<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-66157
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+THIS PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT +
+UNDER THE SECURITIES ACT OF 1933, BUT IS NOT COMPLETE AND MAY BE CHANGED. +
+THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT +
+SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR +
+SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1998
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 30, 1998
$
NORAM ENERGY CORP.
% Term Enhanced ReMarketable Securities(SM) ("TERMS(SM)")
--------
Interest on the TERMS of NorAm Energy Corp. ("We", "NorAm" or the "Company")
is payable on and , commencing , 1999 until ,
2003*. The TERMS will not be subject to redemption prior to ,
2003.
On , 2003, Credit Suisse First Boston Corporation may elect to purchase
your TERMS for remarketing at a purchase price of $1,000 per TERMS. If
Credit Suisse First Boston Corporation does not purchase your TERMS, we
will repurchase your TERMS on , 2003 at a purchase price of $1,000
per TERMS. In any case, you will be required to tender your TERMS on
, 2003 in exchange for $1,000 per TERMS. Such tender will be
effected automatically through the book-entry facilities of The
Depository Trust Company.
If Credit Suisse First Boston Corporation purchases the TERMS on ,
2003 for remarketing, then the TERMS, if we so choose, may be subject to an
additional remarketing.
The maturity date of the TERMS is scheduled to occur on , 2013*. We
may, however, adjust this date at our option. In addition, the maturity
date of the TERMS will be adjusted if we choose to require an
additional mandatory tender. See "Description of the TERMS--Tender
of TERMS; Remarketing--Remarketing Dates; Remarketing Window(SM);
Adjustment to Maturity Date."
For more information, see "Description of the TERMS."
Our executive offices are located at Houston Industries Plaza, 1111 Louisiana,
Houston, Texas 77002, and our telephone number is (713) 207-3000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS THE COMPANY(2)
--------- ------------- --------------
<S> <C> <C> <C>
Per TERMS.................................. % % %
Total...................................... $ $ $
</TABLE>
- -----
(1) Plus accrued interest, if any, from , 1998.
(2) Before expenses and excluding consideration paid by the Remarketing Dealer
for the right to remarket the TERMS. See "Underwriting."
Delivery of the TERMS will be made in book-entry form through the facilities
of The Depository Trust Company on or about , 1998, against payment
therefor in immediately available funds.
CREDIT SUISSE FIRST BOSTON
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
Prospectus Supplement dated , 1998.
"Remarketing Window(SM)," "Term Enhanced ReMarketable Securities(SM)" and
"TERMS(SM)" are service marks owned by Credit Suisse First Boston Corporation.
- --------
* Note: The dates indicated are subject to change and, as finally determined,
will be reflected in the final prospectus supplement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS SUPPLEMENT ----
<S> <C>
The Company................................................................ S-3
Use of Proceeds............................................................ S-3
Summary Financial Information of the Company............................... S-4
Description of the TERMS................................................... S-5
Certain United States Federal Income Tax Considerations.................... S-16
Underwriting............................................................... S-19
<CAPTION>
PROSPECTUS
<S> <C>
Where You Can Find More Information........................................ 3
Disclosure Regarding Forward-Looking Statements............................ 4
The Company................................................................ 5
Ratio of Earnings to Fixed Charges......................................... 6
Use of Proceeds............................................................ 6
Description of Debt Securities............................................. 6
Plan of Distribution....................................................... 16
Experts.................................................................... 18
Validity of Securities..................................................... 18
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the accompanying prospectus. We
have not, and the Underwriters have not, authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the Underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in each of the
prospectus supplement and the accompanying prospectus is current only as of
its respective date.
S-2
<PAGE>
THE COMPANY
NorAm conducts operations primarily in the natural gas industry, including
gathering, transmission, marketing, storage and distribution. NorAm is
currently organized into three operating units: (a) natural gas distribution;
(b) interstate pipeline; and (c) energy marketing. NorAm is a wholly owned
subsidiary of Houston Industries Incorporated ("Houston Industries"). For
additional information regarding NorAm, see the description set forth in the
accompanying Prospectus under the heading "The Company."
USE OF PROCEEDS
The proceeds to the Company from the sale of the TERMS and from the
consideration paid by the Remarketing Dealer for the right to remarket the
TERMS (see "Underwriting") will be used for general corporate purposes,
including, without limitation, working capital, capital expenditures,
acquisitions and the repayment or refinancing of the Company's indebtedness.
Debt refinanced with such proceeds is expected to include (i) the Company's
outstanding commercial paper aggregating $ and having an effective
average interest rate of % as of , 1998 and (ii) a term loan of $150
million maturing November 13, 1998 which has an effective interest rate (after
reflecting related interest rate swaps) of 6.7%.
S-3
<PAGE>
SUMMARY FINANCIAL INFORMATION OF THE COMPANY
The following table presents summary financial data derived from the
financial statements of the Company. This summary is qualified in its entirety
by the detailed information and financial statements of the Company included
in the documents incorporated herein by reference. See "Where You Can Find
More Information" in the accompanying Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------
1998 1997(1) 1997(2) 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.... $3,142.5 $2,940.2 $5,858.4 $4,788.5 $2,964.7 $2,857.9 $2,988.3
Net Income............ $ 58.5 $ 69.3 $ 67.0 $ 90.9 $ 65.5 $ 48.1 $ 36.1
Ratio of Earnings to
Fixed Charges (3).... 2.97 2.59 1.89 2.12 1.69 1.47 1.47
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
(AMOUNTS IN MILLIONS,
EXCEPT PERCENTAGES)
<S> <C> <C> <C>
CAPITALIZATION AND SHORT-TERM DEBT
Short-Term Debt..................................... $ 300.0 $ %
Long-Term Debt:
Senior Long-Term Debt (including current
maturities)...................................... 1,300.7
Convertible Subordinated Debentures............... 111.3
Total Debt...................................... 1,712.0
NorAm-Obligated Mandatorily Redeemable Convertible
Preferred Securities of Subsidiary Trust Holding
Solely Subordinated Debentures of NorAm............ 1.8
Common Stock Equity................................. 2,532.5
-------- -------- -----
Total Capitalization and Short-Term Debt.......... $4,246.3 $ 100.0%
======== ======== =====
</TABLE>
- --------
(1) Includes results of operations for six months ended June 30, 1997 of the
Company prior to its merger (the "Merger") with and into a wholly owned
subsidiary of Houston Industries on August 6, 1997.
(2) Includes results of operations for seven months ended July 31, 1997 of the
Company prior to the Merger.
(3) The Company believes that the ratios for the six-month periods are not
necessarily indicative of the ratios for the twelve-month periods due to
the seasonal nature of the Company's business and the adjustments to the
Company's financial statements resulting from the Merger.
(4) Adjustments have been made to reflect the issuance of $ million
aggregate principal amount of TERMS pursuant to this Prospectus Supplement
and the related repayment of short-term and long-term debt with the
proceeds therefrom.
S-4
<PAGE>
DESCRIPTION OF THE TERMS
GENERAL
The TERMS will be issued under an Indenture, dated as of February 1, 1998,
as it may be supplemented from time to time (the "Indenture"), between the
Company and Chase Bank of Texas, National Association, as trustee (the
"Trustee"), which is more fully described in the accompanying Prospectus. As
of October 31, 1998, the Company had $300 million aggregate principal amount
of Debt Securities (as defined in the accompanying Prospectus) outstanding
under the Indenture. The following description of the TERMS supplements, and
to the extent inconsistent therewith replaces, the description of the general
terms and provisions of the Debt Securities set forth in the accompanying
Prospectus.
Record Holders ("Holders") of the TERMS will be required to tender their
TERMS in exchange for $1,000 per TERMS on , 2003* (the "Initial Investor
Maturity Date"). The ultimate maturity date of the TERMS is scheduled to be
, 2013* (the "Scheduled Maturity Date"). The date on which the TERMS
mature (the "Maturity Date") may be adjusted due to the occurrence, if any, of
either, or both of (i) the Remarketing Window (as defined below) or (ii)
modification by the Company. See "--Tender of TERMS; Remarketing--Remarketing
Dates; Remarketing Window; Adjustment to Maturity Date."
The TERMS will be unsecured obligations of the Company and will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Company.
The TERMS are not subject to redemption by the Company prior to the Initial
Investor Maturity Date. See "--Redemption."
The TERMS will bear interest at the annual interest rate of % to the
Initial Investor Maturity Date of , 2003. Either the Initial Investor
Maturity Date or, if the Initial Investor Maturity Date is designated as a
Window Period Remarketing Date (as defined below) as described below under
"--Tender of TERMS; Remarketing--Remarketing Dates; Remarketing Window;
Adjustment to Maturity Date," the Additional Remarketing Date thereafter (either
the Initial Investor Maturity Date or the Additional Remarketing Date, the
"Remarketing Date"), will be the Remarketing Date for the TERMS. If Credit
Suisse First Boston Corporation (the "Remarketing Dealer") elects to remarket
the TERMS on the Remarketing Date, except in the limited circumstances described
herein, (i) the TERMS will be subject to mandatory tender to the Remarketing
Dealer at 100% of the principal amount, plus accrued and unpaid interest to, but
excluding, the Remarketing Date, for remarketing on such date, on the terms and
subject to the conditions described herein, and (ii) on and after the
Remarketing Date, the TERMS will bear interest at the rate determined by the
Remarketing Dealer in accordance with the procedures set forth below. See
"--Tender of TERMS; Remarketing."
Under the circumstances described below, the TERMS are subject to redemption
by the Company from the Remarketing Dealer on the Remarketing Date. See
"--Redemption." If the Remarketing Dealer for any reason does not purchase all
of the TERMS on the Remarketing Date, or elects not to remarket the TERMS, or in
certain other limited circumstances described herein, the Company will be
required to repurchase all of the TERMS from the Holders on the Remarketing Date
at 100% of the principal amount thereof plus accrued and unpaid interest to, but
excluding, the Remarketing Date, if any. See "--Repurchase."
Interest on the TERMS accruing during the period from and including ,
1998 (the "Issue Date") to but excluding the Initial Investor Maturity Date
will be payable semiannually on and of each year, commencing ,
1999. Interest on the TERMS accruing from the Initial Investor Maturity Date
(if such date is not a Window Period Remarketing Date) or the Additional
Remarketing Date (if the Initial Investor Maturity Date is a Window Period
Remarketing Date) will be payable semiannually on each day that is a six-month
anniversary of such date. Interest on the TERMS accruing during the period
from and including the Initial Investor Maturity Date (if the Initial Investor
Maturity Date is a Window Period Remarketing Date) to but
- --------
* Note: The dates indicated are subject to change and, as finally determined,
will be reflected in the final prospectus supplement.
S-5
<PAGE>
excluding the Additional Remarketing Date (the "Remarketing WindowSM"), if
applicable, will be payable on the Additional Remarketing Date. Each day on
which interest is scheduled to be paid is hereinafter referred to as an
"Interest Payment Date." Interest payable on any Interest Payment Date will be
payable to the persons in whose names the TERMS are registered at the close of
business on the fifteenth calendar day (whether or not a Business Day)
immediately preceding such Interest Payment Date; provided that, in the case
of the Interest Payment Date relating to the Remarketing Window, interest will
be payable to the persons to whom principal is payable on the Additional
Remarketing Date. Interest on the TERMS will be computed on the basis of a
360-day year of twelve 30-day months; provided that, interest accruing during
the Remarketing Window will be computed on the basis of the actual number of
days in such period over a 360-day year. "Business Day" means each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in The City of New York are authorized or obligated by law or
executive order to close and, in the case of the determination of the
"Applicable Reference Index" (as defined below) that is based upon Eurodollar
deposits in London, the City of London each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in The
City of New York or the City of London are authorized or obligated by law or
executive order to close.
Interest payable on any Interest Payment Date and at the Maturity Date or
date of earlier redemption or repurchase will be the amount of interest
accrued from and including the most recent Interest Payment Date to which
interest has been paid or duly provided for (or from and including the Issue
Date if no interest has been paid or duly provided for with respect to the
TERMS) to but excluding such Interest Payment Date or the Maturity Date or
date of redemption or repurchase, as the case may be. If any Interest Payment
Date or the Maturity Date or date of earlier redemption or repurchase of the
TERMS falls on a day that is not a Business Day, the payment otherwise then
due will be made on the next Business Day with the same force and effect as if
it were made on the date such payment was due and no interest will accrue on
the amount so payable for the period from and after such Interest Payment Date
or the Maturity Date or date of redemption or repurchase, as the case may be.
The TERMS will be issued in denominations of $1,000 and integral multiples
thereof.
TENDER OF TERMS; REMARKETING
The following description summarizes the terms and conditions of the
remarketing of the TERMS, in the event that the Remarketing Dealer elects to
purchase the TERMS and remarkets the TERMS on the Initial Investor Maturity
Date.
Mandatory Tender. Provided that the Remarketing Dealer gives notice to the
Company and the Trustee on a Business Day not earlier than ten nor later than
five Business Days prior to the Initial Investor Maturity Date of its
intention to purchase the TERMS for remarketing (the "Notification Date"),
each TERMS will be automatically tendered, or deemed tendered, to the
Remarketing Dealer for purchase on each of (i) the Initial Investor Maturity
Date and (ii) if the Initial Investor Maturity Date is designated as a Window
Period Remarketing Date as described under "--Remarketing Dates; Remarketing
Window; Adjustment to Maturity Date," the Additional Remarketing Date
thereafter, except in the circumstances described under "--Repurchase" or
"--Redemption." The purchase price for the TERMS to be paid by the Remarketing
Dealer on the Remarketing Date will equal 100% of the principal amount
thereof. In addition, the Company will pay accrued and unpaid interest on the
TERMS to, but excluding, the Remarketing Date. See "--Notification of Results;
Settlement." When the TERMS are tendered for remarketing on the Remarketing
Date, the Remarketing Dealer may remarket the TERMS for its own account at
varying prices to be determined by the Remarketing Dealer at the time of the
remarketing. From and after the Initial Investor Maturity Date (if such date
is not a Window Period Remarketing Date) or the Additional Remarketing Date
(if the Initial Investor Maturity Date is a Window Period Remarketing Date),
the TERMS will bear interest at the Interest Rate to Maturity (as defined
herein), determined as set forth under "--Determination of Applicable Interest
Rate." During the Remarketing Window, if any, the TERMS will bear interest at
the Window Period Interest Rate (as defined herein) determined
S-6
<PAGE>
as set forth under "--Determination of Applicable Interest Rate." If the
Remarketing Dealer elects to purchase the TERMS, the obligation of the
Remarketing Dealer to purchase the TERMS on the Remarketing Date is subject
to, among other things, the conditions that, since the Notification Date, no
material adverse change in the condition of the Company and its subsidiaries,
considered as one enterprise, shall have occurred and that no Event of Default
(as defined in the Indenture), or any event which, with the giving of notice
or passage of time, or both, would constitute an Event of Default, with
respect to the TERMS shall have occurred and be continuing. If for any reason
the Remarketing Dealer does not purchase all of the TERMS on the Remarketing
Date, the Company will be required to repurchase the TERMS from the Holders
thereof at a price equal to the principal amount thereof plus all accrued and
unpaid interest, if any, on the TERMS to, but excluding, the Remarketing Date.
See "--Repurchase."
Remarketing Dates; Remarketing Window; Adjustment to Maturity Date. If the
Remarketing Dealer elects to remarket the TERMS on the Initial Investor
Maturity Date, then not later than 4:00 p.m., New York City time, on the
fourth Business Day prior to the Initial Investor Maturity Date, the Company
may notify the Remarketing Dealer, the Trustee and The Depository Trust
Company ("DTC") by telephone, confirmed in writing that it elects the Initial
Investor Maturity Date to be a Window Period Remarketing Date (the "Window
Period Remarketing Date"). The Company will be eligible to make such
notification if at such time its senior unsecured debt is rated at least
"Baa3" by Moody's Investors Services, Inc. and "BBB-" by Standard & Poor's
Ratings Services or the equivalent thereof by such rating agency at the time
of such notification; provided, that the Remarketing Dealer may waive this
requirement at its sole discretion. If the Company does not provide such
notification, the Initial Investor Maturity Date will be the Remarketing Date
and the Scheduled Maturity Date, subject to the immediately following
paragraph, will be the Maturity Date. If the Company provides such
notification, then (i) the Additional Remarketing Date will be one of the 52
following one-week anniversary dates of the Initial Investor Maturity Date (or
if any such day is not a Business Day, the next following Business Day)
designated by the Company not later than the fifth Business Day prior to such
one-week anniversary date (the "Additional Remarketing Date"); provided, that,
if the Company fails to so designate the Additional Remarketing Date, the
Additional Remarketing Date will be the date that is 52 weeks after the
Initial Investor Maturity Date (or if such day is not a Business Day, the next
following Business Day) and (ii) the Maturity Date of the TERMS, subject to
the immediately following paragraph, will be the date that is the tenth
anniversary of the Additional Remarketing Date (whether or not a Business
Day).
Notwithstanding the foregoing paragraph, the Company (upon notice by
telephone, confirmed in writing, to the Remarketing Dealer, the Trustee and
DTC) may modify the Maturity Date of the TERMS by designating an anniversary
of the Initial Investor Maturity Date (if there is no Remarketing Window) or
of the Additional Remarketing Date (if there is a Remarketing Window) not
later than the tenth anniversary thereof as the Maturity Date of the TERMS.
Such notice must be given no later than 4:00 p.m., New York City time, on the
fourth Business Day prior to the Initial Investor Maturity Date (if there is
no Remarketing Window) or no later than the designation by the Company of the
Additional Remarketing Date (if there is a Remarketing Window).
Determination of Applicable Interest Rate. From and including the Initial
Investor Maturity Date if such date is not a Window Period Remarketing Date
or, from and including the Additional Remarketing Date, if the Initial
Investor Maturity Date is a Window Period Remarketing Date, to but excluding
the Maturity Date, the TERMS will bear interest at the Interest Rate to
Maturity (as defined below). From and including the Initial Investor Maturity
Date, if such date is a Window Period Remarketing Date, to but excluding the
Additional Remarketing Date (the "Remarketing Window"), if any, the TERMS will
bear interest at the Window Period Interest Rate (as defined below).
The "Interest Rate to Maturity" will be determined by the Remarketing Dealer
by 3:30 p.m., New York City time, on the third Business Day immediately
preceding the Initial Investor Maturity Date (if such date is not a Window
Period Remarketing Date) or the Additional Remarketing Date (if the Initial
Investor Maturity Date is a Window Period Remarketing Date) (the "Re-pricing
Date"), to the nearest one hundred-thousandth (0.00001) of one percent per
annum, and will be equal to (i) the sum of the Base Rate (as defined below)
plus the Applicable Spread (as defined below), which will be based on the
Dollar Price (as defined below) of the
S-7
<PAGE>
TERMS, or (ii) the Negotiated Rate (as defined below) mutually agreed upon
between the Company and the Remarketing Dealer.
"Base Rate" means % per annum.
The "Applicable Spread" will be the lowest firm bid quotation, expressed as
a spread (in the form of a percentage or number of basis points) above the
Base Rate, obtained by the Remarketing Dealer on the Re-pricing Date from bid
quotations requested from five Reference Corporate Dealers (as defined below)
for the aggregate principal amount of the TERMS at the Dollar Price, but
assuming (i) an issue date of the Initial Investor Maturity Date (if such date
is not a Window Period Remarketing Date) or the Additional Remarketing Date
(if the Initial Investor Maturity Date is a Window Period Remarketing Date)
with settlement on such date without accrued interest, (ii) a maturity date
equal to the Maturity Date of the TERMS, and (iii) a stated annual interest
rate, payable semiannually, equal to the Base Rate plus the spread bid by the
applicable Reference Corporate Dealer. If fewer than five Reference Corporate
Dealers bid as described above, then the Applicable Spread will be the lowest
of such bid quotations obtained as described above.
The Company and the Remarketing Dealer may agree, in lieu of the process
described in the preceding paragraph, to determine the Interest Rate to
Maturity on a negotiated transaction basis (such rate referred to herein as
the "Negotiated Rate"). In such case, the Remarketing Dealer will be paid an
underwriting fee that may be added to the Dollar Price at which the TERMS will
be sold to investors by the Remarketing Dealer.
"Dollar Price" means, with respect to the TERMS, the present value, as of
the Initial Investor Maturity Date, of the Remaining Scheduled Payments (as
defined below) discounted to the Initial Investor Maturity Date, on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months),
at the Treasury Rate (as defined below); provided that, in the case of the
Additional Remarketing Date, the Dollar Price will be the Accreted Dollar
Price; provided, further, that the Dollar Price in the case of the Initial
Investor Maturity Date or the Additional Remarketing Date may be any other
amount agreed to in writing by the Remarketing Dealer and the Company.
"Accreted Dollar Price" means, with respect to the Additional Remarketing
Date, the Dollar Price as of the Initial Investor Maturity Date (determined by
the Remarketing Dealer on the Notification Date for the Initial Investor
Maturity Date as if the Initial Investor Maturity Date were not a Window
Period Remarketing Date) plus the product of (i) such Dollar Price less the
principal amount of TERMS outstanding as of the Initial Investor Maturity
Date, (ii) the weighted average per annum Window Period Interest Rate for the
Remarketing Window, and (iii) the number of days in the Remarketing Window
divided by 360.
"Reference Corporate Dealers" means leading dealers of publicly traded debt
securities of the Company in The City of New York (at least one of which will
be the Remarketing Dealer or one of its affiliates) selected by the Company.
"Remaining Scheduled Payments" means, with respect to the TERMS, the
remaining scheduled payments of the principal thereof and interest thereon,
calculated at the Base Rate only and assuming (i) the principal amount of the
TERMS will be due on , 2013 (whether or not a Business Day)
whether or not such date is the same as the Maturity Date and (ii) that the
Company did not elect the Initial Investor Maturity Date to be a Window Period
Remarketing Date.
"Treasury Rate" means the yield to maturity of the offered-side quote for
the then current 10-Year US Treasury Bond shown on Telerate page 500 (or any
successor page), as of 11:00 a.m., New York City time, on the Notification
Date (or, if a quote for such 10-year US Treasury Bond is not available, the
interpolated yield to maturity using then current US Treasury Bonds or the
yield to maturity of another benchmark US Treasury Bond that has a tenor of
approximately ten years). In the event that the offered-side quote for the
then current 10-Year US Treasury Bond is no longer shown on Telerate page 500
and there is no successor page, the Treasury Rate will be calculated by the
Remarketing Dealer and will be a yield to maturity equal to the arithmetic
mean of the secondary market bid rates, as of approximately 11:00 a.m., New
York City time, on the Notification Date, of
S-8
<PAGE>
five leading primary United States government securities dealers (no more than
one of which may be the Remarketing Dealer or an affiliate of the Remarketing
Dealer) selected by the Remarketing Dealer, excluding the highest and lowest
of such bids, for an aggregate principal amount of the then current 10-Year US
Treasury Bond equal to the aggregate principal amount of the TERMS (or, if a
quote for such 10-year US Treasury Bond is not available, the interpolated
yield to maturity using then current US Treasury Bonds or the yield to
maturity of another benchmark US Treasury Bond that has a tenor of
approximately ten years). If fewer than three such United States government
securities dealers provide bids, the Treasury Rate shall be the average of
such bids. If only one such United States government securities dealer
provides such a bid, then the Treasury Rate will be equal to such bid.
The interest rate for the Remarketing Window will be reset on each Interest
Reset Date (as defined below) during the Remarketing Window and will be equal
to the Applicable Reference Index plus the Applicable Basic Margin Above the
Applicable Reference Index (as defined below), in each case as calculated by
the Remarketing Dealer (the "Window Period Interest Rate"). The Window Period
Remarketing Date and the Wednesday of each week during the Remarketing Window
will each be an "Interest Reset Date." The "Interest Determination Date"
applicable to an Interest Reset Date will be the second Business Day preceding
such Interest Reset Date. The interest rate in effect from and including the
Window Period Remarketing Date (which is the first day of the Remarketing
Window) to, but excluding, the first Interest Reset Date during such
Remarketing Window will be determined as if the Window Period Remarketing Date
were an Interest Reset Date and the Interest Determination Date for such
Interest Reset Date were the second Business Day prior to the Window Period
Remarketing Date.
The "Applicable Reference Index" means, with respect to the Remarketing
Window, the rate of interest for each Interest Reset Date as determined by the
Remarketing Dealer based on one of the following indexes selected by the
Company and notified to the Remarketing Dealer no later than four Business
Days prior to the Window Period Remarketing Date: (i) the per annum rate equal
to the one week eurodollar rate shown on Telerate page 3750 (or any successor
page) at 11:00 a.m., London time, on the applicable Interest Determination
Date, or (ii) the per annum rate equal to the average of the federal funds
rates shown on Telerate page 5 (or any successor page) at 11:00 a.m., New York
City time, on the applicable Interest Determination Date and each of the four
Business Days prior to such Interest Determination Date, or (iii) the one-week
"AA" non-financial commercial paper rate shown on the internet world wide web
page (or any successor page) of the Board of Governors of the Federal Reserve
System (www.bog.frb.fed.us/releases/CP/) at 11:00 a.m., New York City time, on
the applicable Interest Determination Date.
The "Applicable Basic Margin Above the Applicable Reference Index" will be
the lowest firm bid quotation, expressed as a spread (in the form of a
percentage or number of basis points) above the Applicable Reference Index,
obtained by the Remarketing Dealer on the third Business Day prior to the
Window Period Remarketing Date from bid quotations requested from five
Reference Money Market Dealers (as defined below) on such date for the full
aggregate principal amount of the TERMS at a price in U.S. dollars equal to
par, but assuming (i) an issue date of the Window Period Remarketing Date,
with settlement on such date without accrued interest, (ii) a maturity date
equal to the day that is 52 weeks from the Window Period Remarketing Date,
(iii) that the TERMS are callable by the Remarketing Dealer on a weekly basis
after the Window Period Remarketing Date, (iv) that the TERMS will be required
to be repurchased by the Company at par on the day that is 52 weeks from the
Window Period Remarketing Date if not previously called by the Remarketing
Dealer, and (v) a stated annual interest rate, payable on the Additional
Remarketing Date, equal to the Applicable Reference Index plus the spread bid
by the applicable Reference Money Market Dealer. If fewer than five Reference
Money Market Dealers bid as described above, then the Applicable Basic Margin
Above the Applicable Reference Index will be the lowest of such firm bid
quotations obtained as described above.
"Reference Money Market Dealers" means leading dealers, selected by the
Company, of publicly traded debt securities of the Company in The City of New
York (at least one of which will be the Remarketing Dealer or one of its
affiliates) who are also leading dealers in money market instruments. The
Company will
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notify the Remarketing Dealer of the identity of such Reference Money Market
Dealers no later than four Business Days prior to the Window Period
Remarketing Date.
Notification of Results; Settlement. Provided that the Remarketing Dealer
has previously notified the Company and the Trustee on the Notification Date
of its intention to purchase all of the TERMS on the Initial Investor Maturity
Date, the Remarketing Dealer will notify the Company, the Trustee and DTC by
telephone, confirmed in writing, by 4:00 p.m., New York City time, on the
third Business Day prior to the Initial Investor Maturity Date (if such date
is not a Window Period Remarketing Date) or the Additional Remarketing Date
(if the Initial Investor Maturity Date is a Window Period Remarketing Date),
of the Interest Rate to Maturity. If the Initial Investor Maturity Date is a
Window Period Remarketing Date, the Remarketing Dealer will provide the
Company, the Trustee and DTC with notice in accordance with the preceding
sentence, by 4:00 p.m., New York City time, on the second Business Day prior
to the Initial Investor Maturity Date, of the Window Period Interest Rate
which will initially be in effect.
All of the TERMS will be automatically delivered to the account of the
Trustee, by book-entry through DTC pending payment of the purchase or
redemption price therefor, on the Remarketing Date.
In the event that the Remarketing Dealer purchases the TERMS on the
Remarketing Date, the Remarketing Dealer will make or cause the Trustee to
make payment to each Holder of TERMS by book-entry through DTC by the close of
business on such date, against delivery of each such Holder's TERMS, of 100%
of the principal amount of the TERMS that shall have been purchased for
remarketing by the Remarketing Dealer. The Holder of the TERMS will initially
be DTC or a nominee thereof, see "Description of Debt Securities--Global
Securities" in the accompanying Prospectus. If the Remarketing Dealer does not
purchase all of the TERMS on the Remarketing Date, it will be the obligation
of the Company to make or cause to be made such payment for all of the TERMS,
as described under "--Repurchase." In any case, the Company will make or cause
the Trustee to make payment of interest to each Holder of TERMS due on a
Remarketing Date by book-entry through DTC by the close of business on such
date.
The transactions described above will be executed through DTC in accordance
with the procedures of DTC, and the accounts of the respective Participants
(as defined in the accompanying Prospectus) will be debited and credited and
the TERMS delivered by book-entry as necessary to effect the purchases and
sales thereof.
Transactions involving the sale and purchase of TERMS remarketed by the
Remarketing Dealer on the Remarketing Date will settle in immediately
available funds through DTC's Same-Day Funds Settlement System.
The tender and settlement procedures described above, including provisions
for payment by purchasers of TERMS in the remarketing or for payment to
selling Holders of TERMS, may be modified to the extent required by DTC or to
the extent required to facilitate the tender and remarketing of TERMS in
certificated form, if the book-entry system is no longer available for the
TERMS at the time of the remarketing. In addition, the Remarketing Dealer may,
in accordance with the terms of the Indenture, modify the tender and
settlement procedures set forth above in order to facilitate the tender and
settlement process.
As long as DTC's nominee holds the certificates representing any TERMS in
the book-entry system of DTC, no certificates for such TERMS will be delivered
by any selling Holder to reflect any transfer of such TERMS affected in the
remarketing. In addition, under the terms of the TERMS and the Remarketing
Agreement (described below), the Company has agreed that, notwithstanding any
provision to the contrary set forth in the Indenture, (i) it will use its
reasonable best efforts to maintain the TERMS in book-entry form with DTC or
any successor thereto and to appoint a successor depositary to the extent
necessary to maintain the TERMS in book-entry form, and (ii) it will waive any
discretionary right it otherwise has under the Indenture to cause the TERMS to
be issued in certificated form.
For further information with respect to transfers and settlement through
DTC, see "Description of Debt Securities--Global Securities" in the
accompanying Prospectus.
The Remarketing Dealer. The Company and the Remarketing Dealer are entering
into a Remarketing Agreement, the general terms and provisions of which are
summarized below.
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In connection with the remarketing of the TERMS bearing the Interest Rate to
Maturity, the Remarketing Dealer will sell the TERMS for distribution to the
Reference Corporate Dealer that provides the lowest bid quotation with respect
to the determination of the Applicable Spread. The Remarketing Agreement
provides the Remarketing Dealer with the right to match the lowest bid
quotation received from the Reference Corporate Dealers with respect to the
determination of the Interest Rate to Maturity and to thereby have the right
to distribute the TERMS.
The Company will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), arising out of or in connection with its
duties under the Remarketing Agreement, or may contribute to payments that the
Remarketing Dealer may be required to make in respect thereof.
In the event that the Remarketing Dealer elects to remarket the TERMS as
described herein, the obligation of the Remarketing Dealer to purchase TERMS
from Holders of TERMS will be subject to conditions set forth in the
Remarketing Agreement, including the conditions that, since the Notification
Date, no material adverse change in the financial condition or results of
operations of the Company and its subsidiaries, considered as one enterprise,
shall have occurred and that no Event of Default (as defined in the
Indenture), or any event which, with the giving of notice or passage of time,
or both, would constitute an Event of Default, with respect to the TERMS shall
have occurred and be continuing.
No Holder of any TERMS will have any rights or claims under the Remarketing
Agreement or against the Remarketing Dealer as a result of the Remarketing
Dealer not purchasing such TERMS.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign as Remarketing Dealer upon the satisfaction of certain conditions. In
addition, the services of the Remarketing Dealer may be terminated by the
Company. In either such case, the Company shall select the successor to the
Remarketing Dealer who, subject to certain conditions, may assume the
Remarketing Dealer's rights and obligations under the Remarketing Agreement.
The Remarketing Dealer may buy, sell, hold and deal in any of the TERMS.
When holding any TERMS, the Remarketing Dealer may exercise any vote or join
in any action which any Holder of TERMS may be entitled to exercise or take
with like effect as if it did not act in any capacity under the Remarketing
Agreement. The Remarketing Dealer, in its individual capacity, either as
principal or agent, may also engage in or have an interest in any financial or
other transaction with the Company as freely as if it did not act in any
capacity under the Remarketing Agreement.
REPURCHASE
If (i) the Remarketing Dealer does not notify the Company of the Interest
Rate to Maturity or the initial Window Period Interest Rate commencing as of
the Window Period Remarketing Date by (a) in the case of the Interest Rate to
Maturity, 4:00 p.m., New York City time, on the third Business Day prior to
the Initial Investor Maturity Date (if the Initial Investor Maturity Date is
not a Window Period Remarketing Date) or the Additional Remarketing Date (if
the Initial Investor Maturity Date is a Window Period Remarketing Date), or
(b) in the case of the initial Window Period Interest Rate, 4:00 p.m., New
York City time, on the second Business Day prior to the Window Period
Remarketing Date, (ii) prior to the Remarketing Date, the Remarketing Dealer
has resigned or been terminated and no successor has been appointed and
assumed the duties thereof on or before the third Business Day immediately
preceding the Remarketing Date, (iii) after the Notification Date, a material
adverse change in the financial condition or results of operations of the
Company and its subsidiaries, considered as one enterprise, shall have
occurred or an Event of Default, or any event which, with the giving of notice
or passage of time, or both, would constitute an Event of Default, with
respect to the TERMS shall have occurred and be continuing, or any other event
constituting a termination event under the Remarketing Agreement shall have
occurred, (iv) the Remarketing Dealer for any reason elects not to purchase
the TERMS for remarketing on
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the Remarketing Date, or (v) the Remarketing Dealer for any reason does not
purchase all of the tendered TERMS on the Remarketing Date, the Company will
repurchase all of the outstanding principal amount of the TERMS on the
Remarketing Date at a price equal to 100% of the principal amount of the TERMS
plus all accrued and unpaid interest, if any, on the TERMS to but excluding
the Remarketing Date. In any such case, payment will be made by the Company to
each tendering Holder of TERMS, by the close of business on the Remarketing
Date against delivery of such Holder's tendered TERMS. See "Description of
Debt Securities--Global Securities" in the accompanying Prospectus.
REDEMPTION
If the Remarketing Dealer elects to remarket the TERMS on the Remarketing
Date, the TERMS will be subject to mandatory tender to the Remarketing Dealer
for remarketing on such date, in each case subject to the conditions described
under "--Tender of TERMS; Remarketing; Adjustment to Maturity Date" and
"--Repurchase" and to the Company's right to redeem the TERMS from the
Remarketing Dealer as described in the next sentence. The Company will notify
the Remarketing Dealer and the Trustee, not later than the fourth Business Day
immediately preceding the Remarketing Date, if the Company irrevocably elects to
exercise its right to redeem the TERMS, in whole but not in part, from the
Remarketing Dealer on such date at the Optional Redemption Price (as defined
below).
The "Optional Redemption Price" will be the sum of (i) the greater of (a)
100% of the aggregate principal amount of the TERMS and (b) the Dollar Price
as of the Remarketing Date (which, if the Remarketing Date is the Additional
Remarketing Date, will equal the Accreted Dollar Price) plus (ii) in the case
of either (a) or (b) above, accrued and unpaid interest to, but excluding, the
Remarketing Date.
ABSENCE OF EVENT RISK PROTECTIONS
Neither the Indenture nor the TERMS contain provisions permitting the
Holders of the TERMS to require prepayment in the event of a change in control
of the Company, or in the event the Company enters into one or more highly
leveraged transactions, regardless of whether a rating decline results
therefrom, or in the event the Company disposes of one or more of its business
units, nor are any such events deemed to be Events of Default under the terms
of the Indenture or the TERMS.
CERTAIN RESTRICTIVE COVENANTS
The Indenture contains the covenants summarized below (the "Restrictive
Covenants"), which are applicable to the TERMS; provided, however, that the
Restrictive Covenants will terminate and will no longer be applicable to the
TERMS (the "Termination Provision") on and after the date (the "Termination
Date") on which there remains outstanding, in the aggregate, no more than $200
million in principal amount of the Company's (a) Medium-Term Notes, Series A
and B (due through 2001), (b) 8.875% Notes due 1999, (c) 7 1/2% Notes due
2000, (d) 8.90% Debentures due 2006, (e) 10% Debentures due 2019, (f) Term
Loan (due November 13, 1998) under that certain $150,000,000 Term Loan
Agreement (the "Term Loan") dated May 15, 1997, as amended, among the Company,
Citibank, N.A., as Agent, and various lenders party thereto and (g) any long-
term indebtedness (but excluding for this purpose any long-term indebtedness
incurred pursuant to any revolving credit facility, letter of credit facility
or other similar bank credit facility) of the Company issued subsequent to the
TERMS and prior to the Termination Date containing covenants substantially
similar to the Restrictive Covenants but not containing the Termination
Provision (collectively, the "NorAm Long-Term Indebtedness"). Each issue of
NorAm Long-Term Indebtedness (other than the Term Loan) has covenants similar
to the Restrictive Covenants summarized below. The Term Loan and various
agreements governing certain short-term indebtedness of NorAm, including
NorAm's revolving credit facility, contain provisions limiting the Company's
ability to encumber its property or the property of its subsidiaries and to
effect sale and leaseback transactions that differ from the Restrictive
Covenants. As of September 30, 1998, approximately $903 million aggregate
principal amount of NorAm Long-Term Indebtedness was outstanding.
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Limitations on Liens. The Company will not, and will not permit any
Restricted Subsidiary (as defined below) to, pledge, mortgage or hypothecate,
or permit to exist, except in favor of the Company or any Restricted
Subsidiary, any mortgage, pledge, lien or other encumbrance (collectively, a
"lien" or "liens") upon, any Principal Property (as defined below) at any time
owned by it or a Restricted Subsidiary, to secure any indebtedness (as defined
below), unless effective provision is made whereby outstanding TERMS will be
secured equally and ratably therewith (or prior thereto), and with any other
indebtedness similarly entitled to be equally and ratably secured. This
restriction will not apply to: (a) liens on any property held or used by the
Company or a Restricted Subsidiary in connection with the exploration for,
development of or production of, oil, gas, natural gas (including liquefied
gas and storage gas), other hydrocarbons, helium, coal, metals, minerals,
steam, timber, geothermal or other natural resources or synthetic fuels, such
properties to include, but not be limited to, the Company's or a Restricted
Subsidiary's interest in any mineral fee interests, oil, gas or other mineral
leases, royalty, overriding royalty or net profits interests, production
payments and other similar interests, wellhead production equipment, tanks,
field gathering lines, leasehold or field separation and processing
facilities, compression facilities and other similar personal property and
fixtures; (b) liens on oil, gas, natural gas (including liquified gas and
storage gas), other hydrocarbons, helium, coal, metals, minerals, steam,
timber, geothermal or other natural resources or synthetic fuels produced or
recovered from any property, an interest in which is owned or leased by the
Company or a Restricted Subsidiary; (c) liens (or certain extensions, renewals
or refundings thereof) upon any property acquired before or after the date of
the Indenture, created at the time of acquisition or within one year
thereafter to secure all or a portion of the purchase price thereof or the
cost of construction or improvement, or existing thereon at the date of
acquisition, provided that every such mortgage, pledge, lien or encumbrance
applies only to the property so acquired or constructed and fixed improvements
thereon; (d) liens upon any property acquired by any corporation that is or
becomes a Restricted Subsidiary after the date of the Indenture (each, an
"Acquired Entity"), provided that every such mortgage, pledge, lien or
encumbrance (1) shall either (A) exist prior to the time the Acquired Entity
becomes a Restricted Subsidiary or (B) be created at the time the Acquired
Entity becomes a Restricted Subsidiary or within one year thereafter to secure
payment of the acquisition price thereof and (2) shall only apply to those
properties owned by the Acquired Entity at the time it becomes a Restricted
Subsidiary or thereafter acquired by it from sources other than the Company or
any other Restricted Subsidiary; (e) pledges of current assets, in the
ordinary course of business, to secure current liabilities; (f) deposits to
secure public or statutory obligations; (g) liens upon any office, data
processing or transportation equipment; (h) liens created or assumed in
connection with the issuance of debt securities, the interest on which is
excludable from gross income of the holder of such security pursuant to the
Internal Revenue Code, for the purpose of financing the acquisition or
construction of property to be used by the Company or a Restricted Subsidiary;
(i) pledges or assignments of accounts receivable or conditional sales
contracts or chattel mortgages and evidence of indebtedness secured thereby,
received in connection with the sale of goods or merchandise to customers; (j)
certain liens for taxes, judgments and attachments; or (k) certain other
liens.
Notwithstanding the foregoing, the Company or a Restricted Subsidiary may
issue, assume or guarantee indebtedness secured by a mortgage which would
otherwise be subject to the foregoing restrictions in an aggregate amount
which, together with all other indebtedness of the Company or a Restricted
Subsidiary secured by a mortgage which (if originally issued, assumed or
guaranteed at such time) would otherwise be subject to the foregoing
restrictions (not including secured indebtedness permitted under the foregoing
exceptions) and the value of all Sale and Leaseback Transactions (as defined
below) existing at such time (other than Sale and Leaseback Transactions in
which the property involved would have been permitted to be mortgaged under
(c) or (d) above), does not at the time such indebtedness is incurred exceed
5% of Consolidated Net Tangible Assets (as defined below), as shown on the
Company's most recent audited consolidated balance sheet preceding the date of
determination.
Limitation on Sale and Leaseback Transactions. Sale and Leaseback
Transactions by the Company or any Restricted Subsidiary of any Principal
Property are generally prohibited unless the net proceeds of such sale are at
least equal to the fair value of such Principal Property (as determined by the
Board of Directors of the Company) and either (a) the Company or such
Restricted Subsidiary would be entitled under the Indenture to incur
indebtedness secured by a lien on the Principal Property to be leased without
equally and ratably securing
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the TERMS pursuant to the exceptions provided in subclauses (c) and (d) of the
second sentence of "Limitation on Liens" above or (b) the Company applies an
amount not less than the fair value of such property (i) to the retirement of
certain long-term indebtedness of the Company or a Restricted Subsidiary or
(ii) to the purchase at not more than the fair value of Principal Property
(other than that involved in such Sale and Leaseback Transaction).
EVENTS OF DEFAULT
In addition to the "Events of Default" set forth under "Description of Debt
Securities--Events of Default" in the accompanying Prospectus, the failure to
repurchase the TERMS as described herein would also be an Event of Default
under the TERMS.
DEFEASANCE
In order to discharge all of its obligations with respect to the TERMS or
omit to comply with the Restrictive Covenants as described in the accompanying
Prospectus under the headings "Description of Debt Securities--Defeasance and
Covenant Defeasance--Defeasance and Discharge" and "Description of Debt
Securities--Defeasance and Covenant Defeasance--Defeasance of Certain
Covenants," the Company must, in addition to complying with the conditions
described in the above referenced sections of the accompanying Prospectus,
deposit in trust for the benefit of the Holders of the TERMS money or U.S.
Government Obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal of and interest on the TERMS on
the dates such payments are due, including any date prior to the Maturity Date
on which the TERMS are subject to repurchase.
CERTAIN DEFINITIONS
"Consolidated Net Tangible Assets" means the total amount of assets of the
Company and its Subsidiaries less, without duplication: (a) total current
liabilities (excluding indebtedness due within 12 months); (b) all reserves
for depreciation and other asset valuation reserves, but excluding reserves
for deferred federal income taxes; (c) all intangible assets such as goodwill,
trademarks, trade names, patents and unamortized debt discount and expense
carried as an asset; and (d) all appropriate adjustments on account of
minority interests of other persons holding common stock of any Subsidiary,
all as reflected in the Company's most recent audited consolidated balance
sheet preceding the date of such determination.
The term "indebtedness," as applied to the Company or any Subsidiary, means
bonds, debentures, notes and other instruments representing obligations
created or assumed by any such corporation (i) for money borrowed (other than
unamortized debt discount or premium); (ii) evidenced by a note or similar
instrument given in connection with the acquisition of any business,
properties or assets of any kind; (iii) as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles; and (iv) any amendments, renewals, extensions,
modifications and refundings of any such indebtedness or obligation listed in
clause (i), (ii) or (iii) above. All indebtedness secured by a lien upon
property owned by the Company or any Subsidiary and upon which indebtedness
any such corporation customarily pays interest, although any such corporation
has not assumed or become liable for the payment of such indebtedness, is also
deemed to be indebtedness of any such corporation. All indebtedness for
borrowed money incurred by other persons which is directly guaranteed as to
payment of principal by the Company or any Subsidiary shall for all purposes
of the Indenture be deemed to be indebtedness of any such corporation, but no
other contingent obligation of any such corporation in respect of indebtedness
incurred by other persons shall for any purpose be deemed indebtedness of such
corporation. Indebtedness of the Company or any Subsidiary does not include
(i) amounts which are payable only out of all or a portion of the oil, gas,
natural gas, helium, coal, metals, minerals, steam, timber, hydrocarbons, or
geothermal or other natural resources produced, derived or extracted from
properties owned or developed by such corporation; (ii) any indebtedness
incurred to finance oil, gas, natural gas, helium, coal, metals, minerals,
steam, timber, hydrocarbons, or geothermal or other natural resources or
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synthetic fuel exploration or development, payable, with respect to principal
and interest, solely out of the proceeds of oil, gas, natural gas, helium,
coal, metals, minerals, steam, timber, hydrocarbons, or geothermal or other
natural resources or synthetic fuel to be produced, sold, and/or delivered by
the Company or any Subsidiary; (iii) indirect guarantees or other contingent
obligations in connection with the indebtedness of others, including
agreements, contingent or otherwise, with such other persons or with third
persons with respect to, or to permit or ensure the payment of, obligations of
such other persons, including, without limitation, agreements to advance or
supply funds to or to invest in such other persons, or agreements to pay for
property, products or services of such other persons (whether or not
conferred, delivered or rendered), and any demand charge, throughput, take-or-
pay, keep-well, make-whole, cash deficiency, maintenance of working capital or
earnings or similar agreements; and (iv) any guarantees with respect to lease
or other similar periodic payments to be made by other persons.
"Principal Property" means any natural gas distribution property, natural
gas pipeline or gas processing plant located in the United States, except any
such property that in the opinion of the Board of Directors of the Company is
not of material importance to the total business conducted by the Company and
its consolidated Subsidiaries. "Principal Property" shall not include any oil
or gas property or the production or proceeds of production from an oil or gas
producing property or the production or any proceeds of production of gas
processing plants or oil or gas or petroleum products in any pipeline or
storage field.
"Restricted Subsidiary" means any Subsidiary which owns a Principal
Property. "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
which 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.
"Sale and Leaseback Transaction" means any arrangement entered into by the
Company or any Restricted Subsidiary with any person providing for the leasing
to the Company or any Restricted Subsidiary of any Principal Property (except
for temporary leases for a term, including any renewal thereof, of not more
than three years and except for leases between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries), which Principal Property has
been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such person.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the TERMS is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with such consequences to persons who purchase
the TERMS offered hereby and who hold such TERMS as capital assets, and does
not purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, tax-exempt entities, regulated investment
companies, dealers in securities or currencies, persons electing mark-to-
market status as traders in securities, persons holding TERMS as a hedge
against currency risk or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the U.S. dollar. In addition, this
discussion addresses only the United States federal income tax consequences of
the TERMS until the Initial Investor Maturity Date. PERSONS CONSIDERING THE
PURCHASE OF THE TERMS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE TERMS ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
As used herein, the term "U.S. Holder" means a Holder of a TERMS that is for
United States federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury Regulations), (iii) an estate
whose income is subject to United States federal income tax regardless of its
source, (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the authority to control all substantial decisions
of the trust, or (v) any other person whose income or gain in respect of a
TERMS is effectively connected with the conduct of a United States trade or
business. Notwithstanding the preceding sentence, to the extent provided in
Treasury Regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue to
be treated as United States persons also will be "U.S. Holders." As used
herein, the term "non-U.S. Holder" means a Holder of a TERMS that is not a
U.S. Holder.
The United States federal income tax treatment of debt obligations such as
the TERMS is not entirely certain and depends, in part, on whether the TERMS
are treated for federal income tax purposes as maturing on the Maturity Date
or on the Initial Investor Maturity Date. Because the TERMS are subject to
mandatory tender on the Initial Investor Maturity Date, the Company intends to
treat the TERMS, for United States federal income tax purposes, as maturing on
the Initial Investor Maturity Date and, should the Remarketing Dealer remarket
the TERMS, as being reissued on the Initial Investor Maturity Date. By
purchasing the TERMS, each U.S. Holder agrees to such treatment for United
States federal income tax purposes. Based on such treatment, interest on the
TERMS will constitute "qualified stated interest" and generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or received (in accordance with the U.S. Holder's regular method
of tax accounting).
It is expected that the TERMS will be issued without having original issue
discount. If, however, the TERMS are issued at a discount greater than the
statutory de minimis amount (generally 1/4 of 1% of the TERMS' stated
redemption price at the Initial Investor Maturity Date multiplied by the
number of complete years to the Initial Investor Maturity Date from its issue
date), a U.S. Holder would be required to include original issue discount in
income as ordinary interest income for United States federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of the U.S. Holder's
regular method of tax accounting.
Under the foregoing treatment, upon the sale, exchange or retirement of a
TERMS, a U.S. Holder generally will recognize taxable gain or loss equal to
the difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the TERMS. A U.S. Holder's adjusted tax basis
in a TERMS generally will equal such U.S. Holder's initial investment in the
TERMS increased by any original issue discount included in income and
decreased by the amount of any payments, other than qualified stated interest
payments, received and amortizable bond
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premium taken with respect to such TERMS. Such gain or loss will generally be
long-term capital gain or loss if the TERMS were held for more than one year.
Long-term capital gain recognized by non-corporate U.S. Holders is subject to
a maximum tax rate of 20%. The deductibility of capital losses is subject to
limitations.
There can be no assurance that the Internal Revenue Service ("IRS") will
agree with the manner in which the Company intends to treat the TERMS for
United States federal income tax purposes, and it is possible that the IRS
could assert another treatment. For instance, it is possible that the IRS
could seek to treat the TERMS as maturing on the Maturity Date for United
States federal income tax purposes.
In the event the TERMS were treated as maturing on the Maturity Date for
United States Federal income tax purposes, because the interest rate for
certain periods (i.e., the Window Period Interest Rate and the Interest Rate
to Maturity) will not be determined until a later time, the TERMS may be
subject to the Treasury Regulations governing debt instruments that provide
for contingent payments (the "Contingent Payment Regulations"). In such event,
the Company would be required to construct a projected payment schedule for
the TERMS based upon the Company's current borrowing costs for comparable
noncontingent debt instruments of the Company, from which an estimated yield
on the TERMS would be calculated. A U.S. Holder would be required to include
in income original issue discount in an amount equal to the product of the
adjusted issue price of the TERMS at the beginning of each interest accrual
period and the estimated yield of the TERMS. In general, for these purposes, a
TERMS' adjusted issue price would equal the TERMS' issue price increased by
the interest previously accrued on the TERMS, and reduced by all payments made
on the TERMS. As a result of the application of the Contingent Payment
Regulations, it is possible that a U.S. Holder would be required to include
interest in income in excess of actual cash payments received for certain
taxable years.
The character of any gain or loss, upon the sale or exchange of a TERMS
(including a sale pursuant to the mandatory tender on the Initial Investor
Maturity Date) by a U.S. Holder, would likely differ if the TERMS were treated
as contingent payment obligations. Any such taxable gain generally would be
treated as ordinary income. Any such taxable loss generally would be ordinary
to the extent of previously accrued original issue discount, and any excess
would generally be treated as capital loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a TERMS (i) unless such non-U.S. Holder is a direct
or indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) unless and to the extent that any such payments are treated
as contingent interest under the Code. To qualify for exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. beneficial owner (the "Withholding Agent") must have received in the
year in which a payment of interest or principal occurs, or in either of the
two preceding calendar years, a statement that (i) is signed by the beneficial
owner of the TERMS under penalties of perjury, (ii) certifies that such owner
is not a U.S. Holder, and (iii) provides the name and address of the
beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a TERMS is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS
Form W-8 or the substitute form provided by the beneficial owner to the
organization or institution. Under applicable Treasury Regulations, the
statement requirement referred to above may also be satisfied with other
documentary evidence for interest paid after December 31, 1999 with respect to
an offshore account or through certain foreign intermediaries.
Generally, a non-U.S. Holder will not be subject to United States federal
income taxes on any amount which constitutes gain upon retirement or
disposition of a TERMS unless (i) the gain is effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder or
(ii) in the case of an individual
S-17
<PAGE>
non-U.S. Holder, such individual is present in the United States for 183 or
more days in the tax year of disposition and certain other conditions are
satisfied. Certain other exceptions may be applicable, and a non-U.S. Holder
should consult its tax advisor in this regard.
The TERMS will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
TERMS would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the TERMS to registered owners who are
not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the TERMS to a U.S. Holder must be reported to the
IRS, unless the U.S. Holder is an exempt recipient or otherwise establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding for
those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a TERMS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-
U.S. Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-
U.S. status (and certain other conditions are met). Certification of the
registered owner's non-U.S. status would be made normally on an IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
Holder would be allowed as a refund or a credit against such Holder's United
States federal income tax provided the required information is furnished to
the IRS.
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the "New Regulations")
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
S-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally but not jointly
agreed to purchase, the principal amount of the TERMS set forth opposite its
name below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................... $
Chase Securities Inc. .........................................
Goldman, Sachs & Co. ..........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
NationsBanc Montgomery Securities LLC..........................
---------
Total...................................................... $
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the TERMS, if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an Underwriter, in
certain circumstances, the purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the TERMS to the public initially at the public offering
price set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession of % of the principal amount per
TERMS and the Underwriters and such dealers may allow a discount of % of
such principal amount per TERMS on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Underwriters.
The TERMS are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend
to make a market in the TERMS but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the TERMS. In addition,
there can be no assurance that an active or liquid market for the TERMS will
develop or, if any such market develops, that it will continue to exist.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities, under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
The Underwriters may engage in certain transactions that maintain or
otherwise affect the price of the TERMS. Such transactions may include over-
allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
TERMS in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Underwriters to
reclaim a selling concession from a syndicate member when the TERMS originally
sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
TERMS to be higher than it would otherwise be in the absence of such
transactions. These transactions, if commenced, may be discontinued at any
time.
The Company estimates that its expenses associated with the offer and sale
of the TERMS will be $ .
S-19
<PAGE>
The Remarketing Dealer will pay the Company $ as consideration for the
right to remarket the TERMS as described above on the same date the
Underwriters pay the purchase price for TERMS. Following the Remarketing Date,
the TERMS may be remarketed to or through the Remarketing Dealer, directly to
purchasers, to dealers or otherwise. Such transactions may be effected from
time to time at a fixed price or prices, or at market prices prevailing at the
time of sales at prices related to such prevailing market prices or at
negotiated prices. If required at any time, this Prospectus Supplement and the
accompanying Prospectus, as amended or supplemented, or a new Prospectus may
be used in connection with remarketing the TERMS. The TERMS may also be
remarketed following the Remarketing Date in one or more private transactions,
including pursuant to Rule 144A under the Securities Act.
Each of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to the Company and its affiliates for which such Underwriters or
their affiliates have received or will receive customary fees and commissions.
In addition, Chase Bank of Texas, National Association, an affiliate of Chase
Securities Inc., is the Trustee under the Indenture. See "Description of Debt
Securities--Regarding the Trustee" in the accompanying Prospectus.
S-20
<PAGE>
PROSPECTUS
NORAM ENERGY CORP.
$500,000,000
DEBT SECURITIES
----------------
By this prospectus, we may offer in one or more separate offerings up to
$500,000,000 of our Debt Securities. We will offer our Debt Securities in
amounts, at prices and on terms to be determined by market conditions at the
time of our offering.
We will provide the specific terms of our Debt Securities in supplements to
this prospectus. You should read this prospectus and the related prospectus
supplement carefully before you invest in our Debt Securities. This prospectus
may not be used to offer and sell of our Debt Securities unless accompanied by
a prospectus supplement.
We may offer our Debt Securities in any of the following ways:
.through one or more underwriters or a syndicate of underwriters in an
underwritten offering;
.through dealers;
.through agents; or
.directly to purchasers.
You can find additional information about our plan of distribution for our
Debt Securities under the heading "Plan of Distribution," which appears later
in this prospectus. We will describe the plan of distribution for any
particular offering of our Debt Securities in the applicable prospectus
supplement.
Our executive offices are located at Houston Industries Plaza, 1111
Louisiana, Houston, Texas 77002, and our telephone number is (713) 207-3000.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this prospectus is October 30, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS ----
<S> <C>
Where You Can Find More Information........................................ 3
Disclosure Regarding Forward-Looking Statements............................ 4
The Company................................................................ 5
Ratio of Earnings to Fixed Charges......................................... 6
Use of Proceeds............................................................ 6
Description of Debt Securities............................................. 6
Plan of Distribution....................................................... 16
Experts.................................................................... 18
Validity of Securities..................................................... 18
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. The information contained in this prospectus is current only as
of the date of this prospectus.
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy any document we file with
the Commission at the Commission's Public Reference Room located at 450 Fifth
Street, N.W., Washington, D.C. 20549, at the regional offices of the
Commission located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite
1300, New York, New York 10048. You may obtain further information regarding
the operation of the Commission's Public Reference Room by calling the
Commission at 1-800-SEC-0330. Our filings are also available to the public on
the Commission's Internet site located at http://www.sec.gov. In addition, you
may inspect our reports at the offices of the New York Stock Exchange, Inc. at
20 Broad Street, New York, New York 10005.
The Commission allows us to "incorporate by reference" into this prospectus
the information we file with the Commission, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, unless we update or supersede that information by the information
contained in this prospectus or a prospectus supplement or by information that
we file subsequently that is incorporated by reference into this prospectus.
We are incorporating by reference into this prospectus the following documents
that we have filed with the Commission and our future filings with the
Commission under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), until our offering of
our Debt Securities is completed:
. Our Annual Report on Form 10-K for our fiscal year ended December 31,
1997;
. Our Quarterly Reports on Form 10-Q for our quarterly periods ended March
31, 1998 and June 30, 1998; and
. Our Current Report on Form 8-K dated February 5, 1998.
This prospectus is part of a registration statement we have filed with the
Commission relating to our Debt Securities. As permitted by Commission rules,
this prospectus does not contain all of the information included in the
registration statement and the accompanying exhibits and schedules we file
with the Commission. You should read the registration statement, the exhibits
and schedules for more information about us and our Debt Securities. The
registration statement, exhibits and schedules are also available at the
Commission's Public Reference Room or through its web site.
You may also request a copy of our filings with the Commission at no cost,
by writing to or telephoning us at the following address:
NorAm Energy Corp.
1111 Louisiana
Houston, Texas 77002
Attn: Corporate Secretary
(713) 207-3000
3
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Prospectus, including the documents that are
incorporated by reference as set forth in "Incorporation of Certain Documents
by Reference," that are not historical facts are forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. Forward-
looking statements are based on management's beliefs as well as assumptions
made by and information currently available to management. Because such
statements are based on expectations as to future economic performance and are
not statements of fact, actual results may differ materially from those
projected. Important factors that could cause future results to differ include
(a) the effects of competition, (b) legislative and regulatory changes, (c)
fluctuations in the weather, (d) fluctuations in energy commodity prices, (e)
environmental liabilities, (f) changes in the economy and (g) other factors
discussed in this and other filings by NorAm with the Commission. When used in
NorAm's documents or oral presentations, the words "anticipate," "estimate,"
"expect," "objective," "projection," "forecast," "goal" or similar words are
intended to identify forward-looking statements.
4
<PAGE>
THE COMPANY
NorAm Energy Corp. ("NorAm" or the "Company") conducts operations primarily
in the natural gas industry, including gathering, transmission, marketing,
storage and distribution. NorAm is currently organized into three operating
units: (a) natural gas distribution; (b) interstate pipeline; and (c) energy
marketing. NorAm is a wholly owned subsidiary of Houston Industries
Incorporated ("Houston Industries").
Natural Gas Distribution. NorAm's natural gas distribution operations are
conducted through three of its unincorporated divisions, Arkla, Entex and
Minnegasco, which, as of June 30, 1998, collectively formed the nation's third
largest natural gas distribution operation in terms of customers served.
Through these divisions, NorAm purchases, transports, stores and distributes
natural gas and provides natural gas utility services to over 2.8 million
residential, commercial and industrial customers in six states, including the
metropolitan areas of Minneapolis, Minnesota; Houston, Texas; Little Rock,
Arkansas; and Shreveport, Louisiana.
Interstate Pipeline. NorAm's interstate natural gas pipeline operations
("Interstate Pipeline") are conducted through two of its wholly owned
subsidiaries, NorAm Gas Transmission Company and Mississippi River
Transmission Corporation. As of June 30, 1998, Interstate Pipeline owned and
operated approximately 8,200 miles of transmission lines and six natural gas
storage facilities located across the following eight states in the south-
central United States: Arkansas, Kansas, Louisiana, Mississippi, Missouri,
Oklahoma, Tennessee and Texas. Interstate Pipeline transports and delivers
natural gas on behalf of various shippers primarily to utilities, industrial
customers and third party pipeline interconnects.
Energy Marketing. NorAm's Energy Marketing and Gathering division ("Energy
Marketing") markets natural gas and electric power and provides price risk
management services to various energy sector customers. In addition, Energy
Marketing provides natural gas gathering services and retail energy marketing
services. The division's energy marketing and risk management services are
conducted by NorAm Energy Services, Inc. ("NES"). NES supplies, markets and
trades natural gas and electricity. In addition it offers physical and
financial wholesale energy marketing products and services to a variety of
customers, including natural gas distribution companies, municipalities, power
plants, marketers, aggregators and large volume industrial customers. The
division's natural gas gathering operations, including related liquids
extraction and marketing activities, are conducted by NorAm Field Services
Corp. ("NFS"). As of June 30, 1998, NFS operated approximately 4,000 miles of
gathering pipelines which collected natural gas from more than 200 separate
systems located in major producing fields in Arkansas, Louisiana, Oklahoma and
Texas. The division's retail energy marketing services are conducted by NorAm
Energy Management, Inc. ("NEM"). NEM markets natural gas and related energy
services to industrial customers served by large local distribution companies
and connected to interstate and intrastate pipelines offering unbundled
transportation services.
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratios of earnings from
continuing operations to fixed charges for each of the periods indicated:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------- ------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings from continuing operations
to fixed charges(1)........................ 2.97 2.59 1.89 2.12 1.69 1.47 1.47
</TABLE>
- --------
(1) The Company believes that the ratios for the six-month periods are not
necessarily indicative of the ratios for the twelve-month periods due to
the seasonal nature of the Company's business and adjustments to the
Company's financial statements resulting from its merger with and into a
wholly owned subsidiary of Houston Industries on August 6, 1997.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company anticipates that any net proceeds from the sale of Debt Securities
will be used for general corporate purposes, which may include, but are not
limited to, working capital, capital expenditures, acquisitions and the
repayment or refinancing of the Company's indebtedness, including the
Company's outstanding long-term public debt securities.
DESCRIPTION OF DEBT SECURITIES
NorAm may from time to time offer debt securities consisting of bonds,
debentures, notes (including notes commonly known as medium-term notes), or
other evidences of indebtedness in one or more series at an aggregate initial
offering price not to exceed $500,000,000 (the "Debt Securities") pursuant to
this Prospectus. The Debt Securities are to be issued under an Indenture,
dated as of February 1, 1998 (as the same may be amended from time to time,
the "Indenture"), between the Company and Chase Bank of Texas, National
Association (formerly known as Texas Commerce Bank National Association), as
Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Debt Securities
may be issued from time to time in one or more series. The particular terms of
each series, or of Debt Securities forming a part of a series which are
offered by a Prospectus Supplement, will be described in such Prospectus
Supplement.
The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to all the provisions of the Indenture, including the definitions
therein of certain terms, and, with respect to any particular Debt Securities,
to the description of the terms thereof included in the Prospectus Supplement
relating thereto. Wherever particular Sections or defined terms of the
Indenture are referred to herein or in a Prospectus Supplement, such Sections
or defined terms are incorporated by reference herein or therein, as the case
may be.
The covenants in the Indenture would not necessarily afford the holders of
the Debt Securities protection in the event of a decline in the Company's
credit quality resulting from highly leveraged or other transactions involving
the Company.
GENERAL
The Indenture provides that separate series of Debt Securities may be issued
under the Indenture from time to time without limitation as to aggregate
principal amount. The Company may specify a maximum aggregate principal amount
for the Debt Securities of any series, provided, however, such specified
maximum aggregate principal amount may be increased by resolution of the Board
of Directors of the Company. (Section 301) The Debt Securities are to have
such terms and provisions which are not inconsistent with the Indenture,
including as to maturity, principal and interest, as the Company may
determine. The Debt Securities will be unsecured obligations of the Company
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company.
6
<PAGE>
The applicable Prospectus Supplement will set forth the price or prices at
which the Debt Securities to be offered will be issued and will describe the
following terms of such Debt Securities: (a) the title of such Debt
Securities; (b) any limit on the aggregate principal amount of the particular
series of Debt Securities; (c) the date or dates on which the principal of any
of such Debt Securities will be payable or the method by which such date or
dates will be determined or extended; (d) the rate or rates at which any of
such Debt Securities will bear interest, if any, or the method by which such
rate or rates shall be determined, the date or dates from which any such
interest will accrue, or the method by which such date or dates shall be
determined, the Interest Payment Dates on which any such interest will be
payable and the Regular Record Date, if any, for any such interest payable on
any Interest Payment Date, or the method by which such date or dates shall be
determined, and the basis upon which interest shall be calculated if other
than that of a 360-day year of twelve 30-day months; (e) the place or places
where the principal of and any premium and interest on any of such Debt
Securities will be payable, the place or places where such Debt Securities may
be presented for registration of transfer or exchange, and the place or places
where notices and demands to or upon the Company in respect of such Debt
Securities may be made; (f) the period or periods within which or the date or
dates on which, the price or prices at which and the terms and conditions upon
which any of such Debt Securities may be redeemed, in whole or in part, at the
option of the Company and the manner in which any election by the Company to
redeem such Debt Securities shall be evidenced (if other than by a Board
Resolution); (g) the obligation or the right, if any, of the Company to redeem
or purchase any of such Debt Securities pursuant to any sinking fund,
amortization or analogous provisions or the option of the Holder thereof to
require any such redemption or purchase, and the period or periods within
which, the price or prices at which, the currency or currencies (including
currency unit or units) in which and the other terms and conditions on which
any of such Debt Securities will be redeemed or purchased, in whole or in
part, pursuant to any such obligation; (h) the denominations in which any of
such Debt Securities will be issuable, if other than denominations of $1,000
and any integral multiple thereof; (i) if the amount of principal of or any
premium or interest on any of such Debt Securities may be determined with
reference to an index or pursuant to a formula, the manner in which such
amounts will be determined; (j) if other than the currency of the United
States of America, the currency, currencies or currency units, including
composite currencies, in which the principal of or any premium or interest on
any of such Debt Securities will be payable (and the manner in which the
equivalent of the principal amount thereof in the currency of the United
States of America is to be determined for any purpose, including for the
purpose of determining the principal amount deemed to be Outstanding at any
time); (k) if the principal of or any premium or interest on any of such Debt
Securities is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than those in which
such Debt Securities are stated to be payable, the currency, currencies or
currency units in which payment of any such amount as to which such election
is made will be payable, the period or periods within which or the date or
dates on which and the terms and conditions upon which such election is to be
made and the amount so payable (or the manner in which such amount is to be
determined); (l) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the entire principal amount
thereof, the portion of the principal amount of any of such Debt Securities
which will be payable upon declaration of acceleration of the Maturity thereof
or the method by which such portion shall be determined; (m) if the principal
amount payable at the Stated Maturity of any of such Debt Securities will not
be determinable as of any one or more dates prior to the Stated Maturity, the
amount which will be deemed to be such principal amount as of any such date
for any purpose, including the principal amount thereof which will be due and
payable upon any Maturity other than the Stated Maturity or which will be
deemed to be Outstanding as of any such date (or, in any such case, the manner
in which such deemed principal amount is to be determined); (n) any variation
from the application of the provisions of the Indenture described under
"Defeasance and Covenant Defeasance--Defeasance and Discharge" or "Defeasance
and Covenant Defeasance--Defeasance of Certain Covenants" or under both such
captions and the manner in which any election of the Company to defease such
Debt Securities shall be evidenced (if other than by a Board Resolution); (o)
whether any of such Debt Securities will initially be issuable in whole or in
part in the form of a temporary Global Security representing such Debt
Securities and provisions for the exchange of such temporary Global Security
for definitive Debt Securities; (p) whether any of such Debt Securities will
be issuable in whole or in part in the form of one or more Global Securities
and, if so, the respective Depositaries for such Global Securities, the form
of any legend or legends to be borne by any such Global Security, any
circumstances under which any such
7
<PAGE>
Global Security may be exchanged, in whole or in part, for Debt Securities
registered, and whether and under what circumstances any transfer of such
Global Security, in whole or in part, may be registered, in the names of
Persons other than the Depositary for such Global Security or its nominee; (q)
whether any of such Debt Securities will be subject to certain optional
interest rate reset provisions; (r) whether any of such Debt Securities will
be subject to certain optional extension of maturity provisions; (s) any
addition to or change in the Events of Default applicable to any of such Debt
Securities and any change in the right of the Trustee or the Holders of any of
such Debt Securities to declare the principal amount of any of such Debt
Securities due and payable; (t) any addition to or change in the covenants in
the Indenture applicable to any of such Debt Securities; (u) the additions or
changes, if any, to the Indenture with respect to such Debt Securities as
shall be necessary to permit or facilitate the issuance of such Debt
Securities in bearer form, registrable or not registrable as to principal, and
with or without interest coupons; (v) the appointment of any Paying Agent or
Agents for such Debt Securities, if other than Houston Industries; (w) the
terms of any right to convert or exchange such Debt Securities into any other
securities or property of the Company, and the additions or changes, if any,
to the Indenture with respect to such Debt Securities to permit or facilitate
such conversion or exchange; (x) the terms and conditions, if any, pursuant to
which such Debt Securities are secured; (y) any restriction or condition on
the transferability of such Debt Securities; and (z) any other terms of such
Debt Securities not inconsistent with the provisions of the Indenture.
(Section 301)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States income tax considerations (if any) applicable to Debt Securities sold
at an original issue discount may be described in the applicable Prospectus
Supplement. In addition, certain special United States federal income tax or
other considerations (if any) applicable to any Debt Securities which are
denominated in a currency or currency unit other than United States dollars
may be described in the applicable Prospectus Supplement.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in registered form,
without coupons, and, unless otherwise specified in the applicable Prospectus
Supplement, only in denominations of $1,000 and integral multiples thereof.
(Section 302)
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Debt Securities of each series
will be exchangeable for other Debt Securities of the same series, of any
authorized denomination and of a like tenor and aggregate principal amount.
(Section 305)
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose. No service charge will be made for any registration of transfer
or exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. Any transfer agent (in
addition to the Security Registrar) initially designated by the Company for
any Debt Securities will be named in the applicable Prospectus Supplement.
(Section 305) The Company may at any time designate additional transfer agents
or rescind the designation of any transfer agent or approve a change in the
office through which any transfer agent acts, except that the Company will be
required to maintain a transfer agent in each Place of Payment for the Debt
Securities of each series. (Sections 305 and 1002)
Neither the Trustee nor the Company will be required to (a) issue, register
the transfer of or exchange any Debt Security of any series (or of any series
and specified tenor, as the case may be) during a period beginning at the
opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing, or (b) register
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the transfer of or exchange any Debt Security so selected for redemption, in
whole or in part, except, in the case of any such Debt Security to be redeemed
in part, any portion not to be redeemed. (Section 305)
GLOBAL SECURITIES
Unless otherwise provided in the Prospectus Supplement, some or all of the
Debt Securities of any series may be represented, in whole or in part, by one
or more Global Securities which will have an aggregate principal amount equal
to that of the Debt Securities represented thereby. Unless otherwise provided
in the Prospectus Supplement, the Global Security representing Debt Securities
will be deposited with, or on behalf of, The Depository Trust Company ("DTC"),
or other successor depository appointed by the Company (DTC or such other
depository is herein referred to as the "Depositary") and registered in the
name of the Depositary or its nominee and such Global Security will bear a
legend regarding the restrictions on exchange and registration of transfer
thereof referred to below and any such other matters as may be provided for
pursuant to the Indenture. Unless otherwise provided in the Prospectus
Supplement, Debt Securities will not be issued in definitive form.
Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be exchanged, in whole or in part,
for Debt Securities registered, and no transfer of a Global Security, in whole
or in part, may be registered in the name of any Person other than the
Depositary for such Global Security or any nominee of such Depositary unless
(a) the Depositary has notified the Company that it is unwilling or unable to
continue as Depositary for such Global Security or has ceased to be qualified
to act as such as required by the Indenture, (b) there shall have occurred and
be continuing an Event of Default with respect to the Debt Securities
represented by such Global Security, (c) the Company in its sole discretion
determines that such Global Security will be so exchangeable or transferable,
or (d) there shall exist such circumstances, if any, in addition to or in lieu
of those described above as may be described in the applicable Prospectus
Supplement. All Debt Securities issued in exchange for a Global Security or
any portion thereof will be registered in such names as the Depositary may
direct. (Sections 204 and 305)
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to DTC's book-entry system is also available to others, such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Upon the issuance by the Company of Debt Securities represented by a Global
Security, purchases of Debt Securities under the DTC System must be made by or
through Direct Participants, which will receive a credit for the Debt
Securities on DTC's records. The ownership interest of each actual purchaser
of each Debt Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Debt Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Debt Securities, except in the event
that use of the book-entry system for the Debt Securities is discontinued. The
laws of some states require that certain purchasers of securities take
physical
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delivery of such securities in definitive form. Such laws may impair the
ability to transfer beneficial interests in a Global Security.
So long as the Depositary for the Global Security, or its nominee, is the
registered owner of the Global Security, the Depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as described above, Beneficial Owners will not be entitled
to have Debt Securities represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities in definitive form and will not be considered the owners or
holders thereof under the Indenture.
To facilitate subsequent transfers, all Debt Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Debt Securities with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Debt Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Debt Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers. Conveyance of notices and other
communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Debt
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Debt Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Payments of principal of and interest, if any, on the Debt Securities
represented by the Global Security registered in the name of the Depositary or
its nominee will be made by the Company through the Trustee under the
Indenture or a paying agent (the "Paying Agent"), which may also be the
Trustee under the Indenture, to the Depositary or its nominee, as the case may
be, as the registered owner of the Global Security. Neither the Company, the
Trustee, nor the 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 of the Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company has been advised that DTC will credit Direct Participants'
accounts on the payable date in accordance with their respective holdings
shown on DTC's records unless DTC has reason to believe that it will not
receive payment on the payable date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as
in the case with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of such
Participant and not of DTC, the Paying Agent, or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Company
or the Paying Agent, disbursement of such payments to Direct Participants
shall be the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to
the Person in whose name such Debt Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in
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respect of such Debt Securities, except that, unless otherwise provided in
such Debt Securities, interest payable on the Stated Maturity of the principal
of a Debt Security shall be paid to the Person to whom principal is paid. The
initial payment of interest on any Debt Security of any series which is issued
between a Regular Record Date and the related Interest Payment Date shall be
payable as provided in such Debt Security. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a
particular series will be payable at the office of such Paying Agent or Paying
Agents as the Company may designate for such purpose from time to time, except
that at the option of the Company payment of any interest may be made (a) by
check mailed to the address of the Person entitled thereto as such address
appears in the Security Register, or (b) by wire transfer in immediately
available funds at such place and to such account as designated in writing by
the Person entitled thereto as specified in the Security Register. Unless
otherwise indicated in the applicable Prospectus Supplement, Houston
Industries, the Company's parent company, will be designated as the Company's
sole Paying Agent for payments with respect to Debt Securities of each series.
Any other Paying Agents initially designated by the Company for the Debt
Securities of a particular series will be named in the applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent, except that the Company at all
times will be required to maintain a Paying Agent in each Place of Payment for
the Debt Securities of a particular series. (Sections 307 and 1002)
Any money deposited by the Company with the Trustee or any Paying Agent for
the payment of the principal of or any premium or interest on any Debt
Security which remains unclaimed at the end of two years after such principal,
premium or interest has become due and payable may be repaid to the Company at
the Company's request and the Holder of such Debt Security will thereafter, as
an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, will
thereupon cease. (Section 1003)
COVENANTS
The applicable Prospectus Supplement will set forth any restrictive
covenants applicable with respect to any series of Debt Securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into, or convey, transfer or
lease its properties and assets substantially as an entirety to, any Person
("Successor Person"), and may not permit any Person to consolidate with or
merge into, or convey, transfer or lease its properties and assets
substantially as an entirety to, the Company, unless (a) the Successor Person
(if any) is a corporation, partnership, trust or other entity organized and
validly existing under the laws of any domestic jurisdiction and assumes the
Company's obligations on the Debt Securities and under the Indenture, (b)
immediately after giving effect to the transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing and (c) the Company has
delivered to the Trustee the certificates and opinions required under the
Indenture. (Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due; (b)
failure to pay any interest on any Debt Securities of that series when due,
continued for 30 days; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series; (d) failure to perform,
or breach in any material respect of, any other covenant or warranty of the
Company in the Indenture with respect to Debt Securities of that series (other
than a covenant or warranty included in the Indenture solely for the benefit
of a series other than that series), continued for 90 days after written
notice has been given to the Company by the Trustee or the Holders of at least
25% in principal amount of the Outstanding Securities of that series, as
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provided in the Indenture; (e) certain events involving bankruptcy, insolvency
or reorganization; and (f) any other Event of Default provided with respect to
Debt Securities of that series; provided, however, that no event described in
clause (d), (e) or (f) above shall constitute an Event of Default until an
officer of the Trustee, assigned to and working in the Trustee's corporate
trust department has actual knowledge thereof or until a written notice of any
such event is received by the Trustee at its Corporate Trust Office, and such
notice refers to the Debt Securities generally, the Company or the Indenture.
(Section 501)
Notwithstanding the foregoing provisions, if the principal or any premium or
interest on any Debt Security is payable in a currency other than the currency
of the United States of America and such currency is not available to the
Company for making payment thereof due to the imposition of exchange controls
or other circumstances beyond the control of the Company, the Company will be
entitled to satisfy its obligations to Holders of the Debt Securities by
making such payment in the currency of the United States of America in an
amount equal to the currency of the United States of America equivalent of the
amount payable in such other currency, as determined by the Trustee by
reference to the noon buying rate in The City of New York for cable transfers
for such currency ("Exchange Rate"), as such Exchange Rate is reported or
otherwise made available by the Federal Reserve Bank of New York on the date
of such payment, or, if such rate is not then available, on the basis of the
most recently available Exchange Rate. Notwithstanding the foregoing, any
payment made under such circumstances in the currency of the United States of
America where the required payment is in a currency other than the currency of
the United States of America will not constitute an Event of Default under the
Indenture. (Section 501)
If an Event of Default (other than an Event of Default described in clause
(d) above or another Event of Default specified in clause (f) above that is
applicable to all Outstanding Debt Securities, or an Event of Default
specified in clause (e) above) with respect to the Debt Securities of any
series at the time Outstanding shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of that series by notice as provided in the
Indenture may declare the principal amount of the Debt Securities of that
series (or, in the case of any Debt Security that is an Original Issue
Discount Security, such portion of the principal amount of such Debt Security,
as may be specified in the terms of such Debt Security) to be due and payable
immediately, and upon any such declaration such principal amount shall become
immediately due and payable. If an Event of Default described in clause (d)
above or another Event of Default specified in clause (f) above that is
applicable to all Outstanding Debt Securities shall occur and be continuing,
or an Event of Default specified in clause (e) above shall occur and be
continuing, either the Trustee or the Holders of at least 25% in aggregate
principal amount of all the Debt Securities then Outstanding (treated as one
class) by notice as provided in the Indenture may declare the principal amount
(or, if any Debt Securities are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms thereof) of
all the Debt Securities then Outstanding to be due and payable immediately,
and upon any such declaration such principal amount shall become immediately
due and payable. After any such acceleration of a series, but before a
judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of the Outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal (or
other specified amount), have been cured or waived as provided in the
Indenture. (Section 502) For information as to waiver of defaults, see
"Modification and Waiver" below.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall 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 shall have offered to the Trustee reasonable indemnity. (Section
603) Subject to such provisions for the indemnification of the Trustee, the
Holders of a majority in aggregate principal amount of the Outstanding Debt
Securities of any 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 that series, provided that, (a) such direction shall not be
in conflict with any rule of law or the Indenture, (b) the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction,
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and (c) subject to the provisions of the Indenture relating to the duties of
the Trustee, the Trustee will have the right to decline to follow such
direction if an officer of the Trustee determines, in good faith, that the
proceeding so directed would involve the Trustee in personal liability or
would otherwise be contrary to applicable law. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver, assignee, trustee, liquidator or sequestrator (or other similar
official), or for any other remedy thereunder, unless (a) such Holder has
previously given to the Trustee written notice of a continuing Event of
Default with respect to the Debt Securities of that series, (b) the Holders of
at least 25% in aggregate principal amount of the Outstanding Debt Securities
of that series have made written request to the Trustee, and such Holder or
Holders have offered reasonable indemnity, to the Trustee to institute such
proceeding and (c) the Trustee has failed to institute such proceeding, and
has not received from the Holders of a majority in aggregate principal amount
of the Outstanding Debt Securities of that series a direction inconsistent
with such request, within 60 days after such notice, request and offer.
(Section 507) 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. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions, covenants and conditions of the Indenture and, if so, specifying
all such known defaults. (Section 1004)
MODIFICATION AND WAIVER
The Indenture contains provisions permitting the Company and the Trustee to
enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (a) to evidence the succession
of another corporation to the Company, or successive successions and the
assumption of the covenants, agreements and obligations of the Company by a
successor to the Company; (b) to add to the covenants of the Company for the
benefit of the Holders or surrender any right or power of the Company; (c) to
add additional Events of Default with respect to any series of Debt
Securities; (d) to add or change any provisions of the Indenture to such
extent as necessary to facilitate the issuance of Debt Securities in bearer
form; (e) to add to, change or eliminate any provision of the Indenture in
respect of one or more series of Debt Securities, provided that if such action
adversely affects the interests of any Holders of Debt Securities of any
series, such addition, change or elimination will become effective with
respect to such series only when no Security of such series remains
Outstanding; (f) to convey, transfer, assign, mortgage or pledge any property
to or with the Trustee or to surrender any right or power herein conferred
upon the Company; (g) to establish the form or terms of Debt Securities; (h)
to provide for uncertificated securities in addition to certificated
securities; (i) to evidence and provide for successor Trustees or to add or
change any provisions to such extent as necessary to permit or facilitate the
appointment of a separate Trustee or Trustees for specific series of Debt
Securities; (j) to cure any ambiguity, to correct any defect or supplement any
inconsistent provisions or to make any other provisions with respect to
matters or questions arising under the Indenture, provided that such action
does not adversely affect the interests of the Holders of Debt Securities of
any series; (k) to supplement any provisions of the Indenture necessary to
permit or facilitate the defeasance and discharge of any series of Debt
Securities, provided that such action does not adversely affect the interests
of the Holders of Debt Securities of such series or any other series; (l) to
comply with the rules or regulations of any securities exchange or automated
quotation system on which any of the Debt Securities may be listed or traded;
or (m) to add, change or eliminate any provisions of the Indenture as is
necessary or desirable in accordance with any amendments to the Trust
Indenture Act, provided that such action does not adversely affect the rights
or interests of any Holder of Debt Securities. (Section 901)
The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Debt Securities of each series
affected by such supplemental indenture (treated as one class), to execute
supplemental indentures adding
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any provisions to or changing or eliminating any of the provisions of the
Indenture or modifying the rights of the Holders of Debt Securities of such
series, except that no such supplemental indenture may, without the consent of
the Holder of each Outstanding Debt Security so affected, (a) except to the
extent permitted pursuant to the Indenture, change the Stated Maturity of the
principal of, or any installment of principal of or interest on, any Debt
Security, (b) reduce the principal amount of, or any premium or interest on,
any Debt Security, (c) reduce the amount of principal of an Original Issue
Discount Security or any other Debt Security payable upon acceleration of the
Maturity thereof, (d) change the place or currency of payment of principal of,
or any premium or interest on, any Debt Security, (e) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debt Security, (f) reduce the percentage in principal amount of Outstanding
Debt Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture, (g) reduce the percentage in
principal amount of Outstanding Debt Securities of any series necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (h) make certain modifications to such provisions with
respect to modification and waiver, (i) with respect to any series of Debt
Securities that are convertible or exchangeable into any other securities or
property of the Company, make any change that adversely affects the right to
convert or exchange any such Debt Security or decrease the conversion or
exchange rate or increase the conversion price of any such Debt Security, or
(j) with respect to any series of Debt Securities that are secured, change the
terms and conditions pursuant to which such Debt Securities are secured in a
manner adverse to the Holders of such Debt Securities. (Section 902)
The Holders of not less than a majority in aggregate principal amount of the
Outstanding Debt Securities of any series may waive any past default or
compliance with certain restrictive provisions under the Indenture, except a
default in the payment of principal, premium or interest and certain covenants
and provisions of the Indenture which cannot be amended without the consent of
the Holder of each Outstanding Debt Security of such series affected.
(Sections 513 and 1006)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any direction, notice, consent, waiver or other action under the
Indenture as of any date, (a) the principal amount of an Original Issue
Discount Security that will be deemed to be Outstanding will be the amount of
the principal thereof that would be due and payable as of such date upon
acceleration of the Maturity thereof to such date, (b) if, as of such date,
the principal amount payable at the Stated Maturity of a Debt Security is not
determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be
an amount determined in the manner prescribed for such Debt Security, (c) the
principal amount of a Debt Security denominated in one or more foreign
currencies or currency units that will be deemed to be Outstanding will be the
U.S. dollar equivalent, determined as of such date in the manner prescribed
for such Debt Security, of the principal amount of such Debt Security (or, in
the case of a Debt Security described in clause (a) or (b) above, of the
amount described in such clause) and (d) Debt Securities owned by the Company
or any other obligor upon the Debt Securities or any of their Affiliates will
be disregarded and deemed not to be Outstanding. Certain Debt Securities,
including those for whose payment or redemption money has been deposited or
set aside in trust for the Holders and those that have been fully defeased
pursuant to Section 1402, will not be deemed to be Outstanding. (Section 101)
Except in certain limited circumstances, the Company will be entitled to set
any day as a record date for the purpose of determining the Holders of
Outstanding Debt securities of any series entitled to give or take any
direction, notice, consent, waiver or other action under the Indenture, in the
manner and subject to the limitations provided in the Indenture. In certain
limited circumstances, the Trustee will be entitled to set a record date for
action by Holders. If a record date is set for any action to be taken by
Holders of a particular series, such action may be taken only by persons who
are Holders of Outstanding Debt Securities of that series on the record date.
To be effective, such action must be taken by Holders of the requisite
principal amount of such Debt Securities within a specified period following
the record date. For any particular record date, this period will be 180 days
or such shorter period as may be specified by the Company (or the Trustee, if
it set the record date) and may be shortened or lengthened (but not beyond 180
days) from time to time. (Section 104)
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DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the applicable Prospectus Supplement, the
provisions of Section 1402, relating to defeasance and discharge of
indebtedness, or Section 1403, relating to defeasance of certain restrictive
covenants, in the Indenture, shall apply to the Debt Securities of any series
or to any specified part of a series. (Section 1401)
Defeasance and Discharge. Section 1402 of the Indenture provides that the
Company will be discharged from all its obligations with respect to such Debt
Securities (except for certain obligations to exchange or register the
transfer of Debt Securities, to replace stolen, lost or mutilated Debt
Securities, to maintain paying agencies and to hold moneys for payment in
trust) upon the deposit in trust for the benefit of the Holders of such Debt
Securities of money or U.S. Government Obligations, or both, which, through
the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal
of and any premium and interest on such Debt Securities on the respective
Stated Maturities in accordance with the terms of the Indenture and such Debt
Securities. Such defeasance or discharge may occur only if, among other
things, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Company has received from, or there has been published by, the
United States Internal Revenue Service a ruling, or there has been a change in
tax law, in either case to the effect that Holders of such Debt Securities
will not recognize gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge were not to occur.
(Sections 1402 and 1404)
Defeasance of Certain Covenants. Section 1403 of the Indenture provides
that, in certain circumstances, the Company may omit to comply with certain
restrictive covenants, including any that may be described in the applicable
Prospectus Supplement, and that in those circumstances the occurrence of
certain Events of Default, which are described above in clause (d) (with
respect to such restrictive covenants) under "Events of Default" and any that
may be described in the applicable Prospectus Supplement, will be deemed not
to be or result in an Event of Default, in each case with respect to such Debt
Securities. The Company, in order to exercise such option, will be required to
deposit, in trust for the benefit of the Holders of such Debt Securities,
money or U.S. Government Obligations, or both, which, through the payment of
principal and interest in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and any premium
and interest on such Debt Securities on the respective Stated Maturities in
accordance with the terms of the Indenture and such Debt Securities. The
Company will also be required, among other things, to deliver to the Trustee
an opinion of Counsel to the effect that Holders of such Debt Securities will
not recognize gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain obligations and will be subject to federal
income tax on the same amount, in the same manner and at the same times as
would have been the case if such deposit and defeasance were not to occur. In
the event the Company exercised this option with respect to any Debt
Securities and such Debt Securities were declared due and payable because of
the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay
amounts due on such Debt Securities at the time of their respective Stated
Maturities, but might not be sufficient to pay amounts due on such Debt
Securities upon any acceleration resulting from such Event of Default. In such
case, the Company would remain liable for such payments. (Sections 1403 and
1404)
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. (Sections 101 and
106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered on the applicable
record date as the owner thereof (whether or not such Debt Security may be
overdue) for the purpose of making payment and for all other purposes.
(Section 309)
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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 without regard to conflicts
of laws principles thereof. (Section 112)
REGARDING THE TRUSTEE
The Trustee serves as trustee for (i) Houston Industries' first mortgage
bonds aggregating $2.0 billion (as of September 30, 1998), (ii) Houston
Industries' collateralized medium-term notes which are secured as to payment
of principal, interest and premium, if any, by Houston Industries' first
mortgage bonds and (iii) pollution control bonds previously issued on behalf
of Houston Industries aggregating $1.0 billion (as of September 30, 1998), a
portion of which is collateralized by Houston Industries' first mortgage
bonds. The Company and Houston Industries also maintain depositary and other
normal banking relationships with the Trustee.
The Chase Manhattan Bank ("Chase"), a subsidiary of the Chase Manhattan
Corporation, the sole indirect shareholder of the Trustee, is a party to
credit agreements under which the Company, Houston Industries and certain of
their affiliates have bank lines of credit. Mr. Don D. Jordan, Chairman and
Chief Executive Officer of the Company and Chairman, Chief Executive Officer
and director of Houston Industries, and Mr. R. Steve Letbetter, President and
Chief Operating Officer of the Company and President, Chief Operating Officer
and director of Houston Industries, each serve on the Trustee's Advisory Board
of Directors.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities (a) through an underwriter or
underwriters, (b) through dealers, (c) through agents, (d) directly to
purchasers, including affiliates of the Company, or (e) through a combination
of any such methods of sale. The applicable Prospectus Supplement will set
forth the terms of the offerings of any Debt Securities, including the method
of distribution, the name or names of any underwriters, dealers or agents, any
managing underwriter or underwriters, the purchase price of the Debt
Securities and the proceeds to the Company from the sale, any underwriting
discounts, agency fees and other items constituting underwriters' compensation
and any discounts and concessions allowed, reallowed or paid to dealers or
agents. Any initial public offering price and any discount or concessions
allowed or reallowed to dealers may be changed from time to time. The expected
time of delivery of the Debt Securities in respect of which this Prospectus is
delivered will be set forth in the applicable Prospectus Supplement.
If underwriters are used in the sale of the Debt Securities, the
underwriting agreement will provide that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters with
respect to a sale of Debt Securities will be obligated to purchase all such
Debt Securities if any are purchased. In connection with the sale of Debt
Securities, underwriters may receive compensation from the Company or from
purchasers of Debt Securities for whom they may act as agents in the form of
discounts, concessions or commissions. Underwriters may sell Debt Securities
to or through dealers, and such dealers may receive compensation in the form
of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agents.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, the Company will sell such Debt Securities
to the dealer as principal. The dealer may then resell such Debt Securities to
the public at varying prices to be determined by such dealer at the time of
resale. Any such dealer may be deemed to be an underwriter, as such term is
defined in the Securities Act, of the Debt Securities so offered and sold. The
name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Underwriters, agents or dealers participating in the distribution of Debt
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Debt
Securities may be deemed to be underwriting discounts and commissions under
the Securities Act.
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The Debt Securities may be sold in one or more transactions either at a
fixed price or prices which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company may also offer and sell the Debt Securities in
exchange for one or more of its outstanding issues of debt or convertible debt
securities or in the satisfaction of indebtedness.
Underwriters, agents or dealers who participate in the distribution of Debt
Securities may be entitled, under agreements which may be entered into with
the Company, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution by the
Company to payments that such underwriters, dealers or agents or any of their
controlling persons may be required to make in respect thereof. Underwriters,
agents or dealers may be customers of, engage in transactions with or perform
services for the Company or affiliates of the Company in the ordinary course
of business.
Each series of Debt Securities will be a new issue with no established
trading market. The Company may elect to list any series of Debt Securities on
an exchange, but the Company shall not be obligated to do so. It is possible
that one or more underwriters may make a market in a series of Debt
Securities, but will not be obliged to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of the trading market for the Debt Securities.
In connection with the offering, the underwriters or agents, as the case may
be, may purchase and sell the Debt Securities in the open market. These
transactions may include over-allotment and stabilizing transactions and
purchases to cover syndicate short positions created in connection with the
offering. Stabilizing transactions consist of certain bids or purchases for
the purpose of preventing or retarding a decline in the market price of the
Debt Securities; and syndicate short positions involve the sale by the
underwriters or agents, as the case may be, of a greater number of Debt
Securities than they are required to purchase from the Company in the
offering. The underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker dealers in respect of
the Debt Securities sold in the offering for their account may be reclaimed by
the syndicate if such Debt Securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Debt Securities, which may be
higher than the price that might otherwise prevail in the open market, and
these activities, if commenced, may be discontinued at any time. These
transactions may be effected on the NYSE, in the over-the-counter market or
otherwise.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers and agents to solicit offers by certain institutions to
purchase Debt Securities from the Company pursuant to delayed delivery
contracts providing for payment and delivery on the date stated in the
Prospectus Supplement. Such contracts will be subject only to those conditions
set forth in the Prospectus Supplement. The Prospectus Supplement will also
set forth the commission payable for solicitation of such contracts.
Offers to purchase Debt Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional
investors or others who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any resale thereof. The terms of any such
sales will be described in the Prospectus Supplement relating thereto. Except
as set forth in the applicable Prospectus Supplement, no director, officer or
employee of the Company will solicit or receive a commission in connection
with direct sales by the Company of the Debt Securities, although such persons
may respond to inquiries by potential purchasers and perform ministerial and
clerical work in connection with any such direct sales.
Debt Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase,
in accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for the Company. Any remarketing firm will
be identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the Prospectus Supplement. Remarketing firms
may be deemed to be underwriters, as such term is defined in the Securities
Act, in connection with the Debt Securities remarketed thereby. Remarketing
firms may be entitled under agreements which may be entered into with the
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Company to indemnification or contribution by the Company against certain
civil liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1997, and
the related statements of consolidated income, consolidated stockholders'
equity and consolidated cash flows for the five months ended December 31, 1997
and the seven months ended July 31, 1997 and the Company's financial statement
schedule for the year ended December 31, 1997, incorporated by reference in
this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedule of
the Company as of December 31, 1996 and for each of the two years in the
period ended December 31, 1996, incorporated by reference in this Prospectus,
have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm in accounting and auditing.
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Debt Securities will be passed upon for the Company by Baker &
Botts, L.L.P., Houston, Texas. Certain legal matters will be passed upon for
the Company by Hugh Rice Kelly, Esq., Executive Vice President, General
Counsel and Corporate Secretary of the Company, and for the underwriters,
dealers, or agents, if any, by Dewey Ballantine LLP, New York, New York. James
A. Baker, III, a senior partner in the law firm of Baker & Botts, L.L.P., is
currently a director of Houston Industries, the Company's sole stockholder,
and beneficial owner of 2,500 shares of Houston Industries' common stock.
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