Series E Notes (bearing interest at
the Series E Reset Rate), in the case of the Second Purchase Contract
Settlement Date on the third Business Day immediately preceding the
applicable Purchase Contract Settlement Date for settlement on such
Purchase Contract Settlement Date at a price of approximately 100.5% of the
aggregate principal amount of such Senior Notes of such series plus accrued
and unpaid interest thereon. The portion of the proceeds from such
remarketing, in an amount equal to the aggregate principal amount of such
Senior Notes of such series, will be applied to satisfy in full such
holder's obligation to purchase Common Stock under the applicable portion
of the related Purchase Contract on such Purchase Contract Settlement Date.
In addition, after deducting as a remarketing fee (Remarketing Fee) an
amount not exceeding 25 basis points (.25%) of the aggregate principal
amount of the remarketed Senior Notes of such series from any amount
received in connection with such remarketing in excess of the aggregate
principal amount of such Senior Notes of such series plus any accrued and
unpaid interest, the Remarketing Agent will remit the remaining portion of
the proceeds, if any, to the Purchase Contract Agent for the benefit of
such holder. If the remarketing does not occur because a condition
precedent to the remarketing has not been fulfilled or if, despite using
its reasonable efforts, the Remarketing Agent fails to remarket the Senior
Notes (other than to the Company) at a price not less than 100% of their
aggregate principal amount plus accrued and unpaid interest, the
remarketing will be deemed to have failed (Failed Remarketing) and the
Collateral Agent or the Company will dispose of the Senior Notes of such
series in accordance with applicable law and satisfy in full, from the
proceeds of such disposition, such holder's obligation to purchase Common
Stock under the related Purchase Contracts on the applicable Purchase
Contract Settlement Date; provided that, if the Company exercises such
rights as a secured party with respect to such Senior Notes, the Company
shall have no further recourse against the holder of such Senior Notes with
respect to such obligation and any accrued and unpaid interest on such
Senior Notes will be paid in cash by the Company to the holder of record of
such Senior Notes. Holders of Senior Notes that are not components of
Income PRIDES may elect, in the manner described herein, to have their
Senior Notes remarketed by the Remarketing Agent as described herein.
On or prior to the fifth Business Day immediately preceding the Second
Purchase Contract Settlement Date, but not during the period from the fifth
Business Day immediately preceding the First Purchase Contract Settlement
Date through the First Purchase Contract Settlement Date, holders (which
may be initially an Underwriter) of Income PRIDES may substitute Treasury
Securities for the related Senior Notes or the Applicable Ownership
Interest in the Treasury Portfolio, as the case may be, held by the
Collateral Agent, thereby creating Growth PRIDES as described herein. Such
Treasury Securities will be pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under the related Purchase
Contracts. Upon the substitution as collateral of Treasury Securities for
S-4
<PAGE>
the related Senior Notes, such Senior Notes will be released to the Income
PRIDES holder as described herein. Holders of Income PRIDES wishing to
create Growth PRIDES will also be required to deliver cash in an amount
equal to the excess of the Contract Adjustment Payments that would have
accrued since the last Payment Date on which distributions have been made
through the date of substitution on the Growth PRIDES being created by such
holders, over the Contract Adjustment Payments that have accrued over the
same period on the related Income PRIDES.
On or prior to the fifth Business Day immediately preceding the Second
Purchase Contract Settlement Date, but not during the period from the fifth
Business Day immediately preceding the First Purchase Contract Settlement
Date through the First Purchase Contract Settlement Date, holders (which
may be initially an Underwriter) of Growth PRIDES may substitute Senior
Notes for the related Treasury Securities held by the Collateral Agent,
thereby creating Income PRIDES as described herein. Such Senior Notes will
be pledged with the Collateral Agent to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts. Upon the
substitution as collateral of Senior Notes for the related Treasury
Securities, such Treasury Securities will be released to the Growth PRIDES
holder as described herein.
If a Failed Remarketing has occurred, then (i) in the case of a Failed
Remarketing as to the First Purchase Contract Settlement Date, holders of
Series D Notes following the First Purchase Contract Settlement Date will
have the right to put their Series D Notes directly to the Company on
September 1, 2001, upon at least three Business Days' prior notice, at a
price equal to the principal amount thereof, plus accrued and unpaid
interest, if any, thereon, and (ii) in the case of a Failed Remarketing as
to the Second Purchase Contract Settlement Date, holders of Series E Notes
following the Second Purchase Contract Settlement Date will have the right
to put their Series E Notes directly to the Company on September 1, 2002,
upon at least three Business Days' prior notice, at a price equal to the
principal amount thereof, plus accrued and unpaid interest, if any,
thereon.
On the Business Day immediately preceding a Purchase Contract
Settlement Date, unless a holder of Income PRIDES or Growth PRIDES (i) has
settled the applicable portion of the related Purchase Contracts through
the early delivery of cash to the Purchase Contract Agent in the manner
described herein, (ii) has settled the applicable portion of the related
Purchase Contracts with separate cash on the Business Day immediately
preceding such Purchase Contract Settlement Date, pursuant to prior
notification to the Purchase Contract Agent, (iii) in the case of Income
PRIDES, has had the Series D Notes (with respect to the First Purchase
Contract Settlement Date) or Series E Notes (with respect to the Second
Purchase Contract Settlement Date), as applicable, related to the
applicable portion of such holder's Purchase Contract remarketed in the
manner described herein in connection with settling the applicable portion
of such Purchase Contracts, or (iv) an event described under DESCRIPTION OF
THE PURCHASE CONTRACTS -- "Termination" has occurred, then (A) in the case
of Income PRIDES (unless a Tax Event Redemption has occurred) the Company
will exercise its rights as a secured party to dispose of the related
Series D Notes or Series E Notes, as applicable, in accordance with
applicable law and (B) in the case of Growth PRIDES or Income PRIDES (in
the event that a Tax Event Redemption has occurred), the principal amount
of the Treasury Securities or the Applicable Ownership Interest in the
Treasury Portfolio, as applicable, when paid at maturity, will
automatically be applied, pursuant to the exercise of such rights by the
Company, to satisfy in full such holder's obligation to purchase Common
Stock under the applicable portion of the Purchase Contracts.
In the event that a holder of either Income PRIDES or Growth PRIDES
effects the early settlement of the applicable portion of the related
Purchase Contracts through the delivery of cash or settles (in the case of
Income PRIDES) the applicable portion of such Purchase Contracts with cash
on the Business Day immediately preceding a Purchase Contract Settlement
Date, the related Senior Notes, the appropriate Applicable Ownership
Interest in the Treasury Portfolio or the related Treasury Securities, as
the case may be, will be released to the holder as described herein.
The Senior Notes are redeemable at the option of the Company, in whole
but not in part, upon the occurrence and continuation of a Tax Event (as
defined herein) under the circumstances described herein (Tax Event
S-5
<PAGE>
Redemption). If the Company so elects to redeem the Senior Notes, it must
redeem all of the Senior Notes at a redemption price (Redemption Price) per
Senior Note equal to the Redemption Amount (as defined herein) plus accrued
and unpaid interest, if any, thereon to the date fixed for redemption and
pay in cash such Redemption Price to the holders of such Senior Notes. If
such Tax Event Redemption occurs prior to the Second Purchase Contract
Settlement Date, the Redemption Price payable in liquidation of the Income
PRIDES holders' interests in the Senior Notes will be distributed to the
Collateral Agent, who in turn will apply an amount equal to the Redemption
Amount of such Redemption Price to purchase, on behalf of the holders of
Income PRIDES, the Treasury Portfolio and remit the remaining portion, if
any, of such Redemption Price to the Purchase Contract Agent for payment to
the holders of such Income PRIDES. See DESCRIPTION OF THE SENIOR NOTES --
"Tax Event Redemption." Such Treasury Portfolio will be substituted for
the Senior Notes and will be pledged to the Collateral Agent to secure such
Income PRIDES holders' obligations to purchase the Common Stock under their
Purchase Contracts.
S-6
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary information is qualified in its
entirety by, and should be read in conjunction with, the more
detailed information appearing elsewhere in the accompanying
Prospectus, this Prospectus Supplement or in the Incorporated
Documents. Except as otherwise noted, all information in this
Prospectus Supplement assumes no exercise of the Underwriters'
over-allotment option.
A listing of the pages on which certain definitions of
capitalized terms used in this Prospectus Supplement Summary and
elsewhere in this Prospectus Supplement are defined is set forth
in the "Index of Principal Terms for Prospectus Supplement"
herein. Certain other terms are defined in the accompanying
Prospectus.
THE COMPANY
The Company is a holding company which owns all of the
outstanding common stock of TEI and ENSERCH. TEI is a holding
company whose largest subsidiary is Texas Utilities Electric
Company (TU Electric). TU Electric is an electric utility
engaged in the generation, purchase, transmission, distribution
and sale of electric energy in the north central, eastern and
western parts of Texas. Another subsidiary of TEI is Texas
Utilities Australia Pty. Ltd., owner of Eastern Energy Limited
(Eastern Energy), which is engaged in the purchase, distribution,
marketing and sale of electric energy in the State of Victoria,
Australia. ENSERCH is an integrated company focused on natural
gas. ENSERCH operates primarily in the north central and eastern
parts of Texas. Its major business segments are natural gas
pipeline, processing, marketing and distribution. In addition, a
subsidiary of the Company has made a tender offer for all
outstanding shares of The Energy Group PLC (TEG), a diversified
international energy group based in the United Kingdom, and as of
July 3, 1998 held approximately 95.9% of such shares. See THE
COMPANY in the accompanying Prospectus.
THE OFFERING
Securities Offered ........ 13,000,000 FELINE PRIDES,
consisting of Income
PRIDES and Growth PRIDES, $
aggregate principal amount
of separate Series D Notes and
$ aggregate principal
amount of separate Series E Notes.
$ aggregate principal
amount of Series D Notes and
$ aggregate principal
amount of separate Series E Notes
will be initially issued and held
as a component of the Income
PRIDES.
Issuer .................... Texas Utilities Company.
Stated Amount ............. $50 per Income PRIDES and Growth
PRIDES.
Listing of the Income
PRIDES and Growth PRIDES. The Company intends to apply for
listing of the Income PRIDES and
the Growth PRIDES on the NYSE, but
does not intend to apply for any
listing of the Senior Notes.
Unless and until substitution is
made as described in DESCRIPTION OF
THE FELINE PRIDES -- "Creating
Growth PRIDES" or " -- Creating
Income PRIDES," neither the Senior
Note component of an Income PRIDES
nor the Treasury Security component
of a Growth PRIDES will trade
separately from such Income PRIDES
or Growth PRIDES, and such Senior
Note component will trade as a unit
with the Purchase Contract
component of the Income PRIDES and
such Treasury Security component
will trade as a unit with the
Purchase Contract component of the
Growth PRIDES. See UNDERWRITING.
NYSE Symbol of Common
Stock ................... TXU
S-7
<PAGE>
Use of Proceeds ........... All of the proceeds from the sale
of the Growth PRIDES will be used
to purchase the underlying Treasury
Securities to be transferred to
holders of the Growth PRIDES
pursuant to the terms thereof. All
of the proceeds from the sale of
the Senior Notes that are not
components of Income PRIDES and all
of the proceeds from the sale of
the Income PRIDES will be paid to
the Company. The Company currently
anticipates using substantially all
of the net proceeds from the sale
of the Senior Notes and the Income
PRIDES, estimated to be
approximately $ million (after
deducting the underwriting
commissions), to repay short-term
indebtedness incurred in connection
with the acquisition of TEG,
with any remainder being used for
general corporate purposes.
Components of FELINE
PRIDES .................. The FELINE PRIDES offered
hereby will initially consist of
(A) units referred to as
Income PRIDES and (B)
units referred to as Growth PRIDES.
Each Income PRIDES will initially
consist of a unit comprised of (a)
a Purchase Contract under which (i)
the holder will purchase from the
Company not later than the First
Purchase Contract Settlement Date,
for $25 in cash, a number of newly
issued shares of Common Stock of
the Company equal to the Settlement
Rate, (ii) the holder will purchase
from the Company not later than the
Second Purchase Contract Settlement
Date, for $25 in cash, a number of
newly issued shares of Common Stock
of the Company equal to the
Settlement Rate and (iii) the
Company will pay to the holder
Contract Adjustment Payments at the
rate of % of the Stated
Amount ($50) per annum prior to the
First Purchase Contract Settlement
Date, and at the rate of %
of the Remaining Stated Amount
($25) per annum thereafter until
the Second Purchase Contract
Settlement Date, subject to the
right of the Company to defer such
payments, and (b) (i) prior to the
First Purchase Contract Settlement
Date, beneficial ownership of a
Series D Note, having a principal
amount of $25, and a Series E Note,
having a principal amount of $25,
and (ii) from the First Purchase
Contract Settlement Date to the
Second Purchase Contract Settlement
Date, beneficial ownership of a
Series E Note, having a principal
amount of $25. Upon the occurrence
of a Tax Event Redemption prior to
the Second Purchase Contract
Settlement Date, the appropriate
Applicable Ownership Interest in
the Treasury Portfolio will be
substituted for the related
redeemed Senior Notes. The
purchase price of each Income
PRIDES will be allocated between
the related Purchase Contract and
each of the related Senior Notes in
proportion to their respective fair
market values at the time of
purchase. See CERTAIN FEDERAL
INCOME TAX CONSEQUENCES -- "FELINE
PRIDES -- Allocation of Purchase
Price."
As described below, upon the
occurrence of a Tax Event (as
defined herein) prior to the Second
Purchase Contract Settlement Date,
the Company may at its option cause
the Senior Notes to be redeemed at
the Redemption Price and the
Treasury Portfolio will be
substituted for the redeemed Senior
Notes in the manner described
herein to secure the Income PRIDES
holders' obligations under their
related Purchase Contracts. As
long as a FELINE PRIDES is in the
form of an Income PRIDES or Growth
PRIDES, the related Senior Notes,
Treasury Securities or the Treasury
Portfolio, as applicable, will be
pledged pursuant to a pledge
agreement, to be dated as of
, 1998 (Pledge Agreement),
between the Company, The Chase
Manhattan Bank, as collateral agent
for the Company (together with any
successor thereto in such capacity,
Collateral Agent), and the Purchase
Contract Agent (as defined herein)
to secure the holder's obligation
to purchase Common Stock under the
related Purchase Contract.
S-8
<PAGE>
Each Growth PRIDES will initially
consist of a unit with a face
amount of $50 comprised of (a) a
Purchase Contract under which (i)
the holder will purchase from the
Company not later than the First
Purchase Contract Settlement Date,
for $25 in cash, a number of newly
issued shares of Common Stock of
the Company equal to the Settlement
Rate, (ii) the holder will purchase
from the Company not later than the
Second Purchase Contract Settlement
Date, for $25 in cash, a number of
shares of Common Stock of the
Company equal to the Settlement
Rate, and (iii) the Company will
pay the holder Contract Adjustment
Payments at the rate of %
of the Stated Amount ($50) per
annum prior to the First Purchase
Contract Settlement Date, and at
the rate of % of the
Remaining Stated Amount ($25) per
annum thereafter until the Second
Purchase Contract Settlement Date,
and (b) (i) prior to the First
Purchase Contract Settlement Date,
a 1/40 undivided beneficial
ownership interest in a 3-year
Treasury Security (CUSIP No. )
having a principal amount at
maturity equal to $1,000 and a 1/40
undivided beneficial interest in a
4-year Treasury Security (CUSIP
No. ) having a principal amount
at maturity equal to $1,000, or
(ii) from the First Purchase
Contract Settlement Date to the
Second Purchase Contract Settlement
Date, a 1/40 undivided beneficial
interest in a 4-year Treasury
Security having a principal amount
at maturity equal to $1,000. The
purchase price of each Growth
PRIDES will be allocated between
the related Purchase Contract and
the related interest in each
Treasury Security in proportion to
their respective fair market values
at the time of purchase. See
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- "FELINE PRIDES --
Allocation of Purchase Price."
Purchase Contract
Agreement ............... The FELINE PRIDES will be issued
under a Purchase Contract
Agreement, to be dated as of
, 1998 (Purchase Contract
Agreement), between the Company and
The Bank of New York, as agent for
the holders of the FELINE PRIDES
(together with any successor
thereto in such capacity, Purchase
Contract Agent).
Creating Growth PRIDES .... Each holder of an Income PRIDES may
substitute for the related Senior
Notes or the Applicable Ownership
Interest in the Treasury Portfolio
held by the Collateral Agent
zero-coupon U.S. Treasury
Securities having a principal
amount at maturity equal to the
aggregate principal amount of, and
having maturities corresponding to
the Purchase Contract Settlement
Dates for the Purchase Contracts
secured by, Senior Notes or the
appropriate Applicable Ownership
Interest in the Treasury Portfolio
that are components of such Income
PRIDES. Such Treasury Securities
will be pledged with the Collateral
Agent to secure the holder's
obligation to purchase Common Stock
under the related Purchase
Contracts. Such substitutions may
be made at any time on or prior to
the fifth Business Day immediately
preceding the Second Purchase
Contract Settlement Date only in
integral multiples of 40 Income
PRIDES; provided, however, that
such substitutions may not be made
during the period from the fifth
Business Day immediately preceding
the First Purchase Contract
Settlement Date through the First
Purchase Contract Settlement Date;
and provided, further, that, if the
Treasury Portfolio has become a
component of the Income PRIDES,
holders of Income PRIDES may make
such substitutions only in integral
multiples of 1,600,000 Income
PRIDES at any time on or prior to
the second Business Day immediately
preceding the Second Purchase
Contract Settlement Date (but not
during the period from the second
Business Day immediately preceding
the First Purchase Contract
Settlement Date through the First
Purchase Contract Settlement Date).
Accordingly, in such event holders
wishing to make such substitution
must hold at least 1,600,000 Income
S-9
<PAGE>
PRIDES. In the event that Contract
Adjustment Payments are at a higher
rate for Growth PRIDES than for
Income PRIDES, holders of Income
PRIDES wishing to create Growth
PRIDES also will be required to
deliver cash in an amount equal to
the excess of the Contract
Adjustment Payments that would have
accrued since the last Payment Date
to which Contract Adjustment
Payments have been paid to the date
of substitution on the Growth
PRIDES being created by such
holders, over the Contract
Adjustment Payments that have
accrued over the same time period
on the related Income PRIDES.
Creating Income PRIDES .... Each holder of Growth PRIDES may,
on or prior to the fifth Business
Day immediately preceding the
Second Purchase Contract Settlement
Date, create 40 Income PRIDES by
delivering 40 Growth PRIDES to the
Purchase Contract Agent plus Senior
Notes in aggregate principal amount
equal to, and of the series
corresponding to, the Treasury
Securities that are components of
such Growth PRIDES to the
Collateral Agent, with such
Treasury Securities then being
released to such holder; provided,
however, that such substitutions
may not be made during the period
from the fifth Business Day
immediately preceding the First
Purchase Contract Settlement Date
through the First Purchase Contract
Settlement Date; and provided,
further, that if a Tax Event
Redemption has occurred prior to
the Second Purchase Contract
Settlement Date and the Treasury
Portfolio has become a component of
the Income PRIDES, holders of
Growth PRIDES may make such
substitution (but using the
Applicable Ownership Interest in
the Treasury Portfolio rather than
the applicable Senior Notes) only
in integral multiples of 1,600,000
Growth PRIDES at any time on or
prior to the second Business Day
immediately preceding the Second
Purchase Contract Settlement Date
(but not during the period from the
second Business Day immediately
preceding the First Purchase
Contract Settlement Date through
the First Purchase Contract
Settlement Date). Accordingly, in
such event, holders wishing to make
such substitution must hold at
least 1,600,000 Growth PRIDES.
Such Senior Notes or the
appropriate Applicable Ownership
Interest in the Treasury Portfolio,
as the case may be, will be pledged
with the Collateral Agent to secure
the holder's obligation to purchase
Common Stock under the related
Purchase Contracts.
Current Payments; Contract
Adjustment Payments ...... From and after , 1998 and
prior to the First Purchase
Contract Settlement Date, holders
of Income PRIDES will be entitled
to receive cash distributions at a
rate of % of the Stated
Amount ($50) per annum, payable
quarterly in arrears, consisting of
an amount equal to the sum of
interest payments on the $25
principal amounts of Series D Notes
and Series E Notes, or
distributions on the Treasury
Portfolio, as applicable, and
Contract Adjustment Payments,
payable by the Company at the rate
of % of the Stated Amount
($50) per annum, subject to the
Company's right to defer the
payment of the Contract Adjustment
Payments. From and after the First
Purchase Contract Settlement Date,
holders of Income PRIDES will be
entitled to receive cash
distributions at a rate of
% of the Remaining Stated
Amount ($25) per annum, payable
quarterly in arrears, consisting of
interest payments on $25 principal
amount of Series E Notes, or
distributions on the Treasury
Portfolio, as applicable, and
Contract Adjustment Payments,
payable by the Company at the rate
of % of the Remaining
Stated Amount ($25) per annum,
subject, in the case of the
Contract Adjustment Payments, to
the Company's right to defer
payments of such amounts. The
Company's obligations with respect
to the Senior Notes will be senior
and unsecured and will rank on a
parity in right of payment with all
other senior unsecured obligations
S-10
<PAGE>
of the Company. See "Ranking"
below and RISK FACTORS -- "Right to
Defer Current Payments."
Holders of Growth PRIDES will be
entitled to receive quarterly cash
distributions of Contract
Adjustment Payments payable by the
Company at the rate of % of
the Stated Amount ($50) per annum
from and after , 1998 and
prior to the First Purchase
Contract Settlement Date, and at a
rate of % of the Remaining
Stated Amount ($25) per annum
thereafter, subject to the
Company's right to defer such
payments. In addition, OID would
continue to accrue on the related
Treasury Securities for United
States federal income tax purposes.
See RISK FACTORS -- "Right to Defer
Current Payments."
The Contract Adjustment Payments
will be subordinated and junior in
right of payment to the Senior
Indebtedness. See DESCRIPTION OF
THE PURCHASE CONTRACTS -- "Contract
Adjustment Payments."
Option to Defer Contract
Adjustment Payments ..... The Company has the right to defer
the payment of Contract Adjustment
Payments on the related Purchase
Contracts until no later than the
next Purchase Contract Settlement
Date; however, such deferred
Contract Adjustment Payments, if
any, will accrue additional
Contract Adjustment Payments at the
rate of % per annum,
compounded quarterly, (such
deferred Contract Adjustment
Payments, together with the
additional accruals thereon, shall
be referred to as Deferred Contract
Adjustment Payments). See
DESCRIPTION OF THE PURCHASE
CONTRACTS -- "Option to Defer
Contract Adjustment Payments." If
the Contract Adjustment Payments
are deferred, the Company has
agreed, among other things, not to
declare or pay any dividend on or
repurchase its capital stock
(subject to certain exceptions)
during the period of any such
deferral.
In the event that the Company
elects to defer the payment of
Contract Adjustment Payments on the
related Purchase Contracts until a
Purchase Contract Settlement Date,
each holder of the related Income
PRIDES or Growth PRIDES will
receive on such Purchase Contract
Settlement Date in respect of such
Deferred Contract Adjustment
Payments due on such date, in lieu
of a cash payment, a number of
shares of Common Stock equal to (x)
the aggregate amount of Deferred
Contract Adjustment Payments
payable to such holder divided by
(y) the Applicable Market Value (as
defined herein). See DESCRIPTION OF
THE PURCHASE CONTRACTS -- "Option
to Defer Contract Adjustment
Payments."
Payment Dates ............. Subject to the Company's right to
defer Contract Adjustment Payments
as described herein, the current
payments described above in respect
of the Income PRIDES and Growth
PRIDES will be payable quarterly in
arrears on February 16, May 16,
August 16 and November 16 of each
year, commencing 16, 1998,
through and including (i) in the
case of the Contract Adjustment
Payments, the earlier of the Second
Purchase Contract Settlement Date
or the most recent such quarterly
date on or prior to any early
settlement of the related Purchase
Contracts and (ii) in the case of
Senior Notes that are components of
Income PRIDES, the earlier of (a)
the most recent such quarterly date
on or prior to the earlier of the
First Purchase Contract Settlement
Date, in the case of the Series D
Notes, or the Second Purchase
Contract Settlement Date, in the
case of the Series E Notes, and (b)
the date the aggregate principal
amount of the Senior Notes,
S-11
<PAGE>
together with all accumulated and
unpaid interest thereon (each, a
Payment Date), is paid in full.
Remarketing ............... Unless a Tax Event Redemption has
occurred, pursuant to a remarketing
agreement (Remarketing Agreement)
dated as of , 1998, among
the Company, the Purchase Contract
Agent and one or more nationally
recognized investment banking firms
chosen by the Company (Remarketing
Agent), and subject to the terms of
a Supplemental Remarketing
Agreement to be entered into in
connection with each Purchase
Contract Settlement Date among such
parties, the Series D Notes (in the
case of the First Purchase Contract
Settlement Date) and the Series E
Notes (in the case of the Second
Purchase Contract Settlement Date)
of such Income PRIDES holders who
have failed to notify the Purchase
Contract Agent, on or prior to the
fifth Business Day immediately
preceding such Purchase Contract
Settlement Date, of their intention
to settle the applicable portion of
the related Purchase Contracts with
separate cash, will be remarketed
on the third Business Day
immediately preceding such Purchase
Contract Settlement Date. In the
event of such a failure to so
notify the Purchase Contract Agent,
the Collateral Agent or the Company
will exercise its rights as a
secured party and the Remarketing
Agent will use its reasonable
efforts to remarket such Senior
Notes (bearing the applicable Reset
Rate) on such date for settlement
on such Purchase Contract
Settlement Date at a price of
approximately 100.5% of the
aggregate principal amount of such
Senior Notes of such series, plus
accrued and unpaid interest, if
any, thereon. The portion of the
proceeds from such remarketing
equal to the aggregate principal
amount of such Senior Notes of such
series will be applied to satisfy
in full such Income PRIDES holders'
obligations to purchase Common
Stock under the related Purchase
Contracts on such Purchase Contract
Settlement Date. In addition,
after deducting as the Remarketing
Fee an amount not exceeding 25
basis points (.25%) of the
aggregate principal amount of the
remarketed Senior Notes of such
series from any amount of such
proceeds received in connection
with such remarketing in excess of
the aggregate principal amount of
the remarketed Senior Notes of such
series plus any accrued and unpaid
interest, the Remarketing Agent
will remit the remaining portion of
the proceeds, if any, to the
Purchase Contract Agent for the
benefit of such holders. Income
PRIDES holders whose Senior Notes
are so remarketed will not
otherwise be responsible for any
Remarketing Fee in connection
therewith. If, despite using its
reasonable efforts, the Remarketing
Agent cannot remarket the related
series of Senior Notes (other than
to the Company) of such holders of
Income PRIDES at a price not less
than 100% of the aggregate
principal amount of such Senior
Notes plus accrued and unpaid
interest or if the remarketing
shall not have occurred because a
condition precedent to the
remarketing shall not have been
fulfilled, thereby resulting in a
Failed Remarketing, the Collateral
Agent or the Company will dispose
of the Senior Notes of such series
in accordance with applicable law
and to satisfy in full, from the
proceeds of such disposition, such
holders' obligations to purchase
Common Stock under the related
Purchase Contracts on the
applicable Purchase Contract
Settlement Date, provided, that if
the Company exercises such rights
as a secured party, the Company
shall have no further recourse
against the holders of such Senior
Notes with respect to such
obligation and any accrued and
unpaid interest on such Senior
Notes will be paid in cash by the
Company to the holders of record of
such Senior Notes. The Company
will cause a notice of such Failed
Remarketing to be published on the
second Business Day immediately
preceding the applicable Purchase
Contract Settlement Date. Holders
of Senior Notes that are not
components of Income PRIDES may
elect, in the manner described
herein, to have their Senior Notes
S-12
<PAGE>
remarketed by the Remarketing Agent
as described herein. It is
currently anticipated that Merrill
Lynch, Pierce, Fenner & Smith
Incorporated and Lehman Brothers
Inc. will act together as the
Remarketing Agent. See DESCRIPTION
OF THE PURCHASE CONTRACTS --
"Remarketing."
First Purchase Contract
Settlement Date ......... August 16, 2001.
Second Purchase Contract
Settlement Date ......... August 16, 2002.
Settlement of Purchase
Contracts ............... On the Business Day immediately
preceding a Purchase Contract
Settlement Date, unless a holder of
Income PRIDES or Growth PRIDES (i)
has settled the applicable portion
of the related Purchase Contracts
through the early delivery of cash
to the Purchase Contract Agent in
the manner described herein, (ii)
has settled the applicable portion
of the related Purchase Contracts
with separate cash on the Business
Day prior to such Purchase Contract
Settlement Date pursuant to prior
notification to the Purchase
Contract Agent, (iii) in the case
of Income PRIDES, has had the
Series D Notes (with respect to the
First Purchase Contract Settlement
Date) or Series E Notes (with
respect to the Second Purchase
Contract Settlement Date) related
to the applicable portion of such
holder's Purchase Contracts to be
settled on such Purchase Contract
Settlement Date remarketed in the
manner described herein in
connection with settling the
applicable portion of such Purchase
Contracts, or (iv) an event
described under "Description of the
Purchase Contracts -- Termination"
has occurred, then (A) in the case
of Income PRIDES (unless a Tax
Event Redemption has occurred), the
Company will exercise its rights as
a secured party to dispose of the
related Senior Notes in accordance
with the applicable law and will
satisfy in full, from the proceeds
of such disposition, such holder's
obligation to purchase Common Stock
under the applicable portion of the
related Purchase Contracts, and (B)
in the case of Growth PRIDES or
Income PRIDES (if a Tax Event
Redemption has occurred) the
principal amount of the Treasury
Securities or the Applicable
Ownership Interest in the Treasury
Portfolio, as applicable, when paid
at maturity, will automatically be
applied, pursuant to the exercise
of such rights by the Company, to
satisfy in full such holder's
obligation to purchase Common Stock
under the applicable portion of the
related Purchase Contracts.
In the event that a holder of
either Income PRIDES or Growth
PRIDES effects the early settlement
of the related Purchase Contracts
through the delivery of cash or, in
the case of an Income PRIDES,
settles the applicable portion of
such Purchase Contracts with cash
on the Business Day immediately
preceding a Purchase Contract
Settlement Date, as applicable, the
related Series D Notes or Series E
Notes, as applicable, the
appropriate Applicable Ownership
Interest in the Treasury Portfolio
or the Treasury Securities, as the
case may be, will be released to
such holder as described herein.
Settlement Rate ........... The number of newly issued shares
of Common Stock issuable upon
settlement of the applicable
portion of each Purchase Contract
on a Purchase Contract Settlement
Date (Settlement Rate) will be
calculated as follows (subject to
adjustment under certain
circumstances): (a) if the
Applicable Market Value (as defined
herein) is equal to or greater than
$ (Threshold Appreciation
Price, which is approximately
% above the last reported sale
S-13
<PAGE>
price of the Common Stock set forth
on the cover page of this
Prospectus Supplement (Reference
Price)), the Settlement Rate will
be equal to $25 divided by the
Threshold Appreciation Price, or
; (b) if the Applicable Market
Value is less than the Threshold
Appreciation Price but greater than
the Reference Price, the Settlement
Rate will be equal to $25 divided
by the Applicable Market Value; and
(c) if the Applicable Market Value
is less than or equal to the
Reference Price, the Settlement
Rate will be equal to $25 divided
by the Reference Price, or
. See DESCRIPTION OF THE PURCHASE
CONTRACTS -- "General."
Holder's Obligations and
Defaults ................. In addition to the purchase price
paid for the FELINE PRIDES, holders
are obligated under each Purchase
Contract to purchase for $25 in
cash Common Stock not later than
the First Purchase Contract
Settlement Date and to purchase for
$25 in cash Common Stock not later
than the Second Purchase Contract
Settlement Date. In addition, each
holder of an Income PRIDES (unless
a Tax Event Redemption has
occurred) is obligated to notify
the Purchase Contract Agent of its
intention to pay such amounts in
cash not later than 5:00 p.m. (New
York City time) on the fifth
Business Day immediately preceding
the corresponding Purchase Contract
Settlement Date unless such holder
has already paid such amount. Each
holder of a Growth PRIDES (or an
Income PRIDES, if a Tax Event
Redemption has occurred) is
obligated to notify the Purchase
Contract Agent of its intention to
pay such amounts in cash not later
than 5:00 p.m. (New York City time)
on the second Business Day
immediately preceding the
corresponding Purchase Contract
Settlement Date unless such holder
has already paid such amount. So
long as the FELINE PRIDES are held
by the Depositary, such payments
must be made and such notices must
be given by the beneficial owners
through the procedures of the
Depositary.
Failure to make such payments or
give such notices will constitute a
default under the related Purchase
Contract and will entitle the
Collateral Agent or the Company,
without further recourse to the
holder or beneficial owner in
respect of its related purchase
obligations under the Purchase
Contracts to foreclose on the
corresponding pledged Senior Notes,
Treasury Securities or Applicable
Ownership Interest in the Treasury
Portfolio. (See "DESCRIPTION OF
THE PURCHASE CONTRACTS -- Holder's
Obligations and Defaults" for a
description of the expected
foreclosure procedures in the event
of a default).
Early Settlement .......... A holder of Income PRIDES may
settle the entire remaining related
Purchase Contracts on or prior to
the fifth Business Day immediately
preceding either Purchase Contract
Settlement Date in the manner
described herein, but only in
integral multiples of 40 Income
PRIDES; provided, however, that
such settlements may not be made
during the period from the fifth
Business Day immediately preceding
the First Purchase Contract
Settlement Date through the First
Purchase Contract Settlement Date,
and provided, further, if a Tax
Event Redemption has occurred prior
to such Purchase Contract
Settlement Date and the Treasury
Portfolio has become a component of
the Income PRIDES, holders of
Income PRIDES may settle early only
in integral multiples of 1,600,000
Income PRIDES at any time on or
prior to the second Business Day
immediately preceding such Purchase
Contract Settlement Date (but not
during the period two Business Days
immediately preceding the First
Contract Settlement Date through
the First Contract Settlement
Date). A holder of Growth PRIDES
may settle the related entire
Purchase Contracts on or prior to
the second Business Day immediately
preceding each Purchase Contract
Settlement Date in the manner
S-14
<PAGE>
described herein (in either case,
an Early Settlement). Upon Early
Settlement, (i) the holder's rights
to receive Deferred Contract
Adjustment Payments on the Purchase
Contracts being settled will be
forfeited, (ii) the holder's right
to receive additional Contract
Adjustment Payments in respect of
such Purchase Contracts will
terminate and (iii) no adjustment
will be made to or for the holder
on account of Deferred Contract
Adjustment Payments, or any amount
accrued in respect of Contract
Adjustment Payments. See
DESCRIPTION OF THE PURCHASE
CONTRACTS -- "Early Settlement."
Termination ............... The Purchase Contracts and the
rights and obligations of the
Company and the holders of the
FELINE PRIDES thereunder (including
the right to receive accrued
Contract Adjustment Payments or
Deferred Contract Adjustment
Payments, if any, and the right and
obligation to purchase Common
Stock) will automatically terminate
upon the occurrence of certain
events of bankruptcy, insolvency or
reorganization with respect to the
Company. Upon such termination,
the Collateral Agent will release
the Senior Notes, the Applicable
Ownership Interest in the Treasury
Portfolio or the Treasury
Securities, as the case may be,
held by it to the Purchase Contract
Agent for distribution to the
holders, subject in the case of the
Treasury Portfolio to the Purchase
Contract Agent's disposition of the
subject securities for cash, and
the payment of such cash to the
holders, to the extent that the
holder would otherwise have been
entitled to receive less than
$1,000 of any such security. Upon
such termination, there may be a
delay before such release and
distribution. In the event that
the Company becomes the subject of
a case under the United States
Bankruptcy Code of 1978, as amended
(Bankruptcy Code), such delay may
occur as a result of the automatic
stay under the Bankruptcy Code and
continue until such automatic stay
has been lifted. See DESCRIPTION
OF THE PURCHASE CONTRACTS --
"Termination."
Lack of Voting Rights ..... Holders of Purchase Contracts
forming part of the Income PRIDES
or Growth PRIDES in their
capacities as such holders will
have no voting or other rights in
respect of the Common Stock. In
addition, holders of Senior Notes,
including Senior Notes forming part
of the Income PRIDES, will not have
any voting rights with respect to
the Common Stock.
SENIOR NOTES
Maturity .................. Unless a Tax Event Redemption has
occurred, the Series D Notes will
mature on August 16, 2003 and the
Series E Notes will mature on
August 16, 2004.
Series D Interest Payments Interest on the Series D Notes,
including Series D Notes that are
components of Income PRIDES, will
accrue from the first date of
issuance of the Series D Notes and
will be payable initially at the
annual rate of % to but
excluding the First Purchase
Contract Settlement Date, and in
the case of Series D Notes that
remain outstanding on and after the
First Purchase Contract Settlement
Date, from the First Purchase
Contract Settlement Date to but
excluding August 16, 2003, at the
Series D Reset Rate. Interest will
be payable quarterly in arrears on
each February 16, May 16, August 16
and November 16, commencing
16, 1998.
Series E Interest Payments Interest on the Series E Notes,
including Series E Notes that are
components of Income PRIDES, will
accrue from the first date of
issuance of the Series E Notes and
will be payable initially at the
annual rate of % to but
excluding the Second Purchase
Contract Settlement Date, and in
S-15
<PAGE>
the case of Series E Notes that
remain outstanding on and after the
Second Purchase Contract Settlement
Date, from the Second Purchase
Contract Settlement Date to but
excluding August 16, 2004, at the
Series E Reset Rate. Interest will
be payable quarterly in arrears on
each February 16, May 16, August 16
and November 16, commencing
16, 1998.
Series D Market Rate Reset The applicable interest rate on the
Series D Notes that remain
outstanding on and after the First
Purchase Contract Settlement Date
will be reset on the third Business
Day immediately preceding the First
Purchase Contract Settlement Date
to the Series D Reset Rate,
determined by the Reset Agent as
the rate the Series D Notes should
bear in order for Series D Notes to
have an approximate market value of
100.5% of the aggregate principal
amount on the third Business Day
immediately preceding the First
Purchase Contract Settlement Date;
provided, that the Company may
limit such Series D Reset Rate to
be no higher than the rate on the
Two-Year Benchmark Treasury plus
basis points ( %) and,
provided further that the Series D
Reset Rate may not exceed the
maximum rate permitted by
applicable law. Such market value
may be less than 100.5%
particularly where the Series D
Reset Spread is limited to a
maximum of % or if the
Series D Reset Rate were to be
limited by applicable law. It is
currently anticipated that Merrill
Lynch, Pierce, Fenner & Smith
Incorporated will be the Reset
Agent. See DESCRIPTION OF THE
SENIOR NOTES -- "Market Rate
Reset."
Series E Market Rate Reset The applicable interest rate on the
Series E Notes that remain
outstanding on and after the Second
Purchase Contract Settlement Date
will be reset on the third Business
Day immediately preceding the
Second Purchase Contract Settlement
Date to the Series E Reset Rate,
determined by the Reset Agent as
the rate the Series E Notes should
bear in order for Series E Notes to
have an approximate market value of
100.5% of their aggregate principal
amount on the third Business Day
immediately preceding the Second
Purchase Contract Settlement Date;
provided, that the Company may
limit such Series E Reset Rate to
be no higher than the rate on the
Two-Year Benchmark Treasury plus
basis points ( %)
and, provided further that the
Series E Reset Rate may not exceed
the maximum rate permitted by
applicable law. Such market value
may be less than 100.5%
particularly where the Series E
Reset Spread is limited to a
maximum of % or if the
Series E Reset Rate were to be
limited by applicable law. See
DESCRIPTION OF THE SENIOR NOTES --
"Market Rate Reset."
Ranking ................... The Senior Notes will be unsecured
obligations of the Company and will
rank on a parity with all senior
unsecured indebtedness of the
Company. The indenture under which
the Senior Notes are to be issued
does not limit the amount of debt
the Company or any of its
subsidiaries may incur. Because
the Company is a holding company
that derives substantially all of
its income from its operating
subsidiaries, the Senior Notes will
be effectively subordinated to debt
and preferred stock at the
subsidiary level. See DESCRIPTION
OF THE SENIOR NOTES -- "General."
Optional Remarketing ...... On or prior to the fifth Business
Day immediately preceding each
Purchase Contract Settlement Date,
but no earlier than the Payment
Date immediately preceding such
Purchase Contract Settlement Date,
holders of Series D Notes (in the
case of the First Purchase Contract
Settlement Date) or Series E Notes
(in the case of the Second Purchase
Contract Settlement Date) that are
not components of Income PRIDES may
elect to have their Series D Notes
or Series E Notes, as applicable,
remarketed, by delivering their
Series D Notes or Series E Notes,
as applicable, along with a notice
S-16
<PAGE>
of such election to as
custodial agent (Custodial Agent).
Holders of Series D Notes or
Series E Notes, as applicable,
electing to have their Series D
Notes or Series E Notes remarketed
will also have the right to
withdraw such election on or prior
to the fifth Business Day
immediately preceding the
applicable Purchase Contract
Settlement Date. See DESCRIPTION
OF THE SENIOR NOTES -- "Optional
Remarketing."
Limitation on Liens ....... The Company may not grant a lien on
the capital stock of any of its
subsidiaries to secure indebtedness
of the Company without similarly
securing the Senior Notes, with
certain exceptions. See
DESCRIPTION OF DEBT SECURITIES --
"Limitation on Liens" in the
accompanying Prospectus.
Put Option Upon a Failed
Remarketing ............. If a Failed Remarketing has
occurred, then (i) in the case of a
Failed Remarketing as to the First
Purchase Contract Settlement Date,
holders of Series D Notes holding
such Series D Notes following the
First Purchase Contract Settlement
Date will have the right to put
such Series D Notes directly to the
Company on September 1, 2001, upon
at least three Business Days' prior
notice, at a price equal to the
principal amount, plus accrued and
unpaid interest, if any, thereon,
and (ii) in the case of a Failed
Remarketing as to the Second
Purchase Contract Settlement Date,
holders of Series E Notes holding
such Series E Notes following the
Second Purchase Contract Settlement
Date will have the right to put
their Series E Notes directly to
the Company on September 1, 2002,
upon at least three Business Days'
prior notice, at a price equal to
their principal amount, plus
accrued and unpaid interest, if
any, thereon. See DESCRIPTION OF
THE SENIOR NOTES -- "Put Option
Upon Failed Remarketing."
Tax Event Redemption ...... The Senior Notes are redeemable, at
the option of the Company, on not
less than 30 days' or more than 60
days' prior written notice in whole
but not in part upon the occurrence
and continuation of a Tax Event
under the circumstances described
herein at a Redemption Price equal
to, for each Senior Note, the
Redemption Amount together with
accrued and unpaid interest to the
date of redemption. See
DESCRIPTION OF THE SENIOR NOTES --
"Tax Event Redemption." If such
Tax Event Redemption occurs prior
to the Second Purchase Contract
Settlement Date, the Redemption
Price payable in respect of any
Income PRIDES holders' interest in
the Senior Notes will be paid to
the Collateral Agent, which in turn
will apply an amount equal to the
Redemption Amount of such
Redemption Price to purchase the
Treasury Portfolio on behalf of the
holders of Income PRIDES and remit
the remaining portion, if any, of
such Redemption Price to the
Purchase Contract Agent for payment
to holders of such Income PRIDES.
The Treasury Portfolio will be
substituted for the Senior Notes
and will be pledged with the
Collateral Agent to secure such
Income PRIDES holders' obligations
to purchase the Common Stock under
their Purchase Contracts. Other
than in the event of a Tax Event
Redemption, the Company will not
have the ability to redeem the
Senior Notes prior to their stated
maturity date. See DESCRIPTION OF
THE SENIOR NOTES -- "Tax Event
Redemption of Senior Notes."
Certain Federal Income Tax
Consequences Related to the
Income PRIDES, Growth
PRIDES and Senior Notes . A beneficial owner of Income PRIDES
or Senior Notes will include in
gross income the stated interest on
the Senior Notes when such interest
income is paid or accrued in
accordance with its regular method
of tax accounting. The Company
S-17
<PAGE>
intends to report Contract
Adjustment Payments as income to
holders of Income PRIDES and Growth
PRIDES, but such holders should
consult their tax advisors
concerning the possibility that the
Contract Adjustment Payments may be
treated as loans, purchase price
adjustments, rebates or option
premiums rather than as being
includible in income on a current
basis. A beneficial owner of Growth
PRIDES will be required to include
in gross income any OID with
respect to the Treasury Securities
as it accrues on a constant yield
to maturity basis. If a Tax Event
Redemption has occurred, a
beneficial owner of Income PRIDES
will be required to include in
gross income its allocable share of
OID on the Treasury Portfolio as it
accrues on a constant yield to
maturity basis. See CERTAIN
FEDERAL INCOME TAX CONSEQUENCES.
S-18
<PAGE>
EXPLANATORY DIAGRAMS
For illustrative purposes only, the following diagrams
demonstrate some of the key features of Purchase Contracts,
Income PRIDES, Growth PRIDES and Senior Notes and the
transformation of Income PRIDES into Growth PRIDES and Senior
Notes. The hypothetical percentages, coupon rates and time
periods below are for illustration only. There can be no
assurance that the actual percentage of shares delivered will be
limited by the range of hypothetical percentages shown. In
addition, there can be no assurance that payment rates on the
FELINE PRIDES will be at the levels set forth below.
The following diagrams and the related text are not
complete, are general in nature and are qualified in their
entirety by more detailed information appearing elsewhere in the
accompanying Prospectus, this Prospectus Supplement and in
documents which are on file with the Securities and Exchange
Commission (Commission).
FELINE PRIDES PURCHASE CONTRACT
. Income PRIDES and Growth PRIDES both include a Purchase
Contract under which the investor agrees to purchase
shares of Common Stock of the Company at the end of
three years and four years. In addition, the Purchase
Contracts include specified Contract Adjustment
Payments shown in the diagrams on the following pages.
[PURCHASE CONTRACT DIAGRAM]
________________
* For each of the percentage categories shown, the percentage
of shares to be delivered at each maturity to an investor in
Income PRIDES or Growth PRIDES is determined by dividing the
related number of shares to be delivered, as indicated in
the footnote for each such category, by an amount equal to
$25 divided by the Reference Price.
** The number of shares to be delivered will be calculated by
dividing $25 by the Reference Price.
*** The number of shares to be delivered will be calculated by
dividing $25 by the Applicable Market Value.
**** The number of shares to be delivered will be calculated by
dividing $25 by the Threshold Appreciation Price.
S-19
<PAGE>
INCOME PRIDES
. Income PRIDES consist of three components as described
below:
[INCOME PRIDES DIAGRAM]
. The investor owns the Senior Notes, but will pledge them to
the Company to secure the investor's obligations under the
Purchase Contract.
S-20
<PAGE>
GROWTH PRIDES
. Growth PRIDES consist of two components as described below:
[GROWTH PRIDES DIAGRAM]
. The investor owns the Zero-Coupon Treasury Securities, but
will pledge them to the Company to secure the investor's
obligations under the Purchase Contract.
S-21
<PAGE>
SENIOR NOTES
. Senior Notes have the terms described below:
[SENIOR NOTES DIAGRAM]
. The holder of Series D Notes or Series E Notes that are a
component of Income PRIDES has an option at the end of
year 3 or 4, as applicable, to either:
. Cash settle the applicable portion of each Purchase
Contract for $25 and receive Series D Notes or Series
E Notes, as applicable, whose rate has been reset at
the end of year 3 or 4, as applicable, or
. Cash settle each Purchase Contract by allowing the
applicable series of Senior Notes to be included in
the remarketing process, or
. Cash settle the applicable portion of each Purchase
Contract for $25 and receive the Series D Note whose
rate has been reset at the end of year 3 and cash
settle the applicable portion of each Purchase
Contract by allowing the Series E Note to be included
in the remarketing process, or
. Cash settle the applicable portion of each Purchase
Contract for $25 by allowing the Series D Note to be
included in the remarketing process at the end of year
3 and cash settle the applicable portion of each
Purchase Contract and receive the Series E Note whose
rate has been reset at the end of year 4.
. The holder of Series D Notes or Series E Notes that are
separate and not a component of Income PRIDES has the
option at the end of year 3 or 4, as applicable, to
either:
. Continue to hold the Series D Notes or Series E Notes
whose rate has been reset at the end of year 3 or 4,
as applicable, or
. Deliver the Series D Notes or Series E Notes, as
applicable, to the Custodial Agent to be included in
the remarketing process.
S-22
<PAGE>
TRANSFORMING INCOME PRIDES INTO GROWTH PRIDES AND SENIOR NOTES
. To create a Growth PRIDES, the investor separates an Income
PRIDES into its components -- the Purchase Contract and the
Senior Notes -- and then combines the Purchase Contract with
specific Zero-Coupon Treasury Securities which mature
concurrently with the maturities of the applicable portions
of the Purchase Contract.
. The investor owns the Zero-Coupon Treasury Securities but
will pledge them to the Company to secure its obligations
under the Purchase Contract.
. The Zero-Coupon Treasury Securities together with the
Purchase Contract constitute a Growth PRIDES. Each of the
Senior Notes which are no longer a component of the Income
PRIDES will be released to the investor and will be
tradeable as separate securities.
[TRANSFORMING DIAGRAMS]
. The investor can also transform Growth PRIDES and Senior
Notes into Income PRIDES.
. The transformation of Income PRIDES and Treasury Securities
into Growth PRIDES and Senior Notes, and the transformation
of Growth PRIDES and Senior Notes into Income PRIDES and
Treasury Securities, require certain minimum amounts of
securities, as more fully described herein.
S-23
<PAGE>
RISK FACTORS
Potential purchasers of the Securities offered hereby should
carefully consider the risk factors set forth herein as well as
other information contained or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus.
INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON
STOCK; RISK OF DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial
owners of the related Senior Notes, Treasury Portfolio or
Treasury Securities, as the case may be, prior to the settlement
of the Purchase Contracts on a Purchase Contract Settlement Date,
unless a holder of FELINE PRIDES settles the applicable portion
of the related Purchase Contracts through the delivery of cash to
the Purchase Contract Agent in the manner described below or the
Purchase Contracts are terminated (upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect
to the Company), the proceeds derived from the remarketing of the
Senior Notes or the principal of the related Treasury Securities,
or the Applicable Ownership Interest in the Treasury Portfolio,
when paid at maturity, as the case may be, will automatically be
applied to the purchase of a specified number of shares of Common
Stock on behalf of such holder. Thus, unless a holder of FELINE
PRIDES has cash settled, following the applicable Purchase
Contract Settlement Date, the holder will own shares of Common
Stock rather than a beneficial ownership interest in Senior
Notes, Treasury Securities or the Treasury Portfolio, as the case
may be on and after such date. See DESCRIPTION OF THE PURCHASE
CONTRACTS -- "General." There can be no assurance that the market
value of the Common Stock receivable by the holder on the First
Purchase Contract Settlement Date or the Second Purchase Contract
Settlement Date, will be equal to or greater than the Stated
Amount or Remaining Stated Amount, respectively, of the FELINE
PRIDES held by such holder. If the Applicable Market Value of the
Common Stock with respect to a Purchase Contract Settlement Date
is less than the Reference Price, then the aggregate market value
of the Common Stock issued to the holder in settlement of the
applicable portion of each Purchase Contract on such Purchase
Contract Settlement Date (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be
less than the Stated Amount or Remaining Stated Amount,
respectively, paid for the FELINE PRIDES and the market value per
share of such Common Stock will be less than the effective price
per share paid by each holder for such Common Stock on the date
hereof, in which case an investment in the FELINE PRIDES will
result in an economic loss as of such Purchase Contract
Settlement Date. Accordingly, a holder of the FELINE PRIDES
assumes the risk that the market value of the Common Stock may
decline, and that such decline could be substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an
investment in the FELINE PRIDES is less than the opportunity for
equity appreciation afforded by a direct investment in the Common
Stock because the market value of the Common Stock to be received
by a holder of Purchase Contracts on a Purchase Contract
Settlement Date (assuming that such market value is the same as
the Applicable Market Value of such Common Stock) will only
exceed the Stated Amount or Remaining Stated Amount, as the case
may be, if the Applicable Market Value of the Common Stock with
respect to such date exceeds the Threshold Appreciation Price
(which represents an appreciation of % over the Reference
Price). Moreover, in such event, holders of FELINE PRIDES would
receive on the applicable Purchase Contract Settlement Date only
% (the percentage equal to the Reference Price divided by
the Threshold Appreciation Price) of the shares of Common Stock
that such holders would have received if they had made a direct
investment in the Common Stock on the date hereof, and therefore
would receive on the Purchase Contract Settlement Date only
% of the appreciation in the value of the Common Stock in excess
of the Threshold Appreciation Price.
S-24
<PAGE>
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the
secondary market will be directly affected by the trading prices
of the Common Stock in the secondary market, the general level of
interest rates and the credit quality of the Company. It is
impossible to determine whether the price of the Common Stock or
interest rates will rise or fall. Trading prices of the Common
Stock will be influenced by the Company's operating results and
prospects and by economic, financial and other factors and market
conditions that can affect the capital markets generally,
including the level of, and fluctuations in, the trading prices
of stocks generally and sales of substantial amounts of Common
Stock in the market subsequent to the offering of the Securities
or the perception that such sales could occur. Fluctuations in
interest rates may give rise to opportunities of arbitrage based
upon changes in the relative value of the Common Stock underlying
the Purchase Contracts and of the other components of the FELINE
PRIDES. Any such arbitrage could, in turn, affect the trading
prices of the Income PRIDES, Growth PRIDES, Senior Notes and
Common Stock.
LACK OF VOTING RIGHTS
Holders of FELINE PRIDES will not be entitled to any rights
with respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other
distributions in respect thereof) unless and until such time as
the Company shall have delivered shares of Common Stock for
FELINE PRIDES on a Purchase Contract Settlement Date or as a
result of Early Settlement, as the case may be, and unless the
applicable record date, if any, for the exercise of such rights
occurs after such date. For example, in the event of an annual or
special meeting of the shareholders of the Company for which the
record date for determining the shareholders of record entitled
to vote on matters presented to such meeting occurs prior to such
delivery, holders of FELINE PRIDES will not be entitled to vote
on the election of directors or any other matter presented to
such meeting for a vote thereon by the shareholders. Holders of
Senior Notes will have no voting rights with respect to Common
Stock.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the
FELINE PRIDES are entitled to receive on a Purchase Contract
Settlement Date or as a result of Early Settlement is subject to
adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See DESCRIPTION OF THE
PURCHASE CONTRACTS -- "Anti-Dilution Adjustments." Such number of
shares of Common Stock to be received by such holders on a
Purchase Contract Settlement Date or as a result of Early
Settlement will not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with
acquisitions or the issuance of Common Stock in connection with
the First Purchase Contract Settlement Date. The Company is not
restricted from issuing additional Common Stock during the term
of either the Purchase Contracts or the Senior Notes and has no
obligation to consider the interests of the holders of FELINE
PRIDES for any reason. Additional issuances may materially and
adversely affect the price of the Common Stock and, because of
the relationship of the number of shares to be received on each
Purchase Contract Settlement Date to the price of the Common
Stock, such other events may adversely affect the trading price
of Income PRIDES or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to determine how Income PRIDES, Growth
PRIDES or Senior Notes will trade in the secondary market or
whether such market will be liquid or illiquid. Income PRIDES
and Growth PRIDES are novel securities and there is currently no
secondary market for either Income PRIDES or Growth PRIDES. The
Company intends to apply for listing of the Income PRIDES and the
Growth PRIDES on the NYSE, but does not intend to apply for any
separate listing of the Senior Notes. There can be no assurance
as to the liquidity of any market that may develop for the Income
PRIDES, the Growth PRIDES or the Senior Notes, the ability of
holders to sell such securities or whether a trading market, if
it develops, will continue. In addition, in the event that
S-25
<PAGE>
holders of Income PRIDES or Growth PRIDES were to substitute
Treasury Securities for Senior Notes or Senior Notes for Treasury
Securities, thereby converting their Income PRIDES to Growth
PRIDES or their Growth PRIDES to Income PRIDES, as the case may
be, the liquidity of Income PRIDES, Growth PRIDES and Senior
Notes could be adversely affected. There can be no assurance
that, if they are listed on the NYSE, the Income PRIDES or the
Growth PRIDES will not be delisted from the NYSE or that trading
in the Income PRIDES or the Growth PRIDES will not be suspended
as a result of the election by holders to create Income PRIDES or
Growth PRIDES through the substitution of collateral, which could
cause the number of Income PRIDES or Growth PRIDES to fall below
the current requirement for listing securities on the NYSE that
at least 1,000,000 of each of the Income PRIDES or Growth PRIDES
be outstanding at any time.
PLEDGED SECURITIES ENCUMBERED
Although the beneficial owners of FELINE PRIDES will be the
beneficial owners of the related Senior Notes, Treasury Portfolio
or Treasury Securities (together, Pledged Securities), as
applicable, the Pledged Securities will be pledged to and held by
the Collateral Agent to secure the obligations of the holders
under the related Purchase Contracts. Thus, rights of the
holders to their Pledged Securities will be subject to the
Company's security interest. Additionally, notwithstanding the
automatic termination of the Purchase Contracts in the event that
the Company becomes the subject of a case under the Bankruptcy
Code, the delivery of the Pledged Securities to holders of the
FELINE PRIDES may be delayed by the imposition of the automatic
stay under Section 362 of the Bankruptcy Code.
HOLDING COMPANY; NO LIMITATION ON ISSUANCE OF INDEBTEDNESS BY
COMPANY OR SUBSIDIARIES
The Senior Notes will be issued as senior unsecured debt
under the Indenture and will rank on a parity in right of payment
with all of the Company's other senior unsecured debt
obligations. While the Indenture contemplates securing
indebtedness issued thereunder in certain very limited
circumstances (see, for example, DESCRIPTION OF DEBT SECURITIES -
- "Limitation on Liens" in the accompanying Prospectus), the
Company has no current intention of so securing the Senior Notes.
The Indenture provides for the issuance of debt securities
(including the Senior Notes), notes or other unsecured evidences
of indebtedness by the Company in an unlimited amount from time
to time. The Indenture provides that the Company may not grant a
lien on the capital stock of any of its subsidiaries to secure
debt obligations of the Company without similarly securing the
Senior Notes, with certain exceptions. However, the Indenture
does not limit the aggregate amount of indebtedness the Company
or its subsidiaries may issue nor does it limit the ability of
the Company's subsidiaries to grant a lien on the capital stock
of their respective subsidiaries. The Company is a holding
company that derives substantially all of its income from its
operating subsidiaries. The Senior Notes therefore will be
effectively subordinated to debt and preferred stock at the
subsidiary level. The financial statements of the Company and
its predecessors included in the Incorporated Documents show the
aggregate amount of such subsidiary debt and preferred stock and
other debt of the Company as of the date of such statements.
TAX EVENT REDEMPTION
The Senior Notes are redeemable, at the option of the
Company, on not less than 30 days' or more than 60 days' prior
written notice, in whole but not in part, upon the occurrence and
continuation of a Tax Event under the circumstances described
herein at a Redemption Price equal to, for each Senior Note, the
Redemption Amount plus accrued and unpaid interest. See
DESCRIPTION OF THE SENIOR NOTES -- "Tax Event Redemption." If
the Tax Event Redemption has occurred prior to the Second
Purchase Contract Settlement Date, the Redemption Price payable
in respect of the Income PRIDES holders' interest in the Senior
Notes will be paid to the Collateral Agent, which in turn will
apply an amount equal to the Redemption Amount of such Redemption
Price to purchase the Treasury Portfolio on behalf of the holders
of Income PRIDES. Holders of Senior Notes not held in the form
of Income PRIDES will receive redemption payments directly. The
Treasury Portfolio will be substituted for the Senior Notes and
will be pledged with the Collateral Agent to secure such Income
PRIDES holders' obligations to purchase the Company's Common
Stock under their Purchase Contracts. There can be no assurance
S-26
<PAGE>
as to the impact on the market prices for the Income PRIDES of
the substitution of the Treasury Portfolio as collateral in
replacement of any Senior Notes so redeemed. See DESCRIPTION OF
THE SENIOR NOTES -- "Tax Event Redemption." A Tax Event
Redemption will be a taxable event to the beneficial owners of
the Senior Notes. See CERTAIN FEDERAL INCOME TAX CONSEQUENCES --
"Tax Event Redemption of Senior Notes."
RIGHT TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option, defer the payment of
Contract Adjustment Payments. If the Purchase Contracts are
settled early or terminated (upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect
to the Company), the right to receive Contract Adjustment
Payments and Deferred Contract Adjustment Payments will also
terminate. In the event that the Company elects to defer the
payment of Contract Adjustment Payments until a Purchase Contract
Settlement Date, each holder of such related Purchase Contracts
will receive on the First Purchase Contract Settlement Date or
the Second Purchase Contract Settlement Date, as applicable, in
respect of the Deferred Contract Adjustment Payments, in lieu of
a cash payment, a number of shares of Common Stock equal to (x)
the aggregate amount of Deferred Contract Adjustment Payments
payable to such holder divided by (y) the Applicable Market Value
on such date. See DESCRIPTION OF THE PURCHASE CONTRACTS --
"Contract Adjustment Payments."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly
addresses the treatment of the FELINE PRIDES or instruments
similar to the FELINE PRIDES for United States federal income tax
purposes. As a result, certain United States federal income tax
consequences of the purchase, ownership and disposition of FELINE
PRIDES are not entirely clear. See CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE
ACT; LIMITED OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Senior Notes constituting a part of the Income
PRIDES will be issued pursuant to the Indenture, which will be
qualified under the Trust Indenture Act of 1939, as amended
(Trust Indenture Act), the Purchase Contract Agreement will not
be qualified as an indenture under the Trust Indenture Act and
the Purchase Contract Agent will not be required to qualify as a
trustee thereunder. Accordingly, holders of FELINE PRIDES will
not have the benefit of the protections of the Trust Indenture
Act. Among the protections generally afforded the holder of a
security issued under an indenture that has been qualified under
the Trust Indenture Act are disqualification of the indenture
trustee for "conflicting interests" as defined under the Trust
Indenture Act if the indenture securities are in default;
ineligibility of any trustee directly or indirectly controlling,
controlled by or under common control with any obligor upon the
indenture; certification by the indenture trustee to the
Commission that it is eligible to serve as indenture trustee;
provisions preventing a trustee that is also a creditor of the
obligor from improving its own credit position at the expense of
the security holders immediately prior to or after a default
under such indenture; requirement that the indenture trustee
deliver reports at least annually with respect to certain matters
concerning the indenture trustee and the securities; requirement
that each obligor deliver to the indenture trustee an annual
certificate from a principal officer with evidence of compliance
with the indenture; requirement that the obligor furnish the
indenture trustee with evidence of compliance with the conditions
precedent, if any, provided in the indenture for any action
requested by such obligor, including a certificate or opinions of
officers of such obligor and an opinion of counsel that such
conditions have been complied with; requirement that the
indenture trustee exercise in case of default the same degree of
care and skill as a prudent man would exercise under the
circumstances in the conduct of his own affairs; and civil and
criminal penalties for violations of the Trust Indenture Act.
Under the terms of the Purchase Contract Agreement, the Purchase
Contract Agent will have only limited obligations to the holders
of FELINE PRIDES. See CERTAIN PROVISIONS OF THE PURCHASE
CONTRACT AGREEMENT AND THE PLEDGE AGREEMENT -- "Information
Concerning the Purchase Contract Agent."
S-27
<PAGE>
TRADING PRICE OF THE SENIOR NOTES
The Senior Notes may trade at a price that does not fully
reflect the value of accrued but unpaid interest. A holder who
disposes of his Senior Notes between record dates for payments of
distributions thereon will be required to include accrued but
unpaid interest on the Senior Notes through the date of
disposition in income as ordinary income for United States
federal income tax purposes (i.e., interest), and to add such
amount to such holder's adjusted tax basis in the Senior Notes
disposed of. To the extent the selling price is less than the
holder's adjusted tax basis, a holder will recognize a loss for
tax purposes. See CERTAIN FEDERAL INCOME TAX CONSEQUENCES --
"Senior Notes -- Interest Income" and -- "Sales, Exchanges or
Other Taxable Dispositions of Senior Notes."
S-28
<PAGE>
SELECTED FINANCIAL DATA
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES)
The following material, which is presented herein solely to
furnish limited introductory information, is qualified in its
entirety by, and should be considered in conjunction with, the
other information appearing in this Prospectus Supplement, the
accompanying Prospectus and the Incorporated Documents. For
financial reporting purposes, the Company is treated, as the
successor to TEI. References to the Company that relate to
periods prior to August 5, 1997, shall be deemed to be references
to TEI. Since the acquisitions of ENSERCH, LCC and Eastern
Energy Ltd., an Australian subsidiary acquired in 1995, were
purchase business combinations, for purposes of the historical
financial information no financial information for those
companies is included for periods prior to their dates of
acquisition. Pro forma financial information for the twelve
months ended December 31, 1997 includes adjustments to reflect
the acquisition of TEG, full year's results of ENSERCH and LCC
and the repurchase by the Company of shares of its Common Stock.
HISTORICAL
-----------------------------------------------------
TWELVE MONTHS ENDED
-----------------------------------------------------
DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996
---- ---- ---- ----
Income statement
data:
Operating
Revenues . . . . $5,434,512 $5,663,543 $5,638,688 $6,550,928
Net Income
(Loss)(a) . . . $ 368,660 $ 542,799 $ (138,645) $ 753,606
Basic Earnings
(loss) per share . $1.66 $2.40 $(0.61) $3.35
Diluted Earnings
(loss) per share . $1.66 $2.40 $(0.61) $3.35
Average shares of
common stock
outstanding . . . 221,555 225,834 225,841 225,160
Ratio of
Earnings to Fixed
Charges(a) . . . . 1.89 2.29 0.84 2.39
HISTORICAL PRO FORMA(b)(c)
------------------------- -------------------------
TWELVE MONTHS ENDED THREE
------------------------- MONTHS
DECEMBER ENDED
DECEMBER 31, MARCH 31, 31, MARCH 31,
------------------------- -------------------------
1997 1998 1997 1998
---- ---- ---- ----
Income statement
data:
Operating
Revenues . . . . $7,945,608 $8,950,470 $14,783,608 $4,213,666
Net Income
(Loss)(a) . . . $ 660,454 $ 672,284 $ 820,454 $ 225,629
Basic Earnings
(loss) per share . $2.86 $2.85 $2.90 $0.80
Diluted Earnings
(loss) per share . $2.85 $2.84 $2.89 $0.80
Average shares of
common stock
outstanding . . . 230,258 236,118 282,833 282,836
Ratio of Earnings
to Fixed
Charges(a) . . . . 2.25 2.24 1.83 1.89
HISTORICAL PRO FORMA(b) ADJUSTED(d)
---------- ------------ ---------------
OUTSTANDING AT
MARCH 31, 1998 AMOUNT PERCENT
------------------------- ------ -------
Capitalization:
Long-term Debt, less amounts
due currently . . . . . . . $ 8,775,071 $15,276,071 $
Preferred Stock:
Not subject to mandatory
redemption . . . . . . . 190,055 190,055
Subject to mandatory
redemption . . . . . . . 20,604 20,604
------------ ----------
Total Preferred Stock . . 210,659 210,659
Subsidiary Obligated
Mandatorily Redeemable
Preferred Securities of
Trusts Holding Solely
Debentures of
Subsidiary(e) . . . . . . 822,971 822,971
Common Stock Equity . . . . . 6,865,349 8,318,349
----------- ----------- -----
Total Capitalization . . . $16,674,050 $24,628,050 $ 100.0%
=========== =========== ======= -----
(a) The twelve-month period ended December 31, 1993 was affected
by the recording of regulatory disallowances in TU
Electric's Docket 11735. The twelve-month period ended
December 31, 1995 was affected by the impairment of several
nonperforming assets, including TU Electric's partially
completed Twin Oak and Forest Grove lignite-fueled
facilities and the New Mexico coal reserves of a subsidiary,
as well as several minor assets. Such impairment, on an
after-tax basis, amounted to $802 million. The twelve
months ended December 31, 1997 include a one time base
revenue refund of $81 million as a result of a settlement
with the Public Utility Commission of Texas (PUC) and a fuel
disallowance charge of $80 million as a result of a fuel
reconciliation proceeding before the PUC. (See the 1997 10-K.)
(b) Pro Forma income statement data for the twelve months ended
December 31, 1997 combines the income statement data for
that period of the Company, as adjusted, with income
statement data for that period of the TEG businesses
acquired by the Company. Pro forma income statement data
for the three months ended March 31, 1998 combines income
statement data for that period of the Company with income
statement data for the three months ended December 31, 1997
for the TEG businesses acquired. Pro forma capitalization
as of March 31, 1998 combines the Company's capitalization
as of March 31, 1998 with the capitalization of the TEG
businesses acquired as of September 30, 1997, the latest
available balance sheet data. See the Company's Current
Report on Form 8-K dated May 27, 1998, as amended on June
25, 1998.
(c) The pro forma income statement data for the three months
ended March 31, 1998 may not be indicative of a full year's
results.
(d) To give effect to (1) the application of the net proceeds
from the issuance of the FELINE PRIDES and the Senior Notes,
(2) the issuance by TU Electric in April 1998 of
$350,000,000 aggregate principal amount of its Floating Rate
Debentures, (3) the issuance by ENSERCH Capital I in July
1998 of $150,000,000 aggregate liquidation amount of its
Floating Rate Capital Securities. Adjusted amounts do not
reflect any possible future (i) sales from time to time by
the Company of shares of its common stock pursuant to the
Company's Direct Stock Purchase and Dividend Reinvestment
Plan and certain employee benefit plans , (ii) sales by TU
Electric of up to an additional $498,850,000 principal
amount of its Senior Debt and $25,000,000 of its cumulative
preferred stock and (iii) sales by ENSERCH of up to
$100,000,000 aggregate principal amount of securities, for
each of which registration statements are effective pursuant
to Rule 415 under the Securities Act.
(e) The sole assets of such trusts consist of junior
subordinated debentures of TU Electric or ENSERCH, as the
case may be, in principal amounts, and having other payment
terms, corresponding to the securities issued by such
trusts.
S-29
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The high and low closing prices of the Common Stock, as
reported on the NYSE consolidated tape (NYSE ticker symbol:
"TXU"), for the periods indicated, are presented below:
DIVIDENDS
HIGH LOW PAID
---- --- ---------
1996:
First Quarter . . . . . . . . . . $42 3/8 $38 1/8 $0.50
Second Quarter . . . . . . . . . 42 3/4 39 0.50
Third Quarter . . . . . . . . . . 43 3/8 39 5/8 0.50
Fourth Quarter . . . . . . . . . 41 7/8 39 1/8 0.50
1997:
First Quarter . . . . . . . . . . $41 3/4 $34 1/2 $0.525
Second Quarter . . . . . . . . . 36 7/8 31 3/4 0.525
Third Quarter . . . . . . . . . . 36 1/8 33 11/16 0.525
Fourth Quarter . . . . . . . . . 41 9/16 35 0.525
1998:
First Quarter . . . . . . . . . . $42 5/8 $38 13/16 $0.55
Second Quarter . . . . . . . . . 42 1/2 38 3/8 $0.55
Third Quarter
(through July 2, 1998) . . . . 41 15/16 41 3/8 $0.55
--------------------
The Company, or its predecessor TEI, have declared common
stock dividends payable in cash in each year since TEI's
incorporation in 1945. A regular quarterly dividend of 55 cents
per share was paid on July 1, 1998 to shareholders of record on
June 5, 1998.
USE OF PROCEEDS
All of the proceeds from the sale of the Growth PRIDES will
be used to purchase the underlying Treasury Securities to be
transferred to holders of the Growth PRIDES pursuant to the terms
thereof. All of the proceeds from the sale of the Senior Notes
that are not components of Income PRIDES and all of the proceeds
from the sale of the Income PRIDES will be paid to the Company.
The Company currently anticipates using substantially all of the
net proceeds from the sale of the Senior Notes and the Income
PRIDES, estimated to be approximately $ million (after
deducting the underwriting commissions), to repay short-term
indebtedness incurred in connection with the acquisition of TEG,
with any remainder being used for general corporate purposes.
S-30
<PAGE>
ACCOUNTING TREATMENT
The Purchase Contracts are forward transactions in the
Common Stock. Upon each settlement of a Purchase Contract, the
Company will receive $25 on such Purchase Contract and will issue
the requisite number of shares of Common Stock. The $25 thus
received will be credited to the Common Stock account in
shareholders' equity. The present value of the related Contract
Adjustment Payments will initially be charged to equity, with an
offsetting credit to liabilities. Subsequent Contract Adjustment
Payments will be allocated between this liability account and
interest expense based on a constant rate calculation over the
life of the transaction.
Prior to the issuance of shares of Common Stock upon any
settlement of a Purchase Contract, it is anticipated that the
FELINE PRIDES will be reflected in the Company's earnings per
share calculations using the treasury stock method. Under this
method, the number of shares of Common Stock used in calculating
earnings per share is deemed to be increased by the excess, if
any, of the number of shares issuable upon settlement of the
Purchase Contracts over the number of shares that could be
purchased by the Company in the market (at the average market
price during the period) using the proceeds receivable upon
settlement. Consequently, it is anticipated there will be no
dilutive effect on the Company's earnings per share except during
periods when the average market price of Common Stock is above
the Threshold Appreciation Price.
S-31
<PAGE>
DESCRIPTION OF THE FELINE PRIDES
The following summary of certain terms of the FELINE PRIDES
offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and
provisions of the Securities set forth in the accompanying
Prospectus, to which reference is hereby made. This summary does
not purport to be complete, and is subject to, and qualified in
its entirety by the forms of Purchase Contract Agreement, Pledge
Agreement and Indenture (including the definitions therein of
certain terms) which are on file with the Commission.
Each FELINE PRIDES will be issued under the Purchase
Contract Agreement between the Company and the Purchase Contract
Agent. The FELINE PRIDES offered hereby initially will consist
of (A) units referred to as Income PRIDES and (B)
units referred to as Growth PRIDES. Each Income PRIDES initially
will consist of a unit with a Stated Amount of $50 comprised of
(a) a Purchase Contract under which (i) the holder (including,
initially, an Underwriter) will purchase from the Company not
later than the First Purchase Contract Settlement Date, for $25
in cash, a number of newly issued shares of Common Stock equal to
the Settlement Rate, described below under DESCRIPTION OF THE
PURCHASE CONTRACTS -- "General," (ii) the holder will purchase
from the Company not later than the Second Purchase Contract
Settlement Date, for $25 in cash, a number of shares of Common
Stock of the Company equal to the Settlement Rate, and (iii) the
Company will pay to the holder Contract Adjustment Payments at
the rate of % of the Stated Amount ($50) per annum
prior to the First Purchase Contract Settlement Date, and at
the rate of % of the Remaining Stated Amount ($25)
per annum thereafter until the Second Purchase Contract
Settlement Date, and (b) (i) prior to the First Purchase
Contract Settlement Date, beneficial ownership of a Series D Note
having a principal amount of $25, and a Series E Note having a
principal amount of $25, and (ii) from the First Purchase Contract
Settlement Date to the Second Purchase Contract Settlement Date,
beneficial ownership of a Series E Note, having a principal
amount of $25. Upon the occurrence of a Tax Event Redemption
prior to the Second Purchase Contract Settlement Date, the
appropriate Applicable Ownership Interest in the Treasury
Portfolio will be substituted for the related Senior Notes.
"Applicable Ownership Interest" means, with respect to an Income
PRIDES and the U.S. Treasury Securities in the Treasury
Portfolio, (A) prior to the First Purchase Contract Settlement
Date, (i) a 1/40, or 2.5%, undivided beneficial ownership
interest in a $1,000 principal or interest amount of a principal
or interest strip in a U.S. Treasury Security included in such
Treasury Portfolio which matures on or prior to August 15, 2001
and a 1/40, or 2.5%, undivided beneficial ownership interest in a
$1,000 principal or interest amount of a principal or interest
strip on a U.S. Treasury Security included in such Treasury
Portfolio which matures on or prior to August 15, 2002, and (ii)
for each scheduled interest payment date on the Senior Notes of
each series that occurs after the Tax Event Redemption Date, a
% undivided beneficial ownership interest in a $1,000 face
amount of each such U.S. Treasury Security which is a principal
or interest strip maturing on such date or (B) from the First
Purchase Contract Settlement Date to the Second Purchase Contract
Settlement Date, (i) a 1/40, or 2.5%, undivided beneficial
ownership interest in a $1,000 principal or interest strip in a
U.S. Treasury Security included in such Treasury Portfolio which
matures on or prior to August 15, 2002 and (ii) for each
scheduled interest payment date on the Series E Notes that occurs
after a Tax Event Redemption Date, a % undivided beneficial
ownership interest in a $1,000 face amount of such U.S. Treasury
Security which is a principal or interest strip maturing on such
date.
Each Growth PRIDES will initially consist of a unit with a
Stated Amount of $50 comprised of (a) a Purchase Contract under
which (i) the holder will purchase from the Company not later
than the First Purchase Contract Settlement Date, for $25 in
cash, a number of newly issued shares of the Company's Common
Stock equal to the Settlement Rate, (ii) the holder will purchase
from the Company not later than the Second Purchase Contract
Settlement Date, for $25 in cash, a number of newly issued shares
of Common Stock of the Company equal to the Settlement Rate, and
(iii) the Company will pay the holder Contract Adjustment
Payments at the rate of % of the Stated Amount ($50) per
annum prior to the First Purchase Contract Settlement Date, and
at the rate of % of the Remaining Stated Amount ($25) per
annum thereafter until the Second Purchase Contract Settlement
Date, and (b) (i) prior to the First Purchase Contract Settlement
Date, a 1/40 undivided beneficial ownership interest in a 3-year
S-32
<PAGE>
Treasury Security having a principal amount at maturity equal to
$1,000 and a 1/40 undivided beneficial interest in a 4-year
Treasury Security having a principal amount at maturity equal to
$1,000 or (ii) from the First Purchase Contract Settlement Date
to the Second Purchase Contract Settlement Date, a 1/40 undivided
beneficial interest in a 4-year Treasury Security having a
principal amount at maturity equal to $1,000.
The purchase price of each Income PRIDES and Growth PRIDES
will be allocated between the related Purchase Contract and the
related Senior Notes, in the case of Income PRIDES, and between
the related Purchase Contract and the related interest in the
Treasury Securities in the case of Growth PRIDES, as applicable,
in proportion to their respective fair market values. The
Company will report the fair market value of each Senior Note and
each interest in a Treasury Security as $ and $ ,
respectively, and the fair market value of each Purchase Contract
as $ . Such position generally will be binding on each
beneficial owner of each Income PRIDES (but not on the IRS (as
defined herein)). See CERTAIN FEDERAL INCOME TAX CONSEQUENCES --
"FELINE PRIDES -- Allocation of Purchase Price." As long as a
FELINE PRIDES is in the form of an Income PRIDES or Growth
PRIDES, the related Senior Notes or the appropriate Applicable
Ownership Interest in the Treasury Portfolio or the Treasury
Securities, as applicable, will be pledged to the Collateral
Agent, to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts.
CREATING GROWTH PRIDES
Each holder of an Income PRIDES will have the right, at any
time on or prior to the fifth Business Day immediately preceding
the Second Purchase Contract Settlement Date, to substitute for
the related Senior Notes or, if a Tax Event has occurred, the
related Applicable Ownership Interest in the Treasury Portfolio
held by the Collateral Agent, Treasury Securities in an aggregate
principal amount equal to the aggregate principal amount of, and
having maturities corresponding to the Purchase Contract
Settlement Dates for the Purchase Contracts secured by, the
related Senior Notes or such Applicable Ownership Interest.
Because Treasury Securities are issued in integral multiples of
$1,000, holders of Income PRIDES may make such substitution only
in integral multiples of 40 Income PRIDES; provided, however,
that such substitutions may not be made during the period from
the fifth Business Day immediately preceding the First Purchase
Contract Settlement Date through the First Purchase Contract
Settlement Date; and provided, further, that if a Tax Event
Redemption has occurred prior to the Second Purchase Contract
Settlement Date and the Treasury Portfolio has become a component
of the Income PRIDES, holders of such Income PRIDES may make such
substitutions only in integral multiples of 1,600,000 Income
PRIDES (but obtaining the release of the appropriate Applicable
Ownership Interest in the Treasury Portfolio rather than the
Senior Notes) at any time on or prior to the second Business Day
immediately preceding the Second Purchase Contract Settlement
Date (but not during the period from the second Business Day
immediately preceding the First Purchase Contract Settlement Date
through the First Purchase Contract Settlement Date).
Accordingly, in such case holders wishing to make such
substitution must hold at least 1,600,000 Income PRIDES. FELINE
PRIDES with respect to which Treasury Securities have been
substituted for the related Senior Notes or the appropriate
Applicable Ownership Interest in the Treasury Portfolio, as the
case may be, as collateral to secure such holder's obligation
under the related Purchase Contracts will be referred to as
Growth PRIDES. To create 40 Growth PRIDES (unless a Tax Event
Redemption has occurred), the Income PRIDES holder will (a) (i)
prior to the fifth Business Day preceding the First Purchase
Contract Settlement Date, deposit with the Collateral Agent a 3-
year Treasury Security having a principal amount at maturity of
$1,000 and a 4-year Treasury Security having a principal amount
at maturity of $1,000, or (ii) after the First Purchase Contract
Settlement Date and prior to the fifth Business Day preceding the
Second Purchase Contract Settlement Date, deposit with the
Collateral Agent a 4-year Treasury Security having a principal
amount at maturity of $1,000 and (b) transfer 40 Income PRIDES to
the Purchase Contract Agent accompanied by a notice stating that
the Income PRIDES holder has deposited the required Treasury
Securities with the Collateral Agent and requesting that the
Purchase Contract Agent instruct the Collateral Agent to release
to such holder the 40 Senior Notes that were components of such
40 Income PRIDES. Holders of Income PRIDES wishing to create
Growth PRIDES will also be required to deliver cash in an amount
equal to the excess of the Contract Adjustment Payments that
would have accrued since the last date to which Contract
Adjustment Payments were made through the date of substitution on
the Growth PRIDES being created by such holders, over the
S-33
<PAGE>
Contract Adjustment Payments that have accrued over the same
period on the related Income PRIDES. Upon such deposit and
receipt of an instruction from the Purchase Contract Agent, the
Collateral Agent will effect the release of the related Senior
Notes from the pledge under the Pledge Agreement free and clear
of the Company's security interest therein to the Purchase
Contract Agent, which will (i) cancel the 40 Income PRIDES, (ii)
transfer the Senior Notes to such holder and (iii) deliver 40
Growth PRIDES to the holder. The Treasury Securities will be
substituted for the Senior Notes and will be pledged with the
Collateral Agent to secure the holder's obligation to purchase
Common Stock under the related Purchase Contracts on the
applicable Purchase Contract Settlement Dates. The related
Senior Notes released to the holder thereafter will trade
separately from the resulting Growth PRIDES. Contract Adjustment
Payments for the period prior to the First Purchase Contract
Settlement Date will be payable quarterly by the Company on such
Growth PRIDES at the rate of % of the Stated Amount ($50)
per annum on each Payment Date from the later of , 1998
and the last Payment Date on which Contract Adjustment Payments
were paid, and at the rate of % of the Remaining Stated
Amount ($25) per annum for the period beginning on the First
Purchase Contract Settlement date, subject in each case to the
Company's right to defer Contract Adjustment Payments. In
addition, OID will accrue on the related Treasury Securities for
United States federal income tax purposes. See CERTAIN FEDERAL
INCOME TAX CONSEQUENCES - "Treasury Securities - Original Issue
Discount."
CREATING INCOME PRIDES
Each holder of a Growth PRIDES (unless a Tax Event
Redemption has occurred) will have the right, at any time on or
prior to the fifth Business Day immediately preceding the Second
Purchase Contract Settlement Date, to substitute for the related
Treasury Securities held by the Collateral Agent Senior Notes of
the corresponding series in an aggregate principal amount equal
to the aggregate principal amount of such Treasury Securities,
thereby creating Income PRIDES. Because Treasury Securities are
issued in integral multiples of $1,000, holders of Growth PRIDES
may make such substitutions only in integral multiples of 40
Growth PRIDES; provided, however, that such substitutions may not
be made during the period from the fifth Business Day immediately
preceding the First Purchase Contract Settlement Date through the
First Purchase Contract Settlement Date; and provided, further,
that if a Tax Event Redemption has occurred and the Treasury
Portfolio has become a component of the Income PRIDES, holders of
the Growth PRIDES may make such substitution only in integral
multiples of 1,600,000 Growth PRIDES, at any time, on or prior to
the second Business Day immediately preceding the Second Purchase
Contract Settlement Date (but not during the period from the
second Business Day immediately preceding the First Purchase
Contract Settlement Date through the First Purchase Contract
Settlement Date). Accordingly, in such case, holders wishing to
make such substitution must hold at least 1,600,000 Growth
PRIDES. To create 40 Income PRIDES (unless a Tax Event
Redemption has occurred) the Growth PRIDES holder will (a)
deposit with the Collateral Agent (i) prior to the fifth Business
Day preceding the First Purchase Contract Settlement Date, $1,000
in aggregate principal amount of Series D Notes and 1,000 in
aggregate principal amount of Series E Notes, or (ii) after the
First Purchase Contract Settlement Date and prior to the fifth
Business Day preceding the Second Purchase Contract Settlement
Date, $1,000 in aggregate principal amount of Series E Notes, and
(b) transfer 40 Growth PRIDES certificates to the Purchase
Contract Agent accompanied by a notice stating that the Growth
PRIDES holder has deposited with the Collateral Agent $1,000
aggregate principal amount of each series of Senior Notes, or
with respect to substitutions after the First Purchase Contract
Settlement Date, $1,000 aggregate principal amount of Series E
Notes, as applicable, and requesting that the Purchase Contract
Agent instruct the Collateral Agent to release to such Growth
PRIDES holder the Treasury Securities that were components of
such Growth PRIDES. Upon such deposit and receipt of an
instruction from the Purchase Contract Agent, the Collateral
Agent will effect the release of the related Treasury Securities
from the pledge under the Pledge Agreement free and clear of the
Company's security interest therein to the Purchase Contract
Agent, which will (i) cancel the 40 Growth PRIDES, (ii) transfer
the related Treasury Securities to such holder of Growth PRIDES
and (iii) deliver 40 Income PRIDES to such holder of Growth
PRIDES. The substituted Senior Notes will be pledged with the
Collateral Agent to secure such Income PRIDES holder's obligation
to purchase Common Stock under the related Purchase Contacts.
Cumulative cash distributions, for the period prior to the First
Purchase Contract Settlement Date will be payable quarterly by
the Company at a rate of % of the Remaining Stated Amount
($50) per annum, on such Income PRIDES on each Payment Date from
the later of , 1998 and the last Payment Date on which
S-34
<PAGE>
such cumulative cash distributions, if any, were paid, and at the
rate of % of the Remaining Stated Amount ($25) per annum for
the period beginning on the First Purchase Contract Settlement
date, subject in each case to the Company's right to defer
Contract Adjustment Payments.
Holders who elect to substitute Pledged Securities, thereby
creating Growth PRIDES or Income PRIDES or recreating Income
PRIDES or Growth PRIDES (as discussed below), shall be
responsible for any fees or expenses payable in connection with
such substitution. See CERTAIN PROVISIONS OF THE PURCHASE
CONTRACT AGREEMENT AND THE PLEDGE AGREEMENT -- "Miscellaneous."
CURRENT PAYMENTS
From and after , 1998, and prior to the First
Purchase Contract Settlement Date, holders of Income PRIDES are
entitled to receive cash distributions at a rate of % of the
Stated Amount ($50) per annum, payable quarterly in arrears
consisting of an amount equal to the sum of interest payments on
the $25 principal amounts of Series D Notes and Series E Notes,
or distributions on the Treasury Portfolio, as applicable, and
Contract Adjustment Payments, payable at the rate of % of
the Stated Amount ($50) per annum. From and after the First
Purchase Contract Settlement Date, holders of Income PRIDES will
be entitled to receive cash distributions at a rate of %
of the Remaining Stated Amount ($25) per annum, payable quarterly
in arrears, consisting of an amount equal to interest payments on
a $25 principal amount of Series E Notes payable, or
distributions on the Treasury Portfolio, as applicable, and
Contract Adjustment Payments, payable by the Company at the rate
of % of the Remaining Amount ($25) per annum.
Each holder of Growth PRIDES will be entitled to receive
quarterly Contract Adjustment Payments payable by the Company at
the rate of % of the Stated Amount ($50) per annum from
and after ________, 1998 and prior to the First Purchase Contract
Settlement Date, and at a rate of % of the Remaining
Stated Amount ($25) per annum thereafter, subject to the
Company's rights of deferral as described herein. In addition,
OID will accrue on the related Treasury Securities.
The Company has the right to defer the payment of Contract
Adjustment Payments until the next Purchase Contract Settlement
Date; however, deferred Contract Adjustment Payments will accrue
and bear additional Contract Adjustment Payments during such
deferral period at the rate of % per annum (such deferred
installments of Contract Adjustment Payments, if any, together
with the additional interest thereon, shall be referred to as the
"Deferred Contract Adjustment Payments"). All Contract
Adjustment Payments deferred prior to the First Purchase Contract
Settlement Date must be paid not later than such date; all other
deferred Contract Adjustment Payments must be paid no later than
the Second Purchase Contract Settlement Date. See DESCRIPTION OF
THE PURCHASE CONTRACTS -- "Contract Adjustment Payments."
The Senior Notes will be senior and unsecured and will rank
on a parity in right of payment with all other senior unsecured
obligations of the Company. The Contract Adjustment Payments
will be subordinated and junior in right of payment to the
Company's Senior Indebtedness.
LACK OF VOTING OR OTHER RIGHTS
Holders of Purchase Contracts relating to the Income PRIDES
or Growth PRIDES, in their capacities as such holders, will have
no voting or other rights in respect of the Common Stock. In
addition, holders of Senior Notes, including Senior Notes which
constitute part of the Income PRIDES, will have no voting rights
with respect to Common Stock.
S-35
<PAGE>
LISTING OF THE SECURITIES
The Company intends to apply for the listing of the Income
PRIDES and the Growth PRIDES on the NYSE. See UNDERWRITING. The
Company does not intend to apply for the separate listing of the
Senior Notes on the NYSE or any other securities exchange.
The Common Stock is listed on the New York, Chicago and
Pacific stock exchanges under the symbol "TXU."
MISCELLANEOUS
The Company or its affiliates may from time to time purchase
any of the Securities offered hereby which are then outstanding
by tender, in the open market or by private agreement.
DESCRIPTION OF THE PURCHASE CONTRACTS
The following is a summary of certain terms of the Purchase
Contracts, and supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and
provisions of such documents set forth in the accompanying
Prospectus, to which reference is hereby made. This summary does
not purport to be complete and is subject to and qualified in its
entirety by the forms of such documents (including the
definitions therein of certain terms) which are on file with the
Commission.
GENERAL
Each Purchase Contract that is a part of a FELINE PRIDES
(unless earlier terminated, or earlier settled at the holder's
option) will obligate the holder of such Purchase Contract to
purchase, and the Company to sell, on each of the First Purchase
Contract Settlement Date and the Second Purchase Contract
Settlement Date, for $25 in cash, a number of newly issued shares
of Common Stock equal to the Settlement Rate. The Settlement
Rate relating to a Purchase Contract Settlement Date will be
calculated as follows (subject to adjustment under certain
circumstances): (a) if the Applicable Market Value is equal to or
greater than $ (the Threshold Appreciation Price, which
is approximately % above the Reference Price), the
Settlement Rate will be equal to $25 divided by the Threshold
Appreciation Price, or ; accordingly, if, between the
date of this Prospectus Supplement and the period during which
the Applicable Market Value is measured, the market price for the
Common Stock increases to an amount that is equal to or greater
than the Threshold Appreciation Price, the aggregate market value
of the shares of Common Stock issued upon settlement of the
applicable portion of each Purchase Contract (assuming that such
market value is the same as the Applicable Market Value of such
Common Stock) will be greater than $25, and if such market price
is the same as the Threshold Appreciation Price, the aggregate
market value of such shares (assuming that such market value is
the same as the Applicable Market Value of such Common Stock)
will be equal to $25; (b) if the Applicable Market Value is less
than the Threshold Appreciation Price but greater than the
Reference Price, the Settlement Rate will be equal to $25 divided
by the Applicable Market Value; accordingly, if the market price
for the Common Stock increases between the date of this
Prospectus Supplement and the period during which the Applicable
Market Value is measured, but such market price is less than the
Threshold Appreciation Price, the aggregate market value of the
shares of Common Stock issued upon settlement of the applicable
portion of each Purchase Contract (assuming that such market
value is the same as the Applicable Market Value of such Common
Stock) will be equal to $25; and (c) if the Applicable Market
Value is less than or equal to the Reference Price, the
Settlement Rate will be equal to $25 divided by the Reference
Price, or ; accordingly, if the market price for the
Common Stock decreases between the date of this Prospectus
Supplement and the period during which the Applicable Market
Value is measured, the aggregate market value of the shares of
Common Stock issued upon settlement of the applicable portion of
each Purchase Contract (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be
less than $25 and, if such market price stays the same, the
aggregate market value of such shares (assuming that such market
S-36
<PAGE>
value is the same as the Applicable Market Value of such Common
Stock) will be equal to $25. "Applicable Market Value" with
respect to a Purchase Contract Settlement Date means the average
of the Closing Price per share of Common Stock on each of the
twenty consecutive Trading Days ending on the third Trading Day
immediately preceding such Purchase Contract Settlement Date.
"Closing Price" of the Common Stock on any date of determination
means the closing sale price (or, if no closing price is
reported, the last reported sale price) of the Common Stock on
the NYSE on such date or, if the Common Stock is not listed for
trading on the NYSE on any such date, as reported in the
composite transactions for the principal United States securities
exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional
securities exchange, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or, if such bid price
is not available, the market value of the Common Stock on such
date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Company.
A "Trading Day" means a day on which the Common Stock (a) is not
suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close
of business and (b) has traded at least once on the national or
regional securities exchange or association or over-the-counter
market that is the primary market for the trading of the Common
Stock.
No fractional shares of Common Stock will be issued by the
Company pursuant to the Purchase Contracts. In lieu of
fractional shares otherwise issuable (calculated on an aggregate
basis) in respect of the applicable portion of a Purchase
Contracts being settled on a Purchase Contract Settlement Date by
a holder of Income PRIDES or Growth PRIDES, the holder will be
entitled to receive an amount of cash equal to such fraction of a
share times the Applicable Market Value.
On the Business Day immediately preceding a Purchase
Contract Settlement Date unless (i) a holder of Income PRIDES or
Growth PRIDES has settled the applicable portion of the related
Purchase Contracts prior to such Purchase Contract Settlement
Date through the early delivery of cash to the Purchase Contract
Agent in the manner described under "-- Early Settlement," (ii) a
holder has settled the applicable portion of the related Purchase
Contracts with separate cash on the Business Day immediately
preceding such Purchase Contract Settlement Date, pursuant to
prior notice in the manner described under "-- Notice to Settle
with Cash", (iii) in the case of Income PRIDES, a holder has had
the Series D Notes (with respect to the First Purchase Contract
Settlement Date), or the Series E Notes (with respect to the
Second Purchase Contract Settlement Date) related to the
applicable portion of the holder's Purchase Contracts to be
settled on such Purchase Contract Settlement Date remarketed in
the manner described herein in connection with settling such
portion of such Purchase Contracts, or (iv) an event described
under " -- Termination" below has occurred, then (a) in the case
of Income PRIDES (unless a Tax Event Redemption has occurred),
the Company will exercise its rights as a secured party to
dispose of the Senior Notes in accordance with applicable law and
(b) in the case of Growth PRIDES or Income PRIDES (in the event
that a Tax Event Redemption has occurred), the principal amount
of the Treasury Securities or the Applicable Ownership Interest
in the Treasury Portfolio, as applicable, when paid at maturity,
will automatically be applied to satisfy in full the holder's
obligation to purchase Common Stock under the related Purchase
Contracts. Such Common Stock will then be issued and delivered
to such holder or such holder's designee, upon presentation and
surrender of the certificate evidencing such FELINE PRIDES (a
FELINE PRIDES Certificate) and payment by the holder of any
transfer or similar taxes payable in connection with the issuance
of the Common Stock to any person other than such holder. In the
event that a holder of either Income PRIDES or Growth PRIDES
effects the early settlement of the related Purchase Contracts
through the delivery of cash or, in the case of Income PRIDES,
settles the related Purchase Contracts with cash on the Business
Day immediately preceding a Purchase Contract Settlement Date, as
described herein under "Early Settlement," the related Senior
Notes or Treasury Securities, as the case may be, will be
released to the holder as described herein. The funds received
by the Collateral Agent on the Business Day immediately preceding
a Purchase Contract Settlement Date upon cash settlement of the
applicable portion of a Purchase Contract, will be promptly
invested in overnight permitted investments and paid to the
Company on such Purchase Contract Settlement Date. Any funds
received by the Collateral Agent in respect of the interest
earned from the overnight investment in permitted investments
will be distributed to the Purchase Contract Agent for payment to
the holders.
S-37
<PAGE>
Each holder of Income PRIDES or Growth PRIDES, by acceptance
thereof, will under the terms of the Purchase Contract Agreement
and the related Purchase Contracts be deemed to have (a)
irrevocably agreed to be bound by the terms of the related
Purchase Contracts and the Pledge Agreement for so long as such
holder remains a holder of such FELINE PRIDES, and (b) duly
appointed the Purchase Contract Agent as such holder's
attorney-in-fact to enter into and perform the related Purchase
Contracts and Pledge Agreement on behalf of and in the name of
such holder. In addition, each beneficial owner of Income PRIDES
or Growth PRIDES, by acceptance of such interest, will be deemed
to have agreed to treat (i) itself as the owner of the related
Senior Notes, the appropriate Applicable Ownership Interest of
the Treasury Portfolio or Treasury Securities, as the case may
be, and (ii) the Senior Notes as indebtedness of the Company, in
each case, for United States federal, state and local income and
franchise tax purposes.
HOLDER'S OBLIGATIONS AND DEFAULTS
In addition to the purchase price paid for the FELINE
PRIDES, holders are obligated under each Purchase Contract to
purchase for $25 in cash Common Stock not later than the First
Purchase Contract Settlement Date and to purchase for $25 in cash
Common Stock not later than the Second Purchase Contract
Settlement Date. In addition, each holder of an Income PRIDES
(unless a Tax Event Redemption has occurred) is obligated to
notify the Purchase Contract Agent of its intention to pay such
amounts in cash not later than 5:00 p.m. (New York City time) on
the fifth Business Day immediately preceding the corresponding
Purchase Contract Settlement Date unless such holder has already
paid such amount. Each holder of a Growth PRIDES (or an Income
PRIDES, if a Tax Event Redemption has occurred) is obligated to
notify the Purchase Contract Agent of its intention to pay such
amounts in cash not later than 5:00 p.m. (New York City time) on
the second Business Day immediately preceding the corresponding
Purchase Contract Settlement Date unless such holder has already
paid such amount. So long as the FELINE PRIDES are held by the
Depositary, such payments must be made and such notices must be
given by the beneficial owners through the procedures of the
Depositary.
Failure to make such payments or give such notices will
constitute a default under the related Purchase Contract and will
entitle the Collateral Agent or the Company, without further
recourse to the holder or beneficial owner in respect of its
related purchase obligations under the Purchase Contract to
foreclose on the corresponding pledged Senior Notes, Treasury
Securities or Applicable Ownership Interest in the Treasury
Portfolio. If the holder or beneficial owner of an Income PRIDES
(unless a Tax Event Redemption has occurred) fails to give a
required notice with respect to a Purchase Contract, the
Collateral Agent or the Company expects to offer and sell the
corresponding pledged Senior Note in the immediately following
remarketing or at a subsequent public or private sale and apply
the proceeds to purchase the corresponding Common Stock. If the
holder or beneficial owner of an Income PRIDES (unless a Tax
Event Redemption has occurred) gives the appropriate notice but
fails to make the corresponding payment on time, then the
Collateral Agent or the Company expects to sell the corresponding
pledged Senior Note at a public sale at which the Company may bid
its claim or at a private sale to one or more underwriters. If
the holder or beneficial owner of a Growth PRIDES (or an Income
PRIDES, if a Tax Event Redemption has occurred) fails to give a
required notice or make a required payment, the Collateral Agent
or the Company expects to apply the proceeds of the pledged
Treasury Securities or Applicable Ownership Interest in the
Treasury Portfolio to purchase the corresponding Common Stock.
So long as the FELINE PRIDES are held by the Depositary, the
Company expects that notice of such remarketing or public or
private sale will be given to the beneficial owners through the
procedures of the Depositary.
REMARKETING
Unless a Tax Event Redemption has occurred, pursuant to and
subject to the terms of a Remarketing Agreement among the
Remarketing Agent, the Purchase Contract Agent and the Company in
connection with each Purchase Contract Settlement Date, the
Senior Notes (which will be the Series D Notes in connection with
the First Purchase Contract Settlement Date and the Series E
Notes in connection with the Second Purchase Contract Settlement
Date) of Income PRIDES holders who have failed to notify the
Purchase Contract Agent, on or prior to the fifth Business Day
immediately preceding the applicable Purchase Contract
Settlement Date in the manner described under " -- Notice to
S-38
<PAGE>
Settle with Cash" of their intention to settle the related
Purchase Contracts with separate cash on the Business Day
immediately preceding such Purchase Contract Settlement Date,
will be remarketed on the third Business Day immediately
preceding such Purchase Contract Settlement Date. In the event
of such a failure to so notify the Purchase Contract Agent, the
Company will exercise its rights as a secured party to dispose of
such Senior Notes and the Remarketing Agent will use its
reasonable efforts to remarket such Senior Notes of the
appropriate series on such date at a price of approximately
100.5% of the aggregate principal amount such Senior Notes of
such series, plus accrued and unpaid interest, if any, thereon
(subject to the Company's right to limit the applicable Reset
Rate, as described herein). The portion of the proceeds from
such remarketing equal to the aggregate principal amount of such
Senior Notes of such series will be applied to satisfy in full
such Income PRIDES holders' obligations to purchase Common Stock
under the related Purchase Contracts on such Purchase Contract
Settlement Date. In addition, after deducting as the Remarketing
Fee an amount not exceeding 25 basis points (.25%) of the
aggregate principal amount of the remarketed Senior Notes of such
series, from any amount of such proceeds in excess of the
aggregate principal amount of the remarketed Senior Notes of such
series plus any accrued and unpaid interest, the Remarketing
Agent will remit the remaining portion of the proceeds, if any,
for the benefit of such holder. Income PRIDES holders whose
Senior Notes are so remarketed will not otherwise be responsible
for the payment of any Remarketing Fee in connection therewith.
If the remarketing does not occur because a condition precedent
to the remarketing has not be fulfilled or if, despite using its
reasonable efforts, the Remarketing cannot remarket the related
series of Senior Notes of such holders of Income PRIDES at a
price not less than 100% of the aggregate principal amount of
such Senior Notes plus accrued and unpaid interest, if any,
resulting in a Failed Remarketing, the Company will dispose of
such Senior Notes in accordance with the applicable law and
satisfy in full, from the proceeds of such disposition, such
holder's obligation to purchase Common Stock under the related
Purchase Contracts on the applicable Purchase Contract Settlement
Date; provided that, if the Company exercises such rights as a
secured party, the Company shall have no further recourse against
the holders of such Senior Notes with respect to such obligations
and any accrued and unpaid interest on such Senior Notes will be
paid in cash by the Company to the holders of record of such
Senior Notes. The Company will cause a notice of such Failed
Remarketing to be published on the second Business Day
immediately preceding the applicable Purchase Contract Settlement
Date by publication in a daily newspaper in the English language
of general circulation in The City of New York, which is expected
to be The Wall Street Journal. In addition, the Company will
request, not later than seven nor more than 15 calendar days
prior to the remarketing date, that the Depositary (as defined
herein) notify its participants holding such Senior Notes, Income
PRIDES and Growth PRIDES of such remarketing, including, in the
case of a Failed Remarketing, the procedures that must be
followed if a Senior Note holder wishes to exercise its right to
put its Senior Note of the appropriate series to the Company as
described herein. Holders of Senior Notes that are not
components of Income PRIDES may elect, in the manner and at the
times described herein, to have their Senior Notes remarketed by
the Remarketing Agent. See DESCRIPTION OF THE SENIOR NOTES --
"Optional Remarketing." It is currently anticipated that Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Lehman Brothers
Inc. will act together as the Remarketing Agent. Each
Remarketing Agreement will contain provisions under which the
Remarketing Agent may resign or be replaced.
EARLY SETTLEMENT
A holder of Income PRIDES may settle its remaining related
Purchase Contracts in their entirety, but only in integral
multiples of 40 Income PRIDES, on or prior to the fifth Business
Day immediately preceding each Purchase Contract Settlement Date
by presenting and surrendering the FELINE PRIDES Certificate
evidencing such Income PRIDES at the offices of the Purchase
Contract Agent with the form of "Election to Settle Early" on the
reverse side of such certificate completed and executed as
indicated, accompanied by payment (payable to the Company in
immediately available funds) of an amount equal to the sum of
(i)(A) $50 times the number of Purchase Contracts being settled
if settled on or prior to the fifth Business Day immediately
preceding the First Purchase Contract Settlement Date or (B) $25
times the number of Purchase Contracts being settled if settled
between the First Purchase Contract Settlement Date and the fifth
Business Day immediately preceding the Second Purchase Contract
Settlement Date; provided, however, that such settlements may not
be made during the period from the fifth Business Day immediately
preceding the First Purchase Contract Settlement Date through the
First Purchase Contract Settlement Date and provided, further, if
a Tax Event Redemption has occurred prior to the Purchase
S-39
<PAGE>
Contract Settlement Date and the Treasury Portfolio has become a
component of the Income PRIDES, holders of such Income PRIDES may
settle early only in integral multiples of 1,600,000 Income
PRIDES (and the related appropriate Applicable Ownership Interest
in the Treasury Portfolio) at any time on or prior to the second
Business Day immediately preceding the Purchase Contract
Settlement Date and, in such case, a holder must hold at least
1,600,000 Income PRIDES to settle early. A holder of Growth
PRIDES may settle its related remaining Purchase Contracts in
their entirety on or prior to the second Business Day immediately
preceding each Purchase Contract Settlement Date by presenting
and surrendering the FELINE PRIDES Certificate evidencing such
Growth PRIDES at the offices of the Purchase Contract Agent with
the form of "Election to Settle Early" on the reverse side of
such certificate completed and executed as indicated, accompanied
by payment in immediately available funds of an amount equal to
the sum of (i)(A) $50 times the number of Purchase Contracts
being settled, if settled on or prior to the second Business Day
immediately preceding the First Purchase Contract Settlement Date
or (B) $25 times the number of Purchase Contracts being settled,
if settled between the First Purchase Contract Settlement Date
and the second Business Day immediately preceding the Second
Purchase Contract Settlement Date, plus in either case (ii) if
such delivery is made with respect to any portion of a Purchase
Contract during the period from the close of business on any
record date next preceding any Payment Date to the opening of
business on such Payment Date, an amount equal to the Contract
Adjustment Payments, if any, payable on such Payment Date with
respect to such portion of a Purchase Contract; provided that no
payment shall be required if the Company shall have elected to
defer the Contract Adjustment Payments which would otherwise be
payable on such Payment Date. So long as the FELINE PRIDES are
evidenced by one or more global security certificates deposited
with the Depositary, procedures for early settlement will also be
governed by standing arrangements between the Depositary and the
Purchase Contract Agent.
Upon Early Settlement of the Purchase Contracts related to
any Income PRIDES or Growth PRIDES, (a) the holder will receive
(i) if settled prior to the First Purchase Contract Settlement
Date, newly issued shares of Common Stock per Income
PRIDES or Growth PRIDES or (ii) if settled after the First
Purchase Contract Settlement Date and before the Second Purchase
Contract Settlement Date, newly issued shares of Common
stock per Income PRIDES or Growth PRIDES, (regardless in either
case of the market price of the Common Stock on the date of such
Early Settlement), subject in either case to adjustment under the
circumstances described in "-- Anti-Dilution Adjustments" below,
(b) the Senior Notes, Applicable Ownership Interest in the
Treasury Portfolio or Treasury Securities, as the case may be,
related to such Income PRIDES or Growth PRIDES will thereupon be
transferred to the holder free and clear of the Company's
security interest therein, (c) the holder's right to receive
Deferred Contract Adjustment Payments, if any, on the Purchase
Contracts being settled will be forfeited, (d) the holder's right
to receive future Contract Adjustment Payments will terminate and
(e) no adjustment will be made to or for the holder on account of
Deferred Contract Adjustment Payments or any amounts accrued in
respect of Contract Adjustment Payments.
In order for a settlement to be considered effective on or
by a particular Business Day, the Purchase Contract Agent must
receive the necessary FELINE PRIDES Certificates, accompanied by
the appropriately completed "Election to Settle Early" and
requisite immediately available funds, from a holder of FELINE
PRIDES by 5:00 p.m., New York City time, on a Business Day.
Upon Early Settlement of Purchase Contracts in the manner
described above, presentation and surrender of the FELINE PRIDES
Certificate evidencing the related Income PRIDES or Growth PRIDES
and payment of any transfer or similar taxes payable by the
holder in connection with the issuance of the related Common
Stock to any person other than the holder of such Income PRIDES
or Growth PRIDES, the Company will cause the shares of Common
Stock being purchased to be issued, and the related Senior Notes,
the appropriate Applicable Ownership Interest in the Treasury
Portfolio or Treasury Securities, as the case may be, securing
such Purchase Contracts to be released from the pledge under the
Pledge Agreement (described in "-- Pledged Securities and Pledge
Agreement") and transferred, within three Business Days following
the settlement date, to the purchasing holder or such holder's
designee.
S-40
<PAGE>
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES or Growth PRIDES wishing to
settle the applicable portion of its related Purchase Contract
with separate cash on the Business Day immediately preceding
either Purchase Contract Settlement Date must notify the Purchase
Contract Agent by delivering to the Purchase Contract Agent a
notice in substantially the form of "Notice to Settle by Separate
Cash" attached to the FELINE PRIDES Certificate (a copy of which
shall be available from the Purchase Contract Agent) on or prior
to 5:00 p.m., New York City time, on the second Business Day
immediately preceding such Purchase Contract Settlement Date in
the case of a Growth PRIDES holder or an Income PRIDES holder (if
a Tax Event Redemption has occurred) and on the fifth Business
Day immediately preceding such Purchase Contract Settlement Date
in the case of an Income PRIDES holder (if a Tax Event Redemption
has not occurred). If a holder that has given notice of such
holder's intention to settle the applicable portion of the
related Purchase Contract with separate cash fails to deliver
such cash on the Business Day immediately preceding the
applicable Purchase Contract Settlement Date, then the Company
will exercise its right as a secured party to dispose of, in
accordance with the applicable law, the related Senior Notes or
Treasury Securities or Applicable Ownership Interest in the
Treasury Portfolio, as the case may be, to satisfy in full, from
the disposition of such Senior Notes, Treasury Securities or the
appropriate Applicable Ownership Interest in the Treasury
Portfolio, such holder's obligation to purchase Common Stock
under the related Purchase Contracts on such date.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per
annum of % of the Stated Amount ($50) per Purchase
Contract prior to the First Purchase Contract Settlement Date,
and at the rate of % of the Remaining Stated Amount ($25)
per annum thereafter, in the case of Income PRIDES, and %
of the Stated Amount ($50) per Purchase Contract prior to the
First Purchase Contract Settlement Date, and at the rate of
% of the Remaining Stated Amount ($25) per annum
thereafter, in the case of Growth PRIDES. Contract Adjustment
Payments payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months. Contract Adjustment
Payments will accrue from , 1998 and will be payable quarterly
in arrears on February 16, May 16, August 16 and November 16
of each year, commencing , 1998.
Contract Adjustment Payments will be payable to the holders
of Purchase Contracts related to the FELINE PRIDES as they appear
on the books and records of the Purchase Contract Agent on the
relevant record dates, which, as long as the FELINE PRIDES remain
in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through
the Purchase Contract Agent, who will hold amounts received in
respect of the Contract Adjustment Payments for the benefit of
the holders of the Purchase Contracts relating to such FELINE
PRIDES. Subject to any applicable laws and regulations, each
such payment will be made as described under "-- Book-Entry
System." In the event that the FELINE PRIDES do not continue to
remain in book-entry only form, the Company shall have the right
to select relevant record dates, which shall be more than one
Business Day but less than 60 Business Days prior to the relevant
payment dates. In the event that any date on which Contract
Adjustment Payments are to be made on the Purchase Contracts
related to the FELINE PRIDES is not a Business Day, then payment
of the Contract Adjustment Payments 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 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 such payment date. A "Business
Day" shall mean any day other than Saturday, Sunday or any other
day on which banking institutions in New York City (in the State
of New York) are permitted or required by any applicable law to
close.
The Company's obligations with respect to Contract
Adjustment Payments will be subordinated and junior in right of
payment to the Company's obligations under any Senior
Indebtedness.
S-41
<PAGE>
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice
to the holders of the FELINE PRIDES and the Purchase Contract
Agent, defer the payment of Contract Adjustment Payments on the
Purchase Contracts until no later than the next Purchase Contract
Settlement Date. However, such Contract Adjustment Payments so
deferred, if any, will accrue and additional Contract Adjustment
Payments would accrue during such deferral period at the rate of
% per annum (compounding on each succeeding Payment Date)
until paid. The Company may pay any Deferred Contract Adjustment
Payments at any time prior to a Purchase Contract Settlement
Date. However, all Contract Adjustment Payments deferred prior
to the First Purchase Contract Settlement Date must be paid not
later than such date; all other deferred Contract Adjustment
Payments must be paid no later than the Second Purchase Contract
Settlement Date. If the Purchase Contracts are terminated (upon
the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company), the right to receive
Contract Adjustment Payments and Deferred Contract Adjustment
Payments will also terminate.
If the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts related to the
FELINE PRIDES until a Purchase Contract Settlement Date, each
holder of FELINE PRIDES will receive on such Purchase Contract
Settlement Date in respect of the Deferred Contract Adjustment
Payments, if any, in lieu of a cash payment, a number of shares
of Common Stock equal to (x) the aggregate amount of Deferred
Contract Adjustment Payments payable to such holder divided by
(y) the Applicable Market Value.
If the Company exercises its option to defer the payment of
Contract Adjustment Payments, until the Deferred Contract
Adjustment Payments have been paid, the Company shall not declare
or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock or make guarantee payments
with respect to the foregoing (other than (i) purchases or
acquisitions of capital stock of the Company in connection with
the satisfaction by the Company of its obligations under any
employee or agent benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security
outstanding on the date of such event requiring the Company to
purchase its capital stock, (ii) as a result of a
reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital
stock for another class or series of the Company capital stock,
(iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange
provisions of the Company's capital stock or the security being
converted or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock)
or repurchases or redemptions of capital stock solely from the
issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights
plan).
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be
subject to adjustment (without duplication) upon the occurrence
of certain events, including: (a) the issuance to all holders of
Common Stock of rights, warrants or options entitling them, for a
period of up to 45 days, to subscribe for or purchase Common
Stock at less than the Current Market Price (as defined herein)
thereof; (b) subdivisions, splits and combinations of Common
Stock; (c) distributions to all holders of Common Stock of
evidences of indebtedness of the Company, shares of capital
stock, securities, or property (excluding any dividend or
distribution covered by clause (a) above and any dividend or
distribution paid exclusively in cash); (d) distributions
consisting exclusively of cash to all holders of Common Stock in
an aggregate amount that, together with (i) other all-cash
distributions made within the preceding 12 months and (ii) any
cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer by the Company
or a subsidiary thereof for the Common Stock concluded within the
preceding 12 months, exceeds 15% of the Company's aggregate
market capitalization (such aggregate market capitalization being
the product of the Current Market Price of the Common Stock
multiplied by the number of shares of Common Stock then
outstanding) on the date of such distribution; and (e) the
successful completion of a tender or exchange offer made by the
Company or any subsidiary thereof for the Common Stock which
involves an aggregate consideration that, together with (i) any
S-42
<PAGE>
cash and the fair market value of other consideration payable in
respect of any tender or exchange offer by the Company or a
subsidiary thereof for the Common Stock concluded within the
preceding 12 months and (ii) the aggregate amount of any all-cash
distributions to all holders of the Company's Common Stock made
within the preceding 12 months, exceeds 15% of the Company's
aggregate market capitalization on the expiration of such tender
or exchange offer. The "Current Market Price" per share of
Common Stock on any day means the average of the daily Closing
Prices for the five consecutive Trading Days selected by the
Company commencing not more than 30 Trading Days before, and
ending not later than, the earlier of the day in question and the
day before the "ex date" with respect to the issuance or
distribution requiring such computation. For purposes of this
paragraph, the term "ex date," when used with respect to any
issuance or distribution, shall mean the first date on which the
Common Stock trades regular way on such exchange or in such
market without the right to receive such issuance or
distribution.
In the case of certain reclassifications, consolidations,
mergers, sales or transfers of assets or other transactions
pursuant to which the Common Stock is converted into the right to
receive other securities, cash or property, each Purchase
Contract then outstanding would, without the consent of the
holders of the related Income PRIDES or Growth PRIDES, as the
case may be, become a contract to purchase only the kind and
amount of securities, cash and other property receivable upon
consummation of the transaction by a holder of the number of
shares of Common Stock which would have been received by the
holder of the related Income PRIDES or Growth PRIDES immediately
prior to the date of consummation of such transaction if such
holder had then settled such Purchase Contract.
If at any time the Company makes a distribution of property
to its shareholders which would be taxable to such shareholders
as a dividend for United States federal income tax purposes
(i.e., distributions of evidences of indebtedness or assets of
the Company, but generally not stock dividends or rights to
subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Purchase Contract Agreement, the
Settlement Rate is increased, such increase may give rise to a
taxable dividend to holders of FELINE PRIDES. See CERTAIN
FEDERAL INCOME TAX CONSEQUENCES -- "Purchase Contracts --
Adjustment to Settlement Rate."
In addition, the Company may make such increases in the
Settlement Rate as the Board of Directors of the Company deems
advisable to avoid or diminish any income tax to holders of its
capital stock resulting from any dividend or distribution of
capital stock (or rights to acquire capital stock) or from any
event treated as such for income tax purposes or for any other
reasons.
Adjustments to the Settlement Rate will be calculated to the
nearest 1/10,000th of a share. No adjustment in the Settlement
Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent in the Settlement
Rate; provided, however, that any adjustments which by reason of
the foregoing are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. The
Company will be required, within ten Business Days following the
adjustment of the Settlement Rate, to provide written notice to
the Purchase Contract Agent of the occurrence of such event and a
statement in reasonable detail setting forth the method by which
the adjustment to the Settlement Rate was determined and setting
forth the revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a
corresponding adjustment to the number of shares of Common Stock
issuable upon early settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of
the Company and of the holders of the FELINE PRIDES thereunder
(including, if applicable, the right thereunder to receive
accrued Contract Adjustment Payments or Deferred Contract
Adjustment Payments and the right and obligation to purchase
Common Stock), will automatically terminate upon the occurrence
of certain events of bankruptcy, insolvency or reorganization
with respect to the Company. The Pledge Agreement provides that
upon such termination, the Collateral Agent will release the
Senior Notes, the Ownership Interest in the Treasury Portfolio or
the Treasury Securities, as the case may be, held by it to the
S-43
<PAGE>
Purchase Contract Agent for distribution to the holders, subject
in the case of the Treasury Portfolio to the Purchase Contract
Agent's disposition of the subject securities for cash and the
payment of such cash to the holders to the extent that the
holders would otherwise have been entitled to receive less than
$1,000 of any such security. Upon such termination, however, such
release and distribution may be subject to a delay. In the event
that the Company becomes the subject of a case under the
Bankruptcy Code, such delay may occur as a result of the
automatic stay under the Bankruptcy Code and continue until such
automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Pledged Securities will be pledged to and held by the
Collateral Agent, for the benefit of the Company, pursuant to the
Pledge Agreement to secure the obligations of holders of FELINE
PRIDES to purchase Common Stock under the related Purchase
Contracts. The rights of holders of FELINE PRIDES to the related
Pledged Securities will be subject to the Company's security
interest therein created by the Pledge Agreement. No holder of
Income PRIDES or Growth PRIDES will be permitted to withdraw the
Pledged Securities related to such Income PRIDES or Growth PRIDES
from the pledge arrangement except (i) to substitute Treasury
Securities for the related Senior Notes or the appropriate
Applicable Ownership Interest in the Treasury Portfolio, as the
case may be, (ii) to substitute Senior Notes or the appropriate
Applicable Ownership Interest in the Treasury Portfolio, as the
case may be, for the related Treasury Securities (for both (i)
and (ii), as provided for under DESCRIPTION OF THE FELINE PRIDES
-- "Creating Growth PRIDES" and -- "Creating Income PRIDES") or
(iii) upon the termination or Early Settlement of the related
Purchase Contracts.
BOOK-ENTRY SYSTEM
The Depository Trust Company (Depositary) will act as
securities depositary for the FELINE PRIDES. The FELINE PRIDES
will be issued only as fully-registered securities registered in
the name of Cede & Co. (the Depositary's nominee). One or more
fully-registered global security certificates (Global Security
Certificates), representing the total aggregate number of FELINE
PRIDES, will be issued and will be deposited with the Depositary.
The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of securities in
definitive form. Such laws may impair the ability to transfer
beneficial ownership interests in the FELINE PRIDES so long as
such FELINE PRIDES are represented by Global Security
Certificates.
The Depositary 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
Securities Exchange Act of 1934, as amended. The Depositary holds
securities that its participants (Participants) deposit with the
Depositary. The Depositary 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
(Direct Participants). The Depositary is owned by a number of
its Direct Participants and by the New York Stock Exchange, the
American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the Depositary system is also
available to others, such as securities brokers and dealers,
banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly
or indirectly (Indirect Participants). The rules applicable to
the Depositary and its Participants are on file with the
Commission.
Purchases of FELINE PRIDES under the Depositary's system
must be made by or through Direct Participants, which will
receive a credit for the FELINE PRIDES on the Depositary's
records. The ownership interest of each actual purchaser of each
FELINE PRIDES (Beneficial Owner) is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of
S-44
<PAGE>
their purchase, but Beneficial Owners are expected to receive
written confirmation providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or
Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the
FELINE PRIDES 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 FELINE PRIDES, except in the event
that use of the book-entry system for the FELINE PRIDES is
discontinued.
To facilitate subsequent transfers, all FELINE PRIDES
deposited by Participants with the Depositary will be registered
in the name of the Depositary's partnership nominee, Cede & Co.
The deposit of FELINE PRIDES with the Depositary and their
registration in the name of Cede & Co. effect no change in
beneficial ownership. The Depositary has no knowledge of the
actual Beneficial Owners of the FELINE PRIDES. The Depositary's
records reflect only the identity of the Direct Participants to
whose accounts such FELINE PRIDES 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 the
Depositary to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect
Participants to 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.
Neither the Depositary nor Cede & Co. will consent or vote
with respect to FELINE PRIDES. Under its usual procedures, the
Depositary would mail an omnibus proxy to the Company as soon as
possible after the record date for any action by holders. The
omnibus proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the FELINE PRIDES are
credited on the record date (identified in a listing attached to
the omnibus proxy).
Distributions and dividend payments on the FELINE PRIDES
issued in the form of one or more global certificates will be
made to the Depositary in immediately available funds. The
Depositary's practice is to credit Direct Participants' accounts
on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary
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, as
is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and such payments
will be the responsibility of such Participant and not of the
Depositary or the Company, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to
time. Payment of distributions and dividends to the Depositary
is the responsibility of the Company, disbursement of such
payments to Direct Participants shall be the responsibility of
the Depositary or the Company, and disbursements of such payments
to the Beneficial Owners shall be the responsibility of Direct
and Indirect Participants.
The Depositary may discontinue providing its services as
securities depository with respect to the FELINE PRIDES at any
time by giving reasonable notice to the Company. Under such
circumstances, in the event that a successor securities
depository is not obtained, FELINE PRIDES certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of
book-entry transfers through the Depositary (or a successor
securities depository. In that event, FELINE PRIDES certificates
will be printed and delivered.
The information in this section concerning the Depositary
and its book-entry system has been obtained from the Depository
and the Company takes no responsibility for the accuracy thereof.
S-45
<PAGE>
As long as the Depositary or its nominee is the registered
owner of the Global Security Certificates, the Depositary or such
nominee, as the case may be, will be considered the sole owner
and holder of the Global Security Certificates and all FELINE
PRIDES represented thereby for all purposes under the FELINE
PRIDES and the Purchase Contract Agreement. Except in the
limited circumstances referred to above, owners of beneficial
ownership interests in Global Security Certificates will not be
entitled to have such Global Security Certificates or the FELINE
PRIDES represented thereby registered in their names, will not
receive or be entitled to receive physical delivery of FELINE
PRIDES Certificates in exchange therefor and will not be
considered to be owners or holders of such Global Security
Certificates or any FELINE PRIDES represented thereby for any
purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the
Global Security Certificates and all transfers and deliveries of
Senior Notes, Treasury Portfolio, Treasury Securities and Common
Stock with respect thereto will be made to the Depositary or its
nominee, as the case may be, as the holder thereof.
S-46
<PAGE>
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
The following summary of certain terms of the Purchase
Contract Agreement and the Pledge Agreement supplements, and to
the extent inconsistent therewith replaces, the description of
the general terms and provisions of such documents set forth in
the accompanying Prospectus, to which reference is hereby made.
This summary does not purport to be complete, and is subject to
and qualified in its entirety by the forms of such documents
(including the definitions therein of certain terms) which are on
file with the Commission.
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase
Contracts (and documents related thereto) will be settled and
transfers of the FELINE PRIDES will be registrable at the office
of the Purchase Contract Agent in the Borough of Manhattan, The
City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry only form, payment of
distributions on the FELINE PRIDES may be made, at the option of
the Company, by check mailed to the address of the person
entitled thereto as shown on the Security Register.
Shares of Common Stock will be delivered on each Purchase
Contract Settlement Date (or earlier upon Early Settlement), or,
if the Purchase Contracts have terminated, the related Pledged
Securities will be delivered potentially after a delay as a
result of the imposition of the automatic stay under the
Bankruptcy Code (See DESCRIPTION OF THE PURCHASE CONTRACTS --
"Termination"), in each case upon presentation and surrender of
the FELINE PRIDES Certificates at the office of the Purchase
Contract Agent.
If a holder of outstanding Income PRIDES or Growth PRIDES
fails to present and surrender the FELINE PRIDES Certificate
evidencing such Income PRIDES or Growth PRIDES to the Purchase
Contract Agent on a Purchase Contract Settlement Date, the shares
of Common Stock issuable in settlement of the applicable portion
of the related Purchase Contract on such Purchase Contract
Settlement Date and in payment of any Deferred Contract
Adjustment Payments will be registered in the name of the
Purchase Contract Agent and, together with any distributions
thereon, shall be held by the Purchase Contract Agent as agent
for the benefit of such holder, until such FELINE PRIDES
Certificate is presented or the holder provides satisfactory
evidence that such certificate has been destroyed, lost or
stolen, together with any indemnity that may be required by the
Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the
Second Purchase Contract Settlement Date, the related Pledged
Securities have been transferred to the Purchase Contract Agent
for distribution to the holders entitled thereto and a holder
fails to present and surrender the FELINE PRIDES Certificate
evidencing such holder's Income PRIDES or Growth PRIDES to the
Purchase Contract Agent, the related Pledged Securities delivered
to the Purchase Contract Agent and payments thereon shall be held
by the Purchase Contract Agent as agent for the benefit of such
holder until such FELINE PRIDES Certificate is presented or the
holder provides the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to
invest or to pay interest on any amounts held by the Purchase
Contract Agent pending distribution, as described above.
No service charge will be made for any registration of
transfer or exchange of the FELINE PRIDES, except for any tax or
other governmental charge that may be imposed in connection
therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement
will contain provisions permitting the Company and the Purchase
Contract Agent or Collateral Agent, as the case may be, with the
S-47
<PAGE>
consent of the holders of not less than a majority of the
Purchase Contracts at the time outstanding, to modify the terms
of the Purchase Contracts, the Purchase Contract Agreement and
the Pledge Agreement, except that no such modification may,
without the consent of the holder of each outstanding Purchase
Contract affected thereby, (a) change any Payment Date, (b)
change the amount or type of Pledged Securities related to such
Purchase Contract, impair the right of the holder of any Pledged
Securities to receive distributions on such Pledged Securities
(except for the rights of holders of Income PRIDES to substitute
Treasury Securities for the related Senior Notes or Treasury
Portfolio, as the case may be, or the rights of holders of Growth
PRIDES to substitute Senior Notes or Treasury Portfolio, as the
case may be, for the related Treasury Securities) or otherwise
adversely affect the holder's rights in or to such Pledged
Securities, (c) change the place or currency of payment or reduce
any Contract Adjustment Payments, if any, or any Deferred
Contract Adjustment Payments, (d) impair the right to institute
suit for the enforcement of such Purchase Contract, (e) reduce
the number of shares of Common Stock purchasable under such
Purchase Contract, increase the price to purchase Common Stock on
settlement of such Purchase Contract, change the First Purchase
Contract Settlement Date or the Second Purchase Contract
Settlement Date or the right to Early Settlement or otherwise
adversely affect the holder's rights under such Purchase Contract
or (f) reduce the above-stated percentage of outstanding Purchase
Contracts the consent of whose holders is required for the
modification or amendment of the provisions of the Purchase
Contracts, the Purchase Contract Agreement or the Pledge
Agreement; provided, that if any amendment or proposal referred
to above would adversely affect only the Income PRIDES or the
Growth PRIDES, then only the affected class of holder will be
entitled to vote on such amendment or proposal and such amendment
or proposal shall not be effective except with the consent of the
holders of not less than a majority of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance
thereof, will under the terms of the Purchase Contract Agreement
and the Income PRIDES or Growth PRIDES, as applicable, be deemed
expressly to have withheld any consent to the assumption (i.e.,
affirmance) of the related Purchase Contracts by the Company or
its trustee in the event that the Company becomes the subject of
a case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement
that it will not merge or consolidate with any other entity or
sell, assign, transfer, lease or convey all or substantially all
of its properties and assets to any person, firm or corporation
unless the Company is the continuing corporation or the successor
corporation is a corporation organized under the laws of the
United States of America or a state thereof or the District of
Columbia and such corporation expressly assumes the obligations
of the Company under the Purchase Contracts, the Senior Notes,
the Purchase Contract Agreement and the Pledge Agreement, and the
Company or such successor corporation is not, immediately after
such merger, consolidation, sale, assignment, transfer, lease or
conveyance, in default of its payment obligations or material
default in the performance of any of its other obligations
thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral
Agent may treat the registered owner of any FELINE PRIDES as the
absolute owner thereof for the purpose of making payment and
settling the related Purchase Contracts and for all other
purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued,
any mutilated FELINE PRIDES Certificate will be replaced by the
Company at the expense of the holder upon surrender of such
certificate to the Purchase Contract Agent. FELINE PRIDES
Certificates that become destroyed, lost or stolen will be
replaced by the Company at the expense of the holder upon
delivery to the Company and the Purchase Contract Agent of
evidence of the destruction, loss or theft thereof satisfactory
to the Company and the Purchase Contract Agent. In the case of a
S-48
<PAGE>
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity
satisfactory to the Purchase Contract Agent and the Company may
be required at the expense of the holder of the FELINE PRIDES
evidenced by such certificate before a replacement will be
issued.
Notwithstanding the foregoing, the Company will not be
obligated to issue any Income PRIDES or Growth PRIDES on or after
the Business Day immediately preceding the earlier of the Second
Purchase Contract Settlement Date or the Termination Date or
after the Purchase Contracts have terminated. The Purchase
Contract Agreement will provide that, in lieu of the delivery of
a replacement FELINE PRIDES Certificate following the Second
Purchase Contract Settlement Date, the Purchase Contract Agent,
upon delivery of the evidence and indemnity described above and
receipt of appropriate registration or transfer instructions from
the holder, will deliver the Common Stock issuable pursuant to
such portion of the Purchase Contracts included in the Income
PRIDES or Growth PRIDES evidenced by such certificate, or, if the
Purchase Contracts have terminated prior to the Second Purchase
Contract Settlement Date, transfer the principal amount of the
Pledged Securities included in the Income PRIDES or Growth PRIDES
evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and
the Purchase Contracts will be governed by, and construed in
accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The Bank of New York will be the Purchase Contract Agent.
The Purchase Contract Agent will act as the agent for the holders
of Income PRIDES and Growth PRIDES from time to time. The
Purchase Contract Agreement will not obligate the Purchase
Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES
and Growth PRIDES or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the
liability of the Purchase Contract Agent. The Purchase Contract
Agreement will contain provisions under which the Purchase
Contract Agent may resign or be replaced. Such resignation or
replacement would be effective upon the appointment of a
successor.
In addition to acting as Purchase Contract Agent, The Bank
of New York acts, and may act, as trustee under various
indentures and trusts of the Company and its subsidiaries,
including, but not limited to, the Indenture with respect to the
Senior Notes and the indentures with respect to additional series
of the Company's senior notes. The Company and its subsidiaries
also maintain various banking and trust relationships with The
Bank of New York.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The
Collateral Agent will act solely as the agent of the Company and
will not assume any obligation or relationship of agency or trust
for or with any of the holders of the Income PRIDES and Growth
PRIDES except for the obligations owed by a pledgee of property
to the owner thereof under the Pledge Agreement and applicable
law.
The Pledge Agreement will contain provisions limiting the
liability of the Collateral Agent. The Pledge Agreement will
contain provisions under which the Collateral Agent may resign or
be replaced. Such resignation or replacement would be effective
upon the appointment of a successor.
In addition to acting as Collateral Agent and Custodial
Agent, Chase Manhattan Bank and its affiliates act as agents
under the Company's revolving credit facility and maintain
various commercial banking relationships with the Company and its
subsidiaries.
S-49
<PAGE>
MISCELLANEOUS
The Purchase Contract Agreement will provide that the
Company will pay or cause to be paid all fees and expenses
related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by
the Purchase Contract Agent of the rights of the holders of the
FELINE PRIDES; provided, however, that holders who elect to
substitute the related Pledged Securities, thereby creating
Growth PRIDES or Income PRIDES shall be responsible for any fees
or expenses payable in connection with such substitution, as well
as any commissions, fees or other expenses incurred in acquiring
the Pledged Securities to be substituted, and the Company shall
not be responsible for any such fees or expenses.
S-50
<PAGE>
DESCRIPTION OF THE SENIOR NOTES
The following is a summary of certain terms of the Senior
Notes, does not purport to be complete, and is qualified in its
entirety by the description of Debt Securities in the
accompanying Prospectus, the form of the Indenture to be entered
into between the Company and The Bank of New York as trustee
(Debt Trustee), as supplemented by the Officer's Certificate
establishing the terms of the Senior Notes (as so supplemented
and amended, the Indenture) which is on file with the Commission,
and to the Trust Indenture Act. Certain capitalized terms used
herein are defined in the Indenture. The following descriptions
of certain terms of the Senior Notes supplement and, to the
extent inconsistent with, replaces the description of the general
terms and provisions of the Debt Securities set forth in the
accompanying Prospectus, to which reference is hereby made.
GENERAL
The Senior Notes will be issued as senior unsecured debt
under the Indenture and will rank on a parity in right of payment
with all of the Company's other senior unsecured debt
obligations. While the Indenture contemplates securing
indebtedness issued thereunder in certain very limited
circumstances (see, for example, DESCRIPTION OF DEBT SECURITIES -
- "Limitation on Liens" in the accompanying Prospectus), the
Company has no current intention of so securing the Senior Notes.
The Indenture provides for the issuance of debt securities
(including the Senior Notes), notes or other unsecured evidences
of indebtedness by the Company in an unlimited amount from time
to time. The Indenture provides that the Company may not grant a
lien on the capital stock of any of its subsidiaries to secure
debt obligations of the Company without similarly securing the
Senior Notes, with certain exceptions. However, the Indenture
does not limit the aggregate amount of indebtedness the Company
or its subsidiaries may issue nor does it limit the ability of
the Company's subsidiaries to grant a lien on the capital stock
of their respective subsidiaries. The Company is a holding
company that derives substantially all of its income from its
operating subsidiaries. The Senior Notes therefore will be
effectively subordinated to debt and preferred stock at the
subsidiary level. The financial statements of the Company and
its predecessors included in the Incorporated Documents show the
aggregate amount of such subsidiary debt and preferred stock and
other debt of the Company as of the date of such statements. The
Company has agreed not to assign its obligations under either
series of Senior Notes to a subsidiary as contemplated in
DESCRIPTION OF DEBT SECURITIES -- "Assignment of Obligations" in
the accompanying Prospectus.
The Senior Notes will not be subject to redemption through
the operation of a sinking fund provision. Unless an earlier Tax
Event Redemption has occurred, the entire principal amount of the
Series D Notes will mature and become due and payable, together
with any accrued and unpaid interest thereon on August 16, 2003,
and the entire principal amount of the Series E Notes will mature
and become due and payable, together with any accrued and unpaid
interest thereon on August 16, 2004.
The Senior Notes will initially be issued as a Global
Security (as defined herein). As described herein, under certain
limited circumstances, Senior Notes may be issued in certificated
form in exchange for a Global Security. See -- "Book-Entry Only
Issuance -- The Depository Trust Company" below. In the event
that Senior Notes are issued in certificated form, such Senior
Notes will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices
described below. Payments on Senior Notes issued as a Global
Security will be made to the Depositary, a successor depositary
or, in the event that no depositary is used, to a Paying Agent
for the Senior Notes. In the event Senior Notes are issued in
certificated form, principal and interest will be payable, the
transfer of the Senior Notes will be registrable and Senior Notes
will be exchangeable for Senior Notes of other denominations of a
like aggregate principal amount, at the corporate trust office or
agency of the Debt Trustee in New York, New York; provided that,
at the option of the Company, payment of interest may be made by
check mailed to the address of the holder entitled thereto or by
wire transfer to an account appropriately designated by the
holder entitled thereto.
S-51
<PAGE>
INTEREST
Each Series D Note shall bear interest initially at the rate
of % per annum from the original date of issuance, and
each Series E Note shall bear interest initially at the rate of
% per annum from the original date of issuance, in each
case payable quarterly in arrears on February 16, May 16, August
16 and November 16 of each year (each an Interest Payment Date),
commencing 16, 1998, to the person in whose name such
Senior Note is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such
Interest Payment Date. The applicable interest rate on the
Series D Notes outstanding from and after the First Purchase
Contract Settlement Date will be reset on the third Business Day
immediately preceding the First Purchase Contract Settlement
Date, and the applicable interest rate on the Series E Notes
outstanding from and after the Second Purchase Contract
Settlement Date will be reset on the third Business Day
immediately preceding the Second Purchase Contract Settlement
Date. See -- "Market Rate Reset."
The amount of interest payable on the Senior Notes of each
series for any period will be computed on the basis of a 360-day
year consisting of twelve 30-day months. In the event that any
date on which interest is payable on the Senior Notes is not a
Business Day, then payment of the interest payable on such date
will be made on the next succeeding day that is a Business Day
(and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next
succeeding calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on such date. Subject to any
applicable laws and regulations and the provisions of the
Indenture, each such payment will be made as described under --
"Book-Entry Only Issuance -- The Depository Trust Company" below.
With respect to Senior Notes not in book-entry only form the
Company shall have the right to select relevant record dates,
which shall be at least one Business Day but not more than 60
Business Days prior to the relevant payment dates; provided that,
unless the Purchase Contracts have been terminated, such record
date must be the same as the record date for the Income PRIDES.
MARKET RATE RESET
Series D Market Rate Reset. The applicable interest rate on
the Series D Notes that remain outstanding on and after the First
Purchase Contract Settlement Date will be reset on the third
Business Day immediately preceding the First Purchase Contract
Settlement Date to the Series D Reset Rate, which will be equal
to the sum of the Series D Reset Spread and the rate on the
Two-Year Benchmark Treasury in effect on the third Business Day
immediately preceding the First Purchase Contract Settlement Date
and will be determined by the Reset Agent as the rate the Series
D Notes should bear in order to have an approximate market value
on the third Business Day immediately preceding the First
Purchase Contract Settlement Date of 100.5% of their aggregate
principal amount; provided that the Company may limit such Series
D Reset Rate to be no higher than the rate on the Two-Year
Benchmark Treasury on such Business Day plus basis
points ( %), and provided further that the Series D Reset
Rate shall in no event exceed the maximum permitted by applicable
law. Such market value may be less than 100.5% if the Company
exercises such right to limit the
Series D Reset Spread or if the Series D Reset Rate were to be
limited by applicable law.
Series E Market Rate Reset. The applicable interest rate on
the Series E Notes that remain outstanding on and after the
Second Purchase Contract Settlement Date will be reset on the
third Business Day immediately preceding the Second Purchase
Contract Settlement Date to the Series E Reset Rate, which will
be equal to the sum of the Series E Reset Spread and the rate on
the Two-Year Benchmark Treasury in effect on the third Business
Day immediately preceding the Second Purchase Contract Settlement
Date and will be determined by the Reset Agent as the rate the
Series E Notes should bear in order to have an approximate market
value on the third Business Day immediately preceding the Second
Purchase Contract Settlement Date of 100.5% of their aggregate
principal amount; provided that the Company may limit such Series
E Reset Rate to be no higher than the rate on the Two-Year
Benchmark Treasury on such Business Day plus basis
points ( %), and provided further that the Series E Reset
S-52
<PAGE>
Rate shall in no event exceed the maximum permitted by applicable
law. Such market value may be less than 100.5% if the Company
exercises such right to limit the Series E Reset Spread or if the
Series E Reset Rate were to be limited by applicable law.
The "Two-Year Benchmark Treasury" on a particular
determination date shall mean direct obligations of the United
States (which may be obligations traded on a when-issued basis
only) having a maturity comparable to the remaining term to
maturity of the applicable series of Senior Notes, as agreed upon
by the Company and the Reset Agent. The rate for the Two-Year
Benchmark Treasury will be the bid side rate displayed at 10:00
A.M., New York City time, on the third Business Day immediately
preceding the applicable Purchase Contract Settlement Date in the
Telerate system (or if the Telerate system is (a) no longer
available on the third Business Day immediately preceding such
Purchase Contract Settlement Date or (b) in the opinion of the
applicable Reset Agent (after consultation with the Company) no
longer an appropriate system from which to obtain such rate, such
other nationally recognized quotation system as, in the opinion
of the applicable Reset Agent (after consultation with the
Company), is appropriate). If such rate is not so displayed, the
rate for the Two-Year Benchmark Treasury shall be, as calculated
by the Reset Agent, the yield to maturity for the Two-Year
Benchmark Treasury, expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a
daily basis, and computed by taking the arithmetic mean of the
secondary market bid rates, as of 10:30 A.M., New York City time,
on the third Business Day immediately preceding the applicable
Purchase Contract Settlement Date of three leading United States
government securities dealers selected by the Reset Agent (after
consultation with the Company) (which may include the applicable
Reset Agent or an affiliate thereof).
On the tenth Business Day immediately preceding the
applicable Purchase Contract Settlement Date, the Two-Year
Benchmark Treasury to be used to determine the applicable Reset
Rate on the applicable Purchase Contract Settlement Date will be
selected and the applicable Reset Spread to be added to the rate
on the Two-Year Benchmark Treasury in effect on the third
Business Day immediately preceding the applicable Purchase
Contract Settlement Date will be established by the applicable
Reset Agent, and the applicable Reset Spread and the Two-Year
Benchmark Treasury will be announced by the Company (applicable
Reset Announcement Date). The Company will cause a notice of the
applicable Reset Spread and such Two-Year Benchmark Treasury to
be published on the Business Day following the applicable Reset
Announcement Date by publication in a daily newspaper in the
English language of general circulation in The City of New York,
which is expected to be The Wall Street Journal. The Company
will request, not later than seven nor more than 15 calendar days
prior to the applicable Reset Announcement Date, that the
Depositary notify its participants holding Senior Notes, Income
PRIDES or Growth PRIDES of such applicable Reset Announcement
Date and of the procedures that must be followed if any owner of
FELINE PRIDES wishes to settle the applicable portion of the
related Purchase Contract with cash on the Business Day
immediately preceding such Purchase Contract Settlement Date.
It is currently anticipated that Merrill Lynch, Pierce,
Fenner & Smith Incorporated will be the investment banking firm
acting as the Reset Agent for both the Series D Notes and the
Series E Notes.
TAX EVENT REDEMPTION
If a Tax Event shall occur and be continuing, the Company
may, at its option, redeem the Senior Notes in whole (but not in
part) at any time at a Redemption Price equal to, for each Senior
Note, the Redemption Amount plus accrued and unpaid interest
thereon, to the date of redemption (Tax Event Redemption Date).
If, following the occurrence of a Tax Event, the Company
exercises its option to redeem the Senior Notes, such Redemption
Price will be payable in cash to the holders of such Senior
Notes. If such Tax Event Redemption occurs prior to the Second
Purchase Contract Settlement Date, the Redemption Price payable
in liquidation of the Income PRIDES holders' interest in the
Senior Notes will be distributed to the Collateral Agent, which
in turn will apply an amount equal to the Redemption Amount of
such Redemption Price to purchase the Treasury Portfolio on
behalf of the holders of Income PRIDES and remit the remaining
portion, if any, of such Redemption Price to the Purchase
Contract Agent for payment to the holders of such Income PRIDES.
Such Treasury Portfolio will be substituted for the Senior Notes
and will be pledged with the Collateral Agent to secure such
S-53
<PAGE>
Income PRIDES holders' obligation to purchase the Company's
Common Stock under the Purchase Contracts; provided that, if the
Tax Event Redemption occurs after the Second Purchase Contract
Settlement Date, such Treasury Portfolio will not be purchased.
"Tax Event" means the receipt by the Company of an opinion
of a nationally recognized independent tax counsel experienced in
such matters to the effect that, as a result of (a) any amendment
to, change in, or announced proposed change in, the laws (or any
regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting
taxation, (b) any amendment to or change in an interpretation or
application of such laws or regulations by any legislative body,
court, governmental agency or regulatory authority or (c) any
interpretation or pronouncement by any such legislative body,
court, governmental agency or regulatory authority that provides
for a position with respect to such laws or regulations that
differs from the generally accepted position on the date the
Senior Notes are issued, which amendment, change or proposed
change is effective or which interpretation or pronouncement is
announced on or after the date of issuance of the Senior Notes,
there is more than an insubstantial risk that interest payable by
the Company on the Senior Notes would not be deductible, in whole
or in part, by the Company for United States federal income tax
purposes.
"Treasury Portfolio" means, with respect to the Applicable
Principal Amount of Senior Notes (a) if the Tax Event Redemption
Date occurs prior to the Second Purchase Contract Settlement
Date, a portfolio of zero-coupon U.S. Treasury Securities
consisting of (i) interest or principal strips of U.S. Treasury
Securities which mature on or prior to August 15, 2001 in an
aggregate amount equal to the Applicable Principal Amount of
Series D Notes and interest or principal strips of U.S. Treasury
Securities which mature on or prior to August 15, 2002 in an
aggregate amount equal to the Applicable Principal Amount of
Series E Notes and (ii) with respect to each scheduled interest
payment date on the Senior Notes of each series that occurs after
the Tax Event Redemption Date, interest or principal strips of
U.S. Treasury Securities which mature on or prior to such dates
in an aggregate amount equal to the aggregate interest payment
that would be due on the Applicable Principal Amount of the
Senior Notes on such date, and (b) if the Tax Event Redemption
Date occurs after the Second Purchase Contract Settlement Date, a
portfolio of zero-coupon U.S. Treasury Securities consisting of
(i) principal or interest strips of U.S. Treasury Securities
which mature on or prior to August 15, 2003 in an aggregate
principal amount equal to the Applicable Principal Amount of
Series D Notes and principal or interest strips of U.S. Treasury
Securities which mature on or prior to August 15, 2004 in an
aggregate principal amount equal to the Applicable Principal
Amount of the Series E Notes and (ii) with respect to each
scheduled interest payment date on the Senior Notes that occurs
after the Tax Event Redemption Date, interest or principal strips
of U.S. Treasury Securities which mature on or prior to such date
in an aggregate amount equal to the aggregate interest payment
that would be due on the Applicable Principal Amount of the
Senior Notes on such date.
"Applicable Principal Amount" means either (i) if the Tax
Event Redemption Date occurs prior to the Second Purchase
Contract Settlement Date, the aggregate principal amount of the
Senior Notes which are components of Income PRIDES on the Tax
Event Redemption Date or (ii) if the Tax Event Redemption occurs
on or after the Second Purchase Contract Settlement Date, the
aggregate principal amount of the Senior Notes outstanding on
such Tax Event Redemption Date.
"Redemption Amount" means for each Senior Note, the product
of (i) the principal amount of such Senior Note and (ii) a
fraction whose numerator is the Treasury Portfolio Purchase Price
and whose denominator is the Applicable Principal Amount.
"Treasury Portfolio Purchase Price" means the lowest
aggregate price quoted by a primary U.S. government securities
dealer in New York City (Primary Treasury Dealer) to the
Quotation Agent on the third Business Day immediately preceding
the Tax Event Redemption Date for the purchase of the Treasury
Portfolio for settlement on the Tax Event Redemption Date.
"Quotation Agent" means (i) Merrill Lynch, Pierce, Fenner &
Smith Incorporated and its respective successors, provided,
however, that, if the foregoing shall cease to be a Primary
S-54
<PAGE>
Treasury Dealer, the Company shall substitute therefor another
Primary Treasury Dealer, and (ii) any other Primary Treasury
Dealer selected by the Company.
Notice of any redemption will be mailed at least 30 days but
not more than 60 days before the redemption date to each
registered holder of Senior Notes to be prepaid at its registered
address. Unless the Company defaults in payment of the
Redemption Price, on and after the redemption date interest shall
cease to accrue on such Senior Notes.
OPTIONAL REMARKETING
Pursuant to the Remarketing Agreement and subject to the
terms of a Supplemental Remarketing Agreement entered into in
connection with a Purchase Contract Settlement Date, on or prior
to the fifth Business Day immediately preceding such Purchase
Contract Settlement Date but no earlier than the Payment Date
immediately preceding such Purchase Contract Settlement Date,
holders of Series D Notes (in the case of the First Purchase
Contract Settlement Date) or Series E Notes (in the case of the
Second Purchase Contract Settlement Date), which are not
components of Income PRIDES may elect to have their Series D
Notes or Series E Notes, as applicable, remarketed in the same
manner as the Series D Notes or Series E Notes, as applicable,
that are components of Income PRIDES by delivering their Series D
Notes or Series E Notes, as applicable, along with a notice of
such election to the Custodial Agent. The Custodial Agent will
hold such Senior Notes, in an account separate from the
collateral account in which the Pledged Securities will be held.
Holders of Senior Notes electing to have their Senior Notes
remarketed will also have the right to withdraw such election on
or prior to the fifth Business Day immediately preceding the
applicable Purchase Contract Settlement Date. The portion of the
proceeds from such remarketing equal to the aggregate principal
amount of such Senior Notes will automatically be remitted by the
Remarketing Agent to the Custodial Agent for the benefit of such
holders of Senior Notes, as applicable. In addition, after
deducting as the Remarketing Fee an amount not exceeding 25 basis
points (.25%) of the aggregate principal amount of the remarketed
securities, from any amount of such proceeds in excess of the
aggregate principal amount of the remarketed Senior Notes plus
any accrued and unpaid interest, if any, the applicable
Remarketing Agent will remit to the Custodial Agent the remaining
portion of the proceeds, if any, for the benefit of such holder.
If, despite using its reasonable efforts, the remarketing results
in a Failed Remarketing, the Remarketing Agent will promptly
return such Senior Notes, as applicable, to the Custodial Agent
to release to such holders.
PUT OPTION UPON A FAILED REMARKETING
If a Failed Remarketing has occurred, then (i) in the case
of a Failed Remarketing as to the First Purchase Contract
Settlement Date, holders of Series D Notes holding such Series D
Notes on the day immediately following the First Purchase
Contract Settlement Date will have the right to put their Series
D Notes to the Company on September 1, 2001, upon at least three
Business Days' prior notice, at a price per Series D Note equal
to the principal amount of such Series D Note, plus accrued and
unpaid interest, if any, thereon, and (ii) in the case of a
Failed Remarketing as to the Second Purchase Contract Settlement
Date, holders of Series E Notes holding such Series E Notes on
the date immediately following the Second Purchase Contract
Settlement Date will have the right to put their Series E Notes
directly to the Company on September 1, 2002, upon at least three
Business Days' prior notice, at a price equal to their principal
amount, plus accrued and unpaid interest, if any, thereon.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Senior Notes will be issued as one or more
fully-registered global certificates (each a Global Security)
representing the total aggregate principal amount of Senior
Notes. Senior Notes that are components of Income PRIDES will be
issued in definitive form in the name of The Bank of New York as
Purchase Contract Agent. The Depositary will act as securities
depositary for any Senior Notes that are held separately from the
Income PRIDES and such Senior Notes will be issued only as
fully-registered securities registered in the name of Cede & Co.
(the Depositary's nominee). Senior Notes that are components of
the Income PRIDES will be issued as fully registered securities
S-55
<PAGE>
registered in the name of the Purchase Contract Agent. However,
under certain circumstances, the Company may decide not to use
the system of book-entry transfers through the Depositary or the
Purchase Contract Agent with respect to the Senior Notes. In
that event, certificates of the Senior Notes will be printed and
delivered to the holders.
The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of securities in
definitive form. Such laws may impair the ability to transfer
beneficial ownership interests in the global Senior Notes as
represented by a global certificate.
Purchases of Senior Notes under the Depositary's system must
be made by or through Direct Participants, which will receive a
credit for the Senior Notes on the Depositary's records. The
ownership interest of each actual purchaser of each Senior Note
is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive
written confirmation from the Depositary of their purchases, but
Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Senior
Notes. Transfers of ownership interests in the Senior Notes 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 the Senior Notes, except in the event that use of the
book-entry system for the Senior Notes is discontinued.
To facilitate subsequent transfers, all the Senior Notes
deposited by Participants with the Depositary will be registered
in the name of the Depositary's nominee, Cede & Co. The deposit
of Senior Notes with the Depositary and their registration in the
name of Cede & Co. effect no change in beneficial ownership. The
Depositary has no knowledge of the actual Beneficial Owners of
the Senior Notes; the Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Senior
Notes 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.
As long as the Depositary or its nominee or the Purchase
Contract Agent is the registered owner or holder of a Global
Security, the Depositary or such nominee or the Purchase Contract
Agent, as the case may be, will be considered the sole owner or
holder of the Senior Notes represented thereby for all purposes
under the Indenture and the Senior Notes. No Beneficial Owner of
an interest in a global certificate will be able to transfer that
interest except in accordance with the Depositary's applicable
procedures, in addition to those provided for under the
Indenture.
Conveyance of notices and other communications by the
Depositary to Direct Participants by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements that may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote
with respect to Senior Notes. Under its usual procedures, the
Depositary would mail an omnibus proxy to the Company 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 the Senior Notes are credited on the record date
(identified in a listing attached to the omnibus proxy).
Interest payments on the Senior Notes issued in the form of
one or more global certificates will be made to the Depositary in
immediately available funds. The Depositary's practice is to
credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on the
Depositary's records unless the Depositary 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, as is the case with
securities held for the accounts of customers in bearer form or
registered in "street name," and such payments will be the
responsibility of such Participant and not of the Depositary or
the Company, subject to any statutory or regulatory requirements
S-56
<PAGE>
to the contrary that may be in effect from time to time. Payment
of principal and interest to the Depositary is the responsibility
of the Company, disbursement of such payments to Direct
Participants is the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its
Senior Notes remarketed, through its Participant, to the
Remarketing Agent, and shall effect delivery of such Senior Notes
by causing the Direct Participant to transfer the Participant's
interest in the Senior Notes, on the Depositary's records, to the
Remarketing Agent. The requirement of physical delivery of
Senior Notes in connection with all optional remarketing will be
deemed satisfied when the ownership rights in the Senior Notes
are transferred by Direct Participants on the Depositary's
records and followed by a book-entry credit of tendered
securities to the Remarketing Agent's account with the
Depositary.
Except as provided herein, a Beneficial Owner in a Global
Security certificate will not be entitled to receive physical
delivery of Senior Notes. Accordingly, each Beneficial Owner
must rely on the procedures of the Depositary to exercise any
rights under the Senior Notes.
The Depositary may discontinue providing its services as
securities depositary with respect to the Senior Notes at any
time by giving reasonable notice to the Company. Under such
circumstances, in the event that a successor depository is not
obtained, Senior Notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of
book-entry transfers through the Depositary (or a successor
securities depository). In that event, Senior Notes will be
printed and delivered.
The information in this section concerning the Depositary
and the Depositary's book-entry system has been obtained from the
Depositary are the Company takes no responsibility for the
accuracy hereof.
GOVERNING LAW
The Indenture and the Senior Notes will be governed by, and
construed in accordance with, the internal laws of the State of
New York.
S-57
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United
States federal income tax consequences of the purchase, ownership
and disposition of FELINE PRIDES, Senior Notes and Common Stock
acquired under a Purchase Contract. Unless otherwise stated,
this summary applies only to U.S. Holders (as defined below) who
purchase Income PRIDES, Growth PRIDES or Senior Notes upon
original issuance for an amount equal to the initial offering
price thereof. The tax treatment of a U.S. Holder may vary
depending on such U.S. Holder's particular situation. This
summary does not deal with special classes of U.S. Holders such
as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities
or currencies, tax-exempt investors, certain U.S. expatriates, or
U.S. Holders that will hold FELINE PRIDES, Senior Notes or Common
Stock acquired under a Purchase Contract as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part
of a "conversion transaction" or other integrated investment, or
as other than a capital asset. In addition, this summary does
not address the tax consequences to U.S. Holders that have a
functional currency other than the U.S. dollar, or the tax
consequences to shareholders, partners or beneficiaries of a U.S.
Holder of FELINE PRIDES, Senior Notes or Common Stock acquired
pursuant to a Purchase Contract. Further, it does not include
any description of any alternative minimum tax consequences or
the tax laws of any state, local or foreign government that may
be applicable. PROSPECTIVE INVESTORS THAT ARE NOT U.S. HOLDERS
ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN FELINE
PRIDES OR SENIOR NOTES, INCLUDING THE POTENTIAL APPLICATION OF
UNITED STATES WITHHOLDING TAXES.
This summary is based upon the Internal Revenue Code of
1986, as amended (Code), Treasury regulations (including proposed
Treasury regulations) issued thereunder, Internal Revenue Service
(IRS) rulings and pronouncements and judicial decisions now in
effect, all of which are subject to change. Any such changes may
be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences
described below, with possible adverse effects.
No statutory, administrative or judicial authority directly
addresses the treatment of FELINE PRIDES or instruments similar
to FELINE PRIDES for United States federal income tax purposes.
As a result, no assurance can be given that the IRS will agree
with the tax consequences described herein. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE FELINE PRIDES OR SENIOR NOTES IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND THE POSSIBLE
EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
U.S. HOLDER
The term "U.S. Holder" means the beneficial owner of an
Income PRIDES, Growth PRIDES or Senior Note who is (i) a citizen
or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the
United States or any state thereof or the District of Columbia,
(iii) an estate the income of which is subject to United States
federal income taxation, regardless of its source, or (iv) a
trust if a court within the United States is able to exercise
primary supervision over the administration of such trust and one
or more United States persons have the authority to control all
substantial decisions of such trust.
S-58
<PAGE>
FELINE PRIDES
Allocation of Purchase Price. A U.S. Holder's acquisition
of FELINE PRIDES will be treated as an acquisition of a unit
consisting of three components - in the case of an Income PRIDES,
each Senior Note and the Purchase Contract comprising such Income
PRIDES; in the case of a Growth PRIDES, each interest in a
Treasury Security and the Purchase Contract comprising such
Growth PRIDES. The purchase price of each FELINE PRIDES will be
allocated among the three components in proportion to their
respective fair market values at the time of purchase. Such
allocation will establish the U.S. Holder's initial tax basis in
the Senior Notes or interests in Treasury Securities, as the case
may be, and the Purchase Contract. The Company will report the
fair market value of each Senior Note and each interest in a
Treasury Security as $ and
$ , respectively, and the fair market value of each
Purchase Contract as $ . This position will be binding
upon each U.S. Holder (but not on the IRS) unless such U.S.
Holder explicitly discloses a contrary position on a statement
attached to such U.S. Holder's timely filed United States federal
income tax return for the taxable year in which a FELINE PRIDES
is acquired. Thus, absent such disclosure, a U.S. Holder should
allocate the purchase price for a FELINE PRIDES in accordance
with the foregoing. The remainder of this discussion assumes
that this allocation of purchase price will be respected for
United States federal income tax purposes. A different
allocation could affect the timing or character of income to a
U.S. Holder.
Ownership of Senior Notes or Treasury Securities. A U.S.
Holder will be treated as owning the Senior Notes or Treasury
Securities constituting a part of the Income PRIDES or Growth
PRIDES, respectively. The Company and, by acquiring FELINE
PRIDES, each U.S. Holder, agree to treat such U.S. Holder as the
owner, for United States federal, state and local income and
franchise tax purposes, of the Senior Notes or Treasury
Securities constituting a part of the FELINE PRIDES beneficially
owned by such U.S. Holder. The remainder of this summary assumes
that U.S. Holders of FELINE PRIDES will be treated as the owners
of the Senior Notes or Treasury Securities constituting a part of
such FELINE PRIDES for United States federal, state and local
income and franchise tax purposes. The United States federal
income tax consequences of owning the Senior Notes or Treasury
Securities are discussed below See -- "Senior Notes," --
"Treasury Securities" and -- "Tax Event Redemption of Senior
Notes."
Sales, Exchanges or Other Taxable Dispositions of FELINE
PRIDES. Upon a sale, exchange or other taxable disposition
(each, a "disposition") of FELINE PRIDES, a U.S. Holder will be
treated as having sold, exchanged or disposed of the Purchase
Contract and, in the case of Income PRIDES, the Senior Notes or
the Applicable Ownership Interest in the Treasury Portfolio or,
in the case of Growth PRIDES, the Treasury Securities, that
constitute such FELINE PRIDES and generally will have gain or
loss equal to the difference between the portion of the proceeds
to such U.S. Holder allocable to the Purchase Contract and the
Senior Notes, the Applicable Ownership Interest in the Treasury
Portfolio or Treasury Securities, as the case may be, and such
U.S. Holder's respective adjusted tax bases in the Purchase
Contract and the Senior Notes, the Applicable Ownership Interest
in the Treasury Portfolio or the Treasury Securities. Such gain
or loss generally will be capital gain or loss, except to the
extent that such U.S. Holder is treated as having received an
amount with respect to accrued but unpaid interest on the Senior
Notes or the Applicable Ownership Interest in the Treasury
Portfolio, which amount will be treated as ordinary interest
income, or to the extent such U.S. Holder is treated as having
received an amount with respect to accrued Contract Adjustment
Payments or Deferred Contract Adjustment Payments, which amount
may be treated as ordinary income, in each case to the extent not
previously included in income. Such capital gain or loss
generally will be long-term capital gain or loss if the U.S.
Holder holds such FELINE PRIDES for more than one year
immediately prior to such disposition. Long-term capital gains
of individuals are eligible for reduced rates of taxation
depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. If
the disposition of FELINE PRIDES occurs when the Purchase
Contract has a negative value, the U.S. Holder should be
considered to have received additional consideration for the
Senior Notes, the Applicable Ownership Interest in the Treasury
Portfolio or Treasury Securities in an amount equal to such
negative value and to have paid such amount to be released from
the U.S. Holder's obligation under the Purchase Contract. U.S.
S-59
<PAGE>
Holders should consult their tax advisors regarding a disposition
of the FELINE PRIDES at a time when the Purchase Contract has
negative value.
In determining gain or loss, payments to a U.S. Holder of
Contract Adjustment Payments or Deferred Contract Adjustment
Payments that have not previously been included in the income of
such U.S. Holder should either reduce such U.S. Holder's adjusted
tax basis in the Purchase Contract or result in an increase in
the amount realized on the disposition of the Purchase Contract.
Any Contract Adjustment Payments or Deferred Contract Adjustment
Payments included in a U.S. Holder's income but not paid should
increase such U.S. Holder's adjusted tax basis in the Purchase
Contract. Payments in cash that have been made by a U.S. Holder
to create Growth PRIDES but not offset against payments of
Contract Adjustment Payments or Deferred Contract Adjustment
Payments may increase such U.S. Holder's adjusted tax basis in
the Purchase Contract or result in a decrease in the amount
realized on the disposition of the Purchase Contract. See --
"Contract Adjustment Payments and Deferred Contract Adjustment
Payments; Delivery of Cash" below.
SENIOR NOTES
Classification of the Senior Notes. In connection with the
issuance of the Senior Notes, Thelen Reid & Priest LLP will
deliver an opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion,
the Senior Notes will be classified as indebtedness of the
Company for United States federal income tax purposes. The
Company and, by acquiring Income PRIDES or Senior Notes, each
U.S. Holder, agree to treat the Senior Notes as indebtedness of
the Company for United States federal, state and local income and
franchise tax purposes.
Interest Income. Under applicable Treasury regulations, the
Senior Notes will not be considered to have been issued with OID.
Accordingly, stated interest on the Senior Notes will be included
in income by a U.S. Holder as ordinary income when paid or
accrued, in accordance with such U.S. Holder's regular method of
tax accounting.
Sales, Exchanges or Other Taxable Dispositions of Senior
Notes. Gain or loss will be recognized by a U.S. Holder on a
disposition of a Senior Note (including a redemption for cash or
the remarketing thereof) in an amount equal to the difference
between the amount realized by the U.S. Holder on the disposition
of the Senior Note (except to the extent that such amount
realized is attributable to accrued but unpaid interest on the
Senior Note that such U.S. Holder has not included in gross
income previously, which amount will be taxable as ordinary
interest income) and the U.S. Holder's adjusted tax basis in the
Senior Note. Selling expenses incurred by a U.S. Holder,
including the remarketing fee, will reduce the amount of gain or
increase the amount of loss recognized by such U.S. Holder upon a
disposition of a Senior Note. Gain or loss realized by a U.S.
Holder on a disposition of a Senior Note generally will be
capital gain or loss and generally will be long-term capital gain
or loss if the U.S. Holder held such Senior Note for more than
one year immediately prior to such disposition. Long-term
capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to
limitations.
TREASURY SECURITIES
Original Issue Discount. A U.S. Holder of Growth PRIDES
will be required to treat its ownership interests in the Treasury
Securities comprising a Growth PRIDES as interests in bonds
originally issued on the date such Growth PRIDES is purchased and
having OID equal to the excess of the amount payable at maturity
of such Treasury Securities over the purchase price of the Growth
PRIDES allocable to such Treasury Securities. A U.S. Holder will
be required to include such OID in income on a daily economic
accrual basis over the period between the issue date of the
Growth PRIDES and the applicable maturity dates of the Treasury
Securities, regardless of such U.S. Holder's regular method of
tax accounting and in advance of the receipt of cash attributable
S-60
<PAGE>
to such OID. Amounts of OID included in a U.S. Holder's gross
income will increase such U.S. Holder's adjusted tax basis in its
ownership interest in the Treasury Securities.
Sales, Exchanges or Other Taxable Dispositions of Treasury
Securities. In the event that a U.S. Holder obtains the release
of Treasury Securities by delivering Senior Notes to the
Collateral Agent, gain or loss will be recognized by the U.S.
Holder on a subsequent disposition of the Treasury Securities in
an amount equal to the difference between the amount realized by
the U.S. Holder on such disposition and the U.S. Holder's
adjusted tax basis in the Treasury Securities. Such gain or loss
generally will be capital gain or loss and generally will be
long-term capital gain or loss if the U.S. Holder held such
Treasury Securities for more than one year immediately prior to
such disposition. Long-term capital gains of individuals are
eligible for reduced rates of taxation depending upon the holding
period of such capital assets. The deductibility of capital
losses is subject to limitations.
PURCHASE CONTRACTS
Contract Adjustment Payments and Deferred Contract
Adjustment Payments; Delivery of Cash. There is no direct
authority addressing the treatment, under current United States
federal income tax law, of the Contract Adjustment Payments and
Deferred Contract Adjustment Payments or the delivery of cash in
respect of excess accrued Contract Adjustment Payments by a U.S.
Holder of Income PRIDES upon the creation of Growth PRIDES, and
the proper treatment is unclear. Contract Adjustment Payments
and Deferred Contract Adjustment Payments may constitute taxable
income to a U.S. Holder of FELINE PRIDES when received or
accrued, in accordance with the U.S. Holder's regular method of
tax accounting. To the extent the Company is required to file
information returns with respect to Contract Adjustment Payments
or Deferred Contract Adjustment Payments, it intends to report
such payments as taxable income to each U.S. Holder. U.S.
Holders should consult their own tax advisors concerning the
treatment of Contract Adjustment Payments and Deferred Contract
Adjustment Payments and the delivery of cash upon the creation of
Growth PRIDES, including the possibility that any Contract
Adjustment Payment or Deferred Contract Adjustment Payment may be
treated as a loan, purchase price adjustment, rebate or payment
analogous to an option premium, rather than as being includible
in income on a current basis, and that the delivery of cash upon
the creation of Growth PRIDES may be treated as an offset to
Contract Adjustment Payments or Deferred Contract Adjustment
Payments or as a purchase price adjustment. The treatment of
Contract Adjustment Payments, Deferred Contract Adjustment
Payments and the delivery of cash upon the creation of Growth
PRIDES could affect a U.S. Holder's adjusted tax basis in a
Purchase Contract or Common Stock received under a Purchase
Contract or the amount realized by a U.S. Holder upon the sale or
disposition of a FELINE PRIDES or the termination of a Purchase
Contract. See -- "Acquisition of Common Stock under a Purchase
Contract," -- "Sales, Exchanges or Other Taxable Dispositions of
FELINE PRIDES" and -- "Termination of Purchase Contracts."
Acquisition of Common Stock Under a Purchase Contract. A
U.S. Holder of FELINE PRIDES generally will not recognize gain or
loss on the purchase of Common Stock under a Purchase Contract,
except with respect to any cash paid in lieu of a fractional
share of Common Stock. Subject to the following discussion, a
U.S. Holder's aggregate initial tax basis in the Common Stock
received under a Purchase Contract generally should equal the
purchase price paid for such Common Stock plus such U.S. Holder's
adjusted tax basis in the Purchase Contract (if any), less the
portion of such purchase price and adjusted tax basis allocable
to the fractional share. Payments of Contract Adjustment
Payments or Deferred Contract Adjustment Payments that have been
received in cash by a U.S. Holder but not included in income by
such U.S. Holder should reduce such U.S. Holder's adjusted tax
basis in the Purchase Contract or the Common Stock to be received
thereunder; payments in cash that have been made by a U.S. Holder
to create Growth PRIDES but not offset against payments of
Contract Adjustment Payments or Deferred Contract Adjustment
Payments may increase such U.S. Holder's adjusted tax basis in
the Purchase Contract or the Common Stock to be received
thereunder. See -- "Contract Adjustment Payments and Deferred
Contract Adjustment Payments; Delivery of Cash" above. The
holding period for Common Stock received under a Purchase
Contract will commence on the day after the acquisition of such
Common Stock.
S-61
<PAGE>
Ownership of Common Stock Acquired Under the Purchase
Contract. Any distribution on Common Stock paid by the Company
out of its current or accumulated earnings and profits (as
determined for United States federal income tax purposes) will
constitute a dividend and will be includible in income by a U.S.
Holder when received. Any such dividend will be eligible for the
dividends received deduction if received by an otherwise
qualifying corporate U.S. Holder that meets the holding period
and other requirements for the dividends received deduction.
Upon a disposition of Common Stock, a U.S. Holder generally
will recognize capital gain or loss equal to the difference
between the amount realized and such U.S. Holder's adjusted tax
basis in the Common Stock. Such capital gain or loss generally
will be long-term capital gain or loss if the U.S. Holder held
such Common Stock for more than one year immediately prior to
such disposition. Long-term capital gains of individuals are
eligible for reduced rates of taxation depending upon the holding
period of such capital assets. The deductibility of capital
losses is subject to limitations.
Early Settlement of Purchase Contract. A U.S. Holder of
FELINE PRIDES will not recognize gain or loss on the receipt of
such U.S. Holder's proportionate share of Senior Notes, Treasury
Securities or Applicable Ownership Interest in the Treasury
Portfolio upon Early Settlement of a Purchase Contract and will
have the same tax basis in such Senior Notes, Treasury Securities
or Applicable Ownership Interest in the Treasury Portfolio as
before such Early Settlement. Any Contract Adjustment Payments
or Deferred Contract Adjustment Payments that have been included
in a U.S. Holder's income but forfeited and not paid upon Early
Settlement of a Purchase Contract should increase such U.S.
Holder's adjusted tax basis in the Common Stock received under
the Purchase Contract.
Termination of Purchase Contract. If a Purchase Contract
terminates, a U.S. Holder of FELINE PRIDES will recognize gain or
loss equal to the difference between the amount realized (if any)
upon such termination and such U.S. Holder's adjusted tax basis
(if any) in the Purchase Contract at the time of such
termination. Payments of Contract Adjustment Payments or
Deferred Contract Adjustment Payments received by a U.S. Holder
but not included in income by such U.S. Holder should either
reduce such U.S. Holder's adjusted tax basis in the Purchase
Contract or result in an amount realized on the termination of
the Purchase Contract. Any Contract Adjustment Payments or
Deferred Contract Adjustment Payments included in a U.S. Holder's
income but not paid should increase such U.S. Holder's adjusted
tax basis in the Purchase Contract; payments in cash that have
been made by a U.S. Holder to create Growth PRIDES but not offset
against payments of Contract Adjustment Payments or Deferred
Contract Adjustment Payments may increase such U.S. Holder's
adjusted tax basis in the Purchase Contract or result in a loss
on the termination of the Purchase Contract. See -- "Contract
Adjustment Payments and Deferred Contract Adjustment Payments"
above. Such gain or loss generally will be capital gain or loss
and generally will be long-term capital gain or loss if the U.S.
Holder held such Purchase Contract for more than one year
immediately prior to such termination. Long-term capital gains
of individuals are eligible for reduced rates of taxation
depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. A
U.S. Holder will not recognize gain or loss on the receipt of
such U.S. Holder's proportionate share of the Senior Notes,
Treasury Securities or Applicable Ownership Interest in the
Treasury Portfolio upon termination of the Purchase Contract and
will have the same adjusted tax basis in such Senior Notes,
Treasury Securities or Applicable Ownership Interest in the
Treasury Portfolio as before such distribution.
Adjustment to Settlement Rate. U.S. Holders of FELINE
PRIDES may be treated as receiving a constructive distribution
from the Company if (i) the Settlement Rate is adjusted and as a
result of such adjustment the proportionate interest of U.S.
Holders of FELINE PRIDES in the assets or earnings and profits of
the Company is increased and (ii) the adjustment is not made
pursuant to a bona fide, reasonable anti-dilution formula. An
adjustment in the Settlement Rate would not be considered made
pursuant to such a formula if the adjustment were made to
compensate a U.S. Holder for certain taxable distributions with
respect to the Common Stock. Thus, under certain circumstances,
an increase in the Settlement Rate might give rise to a taxable
dividend to U.S. Holders of FELINE PRIDES even though such U.S.
Holders would not receive any cash related thereto.
S-62
<PAGE>
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH
PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury
Securities to the Collateral Agent in substitution for Senior
Notes generally will not recognize gain or loss upon the delivery
of such Treasury Securities or the release of the Senior Notes to
such U.S. Holder. Such U.S. Holder will continue to take into
account items of income or deduction otherwise includible or
deductible, respectively, by such U.S. Holder with respect to
such Treasury Securities and Senior Notes and the Purchase
Contract, and such U.S. Holder's adjusted tax basis in the
Treasury Securities, the Senior Notes and the Purchase Contract
will not be affected by such delivery and release.
SUBSTITUTION OF SENIOR NOTES TO CREATE OR RECREATE INCOME PRIDES
A U.S. Holder of a Growth PRIDES that delivers Senior Notes
to the Collateral Agent in substitution for Treasury Securities
generally will not recognize gain or loss upon the delivery of
such Senior Notes or the release of the Treasury Securities to
the U.S. Holder. Such U.S. Holder will continue to take into
account items of income or deduction otherwise includible or
deductible, respectively, by such U.S. Holder with respect to
such Treasury Securities and Senior Notes and the Purchase
Contract, and such U.S. Holder's adjusted tax basis in the
Treasury Securities, the Senior Notes and the Purchase Contract
will not be affected by such delivery and release.
TAX EVENT REDEMPTION OF SENIOR NOTES
A Tax Event Redemption will be a taxable event for U.S.
Holders of Senior Notes. Such holders will be subject to tax in
the manner described under -- "Senior Notes -- Sales, Exchanges
or Other Taxable Dispositions of Senior Notes."
Ownership of Treasury Portfolio. A U.S. Holder will be
treated as owning the Applicable Ownership Interest in the
Treasury Portfolio constituting a part of the Income PRIDES in
the event of a Tax Event Redemption prior to the Second Contract
Settlement Date. The Company and, by acquiring Income PRIDES,
each U.S. Holder, agree to treat such U.S. Holder as the owner,
for United States federal, state and local income and franchise
tax purposes, of the Applicable Ownership Interest in the
Treasury Portfolio constituting a part of the Income PRIDES
beneficially owned by such U.S. Holder in the event of a Tax
Event Redemption prior to the Second Purchase Contract Settlement
Date. Each U.S. Holder will include in income any amount earned
on such pro rata portion of the Treasury Portfolio for all United
States federal, state and local income and franchise tax
purposes. The remainder of this summary assumes that U.S.
Holders of Income PRIDES will be treated as the owners of the
Applicable Ownership Interest in the Treasury Portfolio
constituting a part of such Income PRIDES for United States
federal, state and local income and franchise tax purposes.
Interest Income and Original Issue Discount. The Treasury
Portfolio will consist of stripped U.S. Treasury Securities.
Following a Tax Event Redemption prior to the Second Purchase
Contract Settlement Date, a U.S. Holder of Income PRIDES will be
required to treat its pro rata portion of each U.S. Treasury
Security in the Treasury Portfolio as a bond that was originally
issued on the date the Collateral Agent acquired the relevant
U.S. Treasury Securities, and having OID equal to the U.S.
Holder's pro rata portion of the excess of the amounts payable on
such U.S. Treasury Securities over the value of the U.S. Treasury
Securities at the time the Collateral Agent acquires them on
behalf of U.S. Holders of Income PRIDES. The amount of such
excess will constitute only a portion of the total amounts
payable in respect of the Treasury Portfolio. Consequently, a
portion of each scheduled interest payment to U.S. Holders will
be treated as a return of such U.S. Holders' investment in the
Treasury Portfolio and will not be considered current income for
United States federal income tax purposes.
A U.S. Holder, regardless of its regular method of tax
accounting, will be required to include OID (other than OID on
short-term U.S. Treasury Securities as defined below) in income
for United States federal income tax purposes as it accrues on a
constant yield-to-maturity basis. See -- "Interest Income and
Original Issue Discount" above. In the case of any U.S. Treasury
Security with a maturity of one year or less from the date of its
S-63
<PAGE>
issue (short-term U.S. Treasury Security), in general only
accrual basis taxpayers will be required to include OID in income
as it is accrued. Unless such an accrual basis U.S. Holder
elects to accrue the OID on a short-term U.S. Treasury Security
according to the constant-yield-to-maturity method, such OID will
be accrued on a straight-line basis.
Sales, Exchanges, or Other Taxable Dispositions of the
Treasury Portfolio. In the event that a U.S. Holder obtains the
release of its Applicable Ownership Interest in the Treasury
Portfolio by delivering Treasury Securities to the Collateral
Agent, gain or loss will be recognized by such U.S. Holder on a
subsequent disposition of its Applicable Ownership Interest in
the Treasury Portfolio (or portion thereof) in an amount equal to
the difference between the amount realized by such U.S. Holder on
such disposition and the U.S. Holder's adjusted tax basis in its
Applicable Ownership Interest in the Treasury Portfolio (or, if
applicable, an allocable portion thereof). Such gain or loss
generally will be capital gain or loss (except to the extent that
gain, if any, is attributable to accrued but unpaid interest on
the Applicable Ownership Interest in the Treasury Portfolio that
such U.S. Holder has not included in gross income previously,
which amount will be taxed as ordinary income) and generally will
be long-term capital gain or loss if the U.S. Holder held such
Applicable Ownership Interest in the Treasury Portfolio for more
than one year immediately prior to such disposition. Long-term
capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to
limitations. A U.S. Holder's initial tax basis in such U.S.
Holder's Applicable Ownership Interest of the Treasury Portfolio
will equal such U.S. Holder's pro rata portion of the amount paid
by the Collateral Agent for the Treasury Portfolio. A U.S.
Holder's adjusted tax basis in its Applicable Ownership Interest
in the Treasury Portfolio will be increased by the amount of OID
included in income with respect thereto and decreased by the
amount of cash received in respect of its Applicable Ownership
Interest in the Treasury Portfolio. Such gain or loss will be as
described under -- "Senior Notes -- Sales, Exchanges or Other
Taxable Dispositions of the Senior Notes."
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
In general, information reporting will apply to payments
under the FELINE PRIDES, Senior Notes or Common Stock acquired
under a Purchase Contract, the proceeds received with respect to
a fractional share of Common Stock upon the Settlement of a
Purchase Contract, and the proceeds received from the sale of
FELINE PRIDES, Senior Notes or Common Stock acquired under a
Purchase Contract, made to U.S. Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the U.S. Holder (i) fails to
supply an accurate taxpayer identification number (TIN), (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it
has failed to properly report payments of interest or dividends,
or (iv) under certain circumstances, fails to certify, under
penalty of perjury, that it has furnished a correct TIN and has
not been notified by the IRS that it is subject to backup
withholding. Pursuant to recently finalized Treasury
Regulations, interest paid to a U.S. Holder after December 31,
1999 generally will be subject to backup withholding at a 31%
rate unless certain IRS certification procedures are complied
with, directly or through an intermediary.
Any amounts withheld under the backup withholding rules will
be allowed as a credit or refund against such U.S. Holder's
United States federal income tax liability, provided the required
information is furnished to the IRS.
S-64
<PAGE>
ERISA CONSIDERATIONS
Generally, any employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended (ERISA), plans and individual retirement
accounts that are subject to ERISA or Section 4975 of the Code,
and entities whose assets are considered assets of such plans
pursuant to 29 C.P.R. Section 2510.3-10 (Plans) may purchase the
Securities subject to the investing fiduciary's determination
that the investment in the Securities satisfies ERISA's fiduciary
standards and other requirements under ERISA or the Code
applicable to investments by Plans. Accordingly, among other
factors, the investing fiduciary should consider whether the
investment would satisfy the prudence and diversification
requirements of ERISA and would be consistent with the documents
and instruments governing the Plans.
Under regulations issued by the U.S. Department of Labor
(DOL), a Plan that owns the Securities may be deemed to own a
portion of the Senior Notes. In addition, the Company and its
affiliates may be "parties in interest" (within the meaning of
ERISA) or "disqualified persons" (within the meaning of Section
4975 of the Code) with respect to certain Plans (generally, Plans
maintained or sponsored by, or contributed to by, any such
persons or Plans with respect to which any such persons are
fiduciaries or service providers). The acquisition and ownership
of the Securities and a deemed acquisition and ownership of an
interest in the Senior Notes by a Plan with respect to which the
Company or any of its affiliates is considered a party in
interest or a disqualified person may constitute or result in a
prohibited transaction under Section 406 of ERISA or Section 4975
of the Code, unless such Securities are acquired and are held
pursuant to and in accordance with an applicable exemption. In
this regard, the DOL has issued prohibited transaction class
exemptions (PTCEs) that may apply to the acquisition and holding
of the Securities. These class exemptions are PTCE 84-14
(respecting transactions determined by independent qualified
professional asset managers), PTCE 90-1 (respecting insurance
company separate accounts), PTCE 91-38 (respecting bank
collective trust funds), PTCE 95-60 (respecting insurance company
general accounts) and PTCE 96-23 (respecting transactions
determined by in-house asset managers).
Any fiduciary proposing to acquire the Securities on behalf
of a Plan should consult with ERISA counsel for the Plan and
should not acquire the Securities unless it is determined that
such acquisition and holding does not and will not constitute a
prohibited transaction and will satisfy the applicable fiduciary
requirements imposed under ERISA. Any such acquisition by a Plan
shall be deemed a representation by the Plan and the fiduciary
effecting the investment on behalf of the Plan that such
acquisition and holding satisfies the applicable fiduciary
requirements of ERISA, and is either (i) not a prohibited
transaction under either ERISA or the Code and is otherwise
permissible under applicable law or (ii) qualified for exemptive
relief from the prohibited transaction provisions of ERISA and
the Code in accordance with one or more of the foregoing PTCEs or
another available prohibited transaction exemption.
S-65
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an
Underwriting Agreement (Underwriting Agreement) among the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Lehman Brothers Inc. (together, the Underwriters), the Company
has agreed to sell to the Underwriters, and the Underwriters have
agreed severally to purchase from the Company, the number of
Income PRIDES and Growth PRIDES and aggregate principal amount of
Senior Notes set forth below opposite each Underwriters' name.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman
Brothers Inc. are co-lead managers for the offering. Merrill
Lynch, Pierce, Fenner & Smith Incorporated is the book running
manager for the offering. In the Underwriting Agreement, the
Underwriters have agreed, subject to the terms and conditions set
forth therein, to purchase all of the Income PRIDES, Growth
PRIDES and Senior Notes offered hereby if any of the Income
PRIDES, Growth PRIDES or aggregate principal amount of Senior
Notes are purchased.
Aggregate Aggregate
principal principal
Underwriters Number of Number of amount of amount of
------------ Income Growth Series D Series E
PRIDES PRIDES Notes Notes
--------- --------- --------- ---------
Merrill Lynch, Pierce, Fenner
and Smith Incorporated . .
Lehman Brothers Inc. . . . .
-------- -------- -------- --------
Total . . . . . . . .
======== ======== ======== ========
The Underwriters have advised the Company that they propose
initially to offer the Income PRIDES, Growth PRIDES and Senior
Notes to the public at the public offering prices set forth on
the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession not in excess of $
per Income PRIDES, $ per Growth PRIDES, $ per $1,000
principal amount of Series D Notes and $ per $1,000
principal amount of Series E Notes. After the offering, the
public offering prices, concessions and discounts may be changed.
Until the distribution of the Securities is completed, rules
of the Commission may limit the ability of the Underwriters and
any selling group members to bid for and purchase the Securities
or shares of Common Stock. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that
stabilize the price of the Securities or the Common Stock. Such
transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Securities or the
Common Stock.
If the Underwriters create a short position in the
Securities in connection with the offering, i.e., if they sell
more Securities than are set forth on the cover page of this
Prospectus Supplement, the Underwriters may reduce that short
position by purchasing Securities in the open market. The
Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment options described
below.
The Underwriters may also impose a penalty bid on certain
selling group members. This means that if the Underwriters
purchase Securities in the open market to reduce the
Underwriters' short position or to stabilize the price of the
Securities, they may reclaim the amount of the selling concession
from any selling group members who sold those Securities as part
of the offering.
S-66
<PAGE>
In general, purchases of a Security for the purpose of
stabilization or to reduce a short position could cause the price
of the Security and the Common Stock to be higher than it might
be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a Security if it
were to discourage resales of the Security.
Neither the Company nor either of the Underwriters makes any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of the Securities or the Common Stock. In addition,
neither the Company nor the Underwriters makes any representation
that the Underwriters will engage in such transaction or that
such transactions, once commenced, will not be discontinued
without notice.
The Company has granted to the Underwriters an option,
exercisable for 30 days following the date of this Prospectus
Supplement, to purchase up to an aggregate of an additional
Securities from the Company at the Price to Public set forth on
the cover page of this Prospectus Supplement less the
underwriting discount; provided, however, that, the Underwriters
must purchase equal amounts of each series of Senior Notes, in an
aggregate principal amount greater than or equal to the principal
amount of such of such series which would be required to
transform additional Growth PRIDES into Income PRIDES on such
date. The Underwriters may exercise these options only to cover
over-allotments, if any, made on the sale of the Income PRIDES,
Growth PRIDES and Senior Notes offered hereby. If the
Underwriters exercise their over-allotment options, each of the
Underwriters has severally agreed, subject to certain conditions,
to effect the foregoing transactions with respect to
approximately the same percentage of such Income PRIDES, Growth
PRIDES, Series D Notes and Series E Notes that the respective
number of Income PRIDES, Growth PRIDES, Series D Notes and the
Series E Notes set forth opposite its name in the foregoing table
bears to the Income PRIDES, Growth PRIDES, Series D Notes and
Series E Notes offered hereby.
The Company has agreed, for a period of 90 days after the
date of this Prospectus Supplement, to not, without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of, or enter
into any agreement to sell, any Income PRIDES, Growth PRIDES,
Purchase Contracts or Common Stock, as the case may be, or any
securities of the Company similar to the Income PRIDES, Growth
PRIDES, Purchase Contracts or Common Stock or any security
convertible into or exchangeable or exercisable for Income
PRIDES, Growth PRIDES, Purchase Contracts or Common Stock other
than shares of Common Stock or options for shares of Common Stock
issued pursuant to or sold in connection with any employee
benefit, dividend reinvestment, stock option and stock purchase
plans of the Company and its subsidiaries and other than shares
issuable in connection with the Company's acquisition of TEG, the
Growth PRIDES or Income PRIDES to be created or recreated upon
substitution of Pledge Securities, or shares of Common Stock
issuable upon settlement of the Income PRIDES or Growth PRIDES or
upon exercise of stock options.
Prior to this offering, there has been no public market for
the Income PRIDES, Growth PRIDES, Series D Notes or Series E
Notes. The public offering price for the Income PRIDES, Growth
PRIDES, Series D Notes and Series E Notes was determined in
negotiations between the Company and the Underwriters. In
determining the terms of the Income PRIDES, Growth PRIDES, Series
D Notes and Series E Notes, including the public offering price,
the Company and the Underwriters considered the market price of
the Common Stock and also considered the Company's recent
consolidated results of operations, the future prospects of the
Company and its subsidiaries and the industries in which they
operate, market prices and terms of, and yields on, securities of
other companies considered to be comparable to the Company and
prevailing conditions in the securities markets. The Company
intends to apply for listing of the Income PRIDES and the Growth
PRIDES on the NYSE, but does not intend to apply for any separate
listing of the Senior Notes. There can be no assurance that an
active trading market will develop for the Income PRIDES, the
Growth PRIDES, the Series D Notes or the Series E Notes or that
the Income PRIDES, Growth PRIDES, the Series D Notes or the
Series E Notes will trade at or above the initial public offering
price in the public market subsequent to the offering.
S-67
<PAGE>
The Company has agreed to indemnify the Underwriters
against, or to contribute to payments that the Underwriters may
be required to make in respect of, certain liabilities, including
certain liabilities under the Securities Act.
This Prospectus Supplement, as amended or supplemented, may
be used by the Remarketing Agent for remarketing either series of
Senior Notes at such time as is necessary or upon Early
Settlement or cash settlement of the Purchase Contracts.
In the ordinary course of their respective businesses, the
Underwriters and their affiliates have performed, and may in the
future perform, investment banking and/or commercial banking
services for the Company.
LEGAL OPINIONS
The validity of the Purchase Contracts, the Common Stock
issuable upon settlement thereof, and the Senior Notes will be
passed upon for the Company by Worsham, Forsythe & Wooldridge,
L.L.P., Dallas, Texas, General Counsel to the Company, and Thelen
Reid & Priest LLP, New York, New York, of counsel to the Company,
and for the Underwriters by Winthrop, Stimson, Putnam & Roberts,
New York, New York.
S-68
<PAGE>
INDEX OF PRINCIPAL TERMS FOR PROSPECTUS SUPPLEMENT
Set forth below is a list of certain defined terms appearing
in the Prospectus Supplement and the page numbers on which such
terms are defined.
3-year Treasury Security . . . . . . . . . . . . . . . . . . S-2
4-year Treasury Security . . . . . . . . . . . . . . . . . . S-2
Applicable Market Value . . . . . . . . . . . . . . . . . . S-37
Applicable Ownership Interest . . . . . . . . . . . . . . . S-32
Applicable Principal Amount . . . . . . . . . . . . . . . S-54
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . S-15
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . S-44
Business Day . . . . . . . . . . . . . . . . . . . . . . . S-41
Closing Price . . . . . . . . . . . . . . . . . . . . . . . S-37
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Collateral Agent . . . . . . . . . . . . . . . . . . . . . . S-8
Commission . . . . . . . . . . . . . . . . . . . . . . . . S-18
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . S-2
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Contract Adjustment Payments . . . . . . . . . . . . . . . . S-2
Current Market Price . . . . . . . . . . . . . . . . . . . S-43
Custodial Agent . . . . . . . . . . . . . . . . . . . . . . S-16
Debt Trustee . . . . . . . . . . . . . . . . . . . . . . . S-51
Deferred Contract Adjustment Payments . . . . . . . . . . . S-11
Depositary . . . . . . . . . . . . . . . . . . . . . . . . S-44
Direct Participants . . . . . . . . . . . . . . . . . . . . S-44
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Early Settlement . . . . . . . . . . . . . . . . . . . . . S-14
Eastern Energy . . . . . . . . . . . . . . . . . . . . . . . S-7
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Failed Remarketing . . . . . . . . . . . . . . . . . . . . . S-4
FELINE PRIDES . . . . . . . . . . . . . . . . . . . . . . . . S-1
FELINE PRIDES Certificate . . . . . . . . . . . . . . . . . S-37
First Purchase Contract Settlement Date . . . . . . . . . . . S-2
Global Security . . . . . . . . . . . . . . . . . . . . . . S-51
Global Security Certificates . . . . . . . . . . . . . . . S-44
Growth PRIDES . . . . . . . . . . . . . . . . . . . . . . . . S-1
Income PRIDES . . . . . . . . . . . . . . . . . . . . . . . . S-1
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Indirect Participants . . . . . . . . . . . . . . . . . . . S-44
Interest Payment Date . . . . . . . . . . . . . . . . . . . S-52
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Participants . . . . . . . . . . . . . . . . . . . . . . . S-44
Payment Date . . . . . . . . . . . . . . . . . . . . . . . S-11
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . S-8
Pledged Securities . . . . . . . . . . . . . . . . . . . . S-26
Primary Treasury Dealer . . . . . . . . . . . . . . . . . . S-54
PTCEs . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
S-69
<PAGE>
PUC . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
Purchase Contract . . . . . . . . . . . . . . . . . . . . . . S-2
Purchase Contract Agent . . . . . . . . . . . . . . . . . . . S-9
Purchase Contract Agreement . . . . . . . . . . . . . . . . . S-9
Purchase Contract Settlement Date . . . . . . . . . . . . . . S-2
Quotation Agent . . . . . . . . . . . . . . . . . . . . . . S-54
Redemption Amount . . . . . . . . . . . . . . . . . . . . . S-54
Redemption Price . . . . . . . . . . . . . . . . . . . . . . S-6
Reference Price . . . . . . . . . . . . . . . . . . . . . . . S-3
Remaining Stated Amount . . . . . . . . . . . . . . . . . . . S-2
Remarketing Agent. . . . . . . . . . . . . . . . . . . . . S-12
Remarketing Agreement . . . . . . . . . . . . . . . . . . . S-12
Remarketing Fee . . . . . . . . . . . . . . . . . . . . . . . S-4
Reset Agent . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Reset Announcement Date . . . . . . . . . . . . . . . . . . S-53
Reset Rate . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Reset Spread . . . . . . . . . . . . . . . . . . . . . . . . S-4
Second Purchase Contract Settlement Date . . . . . . . . . . S-2
Securities . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . S-1
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . S-4
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . S-1
Series D Notes . . . . . . . . . . . . . . . . . . . . . . . S-1
Series E Notes . . . . . . . . . . . . . . . . . . . . . . . S-1
Series D Reset Rate . . . . . . . . . . . . . . . . . . . . . S-3
Series E Reset Rate . . . . . . . . . . . . . . . . . . . . . S-4
Series D Reset Spread . . . . . . . . . . . . . . . . . . . . S-3
Series E Reset Spread . . . . . . . . . . . . . . . . . . . . S-4
Settlement Rate . . . . . . . . . . . . . . . . . . . . . . . S-3
Stated Amount . . . . . . . . . . . . . . . . . . . . . . . . S-2
Tax Event . . . . . . . . . . . . . . . . . . . . . . . . . S-54
Tax Event Redemption . . . . . . . . . . . . . . . . . . . . S-5
Tax Event Redemption Date . . . . . . . . . . . . . . . . . S-53
TEG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Threshold Appreciation Price . . . . . . . . . . . . . . . . S-3
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Trading Day . . . . . . . . . . . . . . . . . . . . . . . . S-37
Treasury Portfolio . . . . . . . . . . . . . . . . . . . . S-54
Treasury Portfolio Purchase Price . . . . . . . . . . . . . S-54
Treasury Security . . . . . . . . . . . . . . . . . . . . . . S-2
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . S-27
TU Electric . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Two-Year Benchmark Treasury . . . . . . . . . . . . . . . . S-53
U.S. Holder . . . . . . . . . . . . . . . . . . . . . . . . S-58
Underwriters . . . . . . . . . . . . . . . . . . . . . . . S-66
Underwriting Agreement . . . . . . . . . . . . . . . . . . S-66
S-70
<PAGE>
PROSPECTUS
$2,070,000,000
TEXAS UTILITIES COMPANY
DEBT SECURITIES, COMMON STOCK,
STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
Texas Utilities Company (Company), directly or through such
agents, dealers or underwriters as may be designated from time to
time, may offer, issue and sell, together or separately, (i) its
debt securities (Debt Securities), (ii) shares of its common
stock, without par value (Common Stock), (iii) contracts to
purchase shares of Common Stock (Stock Purchase Contracts) and
(iv) units, each representing ownership of a Stock Purchase
Contract and Debt Securities or debt obligations of third
parties, including U.S. Treasury securities, pledged to secure
the holder's obligation to purchase Common Stock under the Stock
Purchase Contracts (Stock Purchase Units).
The Debt Securities, Common Stock, Stock Purchase Contracts
and Stock Purchase Units are herein collectively referred to as
the "Securities," and Securities having an aggregate public
offering price of up to $2,070,000,000 (or its equivalent in
foreign currencies or foreign currency units based on the
applicable exchange rate at the time of offering) will be issued
in amounts, at prices and on terms to be determined at the time
of sale.
The form in which the Securities are to be issued, their
specific designation, aggregate principal amount or aggregate
initial offering price, maturity, if any, rate and times of
payment of interest or dividends, if any, redemption, conversion,
and sinking fund terms or other rights, if any, exercise price
and detachability, if any, and other specific terms may also be
set forth in a Prospectus Supplement, together with the terms of
an offering of such Securities. Any such Prospectus Supplement
will also contain information, as applicable, about certain
material United States Federal income tax considerations relating
to the particular Securities offered thereby.
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 COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Securities may be sold directly by the Company, through
agents designated from time to time or to or through underwriters
or dealers. The Company reserves the sole right to accept, and
together with its agents, from time to time, to reject in whole
or in part any proposed purchase of Securities to be made
directly or through agents. If any agents or underwriters are
involved in the sale of any Securities, the names of such agents
or underwriters and any applicable fees, commissions or discounts
will be set forth in Prospectus Supplement with respect to such
Securities (Prospectus Supplement). See PLAN OF DISTRIBUTION.
This Prospectus may not be used to consummate any sale of
Securities unless accompanied by a Prospectus Supplement.
The Common Stock of the Company is listed on the New York,
Chicago and Pacific stock exchanges under the symbol "TXU". Any
Prospectus Supplement will also contain information, where
applicable, as to any other listing on a securities exchange of
the Securities covered by such Prospectus Supplement.
The date of this Prospectus is June 29, 1998
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING DESCRIBED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT INVOLVED IN
THE OFFERING DESCRIBED HEREIN. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF
ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
On August 5, 1997, the Company became a holding company
which owns all of the outstanding common stock of Texas Energy
Industries, Inc. (formerly Texas Utilities Company) (TEI)
(Commission File No. 1-3591) and ENSERCH Corporation (ENSERCH)
(Commission File No. 1-3183). The Company is, and TEI and
ENSERCH have been, subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended (Exchange
Act), and in accordance therewith the Company files, and its
predecessors have filed, reports, proxy statements and other
information with the Commission. Such reports, proxy statements
and other information filed by the Company and its predecessors
can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, the Commission maintains a World Wide Web site
(http://www.sec.gov) that contains reports and other information
filed by the Company, TEI and ENSERCH. The Common Stock of the
Company is listed on the New York, Chicago and Pacific stock
exchanges, where reports, proxy statements and other information
concerning the Company and TEI may be inspected. Reports, proxy
statements and other information concerning ENSERCH may be
inspected at the New York and Chicago stock exchanges.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, previously filed with the
Commission (Commission File No. 1-12833), pursuant to the
Exchange Act, are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (1997 10-K).
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
3. The Company's Current Reports on Form 8-K dated February
26, 1998, March 13, 1998, April 8, 1998, April 9, 1998, April 17,
1998 and May 27, 1998 (as amended on June 25, 1998).
All documents filed by the Company pursuant to the Exchange
Act after the date of filing of the Registration Statement in
which this Prospectus is included and prior to effectiveness of
such Registration Statement shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the
date of filing of such documents. All documents filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be
incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents; provided,
-2-
<PAGE>
however, that the documents enumerated above or subsequently
filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the filing with the Commission
of the Company's most recent Annual Report on Form 10-K shall not
be incorporated by reference in this Prospectus or be a part
hereof from and after the filing of such Annual Report on Form
10-K. The documents which are incorporated by reference in this
Prospectus are sometimes hereinafter referred to as the
"Incorporated Documents."
Any statement contained in an Incorporated Document shall be
deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which 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 this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF SECURITIES, TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN
OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY AND ALL OF THE
INCORPORATED DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS
(UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO SUCH DOCUMENTS) AND ANY APPLICABLE INDENTURE AND OFFICER'S
CERTIFICATE, EACH AS DESCRIBED HEREIN. REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO: SECRETARY, TEXAS UTILITIES COMPANY,
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201; TELEPHONE
NUMBER (214) 812-4600.
THE COMPANY
The Company is a Texas corporation organized in 1996 for the
purpose of becoming the holding company for TEI, formerly Texas
Utilities Company, and ENSERCH upon the mergers of TEI and
ENSERCH with wholly owned subsidiaries of the Company.
TEI, a Texas corporation, is a holding company whose
principal subsidiary, Texas Utilities Electric Company (TU
Electric), is an operating public utility company engaged in the
generation, purchase, transmission, distribution and sale of
electric energy in the north central, eastern and western
portions of Texas, an area with a population estimated at
6,020,000. TU Electric's operating revenues and consolidated net
income available for common stock for the twelve months ended
December 31, 1997 were $6,135,417,000 and $745,024,000,
respectively. TU Electric's total capitalization at December 31,
1997 was $12,798,832,000. Two other subsidiaries of TEI are
engaged directly or indirectly in electric utility operations:
(i) Southwestern Electric Service Company (SESCO), which is
engaged in the purchase, transmission, distribution and sale of
electric energy in ten counties in the eastern and central parts
of Texas, with a population estimated at 126,900 and (ii) Texas
Utilities Australia Pty. Ltd. (TU Australia), which in 1995
acquired the common stock of Eastern Energy Limited, a company
engaged in the purchase, distribution, marketing and sale of
electric energy to approximately 489,000 customers in the
Melbourne area of Australia. Neither SESCO nor Eastern Energy
Limited generates any electricity. In November 1997, the Company
consummated the acquisition of Lufkin Conroe Communications Co.
(LCC), a privately held, independent local exchange telephone
company, which subsequently became a subsidiary of TEI. LCC has
sixteen exchanges that serve approximately 100,000 access lines
in the Alto, Conroe and Lufkin areas of southeast Texas and also
provides access services to a number of interexchange carriers
who provide long distance services. TEI also has other wholly
owned subsidiaries which perform specialized functions within the
Texas Utilities Company system.
ENSERCH, a Texas corporation, is an integrated company
focused on natural gas. ENSERCH operates primarily in the north
central and eastern parts of Texas. Its major business
operations are natural gas pipeline, processing, marketing and
distribution. Through these business operations, ENSERCH is
engaged in owning and operating interconnected natural gas
transmission lines, underground storage reservoirs, compressor
stations and related properties in Texas; gathering and
processing natural gas to remove impurities and extract liquid
-3-
<PAGE>
hydrocarbons for sale, and the wholesale and retail marketing of
natural gas in several areas of the United States, and owning and
operating approximately 550 local gas utility distribution
systems in Texas.
In March 1998, the Company announced an offer by its wholly
owned subsidiary, TU Acquisitions PLC (TU Acquisitions), to
acquire 100% of the ordinary shares of The Energy Group PLC
(TEG), including the ordinary shares evidenced by American
Depository Receipts, for L8.40 per share. Under the Company's
offer, up to 20% of the TEG shares may be exchanged for Company
Common Stock with a value of approximately L8.65 per TEG share.
TEG is the holding company for The Eastern Group PLC, which is
one of the largest regional electric companies in the United
Kingdom (U.K.), one of the largest U.K. generators of electricity
and one of the largest U.K. suppliers of natural gas. On May 19,
1998, the Company declared its offer unconditional. At June 22,
1998 the Company had acquired approximately 94.43% of TEG's
issued share capital and is in the process of acquiring the
remaining shares.
The TEG businesses acquired by the Company (which exclude
TEG's Peabody Coal and Citizens Power businesses, which were sold
by TEG to an unaffiliated party in connection with the Company's
offer) had assets of approximately $10.2 billion at September 30,
1997 and $5.5 billion of revenues for the twelve months ended
December 31, 1997. Such businesses had debt outstanding at
September 30, 1997 of approximately $3.8 billion. The estimated
purchase price for the TEG shares is approximately $7.2 billion.
The Company and TU Acquisitions and other intermediate U.K.
holding companies have entered into credit facilities with
banking institutions in the United States (U.S.) and the U.K.,
respectively, which will provide committed financing sufficient
to purchase the outstanding TEG shares and pay related expenses.
In February 1998, the Company announced an offer through its
wholly-owned subsidiary, TU Australia, to acquire Allgas Energy
Limited (Allgas), a publicly held gas distribution company in
Queensland, Australia. The original offer, a combined cash and
option offer of approximately $138 million, which was increased
to approximately $145 million in April 1998, is subject to
acceptance by holders of at least 51% of Allgas outstanding
shares and the waiver by the Queensland government of the current
12.5% limit on individual share holdings in Allgas. The
Queensland government has announced that this limitation will be
lifted on July 1, 1998. TU Australia has acquired 12.49% of the
outstanding shares of Allgas. The Company's bid has already
received all necessary Australian and U.S. regulatory approvals.
Two competing bids are still outstanding. One competing bid is
at a lower price than TU Australia's and the other is at a higher
price. Both competing bids are subject to additional regulatory
approvals. Shareholders of Allgas now have through July 10, 1998
to accept the Company's offer. The offer will be funded by TU
Australia's cash flows and bank lines.
The principal executive offices of the Company are located
at 1601 Bryan Street, Dallas, Texas 75201-3411; the telephone
number is (214) 812-4600.
USE OF PROCEEDS
Unless otherwise set forth in a Prospectus Supplement, the
net proceeds from the offering of the Securities will be used for
general corporate purposes, including the repayment of short-term
indebtedness incurred in connection with the purchase of TEG
shares.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the years
ended December 31, 1993 through 1997 and the twelve months ended
March 31, 1998 was 1.89, 2.29, 0.84, 2.39, 2.25 and 2.24,
respectively. The twelve-month period ended December 31, 1993
was affected by the recording of regulatory disallowances of
approximately $265 million after tax in TU Electric's Docket
11735. The twelve-month period ended December 31, 1995 was
-4-
<PAGE>
affected by the impairment of several nonperforming assets,
including TU Electric's partially completed Twin Oak and Forest
Grove lignite-fueled facilities and the New Mexico coal reserves
of a subsidiary, as well as several minor assets. Such
impairment, on an after-tax basis, amounted to $802 million. The
twelve-month period ended December 31, 1997 includes a one time
base revenue refund of $80 million as a result of a settlement
with the Public Utility Commission of Texas.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued in one or more series
under an indenture or indentures (each an Indenture) between the
Company and The Bank of New York or other financial institutions
to be named, as Trustee (each an Indenture Trustee), a form of
which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following description of
the terms of the Debt Securities does not purport to be complete
and is qualified in its entirety by reference to (i) the
respective Indenture and (ii) one or more officer's certificates
establishing the Debt Securities to which a form of Debt Security
will be attached. Whenever particular provisions or defined
terms in an Indenture are referred to under this DESCRIPTION OF
DEBT SECURITIES, such provisions or defined terms are
incorporated by reference herein.
General. Each Indenture will provide for the issuance of
Debt Securities in an unlimited amount from time to time. All
Debt Securities will be unsecured obligations of the Company.
All Debt Securities issued under an Indenture will rank equally
and ratably with all other Debt Securities issued under such
Indenture. An Indenture will not limit other unsecured debt.
The Company's financial statements included in the Incorporated
Documents show the amount of such other debt at the date of such
statements. See the Prospectus Supplement applicable to each
series of offered Debt Securities.
The applicable Prospectus Supplement or Prospectus
Supplements will describe the following terms of the Debt
Securities: (1) the title of the Debt Securities; (2) any limit
upon the aggregate principal amount of the Debt Securities; (3)
the date or dates on which the principal of the Debt Securities
is payable or the method of determination thereof; (4) the rate
or rates, if any, or the method by which such rate will be
determined, at which the Debt Securities will bear interest, if
any, the date or dates from which any such interest will accrue,
the Interest Payment Dates on which any such interest will be
payable, the Regular Record Date for any interest payable on any
Interest Payment Date and the Person or Persons to whom interest
on such Debt Securities will be payable on any Interest Payment
Date, if other than the Persons in whose names such Debt
Securities are registered at the close of business on the Regular
Record Date for such interest; (5) any right under the Indenture
to extend the interest payment period from time to time on the
Debt Securities; (6) the place or places where, subject to the
terms of the respective Indenture as described below under
"Payment and Paying Agents," the principal of and premium, if
any, and interest on the Debt Securities will be payable and
where, subject to the terms of such Indenture as described below
under "Registration and Transfer," the Debt Securities may be
presented for registration of transfer or exchange and the place
or places where notices and demands to or upon the Company in
respect of the Debt Securities and such Indenture may be served;
the Security Registrar for such Debt Securities; and, if such is
the case, that the principal of such Debt Securities will be
payable without presentment or surrender thereof; (7) the period
or periods within, or date or dates on, which, the price or
prices at which and the terms and conditions upon which Debt
Securities may be redeemed, in whole or in part, at the option of
the Company; (8) the obligation or obligations, if any, of the
Company to redeem or purchase any of the Debt Securities pursuant
to any sinking fund or other mandatory redemption provisions or
at the option of the Holder thereof, and the period or periods
within which, or the date or dates on which, the price or prices
at which and the terms and conditions upon which the Debt
Securities will be redeemed or purchased, in whole or in part,
pursuant to such obligation, and applicable exceptions to the
requirements of a notice of redemption in the case of mandatory
redemption or redemption at the option of the Holder; (9) the
denominations in which any Debt Securities will be issuable, if
other than denominations of $1,000 and any integral multiple
thereof; (10) the currency or currencies, including composite
-5-
<PAGE>
currencies in which the principal of or any premium or interest
on the Debt Securities will be payable (if other than in
Dollars); (11) if the principal of or any premium or interest on
the Debt Securities is to be payable, at the election of the
Company or the Holder thereof, in a coin or currency other than
that in which the Debt Securities are stated to be payable, the
period or periods within which and the terms and conditions upon
which, such election is to be made; (12) if the principal of or
premium or interest on the Debt Securities is to be payable, or
is to be payable at the election of the Company or a Holder
thereof, in securities or other property, the type and amount of
such securities or other property, or the method or other means
by which such amount will be determined, and the period or
periods within which, and the terms and conditions upon which,
any such election may be made; (13) if the amount payable in
respect of principal of or any premium or interest on the Debt
Securities may be determined with reference to an index or other
fact or event ascertainable outside of the respective Indenture,
the manner in which such amounts will be determined; (14) if
other than the principal amount thereof, the portion of the
principal amount of the Debt Securities which will be payable
upon declaration of acceleration of the Maturity thereof; (15)
any Events of Default, in addition to those specified in the
respective Indenture, with respect to the Debt Securities and any
covenants of the Company for the benefit of the Holders of the
Debt Securities, in addition to those specified in such
Indenture; (16) the terms, if any, pursuant to which the Debt
Securities may be converted into or exchanged for shares of
capital stock or other securities of the Company or any other
Person; (17) the obligations or instruments, if any, which will
be considered to be Eligible Obligations in respect of such Debt
Securities denominated in a currency other than Dollars or in a
composite currency, and any additional or alternative provisions
for the reinstatement of the Company's indebtedness in respect of
such Debt Securities after the satisfaction and discharge
thereof; (18) if the Debt Securities are to be issued in global
form, (i) any limitations on the rights of the Holder or Holders
of such Debt Securities to transfer or exchange the same or to
obtain the registration of transfer thereof, (ii) any limitations
on the rights of the Holder or Holders thereof to obtain
certificates therefor in definitive form in lieu of temporary
form and (iii) any and all other matters incidental to such Debt
Securities; (19) if the Debt Securities are to be issuable as
bearer securities, any and all matters incidental thereto; (20)
to the extent not addressed in item (18) above, any limitations
on the rights of the Holders of the Debt Securities to transfer
or exchange the Debt Securities or to obtain the registration of
transfer thereof, and if a service charge will be made for the
registration of transfer or exchange of the Debt Securities, the
amount or terms thereof; (21) any exceptions to the provisions
governing payments due on legal holidays or any variations in the
definition of Business Day with respect to such Debt Securities;
(22) any collateral security, assurance or guarantee for the Debt
Securities; (23) the non-applicability of the limitation on liens
provisions to the Debt Securities; (24) any rights or duties of
another Person to assume the obligations of the Company with
respect to the Debt Securities and any rights or duties to
discharge and release any obligor with respect to such Debt
Securities or the Indenture to the extent related to such Debt
Securities; and (25) any other terms of the Debt Securities, not
inconsistent with the provisions of the respective Indenture
(Indenture, Section 301).
Debt Securities may be sold at a discount below their
principal amount. Certain special United States federal income
tax considerations, if any, applicable to Debt Securities sold at
an original issue discount may be described in the applicable
Prospectus Supplement. In addition, certain special United States
federal income tax or other considerations, if any, applicable to
any Debt Securities which are denominated in a currency or
currency unit other than Dollars may be described in the
applicable Prospectus Supplement.
Except as may otherwise be described in the applicable
Prospectus Supplement, the covenants contained in an Indenture
will not afford Holders of Debt Securities protection in the
event of a highly-leveraged transaction involving the Company.
Payment and Paying Agents. Except as may be provided in the
applicable Prospectus Supplement, interest, if any, on each Debt
Security payable on each Interest Payment Date will be paid to
the Person in whose name such Debt Security is registered as of
the close of business on the Regular Record Date relating to such
Interest Payment Date; provided, however, that interest payable
at maturity (whether at stated maturity, upon redemption or
otherwise, herein a Maturity) will be paid to the Person to whom
principal is paid. However, if there has been a default in the
payment of interest on any Debt Security, such defaulted interest
-6-
<PAGE>
may be payable to the Holder of such Debt Security as of the
close of business on a date selected by the respective Indenture
Trustee which is not more than 15 days and not less than 10 days
prior to the date proposed by the Company for payment on such
defaulted interest or in any other lawful manner not inconsistent
with the requirements of any securities exchange on which such
Debt Security may be listed, if such Indenture Trustee deems such
manner of payment practicable (Indenture, Section 307).
Unless otherwise specified in the applicable Prospectus
Supplement, the principal of and premium, if any, and interest
on, the Debt Securities at Maturity will be payable upon
presentation of the Debt Securities at the corporate trust office
of The Bank of New York, in The City of New York, as Paying Agent
for the Company. The Company may change the Place of Payment on
the Debt Securities, may appoint one or more additional Paying
Agents (including the Company) and may remove any Paying Agent,
all at its discretion (Indenture, Section 602).
Registration and Transfer. Unless otherwise specified in
the applicable Prospectus Supplement, the transfer of Debt
Securities may be registered, and Debt Securities may be
exchanged for other Debt Securities of the same series or
tranche, of authorized denominations and of like tenor and
aggregate principal amount, at the corporate trust office of The
Bank of New York in The City of New York, as Security Registrar
for the Debt Securities. The Company may change the place for
registration of transfer and exchange of the Debt Securities and
may designate one or more additional places for such registration
and exchange, all at its discretion. Except as otherwise provided
in the applicable Prospectus Supplement, no service charge will
be made for any transfer or exchange of the Debt Securities, but
the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of the
Debt Securities. The Company will not be required to execute or
to provide for the registration of transfer of, or the exchange
of, (a) any Debt Security during a period of 15 days prior to
giving any notice of redemption or (b) any Debt Security selected
for redemption in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part (Indenture, Section
305).
Defeasance. The principal amount of any series of Debt
Securities issued under an Indenture will be deemed to have been
paid for purposes of such Indenture and the entire indebtedness
of the Company in respect thereof will be deemed to have been
satisfied and discharged if there shall have been irrevocably
deposited with the respective Indenture Trustee or any paying
agent, in trust: (a) money in an amount which will be
sufficient, or (b) in the case of a deposit made prior to the
maturity of the Debt Securities, Eligible Obligations (as defined
below), the principal of and the interest on which when due,
without any regard to reinvestment thereof, will provide moneys
which, together with the money, if any, deposited with or held by
such Indenture Trustee, will be sufficient, or (c) a combination
of (a) and (b) which will be sufficient, to pay when due the
principal of and premium, if any, and interest, if any, due and
to become due on the Debt Securities of such series that are
Outstanding. For this purpose, Eligible Obligations include
direct obligations of, or obligations unconditionally guaranteed
by, the United States of America entitled to the benefit of the
full faith and credit thereof and certificates, depositary
receipts or other instruments which evidence a direct ownership
interest in such obligations or in any specific interest or
principal payments due in respect thereof and which do not
contain provisions permitting the redemption or other prepayment
thereof at the option of the issuer thereof (Indenture, Section
701).
Limitiation on Liens. The Indenture provides that, except as
otherwise specified with respect to a particular series of Debt
Securities, so long as any Debt Securities of any series are
Outstanding, the Company will not pledge, mortgage, hypothecate
or grant a security interest in, or permit any mortgage, pledge,
security interest or other lien upon, any capital stock of any
Subsidiary (hereinafter defined) now or hereafter owned by the
Company to secure any Indebtedness (hereinafter defined), without
making effective provision whereby the Outstanding Debt
Securities shall (so long as such other Indebtedness shall be so
secured) be equally and ratably secured with any and all such
other Indebtedness and any other indebtedness similarly entitled
to be equally and ratably secured. This restriction does not
apply to, or prevent the creation or existence of, (i) any
mortgage, pledge, security interest, lien or encumbrance upon any
such capital stock created at the time of the acquisition of such
capital stock by the Company or within one year after such time
to secure all or a portion of the purchase price for such capital
-7-
<PAGE>
stock; (ii) any mortgage, pledge, security interest, lien or
encumbrance upon any such capital stock existing thereon at the
time of the acquisition thereof by the Company (whether or not
the obligations secured thereby are assumed by the Company); or
(iii) any extension, renewal or refunding of any mortgage,
pledge, security interest, lien or encumbrance described in (i)
or (ii) above on capital stock of any Subsidiary theretofore
subject thereto (or substantially the same capital stock) or any
portion thereof. In addition, this restriction will not apply
to, and there will be excluded in computing secured Indebtedness
for the purpose of such restriction, Indebtedness secured by any
judgment, levy, execution, attachment or other similar lien
arising in connection with court proceedings, provided that
either (i) the execution or enforcement of each such lien is
effectively stayed within 30 days after entry of the
corresponding judgment (or the corresponding judgment has been
discharged within such 30 day period) and the claims secured
thereby are being contested in good faith by appropriate
proceedings timely commenced and diligently prosecuted; (ii) the
payment of each such lien is covered in full by insurance and the
insurance company has not denied or contested coverage thereof;
or (iii) so long as each such lien is adequately bonded, any
appropriate legal proceedings that may have been duly initiated
for the review of the corresponding judgment, decree or order
shall not have been fully terminated or the period within which
such proceedings may be initiated shall not have expired
(Indenture, Section 608).
For purposes of the restriction described in the preceding
paragraph, "Indebtedness" means (i) all indebtedness, whether or
not represented by bonds, debentures, notes or other securities,
created or assumed by the Company for the repayment of money
borrowed; (ii) all indebtedness for money borrowed secured by a
lien upon property owned by the Company and upon which
indebtedness for money borrowed the Company customarily pays
interest, although the Company has not assumed or become liable
for the payment of such indebtedness for money borrowed; and
(iii) all indebtedness of others for money borrowed which is
guaranteed as to payment of principal by the Company or in effect
guaranteed by the Company through a contingent agreement to
purchase such indebtedness for money borrowed, but excluding from
this definition any other contingent obligation of the Company in
respect of indebtedness for money borrowed or other obligations
incurred by others (Indenture, Section 608). "Subsidiary" means
a corporation more than 50% of the outstanding voting stock of
which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting
stock" means stock that ordinarily has voting power for the
election of directors, whether at all times or only so long as no
senior class of stock has such voting power by reason of any
contingency (Indenture, Section 101).
Notwithstanding the foregoing, except as otherwise specified
in the Officer's Certificate with respect to a particular series
of Debt Securities, the Company may, without securing the Debt
Securities, pledge, mortgage, hypothecate or grant a security
interest in, or permit any mortgage, pledge, security interest or
other lien (in addition to liens expressly permitted as described
in the second preceding paragraph) upon, capital stock of any
Subsidiary now or hereafter owned by the Company to secure any
Indebtedness (which would otherwise be subject to the foregoing
restriction) in an aggregate amount which, together with all
other such Indebtedness, does not exceed 5% of Consolidated
Capitalization. For this purpose, "Consolidated Capitalization"
means the sum obtained by adding (i) Consolidated Shareholders'
Equity, (ii) Consolidated Indebtedness for money borrowed
(exclusive of any thereof which is due and payable within one
year of the date such sum is determined) and, without
duplication, (iii) any preference or preferred stock of the
Company or any Consolidated Subsidiary which is subject to
mandatory redemption or sinking fund provisions (Indenture,
Section 608).
The term "Consolidated Shareholders' Equity" (as used above)
means the total Assets of the Company and its Consolidated
Subsidiaries less all liabilities of the Company and its
Consolidated Subsidiaries. As used in the foregoing definition,
"liabilities" means all obligations which would, in accordance
with generally accepted accounting principles in the United
States, be classified on a balance sheet as liabilities,
including without limitation, (i) indebtedness secured by
property of the Company or any of its Consolidated Subsidiaries
whether or not the Company or such Consolidated Subsidiary is
liable for the payment thereof unless, in the case that the
Company or such Consolidated Subsidiary is not so liable, such
property has not been included among the Assets of the Company or
such Consolidated Subsidiary on such balance sheet, (ii) deferred
liabilities and (iii) indebtedness of the Company or any of its
Consolidated Subsidiaries that is expressly subordinated in right
-8-
<PAGE>
and priority of payment to other liabilities of the Company or
such Consolidated Subsidiary. As used in this definition,
"liabilities" includes preference or preferred stock of the
Company or any Consolidated Subsidiary only to the extent of any
such preference or preferred stock that is subject to mandatory
redemption or sinking fund provisions (Indenture, Section 608).
The term "Consolidated Subsidiary" (as used above) means at
any date any Subsidiary the financial statements of which under
generally accepted accounting principles would be consolidated
with those of the Company in its consolidated financial
statements as of such date. The "Assets" of any Person means the
whole or any part of its business, property, assets, cash and
receivables. The term "Consolidated Indebtedness" means total
indebtedness as shown on the consolidated balance sheet of the
Company and its Consolidated Subsidiaries (Indenture, Section
608).
As of December 31, 1997, the Consolidated Capitalization of
the Company was $16,802,381,000.
Assignment of Obligations. The Company may assign its
obligations under any series of the Debt Securities to a directly
or indirectly wholly-owned subsidiary of the Company pursuant to
a written assumption of such obligations by such subsidiary,
provided that no Event of Default, or event which with the
passage of time or the giving of required notice, or both, would
become an Event of Default, has occurred and is continuing. As
conditions to such assumption, the subsidiary assuming such
obligations will be required to deliver to the Trustee and to the
Company an assumption agreement and a supplemental indenture
satisfactory in form and substance to the Trustee pursuant to
which such subsidiary (i) assumes, on a full recourse basis, the
Company's obligations on the Debt Securities and the obligations
under the Indenture relating to the Debt Securities, and
(ii) agrees that any covenants made by the Company with respect
to such Debt Securities will become solely covenants of, and
shall relate to, such subsidiary.
At the time of such assumption the Company will
unconditionally guarantee payment of such series of Debt
Securities and will execute a guarantee in form and substance
satisfactory to the Trustee. Pursuant to such guarantee, the
Company will fully and unconditionally guarantee the payment of
the obligations of the assuming subsidiary under the Debt
Securities and under the Indenture relating to the Debt
Securities, including, without limitation, payment, as and when
due, of the principal of, premium, if any, and interest on, the
Debt Securities. The Company will be released and discharged
from all its other obligations under the Indenture.
Consolidation, Merger, and Sale of Assets. Under the terms
of an Indenture, the Company may not consolidate with or merge
into any other entity or convey, transfer or lease its properties
and assets substantially as an entirety to any entity, unless
(i) the entity formed by such consolidation or into which the
Company is merged or the entity which acquires by conveyance or
transfer, or which leases, the property and assets of the Company
substantially as an entirety shall be a entity organized and
validly existing under the laws of any domestic jurisdiction and
such entity expressly assumes the Company's obligations on all
Debt Securities and under such Indenture, (ii) immediately after
giving effect to the transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing, and
(iii) the Company shall have delivered to the respective
Indenture Trustee an Officer's Certificate and an Opinion of
Counsel as provided in such Indenture (Indenture, Section 1101).
The terms of an Indenture will not restrict the Company in a
merger in which the Company is the surviving entity.
Events of Default. Each of the following will constitute an
Event of Default under the Indenture with respect to the Debt
Securities of any series: (a) failure to pay any interest on the
Debt Securities of such series within 30 days after the same
becomes due and payable; (b) failure to pay principal or premium,
if any, on the Debt Securities of such series when due and
payable; (c) failure to perform, or breach of, any other covenant
or warranty of the Company in such Indenture (other than a
covenant or warranty of the Company in such Indenture solely for
the benefit of one or more series of Debt Securities other than
such series) for 90 days after written notice to the Company by
the respective Indenture Trustee, or to the Company and such
-9-
<PAGE>
Indenture Trustee by the Holders of at least 33% in principal
amount of the Debt Securities of such series Outstanding under
such Indenture as provided in such Indenture; (d) the entry by a
court having jurisdiction in the premises of (1) a decree or
order for relief in respect of the Company in an involuntary case
or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (2) a decree
or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition by one or more Persons
other than the Company seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under
any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other
similar official for the Company or for any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and any such decree or order for relief or any such
other decree or order shall have remained unstayed and in effect
for a period of 90 consecutive days; and (e) the commencement by
the Company of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in
respect of the Company in a case or other similar proceeding or
to the commencement of any bankruptcy or insolvency case or
proceeding against it under any applicable federal or state law
or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state
law, or the consent by it to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official
of the Company of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts
generally as they become due, or the authorization of such action
by the Board of Directors (Indenture, Section 801).
An Event of Default with respect to the Debt Securities of a
particular series may not necessarily constitute an Event of
Default with respect to Debt Securities of any other series
issued under the same Indenture or Debt Securities issued under
any other Indenture.
Remedies. If an Event of Default due to the default in
payment of principal of or interest on any series of Debt
Securities or due to the default in the performance or breach of
any other covenant or warranty of the Company applicable to the
Debt Securities of such series but not applicable to all series
of Debt Securities issued under the same Indenture occurs and is
continuing, then either the respective Indenture Trustee or the
Holders of not less than 33% in principal amount of the
outstanding Debt Securities of such series may declare the
principal of all of the Debt Securities of such series and
interest accrued thereon to be due and payable immediately. If
an Event of Default due to the default in the performance of any
other covenants or agreements in an Indenture applicable to all
Outstanding Debt Securities under such Indenture or due to
certain events of bankruptcy, insolvency or reorganization of the
Company has occurred and is continuing, either the respective
Indenture Trustee or the Holders of not less than 33% in
principal amount of all such Outstanding Debt Securities,
considered as one class, and not the Holders of the Debt
Securities of any one of such series, may make such declaration
of acceleration.
At any time after the declaration of acceleration with
respect to the Debt Securities of any series has been made and
before a judgment or decree for payment of the money due has been
obtained, the Event or Events of Default giving rise to such
declaration of acceleration will, without further act, be deemed
to have been waived, and such declaration and its consequences
will, without further act, be deemed to have been rescinded and
annulled, if:
(a) the Company has paid or deposited with the respective
Indenture Trustee a sum sufficient to pay
(1) all overdue interest on all Debt Securities of
such series;
(2) the principal of and premium, if any, on any Debt
Securities of such series which have become due otherwise
than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in such
Debt Securities;
-10-
<PAGE>
(3) interest upon overdue interest at the rate or
rates prescribed therefor in such Debt Securities, to the
extent that payment of such interest is lawful; and
(4) all amounts due to such Indenture Trustee under
the respective Indenture; and
(b) any other Event or Events of Default with respect to
Debt Securities of such series, other than the nonpayment of the
principal of the Debt Securities of such series which has become
due solely by such declaration of acceleration, have been cured
or waived as provided in such Indenture (Indenture, Section 802).
There is no automatic acceleration, even in the event of
bankruptcy, insolvency or reorganization of the Company.
Subject to the provisions of an Indenture relating to the
duties of the Indenture Trustee in case an Event of Default shall
occur and be continuing, the respective Indenture Trustee will be
under no obligation to exercise any of its rights or powers under
such Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to such Indenture Trustee
reasonable security or indemnity (Indenture, Section 903). If an
Event of Default has occurred and is continuing in respect of a
series of Debt Securities, subject to such provisions for the
indemnification of such Indenture Trustee, the Holders of a
majority in principal amount of the Outstanding Debt Securities
of such series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to
such Indenture Trustee, or exercising any trust or power
conferred on such Indenture Trustee, with respect to the Debt
Securities of such series; provided, however, that if an Event of
Default occurs and is continuing with respect to more than one
series of Debt Securities under an Indenture, the Holders of a
majority in aggregate principal amount of the Outstanding Debt
Securities of all such series, considered as one class, will have
the right to make such direction, and not the Holders of the Debt
Securities of any one of such series; and provided, further, that
such direction will not be in conflict with any rule of law or
with such Indenture (Indenture, Section 812).
No Holder of Debt Securities of any series will have any
right to institute any proceeding with respect to the respective
Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (i) such Holder has
previously given to the respective Indenture Trustee written
notice of a continuing Event of Default with respect to the Debt
Securities of such series, (ii) the Holders of a majority in
aggregate principal amount of the Outstanding Debt Securities of
all series under such Indenture in respect of which an Event of
Default shall have occurred and be continuing, considered as one
class, have made written request to such Indenture Trustee, and
such Holder or Holders have offered reasonable indemnity to such
Indenture Trustee to institute such proceeding in respect of such
Event of Default in its own name as trustee and (iii) such
Indenture Trustee has failed to institute any proceeding, and has
not received from the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of such
series a direction inconsistent with such request, within 60 days
after such notice, request and offer (Indenture, Section 807).
However, such limitations do not apply to a suit instituted by a
Holder of a Debt Security for the enforcement of payment of the
principal of or any premium or interest on such Debt Security on
or after the applicable due date specified in such Debt Security
(Indenture, Section 808).
The Company will be required to furnish to each Indenture
Trustee annually a statement by an appropriate officer as to such
officer's knowledge of the Company's compliance with all
conditions and covenants under the respective Indenture, such
compliance to be determined without regard to any period of grace
or requirement of notice under such Indenture (Indenture, Section
606).
Modification and Waiver. Without the consent of any Holder
of Debt Securities, the Company and the Indenture Trustee under
an Indenture may enter into one or more supplemental indentures
for any of the following purposes: (a) to evidence the assumption
by any permitted successor to the Company of the covenants of the
Company in such Indenture and in any of the Debt Securities
Outstanding under such Indenture; or (b) to add one or more
covenants of the Company or other provisions for the benefit of
-11-
<PAGE>
all Holders or for the benefit of the Holders of, or to remain in
effect only so long as there shall be Outstanding, Debt
Securities of one or more specified series, or one or more
specified Tranches thereof, or to surrender any right or power
conferred upon the Company by such Indenture; or (c) to add any
additional Events of Default with respect to Outstanding Debt
Securities; or (d) to change or eliminate any provision of such
Indenture or to add any new provision to such Indenture, provided
that if such change, elimination or addition will adversely
affect the interests of the Holders of Debt Securities of any
series or Tranche in any material respect, such change,
elimination or addition will become effective with respect to
such series or Tranche only (1) when the consent of the Holders
of Debt Securities of such series or Tranche has been obtained in
accordance with such Indenture, or (2) when no Debt Securities of
such series or Tranche remain Outstanding under such Indenture;
or (e) to provide collateral security for all but not part of the
Debt Securities issued under such Indenture; or (f) to establish
the form or terms of Debt Securities of any other series or
Tranche as permitted by such Indenture; or (g) to provide for the
authentication and delivery of bearer securities and coupons
appertaining thereto representing interest, if any, thereon and
for the procedures for the registration, exchange and replacement
thereof and for the giving of notice to, and the solicitation of
the vote or consent of, the Holders thereof, and for any and all
other matters incidental thereto; or (h) to evidence and provide
for the acceptance of appointment of a successor Indenture
Trustee or co-trustee with respect to the Debt Securities of one
or more series and to add to or change any of the provisions of
such Indenture as shall be necessary to provide for or to
facilitate the administration of the trusts under such Indenture
by more than one trustee; or (i) to provide for the procedures
required to permit the utilization of a noncertificated system of
registration for the Debt Securities of all or any series or
Tranche; or (j) to change any place where (1) the principal of
and premium, if any, and interest, if any, on all or any series
or Tranche of Debt Securities shall be payable, (2) all or any
series or Tranche of Debt Securities may be surrendered for
registration of transfer or exchange and (3) notices and demands
to or upon the Company in respect of Debt Securities and such
Indenture may be served; or (k) to cure any ambiguity or
inconsistency or to add or change any other provisions with
respect to matters and questions arising under an Indenture,
provided such changes or additions shall not adversely affect the
interests of the Holders of Debt Securities of any series or
Tranche Outstanding under such Indenture in any material respect
(Indenture, Section 1201).
The Holders of a majority in aggregate principal amount of
the Debt Securities of all series then Outstanding under an
Indenture may waive compliance by the Company with certain
restrictive provisions of such Indenture (Indenture, Section
607). The Holders of a majority in principal amount of the
Outstanding Debt Securities of any series may waive any past
default under an Indenture with respect to such series, except a
default in the payment of principal, premium, or interest and
certain covenants and provisions of such Indenture that cannot be
modified or be amended without the consent of the Holder of each
Outstanding Debt Security of such series affected (Indenture,
Section 813).
Without limiting the generality of the foregoing, if the
Trust Indenture Act is amended after the date of an Indenture in
such a way as to require changes to such Indenture or the
incorporation therein of additional provisions or so as to permit
changes to, or the elimination of, provisions which, at the date
of such Indenture or at any time thereafter, were required by the
Trust Indenture Act to be contained in such Indenture, such
Indenture will be deemed to have been amended so as to conform to
such amendment of the Trust Indenture Act or to effect such
changes, additions or elimination, and the Company and the
Indenture Trustee may, without the consent of any Holders, enter
into one or more supplemental indentures to evidence or effect
such amendment (Indenture, Section 1201).
Except as provided above, the consent of the Holders of a
majority in aggregate principal amount of the Debt Securities of
all series then Outstanding under an Indenture, considered as one
class, is required for the purpose of adding any provisions to,
or changing in any manner, or eliminating any of the provisions
of, such Indenture or modifying in any manner the rights of the
Holders of such Debt Securities under such Indenture pursuant to
one or more supplemental indentures; provided, however, that if
less than all of the series of Debt Securities Outstanding under
an Indenture are directly affected by a proposed supplemental
indenture, then the consent only of the Holders of a majority in
aggregate principal amount of Outstanding Debt Securities of all
series under such Indenture so directly affected, considered as
one class, shall be required; and provided, further, that if the
-12-
<PAGE>
Debt Securities of any series shall have been issued in more than
one Tranche and if the proposed supplemental indenture shall
directly affect the rights of the Holders of Debt Securities of
one or more, but less than all, of such Tranches, then the
consent only of the Holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of all Tranches of such
series so directly affected, considered as one class, will be
required; and provided further, that no such amendment or
modification may (a) change the Stated Maturity of the principal
of, or any installment of principal of or interest on, any Debt
Security, or reduce the principal amount thereof or the rate of
interest thereon (or the amount of any installment of interest
thereon) or change the method of calculating such rate or reduce
any premium payable upon the redemption thereof, or reduce the
amount of the principal of a discount Debt Security that would be
due and payable upon a declaration of acceleration of the
maturity thereof, or change the coin or currency (or other
property) in which any Debt Security or any premium or the
interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the
Stated Maturity of any Debt Security (or, in the case of
redemption, on or after the redemption date) without, in any such
case, the consent of the Holder of such Debt Security, (b) reduce
the percentage in principal amount of the Outstanding Debt
Securities of any series, or any Tranche thereof, the consent of
the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for
any waiver of compliance with any provision of such Indenture or
any default thereunder and its consequences, or reduce the
requirements for quorum or voting, without, in any such case, the
consent of the Holder of each outstanding Debt Security of such
series or Tranche, or (c) modify certain of the provisions of
such Indenture relating to supplemental indentures, waivers of
certain covenants and waivers of past defaults with respect to
the Debt Securities of any series or Tranche, without the consent
of the Holder of each Outstanding Debt Security under such
Indenture affected thereby. A supplemental indenture which
changes or eliminates any covenant or other provision of an
Indenture which has expressly been included solely for the
benefit of one or more particular series of Debt Securities or
one or more Tranches thereof, or modifies the rights of the
Holders of Debt Securities of such series with respect to such
covenant or other provision, will be deemed not to affect the
rights under such Indenture of the Holders of the Debt Securities
of any other series or Tranche (Indenture, Section 1202).
Each Indenture provides that in determining whether the
Holders of the requisite principal amount of the Outstanding Debt
Securities have given any request, demand, authorization,
direction, notice, consent or waiver under such Indenture, or
whether a quorum is present at the meeting of the Holders of Debt
Securities, Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any affiliate of the Company
or of such other obligor (unless the Company, such affiliate or
such obligor owns all Debt Securities Outstanding under such
Indenture, determined without regard to this provision) shall be
disregarded and deemed not to be Outstanding.
If the Company shall solicit from Holders any request,
demand, authorization, direction, notice, consent, election,
waiver or other Act, the Company may, at its option, fix in
advance a record date for the determination of Holders entitled
to give such request, demand, authorization, direction, notice,
consent, waiver or other such Act, but the Company shall have no
obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record
date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of the
Outstanding Debt Securities have authorized or agreed or
consented to such request, demand, authorization, direction,
notice, consent, waiver or other Act, and for that purpose the
Outstanding Debt Securities shall be computed as of the record
date. Any request, demand, authorization, direction, notice,
consent, election, waiver or other Act of a Holder shall bind
every future Holder of the same Debt Security and the Holder of
every Debt Security issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by an Indenture
Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Debt Security
(Indenture, Section 104).
Resignation of an Indenture Trustee. An Indenture Trustee
may resign at any time by giving written notice thereof to the
Company or may be removed at any time with respect to the
-13-
<PAGE>
respective Indenture by Act of the Holders of a majority in
principal amount of all series of Debt Securities then
Outstanding under such Indenture delivered to such Indenture
Trustee and the Company. No resignation or removal of an
Indenture Trustee and no appointment of a successor trustee will
become effective until the acceptance of appointment by a
successor trustee in accordance with the requirements of the
respective Indenture. So long as no Event of Default or event
which, after notice or lapse of time, or both, would become an
Event of Default has occurred and is continuing and except with
respect to an Indenture Trustee appointed by Act of the Holders,
if the Company has delivered to the Indenture Trustee a
resolution of its Board of Directors appointing a successor
trustee and such successor has accepted such appointment in
accordance with the terms of the respective Indenture, such
Indenture Trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as trustee in
accordance with such Indenture (Indenture, Section 910).
Notices. Notices to Holders of Debt Securities will be
given by mail to the addresses of such Holders as they may appear
in the security register therefor (Indenture, Section 106).
Title. The Company, the respective Indenture Trustee, and
any agent of the Company or such Indenture Trustee, may treat the
Person in whose name Debt Securities are registered as the
absolute owner thereof (whether or not such Debt Securities may
be overdue) for the purpose of making payments and for all other
purposes irrespective of notice to the contrary (Indenture,
Section 308).
Governing Law. Each Indenture and the Debt Securities will
be governed by, and construed in accordance with, the laws of the
State of New York (Indenture, Section 112).
Regarding the Indenture Trustee. The Indenture Trustee
under the first Indenture will be The Bank of New York. In
addition to acting as Indenture Trustee, The Bank of New York
acts, and may act, as trustee under various indentures and trusts
of the Company and its affiliates. The Company and its
affiliates also maintain various banking and trust relationships
with The Bank of New York.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
Common Stock, without par value, of which 245,315,522 shares were
outstanding at May 31, 1998, and serial preference stock, par
value $25 per share, none of which has been issued. Outstanding
shares of Common Stock on May 31, 1998 did not include shares
issuable in exchange for TEG shares. The following statements
with respect to such capital stock of the Company are a summary
of certain rights and privileges attaching to the stock under the
laws of the State of Texas and the Restated Articles of
Incorporation and the Bylaws of the Company, as amended. This
summary does not purport to be complete and is qualified in its
entirety by reference to such laws, the Restated Articles of
Incorporation and the Bylaws of the Company, as amended, for
complete statements.
Each holder of shares of the Common Stock is entitled to one
vote for each share of Common Stock held on all questions
submitted to holders of shares and to cumulative voting at all
elections of directors. The Common Stock has no preemptive or
conversion rights. Upon issuance and sale of the shares offered
hereby, such shares will be fully paid and nonassessable.
The holders of the shares of the preference stock are not
accorded voting rights, except that, when dividends thereon are
in default in an amount equivalent to four full quarterly
dividends, the holders of shares of the preference stock are
entitled to vote for the election of one-third of the Board of
Directors or two directors, whichever is greater, and, when
dividends are in default in an amount equivalent to eight full
quarterly dividends, for the election of the smallest number of
directors necessary so that a majority of the full Board of
Directors shall have been elected by the holders of the shares of
the preference stock. The Company must also secure the approval
-14-
<PAGE>
of the holders of two-thirds of the outstanding shares of the
preference stock prior to effecting various changes in its
capital structure.
After the payment of full preferential dividends on the
shares of any outstanding preference stock, holders of shares of
the Common Stock are entitled to dividends when and as declared
by the Board of Directors. After payment to the holders of
shares of any outstanding preference stock of the preferential
amounts to which they are entitled, the remaining assets to be
distributed, if any, upon any dissolution or liquidation will be
distributed to the holders of shares of the Common Stock. Each
share of the Common Stock is equal to every other share of the
Common Stock with respect to dividends and also with respect to
distributions upon any dissolution or liquidation. (Reference is
made to Note 4 to Consolidated Financial Statements contained in
the 1997 10-K.)
The Common Stock of the Company is listed on the New York,
Chicago and Pacific stock exchanges. Application will be made
for the listing on such exchanges of any additional shares
offered hereby.
The transfer agent for the Common Stock is Texas Utilities
Services Inc., Dallas, Texas.
DESCRIPTION OF STOCK PURCHASE
CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, including
contracts that obligate holders to purchase from the Company, and
the Company to sell to such holders, a specified number of shares
of Common Stock at a future date or dates. The consideration per
share of Common Stock may be fixed at the time the Stock Purchase
Contracts are issued or may be determined by reference to a
specific formula set forth in the Stock Purchase Contracts. The
Stock Purchase Contracts may be issued separately or as a part of
Stock Purchase Units consisting of a Stock Purchase Contract and
either Debt Securities or debt obligations of third parties,
including U.S. Treasury securities that are pledged to secure the
holders' obligations to purchase the Common Stock under the Stock
Purchase Contracts. The Stock Purchase Contracts may require the
Company to make periodic payments to the holders of the Stock
Purchase Units or vice versa, and such payments may be unsecured
or prefunded on some basis. The Stock Purchase Contracts may
require holders to secure their obligations thereunder in a
specified manner.
PLAN OF DISTRIBUTION
Any of the Securities being offered hereby may be sold in
any one or more of the following ways from time to time: (i)
through agents; (ii) to or through underwriters; (iii) through
dealers; and (iv) directly by the Company to purchasers.
The distribution of the Securities may be effected from time
to time in one or more transactions at a fixed price or prices,
which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at
negotiated prices.
Offers to purchase Securities may be solicited by agents
designated by the Company from time to time. Any such agent
involved in the offer or sale of the Securities in respect of
which this Prospectus is delivered will be named, and any
commissions payable by the Company to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise
indicated in such Prospectus Supplement, any such agent will be
acting on a reasonable best efforts basis for the period of its
appointment. Any such agent may be deemed to be an underwriter,
as that term is defined in the Securities Act, of the Securities
so offered and sold.
If Securities are sold by means of an underwritten offering,
the Company will execute an underwriting agreement with an
underwriter or underwriters at the time an agreement for such
-15-
<PAGE>
sale is reached, and the names of the specific managing
underwriter or underwriters, as well as any other underwriters,
the respective amounts underwritten and the terms of the
transaction, including commissions, discounts and any other
compensation of the underwriters and dealers, if any, will be set
forth in the applicable Prospectus Supplement which will be used
by the underwriters to make resales of the Securities in respect
of which this Prospectus is being delivered to the public. If
underwriters are utilized in the sale of any Securities in
respect of which this Prospectus is being delivered, such
Securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public
offering prices or at varying prices determined by the
underwriters at the time of the sale. Securities may be offered
to the public either through underwriting syndicates represented
by managing underwriters or directly by one or more underwriters.
If any underwriter or underwriters are utilized in the sale of
Securities, unless otherwise indicated in the applicable
Prospectus Supplement, the underwriting agreement will provide
that the obligations of the underwriters are subject to certain
conditions precedent and that the underwriters with respect to a
sale of such Securities will be obligated to purchase all such
Securities if any are purchased.
The Company may grant to the underwriters options to
purchase additional Securities, to cover over-allotments, if any,
at the initial public offering price (with additional
underwriting commissions or discounts), as may be set forth in
the Prospectus Supplement relating thereto. If the Company grants
any over-allotment option, the terms of such over-allotment
option will be set forth in the Prospectus Supplement for such
Securities.
If a dealer is utilized in the sale of Securities in respect
of which this Prospectus is delivered, the Company will sell such
Securities to the dealer as principal. The dealer may then resell
such Securities to the public at varying prices to be determined
by such dealer at the time of resale. Any such dealer may be
deemed to be an underwriter, as such item is defined in
Securities Act, of the Securities so offered and sold. The name
of the dealer and the terms of the transaction will be set forth
in the Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by
the Company and the sale thereof may be made by the Company
directly to institutional investors or others, who may be deemed
to be underwriters within the meaning of the Securities Act with
respect to any resale thereof. The terms of any such sales will
be described in the Prospectus Supplement relating thereto.
Securities may also be offered and sold, if so indicated in
the applicable Prospectus Supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption
or repayment pursuant to their terms, or otherwise, by one or
more firms ("remarketing firms"), acting as principals for their
own accounts or as agents for the Company. Any remarketing firm
will be identified and the terms of its agreement, if any, with
the Company and its compensation will be described in the
applicable Prospectus Supplement. Remarketing firms may be deemed
to be underwriters, as that term is defined in the Securities
Act, in connection with the Securities remarketed thereby.
If so indicated in the applicable Prospectus Supplement, the
Company may authorize agents and underwriters to solicit offers
by certain institutions to purchase Securities from the Company
at the public offering price set forth in the applicable
Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on the date or dates stated in
the applicable Prospectus Supplement. Such delayed delivery
contracts will be subject to only those conditions set forth in
the applicable Prospectus Supplement. A commission indicated in
the applicable Prospectus Supplement will be paid to underwriters
and agents soliciting purchase of Securities pursuant to delayed
delivery contracts accepted by the Company, as applicable.
Agents, underwriters, dealers and remarketing firms may be
entitled under relevant agreements with the Company, to
indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to
contribution with respect to payments which such agents,
underwriters, dealers and remarketing firms may be required to
make in respect thereof.
-16-
<PAGE>
Each series of Securities will be a new issue and, other
than the Common Stock, which is listed on the New York, Chicago
and Pacific stock exchanges, will have no established trading
market. The Company may elect to list any series of Securities
on an exchange, or in the case of the Common Stock, on any
additional exchange, but, unless otherwise specified in the
applicable Prospectus Supplement, the Company shall not be
obligated to do so. No assurance can be given as to the liquidity
of the trading market for any of the Securities.
Agents, underwriters, dealers and remarketing firms may be
customers of, engage in transactions with, or perform services
for, the Company and its subsidiaries in the ordinary course of
business.
EXPERTS AND LEGALITY
The consolidated financial statements included in the latest
Annual Report of the Company on Form 10-K, incorporated herein by
reference, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report included in said
latest Annual Report of the Company on Form 10-K, and have been
incorporated by reference herein in reliance upon such report
given upon authority of the firm as experts in accounting and
auditing.
With respect to any unaudited condensed consolidated interim
financial information included in the Company's Quarterly Reports
on Form 10-Q which are or will be incorporated herein by
reference, Deloitte & Touche LLP has applied limited procedures
in accordance with professional standards for reviews of such
information. As stated in any of their reports included in the
Company's Quarterly Reports on Form 10-Q, which are or will be
incorporated herein by reference, Deloitte & Touche LLP did not
audit and did not express an opinion on such interim financial
information. Deloitte & Touche LLP is not subject to the
liability provisions of Section 11 of the 1933 Act for any of
their reports on such unaudited condensed consolidated interim
financial information because such reports are not "reports" or a
"part" of the Registration Statement filed under the 1933 Act
with respect to the Securities prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the 1933
Act.
The legality of the securities offered hereby will be passed
upon for the Company by Worsham, Forsythe & Wooldridge, L.L.P.
and by Reid & Priest LLP, and for the Underwriters by Winthrop,
Stimson, Putnam & Roberts, New York, New York. However, all
matters pertaining to incorporation of the Company and all other
matters of Texas law will be passed upon only by Worsham,
Forsythe & Wooldridge, L.L.P. At March 31, 1998, members of the
firm of Worsham, Forsythe & Wooldridge, L.L.P. owned
approximately 41,200 shares of the common stock of the Company.
-17-
<PAGE>
=================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER,
SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
----------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary . . . . . . . . . . . . . . . S-7
Explanatory Diagrams . . . . . . . . . . . . . . . . . . . S-19
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . S-24
Selected Financial Data . . . . . . . . . . . . . . . . . . S-29
Price Range of Common Stock
and Dividends . . . . . . . . . . . . . . . . . . . . . . S-30
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . S-30
Accounting Treatment . . . . . . . . . . . . . . . . . . . S-31
Description of the FELINE PRIDES . . . . . . . . . . . . . S-32
Description of the Purchase Contracts . . . . . . . . . . . S-36
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement . . . . . . . . . . . . S-47
Description of the Senior Notes . . . . . . . . . . . . . . S-51
Certain Federal Income Tax Consequences . . . . . . . . . . S-58
ERISA Considerations . . . . . . . . . . . . . . . . . . . S-65
Underwriting . . . . . . . . . . . . . . . . . . . . . . . S-66
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . S-68
Index of Principal Terms for
Prospectus Supplement . . . . . . . . . . . . . . . . . . S-69
PROSPECTUS
Available Information . . . . . . . . . . . . . . . . . . . . 2
Documents Incorporated by Reference . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Ratio of Earnings
to Fixed Charges . . . . . . . . . . . . . . . . . . . . . . 4
Description of Debt Securities . . . . . . . . . . . . . . . 5
Description of Capital Stock . . . . . . . . . . . . . . . . 14
Description of Stock Purchase Contracts
and Stock Purchase Units . . . . . . . . . . . . . . . . . 15
Plan of Distribution . . . . . . . . . . . . . . . . . . . . 15
Experts and Legality . . . . . . . . . . . . . . . . . . . . 17
=================================================================
=================================================================
TEXAS UTILITIES COMPANY
13,000,000 FELINE PRIDES(SM)
$ SERIES D SENIOR NOTES
DUE 2003
$ SERIES E SENIOR NOTES
DUE 2004
----------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
JULY , 1998
(SM) SERVICE MARK OF MERRILL LYNCH & CO., INC.
=================================================================
