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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-86049
Prospectus Supplement
December 3, 1999
(To Prospectus dated December 3, 1999)
$600,000,000
EL PASO ENERGY CORPORATION
MEDIUM TERM NOTES DUE NINE MONTHS
OR MORE FROM DATE ISSUED
------------------------
El Paso Energy Corporation may offer and sell in one or more offerings up
to $600 million of medium term notes. The following terms may apply to the
medium term notes, but we will provide specific terms of any series of medium
term notes that we may offer in pricing supplements to this prospectus
supplement. You should read this prospectus supplement, the accompanying
prospectus, and any pricing supplements carefully before you invest in any of
our securities. This prospectus supplement and the accompanying prospectus, may
not be used to consummate sales of our securities unless it is accompanied by a
pricing supplement.
The terms of any series of medium term notes may include the following:
- Maturity: A maturity date of nine months or more from the date of
original issue.
- Amortization: Either fixed amortization payments at specified intervals
prior to maturity or payable in a single principal installment at
maturity.
- Interest Rate: A fixed or a floating interest rate, with the floating
rate based upon one or more of the following:
- the commercial paper rate;
- prime rate;
- federal funds effective rate;
- LIBOR;
- Treasury rate;
- CMT rate;
- CD rate;
- Eleventh District Cost of Funds rate; or
- a base rate or other interest rate formula specified in pricing
supplement.
- Interest Payment Dates: Daily, weekly, monthly, quarterly, semi-annually
or annually on dates to be specified.
- Form: Certificate or book entry.
- Minimum Denominations: $1,000.
- Other Terms: Subject to redemption and repurchase at our option or the
option of the holder. Subject to remarketing features. Neither
convertible nor subject to a sinking fund.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-8 OF
THIS PROSPECTUS SUPPLEMENT BEFORE INVESTING IN OUR MEDIUM TERM NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The medium term notes are being offered on a continuing basis through Banc
of America Securities LLC, ABN AMRO Incorporated and Chase Securities Inc.,
which are acting as agents. Each agent has agreed to use its reasonable best
efforts to solicit offers to purchase the notes. The medium term notes may be
sold at or above par or at a discount to any agent, acting as principal, for a
commission as set forth under the caption "Plan of Distribution" that begins on
page S-49 of this prospectus supplement or as otherwise mutually agreed. We may
also sell the notes directly to investors. No discount or commission will be
paid to any agent for a direct sale of medium term notes by us. The medium term
notes will not be listed on any securities exchange. You cannot be assured that
the medium notes offered by this prospectus supplement will be sold or that
there will be a secondary market for the medium term notes.
BANC OF AMERICA SECURITIES LLC
ABN AMRO INCORPORATED
CHASE SECURITIES INC.
December 3, 1999
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
About this Prospectus Supplement............................ S-3
Cautionary Statement Regarding Forward-Looking Statements... S-4
Prospectus Supplement Summary............................... S-6
Risk Factors................................................ S-8
Pricing Supplement.......................................... S-12
Use of Proceeds............................................. S-12
Description of the Medium Term Notes........................ S-12
Certain United States Federal Income Tax Consequences....... S-33
ERISA Matters............................................... S-48
Plan of Distribution........................................ S-49
Validity of Securities...................................... S-50
BASE PROSPECTUS
Cautionary Statement Regarding Forward-Looking Statements... 3
Where You Can Find More Information......................... 3
El Paso Energy Corporation.................................. 7
The Trusts.................................................. 9
Use of Proceeds............................................. 10
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred and Preference Stock
Dividend Requirements..................................... 10
Description of the Debt Securities.......................... 11
Description of Capital Stock................................ 21
Description of the Trust Preferred Securities............... 24
Description of the Trust Guarantees......................... 25
Relationship Among the Trust Preferred Securities, the
Subordinated Debt Securities and the Guarantees........... 28
Plan of Distribution........................................ 30
Legal Matters............................................... 31
Experts..................................................... 31
</TABLE>
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ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement is part of a registration statement that we have
filed with the Securities and Exchange Commission (SEC) utilizing a "shelf"
registration process. Under this shelf process, we may, over the next two years,
sell up to a total of $600 million of medium term notes in one or more offerings
using this prospectus supplement and the accompanying prospectus and pricing
supplement. This prospectus supplement provides you with a general description
of the medium term notes we may offer. Each time we sell medium term notes, we
will provide a pricing supplement that will contain specific information about
the terms of that offering and the medium term notes offered by us in that
offering. The pricing supplement may also add, update or change information in
this prospectus supplement. You should read both this prospectus supplement and
any pricing supplement together with additional information described under the
heading "Where You Can Find More Information."
In this prospectus supplement, unless the context indicates otherwise, when
we refer to "El Paso Energy," "we," "us," "our" and "ours," we are describing El
Paso Energy Corporation and its subsidiaries.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus supplement, the accompanying
prospectus and pricing supplement and in documents that are incorporated by
reference into this document that constitute forward-looking statements, as that
term is defined in the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties. Forward-looking statements
include information concerning possible or assumed future results of our
operations. These statements may relate to, but are not limited to, information
or assumptions about earnings per share, capital and other expenditures,
dividends, financing plans, capital structure, cash flow, pending legal
proceedings and claims, including environmental matters, future economic
performance, operating income, cost savings, management's plans, goals and
objectives for future operations and growth and markets for our common stock.
These forward-looking statements generally are accompanied by words such as
"intend," "anticipate," "believe," "estimate," "expect," "should" or similar
expressions. You should understand that these forward-looking statements are
necessarily estimates reflecting the best judgment of our senior management, not
guarantees of future performance. They are subject to a number of assumptions,
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in the forward-looking statements.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
- the risk that revenues may be affected by fluctuating energy prices;
- the risk that rates charged to customers may be reduced by governmental
authorities;
- the highly competitive nature of the natural gas transportation,
gathering, processing, storage, exploration and production and energy
marketing industries;
- the risk of favorable customer contracts expiring or being renewed on
less attractive terms;
- the timing and success of our exploration and development drilling
programs, which would affect production levels and reserves;
- risks incident to the drilling and operation of oil and gas wells;
- future drilling, production and development costs, including drilling rig
rates;
- the costs of environmental liabilities, regulations and litigation;
- the impact of operational hazards;
- the risk that required regulatory approvals for proposed pipeline,
storage and power generation projects may be delayed or may only be
granted on terms that are unacceptable or significantly less favorable
than anticipated;
- the risks associated with future weather conditions;
- the risk that Sonat's businesses may not be successfully integrated with
El Paso Energy's businesses;
- the risk that we may not fully realize the benefits expected to result
from the merger with Sonat;
- the impact of the loss of key employees;
- the risk that other firms will further expand into markets in which we
operate; and
- other risks, uncertainties and factors, including the effect of the year
2000 date change, discussed more completely in El Paso Energy's other
filings with the Securities and Exchange Commission, including the El
Paso Energy 1998 Annual Report on Form 10-K.
Other factors that could cause actual results to differ materially from
estimates and projections contained in forward-looking statements are described
in the documents that have been incorporated by reference
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into this document. You should not place undue reliance on forward-looking
statements, which speak only as of the date of this prospectus supplement, or,
in the case of documents incorporated by reference, the date of those documents.
All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. We will
not release publicly any revisions to these forward-looking statements
reflecting events or circumstances after the date of this prospectus or
reflecting the occurrence of unanticipated events, unless the securities laws
require us to do so.
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PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information appearing in other sections of this
prospectus supplement or the accompanying prospectus. It is not complete and may
not contain all of the information that you should consider before investing in
the medium term notes. You should read the entire prospectus supplement, the
accompanying prospectus and the pricing supplement carefully, including the
"Risk Factors" section and the financial statements and the footnotes to those
statements incorporated by reference in the accompanying prospectus.
OUR BUSINESS
Our principal operations include:
- the interstate and intrastate transportation, gathering, and processing
of natural gas;
- the marketing of natural gas, power, and other energy-related
commodities;
- power generation;
- domestic exploration and production of oil and natural gas; and
- the development and operation of energy infrastructure facilities
worldwide.
On October 25, 1999 we completed our merger with Sonat Inc. The combination
with Sonat was a stock-for-stock merger accounted for as a pooling of interests
in which we issued a total of approximately 110 million shares of our common
stock. Sonat was a diversified energy holding company engaged in domestic oil
and natural gas exploration and production, the transmission and storage of
natural gas and natural gas and power marketing. As a result of the merger, we
have succeeded to Sonat's assets and operations.
We are currently engaged in a comprehensive review of the businesses and
operations of Sonat. We intend to integrate, for the most part, the operations
of Sonat with our operations to increase operating and administrative
efficiencies through consolidation and re-engineering of facilities, workforce
reductions and coordination of purchasing, sales and marketing operations.
After giving effect to the Sonat merger, we own or have interests in over
40,000 miles of interstate and intrastate pipeline connecting the nation's
principal natural gas supply regions to four of the largest consuming regions in
the United States, namely the Gulf Coast, California, the Northeast, and the
Midwest. Our interstate natural gas transmission operations include one of the
nation's largest and only coast-to-coast mainline natural gas transmission
systems which is comprised of
- the El Paso Natural Gas pipeline and the Mojave pipeline, which include
10,200 miles of pipeline transporting natural gas from New Mexico, Texas,
Oklahoma and Colorado to markets in California, the Southwestern United
States and northern Mexico; and
- the Eastern Pipeline Group that consists of the Tennessee Gas pipeline,
the Midwestern Gas Transmission pipeline and the Southern Natural Gas
pipeline, which consist of approximately 30,000 miles of pipeline
transporting natural gas to markets in the southeastern and northeastern
United States.
In addition to interstate transmission services, we provide related
services, including natural gas gathering, products extraction, dehydration,
purification, compression, and intrastate transmission. These services include
gathering of natural gas from more than 10,000 natural gas wells with
approximately 11,000 miles of gathering lines, and 23 natural gas processing and
treating facilities located in some of the most prolific and active production
areas of the United States, including the San Juan and Permian Basins and in
east Texas, south Texas, Louisiana, and the Gulf of Mexico. We conduct
intrastate transmission operations through our interests in four Texas
intrastate systems, which include the Oasis pipeline running from west Texas to
Katy, Texas, the Channel pipeline extending from south Texas to the Houston Ship
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Channel, and the Shoreline and Tomcat gathering systems which gather gas from
offshore Texas. We also provide intrastate transportation in north Louisiana
through our Gulf States pipeline that runs from the Texas border to Ruston,
Louisiana. In addition, through El Paso Energy Partners, L.P., (formerly
Leviathan Pipeline Partner L.P.) a publicly traded limited partnership of which
we are the general partner, we conduct natural gas and oil gathering,
transmission, midstream and other related services offshore in the Gulf of
Mexico. Our marketing activities, which are conducted through El Paso Merchant
Energy, include the marketing and trading of natural gas, power, and other
energy-related commodities, as well as providing integrated price risk
management services associated with these commodities. We also participate in
the development and ownership of domestic power generation facilities and other
power-related assets and joint ventures.
In addition, El Paso Production Company conducts the oil and gas
exploration and production activities formerly conducted by Sonat's exploration
subsidiary. Through El Paso Production, we own interests in oil and gas
producing properties in Louisiana, Texas, Oklahoma, Arkansas, New Mexico and the
Gulf of Mexico. As of September 30, 1999, Sonat owned approximately 1.4 trillion
cubic feet of proved reserves.
Our international activities focus on the development and operation of
international energy infrastructure projects and include ownership interests in
three major operating natural gas transmission systems in Australia and natural
gas transmission systems and power generation facilities currently in operation
or under construction in Argentina, Bolivia, Brazil, Chile, the Czech Republic,
Hungary, Indonesia, Mexico, Pakistan, Peru, the United Kingdom, Bangladesh, the
Philippines, and China.
In connection with the Sonat merger, we agreed with the Federal Trade
Commission to dispose of:
- our 100% ownership of East Tennessee Natural Gas Company, a pipeline
system serving customers in eastern Tennessee and northern Georgia;
- Sonat's 100% ownership of Sea Robin Pipeline Company, which operates a
pipeline system offshore eastern Louisiana; and
- Sonat's 33% interest in Destin Pipeline Company, L.L.C., which operates a
pipeline system in the east-central Gulf of Mexico off the east Louisiana
coast.
We expect to sell these assets by the end of March 2000. These divestitures
are not expected to have a material adverse effect on our financial position,
results of operations or cash flows.
Our principal executive offices are in the El Paso Energy Building, located
at 1001 Louisiana Street, Houston, Texas 77002, and its telephone number at that
address is (713) 420-2131.
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RISK FACTORS
OPERATIONAL RISKS
El Paso Energy is a holding company that depends on its subsidiaries to meet
its debt service obligations.
As a holding company, El Paso Energy conducts all of its operations
exclusively through its subsidiaries. El Paso Energy's only significant assets
are the capital stock of its subsidiaries. This means that El Paso Energy is
dependent on dividends or other distributions of funds from its subsidiaries to
meet its debt service and other obligations, including the payment of principal
and interest on the medium term notes. The senior indenture governing the medium
term notes, subject to certain restrictions, permits El Paso Energy to incur
additional secured indebtedness and permits its subsidiaries to incur additional
secured and unsecured indebtedness, which would in effect be senior to the
medium term notes. The senior indenture also permits certain subsidiaries to
pledge assets in order to secure indebtedness of El Paso Energy and to agree
with lenders under any secured indebtedness to restrictions on repurchase of the
medium term notes and on the ability of such subsidiaries to make distributions,
loans, other payments or asset transfers to El Paso Energy. The total long-term
indebtedness of El Paso Energy's subsidiaries as of September 30, 1999, was
approximately $2.5 billion on a historical basis and approximately $3.0 billion
on a pro forma combined basis giving effect to the merger with Sonat.
The rates we are able to charge our customers may be reduced by governmental
authorities.
Our pipeline businesses are regulated by the FERC and various state and
local agencies. In particular, the FERC limits the rates we are permitted to
charge our customers for interstate transportation and, in some cases, sales of
natural gas. If the rates we are permitted to charge our customers for use of
our regulated pipelines are lowered, the profitability of our pipeline
businesses may be reduced. On August 31, 1999, Southern Natural Gas Company
filed a new rate case, which is expected to become effective by March 1, 2000.
We cannot predict the outcome of that rate case.
Many of our favorable contracts for natural gas transmission will expire
within the next few years.
Substantially all of the revenues of Tennessee Gas Pipeline Company are
generated under long-term natural gas transmission contracts. Contracts
representing approximately 20% of the subsidiary's firm transportation capacity
will expire by November 2000. Although Tennessee Gas is actively pursuing the
renegotiation, extension and/or replacement of these contracts, we cannot assure
you that it will be able to extend or replace all or most of these contracts or
that the terms of any renegotiated or new contracts will be as favorable to the
subsidiary as the existing contracts.
In addition, substantially all of the revenues of El Paso Natural Gas
Company are generated under long-term natural gas transportation contracts. To
partially offset the effects of the reduction in firm capacity commitments on
the El Paso Natural Gas pipeline resulting from customer settlements, El Paso
Natural Gas entered into contracts with Dynegy, Inc. for the sale of all of El
Paso Natural Gas's released firm capacity available to California as of January
1, 1998 (approximately 1.3 billion cubic feet) for a two-year period. El Paso
Natural Gas has offered this capacity for sale and expects that it will be sold.
However, we cannot assure you that El Paso Natural Gas will be successful in its
efforts to sell this capacity or that the terms of any new contracts will be as
favorable to El Paso Natural Gas as the Dynegy contracts.
Substantially all of the revenues of Southern Natural Gas Company are also
generated under long-term natural gas transportation contracts. Contracts
representing approximately 58% of Southern Natural Gas Company's firm
transportation capacity will expire by their terms by September 1, 2003.
Contracts with one gas distribution customer account for 46% of these expiring
contracts. Although Southern Natural Gas expects to negotiate to extend or
replace these contracts, we cannot assure you that it will be able to extend or
replace these contracts or that the terms of any renegotiated contracts will be
as favorable as the
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existing contracts. If Southern Natural Gas is unable to renew these contracts
or if they are renewed on less favorable terms, we may suffer a material
reduction in our revenues and earnings.
The success of our exploration and production business is dependent on factors
which cannot be predicted with certainty.
In connection with the Sonat merger, we succeeded to Sonat's exploration
and production business. Prior to the merger, we were not actively engaged in
this business activity. The performance of this exploration and production
business is dependent upon a number of factors that cannot be predicted with
certainty. These factors include:
- the effect of oil and natural gas prices on revenues;
- the results of future drilling activity;
- our ability to identify and precisely locate prospective geologic
structures and to drill and successfully complete wells in those
structures; and
- our ability to expand their leased land positions in desirable areas,
which often are subject to intensely competitive leasing conditions.
Key personnel could terminate their employment with the combined company.
El Paso Energy's senior management has limited experienced in the oil and
gas exploration and production business. Although we expect Sonat personnel who
were operating Sonat's exploration and production business at the time of the
merger to remain with our combined company, we cannot assure you that any of
these personnel will do so.
In addition, while we have taken actions designed to retain our executive
officers and key employees, we cannot assure you that, if executive officers and
other key employees leave the combined company, we will be able to find adequate
replacements.
We cannot be sure the integration of El Paso Energy's and Sonat's marketing
activities will be successful.
El Paso Energy's and Sonat's marketing activities involve complicated
transactions and valuation approaches that require daily monitoring using
sophisticated financial systems to manage market risks effectively. Some of
these financial systems and other activities used by the two operations are
different and will have to be successfully integrated. Successful integration
will involve risks, including:
- the selection and integration of financial systems and personnel;
- the possibility that information contained in the systems may be lost
during the transition; and
- volatility in the market place which may occur during the transition of
the systems and procedures that may result in a loss of control for a
period of time.
If we cannot successfully manage the integration, we may experience a
material adverse effect on our business, financial condition or results of
operations.
We cannot assure you that El Paso Energy and Sonat will be successfully
combined into a single entity.
If we cannot successfully combine our operations we may experience a
material adverse effect on our business, financial condition or results of
operations. The merger involves the combining of two companies that have
previously operated separately. The combining of companies such as Sonat and El
Paso Energy involves a number of risks, including:
- the diversion of management's attention to the combining of operations;
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- difficulties in the combining of operations and systems, including plans
to update and test systems for "Year 2000" compliance;
- difficulties in the assimilation and retention of employees;
- challenges in keeping customers; and
- potential adverse short-term effects on operating results.
Among the factors considered by the boards of directors of each company in
approving the merger agreement were the opportunities for economies of scale and
scope and operating efficiencies that could result from the merger. Although we
expect the combined company to achieve significant annual savings in operating
costs as a result of the merger, we may not be able to maintain the levels of
operating efficiency that we each previously achieved or might achieve if we
remain separate. Because of difficulties in combining operations, we may not be
able to achieve the cost savings and other size related benefits that we hope to
achieve after the merger.
In addition, because Sonat's 50% interest in the Florida pipeline is held
through a joint venture operated by a subsidiary of Enron Corp., the combined
company may not be able to effectively integrate these operations with similar
operations of El Paso Energy to achieve cost savings in these operations.
RISKS RELATING TO FOREIGN CURRENCY NOTES AND INDEXED NOTES
Foreign Currency Notes -- Risks of Payment Currency
Except as set forth in the applicable pricing supplement, if payment on a
medium term note is required to be made in a specified currency other than U.S.
dollars and such currency is unavailable due to the imposition of exchange
controls or other circumstances beyond our control, or is no longer used by the
government of the country issuing such currency or for the settlement of
transactions by public institutions of or within the international banking
community, then all payments with respect to such medium term note will be made
in U.S. dollars until such currency is again available or so used. The amount so
payable on any date in such foreign currency will be converted into U.S. dollars
at a rate determined by the exchange rate agent on the basis of the most
recently available market exchange rate or as otherwise determined in good faith
by us if the foregoing is impracticable. Any payment in respect of such medium
term note made under such circumstances in U.S. dollars will not constitute an
Event of Default under the senior indenture.
All determinations referred to in the preceding paragraph made by the
exchange rate agent will be at its sole discretion (except to the extent
expressly provided herein that any determination is subject to our approval). In
the absence of manifest error, such determinations will be conclusive for all
purposes and binding on holders of the medium term notes and the exchange rate
agent will have no liability therefor.
Foreign Currency Notes -- Judgments
New York courts in the United States customarily have not awarded judgments
for money damages denominated in any currency other than U.S. dollars. If a
medium term note is denominated in a specified currency other than U.S. dollars,
we believe that any judgment under New York law will be rendered in U.S.
dollars, the amount of which would be determined by converting the foreign
currency for the underlying obligation into U.S. dollars at a rate of exchange
prevailing on the date the cause of action arose or the date of the entry of the
judgment or decree.
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Foreign Currency Notes -- Exchange Rates and Exchange Controls
If appropriate, pricing supplements relating to Indexed Notes (as defined
on page S-29 of this prospectus supplement) or medium term notes denominated in
a specified currency other than U.S. dollars will contain information concerning
historical exchange rates for such specified currency against the U.S. dollar, a
description of the currency, any exchange controls as of the date of the
applicable pricing supplement affecting such currency and any risk factors
relating thereto. The information therein concerning exchange rates is furnished
as a matter of information only and you should not regard it as indicative of
the range of or trends in fluctuations in currency exchange rates that may occur
in the future.
Risks Relating to Indexed Notes
An investment in Indexed Notes presents certain significant risks not
associated with other types of securities. Certain risks associated with a
particular Indexed Note may be set forth more fully in the applicable pricing
supplement. Indexed Notes may present a high level of risk, and investors in
certain Indexed Notes may lose their entire investment. The risks associated
with Indexed Notes include the following:
- Uncertain U.S. Federal Income Tax Treatment. The treatment of Indexed
Notes for U.S. federal income tax purposes is often unclear due to the
absence of any authority specifically addressing the issues presented by
any particular Indexed Note. As a result, investors in Indexed Notes
should, in general, be capable of independently evaluating the federal
income tax consequences applicable in their particular circumstances of
purchasing an Indexed Note.
- Loss of Principal or Interest. The principal amount of an Indexed Note
payable at maturity, and/or the amount of interest payable on an interest
payment date, will be determined by reference to one or more currencies
(including baskets of currencies), one or more commodities (including
baskets of commodities), one or more securities (including baskets of
securities) and/or any index. The direction and magnitude of the change
in the value of the relevant index will determine either or both the
principal amount of an Indexed Note payable at maturity or the amount of
interest payable on an interest payment date. The terms of a particular
Indexed Note may or may not include a guaranteed return of a percentage
of the face amount at maturity or a minimum interest rate. As a result,
the holder of an Indexed Note may lose all or a portion of the principal
invested in an Indexed Note and may receive no interest thereon.
- Volatility. Certain indices are highly volatile. The expected principal
amount at maturity of, or the interest rate on, an Indexed Note based on
a volatile index may vary substantially from time to time. Because the
principal amount payable at the maturity of, or interest payable on, an
Indexed Note is generally calculated based on the value of the relevant
index on a specified date or over a limited period of time, volatility in
the index increases the risk that the return on the Indexed Notes may be
adversely affected by a fluctuation in the level of the relevant Index.
The volatility of an index may be affected by political or economic
events, including governmental actions, or by the activities of
participants in the relevant markets. All such events are beyond our
control and the occurrence of any of these events could adversely affect
the value of an Indexed Note.
- Availability and Composition of Indices. Certain indices reference
several different currencies, commodities, securities or other financial
instruments. The compiler of such an index typically reserves the right
to alter the composition of the index and the manner in which the value
of the index is calculated. Such an alteration may result in a decrease
in the value of or return on an Indexed Note which is linked to that
particular index.
An index may become unavailable due to factors such as war, natural
disasters, cessation of publication of the index, or suspension of or
disruption in trading in the applicable currency or currencies, commodity
or commodities, security or securities or other financial instrument or
instruments comprising or underlying such index. If an index becomes
unavailable, the
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determination of principal of or interest on an Indexed Note may be
delayed or an alternative method may be used to determine the value of the
unavailable index. Alternative methods of valuation are generally intended
to produce a value similar to the value resulting from reference to the
relevant index. However, it is unlikely that such alternative methods of
valuation will produce values identical to those which would be produced
were the relevant index to be used. An alternative method of valuation may
result in a decrease in the value of or return on an Indexed Note.
Certain Indexed Notes may be linked to indices that are not commonly
utilized or have been recently developed. The lack of a trading history
may make it difficult to anticipate the volatility or other risks to which
such an Indexed Note is subject. In addition, there may be less trading in
such indices or instruments underlying such indices, which could increase
the volatility of the particular indices and decrease the value of or
return on Indexed Notes that utilize the particular index to determine the
amount of principal (and premium, if any) and interest payable.
Other risks, uncertainties and factors which may adversely affect El Paso
Energy are discussed more completely under the caption "Risk
Factors -- Cautionary Statement For Purposes of the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995" in El Paso Energy's 1998
Annual Report on Form 10-K.
PRICING SUPPLEMENT
The pricing supplement for each offering of medium term notes will contain
the specific information and terms for that offering. The pricing supplement may
also add, update or change information contained in this prospectus supplement
and the accompanying prospectus. It is important for you to consider the
information contained in this prospectus supplement, the prospectus and the
pricing supplement before you make your investment decision.
USE OF PROCEEDS
We will use the net proceeds we receive from the sale of the medium term
notes for general corporate purposes unless we specify otherwise in an
applicable pricing supplement. We may invest any funds we do not require
immediately for general corporate purposes in marketable securities and
short-term investments.
DESCRIPTION OF THE MEDIUM TERM NOTES
The following description of the particular terms of the medium term notes
(which represent a new series of, and are referred to in the accompanying
prospectus as, the "debt securities"), 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. This
description will apply to the medium term notes unless otherwise specified in
the applicable pricing supplement. The particular terms of the medium term notes
offered by this prospectus supplement and each pricing supplement will be
described herein and therein.
The medium term notes will constitute a series of our direct, senior
unsecured general obligations and will be issued under our senior indenture,
dated May 10, 1999 between El Paso Energy and The Chase Manhattan Bank, as
trustee. The senior indenture is filed as an exhibit to the Registration
Statement of which this prospectus supplement constitutes a part. Terms of a
particular series of medium term notes may be varied in the related pricing
supplement to this prospectus.
We have summarized below or in the accompanying prospectus selected
provisions of the senior indenture and the terms of our medium term notes,
subject to changes that may be made in a pricing supplement. The descriptions
set forth below and in the accompanying prospectus under the caption
"Description of the Debt Securities" contain a summary of the material
provisions of the senior indenture.
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We do not restate the senior indenture agreements in their entirety. We urge you
to read the senior indenture because it, and not these descriptions, defines
your rights as a holder of our medium term notes.
GENERAL
The medium term notes will be our direct, unsecured obligations. The medium
term notes will rank equally with all of our other senior and unsubordinated
debt.
The senior indenture provides that debt securities may be issued thereunder
from time to time in one or more series and does not limit the aggregate
principal amount of such debt securities except as may be otherwise provided
with respect to any particular series of debt securities. The medium term notes
will constitute a part of a series of debt securities, unlimited as to aggregate
principal amount.
Each medium term note will be issued in fully registered form and, unless
otherwise specified in the applicable pricing supplement, notes denominated in
U.S. dollars will be represented by a global medium term note (referred to as a
"global note") registered in the name of a nominee of The Depository Trust
Company ("DTC"). A single global note will represent all medium term notes
issued on the same day and having the same terms, including, without limitation,
the same Interest Payment Dates, rate of interest, maturity and redemption or
repayment provisions (if any). A beneficial interest in a global note will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC (with respect to interests of participants) and its
participants (with respect to interests of persons other than participants).
Payments of principal, premium, if any, and interest on medium term notes
represented by a global note will be made through The Chase Manhattan Bank to
the Depository (as defined below in this prospectus supplement). See
"-- Book-Entry Notes" below.
The medium term notes will be offered on a continuing basis and each medium
term note will have a stated maturity that is at least nine months from the date
of issue, as selected by the purchaser and agreed to by us and as specified in
the applicable pricing supplement.
PAYING AGENT
Until we repay the medium term notes or provide for their repayment, we
will at all times have appointed an agent (referred to as the "Paying Agent")
authorized to pay the principal of (and premium, if any) or interest on any of
the medium term notes on our behalf and having an office or agency in the
Borough of Manhattan, The City of New York where the medium term notes may be
presented or surrendered for payment and notices, demands or requests in respect
of medium term notes may be served. We have initially appointed The Chase
Manhattan Bank as the Paying Agent. We will notify you of any changes in the
Paying Agent or its address.
DENOMINATIONS; CURRENCY; VARYING INTEREST RATES
The medium term notes will be issued in registered form only and, if issued
in U.S. dollars, in denominations of $1,000 or any amount in excess thereof
which is an integral multiple of $1,000. Medium term notes denominated in a
specified currency other than U.S. dollars will be issued in the authorized
denominations set forth in the applicable pricing supplement. Interest rates
offered by us with respect to the medium term notes may differ depending upon,
among other things, the aggregate principal amount of medium term notes
purchased in any transaction. We expect generally to distinguish, with respect
to such offered rates, between purchases that are for less than, and purchases
that are equal to or greater than, $100,000. Such different rates may be offered
concurrently at any time. We may also concurrently offer medium term notes
having different variable terms to different investors, and such different
offers may depend upon whether an offered purchase is for an aggregate principal
amount of medium term notes equal to, greater than or less than $100,000.
The term "business day" means:
- with respect to any medium term note, any day that is not a Saturday or
Sunday and that is not a legal holiday or a day on which banking
institutions are generally authorized or obligated by law or
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executive order to close in The City of New York or any other place where
the principal and interest on the medium term notes is payable,
- with respect to LIBOR Notes (as defined elsewhere in this prospectus
supplement) only, any such date on which dealings in deposits in U.S.
dollars are transacted in the London interbank market (a "London Business
Day"), and
- if the medium term note is denominated in a specified currency other than
U.S. dollars, including LIBOR Notes, (a) a day on which banking
institutions are not authorized or required by law or regulation to close
in the principal financial center of the country issuing the specified
currency and (b) a day on which banking institutions in such financial
center are carrying out transactions in such specified currency.
For medium term notes denominated in a specified currency that is a unit of a
foreign composite currency, "business day" shall have the meaning set forth in
the applicable pricing supplement.
The term "OID Note" means a medium term note to be offered and sold at a
discount below its stated principal amount, which medium term note provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof upon the occurrence and
continuation of an Event of Default, or on the date of redemption or repayment
(if any). Information relating to OID Notes is set forth below under
"-- Original Issue Discount Notes."
Unless otherwise specified in the applicable pricing supplement, the medium
term notes will be denominated in U.S. dollars and payments of principal,
premium, if any, and interest will be made in U.S. dollars. The principal,
premium, if any, and interest on each medium term note denominated in any other
specified currency is payable by us in the specified currency, unless the holder
has made the election described in the following paragraph. If the specified
currency for a medium term note is other than U.S. dollars, we will (unless
otherwise specified in the applicable pricing supplement) appoint an agent
(referred to as the "exchange rate agent") to determine the exchange rate for
converting all payments in respect of such medium term note into U.S. dollars in
the manner described in the following paragraph. Unless otherwise specified in
the applicable pricing supplement, The Chase Manhattan Bank will act as the
exchange rate agent.
In the case of a medium term note denominated in a specified currency other
than U.S. dollars, unless the holder has elected otherwise, we are obligated to
make payments of principal, premium, if any, and interest in the specified
currency (or, if the specified currency is not at the time of such payment legal
tender for the payment of public and private debts, in such other coin or
currency of the country that issued the specified currency as at the time of
such payment is legal tender for the payment of such debts). If the specified
currency is other than U.S. dollars, any such amounts so payable by us will be
converted by the exchange rate agent into U.S. dollars for payment to the holder
of a medium term note, if the holder has made the election set forth below.
Payments of principal of (and premium, if any) and interest on any medium term
note denominated in a specified currency other than U.S. dollars will be made in
U.S. dollars if the registered holder of such medium term note on the relevant
regular record date, or at maturity as the case may be, has transmitted a
written request for such payment in U.S. dollars to the paying agent at the
office of the paying agent in The City of New York on or before such regular
record date, or the date 15 days before maturity, as the case may be. Such
request may be in writing (mailed or hand delivered) or sent by cable, telex, or
other form of facsimile transmission. Any such request made for any medium term
note by a registered holder will remain in effect for any further payments of
principal of (and premium, if any) and interest on such medium term notes
denominated in a specified currency other than U.S. dollars payable to such
holder, unless such request is revoked on or before the relevant regular record
date or the date 15 days before maturity, as the case may be. Holders of medium
term notes denominated in a specified currency other than U.S. dollars that are
registered in the name of a broker or nominee should contact such broker or
nominee to determine whether and how to elect to receive payments in U.S.
dollars. The U.S. dollar amount to be received by a holder of such a medium term
note denominated in a specified currency who elects to receive payment in U.S.
dollars will
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be based on the highest bid quotation in The City of New York received by such
exchange rate agent at approximately 11:00 a.m. (or, in the case of a payment of
principal, prior to the close of business), New York City time, on the second
business day preceding the applicable payment date (or, if no such rate is
quoted on such date, the last date on which such rate was quoted) from three
recognized foreign exchange dealers in The City of New York selected by the
exchange rate agent and approved by us (one of which may be the exchange rate
agent) for the purchase by the quoting dealer, for settlement on such payment
date, of the aggregate amount of the specified currency payable on such payment
date in respect of all medium term notes denominated in such specified currency.
Unless otherwise set forth in the pricing supplement for the medium term note,
all currency exchange costs will be borne by the holders of such medium term
notes by deduction from such payments. If three such bid quotations are not
available, payment will be made in the specified currency, unless such specified
currency is unavailable due to the imposition of exchange controls or other
circumstances beyond our control, in which case payment will be made as
described under "Risk Factors -- Risks Related to Foreign Currency Notes and
Indexed Notes -- Foreign Currency Notes -- Risks of Payment Currency" on page
S-10 of this prospectus supplement.
Unless otherwise specified in the applicable pricing supplement, payment of
principal, premium, if any, and interest in U.S. dollars on certificated medium
term notes will be made at the office or agency of the Paying Agent in the
Borough of Manhattan, The City of New York, or such other places as El Paso
Energy may designate; provided, however, that payment of interest may be made at
El Paso Energy's option by check or draft mailed to the person entitled thereto
at the address appearing in the note register or, if such person designates an
account not later than 10 days prior to the date of such payment, by wire
transfer to such account. Simultaneously with the election by any holder to
receive payments in a specified currency other than U.S. dollars (as provided
above), such holder will provide appropriate payment instructions to The Chase
Manhattan Bank, and all such payments will be made in immediately available
funds to an account maintained by the holder with a bank located outside the
United States.
Unless otherwise specified in the applicable pricing supplement, if the
principal of any OID Note is declared to be due and payable immediately as
described under "-- Events of Default" below, the amount of principal due and
payable with respect to such OID Note will be limited to the sum of the
principal amount of such OID Note multiplied by the issue price (expressed as a
percentage of the aggregate principal amount), plus the original issue discount
accrued from the date of issue to the date of repayment.
REDEMPTION AT THE OPTION OF EL PASO ENERGY
Unless otherwise specified in the applicable pricing supplement, the medium
term notes will not be subject to any sinking fund. The medium term notes will
be redeemable at the option of El Paso Energy prior to the stated maturity only
if a date (referred to as the "redemption date") is specified in the applicable
pricing supplement. If so specified, the medium term notes will be subject to
redemption at our option on any date on and after the redemption date in whole
or from time to time in part in increments of $1,000 or such other minimum
denomination specified in such pricing supplement (provided that any remaining
principal amount thereof shall be at least $1,000 or such minimum denomination),
at the applicable redemption price, together with unpaid interest accrued to the
date of redemption, on notice given not more than 60 nor less than 30 calendar
days prior to the date of redemption and in accordance with the provisions of
the senior indenture.
The term "redemption price" as used with respect to a medium term note
means an amount equal to the Initial Redemption Percentage specified in the
applicable pricing supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) multiplied by the unpaid principal amount to be
redeemed. The Initial Redemption Percentage, if any, applicable to a medium term
note will decline at each anniversary of the initial redemption date by an
amount equal to the applicable Annual Redemption Percentage Reduction, if any,
until the redemption price is equal to 100% of the unpaid principal amount to be
redeemed.
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<PAGE> 16
REPAYMENT AT THE OPTION OF THE HOLDER
The medium term notes will be repayable by us at the option of the holders
thereof prior to the stated maturity only if one or more optional repayment
dates (referred to as the "repayment date") are specified in the applicable
pricing supplement. If so specified, those medium term notes will be subject to
repayment at the option of the holders thereof on any repayment date in whole or
from time to time in part in increments of $1,000 or such other minimum
denomination specified in the applicable pricing supplement (provided that any
remaining principal amount thereof shall be at least $1,000 or such other
minimum denomination), at a repayment price equal to 100% of the unpaid
principal amount to be repaid, together with unpaid interest accrued to the date
of repayment. For any medium term note to be repaid, such medium term note must
be received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the trustee at its Corporate Trust Office (or such other
address of which we will notify the holders) not more than 60 nor less than 30
calendar days prior to the date of repayment. Exercise of such repayment option
by the holder will be irrevocable.
Only DTC may exercise the repayment option in respect of global notes
representing book-entry notes. Accordingly, beneficial owners of global notes
that desire to have all or any portion of the book-entry notes represented by
such global notes repaid must instruct the participant through which they own
their interest to direct the Depository to exercise the repayment option on
their behalf by delivering the related global note and duly completed election
form to the trustee as aforesaid. In order to ensure that such global note and
election form are received by the trustee on a particular day, the applicable
beneficial owner must so instruct the participant through which it owns its
interest before such participant's deadline for accepting instructions for that
day. Different firms may have different deadlines for accepting instructions for
that day from their customers. As a result, beneficial owners should consult the
participants through which they own their interest for the respective deadlines
for such participants. All instructions given to participants from beneficial
owners of global notes relating to the option to elect repayment shall be
irrevocable. In addition, when such instructions are given, each such beneficial
owner will cause the participant through which it owns its interest to transfer
such beneficial owner's interest in the global note or notes representing the
related book-entry notes on the Depository's records to the trustee. See
"-- Book-Entry Notes."
If applicable, we will comply with the requirements of Rule 14e-1 under the
Exchange Act, and any other securities laws or regulations in connection with
any such repayment.
We may at any time purchase medium term notes at any price or prices in the
open market or otherwise. Medium term notes so purchased by us may, at our
discretion, be held, resold or surrendered to the trustee for cancellation.
PAYMENT OF PRINCIPAL AND INTEREST
Each medium term note will bear interest from the date of issue at the rate
per annum, or pursuant to the interest rate formula, specified in that note and
in the applicable pricing supplement until the principal amount of that note is
paid or made available for payment. El Paso Energy will pay interest on each
Interest Payment Date and at stated maturity (or on the redemption date or
repayment date, if applicable). Interest will be payable to the person in whose
name a medium term note is registered at the close of business on the regular
record date next preceding each interest payment date; provided, however, that
interest payable at stated maturity or on a redemption date or repayment date,
if applicable, will be payable to the person to whom principal is payable.
Unless otherwise specified in the applicable pricing supplement, the interest
rate in effect for the 10 calendar days immediately prior to maturity,
redemption or repayment, if applicable, will be the interest rate in effect on
the tenth calendar day preceding such maturity, redemption or repayment.
Principal and any premium and interest payable at stated maturity or on a
redemption date or repayment date, if applicable, will be paid upon the
surrender of the medium term note at the office or agency of the Paying Agent in
the Borough of Manhattan, The City of New York, or such other places as may be
designated by El Paso Energy.
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<PAGE> 17
If the stated maturity, redemption date or repayment date of a medium term
note falls on a day that is not a business day, the payment of principal,
premium, if any, and interest will be made on the next succeeding business day
and no interest on such payment will accrue for the period from and after such
stated maturity, redemption date or repayment date, as the case may be, to the
date of the payment on the next succeeding business day. Unless otherwise
specified in the applicable pricing supplement, the first payment of interest on
any medium term note originally issued between a record date and an Interest
Payment Date will be made on the Interest Payment Date following the next
succeeding record date to the registered owner on such succeeding record date.
Unless otherwise specified in the applicable pricing supplement or this
prospectus supplement, a "record date" will be the fifteenth calendar day
(whether or not a business day) immediately preceding the related Interest
Payment Date.
Interest rates, or interest rate formulas, are subject to change by us from
time to time. Unless we establish a higher interest rate, spread or spread
multiplier in conjunction with the exercise of an option to extend the maturity
of a medium term note, however, no such change will affect any medium term note
already issued or as to which an offer to purchase has been accepted by us.
Unless otherwise specified in the applicable pricing supplement, the
interest rate will be determined in accordance with the applicable provisions
below. Except as set forth above or in the applicable pricing supplement, the
interest rate in effect on each day will be (i) if such day is an Interest Reset
Date (as defined below in this prospectus supplement), the interest rate
determined as of the applicable Interest Determination Date (as defined below in
this prospectus supplement) immediately preceding such Interest Reset Date or
(ii) if such day is not an Interest Reset Date, the interest rate determined as
of the Interest Determination Date immediately preceding the most recent
Interest Reset Date.
Each medium term note will be:
- a note that bears interest at a fixed rate (referred to as a "Fixed Rate
Note"); or
- a note that bears interest at a floating rate (referred to as a "Floating
Rate Note").
A Floating Rate Note will be determined by reference to an interest rate
basis (referred to as the "Base Rate"), which may be a fixed rate of interest,
or two or more Base Rates, which may be adjusted by a spread and/or spread
multiplier. A Floating Rate Note may also have either or both of the following
(in each case expressed as a rate per annum on a simple interest basis):
- a maximum limitation, or ceiling, on the rate of interest which may
accrue during any interest period; and
- a minimum limitation, or floor, on the rate of interest which may accrue
during any interest period.
The applicable pricing supplement will designate one or more of the
following Base Rates applicable to each Floating Rate Note:
- the commercial paper rate, in which case such note will be a Commercial
Paper Rate Note;
- LIBOR, in which case such note will be a LIBOR Note;
- the CD Rate, in which case such note will be a CD Rate Note;
- the Treasury Rate, in which case such note will be a Treasury Rate Note;
- the CMT Rate, in which case such note will be a CMT Rate Note;
- the Eleventh District Cost of Funds Rate, in which case such note will be
an Eleventh District Cost of Funds Rate Note;
- the Federal Funds Rate, in which case such note will be a Federal Funds
Rate Note;
- the Prime Rate, in which case such note will be a Prime Rate Note; or
- such other Base Rate or formula as is set forth in such pricing
supplement.
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<PAGE> 18
In addition, the pricing supplement may specify that two or more Base Rates
(determined in the same manner as the Base Rates are determined for the types of
notes described above) will be applicable to the Floating Rate Notes or that
interest on Indexed Notes (as defined on page 5-29 under "-- Indexed Notes")
will be determined by reference to one or more currencies, currency units,
commodity prices, financial or non-financial indices or other indices. The rate
of interest on a Floating Rate Note may be reset daily, weekly, monthly,
quarterly, semi-annually or annually (each an "Interest Reset Period"), on such
dates (each an "Interest Reset Date") as specified in the applicable pricing
supplement.
Unless otherwise specified in the applicable pricing supplement, the
Interest Reset Dates will be, in the case of Floating Rate Notes which reset:
- daily, each business day;
- weekly, the Wednesday of each week (with the exception of weekly reset
Floating Rate Notes as to which the Treasury Rate is an applicable Base
Rate, which will reset the Tuesday of each week), except as described
below;
- monthly (other than Eleventh District Cost of Funds Rate Notes), the
third Wednesday of each month;
- quarterly, the third Wednesday of March, June, September and December of
each year;
- semi-annually, the third Wednesday of the two months specified in the
applicable pricing supplement; and
- annually, the third Wednesday of the month specified in the applicable
pricing supplement.
For Eleventh District Cost of Funds Rate Notes that reset monthly, the Interest
Reset Dates will be the first calendar day of the month.
If any Interest Reset Date for a Floating Rate Note would otherwise be a
day that is not a business day, that Interest Reset Date will be postponed to
the next succeeding business day, except that in the case of a Floating Rate
Note as to which LIBOR is an applicable Base Rate and such business day falls in
the next succeeding calendar month, the Interest Reset Date will be the
immediately preceding business day.
The interest rate applicable to such Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date on or prior to the calculation date. The "Interest
Determination Date" with respect to the CD Rate, the CMT Rate, the Commercial
Paper Rate, the Federal Funds Rate and the Prime Rate will be the second
business day immediately preceding the applicable Interest Reset Date; and the
"Interest Determination Date" with respect to LIBOR will be the second London
business day immediately preceding the applicable Interest Reset Date. The
"Interest Determination Date" for an Eleventh District Cost of Funds Rate Note
will be the last working day of the month immediately preceding the applicable
Interest Reset Date on which the Federal Home Loan Bank of San Francisco
publishes the FHLB Index (as defined below in this prospectus). With respect to
the Treasury Rate, the "Interest Determination Date" will be the day in the week
in which the applicable Interest Reset Date falls on which day Treasury Bills
(as defined below in this prospectus supplement) are normally auctioned
(Treasury Bills are normally sold at an auction held on Monday of each week,
unless that day is a legal holiday, in which case the auction is normally held
on the following Tuesday, except that such auction may be held on the preceding
Friday); provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the Interest Determination Date
will be such preceding Friday; and provided, further, that if an auction falls
on the applicable Interest Reset Date, then the Interest Reset Date will instead
be the first business day following the auction. The "Interest Determination
Date" pertaining to a Floating Rate Note the interest rate of which is
determined by reference to two or more Base Rates will be the second business
day prior to the applicable Interest Reset Date for such Floating Rate Note on
which each Base Rate is
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<PAGE> 19
determinable. Each Base Rate will be determined as of such date, and the
applicable interest rate will take effect on the applicable Interest Reset Date.
The applicable pricing supplement will specify the Base Rate or Rates and
the spread and/or spread multiplier, if any, the terms of the extension option,
if any, and the maximum or minimum interest rate limitation, if any, application
to each medium term note. In addition, such pricing supplement will define or
particularize for each medium term note the following terms, if applicable:
- Initial Interest Rate,
- Interest Payment Dates,
- Regular Record Dates,
- Index Maturity,
- Interest Determination Dates,
- stated maturity,
- final maturity and
- redemption date or repayment date.
Unless otherwise provided in the applicable pricing supplement, The Chase
Manhattan Bank will be the calculation agent with respect to the Floating Rate
Notes. All determinations made by the calculation agent will be at its sole
discretion (except to the extent expressly provided herein that any
determination is subject to our approval) and, in the absence of manifest error,
will be conclusive for all purposes and binding on holders of the medium term
notes and the calculation agent will have no liability therefor.
Unless otherwise specified in the applicable pricing supplement, the
"calculation date" pertaining to any Interest Determination Date will be the
earlier of
- - the tenth calendar day after such Interest Determination Date, or if that day
is not a business day, the next succeeding business day and
- - the business day preceding the applicable Interest Payment Date, the stated
maturity, the redemption date (if any) or the optional repayment date (if
any), as the case may be.
Upon the request of the holder of any Floating Rate Note, the calculation agent
will provide the interest rate then in effect and, if determined, the interest
rate that will become effective as a result of a determination made on the most
recent Interest Determination Date with respect to such Floating Rate Note.
All percentages resulting from any calculation on medium term notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation will be rounded to the nearest cent
or, in the case of medium term notes denominated other than in dollars, the
nearest unit (with one-half cent or unit being rounded upward).
The interest rate on each Floating Rate Note will be calculated by
reference to the specified Base Rate or two or more Base Rates, in either case,
(i) plus or minus the spread, if any, and/or (ii) multiplied by the spread
multiplier, if any. The term "spread" means the number of basis points specified
in the applicable pricing supplement as being applicable to the interest rate
for such Floating Rate Note, and the term "spread multiplier" means the
percentage specified in the applicable pricing supplement as being applicable to
the interest rate for such Floating Rate Note. "Index Maturity" means, with
respect to a Floating Rate Note, the period to maturity of the instrument or
obligation on which the interest rate is based, as specified in the applicable
pricing supplement and in the Floating Rate Note.
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<PAGE> 20
Except as provided below or in the applicable pricing supplement, interest
will be payable, in the case of Floating Rate Notes which reset:
- daily, weekly or monthly, on the third Wednesday of each month, as
specified in the applicable pricing supplement;
- quarterly, on the third Wednesday of March, June, September and December
of each year;
- semiannually, on the third Wednesday of the two months of each year
specified in the applicable pricing supplement; and
- annually, on the third Wednesday of the month of each year specified in
the applicable pricing supplement (each, an "Interest Payment Date") and,
in each case, at stated maturity (or on the redemption date or repayment
date, if applicable).
If an Interest Payment Date specified in the applicable pricing supplement
with respect to any medium term note would otherwise fall on a day that is not a
business day,
- with respect to a Fixed Rate Note, interest with respect to such medium
term note will be paid on the next succeeding business day with the same
force and effect as if paid on the due date, and no additional interest
will be payable as a result of such delayed payment; and
- with respect to a Floating Rate Note, such Interest Payment Date (unless
it is a redemption date, repayment date or stated maturity) will be
postponed to the next succeeding business day with respect to such note,
except that in the case of a LIBOR Note, if such day falls in the next
calendar month, such Interest Payment Date will be the immediately
preceding day that is a business day with respect to such LIBOR Note.
Unless otherwise indicated in the applicable pricing supplement, interest
payments will be the amount of interest accrued from, and including, the date of
original issue, or from, and including, the last date to which interest has been
paid, to, but excluding, the Interest Payment Date, the stated maturity, the
redemption date or the repayment date, as applicable. With respect to a Floating
Rate Note, accrued interest from the date of issue or from the last date to
which interest has been paid is calculated by multiplying the face amount of
such Floating Rate Note by an accrued interest factor. Such accrued interest
factor is computed by adding the interest factor calculated for each day for
which accrued interest is being calculated. The interest factor for each such
day is computed by dividing the interest rate applicable to such day by
- 360, in the case of Commercial Paper Rate Notes, CD Rate Notes, LIBOR
Notes, Eleventh District Cost of Funds Rate Notes, Federal Funds Rates
Notes and Prime Rate Notes, or
- by the actual number of days in the year, in the case of CMT Rate Notes
and Treasury Rate Notes.
The interest factor for Floating Rate Notes whose interest rate is calculated
with reference to two or more Base Rates will be calculated in each period in
the same manner as if only one of the applicable Base Rates applied.
In addition to any maximum interest rate that may apply to any Floating
Rate Note, the interest rate on Floating Rate Notes will in no event be higher
than the maximum rate permitted by New York law, as the same may be modified by
United States law of general application.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its date of issue at the
annual interest rate specified on the face thereof and in the applicable pricing
supplement. Unless otherwise specified in the applicable pricing supplement,
interest on Fixed Rate Notes will be payable semiannually on January 15 and July
15 of each year to the person(s) in whose names the Fixed Rate Notes are
registered at the close of business on the January 1 and July 1 (each a "record
date") next preceding such Interest Payment Date. Interest payable at stated
maturity (or on the redemption date or repayment date, if applicable) will be
payable to
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<PAGE> 21
the person(s) to whom principal is payable. Interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
FLOATING RATE NOTES
Commercial Paper Rate Notes. Each Commercial Paper Rate Note will bear
interest at the interest rate (calculated with reference to the Commercial Paper
Rate and, if any, the spread and/or spread multiplier) specified in such
Commercial Paper Rate Note and in the applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement, the term
"Commercial Paper Rate" means, with respect to any Interest Determination Date
relating to a Commercial Paper Rate Note or any Interest Determination Date for
a Note whose interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Interest Determination Date"), the Money Market Yield
(as defined below) on such date of the rate for commercial paper having the
Index Maturity specified in the applicable pricing supplement as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" ("H.15(519)"), or any successor publication,
under the heading "Commercial Paper -- Nonfinancial". If such rate is not
published by 3:00 p.m., New York City time on the calculation date pertaining to
such Commercial Paper Interest Determination Date, then the Commercial Paper
Rate shall be the rate on such Commercial Paper Interest Determination Date for
commercial paper of the specified Index Maturity as published in H.15 Daily
Update, or other recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "Commercial Paper -- Nonfinancial" (with
an Index Maturity of one month or three months being deemed to be equivalent to
an Index Maturity of 30 days or 90 days, respectively). "H.15 Daily Update"
means the daily update of H.15(519) available through the world-wide web site of
the Board of Governors of The Federal Reserve System at
http:/www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication. If by 3:00 p.m., New York City time on such calculation date the
rate for a Commercial Paper Interest Determination Date is not yet published in
either H.15(519) or H.15 Daily Update (or such other recognized electronic
source), the rate for that Commercial Paper Interest Determination Date shall be
calculated by the calculation agent and shall be the Money Market Yield of the
arithmetic mean of the offered rates, as of 11:00 a.m., New York City time, on
that Commercial Paper Interest Determination Date, of three leading dealers of
commercial paper in The City of New York selected by the calculation agent
(after consultation with us) for commercial paper of the specified Index
Maturity placed for an industrial issuer whose bond rating is "AA", or the
equivalent, from a nationally recognized rating agency; provided, however, that
if the dealers selected as aforesaid by the calculation agent are not quoting as
mentioned in this sentence, the Commercial Paper Rate will be the Commercial
Paper Rate in effect on such Commercial Paper Interest Determination Date or, if
no such rate is in effect, the interest rate on the Commercial Paper Notes will
be the Initial Interest Rate.
The term "Money Market Yield" means a yield (expressed as a percentage
rounded to the nearest one hundred thousandth of a percent, with five
one-thousandths of a percent rounded upward) calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360 X 100
Money Market Yield = -------------
360 - (D X M)
</TABLE>
where "D" means the applicable per annum rate for commercial paper quoted on a
bank discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
LIBOR Notes. Each LIBOR Note will bear interest at the interest rate
(calculated with reference to LIBOR and, if any, the spread and/or spread
multiplier) specified in such LIBOR Note and in the applicable pricing
supplement.
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Unless otherwise indicated in the applicable pricing supplement, LIBOR will
be determined by the calculation agent in accordance with the following
provisions:
- With respect to any Interest Determination Date for a medium term note
whose interest rate is determined with reference to LIBOR (a "LIBOR
Interest Determination Date"), LIBOR will be, as specified in the
applicable pricing supplement, either:
(a) the arithmetic mean of the offered rates for deposits in U.S.
dollars having the Index Maturity designated in the applicable pricing
supplement, commencing on the second London business day immediately
following that LIBOR Interest Determination Date, that appear on the
Reuters Screen LIBO Page as of 11:00 a.m., London time, on that LIBOR
Interest Determination Date, if at least two such offered rates appear on
the Reuters Screen LIBO Page ("LIBOR Reuters"), or
(b) the rate for deposits in U.S. dollars having the Index Maturity
designated in the applicable pricing supplement, commencing on the second
London business day immediately following that LIBOR Interest Determination
Date, that appears on Telerate Page 3750 as of 11:00 a.m., London time, on
that LIBOR Interest Determination Date ("LIBOR Telerate"). "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks). "Telerate Page 3750" means the display designated as
page "3750" on Bridge Telerate Inc. (or such other page as may replace the
3750 page on that service or such other service or services as may be
nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for U.S. dollar deposits). If neither LIBOR
Reuters nor LIBOR Telerate is specified in the applicable pricing
supplement, LIBOR will be determined as if LIBOR Telerate had been
specified.
If fewer than two offered rates appear on the Reuters Screen LIBO Page, or
if no rate appears on the Telerate Page 3750, as applicable, LIBOR in respect of
that LIBOR Interest Determination Date will be determined as if the parties had
specified the rate described in the following bullet point:
- With respect to a LIBOR Interest Determination Date on which fewer than
two offered rates appear on the Reuters Screen LIBO Page as specified in
clause (a) above or on which no rate appears on Telerate Page 3750 as
specified in clause (b) above, LIBOR will be determined on the basis of
the rates, at approximately 11:00 a.m., London time, on such LIBOR
Interest Determination Date, at which deposits in U.S. dollars having the
Index Maturity specified in the applicable pricing supplement are offered
to prime banks in the London interbank market by four major banks in the
London interbank market selected by the calculation agent (after
consultation with us), commencing on the second London business day
immediately following such LIBOR Interest Determination Date and in a
principal amount of not less than $1,000,000 that is representative for a
single transaction in such market at such time. The calculation agent
will request the principal London office of each of such banks to provide
a quotation of its rate. If at least two such quotations are provided,
LIBOR for such LIBOR Interest Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, LIBOR
for such LIBOR Interest Determination Date will be the arithmetic mean of
the rates at approximately 11:00 a.m., New York City time, on such LIBOR
Interest Determination Date, quoted by three major banks in the City of
New York, selected by the calculation agent (after consultation with us),
for loans in U.S. dollars to leading European banks having the specified
Index Maturity, commencing on the second London business day immediately
following such LIBOR Interest Determination Date and in a principal
amount of not less than $1,000,000 that is representative for a single
transaction in such market at such time; provided, however, that if the
banks selected as aforesaid by the calculation agent are not quoting as
mentioned in this sentence, LIBOR will be the LIBOR in effect on such
LIBOR Interest Determination Date or, if no such rate is in effect, the
interest rate on LIBOR Rate Notes will be the Initial Interest Rate.
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<PAGE> 23
CD Rate. Each CD Rate Note will bear interest at the interest rate
(calculated with reference to the CD Rate and, if any, the spread and/or spread
multiplier) specified in such CD Rate Note and the applicable pricing
supplement.
The CD Rate will be determined as of the applicable Interest Determination
Date (a "CD Rate Interest Determination Date") as the rate on that date for
negotiable certificates of deposit having the specified Index Maturity as
published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication ("H.15(519)") under the heading "CD (Secondary Market)," or if not
so published by 3:00 p.m., New York City time, on the Calculation Date, the CD
Rate will be the rate on such CD Rate Interest Determination Date for negotiable
certificates of deposit of the specified Index Maturity as published in H.15
Daily Update under the heading, "CDs (Secondary Market)." If that rate is not
published in either H.15(519) or H.15 Daily Update by 3:00 p.m., New York City
time, on the related Calculation Date, then the CD Rate on that CD Rate Interest
Determination Date will be calculated by the calculation agent and will be the
arithmetic mean of the secondary market offered rates as of 10:00 a.m., New York
City time, on the CD Rate Interest Determination Date, of three leading nonbank
dealers in negotiable U.S. dollar certificates of deposit in The City of New
York (which may include one or more Agents or their affiliates) selected by the
calculation agent for negotiable certificates of deposit of major United States
money market banks (in the market for negotiable certificates of deposit) with a
remaining maturity closest to the specified Index Maturity in an amount that is
representative for a single transaction in that market at that time; provided,
however, that if one or more of the dealers selected by the calculation agent as
described above are not quoting as described in this sentence, the CD Rate with
respect to such CD Rate Interest Determination Date will be the CD Rate in
effect on such CD Rate Interest Determination Date, or if no such rate is in
effect, the interest rate on the CD Rate Notes will be the Initial Interest
Rate.
Treasury Rate Notes. Each Treasury Rate Note will bear interest at the
interest rate (calculated with reference to the Treasury Rate and, if any, the
spread and/or spread multiplier) specified in such Treasury Rate Note and in the
applicable pricing supplement.
Unless otherwise indicated in the pricing supplement, the term "Treasury
Rate" means with respect to any Interest Determination Date relating to a
Treasury Rate Note or any Interest Determination Date for a medium term note
whose interest rate is determined with reference to the Treasury Rate (a
"Treasury Interest Determination Date"), the rate for the most recent auction of
direct obligations of the United States ("Treasury Bills") having the Index
Maturity specified in the applicable pricing supplement as published in
H.15(519), or any successor publication, under the heading "U.S. Government
Securities/ Treasury Bills/Auction Average (Investment)" or, if not so published
by 3:00 p.m., New York City time, on or before the calculation date pertaining
to such Treasury Interest Determination Date, the auction average rate
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) for those Treasury Bills as otherwise
announced by the United States Department of the Treasury. Treasury Bills are
usually sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is usually held on the following Tuesday,
except that such auction may be held on the preceding Friday. If the results of
the auction of Treasury Bills having the specified Index Maturity are not
published or reported as provided above by 3:00 p.m., New York City time, on
such calculation date, or if no such auction is held in a particular week, then
the Treasury Rate will be calculated by the calculation agent and will be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the rate set forth
for Treasury Bills in the H.15(519) for that Treasury Interest Determination
Date opposite the Index Maturity under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market." If on such date, such rate for such
period is not yet published in the H.15(519), then the rate will be a yield to
maturity (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 p.m., New York City time,
on such Treasury Interest Determination Date, of three leading primary United
States government securities dealers, selected by the calculation agent (after
consultation with us), for the issue of Treasury Bills with a remaining maturity
closest to the specified Index Maturity; provided,
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<PAGE> 24
however, that if the dealers selected as aforesaid by the calculation agent are
not quoting as mentioned in this sentence, the Treasury Rate will be the
Treasury Rate in effect on such Treasury Interest Determination Date or, if no
such rate is in effect, the interest rate on the Treasury Rate Notes will be the
Initial Interest Rate.
CMT Rate Notes. Each CMT Rate Note will bear interest at the interest rate
(calculated with reference to the CMT Rate and, if any, the spread and/or spread
multiplier) specified in such CMT Rate Note and in the applicable pricing
supplement.
Unless otherwise specified in the applicable pricing supplement, "CMT Rate"
means, with respect to any Interest Determination Date relating to a Floating
Rate Note for which the interest rate is determined with reference to the CMT
Rate (a "CMT Rate Interest Determination Date"), the rate displayed on the
Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
p.m.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7051, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
week or the month, as applicable, ended immediately preceding the week in which
the related CMT Rate Interest Determination Date occurs. If that rate is no
longer displayed on the relevant page or is not displayed by 3:00 p.m., New York
City time, on the related calculation date, then the CMT Rate for such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If that
rate is no longer published or is not published by 3:00 p.m., New York City
time, on the related calculation date, then the CMT Rate on such CMT Rate
Interest Determination Date will be that treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury Rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date as
may then be published by either the Board of Governors of the Federal Reserve
System or the United States Department of the Treasury that the calculation
agent determines to be comparable to the rate formerly displayed on the
Designated CMT Telerate Page and published in the relevant H.15(519).
If such information is not provided by 3:00 p.m., New York City time, on
the related calculation date, then the CMT Rate on the CMT Rate Interest
Determination Date will be calculated by the calculation agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market closing
offer side prices as of approximately 3:30 p.m., New York City time, on such CMT
Rate Interest Determination Date reported, according to the written records by
three leading primary United States government securities dealers (each, a
"Reference Dealer") in The City of New York (which may include any of the Agents
or their affiliates selected by the calculation agent (from five such Reference
Dealers selected by the calculation agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for the most recently issued
direct noncallable fixed rate obligations of the United States ("Treasury
Notes") with an original maturity of approximately the Designated CMT Maturity
Index and a remaining term to maturity of not less than such Designated CMT
Maturity Index minus one year. If the calculation agent is unable to obtain
three such Treasury Note quotations, the CMT Rate for such CMT Rate Interest
Determination Date will be calculated by the calculation agent (after
consultation with us) and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 p.m.,
New York City time, on such CMT Rate Interest Determination Date of three
Reference Dealers in The City of New York (from five such Reference Dealers
selected by the calculation agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers so selected by the
calculation agent are quoting as mentioned herein, the CMT Rate determined as of
such CMT Rate Interest
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<PAGE> 25
Determination Date will be the CMT Rate in effect on such CMT Rate Interest
Determination Date or, if no such rate is in effect, the interest rate on the
CMT Rate Notes will be the Initial Interest Rate. If two Treasury Notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the
calculation agent will use the quotations for the Treasury Note with the shorter
remaining term to maturity.
"Designated CMT Telerate Page" means the display on Dow Jones Markets
Limited on the page specified in the applicable pricing supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)) for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified in the applicable pricing supplement, the Designated CMT
Telerate Page will be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable pricing supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
pricing supplement, the Designated CMT Maturity Index will be two years.
Eleventh District Cost of Funds Rate Notes. Eleventh District Cost of Funds
Rate Notes will bear interest at the rates (calculated with reference to the
Eleventh District Cost of Funds Rate and the spread and/or spread multiplier, if
any) specified in such Eleventh District Cost of Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable pricing supplement, the term
"Eleventh District Cost of funds Rate" means, with respect to any Interest
Determination Date relating to an Eleventh District Cost of Funds Rate Note or
any Floating Rate Note for which the interest rate is determined with reference
to the Eleventh District Cost of Funds Rate (an "Eleventh District Cost of Funds
Rate Interest Determination Date") the rate of interest equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which such Eleventh District Cost of Funds Rate Interest Determination
Date falls, as set forth under the caption "11th District" on Telerate Page 7058
as of 11:00 a.m., San Francisco time, on such Eleventh District Cost of Funds
Rate Interest Determination Date. If such rate does not appear on Telerate Page
7058 on any related Eleventh District Cost of Funds Rate Interest Determination
Date, then the Eleventh District Cost of Funds Rate for such Eleventh District
Cost of Funds Rate Interest Determination Date will be the monthly weighted
average costs of funds paid by member institutions of the Eleventh Federal Home
Loan Bank District that was most recently announced (the "FHLB Index") by the
Federal Home Loan Bank of San Francisco as such cost of funds for the calendar
month immediately preceding the date of such announcement. If the Federal Home
Loan Bank of San Francisco fails to announce such rate for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, then the Eleventh District Cost of Funds Rate determined as
of such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date or, if no such rate is in effect,
the interest rate on the Eleventh District Cost of Funds Rate Notes will be the
Initial Interest Rate.
Federal Funds Rate Notes. Each Federal Funds Rate Note will bear interest
at the interest rate (calculated with reference to the Federal Funds Rate and,
if any, the spread and/or spread multiplier) specified in the applicable pricing
supplement.
Unless otherwise indicated in the pricing supplement, the term "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to a
Federal Funds Rate Note or any Interest Determination Date for a medium term
note whose interest rate is determined with reference to the Federal Funds Rate
(a "Federal Funds Interest Determination Date"), the rate of interest for
Federal Funds as published in H.15(519) under the heading "Federal Funds
(Effective)," or if not so published by 3:00 p.m., New York City time, on the
calculation date pertaining to such Federal Funds Interest Determination Date,
the Federal Funds Rate will be the rate of interest on such Federal Funds
Interest Determination Date for Federal Funds published in H.15 Daily Update, or
other recognized electronic source used for the purpose of displaying the
applicable rate, under the caption "Federal Funds/Effective
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<PAGE> 26
Rate." If that rate is not published in either the H.15(519) or H.15 Daily
Update (or such other recognized electronic source) by 3:00 p.m., New York City
time, on such calculation date, the Federal Funds Rate will be calculated by the
calculation agent and will be the arithmetic mean of the rates for the last
transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in New York City selected by the calculation agent
(after consultation with us) prior to 9:00 a.m., New York City time, on such
Federal Funds Interest Determination Date; provided, however, that if the
brokers selected as aforesaid by the calculation agent are not quoting as
described above, the Federal Funds Rate in effect for the applicable period will
be the Federal Funds Rate in effect on such Federal Funds Interest Determination
Date or, if no such rate is in effect, the interest rate on the Federal Funds
Rate Notes will be the Initial Interest Rate.
Prime Rate Notes. Each Prime Rate Note will bear interest at the interest
rate (calculated with reference to the prime rate and, if any, the spread and/or
spread multiplier) specified in the applicable pricing supplement.
Unless otherwise indicated in the pricing supplement, the term "prime rate"
means, with respect to any Interest Determination Date relating to a Prime Rate
Note or any Interest Determination Date for a medium term note whose interest
rate is determined with reference to the prime rate (a "Prime Rate Interest
Determination Date"), the rate published in H.15(519), or any successor
publication, for that day opposite the caption "Bank Prime Loan". If by 3:00
p.m., New York City time, on the calculation date pertaining to such Prime Rate
Interest Determination Date such rate is not yet published in H.15(519), or any
successor publication, the rate for that Prime Rate Interest Determination Date
will be calculated by the calculation agent and will be the arithmetic mean of
the rates of interest publicly announced by each bank that appears on the
Reuters Screen USPrime 1 as such bank's prime rate or base lending rate as in
effect for that Prime Rate Interest Determination Date. If fewer than four such
rates appear on the Reuters Screen USPRIME 1 for that Prime Rate Interest
Determination Date, the prime rate will be the arithmetic mean of the prime
rates quoted on the basis of the actual number of days in a year divided by 360
for that Prime Rate Interest Determination Date by three major money center
banks in New York City selected by the calculation agent (after consultation
with us); provided, however, that if the banks selected as aforesaid by the
calculation agent are not quoting as described above, the prime rate in effect
for the applicable period will be the prime rate in effect on such Prime Rate
Interest Determination Date or, if no such rate is in effect, the interest rate
on the Prime Rate Notes will be the Initial Interest Rate.
"Reuters Screen USPrime 1" means the display designated as page "USPRIME 1"
on the Reuters Monitor Money Rates Service (or such other page as may replace
the USPRIME 1 on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
SUBSEQUENT INTEREST PERIODS
The applicable pricing supplement relating to each medium term note will
indicate whether we have the option to reset the interest rate in the case of a
Fixed Rate Note, or the spread and/or spread multiplier in the case of a
Floating Rate Note, and, if so, the date or dates on which such interest rate or
such spread and/or spread multiplier, as the case may be, may be reset (each an
"Optional Reset Date").
If we elect to reset the interest rate, spread and/or spread multiplier of
a note as described above, the holder of such note will have the option to elect
repayment of the note by us on any Optional Reset Date at a price equal to the
aggregate principal amount thereof outstanding on, plus any interest accrued to,
such Optional Reset Date or, for an OID Note, plus any original issue discount
amortized from the date of issue to such Optional Reset Date. In order for a
note to be repaid on an Optional Reset Date, the noteholder must follow the
procedures set forth above under "Repayment at the Option of the Holder" for
optional repayment, except that:
- the period for delivery of the note or notification to the trustee will
be at least 25 but not more than 35 days prior to such Optional Reset
Date and
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- a holder who has tendered a medium term note for repayment pursuant to a
Reset Notice (as defined below) may, by written notice to the trustee,
revoke any such tender until the close of business on the tenth day prior
to such Optional Reset Date.
We may exercise this option with respect to a medium term note by notifying
the trustee of the exercise at least 50 but not more than 60 days prior to an
Optional Reset Date for the medium term note. Not later than 40 days prior to
such Optional Reset Date, the trustee for the note will mail or deliver to the
holder of the note a notice (the "Reset Notice"), first class, postage prepaid.
The Reset Notice will indicate whether we have elected to reset the interest
rate (in the case of a Fixed Rate Note) or the spread and/or spread multiplier
(in the case of a Floating Rate Note) and if so,
- the new interest rate or new spread and/or spread multiplier, as the case
may be; and
- the provisions, if any, for redemption during the period from the
Optional Reset Date to the next Optional Reset Date or, if there is no
next Optional Reset Date, to the stated maturity of such note (each such
period a "Subsequent Interest Period"), including the date or dates on
which or the period or periods during which and the price or prices at
which such redemption may occur during such Subsequent Interest Period.
Notwithstanding the foregoing, we may, at our option, revoke the interest
rate (in the case of a Fixed Rate Note) or the spread and/or spread multiplier
(in the case of a Floating Rate Note) as provided for in the Reset Notice, and
establish a higher interest rate or a spread and/or spread multiplier that is
higher than the interest rate, spread and/or spread multiplier provided for in
the relevant Reset Notice for the Subsequent Interest Period commencing on such
Optional Reset Date. To do so, we must cause the trustee to mail, not later than
20 days prior to an Optional Reset Date for a medium term note (or, if that day
is not a business day, on the immediately succeeding business day), notice of
the higher interest rate, or new spread and/or spread multiplier, to the holder
of the note. The notice will be irrevocable. We must notify the trustee of our
intentions to revoke the Reset Notice at least 25 days prior to the Optional
Reset Date. Each medium term note with respect to which the interest rate,
spread and/or spread multiplier is reset on an Optional Reset Date and with
respect to which the holder of the note has not tendered the note for repayment
(or has validly revoked any such tender) pursuant to the immediately preceding
paragraph will bear such higher interest rate or new spread and/or spread
multiplier for the Subsequent Interest Period.
EXTENSION OF MATURITY
Unless otherwise stated in the applicable pricing supplement, each medium
term note will mature at the stated maturity of the note. The applicable pricing
supplement relating to any note (other than an Amortizing Note) may indicate
whether the Company has the option to extend the stated maturity of the note for
one or more periods of whole years from one to five (each an "Extension Period")
up to but not beyond the date (the "Final Maturity") set forth in the applicable
pricing supplement.
We may exercise such option with respect to a medium term note by notifying
the trustee of the exercise at least 50 but not more than 60 days prior to the
old stated maturity for the note. Not later than 40 days prior to the old stated
maturity of the note, the trustee for the note will mail or deliver to the
holder of the note a notice (the "Extension Notice"), first class, postage
prepaid. The Extension Notice will set forth:
- our election to extend the Stated Maturity of such note;
- the new Stated Maturity;
- in the case of a Fixed Rate Note, the interest rate applicable to the
Extension Period or, in the case of a Floating Rate Note, the spread
and/or spread multiplier applicable to the Extension Period; and
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- the provisions, if any, for redemption during the Extension Period,
including the date or dates on which or the period or periods during
which and the price or prices at which such redemption may occur during
the Extension Period.
Upon the mailing or delivery by the trustee of an Extension Notice to the
holder of a medium term note, the stated maturity of the note will be extended
automatically, and, except as modified by the Extension Notice and as described
in the next paragraph, the note will have the same terms as prior to the mailing
or delivery of the Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the old
stated maturity of the medium term note (or, if that day is not a business day,
on the immediately succeeding business day), we may, at our option, revoke the
interest rate (in the case of a Fixed Rate Note) or the spread and/or spread
multiplier (in the case of a Floating Rate Note) provided for in the Extension
Notice for that note and establish a higher interest rate (in the case of a
Fixed Rate Note) or a higher spread and/or spread multiplier (in the case of a
Floating Rate Note) for the Extension Period. To do so, we must cause the
trustee for the note to mail notice of such higher interest rate or new spread
and/or spread multiplier, as the case may be, first class, postage prepaid, to
the holder of the note. The notice will be irrevocable. All medium term notes
with respect to which the stated maturity is extended will bear such higher
interest rate (in the case of Fixed Rate Notes) or new spread and/or spread
multiplier (in the case of Floating Rate Notes) for the Extension Period,
whether or not tendered for repayment.
If we extend the stated maturity of a medium term note, the holder of the
note will have the option to elect repayment of the note by us on the old stated
maturity at a price equal to the principal amount thereof, plus interest accrued
to such date. In order for a note to be repaid on the old stated maturity once
we have extended the stated maturity thereof, the holder must follow the
procedures set forth above under "Repayment at the Option of the Holder" for
optional repayment, except that (i) the period for delivery of the note or
notification to the trustee for the note will be at least 25 but not more than
35 days prior to the old stated maturity and (ii) a holder who has tendered a
note for repayment pursuant to an Extension Notice may, by written notice to the
trustee, revoke any such tender for repayment until the close of business on the
tenth day before the old stated maturity.
AMORTIZING NOTES
We may from time to time offer Amortizing Notes. Unless otherwise specified
in the applicable pricing supplement, interest on each Amortizing Note will be
computed on the basis of a 360-day year of twelve 30-day months. Payments with
respect to Amortizing Notes will be applied first to interest due and payable
thereon and then to the reduction of the unpaid principal amount thereof.
Further information concerning additional terms and provisions of Amortizing
Notes will be specified in the applicable pricing supplement. A table setting
forth repayment information in respect of each Amortizing Note will be included
in the applicable pricing supplement and set forth in each such note.
ORIGINAL ISSUE DISCOUNT NOTES
We may offer OID Notes from time to time. Original Issue Discount Notes may
currently pay no interest or interest at a rate that at the time of issuance is
below market rates. In the event of redemption, repayment or acceleration of
maturity in respect of an OID Note, the amount payable to the holder of the OID
Note will be equal to:
- the Amortized Face Amount (as defined in the next succeeding paragraph)
as of the date of such event, plus
- with respect to any redemption of an OID Note, the Initial Redemption
Percentage specified in the applicable pricing supplement (as adjusted by
the Annual Redemption Percentage Reduction, if applicable) minus 100%
multiplied by the issue price specified in such pricing supplement (the
"Issue Price"), net of any portion of the Issue Price that has been paid
prior to the date of
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redemption, or the portion of the Issue Price (or the net amount)
proportionate to the portion of the unpaid principal amount to be
redeemed, plus
- any accrued interest to the date of such event, the payment of which
would constitute qualified stated interest payments within the meaning of
Treasury Regulation Section 1.1273-1(c) under the Internal Revenue Code
of 1986, as amended (the "Code").
Such interest will be computed on the basis of a 360-day year of twelve 30-day
months, compounded semiannually.
If the stated maturity of an OID Note that bears no interest falls on a day
that is not a business day, the payment due at maturity will be made on the
following day that is a business day as if it were made on the date the payment
was due, and no interest will accrue on the amount so payable for the period
from and after the stated maturity.
The "Amortized Face Amount" of an OID Note means an amount equal to:
- the Issue Price thereof, plus
- the aggregate portions of the original issue discount (the excess of the
amounts considered as part of the "stated redemption price at maturity"
of the OID Note within the meaning of Section 1273(a)(2) of the Code,
whether denominated as principal or interest, over the Issue Price) that
have accrued pursuant to Section 1272 of the Code (without regard to
Section 1272(a)(7) of the Code) from the date of issue of the OID Note to
the date of determination, minus
- any amount considered as part of the "stated redemption price at
maturity" of such OID Note that has been paid from the date of issue to
the date of determination.
Certain additional considerations relating to the offering of any OID Notes may
be set forth in the applicable pricing supplement.
If a bankruptcy case is commenced by or against El Paso Energy under the
United States Bankruptcy Code (the "Bankruptcy Code"), it is possible that a
portion of the face amount of an OID Note would be treated as interest and the
unamortized portion thereof would be treated as unmatured interest under Section
502(b)(2) of the Bankruptcy Code. Unmatured interest is not allowable as part of
a claim under Section 502(b)(2) of the Bankruptcy Code. Although it is
impossible to predict what portion, if any, of the face amount of an OID Note
would be treated as unmatured interest, one possible result is that the
bankruptcy court might determine the amount of unmatured interest on the note by
reference to the amount of amortized original issue discount of the note for tax
purposes, the unamortized debt discount of the note for financial accounting
purposes or the yield to maturity (if any) set forth on the face of an OID Note.
Each method may yield a substantially different result.
Holders of medium term notes with original issue discount will be required
to include the amount of original issue discount in income in accordance with
applicable provisions of the Code and the Treasury Regulations promulgated
thereunder. See "Certain United States Federal Income Tax Considerations --
OID."
INDEXED NOTES
Medium term notes may be issued with the amount of principal (and premium,
if any) and/or any interest payable in respect thereof to be determined with
reference to the price or prices of specified commodities, securities, financial
instruments, the exchange rate of one or more specified currencies relative to
an indexed currency or another price or exchange rate ("Indexed Notes"), as set
forth in the applicable pricing supplement. In certain cases, holders of Indexed
Notes may receive a principal amount on the maturity date that is greater than
or less than the face amount of the notes depending upon the relative value on
the maturity date of the specified indexed item. Information as to the method
for determining the amount of principal (and premium, if any) and/or any
interest payable in respect of Indexed Notes, certain historical information
with respect to the specified indexed item and tax
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considerations associated with an investment in Indexed Notes will be set forth
in the applicable pricing supplement.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to the medium term notes, including the
calculation of the interest rate applicable to a Floating Rate Note, and the
specification of one or more Base Rates, the Interest Payment Dates, the stated
maturity or any other variable term relating thereto, may be modified as
specified under "Other Provisions" on the face of the note or in an addendum
relating thereto, if so specified on the face of the note and in the applicable
pricing supplement.
CONSOLIDATION, MERGER OR SALE
The senior indenture generally permits a consolidation or merger between us
and another corporation. It also permits us to sell all or substantially all of
our property and assets. If this occurs, the remaining or acquiring corporation
will assume all of our responsibilities and liabilities under the senior
indenture, including the payment of all amounts due on the medium term notes and
performance of the covenants in the senior indenture. For a further description
of the provisions in the senior indenture applicable to a consolidation or
merger with or into any other corporation or a sale of all or substantially all
of our assets, see "Description of Debt Securities -- Consolidation, Merger or
Sale" in the accompanying prospectus.
MODIFICATION OF INDENTURE
For a further description of the provisions in the senior indenture
applicable to a modification of your rights and obligations and the rights of
the holders, see "Description of Debt Securities -- Modification of Indentures"
in the accompanying prospectus.
EVENTS OF DEFAULT
For a description of the provisions of the senior indenture applicable to
an "Event of Default," see "Description of Debt Securities -- Events of Default"
in the accompanying prospectus.
COVENANTS
For a description of our covenants contained in the senior indenture, see
"Description of Debt Securities -- Covenants" in the accompanying prospectus.
CONCERNING THE TRUSTEE
We maintain a banking relationship with The Chase Manhattan Bank or
affiliates thereof. The Chase Manhattan Bank serves as the trustee under our
senior indenture and our subordinated indenture, and as trustee under certain
indentures of our subsidiaries. The Chase Manhattan Bank or affiliates thereof
may also have other financial relations with us and other corporations
affiliated with us.
BOOK-ENTRY NOTES
Unless otherwise indicated in the pricing supplement, the medium term notes
will be issued in the form of one or more fully registered global notes, which
will be deposited with, or on behalf of, DTC and registered in the name of the
nominee of DTC. If so specified in a pricing supplement, a global note may be
registered in the name of a depository other than DTC (DTC and such other
depositories are referred to herein as the "Depository"). Except as described
below, a global note may not be transferred except as a whole by the Depository
to another nominee of the Depository or to a successor of the Depository or a
nominee of such successor. Transfers of a global note will be effected only
through records maintained by the Depository and its participants. Beneficial
interests in global notes will be exchanged for medium term notes in definitive
form only under limited circumstances described herein.
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When we issue a global note, the Depository will credit, on its book-entry
registration and transfer system, the respective principal amounts of the medium
term notes represented by such global note to the accounts of participants. The
accounts to be credited shall be designated by the Agent through which a medium
term note was sold, or by us if such medium term note was sold directly by us.
Ownership of beneficial interests in a global note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in a global note is limited to participants that have
accounts with DTC or its nominee, or persons that may hold interests through
those participants. In addition, ownership of beneficial interests by
participants in a global note will be evidenced only by, and the transfer of
that ownership interest will be effected only through, records maintained by DTC
or its nominee for a global note. So long as the Depository for a global note,
or its nominee, is the registered owner thereof, the Depository or its nominee,
as the case may be, will be considered the sole owner or holder of the medium
term notes represented by such global note for all purposes under the senior
indenture. Ownership of beneficial interests in a global note by persons that
hold through participants will be evidenced only by, and the transfer of that
ownership interest within that participant will be effected only through,
records maintained by that participant. DTC has no knowledge of the actual
beneficial owners of the medium term notes. 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 participants through
which the beneficial owners entered the transaction. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in a global note.
We will make payments of principal of, and interest on, medium term notes
represented by a global note registered in the name of or held by DTC or its
nominee to DTC or its nominee, as the case may be, as the registered owner and
holder of the global note representing those medium term notes. DTC has advised
us that upon receipt of any payment of principal of, or interest on, a global
note, DTC will immediately credit accounts of participants on its book-entry
registration and transfer system with payments in amounts proportionate to their
respective beneficial interests in the principal amount of that global note as
shown in the records of DTC. Payments by participants to owners of beneficial
interests in a global note held through those participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the sole responsibility of those participants,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Neither we, any trustee nor any of our respective agents, will be
responsible for any aspect of the records of any Depository, including DTC, any
nominee or any participant relating to, or payments made on account of,
beneficial interests in a permanent global debt security or for maintaining,
supervising or reviewing any of the records of any Depository, including DTC,
any nominee or any participant relating to such beneficial interests.
A global note is exchangeable for definitive medium term notes registered
in the name of, and a transfer of a global note may be registered to, any person
other than DTC or its nominee, only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for that global note or at any time DTC ceases to be registered under the
Exchange Act;
- we determine in our discretion that the global note will be exchangeable
for definitive medium term notes in registered form; or
- there shall have occurred and be continuing an event of default or an
event which, with notice or the lapse of time or both, would constitute
an event of default under the medium term notes.
Any global note that is exchangeable pursuant to the preceding sentence will be
exchangeable in whole for definitive medium term notes in registered form, of
like tenor and of an equal aggregate principal amount as the global note, in
denominations specified in the applicable pricing supplement, if other than
$1,000 and integral multiples of $1,000. The definitive medium term notes will
be registered by the registrar in
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the name or names instructed by the Depository. We expect that these
instructions may be based upon directions received by the Depository from its
participants with respect to ownership of beneficial interests in the global
notes.
Except as provided above, owners of the beneficial interests in a global
note will not be entitled to receive physical delivery of medium term notes in
definitive form and will not be considered the holders of medium term notes for
any purpose under the senior indenture. No global note will be exchangeable
except for another global note of like denomination and tenor to be registered
in the name of the Depository or its nominee. Accordingly, each person owning a
beneficial interest in a global debt security must rely on the procedures of the
Depository and, if that person is not a participant, on the procedures of the
participant through which that person owns its interest, to exercise any rights
of a holder under the global note or the senior indenture.
We understand that, under existing industry practices, in the event that we
request any action of holders, or an owner of a beneficial interest in a global
note desires to give or take any action that a holder is entitled to give or
take under the medium term notes or the senior indentures, DTC would authorize
the participants holding the relevant beneficial interests to give or take that
action, and those participants would authorize beneficial owners owning through
those participants to give or take that action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised us that DTC is a limited purpose trust company organized
under the laws of the State of New York, 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 under the Exchange Act. DTC was created
to hold securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in those securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its 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 banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
DEFEASANCE
For a description of the defeasance provisions of the senior indenture, see
"Description of Debt Securities -- Defeasance" in the accompanying prospectus.
NOTICES
Notices to holders of medium term notes will be given by mail to the
addresses of such holders as they appear in the note register.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Andrews & Kurth L.L.P., special tax counsel to El Paso
Energy, the following summary describes the material United States federal
income tax consequences as of the date hereof of the acquisition, ownership and
disposition of the medium term notes to beneficial owners ("holders") purchasing
medium term notes at their original issuance. This summary is based on the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
legislative history, administrative pronouncements, judicial decisions and
final, proposed and temporary Treasury Regulations, changes to any of which
subsequent to the date of this prospectus supplement may affect the tax
consequences described herein. Any such changes may apply retroactively.
This summary discusses only the material United States federal income tax
consequences to those holders holding medium term notes as capital assets within
the meaning of Section 1221 of the Code. It does not discuss all of the tax
consequences or to holders subject to special rules (including pension plans and
other tax-exempt investors, banks, thrifts, real estate investment trusts,
regulated investment companies, persons who hold medium term notes as part of a
straddle, hedging or conversion transactions, insurance companies, dealers in
securities or foreign currencies, and United States Holders (as defined below)
whose functional currency (as defined in Section 985 of the Code) is not the
U.S. dollar). Further, this summary does not discuss notes which qualify as
"applicable high-yield discount obligations" under Section 163(i) of the Code.
Persons considering the purchase of medium term notes should consult their
tax advisors with regard to the application of the United States federal income
tax laws to their particular situations as well as any tax consequences to them
arising under the laws of any state, local or foreign taxing jurisdiction.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used in this prospectus supplement, the term, "United States Holder"
means a beneficial owner of a medium term note who or which is for United States
federal income tax purposes either:
- a citizen or resident of the United States;
- a corporation or a partnership (including an entity treated as a
corporation or a partnership for United States federal income tax
purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia (unless, in the case of a
partnership, Treasury regulations are adopted that provide otherwise);
- an estate whose income is subject to United States federal income tax
regardless of its source;
- 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
- any other person whose income or gain in respect of a medium term note is
effectively connected with the conduct of a United States trade or
business.
Certain trusts not described in the fourth clause above in existence on August
20, 1996 that elect to be treated as a United States person will also be a
United States Holder for purposes of the following discussion.
The term also includes certain former citizens or long-term residents of
the United States whose income and gain on the medium term notes will be subject
to United States taxation.
TAXATION OF INTEREST
Stated interest on a medium term note will generally be included in a
United States Holder's income as ordinary interest income when actually or
constructively received (if such holder uses the cash method
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of accounting for federal income tax purposes) or when accrued (if such holder
uses an accrual method of accounting for federal income tax purposes). Special
rules apply in the case of:
- a Fixed Rate Note that does not provide for "qualified stated interest"
(as defined below);
- a Floating Rate Note that either does not provide for "qualified stated
interest" or does not qualify as a "VRDI" (as defined below);
- a Fixed Rate Note or a Floating Rate Note issued with "original issue
discount" (as defined below);
- a medium term note with a maturity of one year or less from its issue
date (a "Short-Term Note");
- an Extendible Note;
- a Foreign Currency Note (as defined below); and
- an Indexed Note.
These special rules are described below.
Definition of Qualified Stated Interest
Interest on a medium term note is "qualified stated interest" if the
"interest" is unconditionally payable, or will be constructively received under
Section 451 of the Code, in cash or in property (other than debt instruments of
El Paso Energy) at least annually at a single fixed rate (in the case of a Fixed
Rate Note) or at a single "qualified floating rate" or "objective rate" (in the
case of a Floating Rate Note that qualifies as a variable rate debt instrument).
If a Floating Rate Note that qualifies as a variable rate debt instrument
provides for interest other than a single qualified floating rate or single
objective rate, special rules apply to determine the portion of such interest
that constitutes qualified stated interest. See "OID Floating Rate Notes that
are VRDIs" below.
Definition of Variable Rate Debt Instrument (VRDI), Qualified Floating Rate
and Objective Rate
A Floating Rate Note will qualify as a variable rate debt instrument
("VRDI") if all four of the following conditions are met. First, the "issue
price" (as defined below under "-- OID") of the medium term note must not exceed
the total noncontingent principal payments by more than an amount equal to the
lesser of (i) .015 multiplied by the product of the total noncontingent
principal payments and the number of complete years to maturity from the issue
date (or, in the case of an Amortizing Note or other medium term note that
provides for payment of any amount other than qualified stated interest before
maturity, its weighted average maturity) and (ii) 15% of the total noncontingent
principal payments. A medium term note that does not provide for contingent
principal will satisfy this requirement as long as it is not issued at a
significant premium.
Second, except as provided in the preceding paragraph, the Floating Rate
Note must not provide for any principal payments that are contingent.
Third, the medium term note must provide for stated interest (compounded or
paid at least annually) at (a) one or more qualified floating rates, (b) a
single fixed rate and one or more qualified floating rates, (c) a single
objective rate or (d) a single fixed rate and a single objective rate that is a
"qualified inverse floating rate" (as defined below).
Fourth, the medium term note must provide that a qualified floating rate or
objective rate in effect at any time during the term of the note is set at the
value of the rate on any day that is no earlier than three months prior to the
first day on which that value is in effect and no later than one year following
that first day. For example, a medium term note could not provide for an
interest rate based on the LIBOR rate in effect two years prior to each Interest
Payment Date.
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Subject to certain exceptions, a variable rate of interest on a medium term
note is a "qualified floating rate" if variations in the value of the rate can
reasonably be expected to measure contemporaneous fluctuations in the cost of
newly borrowed funds in the currency in which the medium term note is
denominated. This definition includes a variable rate equal to (i) the product
of an otherwise qualified floating rate and a spread multiplier that is greater
than .65 but not more than 1.35 or (ii) an otherwise qualified floating rate (or
the product described in clause (i)) plus or minus a spread. If the variable
rate equals the product of an otherwise qualified floating rate and a single
spread multiplier greater than 1.35 or less than or equal to .65, however, such
rate will generally be an objective rate. A variable rate will not be considered
a qualified floating rate if the variable rate is subject to a cap, floor,
governor (i.e., a restriction on the amount of increase or decrease in the
stated interest rate) or similar restriction that is not fixed throughout the
term of the medium term note and is reasonably expected as of the issue date to
cause the yield on the medium term note to be significantly more or less than
the expected yield determined without the restriction.
Subject to certain exceptions, an "objective rate" is a rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information that is neither
within the control of El Paso Energy (or a related party) nor unique to the
circumstances of El Paso Energy (or a related party). A rate is not an objective
rate if it is reasonably expected that the average value of the rate during the
first half of the note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the term. The Internal Revenue Service may designate rates other than those
specified above that will be treated as objective rates. As of the date hereof,
no such other rates have been designated. An objective rate is a "qualified
inverse floating rate" if (a) the rate is equal to a fixed rate minus a
qualified floating rate and (b) the variations in the rate can reasonably be
expected to reflect inversely contemporaneous variations in the cost of newly
borrowed funds (disregarding any caps, floors, governors or similar restrictions
that would not, as described above, cause a rate to fail to be qualified
floating rate).
If interest on a medium term note is stated at a fixed rate for an initial
period of less than one year, followed by a variable rate that is either a
qualified floating rate or an objective rate for a subsequent period, and the
value of the variable rate on the issue date is intended to approximate the
fixed rate, the fixed rate and the variable rate together constitute a single
qualified floating rate or objective rate.
OID
Original issue discount is the excess, if any, of a medium term note's
"stated redemption price at maturity" over the note's "issue price." A medium
term note's "stated redemption price at maturity" is the sum of all payments
provided by the note (whether designated as interest or as principal) other than
payments of qualified stated interest. The "issue price" of a medium term note
is the first price at which a substantial amount of the medium term notes in the
issuance that includes the medium term notes is sold for money (excluding sales
to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers).
The United States Holders of medium term notes with original issue discount
(other than Short-Term Notes) generally will be required to include such
original issue discount in income as it accrues in accordance with the constant
yield method described below, before the receipt of the related cash payments. A
United States Holder's tax basis in a medium term note is increased by each
accrual of original issue discount and decreased by each payment other than a
payment of qualified stated interest.
The amount of original issue discount with respect to a medium term note
will be treated as zero if the original issue discount is less than an amount
equal to .0025 multiplied by the product of the stated redemption price at
maturity and the number of complete years to maturity (or, in the case of an
Amortizing Note or other medium term note that provides for payment of any
amount other than qualified stated interest prior to maturity, the weighted
average maturity of the note). If the amount of original issue discount is less
than that amount, the original issue discount that is not included in payments
of stated interest is included in income as capital gain as principal payments
are made. The amount
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includible with respect to a principal payment equals the product of the total
amount of original issue discount and a fraction, the numerator of which is the
amount of such principal payment and the denominator of which is the stated
principal amount of the medium term note.
Fixed Rate Notes
In the case of a Fixed Rate Note issued with original discount, the amount
of original issue discount includible in the income of a United States Holder
for any taxable year is determined under the constant yield method as follows.
First, the "yield to maturity" of the medium term note is computed. The yield to
maturity is the discount rate that, when used in computing the present value of
all interest and principal payments to be made under the note (including
payments of qualified stated interest) produces an amount equal to the issue
price of the note. The yield to maturity is constant over the term of the medium
term note and, when expressed as a percentage, must be calculated to at least
two decimal places.
Second, the term of the note is divided into "accrual periods." Accrual
periods may be of any length and may vary in the length over the term of the
medium term note provided that each accrual period is no longer than one year
and that each scheduled payment of principal or interest occurs either on the
final day of an accrual period or on the first day of an accrual period.
Third, the total amount of original issue discount on the medium term note
is allocated among accrual periods. In general, the original issue discount
allocable to an accrual period equals the product of the "adjusted issue price"
of the medium term note at the beginning of the accrual period and the yield to
maturity of the note, less the amount of any qualified stated interest allocable
to the accrual period. The adjusted issue price of a medium term note at the
beginning of the first accrual period is its issue price. Thereafter, the
adjusted issue price of the note is its issue price, increased by the amount of
original issue discount previously includible in the gross income of any holder
and decreased by the amount of any payment previously made on the medium term
note other than a payment of qualified stated interest. For purposes of
computing the adjusted issue price of a medium term note, the amount of original
issue discount previously includible in the gross income of any holder is
determined without regard to "premium" and "acquisition premium," as those terms
are defined below under "Market Discount and Premium."
Fourth, the "daily portions" of original issue discount are determined by
allocating to each day in an accrual period its ratable portion of the original
issue discount allocable to the accrual period.
A United States Holder includes in income in any taxable year the daily
portions of original issue discount for each day during the taxable year that
such Holder held medium term notes. Under the constant yield method described
above, United States Holders generally will be required to include in income
increasingly greater amounts of original issue discount in successive accrual
periods.
Floating Rate Notes that are VRDIs
The taxation of original issue discount (including interest that does not
constitute qualified stated interest) on a Floating Rate Note will depend on
whether the note is a VRDI, as defined above.
In the case of a VRDI that provides for qualified stated interest (as
defined above) the amount of qualified stated interest and original issue
discount, if any, includible in income during a taxable year is determined under
the rules applicable to fixed rate debt instruments (described above) by
assuming that the variable rate of interest is a fixed rate equal to (i) in the
case of a qualified floating rate or a qualified inverse floating rate, the
value, as of the issue date, of the qualified floating rate or qualified inverse
floating rate, and (ii) in the case of an objective rate (other than a qualified
inverse floating rate), the rate that reflects the yield that is reasonably
expected for the note. Qualified stated interest allocable to an accrual period
is increased (or decreased) if the interest actually paid during an accrual
period exceeds (or is less than) the interest assumed to be paid during the
accrual period.
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If a medium term note that is a VRDI does not provide for qualified stated
interest, the amount of interest and original issue discount accruals are
determined by constructing an equivalent fixed rate debt instrument, as follows:
First, in the case of an instrument that provides for interest at a fixed
rate, replace the fixed rate by a qualified floating rate (or qualified
inverse floating rate, if applicable) such that the fair market value of
the instrument as of the issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides
for the qualified floating rate (or qualified inverse floating rate) rather
than the fixed rate.
Second, determine the fixed rate substitute for each variable rate provided
by the medium term note. The fixed rate substitute for each qualified
floating rate provided by the medium term note is the value of that
qualified floating rate on the issue date. If the medium term note provides
for two or more qualified floating rates with different intervals between
interest adjustment dates (for example, the 30-day Commercial Paper Rate
and quarterly LIBOR), the fixed rate substitutes are based on intervals
that are equal in length (for example, the 90-day Commercial Paper Rate and
quarterly LIBOR, or the 30-day Commercial Paper Rate and monthly LIBOR).
The fixed rate substitute for an objective rate that is a qualified inverse
floating rate is the value of the qualified inverse floating rate on the
issue date. The fixed rate substitute for an objective rate, other than a
qualified inverse floating rate, is a fixed rate that reflects the yield
that is reasonably expected on the medium term note.
Third, construct an equivalent fixed rate debt instrument that has terms
that are identical to those provided under the medium term note, except
that the equivalent fixed rate debt instrument provides for the fixed rate
substitutes determined by the second step, in lieu of the qualified
floating rates or objective rate provided by the note.
Fourth, determine the amount of qualified stated interest and original
issue discount for the equivalent fixed rate debt instrument under the
rules described above for Fixed Rate Notes. These amounts are taken into
account as if the United States Holder held the equivalent fixed rate debt
instrument. See "Taxation of Interest" and "OID -- Fixed Rate Notes,"
above.
Fifth, make appropriate adjustments for the actual values of the variable
rates. In this step, qualified stated interest or original issue discount
allocable to an accrual period is increased (or decreased) if the interest
actually accrued or paid during the accrual period exceeds (or is less
than) the interest assumed to be accrued or paid during the accrual period
under the equivalent fixed rate debt instrument. In general, this increase
or decrease is an adjustment to qualified stated interest for the accrual
period if the equivalent fixed rate debt instrument constructed under the
third step provides for qualified stated interest and the increase or
decrease is reflected in the amount actually paid during the accrual
period, and otherwise the increase or decrease is an adjustment to original
issue discount, if any, for the accrual period.
Floating Rate Notes that are not VRDIs
A Floating Rate Note that is not a VRDI (a "Contingent Note"), will be
taxable under the rules applicable to contingent payment debt instruments (the
"Contingent Debt Regulations"), as follows.
First, El Paso Energy is required to determine, as of the issue date, the
comparable yield for the Contingent Note. The comparable yield is generally
the yield at which El Paso Energy would issue a fixed rate debt instrument
with terms and conditions similar to those of the Contingent Note
(including the level of subordination, term, timing of payments and general
market conditions) but not taking into consideration the risk of the
contingencies or the liquidity of the Contingent Note. Further, the
comparable yield may not be less than the Applicable Federal Rate announced
monthly by the Internal Revenue Service (the "AFR"). In certain cases where
Contingent Notes are marketed or sold in substantial part to tax-exempt
investors or other investors for whom the prescribed inclusion of interest
is not expected to have a substantial effect on their United States tax
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liability, the comparable yield for the Contingent Note is, without proper
evidence to the contrary, presumed to be the AFR.
Second, solely for tax purposes, El Paso Energy constructs a projected
schedule of payments determined under the Contingent Debt Regulations for
the Contingent Note (the "Schedule"). The Schedule is determined as of the
issue date and generally remains in place throughout the term of the
Contingent Note. If a right to a contingent payment is based on market
information, the amount of the projected payment is the expected value of
the contingent payment as of the issue date. The Schedule must produce the
comparable yield determined as set forth above. Otherwise, the Schedule
must be adjusted under the rules set forth in the Contingent Debt
Regulations.
Third, under the usual rules applicable to medium term notes issued with
original issue discount and based on the Schedule, the interest income on
the Contingent Note for each accrual period is determined by multiplying
the comparable yield of the Contingent Note (adjusted for the length of the
accrual period) by the Contingent Note's adjusted issue price at the
beginning of the accrual period (determined under rules set forth in the
Contingent Debt Regulations). The amount so determined is then allocated on
a ratable basis to each day in the accrual period that the United States
Holder held the Contingent Note.
Fourth, the appropriate adjustments are made to the interest income
determined under the foregoing rules to account for any differences between
the Schedule and actual contingent payments. Under the rules set forth in
the Contingent Debt Regulations, interest income is generally increased (or
decreased) if the actual contingent payment is more (or less) than the
projected payment. Differences between the actual amounts of any contingent
payments made in a calendar year and the projected amounts of such payments
are generally aggregated and taken into account, in the case of a positive
difference, as additional interest income, or, in the case of a negative
difference, first as a reduction in interest income for such year and
thereafter, subject to certain limitations, as ordinary loss.
The Contingent Debt Regulations require El Paso Energy to provide each
holder of a Contingent Note with the Schedule. If El Paso Energy does not create
the Schedule or the Schedule is unreasonable, a United States Holder must set
its own projected payment schedule and explicitly disclose the fact that the
United States Holder's schedule is being used and the reason therefor. Unless
otherwise prescribed by the Internal Revenue Service, the United States Holder
must make such disclosure on a statement attached to the United States Holder's
timely filed federal income tax return for the taxable year in which the
Contingent Note was acquired.
In general, any gain realized by a United States Holder on the sale,
exchange or retirement of a Contingent Note is interest income. Any loss on a
Contingent Note accounted for under the method described above is ordinary loss
to the extent it does not exceed such Holder's prior interest inclusions on the
Contingent Note (net of negative adjustments). Special rules also apply with
respect to market discount and premium on Contingent Notes that may differ from
the rules described below under "-- Market Discount and Premium."
Other Rules
Certain medium term notes having original issue discount may be redeemed
prior to maturity. Such notes may be subject to rules that differ from the
general rules discussed above relating to the tax treatment of original issue
discount. Purchasers of such medium term notes with a redemption feature should
carefully examine the applicable pricing supplement and should consult their tax
advisors with respect to such feature since the tax consequences with respect to
interest and original issue discount will depend, in part, on the particular
terms and the particular features of the purchased medium term note.
Short-Term Notes
In the case of a medium term note that matures one year or less from its
date of issuance, a cash method United States Holder of such a note generally is
not to accrue original issue discount for United
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States federal income tax purposes unless such Holder elects to do so. United
States Holders who make such an election, United States Holders who report
income for federal income tax purposes on the accrual method and certain other
United States Holders, including banks and dealers in securities, are required
to include original issue discount in income on such Short-Term Notes as it
accrues on a straight-line basis, unless an election is made to accrue the
original issue discount according to a constant yield method based on daily
compounding. In the case of a United States Holder who is not required, and does
not elect, to include the original issue discount in income currently, stated
interest will generally be taxable at the time it is received and any gain
realized on the sale, exchange or retirement of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis (or, if elected, according to a constant yield method based
on daily compounding) through the date of sale, exchange or retirement
(generally reduced by prior payments of interest, if any). In addition, such
Holders will be required to defer deductions of all or a portion of any interest
paid on indebtedness incurred to purchase or carry Short-Term Notes in an amount
not exceeding the accrued original issue discount not previously included in
income.
EXTENDIBLE NOTES
If so indicated in the pricing supplement relating to a medium term note,
El Paso Energy will have the option to extend the stated maturity of such note.
See "Description of Medium Term Notes -- Extendible Notes" above. The treatment
of a United States Holder of medium term notes with respect to which such an
option has been exercised who does not elect to have El Paso Energy repay such
medium term note on the applicable original stated maturity is unclear and will
depend, in part, on the terms established for such medium term notes by El Paso
Energy pursuant to the exercise of such option (the "Revised Terms"). Such
Holder may be treated for United States federal income tax purposes as having
exchanged such medium term notes (the "Old Notes") for new medium term notes
with Revised Terms (the "New Notes"). If the United States Holder is treated as
having exchanged Old Notes for New Notes, such exchange may be treated as either
a taxable exchange or a tax-free recapitalization.
If the exercise of the option by El Paso Energy is not treated as an
exchange of Old Notes for New Notes, no gain or loss will be recognized by a
United States Holder as a result thereof. If the exercise of the option is
treated as a taxable exchange of Old Notes for New Notes, a United States Holder
will recognize gain or loss generally equal to the difference between the issue
price of the New Notes and such Holder's tax basis in the Old Notes. If the
exercise of the option is treated as a tax-free recapitalization, no loss will
be recognized by a United States Holder as a result thereof and gain, if any
will be recognized to the extent of the fair value of the excess, if any, of the
principal amount of securities received over the principal amount of securities
surrendered. In this regard, the meaning of the term "principal amount" is not
clear. Such term could be interpreted to mean "issue price" with respect to
securities that are received and "adjusted issue price" with respect to
securities that are surrendered. Legislation to that effect has been introduced
in the past and has recently been proposed by the Clinton administration. It is
not possible to determine whether such legislation will be enacted in the future
and, if enacted, whether it would apply to recapitalizations occurring prior to
the date of enactment.
The presence of such an option may also affect the calculation of original
issue discount, among other things. For purposes of determining the yield and
maturity of a medium term note, an issuer of a debt instrument having an
unconditional option to require payments to be made on the debt instrument under
an alternative payment schedule or schedules will be deemed to exercise or not
exercise an option in a manner that minimizes the yield on the debt instrument.
If the exercise of such option actually occurs or does not occur, contrary to
what is deemed to occur pursuant to the foregoing rules, then, solely for
purposes of the accrual of original issue discount, the yield and maturity of
the debt instrument are redetermined by treating the debt instrument as reissued
on the date of the occurrence or non-occurrence of the exercise for an amount
equal to its adjusted issue price on that date.
The foregoing discussion of Extendible Notes is provided for general
information only. Additional tax considerations may arise from the ownership of
such notes in light of the particular features or combination of features of
such notes and, accordingly, persons considering the purchase of such notes are
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advised and expected to consult with their own legal and tax advisers regarding
the tax consequences of the ownership of such medium term notes.
INDEXED NOTES
The United States federal income tax treatment of Indexed Notes will depend
on whether or not the note qualifies as a VRDI (as defined above under "Taxation
of Interest -- Definition of Variable Rate Debt Instrument (VRDI), Qualified
Floating Rate and Objective Rate"). The treatment of an Indexed Note that
qualifies as a VRDI is described above under "Taxation of Interest" and "OID."
An Indexed Note that does not qualify as a VRDI will be treated as a Contingent
Note (as defined above) assuming it is properly treated as indebtedness for
federal income tax purposes, taxable in the manner described above under
"OID-Floating Rate Notes that are not VRDIs." An Indexed Note denominated in
U.S. dollars, and having payments of interest or principal determined with
reference to a single foreign currency, is generally subject to the special
rules for Foreign Currency Notes described below under "Foreign Currency Notes."
The tax treatment of Indexed Notes including more than one foreign currency is
uncertain at this time.
AMORTIZING NOTES
Payments received pursuant to an Amortizing Note may consist of both a
principal and an interest component. The interest component will generally be
taxed as described in "Taxation of Interest" above. The principal component will
generally constitute a tax-free return of capital that will reduce a United
States Holder's adjusted tax basis in the note.
MARKET DISCOUNT AND PREMIUM
If a United States Holder that acquires a note having a maturity date of
more than one year from the date of its issuance has a tax basis in the medium
term note that is less than its "stated redemption price at maturity" (or, in
the case of a medium term note with original issue discount, less than its
"adjusted issue price"), the amount of the difference will be treated as "market
discount" for federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules of the Code, a
United States Holder will be required to treat any principal payment (or, in the
case of a medium term note having original issue discount, any payment that does
not constitute a payment of qualified stated interest) on, or any gain on the
sale, exchange, retirement or other disposition of, a medium term note as
ordinary income to the extent of the accrued market discount that has not
previously been included in income. If such medium term note is disposed of in
certain nontaxable transactions, accrued market discount will be includible as
ordinary income to the United States Holder as if such Holder had sold the
medium term note at its then fair market value. Market discount generally
accrues on a straight-line basis over the remaining term of a medium term note
except that, at the election of the United States Holder, market discount may
accrue on a constant yield basis. A United States Holder may not be allowed to
deduct immediately all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or to carry such medium term note. A United
States Holder may elect to include market discount in income currently, as it
accrues (either on a straight-line basis or, if the United States Holder so
elects, on a constant yield basis), in which case the interest deferral rule set
forth in the preceding sentence will not apply. An election to include market
discount in income currently will apply to all debt instruments acquired by the
United States Holder on or after the first day of the first taxable year to
which such election applies and may be revoked only with the consent of the
Internal Revenue Service.
A United States Holder that purchases a medium term note having original
issue discount for an amount that is greater than its adjusted issue price but
less than or equal to the sum of all remaining amounts payable on the medium
term note other than payments of qualified stated interest will be considered to
have purchased such medium term note at an "acquisition premium." In such a
case, the amount of original issue discount otherwise includible in the United
States Holder's income during an accrual period is reduced by a fraction. The
numerator of this fraction is the excess of the adjusted basis of the medium
term note immediately after its acquisition by the purchaser over the adjusted
issue price
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of the medium term note. The denominator of this fraction is the excess of the
sum of all amounts payable on the medium term note after the purchase date,
other than payments of qualified stated interest, over the medium term note's
adjusted issue price. As an alternative to reducing the amount of original issue
discount otherwise includible in income by this fraction, the United States
Holder may elect to compute original issue discount accruals by treating the
purchase as a purchase at original issuance and applying the constant yield
method described above.
If a United States Holder purchases a medium term note for an amount in
excess of the sum of all amounts payable on the medium term note after the date
of acquisition (other than payments of qualified stated interest), such Holder
will be considered to have purchased such medium term note with "amortizable
bond premium" equal in amount to such excess, and generally will not be required
to include any original issue discount in income. Generally, a United States
Holder may elect to amortize such premium as an offset to qualified stated
interest income, using a constant yield method similar to that described above
(see -- "OID"), over the remaining term of the medium term note (where such
medium term note is not redeemable prior to its maturity date). In the case of
medium term notes that may be redeemed prior to maturity, the premium is
calculated assuming that the issuer or holder will exercise or not exercise its
redemption rights in a manner that maximizes the United States Holder's yield. A
United States Holder who elects to amortize bond premium must reduce such
Holder's tax basis in the medium term note by the amount of the premium used to
offset qualified stated interest income as set forth above. An election to
amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by such Holder and may be revoked only with the consent of
the Internal Revenue Service.
A United States Holder may elect to include in gross income its entire
return on a medium term note (i.e., in general, the excess of all payments to be
received on the medium term note over the amount paid for the medium term note
by such Holder) in accordance with a constant yield method based on the
compounding of interest. Such an election for a medium term note with
amortizable bond premium will result in a deemed election to amortize bond
premium for all of the United States Holder's debt instruments with amortizable
bond premium and may be revoked only with the permission of the Internal Revenue
Service with respect to debt instruments acquired after revocation. Similarly,
such an election for a medium term note with market discount will result in a
deemed election to accrue market discount in income currently for such medium
term note and for all other debt instruments acquired by the United States
Holder with market discount on or after the first day of the taxable year to
which such election first applies and may be revoked only with the permission of
the Internal Revenue Service.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of a medium term note, a United
States Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement (not including
any amount attributable to accrued but unpaid qualified stated interest) and
such Holder's adjusted tax basis in the medium term note. To the extent
attributable to accrued but unpaid qualified stated interest, the amount
realized by the United States Holder will be treated as a payment of interest.
See "Taxation of Interest" above. A United States Holder's adjusted tax basis in
a medium term note will equal the cost of the medium term note to such Holder,
increased by the amount of any market discount, any discount with respect to a
Short-Term Note and original issue discount, in each case to the extent
previously included in income by such Holder with respect to such medium term
note, and reduced by any amortized bond premium and any principal payments
received by such Holder and, in the case of a note having original issue
discount by the amounts of any other payments included in the stated redemption
price at maturity, as described above.
Generally, gain or loss realized on the sale, exchange or retirement of a
medium term note will be capital gain or loss (except as provided under
"OID -- Floating Rate Notes that are not VRDIs," "Short-Term Notes" and "Market
Discount and Premium" above and "Foreign Currency Notes" below), and will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the medium term note has been held for more than one year. The excess of net
long-term capital gains over net short-term capital losses is taxed at a lower
rate than ordinary income for certain non-corporate taxpayers. The distinction
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between capital gain or loss and ordinary income or loss is also relevant for
purposes of, among other things, limitations on the deductibility of capital
losses.
FOREIGN CURRENCY NOTES
The following summary relates to medium term notes that are denominated in,
or provide for payments determined by reference to, a currency or currency unit
other than the U.S. dollar ("Foreign Currency Notes").
A United States Holder of a Foreign Currency Note who receives a payment of
interest in a foreign currency that is not required to be included in income by
such Holder prior to its receipt (e.g., stated interest, or in the case of a
Foreign Currency Note having original issue discount qualified stated interest,
received by a United States Holder using the cash method of accounting) will be
required to include in income the U.S. dollar value of such foreign currency
payment determined on the date such payment is received, regardless of whether
the payment is in fact converted to U.S. dollars at that time, and such U.S.
dollar value will be the United States Holder's tax basis in the foreign
currency.
In the case of interest income on a Foreign Currency Note that is required
to be included in income by a United States Holder prior to the receipt of
payment (e.g., stated interest on a Foreign Currency Note held by a United
States Holder using the accrual method of accounting, accrued original issue
discount, or accrued market discount includible in income as it accrues), a
United States Holder will be required to include in income the U.S. dollar value
of the interest income (including original issue discount or market discount but
reduced by acquisition premium and amortizable bond premium, to the extent
applicable) that accrued during the relevant accrual period. Original issue
discount, market discount, acquisition premium, and amortizable bond premium of
a Foreign Currency Note are to be determined in the relevant foreign currency.
Unless the United States Holder makes the election discussed below, the U.S.
dollar value of such accrued income will be determined by translating such
income at the average rate of exchange for each business day during the accrual
period or, with respect to an accrual period that spans two taxable years, at
the average rate for each business day during the partial period within the
taxable year. Such United States Holder will recognize ordinary income or loss
with respect to accrued interest income on the date such income is actually
received, reflecting fluctuations in currency exchange rates between the time
the income accrued and the date of payment. The amount of ordinary income or
loss recognized will equal the difference between the U.S. dollar value of the
foreign currency payment received (determined on the date such payment is
received) and the U.S. dollar value of interest income that has accrued during
such accrual period (as determined above). A United States Holder may elect to
translate interest income (including original issue discount and market
discount) into U.S. dollars at the spot rate on the last day of the interest
accrual period (or, in the case of a partial accrual period, the spot rate on
the last date of the taxable year) or, if the date of receipt is within five
business days of the last day of the interest accrual period, the spot rate on
the date of receipt. Such United States Holder will recognize ordinary income or
loss with respect to accrued interest income on the date such income is actually
received, equal to the difference (if any) between the U.S. dollar value of the
foreign currency payment received (determined on the date such payment is
received) and the U.S. dollar value of interest income translated at the
relevant spot rate described in the preceding sentence. Any such election will
apply to all debt instruments held by the United States Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the United States Holder, and will be irrevocable without the consent of the
Internal Revenue Service.
Where the taxpayer elects to include market discount in income currently,
the amount of market discount will be determined for any accrual period in the
relevant foreign currency and then translated into U.S. dollars on the basis of
the average rate in effect during such accrual period. Exchange gain or loss
realized with respect to such accrued market discount is determined in
accordance with the rules relating to accrued interest described above. The
amount of accrued market discount (other than market discount currently
includible in income) taken into account upon receipt of any partial principal
payment or upon the sale, exchange, retirement or other disposition of a Foreign
Currency Note will be the U.S. dollar
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value of such accrued market discount determined on the date of receipt of such
partial principal payment or on the date of such sale, exchange, retirement or
other disposition.
Any gain or loss realized on the sale, exchange or retirement of a Foreign
Currency Note with amortizable bond premium by a United States Holder who has
not elected to amortize such premium (under the rules described above) will be
ordinary income or loss to the extent attributable to fluctuations in currency
exchange rates determined as described in the second succeeding paragraph. If
such an election is made, amortizable bond premium taken into account on a
current basis will reduce interest income in units of the relevant foreign
currency. Exchange gain or loss will be realized on such amortized bond premium
with respect to any period by treating the bond premium amortized in such period
as a return of principal as described in the second succeeding paragraph.
Similar rules apply in the case of acquisition premium.
A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such Holder's tax basis, will be the U.S.
dollar value of the foreign currency amount paid for such Foreign Currency Note,
or the U.S. dollar value of the foreign currency amount of the adjustment,
determined on the date of such purchase or adjustment. In the case of an
adjustment resulting from an accrual of original issue discount or market
discount, such adjustment will be made at the rate at which such original issue
discount or market discount is translated into U.S. dollars under the rules
described above. A United States Holder that converts U.S. dollars to a foreign
currency and immediately uses that currency to purchase a Foreign Currency Note
denominated in the same currency normally will not recognize gain or loss in
connection with such conversion and purchase. A United States Holder who
purchases a Foreign Currency Note with previously owned foreign currency will
recognize ordinary income or loss in an amount equal to the difference, if any,
between such United States Holder's tax basis in the foreign currency and the
U.S. dollar value of the Foreign Currency Note on the date of purchase.
Gain or loss realized upon the sale, exchange or retirement of, or the
receipt of principal on, a Foreign Currency Note, to the extent attributable to
fluctuations in currency exchange rates, will be ordinary income or loss. Gain
or loss attributable to fluctuations in exchange rates will equal the difference
between (i) the U.S. dollar value of the foreign currency purchase price for
such medium term note, determined on the date such medium term note is disposed
of, and (ii) the U.S. dollar value of the foreign currency purchase price for
such medium term note, determined on the date such United States Holder acquired
such medium term note. Any portion of the proceeds of such sale, exchange or
retirement attributable to accrued interest income may result in exchange gain
or loss under the rules set forth above. Such foreign currency gain or loss will
be recognized only to the extent of the overall gain or loss realized by a
United States Holder on the sale, exchange or retirement of the Foreign Currency
Note. In general, the source of such foreign currency gain or loss will be
determined by reference to the residence of the United States Holder or the
"qualified business unit" of such Holder on whose books the Foreign Currency
Note is properly reflected. Any gain or loss realized by a United States Holder
in excess of such foreign currency gain or loss will be capital gain or loss
(except to the extent of any accrued market discount not previously included in
such Holder's income or, in the case of a Short-Term Note, to the extent of any
original issue discount not previously included in such Holder's income) and
will be a long-term capital gain or loss, if, at the time of the sale, exchange
or retirement, the Foreign Currency Note has been held for more than one year.
A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Regulations provide a special rule for purchases
and sales of publicly traded debt instruments by a cash method taxpayer under
which units of foreign currency paid or received are translated into U.S.
dollars at the spot rate on the settlement date of the purchase or sale.
Accordingly, no exchange gain or loss will result from currency fluctuations
between the trade date and the settlement of such a purchase or sale. An accrual
method taxpayer may elect the same treatment required of cash method taxpayers
with respect to the purchases and sale of publicly traded debt instruments
provided the election is applied consistently. Such election cannot be changed
without the consent of the Internal Revenue Service. United States Holders
should consult their tax
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advisors concerning the applicability of the special rules summarized in this
paragraph to Foreign Currency Notes.
The tax consequences of an issuance of a Foreign Currency Note that is
denominated either in a so-called hyperinflationary currency or in more than one
currency (e.g., a Foreign Currency Note providing for payments determined by
reference to the exchange rate of one or more specified currencies (or a
composite currency such as the ECU) relative to an indexed currency), or that is
treated as a Contingent Note under the rules described above are unclear.
Foreign Currency Notes containing such features may be subject to rules that
differ from the general rules discussed above. United States Holders intending
to purchase Foreign Currency Notes with such features should carefully examine
the applicable pricing supplement and should consult with their own tax advisors
with respect to the purchase, ownership and disposition of such Foreign Currency
Notes.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal, interest (including original issue
discount, if any) and premium on the medium term notes by El Paso Energy or
any paying agent to a beneficial owner of a medium term note that is not a
United States Holder, as defined above (hereinafter, a "United States Alien
Holder"), will not be subject to withholding of United States federal
income tax, provided that, in the case of interest, (i) such Holder does
not own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of stock of El Paso Energy entitled to
vote, within the meaning of Section 871(h)(3) of the Code and Treasury
Regulations thereunder, (ii) such Holder is not, for United States federal
income tax purposes, a controlled foreign corporation (as defined in
Section 957 of the Code) related, directly, indirectly, or constructively
to El Paso Energy through stock ownership, (iii) such Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code, (iv) such
Holder is not a foreign tax exempt organization or a foreign private
foundation for United States Federal income tax purposes, (v) the
certification requirements under Section 871(h) or Section 881(c) of the
Code and Treasury Regulations thereunder (summarized below) are met, and
(vi) such interest is not interest described in Section 871(h)(4) of the
Code (which in general is limited to certain types of contingent interest,
as summarized below);
(b) a United States Alien Holder of a medium term note will not be
subject to United States federal income tax on gain realized on the sale,
exchange or other disposition of such medium term note, unless (i) such
Holder is an individual who is present in the United States for 183 days or
more in the taxable year of sale, exchange or other disposition, and
certain conditions are met or (ii) such gain is effectively connected with
the conduct by such Holder of a trade or business in the United States; and
(c) a medium term note held by an individual who is not a citizen or
resident of the United States at the time of his death will not be subject
to United States federal estate tax as a result of such individual's death,
provided that (i) the individual does not own, actually or constructively,
10 percent or more of the total combined voting power of all classes of
stock of El Paso Energy entitled to vote, (ii) the note does not provide
for interest described in Section 871(h)(4) of the Code (as summarized
below), and (iii) at the time of such individual's death, payments with
respect to such note would not have been effectively connected to the
conduct by such individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder
require that, in order to obtain the exemption from withholding tax described in
paragraph (a) above, either (i) the beneficial owner of a medium term note must
certify, under penalties of perjury, to El Paso Energy or its paying agent, as
the case may be, that such owner is a United States Alien Holder and must
provide such owner's name and address, and United States taxpayer identification
number, if any, or (ii) a securities clearing
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organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and holds the medium term note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to El Paso Energy or paying
agent, as the case may be, that such certificate has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and must furnish the payor with a copy thereof. A certificate
described in this paragraph (a "Certificate of Foreign Status") is effective
only with respect to payments of interest (including original issue discount)
made to the certifying United States Alien Holder after issuance of the
certificate in the calendar year of its issuance and the two immediately
succeeding calendar years. Under temporary United States Treasury Regulations,
such requirement will be fulfilled if the beneficial owner of a medium term note
certifies on Internal Revenue Service Form W-8, under penalties of perjury, that
it is not a United States Holder and provides its name and address, and any
Financial Institution holding the medium term note on behalf of the beneficial
owner, files a statement with the withholding agent to the effect that it has
received such a statement from the beneficial owner (and furnishes the
withholding agent with a copy thereof).
Interest described in Section 871(h)(4) of the Code will be subject to
United States withholding tax at a 30% rate (or such lower rate provided by an
applicable treaty). In general, interest described in Section 871(h)(4) of the
Code includes (subject to certain exceptions) any interest the amount of which
is determined by reference to receipts, sales or other cash flow of El Paso
Energy or a related person, any income or profits of El Paso Energy or a related
person, any change in the value of any property of El Paso Energy or a related
person or any dividend, partnership distributions or similar payments made by El
Paso Energy or a related person. Interest described in Section 871(h)(4) of the
Code may include other types of contingent interest identified by the Internal
Revenue Service in future Treasury Regulations.
If a United States Alien Holder is engaged in a trade or business in the
United States, and if interest (including original issue discount or market
discount) on the medium term note, or gain realized on the sale, exchange or
other disposition of a medium term note, is effectively connected with the
conduct of such trade or business, the United States Alien Holder, although
exempt from United States withholding tax, will generally be subject to regular
United States income tax on such interest (including any original issue discount
or market discount) or gain in the same manner as if it were a United States
Holder. See "Tax Consequences to United States Holders" above. In lieu of the
Certificate of Foreign Status, such a holder will be required to provide to El
Paso Energy a properly executed Internal Revenue Service Form 4224 in order to
claim an exemption from withholding tax. In addition, if such United States
Alien Holder is a foreign corporation, it may be subject to a branch profits tax
equal to 30% (or such lower rate provided by an applicable treaty) of its
effectively connected earnings and profits for the taxable year, subject to
certain adjustments. For purposes of the branch profits tax, interest (including
original issue discount or market discount) on, and any gain recognized on the
sale, exchange or other disposition of, a medium term note will be included in
the earnings and profits of such United States Alien Holder if such interest is
effectively connected with the conduct by the United States Alien Holder of a
trade or business in the United States.
On October 14, 1997, the Internal Revenue Service published in the Federal
Register final regulations (the "1997 Final Regulations") which affect the
United States taxation of United States Alien Holders. The 1997 Final
Regulations, although originally to be effective January 1, 2002, are now
generally expected to be effective for payments after December 31, 2000,
regardless of the issue date of the instrument with respect to which such
payments are made, subject to certain transition rules (see below). The
discussion under this heading and under "Backup Withholding and Information
Reporting," below, is not intended to be a complete discussion of the provisions
of the 1997 Final Regulations, and prospective purchasers of the medium term
notes are urged to consult their tax advisors concerning the tax consequences of
their acquiring, holding and disposing of the medium term notes in light of the
1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described
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above, but add other certification options. Under one such option, a withholding
agent will be allowed to rely on an intermediary withholding certificate
furnished by a "qualified intermediary" (as defined below) on behalf of one or
more beneficial owners (or other intermediaries) without having to obtain the
beneficial owner certificate described above. "Qualified intermediaries"
include: (i) foreign financial institutions or foreign clearing organizations
(other than a United States branch or United States office of such institution
or organization) or (ii) foreign branches or offices of United States financial
institutions or foreign branches or offices of United States clearing
organizations, which, as to both (i) and (ii), have entered into withholding
agreements with the Internal Revenue Service. In addition to certain other
requirements, qualified intermediaries must obtain withholding certificates,
such as revised Internal Revenue Service Form W-8 (see below), from each
beneficial owner. Under another option, an authorized foreign agent of a United
States withholding agent will be permitted to act on behalf of the United States
withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat, as the beneficial owners of payments on a medium term note,
those persons that, under United States tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally will be required to provide the required
certifications to qualify for the withholding exemption described above. A
payment to a United States partnership, however, is treated for these purposes
as payment to a United States payee, even if the partnership has one or more
foreign partners. The 1997 Final Regulations provide certain presumptions with
respect to withholding for holders not furnishing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including Internal Revenue Service Form W-8 and Internal Revenue Service Form
4224, discussed above) with a new Internal Revenue Service Form W-8 series of
tax certification forms (which, in certain circumstances, requires information
in addition to that previously required). Under the 1997 Final Regulations, this
Form W-8 will remain valid until the last day of the third calendar year
following the year in which the certificate is signed. The 1997 Final
Regulations contain detailed rules governing tax certifications during the
transition period prior to and immediately following the effectiveness of the
1997 Final Regulations.
Under the 1997 Final Regulations, withholding of United States federal
income tax with respect to accrued original issue discount may apply to payments
on a taxable sale or other disposition of a medium term note by a United States
Alien Holder who does not provide appropriate certification to the withholding
agent with respect to such transaction.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup
withholding tax and information reporting requirements apply to certain payments
of principal, premium and interest (including original issue discount) made to,
and to the proceeds of sale before maturity by, certain holders of the medium
term notes.
In the case of a non-corporate United States Holder, backup withholding
will apply only if (i) such Holder fails to furnish its Taxpayer Identification
Number ("TIN") which, for an individual, would be his Social Security number,
(ii) such Holder furnishes an incorrect TIN, (iii) the payor is notified by the
Internal Revenue Service that such Holder has failed to properly report payments
of interest or dividends or (iv) under certain circumstances, such Holder fails
to certify, under penalties of perjury, that it has furnished a correct TIN and
has not been notified by the Internal Revenue Service that it is subject to
backup withholding for failure to report interest or dividend payments. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as tax-exempt organizations. United States Holders should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption if
applicable.
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The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments of principal, premium
or interest made by El Paso Energy or any paying agent thereof on a medium term
note if such Holder has provided the required certification under penalties of
perjury that it is not a United States Holder (as defined above) or has
otherwise established an exemption, provided in each case that El Paso Energy or
such paying agent, as the case may be, does not have actual knowledge that the
payee is a United States Holder. El Paso Energy will, when required, report to
United States Alien Holders of the medium term notes and the Internal Revenue
Service the amount of any interest paid or original issue discount accruing on
the medium term notes in each calendar year and the amounts of tax withheld, if
any, with respect to such payments.
Under current Treasury Regulations, if payments of principal, premium or
interest (including original issue discount) are made to or through the foreign
office of a custodian, nominee or other agent acting on behalf of a beneficial
owner of a medium term note, such custodian, nominee or other agent will not be
required to apply backup withholding to such payments made to such beneficial
owner and generally will not be subject to information reporting requirements.
However, if such custodian, nominee or other agent is a United States person for
United States tax purposes, a controlled foreign corporation for United States
tax purposes, or a foreign person 50 percent or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, such custodian, nominee or other agent may be subject to
certain information reporting requirements with respect to such payments unless
it has in its records documentary evidence that the beneficial owner is not a
United States Holder and certain conditions are met or the beneficial owner
otherwise establishes an exemption.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a medium term note made to or through a foreign office of a
broker generally will not be subject to backup withholding. However, if such
broker is a United States person for United States tax purposes, a controlled
foreign corporation for United States tax purposes or a foreign person 50
percent or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, information
reporting will be required unless the broker has in its records documentary
evidence that the beneficial owner is not a United States Holder and certain
other conditions are met or the beneficial owner otherwise establishes an
exemption.
In general, the 1997 Final Regulations do not significantly alter the
substantive backup withholding and information reporting requirements described
above. As under current law, backup withholding and information reporting will
not apply to (i) payments to a United States Alien Holder of principal, premium
and interest (including original issue discount, if any) and (ii) payments to a
United States Alien Holder on the sale, exchange or other disposition of a
medium term note, in each case if such United States Alien Holder provides the
required certification to establish an exemption from the withholding of United
States federal income tax or otherwise establishes an exemption. Similarly,
unless the payor has actual knowledge that the payee is a United States Holder
backup withholding will not apply to (i) payments of interest (including
original issue discount, if any) made outside the United States to certain
offshore accounts and (ii) payments on the sale, exchange, redemption,
retirement or other disposition of a medium term note effected outside the
United States. However, information reporting (but not backup withholding) will
apply to (i) payments of interest made by a payor outside the United States and
(ii) payments on the sale, exchange, redemption, retirement or other disposition
of a medium term note effected outside the United States if payment is made by a
broker that is, for United States federal income tax purposes, (a) a United
States person, (b) a controlled foreign corporation, (c) a United States branch
of a foreign bank or foreign insurance company, (d) a foreign partnership
controlled by United States persons or engaged in a United States trade or
business or (e) a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business for
a specified three-year period, in each case unless such payor or broker has in
its records documentary
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evidence that the beneficial owner is not a United States Holder and certain
other conditions are met or the beneficial owner otherwise establishes an
exemption.
United States Alien Holders of medium term notes should consult their tax
advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available. Any
amounts withheld from a payment to a United States Alien Holder under the backup
withholding rules will be allowed as a credit against such Holder's United
States federal income tax liability and may entitle such Holder to a refund,
provided that the required information is furnished to the United States
Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE MEDIUM TERM NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA MATTERS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") that are
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
In accordance with the ERISA's general fiduciary requirements, a fiduciary with
respect to any such Plan who is considering the purchase of medium term notes on
behalf of such Plan should determine whether such purchase is permitted under
the governing Plan documents and is prudent and appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. Other provisions of ERISA and Section 4975 of the Code prohibit
certain transactions between a Plan and persons who have certain specified
relationships to the Plan ("parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of Section 4975 of the Code). Thus, a
Plan fiduciary considering the purchase of medium term notes should consider
whether such a purchase might constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code.
El Paso Energy may be considered a "party in interest" or a "disqualified
person" with respect to many Plans that are subject to ERISA. The purchase of
medium term notes by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section 4975 of
the Code (including individual retirement accounts and other plans described in
Section 4975(e)(1) of the Code) and with respect to which El Paso Energy is a
party in interest or a disqualified person may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
medium term notes are "marketable obligations" (as defined in Section 407(e) of
ERISA) or are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an
exemption for certain transactions determined by an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), PTCE 95-60
(an exemption for certain transactions involving insurance company general
accounts) or PTCE 96-23 (an exemption for certain transactions effected by
in-house asset managers). ANY PENSION OR OTHER EMPLOYEE BENEFIT PLAN PROPOSING
TO ACQUIRE ANY MEDIUM TERM NOTES SHOULD CONSULT WITH ITS COUNSEL.
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PLAN OF DISTRIBUTION
Under the terms of a Distribution Agreement dated as of December 3, 1999,
the Agents may offer the medium term notes they have purchased as principal to
other dealers. The Agents may sell medium term notes to any dealer at a discount
and, unless otherwise specified in the applicable pricing supplement, such
discount allowed to any dealer will not be in excess of the discount to be
received by such Agent from us. The medium term notes are also being offered on
a continuing basis by us. We may designate additional parties to be "Agents" for
purposes of offering or soliciting sales of the medium term notes on the same
terms and conditions as the Agents have agreed to. The names of any other agents
so appointed will be set forth in the applicable pricing supplement. Unless
otherwise indicated in the applicable pricing supplement, any medium term note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage equal to the
commission applicable to any agency sale of a medium term note of identical
maturity, and may be resold by the Agent to investors and other purchasers from
time to time as described above. After the initial public offering of medium
term notes to be resold to investors and other purchasers, the public offering
price (in the case of notes to be resold at a fixed public offering price) and
any dealer discount may be changed. We reserve the right to withdraw, cancel or
modify the offer made hereby without notice and will have the sole right to
accept offers to purchase medium term notes. We or the Agents may reject any
proposed purchase of medium term notes in whole or in part.
Unless otherwise specified in the applicable pricing supplement, payment of
the purchase price of the medium term notes will be required to be made in
immediately available funds on the date of settlement.
We have agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the Agents may be required to make in respect thereof.
The medium term notes are a new issue of securities with no established
trading market and will not be listed on any securities exchange. No assurance
can be given as to the existence or liquidity of a secondary market for the
medium term notes.
The distribution of the medium term notes will conform to the requirements
set forth in the applicable sections of Rule 2710(c)(8) of the Conduct Rules of
the NASD.
In the ordinary course of its business, the Agents and their affiliates
have from time to time provided, and may in the future provide, investment
banking, financial advisory and other services to El Paso Energy for which they
have received, or expect to receive, customary fees. Chase Securities Inc. is an
affiliate of The Chase Manhattan Bank which is, among other things,
administrative agent and a lender to El Paso Energy under its existing revolving
credit facility. Banc of America Securities LLC and ABN AMRO Incorporated are
also affiliates of other lenders to El Paso Energy under its existing revolving
credit facility. The Chase Manhattan Bank and such other affiliates will receive
their proportionate share of any repayment by El Paso Energy of amounts
outstanding under such facility from the proceeds of any offering of medium term
notes. The Chase Manhattan Bank also serves as trustee under the senior
indenture.
Unless otherwise specified in the applicable pricing supplement, we will
pay each Agent a commission ranging from .125% to .75% of the initial offering
price of each medium term note sold through that Agent, depending upon the
maturity of the medium term note. If we sell medium term notes directly to
investors, no commission or discount will be paid unless otherwise specified in
the applicable pricing supplement. We will have the right to accept orders or
reject any proposed purchase in whole or in part. Each Agent will have the
right, in its reasonable discretion, to reject any proposed purchase in whole or
in part. We can withdraw, cancel or modify the offer without notice.
We may also sell medium term notes to any Agent as principal for its own
account at a discount equal to the commission the agent would receive if it
purchased the medium term notes as agent, unless otherwise specified in the
applicable pricing supplement. The Agent may resell medium term notes to
investors and other purchasers at prevailing market prices as determined by the
Agent or, if so specified in an applicable pricing supplement, at a fixed public
offering price. In addition, the Agents may offer the
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medium term notes they have purchased as principal to other dealers. The Agents
may sell medium term notes to any dealer at a discount which will not exceed the
discount we paid the Agent, unless otherwise specified in the applicable pricing
supplement. After the initial public offering of medium term notes, we may
change the public offering price (for those medium term notes to be resold at a
fixed public offering price), the concession and the discount.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act. We have agreed to indemnify the Agents against certain
liabilities, including liabilities under the Securities Act.
In connection with an offering of medium term notes, the Agents may engage
in transactions that stabilize the price of the medium term notes. These
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the medium term notes. If an Agent creates a short
position in the medium term notes, i.e., if the agent sells our medium term
notes in an aggregate principal amount exceeding the amount set forth in the
applicable pricing supplement, the Agent may reduce that short position by
purchasing medium term notes in the open market. In general, purchases of medium
term notes for the purpose of stabilization or to reduce a short position could
cause the price of the notes to be higher than it might be in the absence of the
purchases.
NEITHER WE NOR ANY OF THE AGENTS MAKES ANY REPRESENTATION OR PREDICTION AS
TO THE DIRECTION OR MAGNITUDE OF ANY EFFECT THAT THE TRANSACTIONS DESCRIBED IN
THE IMMEDIATELY PRECEDING PARAGRAPH MAY HAVE ON THE PRICE OF THE MEDIUM TERM
NOTES. IN ADDITION, NEITHER WE NOR ANY OF THE AGENTS MAKES ANY REPRESENTATION
THAT THE AGENTS WILL ENGAGE IN ANY TRANSACTIONS OR THAT TRANSACTIONS, ONCE
COMMENCED, WILL NOT BE DISCONTINUED WITHOUT NOTICE.
VALIDITY OF SECURITIES
The validity of the medium term notes will be passed upon for El Paso
Energy by Andrews & Kurth L.L.P., Houston, Texas. If the securities are being
distributed in an underwritten offering, the validity of the securities will be
passed upon for the underwriters by counsel identified in the related pricing
supplement.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
About this Prospectus....................................... 2
Cautionary Statement Regarding Forward-looking Statements... 3
Where You Can Find More Information......................... 3
El Paso Energy Corporation.................................. 7
The Trusts.................................................. 9
Use of Proceeds............................................. 10
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred and Preference Stock
Dividend Requirements..................................... 10
Description of the Debt Securities.......................... 11
Description of Capital Stock................................ 21
Description of the Trust Preferred Securities............... 24
Description of the Trust Guarantees......................... 25
Relationship among the Trust Preferred Securities, the
Subordinated Debt Securities and the Guarantees........... 28
Plan of Distribution........................................ 30
Legal Matters............................................... 31
Experts..................................................... 31
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission (SEC) utilizing a "shelf" registration
process. Under this shelf process, we may, over the next two years, sell
different types of securities described in this prospectus in one or more
offerings up to a total offering amount of $900 million. This prospectus
provides you with a general description of the securities we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering and the securities
offered by us in that offering. The prospectus supplement may also add, update
or change information in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading "Where You Can Find More Information."
In this prospectus, references to "El Paso Energy," "we," "us" and "our"
mean El Paso Energy Corporation, and references to an "EPE Trust" or a "trust"
mean El Paso Energy Capital Trust I and El Paso Energy Capital Trust II.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus, the accompanying prospectus
supplement and in documents that are incorporated by reference into this
document that constitute forward-looking statements, as that term is defined in
the Private Securities Litigation Reform Act of 1995. These statements are
subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of our operations.
These statements may relate to, but are not limited to, information or
assumptions about earnings per share, capital and other expenditures, dividends,
financing plans, capital structure, cash flow, pending legal proceedings and
claims, including environmental matters, future economic performance, operating
income, cost savings, management's plans, goals and objectives for future
operations and growth and markets for our common stock. These forward-looking
statements generally are accompanied by words such as "intend," "anticipate,"
"believe," "estimate," "expect," "should" or similar expressions. You should
understand that these forward-looking statements are necessarily estimates
reflecting the best judgment of our senior management, not guarantees of future
performance. They are subject to a number of assumptions, risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, those risks, uncertainties and factors discussed in our 1998 Annual
Report on Form 10-K. Other factors that could cause actual results to differ
materially from estimates and projections contained in forward-looking
statements are described in the documents that have been incorporated by
reference into this document. You should not place undue reliance on
forward-looking statements, which speak only as of the date of this prospectus,
or, in the case of documents incorporated by reference, the date of those
documents.
All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. We will
not release publicly any revisions to these forward-looking statements
reflecting events or circumstances after the date of this prospectus or
reflecting the occurrence of unanticipated events, unless the securities laws
require us to do so.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities
Act of 1933 that registers the securities offered by this prospectus. The
registration statement, including the attached exhibits, contains additional
relevant information about us. The rules and regulations of the SEC allows us to
omit some information included in the registration statement from this
prospectus.
In addition, we file reports, proxy statements and other information with
the SEC under the Securities Exchange Act of 1934. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024 Suite 100 Citicorp Center
450 Fifth Street, N.W 7 World Trade Center Suite 1400
Washington, D.C. 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois
60661-2511
</TABLE>
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC also maintains an
Internet world wide web site that contains reports, proxy statements and other
information about issuers, including El Paso Energy, who file electronically
with the SEC. The address of that site is http://www.sec.gov. You can also
inspect reports, proxy statements and other information about each of us at the
offices of The New York Stock Exchange, Inc., located at 20 Broad Street, New
York, New York 10005.
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The SEC allows us to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this document, except for
any information that is superseded by information that is included directly in
this document.
We incorporate by reference the documents listed below that we have
previously filed with the SEC. They contain important information about us and
our financial condition. Some of these filings have been amended by later
filings, which are also listed.
<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 1-14365) DESCRIPTION OR PERIOD/AS OF DATE
------------------------------ --------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999, June 30, 1999
and September 30, 1999
Current Report on Form 8-K, dated March 15, Discloses the entering into of the merger
1999 agreement between El Paso Energy and Sonat
Inc. and related matters
Current Report on Form 8-K, dated April 23, Discloses preliminary unaudited pro forma
1999 financial information of El Paso Energy and
Sonat Inc. giving effect to their proposed
merger
Current Report on Form 8-K, dated April 23, Discloses first quarter operating results of
1999 El Paso Energy
Current Report on Form 8-K/A, dated April 30, Amends our Current Report on Form 8-K dated
1999 April 23, 1999 disclosing pro forma financial
information, and includes the audited
consolidated financial statements of Sonat
Inc. as of December 31, 1998 and 1997 and for
the years ended December 31, 1998, 1997 and
1996
Current Report on Form 8-K, dated May 10, Contains exhibits related to our issuance of
1999 $500 million of 6 3/4% senior notes due 2009
Current Report on Form 8-K, dated June 11, Discloses approval by El Paso Energy's
1999 stockholders of the proposed merger with
Sonat Inc.
Current Report on Form 8-K, dated July 2, Discloses preliminary unaudited pro forma
1999 condensed financial information of El Paso
Energy and Sonat Inc. giving effect to the
proposed merger, and includes the unaudited
consolidated financial statements of Sonat
Inc. as of March 31, 1999 and for the
quarters ended March 31, 1999 and 1998
Current Report on Form 8-K, dated July 26, Discloses second quarter and year to date
1999 operating results of El Paso Energy
</TABLE>
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<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 1-14365) DESCRIPTION OR PERIOD/AS OF DATE
------------------------------ --------------------------------
<S> <C>
Current Report on Form 8-K, dated Discloses preliminary unaudited pro forma
August 24, 1999 condensed financial information of El Paso
Energy and Sonat Inc. giving effect to the
proposed merger, and includes the unaudited
consolidated financial statements of Sonat
Inc. as of June 30, 1999 and for the quarters
ended June 30, 1999 and 1998
Current Report on Form 8-K, dated Discloses the completion of the merger of
October 26, 1999 Sonat Inc. into El Paso Energy and includes a
copy of the press release regarding same as
an exhibit
Current Report on Form 8-K, dated Discloses the acquisition of Sonat, Inc.
October 29, 1999 pursuant to the merger completed on October
25, 1999 and includes (i) the consolidated
financial balance sheets of Sonat, Inc. and
its subsidiaries as of December 31, 1998 and
1997 and the related consolidated statements
of operations, changes in stockholders'
equity and cash flows for each of the three
years in the period ended December 31, 1998
and (ii) pro forma financial information for
El Paso Energy giving effect to the Sonat
merger
Current Report on Form 8-K, dated December 1, Discloses the combined results of operations
1999 for the first thirty days following the
merger of El Paso Energy and Sonat
Current Report on Form 8-K, dated December 2, Discloses preliminary unaudited pro forma
1999 condensed financial information as of
September 30, 1999 and for the nine months
ended September 30, 1999 of El Paso Energy
and Sonat giving effect to their merger
Registration Statement on Form 8-A, dated Contains a description of the El Paso Energy
August 3, 1998 common stock
Registration Statement on Form 8-A/A dated Contains a description of the El Paso Energy
January 29, 1999 preferred stock purchase rights
Definitive Proxy Statement on Schedule 14A Definitive proxy statement relating to the
1999 annual meeting of El Paso Energy's
stockholders (filed on March 11, 1999)
</TABLE>
We incorporate by reference additional documents that we may file with the
SEC until all of the securities offered by this prospectus have been sold. These
documents include periodic reports, including Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
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You can obtain any of the documents incorporated by reference in this
document through us or from the SEC through the SEC's web site at the address
provided above. Documents incorporated by reference are available from us
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this document. You can
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from us at the following address:
El Paso Energy Corporation
Office of Investor Relations
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
Telephone No.: (713) 420-2131
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION IN THIS DOCUMENT
OR IN OUR DOCUMENTS THAT ARE PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE
DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT THESE
ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF ITS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
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EL PASO ENERGY CORPORATION
Our principal operations include:
- the interstate and transportation, gathering, and processing of natural
gas;
- the marketing of natural gas, power, and other energy-related
commodities;
- power generation;
- domestic exploration and production of oil and natural gas; and
- the development and operation of energy infrastructure facilities
worldwide.
On October 25, 1999 we completed our merger with Sonat Inc. The combination
with Sonat was a stock-for-stock merger accounted for as a pooling of interests
transaction in which we issued a total of approximately 110 million shares of
our common stock. Sonat was a diversified energy holding company engaged in
domestic oil and natural gas exploration and production, the transmission and
storage of natural gas and natural gas and power marketing. As a result of the
merger, we have succeeded to Sonat's assets and operations.
We are currently engaged in a comprehensive review of the businesses and
operations of Sonat. We intend to integrate, for the most part, the operations
of Sonat with our operations to increase operating and administrative
efficiencies through consolidation and re-engineering of facilities, workforce
reductions and coordination of purchasing, sales and marketing operations.
After giving effect to the Sonat merger, we own or have interest in over
40,000 miles of interstate and intrastate pipeline connecting the nation's
principal natural gas supply regions to four of the largest consuming regions in
the United States, namely the Gulf Coast, California, the Northeast, and the
Midwest. Our interstate natural gas transmission operations include one of the
nation's largest and only coast-to-coast mainline natural gas transmission
systems which is comprised of
- the El Paso Natural Gas pipeline and the Mojave pipeline, which include
10,200 miles of pipeline transporting natural gas from New Mexico, Texas,
Oklahoma and Colorado to markets in California, the Southwestern United
States and northern Mexico; and
- the Eastern Pipeline Group comprised of the Tennessee Gas pipeline, the
Midwestern Gas Transmission pipeline and the Southern Natural Gas
pipeline, which consist of approximately 30,000 miles of pipeline
transporting natural gas to markets in the southeastern and northeastern
United States.
In addition to interstate services, we provide related services, including
natural gas gathering, products extraction, dehydration, purification,
compression, and intrastate transmission. These services include gathering of
natural gas from more than 10,000 natural gas wells with approximately 11,000
miles of gathering lines, and 23 natural gas processing and treating facilities
located in some of the most prolific and active production areas of the United
States, including the San Juan and Permian Basins and in east Texas, south
Texas, Louisiana, and the Gulf of Mexico. We conduct intrastate transmission
operations through our interests in four Texas intrastate systems, which include
the Oasis pipeline running from west Texas to Katy, Texas, the Channel pipeline
extending from south Texas to the Houston Ship Channel, and the Shoreline and
Tomcat gathering systems which gather gas from offshore Texas. We also provide
intrastate transportation in north Louisiana through its Gulf States pipeline
that runs from the Texas border to Ruston, Louisiana. Our marketing activities,
which are conducted through El Paso Merchant Energy, include the marketing and
trading of natural gas, power, and other energy-related commodities, as well as
providing integrated price risk management services associated with these
commodities. We also participate in the development and ownership of domestic
power generation facilities and other power-related assets and joint ventures.
In addition, El Paso Production Company conducts the oil and gas
exploration and production activities formerly conducted by Sonat's exploration
subsidiary. Through El Paso Production, we own
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<PAGE> 57
interests in oil and gas producing properties in Louisiana, Texas, Oklahoma,
Arkansas, New Mexico and the Gulf of Mexico. As of December 31, 1998, Sonat
owned approximately 1.6 trillion cubic feet of proved reserves.
Our international activities focus on the development and operation of
international energy infrastructure projects and include ownership interests in
three major operating natural gas transmission systems in Australia and natural
gas transmission systems and power generation facilities currently in operation
or under construction in Argentina, Bolivia, Brazil, Chile, the Czech Republic,
Hungary, Indonesia, Mexico, Pakistan, Peru, the United Kingdom, Bangladesh, the
Philippines, and China.
Our principal executive offices are in the El Paso Energy Building, located
at 1001 Louisiana Street, Houston, Texas 77002, and its telephone number at that
address is (713) 420-2131.
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<PAGE> 58
THE TRUSTS
Each of El Paso Energy Capital Trust II and El Paso Energy Capital Trust
III is a statutory business trust created under Delaware law through the filing
of a certificate of trust with the Delaware Secretary of State. Each trust's
business is defined in a declaration of trust which we will execute, as sponsor
for each of the trusts. We will also be the trustees, as defined below, for each
of the trusts. Each declaration will be amended and restated before any trust
preferred securities are sold by that trust. Each declaration will also be
qualified as an indenture under the Trust Indenture Act of 1939, as amended.
Each trust exists for the exclusive purposes of:
- issuing and selling the trust preferred securities and the trust common
securities;
- investing the gross proceeds from the sale of the trust preferred
securities in subordinated debt securities issued by us; and
- engaging in only those other activities necessary or incidental to these
purposes.
We will, directly or indirectly, in connection with an offering of trust
preferred securities by an EPE Trust purchase trust common securities in an
aggregate liquidation amount equal to 3% of the total capital of the trust.
Each trust's business and affairs will be conducted by its trustees. A
majority of the trustees of each trust will be administrative trustees and will
be persons who are employees or officers of or affiliated with us. One trustee
of each trust will be a financial institution that will be unaffiliated with us
and that will act as property trustee and as indenture trustee for purposes of
the Trust Indenture Act, as described in the applicable prospectus supplement.
In addition, unless the property trustees maintain a principal place of business
in the State of Delaware, and otherwise meet the requirements of applicable law,
one trustee of each trust, the Delaware trustee, will have its principal place
of business or reside in the State of Delaware. The administrative trustees and
the property trustees, together with the Delaware trustee, are referred to in
this document as the "trustees." Each trust's business and affairs will be
conducted by the administrative trustees appointed by us, as the direct or
indirect holder of all the trust common securities. Except in limited
circumstances, we, as the holder of the trust common securities, will be
entitled to appoint, remove or replace any of, or increase or reduce the number
of, the trustees of a trust. The declaration of each trust will govern the
duties and obligations of the trustees. We will pay and guarantee all fees and
expenses related to the trusts and the offering of trust securities.
The office of the Delaware Trustee for each EPE Trust in the State of
Delaware is 1201 Market Street, Wilmington, Delaware 19801. The principal place
of business of each EPE Trust shall be c/o El Paso Energy Corporation, El Paso
Energy Building, 1001 Louisiana Street, Houston, Texas 77002, and its telephone
number is (713) 420-2131.
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USE OF PROCEEDS
We will use the net proceeds we receive from the sale of the securities
offered by this prospectus for general corporate purposes unless we specify
otherwise in an applicable prospectus supplement. We may invest any funds we do
not require immediately for general corporate purposes in marketable securities
and short-term investments. The trusts will use all proceeds received from the
sale of the trust preferred securities to purchase subordinated debt securities
from us.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and
Preferred and Preference Stock Dividend
Requirements(1)............................. 2.87x 2.51x 1.59x 2.26x 2.01x 2.02x 1.66x
</TABLE>
- ---------------
(1) The ratio of earnings to combined fixed charges and preferred and preference
stock dividend requirements for the periods presented is the same as the
ratio of earnings to fixed charges since we have no outstanding preferred
stock or preference stock and, therefore, no dividend requirements.
For the purpose of computing these ratios, earnings means income from
continuing operations before:
- income taxes;
- interest expense, not including interest on rate refunds;
- amortization of debt costs;
- that portion of rental expense which we believe to represent an interest
factor; and
- the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries, as adjusted to reflect actual distributions
from equity investments.
Fixed charges means the sum of the following:
- interest cost, not including interest on rate refunds;
- amortization of debt costs;
- that portion of rental expense which we believe to represent an interest
factor; and
- the pre-tax preferred stock dividend requirements of majority-owned
subsidiaries.
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DESCRIPTION OF THE DEBT SECURITIES
Any debt securities we offer will be our direct, unsecured general
obligations. The debt securities will be either senior debt securities or
subordinated debt securities and will be issued under one or more separate
indentures between us and The Chase Manhattan Bank, as indenture trustee. Senior
debt securities will be issued under a "senior indenture" and subordinated debt
securities will be issued under a "subordinated indenture." Together the senior
indenture and the subordinated indenture are called "indentures."
We have summarized selected provisions of the indentures below. The
following description is a summary of the material provisions of the indentures.
It does not restate those agreements in their entirety. We urge you to read each
of the indentures because each one, and not this description, defines your
rights as holders of the debt securities. A senior indenture and a subordinated
indenture between us and The Chase Manhattan Bank, as trustee, have been filed
as exhibits to the registration statement.
GENERAL
The debt securities will be our direct, unsecured obligations. The senior
debt securities will rank equally with all of our other senior and
unsubordinated debt. The subordinated debt securities will have a junior
position to all of our senior debt securities.
If El Paso Energy Capital Trust II or El Paso Energy Capital Trust III
issues trust preferred securities, we will also issue subordinated debt
securities to the trust or a trustee of either trust. If the trusts are
subsequently dissolved upon the occurrence of the events described in the
prospectus supplement relating to the trust preferred securities, the trusts or
trustees may distribute these subordinated debt securities ratably to the
holders of trust preferred securities.
A prospectus supplement and a supplemental indenture relating to any series
of debt securities being offered will include specific terms relating to the
offered debt securities. These terms will include some or all of the following:
- the title and type of the debt securities;
- the total principal amount of the debt securities and the currency, if
other than U.S. dollars, in which such notes are denominated;
- the percentage of the principal amount at which the debt securities will
be issued and any payments due if the maturity of the debt securities is
accelerated;
- the dates on which the principal of the debt securities will be payable
and the terms on which any such maturity date may be extended;
- the interest rate which the debt securities will bear and the interest
payment dates for the debt securities;
- the form of the subordinated debt securities we will issue to the trusts
or a trustee if the trusts issue trust preferred securities;
- in the case of subordinated debt securities issued to the trusts or
trustees, the right to extend payment periods and the duration of that
extension;
- any optional redemption periods;
- any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem some or all of the debt securities;
- any changes to or additional events of defaults or covenants;
- any special tax implications of the debt securities, including provisions
for original issue discount securities, if offered;
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- restrictions on the declaration of dividends or requiring the maintenance
of any asset ratio or the creation or maintenance of reserves; and
- any other terms of the debt securities.
None of the indentures limits the amount of debt securities that may be
issued. Each indenture allows debt securities to be issued up to the principal
amount that we may authorize and may be in any currency or currency unit we
designate.
Debt securities of a series may be issued in registered, bearer, coupon or
global form.
DENOMINATIONS
The prospectus supplement for each issuance of debt securities will state
whether the securities will be issued in registered form of $1,000 each or
multiples of $1,000 or bearer form of $5,000 each.
SUBORDINATION
Under the subordinated indenture, payment of the principal, interest and
any premium on the subordinated debt securities will generally be subordinated
and junior in right of payment to the prior payment in full of all senior debt
securities. The subordinated indenture states that no payment of principal,
interest and any premium on the subordinated debt securities may be made in the
event:
- of any insolvency, bankruptcy or similar proceeding involving us or our
property, or
- we fail to pay the principal, interest, any premium or any other amounts
on any senior debt when due.
The subordinated indenture will not limit the amount of senior debt that we
may incur.
Senior debt includes all notes or other unsecured evidences of
indebtedness, including guarantees given by us, for money borrowed by us, not
expressly subordinate or junior in right of payment to any of our other
indebtedness.
CONSOLIDATION, MERGER OR SALE
Each indenture generally permits a consolidation or merger between us and
another corporation. They also permit us to sell all or substantially all of our
property and assets. If this occurs, the remaining or acquiring corporation will
assume all of our responsibilities and liabilities under the indentures,
including the payment of all amounts due on the debt securities and performance
of the covenants in the indentures. However, we will consolidate or merge with
or into any other corporation or sell all or substantially all of our assets
only according to the terms and conditions of the indentures. The remaining or
acquiring corporation will be substituted for us in the indentures with the same
effect as if it had been an original party to the indentures. After that the
successor corporation may exercise our rights and powers under any indenture, in
our name or in its own name. Any act or proceeding required or permitted to be
done by our board or any of our officers may be done by the board or officers of
the successor corporation. If we sell all or substantially all of our assets, we
will be released from all our liabilities and obligations under any indenture
and under the debt securities.
MODIFICATION OF INDENTURES
Under each indenture our rights and obligations and the rights of the
holders may be modified with the consent of the holders of a majority in
aggregate principal amount of the outstanding debt securities of each series
affected by the modification. No modification of the principal or interest
payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent.
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EVENTS OF DEFAULT
"Event of default" when used in an indenture, will mean any of the
following:
- failure to pay the principal of or any premium on any debt security when
due;
- failure to pay interest on any debt security for 30 days;
- failure to perform any other covenant in the indenture that continues for
60 days after being given written notice;
- certain events in our bankruptcy, insolvency or reorganization; or
- any other event of default included in any indenture or supplemental
indenture.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture. The trustee may withhold notice to the
holders of debt securities of any default, except in the payment of principal or
interest, if it considers such withholding of notice to be in the best interests
of the holders.
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% in aggregate principal
amount of the debt securities of the series may declare the entire principal of
all the debt securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can void the
declaration.
Other than its duties in case of a default, a trustee is not obligated to
exercise any of its rights or powers under any indenture at the request, order
or direction of any holders, unless the holders offer the trustee reasonable
indemnity. If they provide this reasonable indemnification, the holders of a
majority in principal amount of any series of debt securities may direct the
time, method and place of conducting any proceeding or any remedy available to
the trustee, or exercising any power conferred upon the trustee, for any series
of debt securities.
COVENANTS
General
Under the indentures, we will:
- pay the principal of, and interest and any premium on, the debt
securities when due;
- maintain a place of payment;
- deliver a report to the trustee at the end of each fiscal year reviewing
our obligations under the indentures; and
- deposit sufficient funds with any paying agent on or before the due date
for any principal, interest or premium.
The senior indenture provides that we will not, nor will we permit any
restricted subsidiary to, create, assume, incur or suffer to exist any lien upon
any principal property, whether owned or leased on the date of the senior
indenture or thereafter acquired, to secure any of our debt or any other person
(other than the senior debt securities issued under the senior indenture),
without causing all of the senior debt securities outstanding under the senior
indenture to be secured equally and ratably with, or prior to, the new debt so
long the new debt is so secured. This restriction does not prohibit us from
creating the following:
(i) any lien upon any of our property or assets or any restricted
subsidiary in existence on the date of the senior indenture or created
pursuant to an "after-acquired property" clause or similar term
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<PAGE> 63
in existence on the date of the senior indenture or any mortgage, pledge
agreement, security agreement or other similar instrument in existence on
the date of the senior indenture;
(ii) any lien upon any property or assets created at the time of
acquisition of such property or assets by or any of our restricted
subsidiaries or within one year after such time to secure all or a portion
of the purchase price for such property or assets or debt incurred to
finance such purchase price, whether such debt was incurred prior to, at
the time of or within one year of such acquisition;
(iii) any lien upon any property or assets existing on the property at
the time of the acquisition of the property by us or any of our restricted
subsidiaries (whether or not the obligations secured are assumed by us or
any of our restricted subsidiaries);
(iv) any lien upon any property or assets of a person existing on the
property at the time that person becomes a restricted subsidiary by
acquisition, merger or otherwise;
(v) the assumption by us or any of our restricted subsidiaries of
obligations secured by any lien existing at the time of the acquisition by
us or any of our restricted subsidiaries of the property or assets subject
to such lien or at the time of the acquisition of the person which owns
that property or assets;
(vi) any lien on property to secure all or part of the cost of
construction or improvements on the property or to secure debt incurred
prior to, at the time of, or within one year after completion of such
construction or making of such improvements, to provide funds for any such
purpose;
(vii) any lien on any oil, gas, mineral and processing and other plant
properties to secure the payment of costs, expenses or liabilities incurred
under any lease or grant or operating or other similar agreement in
connection with or incident to the exploration, development, maintenance or
operation of such properties;
(viii) any lien arising from or in connection with a conveyance by us
or any of our restricted subsidiaries of any production payment with
respect to oil, gas, natural gas, carbon dioxide, sulphur, helium, coal,
metals, minerals, steam, timber or other natural resources;
(ix) any lien in favor of us or any of our restricted subsidiaries;
(x) any lien created or assumed by us or any of our restricted
subsidiaries in connection with the issuance of debt the interest on which
is excludable from gross income of the holder of such debt pursuant to the
Internal Revenue Code of 1986, as amended, or any successor statute, for
the purpose of financing, in whole or in part, the acquisition or
construction of property or assets to be used by us or any of our
subsidiaries;
(xi) any lien upon property or assets of any foreign restricted
subsidiary to secure debt of that foreign restricted subsidiary;
(xii) permitted liens (as defined below);
(xiii) any lien upon any additions, improvements, replacements,
repairs, fixtures, appurtenances or component parts thereof attaching to or
required to be attached to property or assets pursuant to the terms of any
mortgage, pledge agreement, security agreement or other similar instrument,
creating a lien upon such property or assets permitted by clauses (i)
through (xii), inclusive, above; or
(xiv) any extension, renewal, refinancing, refunding or replacement
(or successive extensions, renewals, refinancing, refundings or
replacements) of any lien, in whole or in part, that is referred to in
clauses (i) through (xiii), inclusive, above, or of any debt secured
thereby; provided, however, that the principal amount of debt secured shall
not exceed the greater of the principal amount of debt so secured at the
time of such extension, renewal, refinancing, refunding or replacement and
the original principal amount of debt so secured (plus in each case the
aggregate amount of premiums, other payments, costs and expenses required
to be paid or incurred in connection with such extension, renewal,
refinancing, refunding or replacement); provided further, however, that
such extension,
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renewal, refinancing, refunding or replacement shall be limited to all or a
part of the property (including improvements, alterations and repairs on
such property) subject to the encumbrance so extended, renewed, refinanced,
refunded or replaced (plus improvements, alterations and repairs on such
property).
Notwithstanding the foregoing, under the senior indenture, we may, and may
permit any restricted subsidiary to, create, assume, incur, or suffer to exist
any lien upon any principal property to secure our debt or any person (other
than the senior debt securities) that is not excepted by clauses (i) through
(xiv), inclusive, above without securing the senior debt securities issued under
the senior indenture, provided that the aggregate principal amount of all debt
then outstanding secured by such lien and all similar liens, together with all
net sale proceeds from sale-leaseback transactions (excluding sale-leaseback
transactions permitted by clauses (i) through (iv), inclusive, of the first
paragraph of the restriction on sale-leasebacks covenant described below) does
not exceed 15% of consolidated net tangible assets.
The senior indenture also provides that we will not, nor will we permit any
restricted subsidiary to, engage in a sale-leaseback transaction, unless: (i)
such sale-leaseback transaction occurs within one year from the date of
acquisition of the principal property subject thereto or the date of the
completion of construction or commencement of full operations on such principal
property, whichever is later; (ii) the sale-leaseback transaction involves a
lease for a period, including renewals, of not more than three years; (iii) we
or any of our restricted subsidiaries would be entitled to incur debt secured by
a lien on the principal property subject thereto in a principal amount equal to
or exceeding the net sale proceeds from such sale-leaseback transaction without
securing the senior debt securities; or (iv) we or any of our restricted
subsidiaries, within a one-year period after such sale-leaseback transaction,
applies or causes to be applied an amount not less than the net sale proceeds
from such sale-leaseback transaction to (A) the repayment, redemption or
retirement of funded debt of us or any such restricted subsidiary, or (B)
investment in another principal property.
Notwithstanding the foregoing, under the senior indenture we may, and may
permit any restricted subsidiary to, effect any sale-leaseback transaction that
is not excepted by clauses (i) through (iv), inclusive, of the above paragraph,
provided that the net sale proceeds from such sale-leaseback transaction,
together with the aggregate principal amount of outstanding debt (other than the
senior debt securities) secured by liens upon principal properties not excepted
by clauses (i) through (xiv), inclusive, of the first paragraph of the
limitation on liens covenant described above, do not exceed 15% of the
consolidated net tangible assets.
Subordinated Indenture Covenants
If we issue subordinated debt securities to an EPE Trust in connection with
the issuance of trust securities by the EPE Trust and
- an event of default under the subordinated indenture has occurred,
- we are default of our payment obligations under the related trust
guarantee or the guarantee of the trust common securities, or
- we have elected to defer payments of interest on the subordinated debt
securities by extending the interest payment period as provided in the
subordinated indenture, and the interest payment period, or any extension
of it, is continuing, then
we will be subject to restrictions regarding the declaration or payment of
dividends on, and the making of guarantee payments with respect to, any of our
capital stock, and the making of any payment of interest, principal or premium,
if any, on, or the repayment, repurchase or redemption of, any debt securities
(including guarantees) issued by us which rank the same as or junior to the
subordinated debt securities. These restrictions will be more fully described in
the prospectus supplement applicable to the particular series of subordinated
debt securities issued to a trust.
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In the event we issue subordinated debt securities to an EPE Trust in
connection with the EPE Trust's issuance of trust securities, for so long as
such those trust securities remain outstanding, we will covenant in the
declaration, the guarantees or the supplemental indenture to the subordinated
indenture with respect to such EPE Trust:
- to directly or indirectly maintain 100% ownership of the common
securities of the EPE Trust; however, any permitted successor to us under
the subordinated indenture may succeed to our ownership of the trust
common securities and
- not to voluntarily terminate, wind-up or liquidate the EPE Trust, except
in connection with
(i) the distribution of subordinated debt securities to the holders of
trust securities in liquidation of the trust,
(ii) the redemption of all of the trust securities of the trust, or
(iii) certain mergers, consolidations or amalgamations, each as
permitted by the declaration of the trust.
We will also covenant to use our commercially reasonable efforts, consistent
with the terms and provisions of the declaration of the EPE Trust, to cause the
trust to remain classified as a grantor trust and not taxable as a corporation
for United States federal income tax purposes.
Certain Definitions
The following are definitions of some terms used in the above covenant
descriptions:
"Consolidated net tangible assets" means, at any date of
determination, the total amount of assets after deducting (i) all current
liabilities (excluding (A) any current liabilities that by their terms are
extendable or renewable at the option of the obligor thereon to a time more
than 12 months after the time as of which the amount thereof is being
computed, and (B) current maturities of long-term debt), and (ii) the value
(net of any applicable reserves) of all goodwill, trade names, trademarks,
patents and other like intangible assets, all as set forth on our
consolidated balance sheet and our consolidated subsidiaries for our most
recently completed fiscal quarter, prepared in accordance with generally
accepted accounting principles.
"Debt" means any obligation created or assumed by any person to repay
money borrowed and any purchase money obligation created or assumed by such
person.
"Funded debt" means all debt maturing one year or more from the date
of the creation thereof, all debt directly or indirectly renewable or
extendible, at the option of the debtor, by its terms or by the terms of
any instrument or agreement relating thereto, to a date one year or more
from the date of the creation thereof, and all debt under a revolving
credit or similar agreement obligating the lender or lenders to extend
credit over a period of one year or more.
"Lien" means any mortgage, pledge, security interest, charge, lien or
other encumbrance of any kind, whether or not filed, recorded or perfected
under applicable law.
"Permitted liens" means (i) liens upon rights-of-way for pipeline
purposes; (ii) any governmental lien, mechanics', materialmen's, carriers'
or similar lien incurred in the ordinary course of business which is not
yet due or which is being contested in good faith by appropriate
proceedings and any undetermined lien which is incidental to construction;
(iii) the right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or by any provision of law, to purchase or recapture or to designate
a purchaser of, any property; (iv) liens of taxes and assessments which are
(a) for the then current year, (b) not at the time delinquent, or (C)
delinquent but the validity of which is being contested at the time by us
or any subsidiary in good faith; (v) liens of, or to secure performance of,
leases; (vi) any lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining
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indemnity or stay of judicial proceedings; (vii) any lien upon property or
assets acquired or sold by us or any restricted subsidiary resulting from
the exercise of any rights arising out of defaults on receivables; (viii)
any lien incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance, temporary disability,
social security, retiree health or similar laws or regulations or to secure
obligations imposed by statute or governmental regulations; (ix) any lien
upon any property or assets in accordance with customary banking practice
to secure any debt incurred by us or any restricted subsidiary in
connection with the exporting of goods to, or between, or the marketing of
goods in, or the importing of goods from, foreign countries; or (x) any
lien in favor of the U.S. or any state thereof, or any other country, or
any political subdivision of any of the foregoing, to secure partial,
progress, advance, or other payments pursuant to any contract or statute,
or any lien securing industrial development, pollution control, or similar
revenue bonds.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, other entity, unincorporated organization, or government or any
agency or political subdivision thereof.
"Principal property" means (a) any pipeline assets owned by us or by
any of our subsidiaries, including any related facilities employed in the
transportation, distribution or marketing of natural gas, that are located
in the U.S. or Canada, and (b) any processing or manufacturing plant owned
or leased by us or any of our subsidiaries that is located within the U.S.
or Canada, except, in the case of either clause (a) or (b), any such assets
or plant which, in the opinion our board of directors, is not material in
relation to our activities and our subsidiaries as a whole.
"Restricted subsidiary" means any of our subsidiaries owning or
leasing any principal property.
"Sale-leaseback transaction" means the sale or transfer by us or any
of our restricted subsidiaries of any principal property to a person (other
than us or a subsidiary) and the taking back by us or any of our restricted
subsidiaries, as the case may be, of a lease of such principal property.
If the trusts issue trust preferred securities and we issue subordinated
debt securities to the trust or a trust in connection with the issuance of the
trust preferred securities and (1) an event of default as defined in this
document has occurred, (2) we are in default with respect to our payment of any
obligations under the related trust guarantee or the guarantee of the trust
common securities or (3) we have given notice of our election to defer payments
of interest on these subordinated debt securities by extending the interest
payment period as provided in the indenture governing these subordinated debt
securities, and this interest payment period, or any extension of this interest
payment period, is continuing, we will be subject to restrictions regarding
- the declaration of payment of dividends on, and the making of guarantee
payments with respect to, any of our capital stock; and
- the making of any payment of interest, principal or premium, if any, on
or the repayment, repurchase or redemption of debt securities including
guarantees issued by us which rank equally with or junior to these
subordinated debt securities.
These restrictions will be described in more detail in the prospectus
supplement relating to these subordinated debt securities.
If the trusts issue trust preferred securities and we issue subordinated
debt securities to the trust or a trustee in connection with the issuance of the
trust preferred securities, for so long as the trust preferred securities remain
outstanding, we will covenant in the declaration of the trusts, the related
guarantees or the indenture governing these subordinated debt securities:
- To directly or indirectly maintain 100% ownership of the common
securities of each trust; provided, however, that any permitted successor
under the indenture governing the subordinated debt securities may
succeed to our ownership of the trust common securities; and
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- Not to voluntarily terminate, wind-up or liquidate either El Paso Energy
Capital Trust II or El Paso Energy Capital Trust III, except in
connection with
- the distribution of subordinated debt securities to the holders of trust
preferred securities in liquidation of either trust;
- the redemption of all trust preferred securities of either trust; or
- mergers, consolidations or amalgamations permitted by the declaration of
either trust.
We will also covenant to use our commercially reasonable efforts,
consistent with the terms and provisions of the declaration of either trust, to
cause each trust to remain classified as a grantor trust and not taxable as a
corporation for U.S. federal income tax purposes.
PAYMENT AND TRANSFER
Unless we specify otherwise in a prospectus supplement, we will pay
principal, interest and any premium on the debt securities, and they may be
surrendered for payment or transferred, at the offices of the trustee. We will
make payment on registered securities by check mailed to the persons in whose
names the debt securities are registered or by transfer to an account maintained
by the registered holder on days specified in the indentures or any prospectus
supplement. If we make debt securities payments in other forms, we will specify
the form and place in a prospectus supplement.
We will maintain a corporate trust office of the trustee or another office
or agency for the purpose of transferring or exchanging fully registered
securities, without the payment of any service charge except for any tax or
governmental charge.
GLOBAL SECURITIES
We may issue one or more series of the debt securities as permanent global
debt securities deposited with a depositary. Unless otherwise indicated in the
prospectus supplement, the following is a summary of the depository arrangements
applicable to debt securities issued in permanent global form and for which The
Depositary Trust Company (DTC) acts as depositary.
Each global debt security will be deposited with, or on behalf of, DTC, as
depositary, or its nominee and registered in the name of a nominee of DTC.
Except under the limited circumstances described below, global debt securities
are not exchangeable for definitive certificated debt securities.
Ownership of beneficial interests in a global debt security is limited to
participants that have accounts with DTC or its nominee, or persons that may
hold interests through those participants. In addition, ownership of beneficial
interests by participants in a global debt security will be evidenced only by,
and the transfer of that ownership interest will be effected only through,
records maintained by DTC or its nominee for a global debt security. Ownership
of beneficial interests in a global debt security by persons that hold through
participants will be evidenced only by, and the transfer of that ownership
interest within that participant will be effected only through, records
maintained by that participant. DTC has no knowledge of the actual beneficial
owners of the debt securities. 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 participants through which the
beneficial owners entered the transaction. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability to transfer
beneficial interests in a global debt security.
We will make payment of principal of, and interest on, debt securities
represented by a global debt security registered in the name of or held by DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner and holder of the global debt security representing those debt
securities. DTC has advised us that upon receipt of any payment of principal of,
or interest on, a global debt security, DTC will immediately credit accounts of
participants on its book-entry registration and
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transfer system with payments in amounts proportionate to their respective
beneficial interests in the principal amount of that global debt security as
shown in the records of DTC. Payments by participants to owners of beneficial
interests in a global debt security held through those participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the sole responsibility of those participants,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Neither we, any trustee nor any of our respective agents, will be
responsible for any aspect of the records of DTC, any nominee or any participant
relating to, or payments made on account of, beneficial interests in a permanent
global debt security or for maintaining, supervising or reviewing any of the
records of DTC, any nominee or any participant relating to such beneficial
interests.
A global debt security is exchangeable for definitive debt securities
registered in the name of, and a transfer of a global debt security may be
registered to, any person other than DTC or its nominee, only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for that global debt security or at any time DTC ceases to be registered
under the Exchange Act;
- we determine in our discretion that the global debt security shall be
exchangeable for definitive debt securities in registered form; or
- there shall have occurred and be continuing an event of default or an
event which, with notice or the lapse of time or both, would constitute
an event of default under the debt securities.
Any global debt security that is exchangeable pursuant to the preceding
sentence will be exchangeable in whole for definitive debt securities in
registered form, of like tenor and of an equal aggregate principal amount as the
global debt security, in denominations specified in the applicable prospectus
supplement, if other than $1,000 and integral multiples of $1,000. The
definitive debt securities will be registered by the registrar in the name or
names instructed by DTC. We expect that these instructions may be based upon
directions received by DTC from its participants with respect to ownership of
beneficial interests in the global debt security.
Except as provided above, owners of the beneficial interests in a global
debt security will not be entitled to receive physical delivery of debt
securities in definitive form and will not be considered the holders of debt
securities for any purpose under the indentures. No global debt security shall
be exchangeable except for another global debt security of like denomination and
tenor to be registered in the name of DTC or its nominee. Accordingly, each
person owning a beneficial interest in a global debt security must rely on the
procedures of DTC and, if that person is not a participant, on the procedures of
the participant through which that person owns its interest, to exercise any
rights of a holder under the global debt security or the indentures.
We understand that, under existing industry practices, in the event that we
request any action of holders, or an owner of a beneficial interest in a global
debt security desires to give or take any action that a holder is entitled to
give or take under the debt securities or the indentures, DTC would authorize
the participants holding the relevant beneficial interests to give or take that
action, and those participants would authorize beneficial owners owning through
those participants to give or take that action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised us that DTC is a limited purpose trust company organized
under the laws of the State of New York, 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 under the Exchange Act. DTC was created
to hold securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in those securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its participants and by the New York Stock
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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 banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. The rules applicable to DTC and its participants are on file with
the SEC.
DEFEASANCE
We will be discharged from our obligations on the debt securities of any
series at any time if we deposit with the trustee sufficient cash or government
securities to pay the principal, interest, any premium and any other sums due to
the stated maturity date or a redemption date of the debt securities of the
series. If this happens, the holders of the debt securities of the series will
not be entitled to the benefits of the indenture except for registration of
transfer and exchange of debt securities and replacement of lost, stolen or
mutilated debt securities.
Under U.S. federal income tax laws as of the date of this prospectus, a
discharge may be treated as an exchange of the related debt securities. Each
holder might be required to recognize gain or loss equal to the difference
between the holder's cost or other tax basis for the debt securities and the
value of the holder's interest in the trust. Holders might be required to
include as income a different amount than would be includable without the
discharge. Prospective investors should seek tax advice to determine their
particular consequences of a discharge, including the applicability and effect
of tax laws other than the U.S. federal income tax laws.
GOVERNING LAW
Each indenture and the debt securities will be governed by and construed in
accordance with the laws of the State of New York.
NOTICES
Notices to holders of debt securities will be given by mail to the
addresses of such holders as they appear in the security register.
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DESCRIPTION OF CAPITAL STOCK
The statements under this caption are brief summaries and are subject to,
and are qualified in their entirety by reference to, the more complete
descriptions contained in (a) our Restated Certificate of Incorporation, as
amended (the "charter"), and the Amended and Restated Shareholder Rights
Agreement, dated as of January 20, 1999, between us and BankBoston, N.A., as
rights agent (the "shareholder rights agreement"), copies of which are filed as
exhibits to the registration statement of which this prospectus is a part, and
(b) the certificate of designation relating to each series of preferred stock,
which will be filed with the SEC at, or prior to, the time of the offering of
such series of preferred stock.
GENERAL
We are currently authorized by our charter to issue up to 750,000,000
shares of common stock and up to 50,000,000 shares of preferred stock. As of
November 8, 1999, 228,319,547 shares of common stock and no shares of preferred
stock were issued and outstanding.
COMMON
We are currently authorized by our charter to issue up to 750,000,000
shares of common stock. The holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders.
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of common stock are entitled to receive ratably dividends which
are declared by our board of directors out of funds legally available for such a
purpose. In the event of our liquidation, dissolution, or winding up, holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preference of any outstanding preferred stock.
Holders of common stock have no preemptive rights and have no rights to convert
their common stock into any other securities. The common stock is not
redeemable. All of the outstanding shares of common stock are, and the common
stock offered by this prospectus will be, fully paid and nonassessable upon
issuance against full payment of the purchase price.
BankBoston, N.A. is the transfer agent and registrar for our common stock.
PREFERRED STOCK
Our board of directors, without any further action by our stockholders, is
authorized to issue up to 50,000,000 shares of preferred stock, and to divide
the preferred stock into one or more series. We will fix by resolution or
resolutions any of the designations, powers, preferences and rights, and the
qualifications, limitations, or restrictions of the shares of each such series,
including, but not limited to, dividend rates, conversion rights, voting rights,
terms of redemption and liquidation preferences, and the number of shares
constituting each such series. The issuance of preferred stock may have the
effect of delaying, deterring, or preventing a change in control of El Paso
Energy. Preferred stock, upon issuance against full payment of the purchase
price therefor, will be fully paid and nonassessable. The specific terms of a
particular series of preferred stock will be described in the prospectus
supplement relating to that series. The description of preferred stock set forth
below and the description of the terms of the particular series of preferred
stock set forth in the related prospectus supplement do not purport to be
complete and are qualified in their entirety by reference to the certificate of
designation relating to the particular series of preferred stock.
The designations, powers, preferences and rights, and the qualifications,
limitations, or restrictions of the preferred stock of each series will be fixed
by the certificate of designation relating to such series. The prospectus
supplement relating to each series will specify the terms of the preferred stock
as follows:
(a) The maximum number of shares to constitute each series and the
distinctive designation of the shares;
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(b) The annual dividend rate, if any, on shares of each series,
whether such rate is fixed or variable or both, the date or dates from
which dividends will begin to accrue or accumulate, and whether dividends
will be cumulative;
(c) The purchase price and terms of conditions of the shares of each
series, including the time during which shares of each series may be
redeemed and any accumulated dividends that the holders of shares of each
series shall be entitled to receive upon the redemption of the shares;
(d) The liquidation preference, if any, and any accumulated dividends
thereon, that the holders of shares of each series shall be entitled to
receive upon the liquidation, dissolution, or winding up of the affairs of
El Paso Energy;
(e) Whether or not the shares of each series will be subject to
operation of a retirement or sinking fund, and, if so, the extent and
manner in which any such fund shall be applied to the purchase or
redemption of the shares of such series for retirement or for other
corporate purposes, and the terms and provisions relating to the operation
of such fund;
(f) The terms and conditions, if any, on which the shares of each
series shall be convertible into, or exchangeable for, debt securities,
shares of any other class or classes of our capital stock, or any series of
any other class or classes, or of any other series of the same class,
including the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same;
(g) The voting rights, if any, on the shares of each series; and
(h) Any or all other preferences and relative, participating,
operational, or other special rights, qualifications, limitations, or
restrictions on each series.
You should also refer to the prospectus supplement for a general
description of the federal income tax consequences and special considerations
applicable to any such series of preferred stock.
As of the date of this prospectus, no shares of preferred stock are
outstanding. Pursuant to the shareholder rights agreement (as described below),
our board of directors has designated 7,500,000 shares of the series A preferred
stock (as defined below).
SHAREHOLDER RIGHTS AGREEMENT
In July 1992, the board of directors of El Paso Natural Gas Company, our
predecessor ("EPG"), declared a dividend distribution of one preferred stock
purchase right (an "EPG right") for each share of EPG's common stock, par value
$3.00 per share, then outstanding. In July 1997, EPG's board amended EPG's
shareholders rights agreement pursuant to which the EPG rights were issued. All
shares of EPG common stock issued subsequent to July 1992 also included these
EPG rights. In connection with the holding company reorganization effected as of
August 1, 1998, each one-half EPG right then associated with each outstanding
share of EPG common stock was converted into one preferred stock purchase right
(a "right") associated with each share of our common stock. All shares of our
common stock issued after August 1, 1998 will also include a right. Under
certain conditions, each right may be exercised to purchase from us one
two-hundredth of a share of a series of our preferred stock, designated as
Series A junior participating preferred stock, par value $.01 per share (the
"Series A preferred stock"), at a price of $75 per one two-hundredth of a share,
subject to adjustment. In January 1999, the shareholder rights agreement was
amended and restated.
Our charter provides that the holders of a whole share of Series A
preferred stock are entitled to 200 votes per share on all matters submitted to
a vote of our stockholders subject to adjustment. In addition, during any period
that dividends on the Series A preferred stock are in arrears in an amount equal
to six quarterly dividend payments, the holders of Series A preferred stock will
have the right to vote together as a class to elect two of our directors as
described above.
The rights will separate from the common stock and will become exercisable
on the earlier of (1) the first date of the public announcement that a person or
group has acquired or obtained the right to acquire
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beneficial ownership of 15% or more of the voting power of all of our
outstanding voting securities and (2) 10 business days (or such later date as
the board may determine) after the commencement of, or announcement of an
intention to commence, a tender or exchange offer, that would result in a person
or group beneficially owning 15% or more of our voting securities. If, after the
rights become exercisable, we are involved in a merger or other business
combination transaction in which our common stock is exchanged or changed, or it
sells 50% or more of its assets or earning power, each holder of a right will
have the right to purchase, at the right's then-current exercise price, common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the right. If a person becomes
the beneficial owner of securities having 15% or more of the voting power of all
of our then-outstanding voting securities (except pursuant to a "permitted
offer"), or if, during any period of such ownership, there shall be any
reclassification of securities or recapitalization of us, or any merger or
consolidation of us with any of our subsidiaries or any other transaction or
series of transactions which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding shares of
any class of our equity securities or any of our subsidiaries which is directly
or indirectly owned by such person, then for the next 60 days each right not
owned by such person will entitle the holder of the right to purchase, at the
right's then-current exercise price, shares of common stock or, in the
discretion of the board, the number of one two-hundredths of a share of series A
preferred stock (or in certain circumstances other of our equity securities with
at least the same economic value as the common stock) having a market value of
twice the right's then-current exercise price. The rights, which have no voting
rights, expire no later than 5:00 p.m., New York time on July 7, 2002. A
"permitted offer" is a tender or exchange offer for all outstanding shares of
common stock which is at a price and on terms determined, prior to the purchase
of shares in such offer, by a majority of the disinterested directors to be
adequate and otherwise in the best interests of us and our stockholders (other
than the person and its affiliates making the offer), taking into account all
factors that such disinterested directors deem relevant. "Disinterested
directors" are directors who are neither our officers nor the officers an
acquiring company or affiliate, associate or representative of such a company,
or a person directly or indirectly proposed or nominated as director by a
transaction person (as defined in the shareholder rights agreement). We may
redeem the rights under certain circumstances prior to their expiration date at
a purchase price of $.01 per right. It is possible that the existence of the
rights may have the effect of delaying, deterring or preventing our takeover.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law (the DGCL). Generally, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (1)
prior to such date, either the business combination or such transaction which
resulted in the stockholder becoming an interested stockholder is approved by
the board of directors of the corporation, (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (3) on or after such date, the business combination is approved
by the board of directors of the corporation and by the affirmative vote at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns, or, within three years, did own, 15% or more of
the corporation's outstanding voting stock.
EL PASO ENERGY'S RESTATED CERTIFICATE OF INCORPORATION
Our charter contains provisions applicable to a merger, consolidation,
asset sale, liquidation, recapitalization, or certain other business
transactions, including the issuance of our stock ("business combinations"). Our
charter requires the affirmative vote of 51% or more of our voting stock,
excluding any voting stock held by an interested stockholder (defined in our
charter as any person who owns 10% or more of the voting stock and certain
defined affiliates), with respect to all business combinations involving
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the interested stockholder, unless directors who served as such prior to the
time the interested stockholder became an interested stockholder determine by a
two-thirds vote that (i) the proposed consideration meets certain minimum price
criteria, or (ii)(A) the interested stockholder holds 80% or more of the voting
stock and (B) the interested stockholder has not received (other than
proportionately as a stockholder) the benefit of any financial assistance from
us, whether in anticipation of or in connection with such business combination.
To meet the minimum price criteria, all stockholders must receive consideration
or retain value per share after the transaction which is not less than the price
per share paid by the interested stockholder. Our charter also requires the
dissemination to stockholders of a proxy or information statement describing the
business combination.
Our charter also prohibits the taking of any action by written stockholder
consent in lieu of a meeting and the subsequent amendment of our charter to
repeal or alter the above provisions without the affirmative vote of 51% of our
voting stock, excluding voting stock held by any interested stockholder.
DESCRIPTION OF TRUST PREFERRED SECURITIES
Each trust may issue in one or more offerings only one series of trust
preferred securities having terms described in the applicable prospectus
supplement. The declaration of each trust authorizes the administrative trustees
to issue on behalf of that trust one series of trust preferred securities. The
declaration of each trust, as amended in connection with the trust's sale of
trust preferred securities, will be qualified as an indenture under the Trust
Indenture Act.
The trust preferred securities will have such terms, including
distributions, redemption, voting, conversion, exchange, liquidation rights and
such other preferred, deferred or other special rights or such restrictions as
are set forth in the declaration or made part of the declaration by the Trust
Indenture Act. You should refer to the prospectus supplement relating to the
trust preferred securities of the trust for specific terms, including:
- the distinctive designation of the trust preferred securities;
- the number of trust preferred securities issued by each trust;
- the annual distribution rate (or method of determining such rate) for
trust preferred securities issued by the trust and the date or dates upon
which the distributions are payable;
- the date or dates or method of determining the date or dates from which
distributions on trust preferred securities will be cumulative;
- the amount or amounts that will be paid out of the assets of the trust to
the holders of trust preferred securities upon voluntary or involuntary
dissolution, winding-up or termination of the trust;
- the obligation, if any, of the trust to purchase or redeem the trust
preferred securities and the price or prices at which, the period or
periods within which, and the terms and conditions upon which, trust
preferred securities will be purchased or redeemed, in whole or in part,
pursuant to that obligation;
- the voting rights, if any, of trust preferred securities in addition to
those required by law, including the number of votes per trust preferred
security and any requirement for the approval by the holders of trust
preferred securities, as a condition to specified action or amendments to
the declaration of the trust;
- the terms and conditions, if any, upon which the assets of the trust may
be distributed to holders of trust preferred securities;
- provisions regarding convertibility or exchangeability of the trust
preferred securities for our capital stock or debt securities;
- if applicable, any securities exchange upon which the trust preferred
securities will be listed; and
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- any other relevant rights, preferences, privileges, limitations or
restrictions of trust preferred securities not inconsistent with the
declaration of the trust or with applicable law.
We will guarantee all trust preferred securities offered to the limited
extent set forth below under "Description of the Trust Guarantees."
Any U.S. federal income tax considerations applicable to any offering of
trust preferred securities will be described in the applicable prospectus
supplement.
In connection with the issuance of trust preferred securities, each trust
will issue one series of trust common securities. The declaration of each trust
authorizes the administrative trustees of the trust to issue on behalf of the
trust one series of trust common securities. The declaration of the trust will
set forth the terms of the trust common securities, including terms regarding
distributions, redemption, voting, liquidation rights and any restrictions. The
terms of the trust common securities issued by each trust will be substantially
identical to the terms of the trust preferred securities issued by the trust.
The trust common securities will rank equally, and payments will be made on the
trust common securities pro rata, with the trust preferred securities. However,
upon an event of default under the declaration, the rights of the holders of the
trust common securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the trust preferred securities. Except in certain limited
circumstances discussed in the declaration, the trust common securities will
also carry the right to vote to appoint, remove or replace any of the trustees
of a trust. All of the trust common securities of each trust will be directly or
indirectly owned by us.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES GUARANTEES
A summary of information concerning the trust guarantees which we will
execute and deliver from time to time for the benefit of the holders of the
trust preferred securities is set forth below. Each trust guarantee will be
qualified as an indenture under the Trust Indenture Act. The Chase Manhattan
Bank will act as the trust guarantee trustee, or indenture trustee, under each
trust guarantee. The terms of each trust guarantee will be those set forth in
that trust guarantee and those made part of that trust guarantee by the Trust
Indenture Act. The following is a summary of the material terms and provisions
of the trust preferred securities guarantees. You should refer to the provisions
of the form of trust guarantee and the Trust Indenture Act for a more complete
discussion. We have filed the form of trust guarantee as an exhibit to the
registration statement of which this prospectus is a part. Each trust guarantee
will be held by the trust guarantee trustee for the benefit of the holders of
the trust preferred securities of the applicable trust.
GENERAL
Under each trust guarantee, we will irrevocably and unconditionally agree,
to the extent set forth in each applicable trust guarantee, to pay the trust
guarantee payments described below in full to the holders of the trust preferred
securities issued by a trust, in the event they are not paid by or on behalf of
the applicable trust when due, regardless of any defense, right of set-off or
counterclaim which the trust may have or assert.
The following payments (the trust guarantee payments) with respect to trust
preferred securities of any trust not paid by the trust when due, will be
subject to the related trust guarantee:
- any accrued and unpaid distributions required to be paid on the trust
preferred securities, to the extent that trust will have funds legally
and immediately available for payment;
- the redemption price of any trust preferred securities called for
redemption by that trust, including all accrued and unpaid distributions
to the date of redemption, to the extent that trust has funds available
for payment; and
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- upon dissolution, winding-up or termination of that trust (other than in
connection with the distribution of the assets of the trust to the
holders of trust preferred securities or the redemption of all of the
trust preferred securities), the lesser of:
(a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the trust preferred securities to the date of payment, to
the extent that trust has funds available for payment and
(b) the amount of assets of the trust remaining available for
distribution to holders of its trust preferred securities in liquidation of
the trust.
Our obligation to make a trust guarantee payment will be satisfied by our
direct payment of the required amounts to the holders of the applicable trust
preferred securities or by causing the applicable trust to pay the required
amounts to the holders.
Each trust guarantee will be a full and unconditional guarantee with
respect to the applicable trust preferred securities, but will not apply to any
payment of distributions when the applicable trust does not have funds "legally
and immediately" available for payment. If we do not make interest payments on
the subordinated debt securities purchased by a trust, that trust will not pay
distributions on the trust preferred securities issued by it and will not have
funds "legally and immediately" available for such payment. See "Description of
the Debt Securities -- Certain Covenants" included in this prospectus.
We have also agreed separately to irrevocably and unconditionally guarantee
the obligations of the trusts with respect to the trust common securities (the
trust common securities guarantees) to the same extent as the trust guarantees,
except that upon an event of default under the subordinated indenture relating
to the subordinated debt securities purchased by that trust, holders of trust
preferred securities will have priority over holders of trust common securities
with respect to distributions and payments on liquidation, redemption or
otherwise.
COVENANTS
In each trust guarantee, we will covenant that, so long as any trust
preferred securities remain outstanding, if any event that would constitute an
event of default under the trust guarantee or the declaration of the applicable
trust occurs, then we will not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make any liquidation
payment with respect to, any of our capital stock, with the following
exceptions:
- purchases or acquisitions of shares of our common stock in connection
with our obligations under our employee benefit plans,
- purchases or acquisitions of shares of our common stock in connection
with our obligations under any contract or security requiring us to
purchase shares of our common stock or,
- the purchase of fractional interests in shares of our capital stock as a
result of a reclassification of our capital stock or the exchange or
conversion of one class or series of our capital stock for another class
or series of our capital stock, or make any guarantee payments with
respect to the foregoing.
Additionally, we will not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities,
including guarantees, issued by us which rank equally with or junior to the
subordinated debt securities.
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of trust preferred securities, in which case no vote will be
required, each trust guarantee may be amended only with the prior approval of
the holders of not less than a majority in liquidation amount of the outstanding
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trust preferred securities of the applicable trust. The manner of obtaining this
approval of holders of the trust preferred securities will be described in an
accompanying prospectus supplement. All guarantees and agreements contained in a
trust guarantee will bind our successors, assigns, receivers, trustees and
representatives and will inure to the benefit of the holders of the trust
preferred securities of the applicable trust then outstanding.
TERMINATION
Each trust guarantee will terminate as to the trust preferred securities of
the applicable trust upon the first to occur of:
- full payment of the redemption price of all trust preferred securities of
the applicable trust;
- distribution of the assets of the trust to the holders of the trust
preferred securities of the applicable trust; and
- full payment of the amounts payable upon liquidation of the trust in
accordance with the declaration of the trust.
Each trust guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of trust preferred securities
issued by the applicable trust must restore payment of any sums paid under the
trust preferred securities or the trust guarantee.
EVENTS OF DEFAULT
An event of default under a trust guarantee will occur upon our failure to
perform any of our payment or other obligations under that trust guarantee.
The holders of a majority in liquidation amount of the trust preferred
securities to which the trust guarantee relates have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trust guarantee trustee in respect of the trust guarantee or to direct the
exercise of any trust or power conferred upon the trust guarantee trustee under
the trust preferred securities guarantee. If the trust guarantee trustee fails
to enforce the trust guarantee, any holder of trust preferred securities
relating to the trust guarantee may institute a legal proceeding directly
against us to enforce the trust guarantee trustee's rights under the trust
guarantee, without first instituting a legal proceeding against the relevant
trust, the trust guarantee trustee or any other person or entity. However, if we
have failed to make a guarantee payment, a holder of trust preferred securities
may directly institute a proceeding against us for enforcement of the trust
guarantee for such payment. We waive any right or remedy to require that any
action be brought first against the trust or any other person or entity before
proceeding directly against us.
STATUS OF THE TRUST GUARANTEES
The trust guarantees will constitute our unsecured obligations and will
rank:
- subordinate and junior in right of payment to all of our other
liabilities, except those obligations or liabilities made equal in
priority or subordinate by their terms;
- equally with the most senior preferred or preference stock that we may
issue and with any guarantee that we may enter into in respect of any
preferred or preference stock of any our affiliates; and
- senior to our common stock.
The terms of the trust preferred securities provide that each holder of
trust preferred securities of the applicable trust, by acceptance of the
securities, agrees to the subordination provisions and other terms of the trust
guarantee relating to the applicable trust preferred securities.
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The trust guarantees will constitute a guarantee of payment and not of
collection. Accordingly, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the trust guarantee
without instituting a legal proceeding against any other person or entity.
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
Prior to the occurrence of a default with respect to a trust guarantee and
after the curing or waiving of all events of default with respect to that trust
guarantee, the trust guarantee trustee undertakes to perform only those duties
as are specifically set forth in that trust guarantee. In case an event of
default has occurred and has not been cured or waived, the guarantee trustee
will exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to these provisions, the trust
guarantee trustee is under no obligation to exercise any of the powers vested in
it by a trust guarantee at the request of any holder of trust preferred
securities, unless offered reasonable indemnity against the costs, expenses and
liabilities which might be incurred through the exercise of those powers.
We and certain of our affiliates may, from time to time, maintain a banking
relationship with the trust guarantee trustee.
GOVERNING LAW
The trust guarantees will be governed by, and construed in accordance with,
the laws of the State of New York.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE SUBORDINATED DEBT SECURITIES AND THE GUARANTEES
As long as we make payments of interest and other payments when due on the
subordinated debt securities, those payments will be sufficient to cover
distributions and other payments due on the trust preferred securities,
primarily because:
- the aggregate principal amount of the subordinated debt securities will
be equal to the sum of the aggregate stated liquidation preference of the
trust securities;
- the interest rate and interest and other payment dates of the
subordinated debt securities will match the distribution rate and
distribution and other payment dates for the trust preferred securities;
- we will pay any and all costs, expenses and liabilities of the trusts,
except the trusts' obligations to holders of its trust preferred
securities under the terms of such trust preferred securities; and
- the declaration of each trust prohibits the trust from engaging in any
activity that is not consistent with the limited purposes of the trust.
We irrevocably guarantee payments of distributions and other amounts due on
the trust preferred securities of a trust, to the extent the trust has funds
available for the payment of such distributions as described in "Description of
Trust Guarantees" in this prospectus. Taken together, our obligations under the
subordinated debt securities, the subordinated indenture, the declarations of
the trusts and the trust guarantees provide a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts due on
the trust preferred securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such a
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of each of
the trust's obligations under its trust preferred securities. If we do not make
payments on the subordinated debt securities, the trusts will not pay
distributions or other amounts due on the trust preferred securities. The trust
guarantees do not cover payment of distributions when the applicable trust does
not have sufficient funds to pay the distributions. In this event, the remedies
of a holder of the trust preferred securities of the trust are described in this
prospectus under "Description of
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the Trust Guarantees -- Events of Default." Our obligations under the trust
guarantees are unsecured and are subordinate and junior in right of payment to
all of our other liabilities.
Notwithstanding anything to the contrary in the subordinated indenture and
to the extent set forth in the subordinated indenture, we have the right to
set-off any payment we are otherwise required to make under the subordinated
indenture with and to the extent we have made, or are concurrently on the date
of such payment making, a payment under a trust guarantee.
A holder of trust preferred securities of a trust may institute a legal
proceeding directly against us to enforce its rights under the trust guarantee
without first instituting a legal proceeding against the trust guarantee
trustee, the trust or any other person or entity.
The trust preferred securities of a trust evidence a beneficial interest in
the trust. The trusts exist for the sole purpose of issuing the trust securities
and investing the proceeds in subordinated debt securities. A principal
difference between the rights of a holder of trust preferred securities and a
holder of subordinated debt securities is that a holder of subordinated debt
securities is entitled to receive from us the principal amount of and interest
accrued on subordinated debt securities held, while a holder of trust preferred
securities is entitled to receive distributions from a trust, or from us under
the trust guarantee, if and to the extent the trust has funds available for the
payment of such distributions.
Upon any voluntary or involuntary termination, winding-up or liquidation of
a trust involving the liquidation of the subordinated debt securities, the
holders of the trust preferred securities of the trust will be entitled to
receive, out of assets held by the trust and after satisfaction of liabilities
to creditors of the trust as provided by applicable law, the liquidation
distribution in cash. Upon any voluntary or involuntary liquidation or
bankruptcy of us, the property trustees of a trust, as holder of the
subordinated debt securities of the trust, would be a subordinated creditor of
us, subordinated in right of payment to all of our senior debt, but entitled to
receive payment in full of principal and interest, before any of our
stockholders receive payments or distributions. Since we are the guarantor under
the trust guarantees and we have agreed to pay for all costs, expenses and
liabilities of the trusts other than the trusts' obligations to the holders of
the trust preferred securities, the positions of a holder of trust preferred
securities and a holder of subordinated debt securities relative to other
creditors and to our shareholders in the event of our liquidation or bankruptcy
would be substantially the same.
A default or event of default under any of our senior debt will not
constitute a default or event of default under the subordinated indenture.
However, in the event of payment defaults under, or acceleration of, our senior
debt, the subordination provisions of the subordinated indenture provide that no
payments may be made on the subordinated debt securities until our senior debt
has been paid in full or any payment default under our senior debt has been
cured or waived. Our failure to make required payments on a series of
subordinated debt securities would constitute an event of default under the
subordinated indenture.
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PLAN OF DISTRIBUTION
We may sell our securities through agents, underwriters or dealers, or
directly to purchasers.
We may designate agents to solicit offers to purchase our securities.
- We will name any agent involved in offering or selling our securities,
and any commissions that we will pay to the agent, in our prospectus
supplement.
- Unless we indicate otherwise in our prospectus supplement, our agents
will act on a best efforts basis for the period of their appointment.
- Our agents may be deemed to be underwriters under the Securities Act of
1933 of any of our securities that they offer or sell.
We may use one or more underwriters in the offer or sale of our securities.
- If we use an underwriter, we will execute an underwriting agreement with
the underwriter(s) at the time that we reach an agreement for the sale of
our securities.
- We will include the names of the managing underwriter(s), as well as any
other underwriters, and the terms of the transaction, including the
compensation the underwriters and dealers will receive, in our prospectus
supplement.
- The underwriters will use our prospectus supplement to sell our
securities.
We may use a dealer to sell our securities.
- If we use a dealer, we, as principal, will sell our securities to the
dealer.
- The dealer will then sell our securities to the public at varying prices
that the dealer will determine at the time it sells our securities.
- We will include the name of the dealer and the terms of our transactions
with the dealer in our prospectus supplement.
We may directly solicit offers to purchase our securities, and we may
directly sell our securities to institutional or other investors. We will
describe the terms of our direct sales in our prospectus supplement.
We may indemnify agents, underwriters, and dealers against certain
liabilities, including liabilities under the Securities Act of 1933. Our agents,
underwriters, and dealers, or their affiliates, may be customers of, engage in
transactions with or perform services for us, in the ordinary course of
business.
We may authorize our agents and underwriters to solicit offers by certain
institutions to purchase our securities at the public offering price under
delayed delivery contracts.
- If we use delayed delivery contracts, we will disclose that we are using
them in the prospectus supplement and will tell you when we will demand
payment and delivery of the securities under the delayed delivery
contracts.
- These delayed delivery contracts will be subject only to the conditions
that we set forth in the prospectus supplement.
- We will indicate in our prospectus supplement the commission that
underwriters and agents soliciting purchases of our securities under
delayed delivery contracts will be entitled to receive.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, El Paso Energy in the ordinary course
of business.
Other than common stock, all securities offered will be a new issue of
securities with no established trading market. Any underwriter to whom
securities are sold by us or any EPE Trust for public offering
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and sale may make a market in such securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. The securities may or may not be listed on a national securities
exchange or a foreign securities exchange, except for the common stock which is
listed and traded on the NYSE. Any common stock sold by this prospectus will be
listed for trading on the NYSE, subject to official notice of issuance. We
cannot give you any assurance as to the liquidity of or the trading markets for
any securities.
LEGAL MATTERS
The validity of the common stock, preferred stock, senior debt securities,
subordinated debt securities and trust guarantees will be passed upon for El
Paso Energy and the EPE Trusts by Andrews & Kurth L.L.P., Houston, Texas. The
validity of the trust preferred securities under Delaware Law will be passed
upon for the EPE Trusts by special Delaware counsel identified in the related
prospectus supplement. If the securities are being distributed in an
underwritten offering, the validity of the securities will be passed upon for
the underwriters by counsel identified in the related prospectus supplement.
EXPERTS
The consolidated financial statements and financial statement schedule of
El Paso Energy as of December 31, 1998 and 1997, and for the years ended
December 31, 1998, 1997 and 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
such firm as experts in accounting and auditing.
The consolidated financial statements of Sonat Inc. as of December 31, 1998
and 1997, and for the years ended December 31, 1998, 1997 and 1996 included in
our Current Report on Form 8-K/A dated April 30, 1999, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference, which, as to the year
ended December 31, 1996, is based on the report of KPMG LLP, independent
auditors. The report of KPMG LLP refers to a change by Zilkha Energy Company in
accounting for oil and gas properties from the full cost method to the
successful efforts method. Such restated consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
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EL PASO ENERGY CORPORATION
$600,000,000
MEDIUM TERM NOTES DUE NINE MONTHS OR
MORE FROM DATE OF ISSUE
------------------------
Prospectus Supplement
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BANC OF AMERICA SECURITIES LLC
ABN AMRO INCORPORATED
CHASE SECURITIES INC.
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus supplement and the prospectus or
to make representations as to matters not stated in this prospectus supplement,
any pricing supplement and the prospectus. You must not rely on unauthorized
information. This prospectus supplement, any pricing supplement and the
prospectus are not an offer to sell these securities or our solicitation of your
offer to buy these securities in any jurisdiction where that would not be
permitted or legal. Neither the delivery of this prospectus supplement, any
pricing supplement or the prospectus nor any sales made hereunder after the date
of this prospectus supplement, any pricing supplement and the prospectus shall
create an implication that the information contained herein or the affairs of El
Paso Energy have not changed since the date hereof.
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