Filed Pursuant to Rule 424(b)(5)
Registration No. 333-45999
TEXAS UTILITIES COMPANY
OFFER TO EXCHANGE ANY OR ALL OF ITS
6.20% SERIES A 6.375% SERIES B
SENIOR NOTES DUE 2002 SENIOR NOTES DUE 2004
FOR FOR
6.20% SERIES A 6.375% SERIES B
EXCHANGE SENIOR NOTES DUE 2002 EXCHANGE SENIOR NOTES DUE 2004
Texas Utilities Company, a Texas corporation (Company), hereby offers
upon the terms and subject to the conditions set forth in this Prospectus
and the accompanying Letter of Transmittal (Letter of Transmittal) to
exchange (Exchange Offer) any and all of its outstanding 6.20% Series A
Senior Notes due 2002 (Series A Notes) for an equal principal amount of its
6.20% Series A Exchange Senior Notes due 2002 (Series A Exchange Notes) and
any and all of its outstanding 6.375% Series B Senior Notes due 2004
(Series B Notes) for an equal principal amount of its 6.375% Series B
Exchange Senior Notes due 2004 (Series B Exchange Notes). Hereinafter the
Series A Exchange Notes and the Series B Exchange Notes are referred to
together as the New Notes, and the Series A Notes and the Series B Notes
are referred to as the Old Notes. The New Notes and the Old Notes are
sometimes referred to herein collectively as the Notes or the Senior Notes.
The forms and terms of the New Notes will be the same as the forms and
terms of the related Old Notes except that the New Notes will be registered
under the Securities Act of 1933, as amended (Securities Act), and hence
(except for any legend required by The Depository Trust Company), will not
bear legends restricting the transfer thereof. Each series of the New
Notes will be entitled to the benefits of the indenture governing the
corresponding series of Old Notes.
The New Notes will be unsecured obligations of the Company. Interest
on the New Notes will be payable semi-annually on April 1 and October 1 of
each year. The New Notes of each series will be redeemable as a whole, at
any time, or in part, from time to time, at the option of the Company, at a
redemption price equal to the sum of (a) the greater of (i) 100% of the
principal amount thereof and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon from the
redemption date to the maturity date, computed by discounting such
payments, in each case, to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate (as defined herein), plus 5 basis points, plus (b) accrued
interest on the principal amount thereof to the redemption date. See
DESCRIPTION OF THE NEW NOTES.
Payment of the principal of and interest on each series of New Notes
when due will be guaranteed by a financial guaranty insurance policy (each,
a Policy), as more fully described herein, to be issued by MBIA Insurance
Corporation (Insurer) on or before the date of issuance and delivery of the
New Notes.
[MBIA logo]
The Company will accept for exchange any and all Old Notes which are
properly tendered to The Bank of New York, as Exchange Agent, in the
Exchange Offer prior to 5:00 p.m., New York City time, on May 13, 1998 (if
and as extended, the Expiration Date). Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. Old Notes may
be tendered only in denominations of $5,000 and integral multiples of
$1,000 in excess thereof.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON MAY 13, 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
(cover continued on following page)
<PAGE>
Based on existing interpretations of the Securities Act by the staff
of the Commission's Division of Corporation Finance (Staff) set forth in
several no-action letters to third parties, and subject to the immediately
following sentence, the Company believes that the New Notes issued pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by the Holders thereof (other than Holders who are broker-
dealers) without further compliance with the registration and prospectus
delivery provisions of the Securities Act. However, any purchaser of Old
Notes (i) who is an affiliate of the Company or (ii) who intends to
participate in the Exchange Offer for the purpose of distributing New
Notes, or any broker-dealer who purchased Old Notes to resell pursuant to
Rule 144A or any other available exemption under the Securities Act (i)
will not be able to rely on the interpretation of the Staff set forth in
the above-mentioned no-action letters, (ii) will not be entitled to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes unless such sale or
transfer is made pursuant to any exemption from such requirements. The
Company does not intend to seek its own no-action letter, and there can be
no assurance that the Staff would make a similar determination with respect
to the New Notes as it has in such no-action letters to other parties. See
"THE EXCHANGE OFFER."
The Company believes that none of the Holders of the Old Notes is an
affiliate (as such term is defined in Rule 405 under the Securities Act) of
the Company.
The Company will not receive any proceeds from the Exchange Offer.
The Company has agreed to bear the expenses of the Exchange Offer. No
underwriter is being used in connection with the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is April 8, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 3
DOCUMENTS INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . . 4
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 9
THE COMPANY AND ITS SUBSIDIARIES . . . . . . . . . . . . . . . . . . 10
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 11
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF THE NEW NOTES . . . . . . . . . . . . . . . . . . . . 19
NEW NOTE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 31
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . 34
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 36
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN
OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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.
3
<PAGE>
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 Current Reports on Form 8-K dated February 26 and
March 13, 1998.
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, 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 NEW NOTES, 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 THE INDENTURES AND
OFFICER'S CERTIFICATES, 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 INSURER
Certain financial information regarding the Insurer is incorporated
herein by reference. See NEW NOTE INSURANCE.
4
<PAGE>
SUMMARY INFORMATION
The following summary information is qualified in its entirety by the
information contained elsewhere in this Prospectus and in the Incorporated
Documents.
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. 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 November 1997, the Company
acquired Lufkin-Conroe Communications Co. (LCC), a privately held,
independent local exchange telephone company, which subsequently became a
subsidiary of TEI. In addition, a subsidiary of the Company has made a
tender offer for all of the outstanding shares of The Energy Group PLC
(TEG), a diversified international energy group, and currently holds 21.96%
of such shares. See THE COMPANY AND ITS SUBSIDIARIES.
THE PRIVATE OFFERING
OLD NOTES......... The Company issued and sold $125,000,000 principal
amount of its 6.20% Series A Senior Notes due 2002, and
$175,000,000 principal amount of its 6.375% Series B
Senior Notes due 2004 to Lehman Brothers Inc., Citicorp
Securities, Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (Initial Purchasers) in a
transaction exempt from the registration requirements
of the Securities Act (Private Offering). The Initial
Purchasers sold the Old Notes to certain qualified
institutional buyers pursuant to Rule 144A under the
Securities Act.
USE OF PROCEEDS... The Company received approximately $298,000,000 in net
proceeds from the Private Offering, after deducting
discounts to the Initial Purchasers and expenses of the
Private Offering. The Company used the net proceeds
for investment in the common stocks of subsidiaries and
for other corporate purposes. The Company will not
receive any proceeds from the Exchange Offer.
THE EXCHANGE OFFER
THE NOTE EXCHANGE
OFFER............. The Company is offering to exchange Series A Exchange
Notes and Series B Exchange Notes in principal amounts
of $5,000 and integral multiples of $1,000 in excess
thereof for equal principal amounts of Series A Notes
and Series B Notes, respectively, that are properly
tendered and accepted. The Company will issue the New
Notes on or promptly after the Expiration Date. There
is $125,000,000 aggregate principal amount of Series A
Notes and $175,000,000 aggregate principal amount of
Series B Notes outstanding. See THE EXCHANGE OFFER.
5
<PAGE>
RESALE OF
NEW NOTES......... Based on existing interpretations of the Securities Act
by the staff of the Commission's Division of
Corporation Finance (Staff) set forth in several no-
action letters to third parties, and subject to the
immediately following sentence, the Company believes
that the New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise
transferred by the Holders thereof (other than Holders
who are broker-dealers) without further compliance with
the registration and prospectus delivery provisions of
the Securities Act. However, any purchaser of Old
Notes (i) who is an affiliate of the Company or
(ii) who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any
broker-dealer who purchased Old Notes to resell
pursuant to Rule 144A or any other available exemption
under the Securities Act (i) will not be able to rely
on the interpretation of the Staff set forth in the
above-mentioned no-action letters, (ii) will not be
entitled to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the Old
Notes unless such sale or transfer is made pursuant to
any exemption from such requirements. The Company does
not intend to seek its own no-action letter, and there
can be no assurance that the Staff would make a similar
determination with respect to the New Notes as it has
in such no-action letters to other parties.
Each Holder of Old Notes (other than certain specified
Holders) that wishes to exchange Old Notes for New
Notes in the Exchange Offer will be required to
represent that (i) it is not an affiliate of the
Company, (ii) the New Notes to be received by it were
acquired in the ordinary course of its business and
(iii) at the time of the Exchange Offer, it has no
arrangement with any person to participate in the
distribution (within the meaning of the Securities Act)
of the New Notes. In addition, in connection with any
resales of New Notes, any broker-dealer (Participating
Broker-Dealer) that acquired Old Notes for its own
account as a result of market-making or other trading
activities must deliver a prospectus meeting the
requirements of the Securities Act. The Staff has
taken the position that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with
respect to New Notes (other than resale of an unsold
allotment from the original sale of Old Notes) with the
prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement,
the Company is required to allow Participating Broker-
Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement
in connection with the resale of such New Notes.
EXPIRATION DATE... The Exchange Offer will expire at 5:00 p.m., New York
City time, on May 13, 1998 unless extended, in which
case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered on or promptly after
the Expiration Date.
6
<PAGE>
PROCEDURES FOR
TENDERING
OLD NOTES......... Each Holder of Old Notes wishing to participate in the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal,
or such facsimile, together with such Old Notes (if
held in certificated form) and any other required
documentation to The Bank of New York, as exchange
agent for the Notes (the Exchange Agent). By executing
the Letter of Transmittal, each Holder will represent
to the Company that, among other things, the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Notes, that such person will
not and has no arrangement or understanding with any
person to participate in the distribution of such New
Notes, and that neither the Holder nor any such other
person is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company.
SPECIAL PROCEDURES
FOR BENEFICIAL
OWNERS............ Any beneficial owner whose interests in the Old Notes
are registered in the name of a broker, dealer,
commercial bank, trust company, nominee, or other
securities intermediary and who wishes to tender such
Old Notes in the Exchange Offer should contact such
securities intermediary promptly and instruct such
securities intermediary to tender on such beneficial
owner's behalf. If a beneficial owner whose Old Notes
are in certificated form wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in
such owner's name or obtain a properly completed
assignment from the registered Holder. The transfer of
registered ownership may take considerable time and
might not be completed prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES........ Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or
who cannot deliver their Old Notes or the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in THE
EXCHANGE OFFER--"Procedures for Tendering."
WITHDRAWAL RIGHTS. Tenders of Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date.
EXCHANGE AGENT.... The Bank of New York is the Exchange Agent. Its
telephone number is (212) 815-5942. The address of the
Exchange Agent is set forth in THE EXCHANGE
OFFER--"Exchange Agent."
THE NEW NOTES
NEW NOTES......... $125,000,000 principal amount of the Company's 6.20%
Series A Exchange Senior Notes due 2002, and
$175,000,000 principal amount of the Company's 6.375%
Series B Exchange Senior Notes due 2004.
MATURITY.......... The Series A Exchange Notes will mature on October 1,
2002.
The Series B Exchange Notes will mature on October 1,
2004.
INTEREST ACCRUAL.. Interest on each series of New Notes will accrue from
the last date on which semi-annual interest was paid on
the Old Notes of each series or, if no interest has
been paid on the Old Notes, from October 10, 1997.
INTEREST PAYMENT
DATES............. April 1 and October 1 of each year (Interest Payment
Dates).
7
<PAGE>
REDEMPTION........ The New Notes of each series may be redeemed as a
whole, at any time, or in part, from time to time, at
the option of the Company, at a redemption price equal
to the sum of (a) the greater of (i) 100% of the
principal amount thereof and (ii) the sum of the
present values of the remaining scheduled payments of
principal and interest thereon from the redemption date
to the maturity date, computed by discounting such
payments, in each case, to the redemption date on a
semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate (as
defined herein), plus 5 basis points, plus (b) accrued
interest on the principal amount thereof to the date of
redemption. See DESCRIPTION OF THE NEW NOTES--
"Redemption."
RANKING........... The New Notes will be unsecured obligations of the
Company and, so long as they are unsecured, will rank
pari passu with all senior unsecured indebtedness of
the Company. The Indenture (as defined herein) 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 New Notes
will be effectively subordinated to debt and preferred
stock at the subsidiary level. See DESCRIPTION OF THE
NEW NOTES--"General."
SENIOR NOTE
INSURANCE......... Payment of the principal of and interest on each series
of New Notes when due will be guaranteed by a Policy,
as more fully described herein, to be issued by the
Insurer on the Expiration Date.
FORM AND
DENOMINATION...... The New Notes will be issued in fully registered form
only in denominations of $5,000 and in integral
multiples of $1,000 in excess thereof.
DTC ELIGIBILITY... New Notes of each series will be represented by a
Global Certificate deposited with, or on behalf of, The
Depository Trust Company (DTC) or its nominee. See
DESCRIPTION OF THE NEW NOTES--"Book-Entry."
SAME DAY
SETTLEMENT........ It is expected that beneficial interests in the New
Notes will trade in DTC's Same-Day Funds Settlement
System until maturity. Therefore, secondary market
trading activity in such interests will be settled in
immediately available funds.
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 New Notes,
with certain exceptions. See DESCRIPTION OF THE NEW
NOTES--"Limitation on Liens."
ASSIGNMENT OF
OBLIGATIONS....... The Company may assign all its obligations with respect
to either or both series of the New Notes to a wholly-
owned subsidiary which assumes such obligations. At
the time of any such assignment, the Company will fully
and unconditionally guarantee the payment as and when
due of the principal of, premium, if any, and interest
on, such New Notes. See DESCRIPTION OF THE NEW NOTES--
"Assignment of Obligations."
EFFECT OF NOT
TENDERING......... Any Old Note not tendered in the Exchange Offer will
remain outstanding and continue to accrue interest, but
will not retain any rights under the Registration
Rights Agreement relating to the Old Notes (except in
the case of the Initial Purchasers and Participating
Broker-Dealers as provided therein).
TRUSTEE, REGISTRAR
AND PAYING
AGENT............. The Bank of New York
8
<PAGE>
SUMMARY FINANCIAL INFORMATION
(THOUSANDS OF DOLLARS, EXCEPT 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, including 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, no financial information for
those companies is included for periods prior to their dates of
acquisition.
TWELVE MONTHS ENDED
-------------------------------------------
DECEMBER 31,
-------------------------------------------
1993 1994 1995
------------- ------------- -------------
Income statement data:
Operating Revenues . . $5,434,512 $5,663,543 $5,638,688
Net Income (Loss) (a) . $ 368,660 $ 542,799 $ (138,645)
Ratio of Earnings to
Fixed Charges (a) . . 1.89 2.29 0.84
TWELVE MONTHS ENDED
---------------------------
DECEMBER 31,
---------------------------
1996 1997
---------- ----------
Income statement data:
Operating Revenues . . . . $6,550,928 $7,945,608
Net Income (Loss) (a) . . . $ 753,606 $ 660,454
Ratio of Earnings to
Fixed Charges (a) . . . . 2.39 2.25
ADJUSTED(b)
------------------
OUTSTANDING AT
DECEMBER 31,
1997 AMOUNT PERCENT
-------------- ------ -------
Capitalization:
Long-term Debt,
less amounts due currently . $ 8,759,379 $ 9,118,629 53.6%
Preferred Stock:
Not subject to mandatory
redemption . . . . . . . . 304,194 190,056
Subject to mandatory
redemption . . . . . . . . 20,600 20,600
----------- -----------
Total Preferred Stock . . 324,794 210,656 1.2
TU Electric Obligated Mandatorily
Redeemable Preferred Securities
of Trusts Holding Solely
Debentures of TU Electric (c) . 875,146 827,772 4.9
Common Stock Equity . . . . . . . 6,843,062 6,843,062 40.3
----------- ----------- ------
Total Capitalization . . . . . $16,802,381 $17,000,119 100.0%
=========== =========== ======
(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 $80 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) To give effect to (1) the issuance by the Company in January 1998 of
the Old Notes, (2) the issuance by ENSERCH in January 1998 of
$250,000,000 aggregate principal amount of its 6-1/4% Series A Notes
and Remarketed Reset Notes, (3) the redemption by TU Electric in
January 1998 of $14,138,000 liquidation amount of its $8.20 cumulative
preferred stock, (4) the redemption by TU Electric Capital II in
January 1998 of $47,374,000 liquidation amount of its 9.00% preferred
trust securities and (5) the redemption by ENSERCH in January 1998 of
$100,000,000 liquidation value of its Series E Preferred Stock and in
March 1998 of $90,750,000 aggregate principal amount of its 6-3/8%
convertible subordinated debentures. Adjusted amounts do not reflect
any possible future (i) sales from time to time by the Company of up
to approximately 14,154,372 shares of its common stock pursuant to the
Company's Direct Stock Purchase and Dividend Reimbursement Plan and
certain employe benefit plans and exchange by the Company of up to
41,368,470 shares of its common stock for shares of TEG in connection
with the Company's offer to purchase TEG shares, (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 and ENSERCH Capital I of up to $250,000,000
aggregate principal amount of securities, for each of which
registration statements are effective pursuant to Rule 415 under the
Securities Act.
(c) The sole assets of such trusts consist of junior subordinated
debentures of TU Electric in principal amounts, and having other
payment terms, corresponding to the securities issued by such trusts.
9
<PAGE>
THE COMPANY AND ITS SUBSIDIARIES
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 (Mergers).
TEI, a Texas corporation, is a holding company whose principal
subsidiary, 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. Two other subsidiaries of TEI are engaged directly or
indirectly in electric utility operations: (i) Southwestern Electric
Service Company, 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 Southwestern Electric Service Company nor Eastern Energy Limited
generates any electricity. In November 1997, the Company consummated the
acquisition of 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 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 January 1998, the Company announced that it had approached TEG, a
diversified international energy group, in connection with its possible
interest in acquiring TEG. TEG is the holding company for Eastern
Electricity 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 March
2, 1998, the Company announced through its wholly owned subsidiary, TU
Acquisitions PLC (TU Acquisitions), an offer to holders of TEG securities
to acquire 100% of TEG's ordinary shares, including the ordinary shares
evidenced by American Depository Receipts, which was increased on March 3,
1998, to an offer of L8.40 per share. Alternatively, up to 20% of the TEG
shares may be exchanged for Company common stock with a value of
approximately L8.65 per TEG share. There is currently a competing offer
for TEG shares of L8.20 per share. The offer by the Company is subject to
certain conditions and to certain regulatory consents and confirmations
which the Company anticipates will be satisfactorily resolved within the
normal timetable for an offer in the U.K. As of April 8, 1998, the Company
had acquired 21.96% of TEG's shares in the U.K. market. The TEG businesses
to be acquired by the Company (which exclude TEG's Peabody Coal and
Citizens Power businesses, which are to be sold by TEG to an unaffiliated
party in connection with the Company's offer) had assets of approximately
$10.3 billion at September 30, 1997 and $5.2 billion of revenues for the
twelve months ended on that date. Such businesses had debt outstanding at
September 30, 1997 of approximately $3.8 billion. The estimated purchase
price for the TEG shares is approximately $7.3 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
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(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, TU Australia agreed to make an offer of
approximately $138 million for all outstanding shares of Allgas Energy
Limited (Allgas), a publicly held gas distribution company in Queensland,
Australia. The offer, which was increased to approximately $145 million on
April 8, 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 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.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Company issued and sold the Old Notes on October 10, 1997 to the
Initial Purchasers in a Private Offering pursuant to a Purchase Agreement,
dated October 7, 1997 (Purchase Agreement). The Initial Purchasers
subsequently sold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act (QIB's).
Pursuant to the Purchase Agreement, the Company and the Initial
Purchasers entered into a Registration Rights Agreement, dated October 10,
1997, with respect to each series of Old Notes (each a Registration Rights
Agreement). Pursuant to the Registration Rights Agreements, the Company
agreed to use its reasonable best efforts to consummate the Exchange Offer
within 30 days after this Prospectus is mailed to the Holders. The
Registration Rights Agreements have identical terms, except for the
description in each case of the related Old Notes, a copy of each
Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and the
description herein of the terms of the Registration Rights Agreements is
qualified in its entirety by reference thereto. The Registration Statement
of which this Prospectus is a part is intended to satisfy the Company's
obligations with respect to the registration of the Old Notes in accordance
with the terms of the Registration Rights Agreements.
Based on existing interpretations of the Securities Act by the staff
of the Commission's Division of Corporation Finance (Staff) set forth in
several no-action letters to third parties, and subject to the immediately
following sentence, the Company believes that the New Notes issued pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by the Holders thereof (other than Holders who are broker-
dealers) without further compliance with the registration and prospectus
delivery provisions of the Securities Act. However, any purchaser of Old
Notes (i) who is an affiliate of the Company or (ii) who intends to
participate in the Exchange Offer for the purpose of distributing New
Notes, or any broker-dealer who purchased Old Notes to resell pursuant to
Rule 144A or any other available exemption under the Securities Act (i)
will not be able to rely on the interpretation of the Staff set forth in
the above-mentioned no-action letters, (ii) will not be entitled to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes unless such sale or
transfer is made pursuant to any exemption from such requirements. The
Company does not intend to seek its own no-action letter, and there can be
no assurance that the Staff would make a similar determination with respect
to the New Notes as it has in such no-action letters to other parties.
Each Holder of Old Notes (other than certain specified Holders) that
wishes to exchange Old Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of the Company, (ii)
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the New Notes to be received by it were acquired in the ordinary course of
its business and (iii) at the time of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in
connection with any resales of New Notes, any broker-dealer (Participating
Broker-Dealer) that acquired Old Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting
the requirements of the Securities Act. The Staff has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to New Notes (other than resale of an unsold
allotment from the original sale of Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any
and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Company will issue Series
A Exchange Notes and Series B Exchange Notes in principal amounts equal to
$5,000 and integral multiples of $1,000 in excess thereof in exchange for
equal principal amounts of outstanding Series A Notes and Series B Notes,
respectively, surrendered pursuant to the Exchange Offer. Old Notes may be
tendered only in denominations of $5,000 and integral multiples of $1,000
in excess thereof.
The form and terms of the New Notes of each series will be the same as
the form and terms of the Old Notes of the related series except that the
New Notes will be registered under the Securities Act and hence will not
bear legends restricting the transfer thereof. The New Notes of each
series will evidence the same debt as the Old Notes of the related series.
The New Notes of each series will be issued under and entitled to the
benefits of the Indenture pursuant to which the related Old Notes were
issued.
As of the date of this Prospectus, there were outstanding $125,000,000
aggregate principal amount of Series A Notes and $175,000,000 aggregate
principal amount of Series B Notes. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered Holders of the Old
Notes.
The Company intends to conduct the Exchange Offer in accordance with
the provisions of the Registration Rights Agreements and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes that are not tendered for exchange in the
Exchange Offer will remain outstanding and will be entitled to the rights
and benefits such Holders have under the Indenture.
The Company shall be deemed to have accepted properly tendered Old
Notes when, as and if the Company shall have given oral or written notice
thereof to the exchange agent for the Exchange Offer (Exchange Agent). The
Exchange Agent will act as agent for the tendering Holders for the purposes
of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering registered Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below,
in connection with the Exchange Offer. See "Fees and Expenses."
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time
on May 13, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to
the registered Holders an announcement thereof prior to 9:00 a.m., New York
City time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions"
shall not have been satisfied by giving oral or written notice of such
delay, extension or termination to the Exchange Agent or (ii) to amend the
terms of the Exchange Offer in any manner consistent with the Registration
Rights Agreements. Any such delay in acceptances, extension, termination
or amendment will be followed as promptly as practicable by oral or written
notice thereof to the registered Holders. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the
Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of
the Exchange Offer, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "Conditions." For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company shall have
given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of the New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only
after timely receipt by the Exchange Agent of a properly completed and duly
executed Letter of Transmittal and all other required documents; provided,
however, that the Company reserves the absolute right to waive any defects
or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the Holder desires to exchange, then
such unaccepted or non-exchanged Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
registered Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to exchange any New Notes for any Old Notes of either
series and may terminate the Exchange Offer before the acceptance of any
Old Notes for exchange, if, with respect to such series:
(i) the Exchange Offer violates any applicable law or
interpretation of the staff of the Commission;
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(ii) any action or proceeding has been instituted or threatened
in any court or by or before any governmental agency with respect to the
Exchange Offer which, in the reasonable judgment of the Company, would or
might impair the ability of the Company to proceed with the Exchange Offer;
(iii) there has been any material change, or development
involving a prospective change, in the business or financial affairs of
the Company or any of its subsidiaries which, in the reasonable
judgment of the Company, would materially impair the Company's ability
to consummate the Exchange Offer or have a material adverse effect on
the Company if the Exchange Offer is consummated;
(iv) there has been proposed, adopted, or enacted any law,
statute, rule or regulation which, in the reasonable judgment of the
Company, might materially impair the ability of the Company to proceed with
the Exchange Offer or have a material adverse effect on the Company if the
Exchange Offer is consummated; or
(v) all governmental approvals which the Company shall
reasonably deem necessary for the consummation of the Exchange Offer as
contemplated shall not have been obtained.
If the Company determines in its sole discretion that any of these
circumstances exist, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of Holders who tendered
such Old Notes to withdraw their tendered Old Notes or (iii) waive any
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the Holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the Holders, if
the Exchange Offer would otherwise expire during such five to ten business
day period.
PROCEDURES FOR TENDERING
To tender Old Notes in the Exchange Offer, a Holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent prior to the Expiration Date. In addition, either (i) a
timely confirmation of book-entry transfer (Book-Entry Confirmation) of
such Old Notes into the Exchange Agent's account at DTC (Book-Entry
Transfer Facility) pursuant to the procedure for book-entry transfer
described below must be received by the Exchange Agent prior to the
Expiration Date, or (ii) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (iii) the
Holder must comply with the guaranteed delivery procedures described below.
The same Letter of Transmittal may be used for Old Notes of either or both
series. To be tendered effectively, the Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address
set forth below under "Exchange Agent" prior to the Expiration Date.
A tender by a Holder which is not withdrawn prior to the Expiration
Date will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
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DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose interests in the Old Notes are registered
in the name of a broker, dealer, commercial bank, trust company, nominee or
other securities intermediary and who wishes to tender should contact such
securities intermediary promptly and instruct such securities intermediary
to tender on such beneficial owner's behalf. If any such beneficial owner
whose Old Notes are in certificated form wishes to tender on such owner's
own behalf, such owner must, prior to completing and executing the Letter
of Transmittal and delivering such owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
owner's name or obtain a properly completed assignment from the Holder.
The transfer of ownership may take considerable time and might not be
completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Notes tendered pursuant thereto are tendered (i) by a
Holder who has not completed the box entitled "Special Payment
Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantor must be a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (Eligible Institution).
If the Letter of Transmittal is signed by a person other than the
Holder of any Old Notes in certificated form listed therein, such Old Notes
must be endorsed or accompanied by a properly completed assignment signed
by such Holder as such Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or assignment are signed
by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived
by the Company, evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right to waive
any defects, irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Although the Company intends to
notify registered Holders of defects or irregularities with respect to
tenders of Old Notes, none of the Company, the Exchange Agent or any other
person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent as the case may be, to the tendering
registered Holders, unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding
subsequent to the Expiration Date or, as set forth above under
"Conditions," to terminate the Exchange Offer and, to the extent permitted
by applicable law, purchase Old Notes in the open market, in privately
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<PAGE>
negotiated transactions or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
By tendering, each Holder will represent to the Company that, among
other things, (i) the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving
beneficial ownership of such New Notes, whether or not such person is the
Holder, (ii) neither the Holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes (iii) neither the
Holder nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such New Notes, and (iv)
neither the Holder nor any such other person is an "affiliate," as defined
in Rule 405 of the Securities Act, of the Company.
In all cases, issuance of New Notes that are accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a
greater principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to
the tendering Holder thereof (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account, respectively, at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with. As
of the date of this Prospectus, all of the outstanding Old Notes are in
book-entry form.
GUARANTEED DELIVERY PROCEDURES
Holders of Old Notes in certificated form who wish to tender their Old
Notes and (i) whose Old Notes are not immediately available or (ii) who
cannot deliver their Old Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
notice (Notice of Guaranteed Delivery), by facsimile transmission,
mail or hand delivery, setting forth the name and address of the
Holder, the certificate number(s) of such Old Notes and the principal
amount of Old Notes tendered stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the
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Old Notes and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal
(or facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer and other documents
required by the Letter of Transmittal are received by the Exchange
Agent within five New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent a Notice of Guaranteed Delivery
will be sent to Holders of Old Notes in certificated form who wish to
tender their Old Notes according to the guaranteed delivery procedures set
forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a Holder must
send to the Exchange Agent, prior to 5:00 p.m., New York City time on the
Expiration Date, a telegram, facsimile transmission or letter setting forth
(i) the name of such Holder, (ii) the series and principal amount of Old
Notes delivered for exchange and (iii) a statement that such Holder is
withdrawing such Old Notes for exchange. Any such notice of withdrawal
must be signed by the Holder in the same manner as the original signature
on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees). If the Holder tenders Old
Notes in certificated form, such notice must also (i) specify the name of
the person having deposited such Old Notes delivered for exchange and (ii)
identify the Old Notes to be withdrawn (including the certificate number).
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes
which have been tendered but which are not accepted for payment will be
returned to the registered Holder thereof without cost to such Holder as
soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the Expiration Date.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery with respect to the exchange of
the Old Notes should be directed to the Exchange Agent addressed as
follows:
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By Registered Mail or Certified By Overnight Courier:
Mail:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Attention: Reorganization Section, Window
Theresa Gass Ground Level
Attention: Reorganization
Section,
Theresa Gass
By Telephone: By Facsimile:
(212) 815-5942 (212) 815-6339
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by the Company. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telecopier, telephone or in person by officers
and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers-dealers or others
soliciting acceptances of the Exchange Offer. The Company will pay the
Exchange Agent reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company and are estimated in the aggregate to be
approximately $350,000. Such expenses include registration fees, fees and
expenses of the Exchange Agent, accounting and legal fees and printing
costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Old Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the Holder of Old Notes tendered, or if
tendered the Old Notes are registered in the name of, any person other than
the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by
the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
Holder.
The Exchange Offer is being effected to satisfy the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any proceeds from the Exchange Offer. In consideration of issuing
the New Notes in the Exchange Offer, the Company will receive an equal
principal amount of the Old Notes. Old Notes that are properly tendered in
the Exchange Offer and not validly withdrawn will be accepted, cancelled
and retired and cannot be reissued.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes. The net proceeds of approximately $298,000,000 received by the
Company from the sale of the Old Notes has been used to make additional
investments in the common stocks of its subsidiary companies to enable such
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subsidiaries to fund construction programs, redeem their securities or
retire them as they mature and to repay short term borrowings incurred for
similar purposes.
DESCRIPTION OF THE NEW NOTES
GENERAL
Each series of New Notes will be issued pursuant to an Indenture (for
Unsecured Debt Securities) dated as of October 1, 1997 (individually, an
Indenture and collectively, the Indentures), in each case, between the
Company and The Bank of New York (Trustee) pursuant to which the
corresponding Old Notes were issued and an officer's certificate
establishing such series (individually, an Officer's Certificate and
collectively, the Officer's Certificates). While each series of New Notes
will be issued pursuant to an entirely separate Indenture and Officer's
Certificate and insured by a separate Policy, each series of New Notes will
contain substantially the same terms and provisions as the other except for
differences in the maturity date and the interest rates. In the following
description of the terms of the New Notes, except as otherwise noted,
references to the New Notes, the Debt Securities, the Indenture, the
Officer's Certificate, the Trustee, the Insurer and the Policy relate to
each series of New Notes, and this description should be read as referring
to each series of New Notes as a separate series.
The following description of the terms of the New Notes does not
purport to be complete and is qualified in its entirety by reference to
(i) the Indentures and (ii) the Officer's Certificates. Whenever
particular provisions or defined terms in the Indentures and Officer's
Certificates are referred to under this DESCRIPTION OF NEW NOTES, such
provisions or defined terms are incorporated by reference herein.
The Indenture provides for the issuance of debt securities (including
the New Notes), notes or other unsecured evidences of indebtedness by the
Company (each a Debt Security) in an unlimited amount from time to time.
The New Notes will be unsecured obligations of the Company which, so long
as they are unsecured, will rank pari passu in right of payment of
principal and interest with all other existing and future senior unsecured
obligations of the Company. 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 New Notes,
with certain exceptions. However, the Indenture does not limit the
aggregate amount of indebtedness the Company or its subsidiaries may issue.
The Company is a holding company that derives substantially all of its
income from its operating subsidiaries. The New 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.
New Notes of each series will be represented by a Global Certificate,
will be issued only in fully registered form and, when issued, will be
registered in the name of Cede & Co., as registered owner and as nominee
for DTC. DTC will act as securities depository for the New Notes, with
certain exceptions. Purchases of beneficial interests in the New Notes
will be made in book-entry form. Except as described below, purchasers of
such beneficial interests will not receive certificates representing their
beneficial interests in the New Notes. See "Book-Entry" below.
Purchases of New Notes or beneficial interests therein may be made in
denominations of $5,000 or any integral multiples of $1,000 in excess
thereof.
PRINCIPAL AMOUNT, INTEREST AND MATURITY
The New Notes will be issued as a series of Debt Securities under the
Indenture. The Officer's Certificate with respect to the Series A Exchange
Notes limits the aggregate principal amount of the Series A Exchange Notes
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to $125,000,000. The Officer's Certificate with respect to the Series B
Exchange Notes limits the aggregate principal amount of the Series B
Exchange Notes to $175,000,000.
The Series A Exchange Notes will mature on October 1, 2002. The
Series B Exchange Notes will mature on October 1, 2004. The New Notes of
each series will bear interest at the rate per annum shown in the title
thereof, payable semi-annually in arrears on April 1 and October 1 in each
year. The New Notes of each series will bear interest from the date of the
most recent Interest Payment Date for the corresponding Old Notes to which
interest has been paid or duly provided for with respect to such Old Notes,
or if no such interest has been paid or duly provided for, from October 10,
1997, but if interest has been paid on or duly provided for with respect to
such New Notes, then from the most recent Interest Payment Date to which
interest has been paid or duly provided for. Interest will be paid to the
persons in whose names New Notes are registered at the close of business on
the 15th day of the calendar month next preceding each semi-annual interest
payment date. The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months and for any
period shorter than a full month, on the basis of the actual number of days
elapsed (Section 310). In the event that any date on which interest is
payable on a series of the New Notes is not a Business Day, then payment of
the interest 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), with the same force and effect as if made on
the date the payment was originally payable (Section 113).
Principal and interest payments on the New Notes will be made by the
Company to Cede & Co. (as nominee of DTC) so long as Cede & Co. is the
registered owner. Disbursement of such payments to the DTC Participants is
the responsibility of DTC, and disbursement of such payments to the
beneficial owners of the New Notes is the responsibility of DTC
Participants and Indirect Participants, all as described below under "Book-
Entry."
REDEMPTION
The New Notes will be redeemable as a whole at any time or in part,
from time to time, at the option of the Company, at a redemption price
equal to the sum of (a) the greater of (i) 100% of the principal amount of
such New Notes and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon from the redemption
date to the maturity date, computed by discounting such payments, in each
case, to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate, plus 5 basis
points, plus (b) accrued interest on the principal amount thereof to the
date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity
comparable to the remaining term of such New Notes to be redeemed that
would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining terms of such New Notes.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) on the third Business Day preceding such redemption date, as set
forth in the daily statistical release (or any successor release) published
by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities" or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
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Business Day, the average of the Reference Treasury Dealer Quotations
actually obtained by the Trustee for such redemption date. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee,
of the bid and asked prices for the Comparable Treasury Issue (expressed in
each case as a percentage of its principal amount) quoted in writing to the
Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third
Business Day preceding such redemption date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc.,
Citicorp Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and their respective successors; provided, however, that if
any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but no more
than 60 days before the redemption date to each registered Holder of New
Notes to be redeemed. If, at the time notice of redemption is given, the
redemption moneys are not held by the Trustee, the redemption may be made
subject to their receipt on or before the date fixed for redemption and
such notice shall be of no effect unless such moneys are so received.
Upon payment of the redemption price, on and after the redemption date
interest will cease to accrue on the New Notes or portions thereof called
for redemption.
PAYMENT AND PAYING AGENTS
Interest on each New Note on each Interest Payment Date will be paid
to the Person in whose name such New Note 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, hereinafter 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 New Note, such defaulted interest
may be payable to the Person in whose name such New Note is registered as
of the close of business on a date selected by the Trustee which is not
more than 15 days and not less than 10 days prior to the date proposed by
the Company for payment of such defaulted interest or in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which such New Note may be listed, if the Trustee deems such manner of
payment practicable (Indenture, Section 307).
The principal of and premium, if any, and interest on, the New Notes
at Maturity will be payable upon presentation of the New Notes 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 New Notes, 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
The transfer of New Notes may be registered, and New Notes may be
exchanged for other New Notes of the same series, 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 New Notes. The Company may change the place for
registration of transfer and exchange of the New Notes and may designate
one or more additional places for such registration and exchange, all at
its discretion. No service charge will be made for any transfer or
exchange of the New Notes, 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
New Notes. (Indenture, Section 305).
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DEFEASANCE
The principal amount of any series of Debt Securities issued under the
Indenture will be deemed to have been paid for purposes of the Indenture
and the entire indebtedness of the Company in respect thereof will be
deemed to have been satisfied and discharged if there will have been
irrevocably deposited with the 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 the
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 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.
PAYMENTS TO THE INSURER; SUBROGATION RIGHTS
In the event that the principal and/or interest due on the New Notes
shall be paid by the Insurer pursuant to the Policy, the New Notes shall
continue to be Outstanding within the meaning of the Indenture for all
purposes and the Insurer will be subrogated to the rights of the Holders of
such New Notes.
LIMITATION 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 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).
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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 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.
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ASSIGNMENT OF OBLIGATIONS
The Company may assign its obligations under any series of the Debt
Securities, including the New Notes, 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, and,
provided further that, with respect to the New Notes, in the absence of an
Insurer Default and as long as the Policy remains in effect, no such
assignment and assumption shall be made without the consent of the Insurer,
which consent shall not be unreasonably withheld. 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. In
addition, such subsidiary shall assume the Company's obligations under the
Registration Rights Agreement.
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 the 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 will 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 the 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, will
have occurred and be continuing, and (iii) the Company will have delivered
to the Trustee an Officer's Certificate and an Opinion of Counsel as
provided in the Indenture (Indenture, Section 1101). The terms of the
Indenture do 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 the Indenture (other than a covenant or warranty
of the Company in the Indenture solely for the benefit of one or more
series of Debt Securities other than such series) for 60 days after written
notice to the Company by the Trustee, or to the Company and the Trustee by
the Holders of at least 33% in principal amount of the Debt Securities of
such series Outstanding under the Indenture as provided in the 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,
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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 will 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 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 occurs and is continuing, then either the Trustee or the holders of
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 the Indenture applicable to all Outstanding Debt Securities
or due to certain events of bankruptcy, insolvency or reorganization of the
Company has occurred and is continuing, either the Trustee or the holders
of not less than 33% in principal amount of all 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. There is no automatic acceleration, even in the event of
bankruptcy, insolvency or reorganization of the Company.
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 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;
(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 the Trustee under the Indenture; and
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(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 the
Indenture (Indenture, Section 802).
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default will occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders,
unless such holders will have offered to the Trustee reasonable 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 the 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 the Trustee, or
exercising any trust or power conferred on the 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, 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 the
Indenture (Indenture, Section 812).
No Holder of Debt Securities of any series will have any right to
institute any proceeding with respect to the 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 Trustee written notice
of a continuing Event of Default with respect to the Debt Securities of
such series, (ii) the holders of not less than a majority in aggregate
principal amount of the Outstanding Debt Securities of all series in
respect of which an Event of Default will have occurred and be continuing,
considered as one class, have made written request to the Trustee, and such
holder or holders have offered reasonable indemnity to the Trustee to
institute such proceeding in respect of such Event of Default in its own
name as trustee and (iii) the 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).
In the absence of an Insurer Default and as long as the Policy remains
in effect, without the consent of the Insurer, which consent shall not be
unreasonably withheld, (i) no acceleration of the New Notes upon the
occurrence of an Event of Default may be declared and (ii) the Trustee may
not waive a default or annul a declaration that the principal of the New
Notes and interest thereon are immediately due and payable. For the
purposes of the provisions of the Indenture governing the enforcement of
remedies available to the holders of New Notes, the Insurer shall be deemed
to be the sole holder of the New Notes except with respect to the
acceleration of the New Notes upon the occurrence of an Event of Default
and except with respect to the right of each holder of New Notes to
initiate suit for the enforcement of the payment of the principal of, and
premium, if any, and interest on the New Notes at and after the due dates
thereof.
The Company will be required to furnish to the 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 Indenture,
such compliance to be determined without regard to any period of grace or
requirement of notice under the Indenture (Indenture, Section 606).
MODIFICATION AND WAIVER
Without the consent of any holder of Debt Securities, the Company and
the Trustee may enter into one or more supplemental indentures for any of
the following purposes: (a) to evidence the assumption by any permitted
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successor to the Company of the covenants of the Company in the Indenture
and in the Debt Securities; or (b) to add one or more covenants of the
Company or other provisions for the benefit of all holders or for the
benefit of the holders of, or to remain in effect only so long as there
will 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 the 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 the Indenture or to add any new
provision to the 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 the Indenture,
or (2) when no Debt Securities of such series or Tranche remain Outstanding
under the Indenture; or (e) to provide collateral security for all but not
part of the Debt Securities; or (f) to establish the form or terms of Debt
Securities of any other series or Tranche as permitted by the 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 Trustee with respect to the Debt Securities of one or more
series and to add to or change any of the provisions of the Indenture as
will be necessary to provide for or to facilitate the administration of the
trusts under the 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 will 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 the 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 the Indenture, provided such changes or
additions will not adversely affect the interests of the holders of Debt
Securities of any series or Tranche 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 may waive compliance by the
Company with certain restrictive provisions of the Indenture (Indenture,
Section 607). The holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series may waive any past default
under the Indenture with respect to such series, except a default in the
payment of principal, premium, or interest and certain covenants and
provisions of the 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 the Indenture in such a way as
to require changes to the 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 the Indenture or at any time thereafter,
were required by the Trust Indenture Act to be contained in the Indenture,
the 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 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, 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, the Indenture or modifying in any manner the rights of the
holders of such Debt Securities under the Indenture pursuant to one or more
supplemental indentures; provided, however, that if less than all of the
series of Debt Securities Outstanding are directly affected by a proposed
supplemental indenture, then the consent only of the holders of a majority
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in aggregate principal amount of Outstanding Debt Securities of all series
so directly affected, considered as one class, will be required; and
provided, further, that if the Debt Securities of any series will have been
issued in more than one Tranche and if the proposed supplemental indenture
will 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 so directly affected, considered as one class,
will be required; and provided, further, that, in the absence of an Insurer
Default and as long as the Policy is in effect, no such amendment may
become effective without the consent of the Insurer, which consent shall
not be unreasonably withheld; 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 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 Security 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 the 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 the Indenture relating to supplemental
indentures, waivers of certain covenants and waivers of past defaults with
respect to the Debt Security of any series or Tranche, without the consent
of the holder of each Outstanding Debt Security affected thereby. A
supplemental indenture which changes or eliminates any covenant or other
provision of the 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 the Indenture of the holders of the
Debt Securities of any other series or Tranche (Indenture, Section 1202).
The 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 the 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 the Indenture, determined
without regard to this provision) will 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 will 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 will 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 will be computed as of the record date. Any request,
demand, authorization, direction, notice, consent, election, waiver or
other Act of a holder will 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 the Trustee or the
Company in reliance thereon, whether or not notation of such action is made
upon such Debt Security (Indenture, Section 104).
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RESIGNATION OF TRUSTEE
The Trustee may resign at any time by giving written notice thereof to
the Company or may be removed at any time by Act of the holders of a
majority in principal amount of all series of Debt Securities then
Outstanding delivered to the Trustee and the Company. No resignation or
removal of the 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 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 a Trustee appointed by Act of the holders, if the Company has
delivered to the 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 Indenture, the Trustee will be deemed to
have resigned and the successor will be deemed to have been appointed as
trustee in accordance with the 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.
TITLE
The Company, the Trustee, and any agent of the Company or the 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.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and
construed in accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Trustee under the Indenture is The Bank of New York. The Company
and certain of its subsidiaries also maintain various banking and trust
relationships with The Bank of New York.
BOOK-ENTRY ONLY - THE DEPOSITORY TRUST COMPANY
The certificates representing the New Notes will be issued in fully
registered form, without coupons. The New Notes will be deposited with, or
on behalf of, DTC, and registered in the name of Cede & Co., as DTC's
nominee in the form of one or more Global Certificates for each series of
New Notes or will remain in the custody of the Trustee pursuant to a FAST
Balance Certificate Agreement between DTC and the Trustee. Upon the
issuance of the Global Certificates, DTC or its custodian will credit, on
its internal system, the respective principal amount of the individual
beneficial interests represented by such Global Certificates to the
accounts of persons who have accounts with such depositary. Ownership of
beneficial interests in a Global Certificate will be limited to persons who
have accounts with DTC (participants) or persons who hold interests through
participants. Ownership of beneficial interests in a Global Certificate
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or Holder of a
Global Certificate, DTC or such nominee, as the case may be, will be
considered the sole owner or Holder of the New Notes represented by such
Global Certificate for all purposes under the Indenture and the New Notes.
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No beneficial owner of an interest in a Global Certificate will be able to
transfer the interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, and interest on, a Global Certificate
will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any Paying Agent will
have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in a
Global Certificate or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. DTC or its nominee, upon
receipt of any payment of principal or interest in respect of a Global
Certificate, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal
amount of such Global Certificate as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners
of beneficial interests in such Global Certificate held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules.
DTC will take any action permitted to be taken by a Holder of New
Notes (including the presentation of New Notes for exchange as described
below) only at the direction of one or more participants to whose account
the DTC interests in a Global Certificate is credited and only in respect
of such portion of the aggregate principal amount of the New Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default (as defined) under the New Notes,
DTC will exchange a Global Certificate for certificated notes, which it
will distribute to its participants.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions
between participants through electronic book-entry changes in accounts of
its participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly (indirect participants). The rules applicable to DTC and its
participants are on file with the Commission.
Although DTC is expected to follow the foregoing procedures in order
to facilitate transfers of interests in the Global Notes among their
respective participants, they are under no obligation to perform or
continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have
any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary
for a Global Certificate and a successor depositary is not appointed by the
Company within 90 days, the Company will issue certificated notes in
exchange for a Global Certificate.
Secondary trading in long-term bonds and notes of corporate issuers is
generally settled in clearing house or next day funds. In contrast,
beneficial interests in the New Notes that are not Certificated Notes, as
defined below, will trade in DTC's Same-Day Funds Settlement System until
maturity. Therefore, the secondary market trading activity in such
interests will settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available
funds on trading activity in the New Notes.
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The information under this caption "Book-Entry Only - The Depository
Trust Company" concerning DTC and DTC's book-entry system has been obtained
from sources that the Company believes to be reliable, but the Company does
not take any responsibility for the accuracy thereof.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that the DTC is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the
issuance of New Notes in the form of certificated New Notes under the
Indenture, then, upon surrender by the DTC of its Global Notes, New Notes
in such form will be issued to each person that the Global Note Holder and
the DTC identify as being the Beneficial Owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by
the DTC in identifying the Beneficial Owners of New Notes and the Company
and the Trustee may conclusively rely on, and will be protected in relying
on, instructions from the DTC for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the New Notes
represented by the Global Note (including principal, premium, if any, and
interest, if any) be made in immediately available funds. With respect to
certificated notes, however, the Company will make all payments of
principal, premium, if any, interest, if any, by mailing a check to each
Holder's registered address. The Company expects that secondary trading in
the certificated notes will also be settled in immediately available funds.
LACK OF PUBLIC MARKET
The New Notes are new issues of securities for which there is
currently no active trading market. If any New Notes are traded after their
initial issuance, they may trade at a discount from their face value,
depending upon prevailing interest rates, the market for similar securities
and other factors, including general economic conditions and the financial
condition, performance of, and the prospects for the Company.
NEW NOTE INSURANCE
While a separate Policy will be issued in connection with each series
of New Notes, such Policies are identical except for references to the
title, maturity date and interest rate of the New Notes. References in
this section to Policy, Paying Agent and New Notes should be read as a
referring to each series of New Notes as a separate series. The Policy
with respect to each series of New Notes is identical to the Policy with
respect to the corresponding series of Old Notes, except for references to
the titles of the securities.
The following information has been furnished by the Insurer for use in
this Prospectus. Reference is made to Appendix I for a specimen of the
Policy. The Company does not assume any responsibility for the information
regarding the Insurer or the Policy contained, or incorporated by
reference, herein.
The Policy unconditionally and irrevocably guarantees the full and
complete payment required to be made by or on behalf of the Company (or any
wholly owned subsidiary to whom the Company has assigned New Notes with the
consent of the Insurer) to the Paying Agent or its successor of an amount
equal to (i) the principal of (at the stated maturity) and interest on the
New Notes as such payments shall become due but shall not be so paid
(except that in the event of any acceleration of the due date of such
principal by reason of optional redemption or acceleration resulting from
default or otherwise, the payments guaranteed by the Policy shall be made
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in such amounts and at such times as such payments of principal would have
been due had there not been any such acceleration); and (ii) the
reimbursement of any such payment which is subsequently recovered from any
owner of the New Notes pursuant to a final judgment by a court of competent
jurisdiction that such payment constitutes an avoidable preference to such
owner within the meaning of any applicable bankruptcy law (Preference).
The Policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any New Note. The Policy
does not, under any circumstance, insure against loss relating to: (i)
optional redemptions; (ii) any payments to be made on an accelerated basis;
(iii) payments of the purchase price of the New Notes upon tender by an
owner thereof; or (iv) any Preference relating to (i) through (iii) above.
The Policy also does not insure against nonpayment of principal of or
interest on the New Notes resulting from the insolvency, negligence or any
other act or omission of the Paying Agent or any other paying agent for the
New Notes.
Upon receipt of telephonic or telegraphic notice, such notice
subsequently confirmed in writing by registered or certified mail, or upon
receipt of written notice by registered or certified mail, by the Insurer
from the Paying Agent or any owner of a New Note the payment of an insured
amount for which is then due, that such required payment has not been made,
the Insurer on the due date of such payment or within one business day
after receipt of notice of such nonpayment, whichever is later, will make a
deposit of funds, in an account with State Street Bank and Trust Company,
N.A., in New York, New York, or its successor, sufficient for the payment
of any such insured amounts which are then due. Upon presentment and
surrender of such New Notes or presentment of such other proof of ownership
of the New Notes, together with any appropriate instruments of assignment
to evidence the assignment of the insured amounts due on the New Notes as
are paid by the Insurer, and appropriate instruments to effect the
appointment of the Insurer as agent for such owners of the New Notes in any
legal proceeding related to payment of insured amounts on the New Notes,
such instruments being in a form satisfactory to State Street Bank and
Trust Company, N.A., State Street Bank and Trust Company, N.A. shall
disburse to such owners or the Paying Agent payment of the insured amounts
due on such New Notes, less any amount held by the Paying Agent for the
payment of such insured amounts and legally available therefor.
The Insurer is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the
debts of or claims against the Insurer. The Insurer is domiciled in the
State of New York and licensed to do business in and subject to regulation
under the laws of all 50 states, the District of Columbia, the Commonwealth
of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the
Virgin Islands of the United States and the Territory of Guam. The Insurer
has two European branches, one in the Republic of France and the other in
the Kingdom of Spain. New York has laws prescribing minimum capital
requirements, limiting classes and concentrations of investments and
requiring the approval of policy rates and forms. State laws also regulate
the amount of both the aggregate and individual risks that may be insured,
the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to
maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
Effective February 17, 1998, the Insurer acquired all of the
outstanding stock of Capital Markets Assurance Corporation ("CMAC") through
a merger with its parent CapMAC Holdings Inc. Pursuant to a reinsurance
agreement, CMAC has ceded all of its net insured risks (including any
amounts due but unpaid from third party reinsurers), as well as its
unearned premiums and contingency reserves, to MBIA. The Insurer is not
obligated to pay the debts of or claims against CMAC.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1997 and
December 31, 1996 and for the three years ended December 31, 1996, prepared
in accordance with generally accepted accounting principles (GAAP),
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1997 are hereby incorporated by reference into this Prospectus
and shall be deemed to be a part hereof. Any statement contained in a
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document incorporated by reference herein shall 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 also is
incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
All financial statements of the Insurer and its subsidiaries included
in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the New Notes shall be deemed
to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing such documents.
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities (SAP) and GAAP:
SAP
------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- --------------------
(AUDITED) (AUDITED)
(IN MILLIONS)
Admitted Assets . . $4,476 $5,256
Liabilities . . . . 3,009 3,496
Capital and Surplus 1,467 1,760
GAAP
-----------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- --------------------
(AUDITED) (AUDITED)
(IN MILLIONS)
Assets . . . . . . . $5,066 $5,988
Liabilities . . . . . 2,262 2,624
Shareholder's Equity 2,804 3,364
Copies of the financial statements of the Insurer incorporated by
reference herein and copies of the Insurer's 1997 year-end audited
financial statements prepared in accordance with SAP are available, without
charge, from the Insurer. The address of the Insurer is 113 King Street,
Armonk, New York 10504. The telephone number of the Insurer is (914) 273-
4545.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus or any information or disclosure contained
herein, or omitted herefrom, other than with respect to the accuracy of the
information regarding the Policy and the Insurer set forth under this
heading NEW NOTE INSURANCE. Additionally, the Insurer makes no
representation regarding the New Notes or the advisability of exchanging
Old Notes for New Notes or otherwise investing in New Notes.
Moody's Investors Service, Inc. rates the claims paying ability of the
Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of the Insurer "AAA."
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Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the claims paying ability of the Insurer "AAA."
The above ratings are not recommendations to buy, sell or hold the New
Notes, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of
the above ratings may have an adverse effect on the market price of the New
Notes. The Insurer does not guarantee the market price of the New Notes
nor does it guarantee that the ratings of the claims paying ability of the
Insurer will not be revised or withdrawn.
DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is
unable to fulfill its contractual obligation under a policy or contract or
application or certificate or evidence of coverage, the policyholder or
certificateholder is not protected by an insurance guaranty fund or other
solvency protection arrangement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income
tax consequences of the acquisition, ownership and disposition of the New
Notes as of the date hereof and represents the opinion of Reid & Priest
LLP, counsel to the Company, insofar as it relates to matters of law or
legal conclusions. Except where noted, it deals only with New Notes held
as capital assets and does not deal with special situations, such as those
of dealers in securities or currencies, financial institutions, life
insurance companies, persons holding New Notes as a part of a hedging or
conversion transaction or a straddle, or persons who are not United States
Holders (as defined herein). In addition, this discussion does not address
the tax consequences to persons who acquire New Notes other than pursuant
to their initial issuance and distribution. Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended, and regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified
at any time, with either forward-looking or retroactive effect, so as to
result in United States federal income tax consequences different from
those discussed below.
PROSPECTIVE HOLDERS OF NEW NOTES, INCLUDING PERSONS WHO ARE NOT UNITED
STATES HOLDERS AND PERSONS WHO PURCHASE NEW NOTES IN THE SECONDARY MARKET,
ARE ADVISED TO CONSULT WITH THEIR TAX ADVISORS AS TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF NEW NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR OTHER TAX LAWS.
UNITED STATES HOLDERS
As used herein, a "United States Holder" means a Holder of a New Note
that is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of
the United States or any political subdivision thereof, an estate, the
income of which is subject to United States federal income taxation
regardless of its source, or a trust, the administration of which is
subject to the primary supervision of a court within the United States and
for which one or more United States persons have the authority to control
all substantial decisions.
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PAYMENTS OF INTEREST
Stated interest on a New Note will generally be taxable to a United
States Holder as ordinary income at the time it is paid or accrued in
accordance with the United States Holder's method of accounting for tax
purposes.
EXCHANGE OF OLD NOTES FOR NEW NOTES
An exchange of the Old Notes for the New Notes should not constitute a
taxable event for federal income tax purposes because the New Notes should
not be considered to differ materially in kind or extent from the Old
Notes. Rather, the New Notes should be treated as a continuation of the
Old Notes in the hands of a United States Holder. As a result, United
States Holders who exchange their Old Notes for New Notes should not
recognize any income, gain or loss for federal income tax purposes with
respect to such exchange. The following discussion assumes that an
exchange of Old Notes for New Notes will not be treated as a taxable
exchange for federal income tax purposes.
SALE, EXCHANGE AND REDEMPTION OF THE NEW NOTES
Upon the sale, exchange or maturity of New Notes, a United States
Holder will recognize gain or loss equal to the difference between such
Holder's adjusted tax basis in the New Notes and the amount realized upon
the sale, exchange or maturity, other than amounts attributable to accrued
but unpaid interest. A United States Holder's adjusted tax basis will be,
in general, the issue price of the New Notes. Such gain or loss will be
capital gain or loss and will be long-term capital gain or loss if at the
time of sale or maturity, the New Notes have been held for more than 18
months. Under current law, deductibility of capital losses is subject to
limitations. The net capital gains of individuals are taxed, under certain
circumstances, at lower rates than ordinary income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Subject to the qualification discussed below, interest income on the
New Notes will be reported to United States Holders on Form 1099, which
should be mailed to such Holders by January 31 following each calendar
year.
The Company will report annually to Cede & Co. the interest income
paid during the year with respect to the New Notes for which Cede & Co. is
the Holder of record. The Company currently intends to report such
information on Form 1099 prior to January 31 following each calendar year.
The Initial Purchasers have indicated to the Company that, to the extent
that they hold New Notes as nominee for beneficial United States Holders,
they currently expect to report the interest income paid during the
calendar year on such New Notes to such beneficial Holders on Forms 1099 by
January 31 following each calendar year. Under current law, Holders of New
Notes who hold as nominees for beneficial Holders will not have any
obligation to report information regarding the beneficial Holders to the
Company. The Company, moreover, will not have any obligation to report to
beneficial Holders who are not also record Holders. Thus, beneficial
United States Holders of New Notes who hold their New Notes through the
Initial Purchasers will receive Forms 1099 reflecting the income on their
New Notes from such nominee Holders rather than from the Company.
Payments made in respect of, and proceeds from the sale or exchange
of, New Notes may be subject to "backup" withholding tax of 31% if the
United States Holder fails to comply with certain identification
requirements, or has previously failed to report in full dividend and
interest income, or does not otherwise establish its entitlement to an
exemption. Any withheld amounts will be allowed as a refund or a credit
against the United States Holder's United States federal income tax
liability; provided, however, that certain required information is provided
to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has
agreed that for a period not to exceed 90 days, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until May 23, 1998
all dealers effecting transactions in the New Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from the Exchange Offer or
any sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
New Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly
to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on
any such resale of New Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. Any broker or dealer registered under the Exchange Act who
holds Old Notes that are Registrable Securities and that were acquired for
its own account as a result of market-making activities or other trading
activities (other than Registrable Securities acquired directly from the
Company) may exchange such Old Notes pursuant to the Exchange Offer;
however, such broker or dealer may be deemed to be an "underwriter" within
the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resales of the New Notes received by such broker or dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the
delivery by such broker or dealer of this Prospectus. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay the expenses of registration of the New
Notes and will indemnify the Holders of the New Notes (including any
broker-dealers) against certain liabilities, including liabilities under
the Securities Act.
Prior to the Exchange Offer, there has been no public market for the
Old Notes. The Company does not intend to apply for listing of the New
Notes on any securities exchange or for inclusion of such securities in any
automated quotation system. There can be no assurance that an active
market for the New Notes will develop. To the extent that a market for the
New Notes does develop, the market value of the New Notes will depend on
market conditions (including yields on alternative investments), general
economic conditions, the Company's financial condition and other
conditions. Such conditions might cause the New Notes, to the extent that
they are actively traded, to trade at a significant discount from face
value. The Company has not entered into any arrangement or understanding
with any person to distribute the New Notes to be received in the Exchange
Offer.
The Company has not agreed to compensate broker-dealers who effect the
exchange of Old Notes on behalf of Holders.
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EXPERTS
The consolidated financial statements included in the 1997 10-K,
incorporated herein by reference, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report included in the
1997 10-K, and have been incorporated by reference herein in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
With respect to the unaudited condensed consolidated interim financial
information included in the Company's Quarterly Reports on Form 10-Q that
will be incorporated herein by reference, Deloitte & Touche LLP will have
applied limited procedures in accordance with professional standards for
reviews of such information. Deloitte & Touche LLP will state in their
reports included in the Company's Quarterly Reports on Form 10-Q, that they
have not audited and will not express an opinion on such interim financial
information. Accordingly, the degree of reliance on any of its reports on
such information should be restricted in light of the limited nature of the
review procedures applied. Deloitte & Touche LLP is not subject to the
liability provisions of Section 11 of the Securities Act, for their reports
on such unaudited interim financial information because such reports are
not "reports" or a "part" of the Registration Statement filed under the Act
with respect to the Common Stock offered hereby ("Registration Statement"),
that were prepared or certified by an accountant within the meaning of
Sections 7 and 11 of the Securities Act.
The consolidated financial statements of MBIA Insurance Corporation
and Subsidiaries as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997 incorporated by reference into
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
The statements made as to matters of law and legal conclusions in the
1997 10-K under Part I, Item 1 -- Business-Regulation and Rates, and
Environmental Matters, incorporated herein by reference, have been reviewed
by Worsham, Forsythe & Wooldridge, L.L.P., Dallas, Texas, General Counsel
for the Company. All of such statements are set forth, or have been
incorporated by reference, herein in reliance upon the opinion of that firm
given upon their authority as experts. 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. The statements made as to
matters of law and legal conclusions in this Prospectus under CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES have been reviewed by Reid &
Priest LLP, New York, New York, and are set forth herein in reliance upon
the opinion of that firm given upon their authority as experts.
The validity of the New Notes is being passed upon for the Company by
Worsham, Forsythe & Wooldridge, L.L.P. and by Reid & Priest LLP. Certain
legal matters will be passed upon for the Insurer by Kutak Rock, Omaha,
Nebraska. However, all matters pertaining to incorporation of the Company
and all other matters of Texas law relating to the Company will be passed
upon only by Worsham, Forsythe & Wooldridge, L.L.P.
