File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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CENTRAL AND SOUTH WEST CORPORATION
1616 Woodall Rodgers Freeway
Dallas, TX 75202
CENTRAL POWER AND LIGHT COMPANY
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
PUBLIC SERVICE COMPANY OF OKLAHOMA
212 East Sixth Street
Tulsa, Oklahoma 74119-1212
SOUTHWESTERN ELECTRIC POWER COMPANY
428 Travis Street
Shreveport, Louisiana 71156-0001
WEST TEXAS UTILITIES COMPANY
301 Cypress Street
Abilene, Texas 79601-5820
(Names of companies filing this statement and addresses
of principal executive offices)
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CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
------------------------
Wendy G. Hargus, Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
Joris M. Hogan, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York. New York 10005-1413
(Names and addresses of agents for service)
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Central and South West Corporation ("CSW"), a Delaware corporation and
a registered holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"), and its subsidiary companies Central Power and
Light Company ("CPL"), Public Service Company of Oklahoma ("PSO"), Southwestern
Electric Power Company ("SWEPCO"), and West Texas Utilities Company ("WTU"),
each referred to as an "Operating Subsidiary" and collectively referred to as
the "Operating Subsidiaries", hereby file this Form U-1 Application-Declaration.
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTIONS.
CSW and/or the Operating Subsidiaries propose to issue tax deductible
preferred securities ("Preferred Securities") as part of a restructuring of the
existing preferred stock component of the Operating Subsidiaries' capitalization
(the "Preferred Restructuring") which consists of (i) eliminating provisions in
the Operating Subsidiaries' articles restricting the amount of unsecured debt,
and Preferred Securities which may be treated as unsecured debt, issuable by
each Operating Subsidiary, (ii) acquiring or calling all or a portion of the
Operating Subsidiaries' outstanding preferred stock, and (iii) issuing at the
CSW and/or the Operating Subsidiary level Preferred Securities, all as described
in the following introduction to Item 1 and in more detail in Item 1, Sections A
through F, below.
The Operating Subsidiaries propose to solicit proxies or consents from
the holders of their outstanding shares of preferred stock and common stock
("Proxy Solicitation") to approve a proposed amendment to CPL and WTU's Restated
Articles of Incorporation and PSO and SWEPCO's Restated Certificates of
Incorporation (collectively, the "Articles") that would eliminate a provision
restricting the amount of unsecured debt issuable by each Operating Subsidiary
(individually, a "Proposed Amendment" and collectively, the "Proposed
Amendments"). If proxies are solicited, they would be voted at special meetings
of the Operating Subsidiaries' respective stockholders to be held as soon as
possible (the "Special Meetings") for the purpose of voting on the Proposed
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Amendments. If the Proposed Amendments are adopted, the Operating Subsidiaries
may make a special cash payment as specified below to each preferred stockholder
who voted in favor of the applicable Proposed Amendment; provided that any such
shares were not tendered in a concurrent cash tender offer for such shares
(described below).
Concurrently with or shortly before the Proxy Solicitation, CSW may
make a cash tender offer ("Offer") for any and all shares of one or more series
of outstanding preferred stock of the Operating Subsidiaries. Additionally, the
Operating Subsidiaries may call shares of any or all series of outstanding
preferred stock at the applicable call price. The Offer for each series of
preferred stock will be independent of the Offer for any other series. CSW plans
to terminate the Offer for each series of preferred stock at 5 P.M. (New York
City Time) on the date of the applicable Special Meeting or expiration of the
consent solicitation ("Expiration Date") but may extend the Expiration Date or
terminate the Offer early under certain circumstances. A condition to the Offer
may be that preferred stockholders who tender their shares pursuant to the Offer
vote in favor or consent to the applicable Proposed Amendment. In such event,
any shares not voted in favor of the Proposed Amendment will be deemed withdrawn
and not validly tendered. Consummation of the Offer may be contingent upon one
or more of the Proposed Amendments being approved and adopted at the Special
Meetings.
CSW and the Operating Subsidiaries request that the Securities and
Exchange Commission (the "Commission") issue a public notice of the proposed
transactions and an order authorizing the Proxy Solicitation (collectively,
"Proxy Solicitation Order") by not later than January 17, 1997 so that (i) the
Operating Subsidiaries may solicit proxies or consents in advance of the
Expiration Date and (ii) CSW may commence any Offer. Applicants further request
that as soon as practicable after issuance of the Proxy Solicitation Order, but
not later than February 11, 1997, the Commission issue an order authorizing: (i)
the Proposed Amendments and the proposed acquisition of any and all shares of
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the Operating Subsidiaries' preferred stock pursuant to the Offer; (ii) the
reacquisition, retirement and cancellation by the Operating Subsidiaries of
shares tendered to CSW pursuant to the Offer; and (iii) the use by CSW of its
general funds and/or funds borrowed through its commercial paper program
previously authorized by order dated March 21, 1995 (HCAR No. 26254), on an
interim basis, to finance its purchase of shares tendered, accepted for payment
and paid for pursuant to the Offer, until such time as such shares are
reacquired by the Operating Subsidiaries.
CSW and the Operating Subsidiaries also request that the order grant
CSW and the Operating Subsidiaries authority to issue securities similar to the
Preferred Securities currently in the marketplace (i.e., tax deductible
preferred securities such as QUIPS, TOPRS, etc.) for the purpose of retiring or
replacing outstanding first mortgage bonds and preferred stock at the Operating
Subsidiaries, or any combination thereof, for the payment of outstanding
short-term borrowings and for other general corporate purposes. In order to
effectuate the issuance of the preferred securities, CSW and the Operating
Subsidiaries propose to issue and sell from time to time in one or more series,
directly, or indirectly through a special purpose financing subsidiary (as
hereinafter defined) or affiliate of CSW or an Operating Subsidiary established
for that purpose, Junior Subordinated Debentures (the "Debentures") and/or
Preferred Securities. Each series of Debentures and/or Preferred Securities will
mature in not more than 49 years. The Proxy Solicitation, Proposed Amendments,
Offer and issuance of Debentures and/or Preferred Securities are discussed in
more detail below.
In addition, CSW and the Operating Subsidiaries request authority to
manage interest rate risk, as appropriate, through the use of hedging products,
including interest rate swaps, forward swaps and caps and collars as described
in Item 1.D. below. CSW and the Operating Subsidiaries request authority to
enter into the foregoing types of transactions from time to time in connection
with the issuance of Debentures and Preferred Securities.
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The preferred stock of each Operating Subsidiary, the number of shares
outstanding, their par value and dollar amount outstanding as of September 30,
1996 are listed below. None of the shares are listed on the New York Stock
Exchange ("NYSE") or any other exchange.
CPL
Money Market Preferred 750,000 shares $100 Par Value $ 75,000,000
Auction Rate Pref. Series A 425,000 shares $100 Par Value $ 42,500,000
Auction Rate Pref. Series B 425,000 shares $100 Par Value $ 42,500,000
8.72% Series 500,000 shares $100 Par Value $ 50,000,000
7.12% Series 260,000 Shares $100 Par Value $ 26,000,000
4.20% Series 75,000 Shares $100 Par Value $ 7,500,000
4.00% Series 100,000 Shares $100 Par Value $ 10,000,000
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Total $253,500,000
PSO
4.24% Series 100,000 Shares $100 Par Value $10,000,000
4.00% Series 97,900 Shares $100 Par Value $ 9,790,000
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Total $19,790,000
SWEPCO
6.95% Series 340,000 Shares $100 Par Value $34,000,000
5.00% Series 75,000 Shares $100 Par Value $ 7,500,000
4.65% Series 25,000 Shares $100 Par Value $ 2,500,000
4.28% Series 60,000 Shares $100 Par Value $ 6,000,000
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Total $50,000,000
WTU
4.40% Series 60,000 Shares $100 Par Value $ 6,000,000
All of the outstanding common stock of each Operating Subsidiary is
owned by CSW. Each share of common stock and preferred stock of each series is
entitled to one vote per share for purposes of the Proposed Amendments. Each
Operating Subsidiary's outstanding common stock and preferred stock constitute
its only outstanding securities entitled to vote on the applicable Proposed
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Amendment. None of the Operating Subsidiaries has any other authorized class of
equity securities.
A. PROXY SOLICITATION AND PROPOSED AMENDMENTS
1. Terms of Proxy Solicitation and Proposed Amendments
Each Operating Subsidiary's Articles currently provide that, without
the consent of the holders of at least a majority of the total number of such
Operating Subsidiary's shares of preferred stock of all series voting as one
class, it may not issue or assume any unsecured notes, debentures or other
securities representing unsecured indebtedness ("Unsecured Obligations"), for
any purpose other than (a) refunding or renewing outstanding Unsecured
Obligations resulting in later maturities or, (b) funding existing unsecured
indebtedness (not represented by Unsecured Obligations), if immediately after
such issue or assumption (1) the principal amount of all Unsecured Obligations
issued or assumed by the Operating Subsidiary and then outstanding would exceed
20% of the aggregate of (i) the principal amount of all bonds or other
securities representing secured indebtedness issued or assumed by the Operating
Subsidiary and then outstanding and (ii) the total capital stock and surplus of
the Operating Subsidiary as then recorded on its books (the "20% Provision"), or
(2) the principal amount of all Unsecured Obligations maturing in less than ten
years, issued or assumed by the Operating Subsidiary and then outstanding,
computed as herein provided, would exceed 10% of such aggregate amount (the "10%
Provision"). For purposes of subparagraph (2) of the previous sentence, the
principal amount of any Unsecured Obligations which had an original single
maturity of more than ten years from the date thereof, and the principal amount
of the final maturity of any serially-maturing Unsecured Obligations which had
one or more original maturities of more than ten years from the date thereof,
may not be regarded as Unsecured Obligations maturing in less than ten years
until such principal amount is due or required to be paid within three years.
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The Proposed Amendments would eliminate the 10% and 20% Provisions by deleting
them in their entirety from the Articles of each Operating Subsidiary.
Approval and adoption of the applicable Proposed Amendment by each
Operating Subsidiary's shareholders requires the affirmative consent or vote of
the holders of not less than two-thirds of the outstanding shares of (1) the
preferred stock of all series, voting together as one class, and (2) the common
stock. CSW has advised the Operating Subsidiaries that it will vote its shares
of common stock of each Operating Subsidiary in favor of the Proposed
Amendments. Abstentions and broker non-votes in respect of the Proposed
Amendments will have the effect of voting against the Proposed Amendments.
Duly appointed inspectors of election will definitively count and
tabulate the votes and determine and announce the results.
The Operating Subsidiaries will engage an information agent in
connection with the Proxy Solicitation. The information agent will be paid a fee
totaling approximately $75,000 which includes reimbursement for its reasonable
out-of-pocket expenses.
Each Operating Subsidiary may elect to make a special cash payment out
of its general funds (each, a "Cash Payment") for each share of preferred stock
not tendered pursuant to the Offer that is properly voted in favor of the
applicable Proposed Amendment.
2. Benefits of the Proposed Amendments
CSW and the Operating Subsidiaries believe that adoption of the
Proposed Amendments is critical to maximizing their respective financial
flexibility and minimizing their financing costs for the benefit of utility
customers and, indirectly, the Operating Subsidiaries' investors. CSW estimates
that the ongoing financing flexibility and cost savings to be gained through the
elimination of the 10% and 20% Provisions outweigh the one-time cost of the
special Cash Payments and the other costs of the Proxy Solicitation. CSW and the
Operating Subsidiaries further believe that the terms of any Offer will be
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attractive to tendering preferred stockholders (given the proposed per share
purchase price) and will also benefit CSW's investors and system utility
customers by (1) contributing to the elimination of the onerous Articles
provisions concerning unsecured indebtedness, (2) creating flexibility in
plannin and financing business activities and (3) resulting in the acquisition
and subsequent retirement of certain outstanding shares of the Operating
Subsidiaries' preferred stock and their replacement with less expensive
financing alternatives.
Although historically the Operating Subsidiaries' debt financing has
been accomplished through the issuance of first mortgage bonds and short-term
debt, CSW and the Operating Subsidiaries believe that unsecured debt will
increase in importance over time as an option in financing construction
programs, refinancing first mortgage bonds and providing funds for other general
corporate purposes. The availability and flexibility of unsecured debt is
necessary to take full advantage of changing conditions in the securities
markets and the electric utility industry. For example, if the Operating
Subsidiaries were ever unable to meet the earnings coverage test in their
respective Articles, they would be unable to issue any additional preferred
stock. Thus, it is possible that the Operating Subsidiaries could face a
situation where they would be able to issue only first mortgage bonds (assuming
that the applicable earnings coverage test could be met) or additional common
stock.
The Proposed Amendments will also allow the Operating Subsidiaries to
take greater advantage of Preferred Securities on which periodic payments are
tax deductible(which have a lower after-tax cost than traditional preferred
stock), the retail unsecured debt market, the institutional unsecured debt
market and the short-term unsecured debt market. Securities in each of these
areas are currently treated as unsecured debt for purposes of the 10% and 20%
Provisions.
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The Operating Subsidiaries believe that the 10% and 20% Provisions
hamper their flexibility in planning and financing business activities and that
eventually they may be at a competitive disadvantage if those restrictions are
not removed. New competitors such as power marketers, independent power
producers and owners of cogeneration facilities generally are not subject to
similar financing restrictions. In recent years, a number of utilities
encumbered with charter restrictions similar to the 10% and 20% Provisions have
eliminated or relaxed such provisions through successful proxy solicitations. In
short, many potential competitors of the Operating Subsidiaries are not
constrained by unsecured debt restrictions.
Reference is made to Exhibit 2 (forms of Proxy Statement and Offer to
Purchase), Exhibit 3 (form of Notice of Special Meeting) and Exhibit 4 (form of
Proxy) for more detailed information with respect to the Proxy Solicitation and
Proposed Amendments.
B. THE OFFER TO PURCHASE
1. Terms of Offer
Concurrently with or shortly before the commencement of the Proxy
Solicitation, subject to the terms and conditions stated in the Offer to
Purchase and Proxy Statement and the accompanying Letters of Transmittal and
Proxy (see Exhibits 2, 4 and 5) (collectively, the "Offer Documents"), CSW may
make the Offer, pursuant to which it will offer to acquire from the holders of
the preferred stock of one or more series (each a "Series") any and all shares
(the "Shares") of such Series at cash purchase prices to be determined based on
market conditions (each, a "Purchase Price"). The Purchase Price would be based
on a number of factors, including the dividend payable of the preferred stock,
the redemption price on the date of acquisition and the then current market
rates for similar securities, all of which are relevant to the decision of an
informed holder of the preferred stock as to whether to hold or sell the
preferred stock. CSW anticipates that the Offer for each Series of preferred
stock will be scheduled to expire at 5 P.M. (New York City time) on the date of
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the applicable Special Meeting or expiration of the consent solicitation but may
be extended or terminated earlier under certain circumstances specified below.
The Offer consists of separate offers by CSW to acquire some or all
Series of preferred stock of each Operating Subsidiary, except for CPL's Money
Market Preferred Series, Auction Rate Preferred Series A and Auction Rate
Preferred Series B for which no Offer will be made, with the Offer for any one
Series being independent of the Offer for any other Series. The applicable
Purchase Price and the other terms and conditions of the Offer apply equally to
all preferred stockholders of a respective Series. The Offer would not be
conditioned upon any minimum number of Shares of the applicable Series being
tendered, but may be conditioned, among other things, on the Proposed Amendments
being approved and adopted by the requisite vote of the preferred stockholders.
To tender shares in accordance with the terms of the Offer Documents,
the tendering preferred stockholder must either (1) send to the depositary
institution, in its capacity as depositary for the Offer ("Depositary"), a
properly completed and duly executed Letter of Transmittal or facsimile thereof
for that Series, together with any required signature guarantees and any other
documents required by the Letter of Transmittal, and either (a) certificates for
the Shares to be tendered must be received by the Depositary at one of its
addresses specified in the Offer Documents, or (b) such Shares must be delivered
pursuant to the procedures for book-entry transfer described in the Offer
Documents (and a confirmation of such delivery must be received by the
Depositary), in each case by the Expiration Date; or (2) comply with a
guaranteed delivery procedure specified in the Offer Documents. Tenders of
Shares made pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date. Thereafter, such tenders will be irrevocable, subject to
certain conditions identified in the Offer Documents.
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CSW's obligation to proceed with the Offer and to accept for payment
and to pay for any Shares tendered is subject to various conditions enumerated
in the Offer Documents, which include the Commission issuing an order under the
Act authorizing the proposed transactions, and which may include, among other
conditions, that the Proposed Amendments be adopted and/or that all tendering
preferred stockholders vote in favor of the applicable Proposed Amendment. Any
tendered shares as to which a vote in favor of the Proposed Amendment is not
validly cast may be deemed withdrawn and not validly tendered.
At any time or from time to time, CSW may extend the Expiration Date
applicable to any Series by giving notice of such extension to the Depositary,
without extending the Expiration Date for any other Series. During any such
extension, all Shares of the applicable Series previously tendered will remain
subject to the Offer, and may be withdrawn at any time prior to the Expiration
Date, as extended. Conversely, CSW may elect in its sole discretion to terminate
the Offer prior to the scheduled Expiration Date and not accept for payment and
pay for any Shares tendered. In either case, CSW will comply with applicable
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules promulgated thereunder, which require CSW either to pay the
consideration offered or to return the tendered Shares promptly after the
termination or withdrawal of the Offer and after giving notice of such
termination to the Depositary and making a public announcement thereof.
Subject to compliance with applicable law, CSW further reserves the
right in the Offer Documents, in its sole discretion, to amend the Offer in any
respect by making a public announcement thereof. If CSW materially changes the
terms of the Offer or the information concerning the Offer, or if it waives a
material condition of the Offer (such as the condition that the Proposed
Amendments be adopted, if such condition is in effect), CSW will extend the
Expiration Date to the extent required by the applicable provisions of the
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Exchange Act and the rules promulgated thereunder. Those provisions generally
require that the minimum period during which an issuer tender offer must remain
open following material changes in the terms of the offeror information
concerning the offer (other than a change in price, or change in percentage of
securities sought or change in the dealer's soliciting fee) will depend on the
facts and circumstances, including the relative materiality of such terms or
information. However, if CSW notifies Operating Subsidiary preferred
stockholders that it will (a) increase or decrease the price it will pay for
Shares, (b) increase or decrease the percentage of Shares it seeks or (c)
increase or decrease the dealer's soliciting fee, then the Expiration Date will
be extended, if necessary, so that the expiration of the Offer occurs at least
ten business days after the announced change.
Shares validly tendered to the Depositary pursuant to the Offer and not
withdrawn in accordance with the procedures set forth in the Offer Documents
will be held by CSW until the Expiration Date (or returned promptly in the event
the Offer is terminated). Subject to the terms and conditions of the Offer, as
promptly as practicable after the Expiration Date, CSW will accept for payment
and pay for any and all Shares validly tendered and not withdrawn. CSW will pay
for Shares that it has purchased pursuant to the Offer by depositing the
applicable Purchase Price with the Depositary, which will act as agent for the
tendering preferred stockholders for the purpose of receiving payment from CSW
and transmitting payment to tendering preferred stockholders. CSW will pay all
stock transfer taxes, if any, payable on account of its acquisition of shares
pursuant to the Offer, except in certain circumstances where special payment or
delivery procedures are utilized in conformance with the applicable Letters of
Transmittal.
With respect to Shares validly tendered and accepted for payment by
CSW, each tendering preferred stockholder will be entitled to receive as
consideration from CSW only the applicable Purchase Price (which CSW anticipates
will reflect a premium over the current market price at the commencement of the
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Offer). Any such tendering stockholder will not be entitled to receive any
additional consideration in the form of a Cash Payment, if a Cash Payment is
paid by the Operating Subsidiaries. As stated above in Item 1.A.1., the latter
payment, if declared, will be payable by the Operating Subsidiaries solely in
respect of Shares properly voted by preferred stockholders in favor of the
Proposed Amendments, provided that (a) such Shares have not been tendered
pursuant to the Offer and (b) the Proposed Amendments are adopted.
As noted immediately above, subject to the terms and conditions of the
Offer, Shares validly tendered and not withdrawn will be accepted for payment
and paid for by CSW as promptly as practicable after the Expiration Date. If the
Proposed Amendments are adopted, the Operating Subsidiaries propose to reacquire
all shares acquired by CSW pursuant to the Offer after the consummation of the
Offer at the Purchase Price. Upon such reacquisition the Operating Subsidiaries
will retire and cancel such Shares. The Operating Subsidiaries hereby request
authorization for such reacquisition.
If the Offer is conditioned upon the Proposed Amendments being adopted
at the Special Meetings, CSW may elect to waive such condition. In that case or
if the Offer is not so conditioned upon the Proposed Amendment being adopted, as
promptly as practicable after CSW's purchase of any Shares validly tendered
pursuant to the Offer, each Operating Subsidiary may call another special
meeting or commence another consent solicitation of its common and preferred
stockholders and solicit proxies or consents for the purpose of securing the
requisite two-thirds affirmative vote of stockholders to amend the Articles to
eliminate the 10% and 20% Provisions.
In any event, CSW has advised the Operating Subsidiaries that it
intends to vote any Shares acquired by it pursuant to the Offer or otherwise (as
well as all of its shares of common stock) in favor of the Proposed Amendments
to eliminate the 10% and 20% Provisions. If the Proposed Amendments are approved
and adopted, and in any event within one year from the Expiration Date
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(including any extensions thereof), the Operating Subsidiaries will reacquire
all shares from CSW at the Purchase Price after such meetings or at the
expiration of such one-year period, as applicable, and the Operating
Subsidiaries will thereupon retire and cancel such Shares.
CSW requests authority to use its general funds and/or funds borrowed
through its commercial paper program previously authorized by order dated March
21, 1995 (HCAR No. 26254), on an interim basis, to finance its purchase of any
Shares tendered, accepted for payment and paid for pursuant to the Offer, until
such time as such shares are reacquired by the Operating Subsidiaries.
CSW will select one or more dealer managers in connection with the
Offer. The fees of the dealer manager(s) will be determined following
negotiation and investigation of fees in similar transactions and will include
reasonable out-of-pocket expenses, including attorney's fees. In addition, CSW
will pay soliciting brokers and dealers a separate fee for Shares tendered, that
are accepted and paid for pursuant to the Offer. These fees will also be
determined following negotiation and investigation of fees in similar
transactions. As set forth in Item 2, CSW proposes to pay the Depositary a fee
of approximately $30,000.
2. Benefits of Offer; Utilization of CSW rather than the
Operating Subsidiaries as Offeror
The proposed acquisition by CSW of Shares pursuant to the Offer will
benefit CSW's utility system customers and shareholders and the Operating
Subsidiaries' preferred stockholders. The Offer allows preferred stockholders
who may not favor the elimination of the 10% and 20% Provisions an option to
tender their shares at a premium to the market price and without the usual
transaction costs associated with such a sale. System utility customers and CSW
shareholders will benefit from the Operating Subsidiaries' increased flexibility
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and reduced financing costs in issuing Preferred Securities and unsecured debt.
Specifically, assuming that 50% of all the preferred shares, except for
CPL's Money Market Preferred Series, Auction Rate Preferred Series A and Auction
Rate Series B, are purchased in the Offer, the estimated savings to the
Operating Subsidiaries are expected to approximate $2 million each year (based
on a dollar-for-dollar replacement of the Shares subject to the Offer with
Preferred Securities at prevailing rates on the date hereof), after taxes.
Further, assuming (x) 50% of the outstanding preferred stock is tendered in the
Offer, except CPL's Money Market Preferred Series, Auction Rate Preferred Series
A and Auction Rate Preferred Series B , (and that holders of 100% of CPL's Money
Market Preferred Series, Auction Rate Preferred Series A and Auction Rate
Preferred Series B and 30% of the outstanding preferred stock of all other
series vote in favor of the Proposed Amendment resulting in approval of and
adoption of such amendment), (y) refinancing of Shares acquired and paid for
pursuant to the Offer with tax deductible Preferred Securities (and assuming
such rates do not change throughout the period), and (z) a discount rate equal
to the Operating Subsidiaries' after-tax weighted average cost of capital, CSW
anticipates that the proposed transactions may yield total after-tax, present
value cash savings of approximately $21 million over the next 30 years, net of
cash expenditures incurred in respect of the Offer and Proxy Solicitation. A
higher success rate for the Offer potentially could generate even greater cash
savings.
As stated above in Item 1.B.1, if the Offer and Proxy Solicitation do
not result in the Proposed Amendments being adopted, as promptly as practicable
after completion of the Offer, each Operating Subsidiary anticipates that it
will call another special meeting or commence another consent solicitation of
its common and preferred stockholders and solicit proxies or consents to obtain
the requisite two-thirds affirmative vote of preferred stock to approve and
adopt the Proposed Amendments. CSW has advised the Operating Subsidiaries that
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it would vote any Shares previously acquired by it pursuant to the Offer or
otherwise (together with all of its shares of common stock) in favor of the
Proposed Amendments. By contrast, if the Operating Subsidiaries, rather than
CSW, had acquired Shares pursuant to the Offer, upon acquisition thereof by the
Operating Subsidiaries any such Shares would be deemed treasury shares under
Delaware, Oklahoma and Texas law and, as such, the Operating Subsidiaries would
be precluded from voting those Shares under any circumstances.
C. ISSUANCE OF TAX DEDUCTIBLE SECURITIES
CSW and/or the Operating Subsidiaries propose to issue Preferred
Securities similar to the preferred securities currently in the marketplace for
the purpose of retiring outstanding first mortgage bonds, for the purpose of
retiring or replacing outstanding preferred stock, or any combination thereof,
for the payment of outstanding short-term borrowings and for other general
corporate purposes. In order to effectuate the issuance of Preferred Securities,
CSW and the Operating Subsidiaries propose to issue and sell from time to time
in one or more series, directly, or indirectly through a special purpose
financing subsidiary or affiliate of CSW or an Operating Subsidiary established
for that purpose, Junior Subordinated Debentures (the "Debentures") and/or
Preferred Securities. Each series of Debentures and Preferred Securities will
mature in not more than 49 years.
1. DEBENTURES
CSW and/or the Operating Subsidiaries propose to issue and sell the
Debentures and Preferred Securities indirectly through an SPE to the public
through December 31, 2001 in aggregate principal amounts up to the following:
$500,000,000 for CSW; $350,000,000 for CPL; $100,000,000 for PSO; $150,000,000
for SWEPCO; and $80,000,000 for WTU. Each such amount is herein referred to as
an "Offering Limit". If Debentures are issued to the public, the Debentures are
expected to be sold through negotiation with underwriters, agents or other
entities. The Debentures will be offered for sale at an initial public offering
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price resulting in a yield to maturity which is not expected to exceed by more
than 3.0% the yield to maturity on United States Treasury bonds of similar
maturity at the time of pricing of the Debentures. The commission payable to
agents or underwriters will not exceed 3.5% of the principal amount of the
Debentures sold.
CSW and each Operating Subsidiary may have the right to defer payment
of interest on the Debentures for up to five years. However, CSW or an Operating
Subsidiary may not declare and pay dividends (except in common stock) on its
outstanding stock if interest payments are so deferred. The payment of
principal, premium and interest on the Debentures will be subordinated in right
of payment to the prior payment in full of senior indebtedness. CSW and each
Operating Subsidiary will agree to specific redemption provisions, if any, at
the time of the pricing of the Debentures. Additionally, CSW and each Operating
Subsidiary may have the option to extend the maturity up to 49 years if the
original maturity is less than 49 years and certain other conditions are met.
The Debentures will be issued under Indentures to be entered into
between CSW or the respective Operating Subsidiary and a Trustee thereunder
(each, an "Indenture"), as may be supplemented and amended by one or more
supplemental indentures (each, a "Supplemental Indenture"). Copies of the forms
of Indenture and Supplemental Indenture for Debentures proposed to be utilized
by CSW and each Operating Subsidiary for one or more series of the Debentures
(except for provisions such as interest rate, maturity, redemption terms and
certain administrative matters) are attached hereto as Exhibits 8 and 9,
respectively. Such forms of Indenture and Supplemental Indenture contain a more
complete description of the terms of the Debentures.
2. PREFERRED SECURITIES
If CSW or any Operating Subsidiary determines that it is not advisable
to sell the Debentures directly to the public, it may organize a separate
special purpose entity (each, an "SPE") as either (i) a statutory business or
<PAGE>
other form of trust under the Delaware Business Trust Act or another similar
statute ("Trust"), (ii) a limited liability company under the Delaware Limited
Liability Company Act or another similar statute ("LLC") or (iii) a limited
partnership under the Delaware Revised Uniform Limited Partnership Act or
another similar statute ("LP").
In the event that CSW or any Operating Subsidiary organizes an SPE as
an LLC, CSW or such Operating Subsidiary may also organize a second special
purpose wholly-owned subsidiary ("Investment Sub"), for the purpose of acquiring
and holding SPE membership interests so as to comply with the requirement under
any applicable LLC Act that an LLC have at least two members.
In the event that CSW or any Operating Subsidiary organizes its SPE as
an LP, CSW or such Operating Subsidiary may also organize an Investment Sub for
the purpose of acting, or may itself act, as the general partner of such SPE and
may acquire, either directly or indirectly through such Investment Sub, a
limited partnership interest in such SPE to ensure that such SPE will at all
times have a limited partner to the extent required by applicable law.
The respective SPEs may then issue and sell at any time or from time to
time in one or more series through December 31, 2001 (i) limited partnership
interests if the SPE is an LP, (ii) preferred membership interests if the SPE is
an LLC, or (iii) senior trust certificates or preferred interests if the SPE is
a Trust (collectively, the "Preferred Securities"), in amounts up to the
Offering Limit for CSW or each Operating Subsidiary. The Preferred Securities
will have aggregate par or stated value or liquidation preference not exceeding
the Offering Limit, with a par or stated value or liquidation preference of up
to $1,000 per security.
CSW and each Operating Subsidiary and/or their respective Investment
Subs will acquire all of the general partnership interests or common membership
interests, as the case may be, or will become the grantors and holders of the
junior trust certificates, of the SPE in an amount not to exceed 10% of the
<PAGE>
total equity capitalization or deposits from time to time of such SPE (the
aggregate of such investment or deposits by CSW or an Operating Subsidiary and
its Investment Sub being herein referred to in each case as the "Equity
Contribution"). CSW and each Operating Subsidiary may issue and sell to their
respective SPE the Debentures, at any time or from time to time, in one or more
series, and such SPE will apply both the Equity Contribution made to it and the
proceeds from the sale of Preferred Securities by it from time to time to
purchase Debentures of CSW and/or such Operating Subsidiary. CSW and/or the
Operating Subsidiaries may sell Debentures to and utilize the same SPE to issue
Preferred Securities. The payment rate, terms, redemption and other similar
provisions of the Preferred Securities will correspond to those of the
Debentures purchased from CSW and/or the Operating Subsidiaries, as the case may
be.
In order for the SPE to sell Preferred Securities up to the maximum
Offering Limit, CSW or an Operating Subsidiary will be required to issue
Debentures to such SPE in an amount equal to the maximum Offering Limit plus the
total Equity Contribution. CSW or the Operating Subsidiary selling such
Debentures to an SPE may or may not be the owner of the general partnership
interests or common member interests or the grantor or holder of the junior
trust certificates of such SPE. For example, CSW may own the common membership
interests of an SPE that purchases Debentures from WTU and PSO.
CSW or the Operating Subsidiary may redeem the Debentures held by an
SPE which is required to redeem the related series of Preferred Securities at a
price equal to their par or stated value or liquidation preference, as the case
may be, plus any accrued and unpaid dividends or distributions, upon the
occurrence of certain events, including the following: (i) the withholding or
deducting of certain amounts by the SPE in connection with distributions or
other payments or if the SPE may become subject to federal income tax with
respect to interest received on the Debentures issued to such SPE; or (ii) it is
determined that there is a risk that the interest payments by CSW or such
<PAGE>
Operating Subsidiary on its Debentures are not deductible by CSW or the
Operating Subsidiary for income tax purposes; or (iii) the SPE becomes subject
to regulation as an "investment company" under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Preferred Securities of any
series may also be subject to mandatory redemption upon the occurrence of
certain events. CSW and each Operating Subsidiary also may have the right in
certain cases to exchange the Preferred Securities of their respective SPE for
the related Debentures of CSW or such Operating Subsidiary.
3. GUARANTEES
CSW and each Operating Subsidiary may also guarantee (individually, a
"Guarantee" and collectively, the "Guarantees") (i) the payment of dividends or
distributions on the Preferred Securities of their respective SPE if and only to
the extent such SPE has declared dividends or distributions out of funds legally
available therefor; (ii) payments to the holder of Preferred Securities of
amounts due upon liquidation of such SPE or redemption of the Preferred
Securities; (iii) payments of certain additional amounts that may be payable in
respect of such Preferred Securities; and/or (iv) certain other matters.
4. TAXATION
It is expected that for Federal income tax purposes CSW's and each
Operating Subsidiary's interest payments on the Debentures issued by them will
be deductible and that their respective SPEs will be treated for tax purposes as
a grantor trust if organized as a trust or a partnership if organized as an LP
or LLC. Consequently, the SPEs will not be subject to Federal income tax as
entities. Holders of the Preferred Securities, CSW and each Operating Subsidiary
(and its respective Investment Sub), will be deemed to have received either
payments in respect of the Debentures or partnership distributions from their
respective SPE and will not be entitled to any "dividends received deductions"
under the Internal Revenue Code.
<PAGE>
In the event that any SPE is required to withhold or deduct certain
amounts in connection with dividends, distributions or other payments, the SPE
may have the obligation to "gross up" such payments so that the holders of the
Preferred Securities issued by such SPE will receive the same payment after
withholding or deduction as they would have received if no withholding or
deduction were required. CSW or the related Operating Subsidiary would be
required to make corresponding payments under the Debentures that would provide
SPE with sufficient funds to make the additional payment.
If any SPE is required to pay taxes with respect to income derived from
interest payments on the Debentures issued to it, CSW or the related Operating
Subsidiary may be required to pay such additional interest on the Debentures as
shall be necessary in order that net amounts received and retained by such SPE,
after the payment of such taxes, shall result in the SPEs having such funds as
it would have had in the absence of such payment of taxes.
5. LIQUIDATION, DISSOLUTION OR WINDING UP
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of any SPE, the holders of the Preferred Securities of
such SPE will be entitled to receive, out of the assets of such SPE available
for distribution to its members, partners or certificate holders, before any
distribution of assets to the common membership interest holders, general
partner, grantor or junior trust certificate holder of such SPE, an amount equal
to the par or stated value or liquidation preference of such Preferred
Securities plus any accrued and unpaid dividends or distributions.
6. CONSTITUENT INSTRUMENTS
The constituent instruments of each SPE, including its Trust Agreement,
Limited Liability Company Agreement or Limited Partnership Agreement, as the
case may be, will provide, among other things, that such SPE's activities will
be limited to (i) the issuance and sale of Preferred Securities from time to
time, (ii) the lending to CSW, an Operating Subsidiary or an Investment Sub of
<PAGE>
(a) the proceeds thereof and (b) the Equity Contribution to such SPE, and (iii)
certain other related activities. Accordingly it is proposed that no SPE's
constituent instruments include any interest or dividend coverage or
capitalization ratio restrictions on its ability to issue and sell Preferred
Securities because each such issuance will be supported by CSW or an Operating
Subsidiary Debenture and Guarantee and such restrictions would therefore not be
relevant or necessary for any SPE to maintain an appropriate capital structure.
Each SPE's constituent instruments will further state that its common
membership interests, general partnership interests or junior trust certificates
are not transferable (except to certain permitted successors), that its business
and affairs will be managed and controlled by CSW or the respective Operating
Subsidiary and/or their respective Investment Sub (or permitted successor), and
that CSW or such Operating Subsidiary (or permitted successor) will pay all
expenses of its SPE.
7. BENEFITS OF FINANCING PROGRAM
CSW and the Operating Subsidiaries believe that the proposed financing
programs will provide substantial benefits over traditional perpetual preferred
stock issuances. While CSW and the Operating Subsidiaries expect that a new
issue of the Debentures will carry a somewhat higher interest rate than the
dividend on a new issue of perpetual preferred stock, the fact that the interest
or dividend payments are tax deductible will mean increased cash flow and net
income and then ultimately lower cost of service. Moreover, CSW and the
Operating Subsidiaries have been informed by investment bankers that the market
for securities comparable to the Debentures or Preferred Securities currently is
the dominant market, thus affording potential benefits in the form of more
competitive pricing.
Cost savings for issuing Debentures or Preferred Securities in place of
traditional perpetual preferred stock are significant. CSW and each Operating
Subsidiary could currently issue Debentures or Preferred Securities with a
<PAGE>
coupon rate ranging from approximately 8.00% to 8.25%. This translates to an
after tax cost of approximately 5.20% to 5.36%, assuming a 35% tax rate. This
compares to an approximate current coupon rate for traditional perpetual
preferred stock ranging from 6.875% to 7.125% which is not tax deductible.
The Debentures, if issued to the public, would be classified in the
debt capitalization section as subordinated debt on CSW's and the Operating
Subsidiaries' balance sheets. The Debentures, if issued to the SPE, will not
appear on CSW's or the Operating Subsidiaries' balance sheets since they are
inter-company obligations. The Preferred Securities would be carried in the
non-debt capitalization section of CSW's and the respective Operating
Subsidiary's consolidated balance sheets as "Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary SPE Holding Solely Parent Junior
Subordinated Debentures". In the event that CSW or an Operating Subsidiary sells
Debentures to an SPE that it does not own the general partnership interests or
common membership interests of or is not the grantor or holder of the junior
trust certificates of, the Debentures would be classified in the debt
capitalization section as subordinated debt on CSW's or the Operating
Subsidiary's balance sheet and the preferred securities would be carried in the
non-debt capitalization section of the balance sheet as "Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary SPE Holding Solely
Parent Junior Subordinated Debentures" for the owner of the SPE.
CSW and each Operating Subsidiary requests authority to enter into
negotiations with underwriters with respect to the interest rate, redemption
provisions and other terms and conditions applicable to the Debentures and/or
Preferred Securities and to set the terms of the Debentures and Preferred
Securities subject to the receipt of an order under the Act if an order has not
been issued when CSW the Operating Subsidiary or SPE enters into an Underwriting
Agreement.
<PAGE>
8. USE OF PROCEEDS
CSW and each Operating Subsidiary, individually, expects to apply the
net proceeds of the Debentures to finance the replacement or retirement, through
redemption, repurchase or otherwise, of one or more series of outstanding first
mortgage bonds or preferred stock at the Operating Subsidiaries, or any
combination thereof (collectively, the "Old Securities"), for the payment of
outstanding short-term borrowings and for other general corporate purposes. At
November 30, 1996, CSW, CPL, PSO, SWEPCO and WTU had short-term debt of
approximately $224 million, $27 million, $19 million, $57 million and $8
million, respectively. All of the series of preferred stock for CPL, PSO, SWEPCO
and WTU are currently callable at prices ranging from 109% to 100%. CPL, PSO,
SWEPCO and WTU estimate that their construction costs during 1996 (inclusive of
allowance for funds used during construction) will be approximately $137
million, $68 million, $98 million and $42 million, respectively. The SPE, if
any, will use all the proceeds from any sale of Preferred Securities and Equity
Contribution to purchase a corresponding amount of Debentures.
If Debentures are issued by CSW, CSW requests authority to lend or make
equity contributions of the proceeds to the Operating Subsidiaries. The
Operating Subsidiaries would evidence such loans or equity contributions by the
issuance of notes, preferred securities and/or common stock to CSW. Such notes
and preferred securities would have substantially the same terms as the
Debentures issued by CSW.
9. COMPLIANCE WITH RULE 54
No proceeds from the sale of the Debentures will be used by CSW or any
subsidiary thereof for the direct or indirect acquisition of an interest in an
exempt wholesale generator, as defined in Section 32 of the Act ("EWG"), or a
foreign utility company, as defined in Section 33 of the Act ("FUCO"). Rule 54
promulgated under the Act states that in determining whether to approve the
issue or sale of a security by a registered holding company for purposes other
than the acquisition of an EWG or a FUCO, or other transactions by such
<PAGE>
registered holding company or its subsidiaries other than with respect to EWGs
or FUCOs, the Commission shall not consider the effect of the capitalization or
earnings of any subsidiary which is an EWG or a FUCO upon the registered holding
company system if Rule 53(a), (b) and (c) are satisfied. As set forth below, all
applicable conditions set forth in Rule 53(a) are, and, assuming the
consummation of the transactions proposed herein, will be, satisfied and none of
the conditions set forth in Rule 53(b) exist or will exist as a result of the
transactions proposed herein thereby satisfying such provision and making Rule
53(c) inapplicable.
CSW's "aggregate investment" (as defined under Rule 53(a) of the Act) in
EWGs and FUCOs as of September 30, 1996 was approximately $864 million, or
approximately 45% of CSW's "consolidated retained earnings" as of September 30,
1996. CSW thus satisfies Rule 53(a)(1). CSW will maintain and make available the
books and records required by Rule 53(a)(2). No more than 2% of the employees of
the Operating Subsidiaries will, at any one time, directly or indirectly, render
services to an EWG or FUCO in which CSW directly or indirectly owns an interest,
satisfying Rule 53(a)(3). And lastly, CSW will submit a copy of Item 9 and
Exhibits G and H of CSW's Form U5S to each of the public service commissions
having jurisdiction over the retail rates of CSW's operating utility
subsidiaries, satisfying Rule 53(a)(4).
D. MANAGING INTEREST RATES
In addition, CSW and the Operating Subsidiaries request authority to
manage interest rate risk, as appropriate, through the use of hedging products,
including interest rate swaps, forward swaps and caps and collars. CSW and the
Operating Subsidiaries request authority to enter into the foregoing types of
transactions from time to time in connection with the issuance of Debentures and
Preferred Securities.
CSW and the Operating Subsidiaries could use the interest rate swap
market to hedge against changes in the interest rates of variable rate
<PAGE>
Debentures by entering into a fixed-for-floating swap arrangement (CSW and/or
the Operating Subsidiaries pay a fixed rate to a counterparty and receive, in
return, a floating rate). In addition, CSW and the Operating Subsidiaries may be
able to realize a lower all-in rate in the synthetic fixed market than in the
natural cash fixed market. A synthetic fixed rate issuance is achieved by
issuing variable rate securities and simultaneously entering into a
fixed-for-floating interest rate swap. The variable rate amounts received by CSW
and/or the Operating Subsidiaries on the swap are used to pay the variable rate
interest on the Debentures, thereby leaving CSW and/or the Operating
Subsidiaries with a fixed rate payment. A natural cash fixed rate issuance is
achieved by simply issuing fixed rate securities.
CSW and the Operating Subsidiaries may also issue fixed rate Debentures
and then seek to effectively lower its interest costs on such Debentures by
entering into a floating-for-fixed interest rate swap arrangement (CSW and/or
the Operating Subsidiaries pay a floating rate to a counterparty and receive, in
return, a fixed rate). In this manner, CSW and/or the Operating Subsidiaries
would hope to take advantage of interest cost savings associated with short-term
interest rates. The floating rate payable by CSW and/or the Operating
Subsidiaries would be based upon a market index, such as LIBOR (London Interbank
Deposit Offered Rate), Federal Funds, reserve-adjusted certificate of deposit or
commercial paper rates. CSW and the Operating Subsidiaries may be required to
pay a margin in addition to such floating rate, which margin shall not be
greater than 5%. In such event, the fixed interest rate payable by the
counterparty would include the amount of such margin.
None of the interest rate swaps would be "leveraged". This means that
changes in interest payments or receipts under any interest rate swap due to
changes in the floating rate index used in the swap will not exceed the product
of the change in such index and the notional amount of that swap. In no event
would the aggregate notional amount of the interest rate swaps, at any one time,
<PAGE>
exceed the respective Offering Limits for CSW and the Operating Subsidiaries.
The interest rate swaps mentioned above may also be forward swaps,
whereby a swap agreement is entered into but the exchange of fixed and floating
payments does not begin until a future date, which is generally the call date on
outstanding Debentures.
CSW and the Operating Subsidiaries will only enter into swaps
permitting termination at the option of CSW and/or the Operating Subsidiaries
and CSW and/or the Operating Subsidiaries would exercise any such option for a
corresponding notional amount upon the redemption, reacquisition or maturation
of the corresponding Debentures. CSW's and/or the Operating Subsidiaries'
termination of its obligations under an interest rate swap agreement may require
CSW and/or the Operating Subsidiaries to pay an additional amount under the
terms of the swap agreement, which may be substantial depending upon market
conditions at the time of the termination.
In order to obtain flexibility in the event that market conditions with
respect to interest rates change after CSW and/or the Operating Subsidiaries
have entered into an interest rate swap agreement as described herein, CSW and
the Operating Subsidiaries also request authorization to enter into reverse (or
offsetting) interest rate swap agreements, or other contractural arrangements,
in order to limit the impact of anticipated movements in interest rates or
offset the effect of existing interest rate swap agreements.
If CSW and the Operating Subsidiaries issue variable rate Debentures,
they propose to manage interest rate risk through the use of interest rate caps
("Caps") and interest rate collars ("Collars"). CSW and the Operating
Subsidiaries therefore request authority from time to time during the life of
the Debentures to purchase Caps and Collars in respect of outstanding
Debentures. Caps and Collars are designed to mitigate and/or transfer interest
rate risk and, from CSW's and the Operating Subsidiaries' perspective, are not
<PAGE>
for speculative purposes. CSW and/or the Operating Subsidiaries may elect to
purchase a Cap to limit its exposure to rising interest rates. CSW and/or the
Operating Subsidiaries may also elect to enter into a Collar, which consists of
purchasing a Cap together with the sale of an interest rate floor ("Floor"). CSW
and the Operating Subsidiaries will only sell a Floor if it is part of a Collar.
The parties to a Cap agree upon a set interest rate, or "strike rate"
that will apply to series of Debentures. If the interest rate on the capped
Debentures exceeds the strike rate during the term of the Cap, the Cap provider
pays to CSW and/or the Operating Subsidiaries the difference between the strike
rate and the actual interest rate of the Debentures. CSW and/or the Operating
Subsidiaries, however, continue to make interest payments on the Debentures at
the actual interest rate.
A Floor is essentially the opposite of a Cap. As with a Cap, the
parties to a Floor agree on a strike rate. When the actual interest rate on the
Debentures subject to a Floor falls below the Floor strike rate, CSW and/or the
Operating Subsidiaries must pay to the Floor provider the difference between the
actual interest rate and the Floor strike rate. CSW and/or the Operating
Subsidiaries would continue to make interest payments on the Debentures at the
actual interest rate.
Caps and Collars are purchased from a Cap or Collar "provider", at a
purchase price based on a percentage of the aggregate principal amount of the
Debentures to be capped or collared. The cost of a Cap or a collar is determined
by reference to prevailing interest rates, the proposed duration of the Cap or
Collar and the proposed Cap and Floor strike rates. The longer the duration of a
Cap or Collar, the higher the price. The lower the Cap strike rate, the more
expensive the Cap is and the higher the Floor strike rate, the greater the
offset from the Cap price. The maximum CSW and/or the Operating Subsidiaries
would spend on a ten year Cap would be 10% of the aggregate principal amount of
<PAGE>
the Debentures then outstanding, and the actual cost would be expected to be
less than 10%.
Caps and Collars are designed to mitigate interest rate risk and do not
expose CSW and the Operating Companies to financial or other risks. If the
actual interest rate on the Debentures does not exceed the Cap strike rate at
any time during the term of the Cap, then CSW and/or the Operating Subsidiaries
will neither benefit from nor be exposed to risk by the Cap or Collar. If the
actual interest rate falls below and remains below the Floor strike rate, CSW
and/or the Operating Subsidiaries will be required to pay interest at the Floor
strike rate. Also, CSW and the Operating Subsidiaries are subject to the credit
risk on the Cap provider's ability to make payments on the Cap.
While Caps and Collars purchased for the Debentures may remain
outstanding when the underlying Debentures are retired, CSW and/or the Operating
Subsidiaries propose to terminate any Caps or Collars upon retirement of the
corresponding Debentures. If CSW and/or the Operating Subsidiaries wish to
terminate a Cap or Collar when interest rates on the Debentures are between the
Floor strike rate and Cap strike rate, they would receive a portion of the
original cost of the Cap or Collar in return, or receive nothing, depending on
interest rates and the remaining term of the Cap or Collar. If CSW and/or the
Operating Subsidiaries seek to terminate a Collar when the actual interest rate
is below the Floor strike rate, CSW and/or the Operating Subsidiaries may be
required to pay a termination fee based upon the value of the Collar to the
Floor provider at the time.
Under Rule 24 of the Act, within 45 days after the end of each quarter
in which CSW and/or the Operating Subsidiaries have outstanding any Caps or
Collars as described herein relating to the Debentures, CSW and/or the Operating
Subsidiaries shall file a certificate with the Commission disclosing the
following information with respect to each such Cap or Collar: (a) the
transaction date, (b) the type of transaction (either a Cap or Collar), (c) the
<PAGE>
notional amount, (d) the name of the counterparty and (e) a description of the
material terms, including the maturity or termination date and the Cap and/or
Floor strike rates. Such certificate shall also disclose the market value of all
open Cap or Collar positions at the end of each quarter and any gains or losses
realized from the liquidation of any Cap or Collar positions during such
quarter.
E. REPURCHASE OF OLD SECURITIES
The Operating Subsidiaries may also acquire any or all of one or more
series of the Old Securities from time to time through December 31, 2001 in open
market and negotiated transactions. Any such acquisitions will be made with
internally generated funds or short-term borrowings. Acquisitions would only be
made if the Operating Subsidiary determined that it would be in the best
interest of the Operating Subsidiary to do so based on, among other things, the
interest rate or dividends payable on the securities, the Operating Subsidiary's
financing plans and capital structure and the Operating Subsidiary's then
current cash position. The Operating Subsidiary may make purchases of Old
Securities in light of opportunities which arise to make such purchases at a
time when the respective Operating Subsidiary is not engaged in a refinancing or
to purchase Old Securities which are not redeemable pursuant to terms of an
indenture.
F. TENDER OFFER FOR THE OLD SECURITIES
If an Operating Subsidiary determines to acquire some or all of the Old
Securities, it may do so through a tender offer (the "Tender Offer") to the
holders of the Old Securities to purchase all or a portion of one or more series
of the Old Securities for cash. The Tender Offer may be conditioned upon receipt
of a certain percentage of the outstanding Old Securities. The Tender Offer
price would be based on a number of factors, including the coupon rate or
dividend payable on the Old Securities, the date of expiration of the refunding
protection of the Old Securities (on which date the Operating Subsidiary,
depending on the prevailing interest rates, may be presumed to redeem the Old
<PAGE>
Securities), the redemption price on such expiration date and the then current
market rates for similar securities, all of which are relevant to the decision
of an informed holder of the Old Securities as to whether to hold or sell the
Old Securities. A holder of an Old Security may be offered a fixed price for
their Old Securities, or the Tender Offer may be a "fixed spread" offer pursuant
to which the Operating Subsidiary will offer a price based upon a fixed spread
over comparable treasuries. The Tender Offer will be conducted in accordance
with standard market practice, I.E., the length of time the offer will be held
open, the method of solicitation, etc., at the time of the Tender Offer. The
Operating Subsidiary may commence a Tender Offer to holders of Old Securities
prior to the receipt of an order under the Act, provided that completion of the
Tender Offer is subject to receipt of an order.
Each Operating Subsidiary proposes to retain an investment banking firm
(to be chosen) experienced in such matters to act as the Operating Subsidiary's
tender agent and dealer manager for any Tender Offer. The dealer manager will
act as the Operating Subsidiary's agent in disseminating the Tender Offer and
receiving responses thereto. As a dealer manager, the investment banking firm
will not itself become obligated to purchase or sell any of the Old Securities.
The dealer manager's fee will be determined following negotiation and
investigation of fees in similar transactions and will include reasonable
out-of-pocket expenses and attorney's fees. It is anticipated that the Operating
Subsidiary will be required, as is customary, to indemnify the dealer manager
for certain liabilities. The Operating Subsidiary may also retain a depositary
to hold the tendered Old Securities pending the purchase thereof and/or an
information agent to assist in the Tender Offer. In the event that an agreement
with any of the aforementioned parties is negotiated, the Operating Subsidiary
will file by amendment drafts of the dealer manager agreement, depositary
agreement and/or information agent agreement. <PAGE>
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
Assuming an issue of one series of Debentures, Preferred Securities and
Guarantees for CSW and each Operating Subsidiary, other than the Cash Payments
and the applicable Purchase Prices described in Item 1, an estimate of the fees
and expenses, other than underwriting discounts and commissions, to be paid or
incurred by CSW and the Operating Subsidiaries in connection with the proposed
transactions is set forth below:
CSW CPL PSO SWEPCO WTU
Holding Company * * * * *
Act filing fees
Securities Act 151,516 106,061 30,304 45,455 24,243
Registration fees
Printing 20,000 20,000 20,000 20,000 20,000
Fees of Trustees 10,000 10,000 10,000 10,000 10,000
Fees of Rating Agencies 50,000 30,000 15,000 20,000 10,000
Blue Sky Fees and Expenses 1,250 1,250 1,250 1,250 1,250
Expenses of Central and 3,000 3,000 3,000 3,000 3,000
South West Services, Inc.
Outside Counsel Fees:
Proxy 150,000 50,000 50,000 50,000 50,000
Solicitation and Offer
Each Offering 80,000 80,000 80,000 80,000 80,000
Information Agent 15,000 15,000 15,000 15,000 15,000
Dealer Manager Fees N/A 233,750 49,475 125,000 15,000
Depositary Fees 30,000 N/A N/A N/A N/A
Broker/Dealer Fees N/A 701,250 148,425 375,000 45,000
Miscellaneous 4,234 4,689 2,546 5,295 1,507
----- ----- ----- ----- -----
Total 515,000 1,255,000 422,454 750,000 275,000
------- --------- ------- ------- -------
- ----------------------
* A $2,000 fee has been paid with respect to the filing requirement under the
Act.
The fees and expenses include those charges incurred for the services
of Central and South West Services, Inc. ("CSWS"), an affiliated service company
<PAGE>
of CSW operating pursuant to Section 13 of the Act and the rules thereunder. The
services of CSWS will consist principally of services performed by the Treasury
Department and the Accounting Department. ITEM 3. APPLICABLE STATUTORY
PROVISIONS.
Section 12(e) of the Act and Rules 62 and 65 thereunder are applicable
to the Proxy Solicitation. Section 12(e) and Rule 65 are, and Section 6(a)(2)
may be, deemed applicable to Cash Payments. Section 6(a)(2) is applicable to the
Proposed Amendments. Sections 9(a) and 10 and Rule 51 are applicable to the
acquisition by CSW of Shares pursuant to the Offer; CSW hereby represents that
the conditions of Rule 51 will be satisfied in respect of the acquisition by CSW
of Shares pursuant to the Offer. Sections 9(a), 10 and 12(c) are applicable to
the reacquisition by the Operating Subsidiaries of the Shares tendered to CSW
pursuant to the Offer. Rule 42 of the Act may also be deemed applicable to the
reacquistion.
Sections 6(a) and 7 of the Act are applicable to the issuance of the
Debentures and Guarantees by each Operating Subsidiary. Sections 9(a), 10 and
12(b) of the Act and Rule 45 under the Act are or may be applicable to the
acquisition by each Operating Subsidiary of shares of capital stock, membership
interests, partnership interests or trust certificates of its SPE and any shares
of the capital stock of its respective Investment Sub, the acquisition by each
Operating Subsidiary's respective Investment Sub of shares of the capital stock,
membership interests, partnership interests or trust certificates of the SPE,
and the acquisition by the SPE of the Debentures and Guarantees. Sections 6(a)
and 7 of the Act are applicable to the issue and sale of the Preferred
Securities by each SPE. Rule 54 is also applicable to the proposed transactions.
To the extent that the Commission determines that any other provision of the Act
or rule thereunder is applicable to the proposed transactions, CSW and the
Operating Subsidiaries request an order or orders thereunder.
<PAGE>
The Commission has previously approved registered holding company
solicitations of consents from preferred stockholders to eliminate charter
restrictions on unsecured debt as well as the payment of monetary consideration
in connection with the consent of security holders. SEE, E.G., Cinergy Corp.,
ET. AL., 62 S.E.C. 2212 (1996), HCAR No. 26569; Alabama Power Company, 57 S.E.C.
1448 (1994), HCAR No. 26118; The Cincinnati Gas and Electric Company, 60 S.E.C.
829 (1995), HCAR No. 26381; and Middle South Utilities, Inc., ET.AL., 39 S.E.C.
629 (1987), HCAR No. 24482. Under the standards of the Act, the Commission's
test in reviewing alterations of the rights of preferred stockholders is
fairness and equity. SEE, E.G., Commonwealth & Southern Corporation, 25 S.E.C.
505 (1947), HCAR No. 7337. In the present instance, each preferred stockholder
of the Operating Subsidiaries has available to it a range of options in
connection with the proposal to abolish the 20% and 10% Provisions, including in
certain circumstances the ability to tender Shares and (if the proposed
Amendment is adopted) receive payment at a premium price above market. In
addition, preferred stockholders who do not wish to participate in the Offer may
retain their shares, vote in favor of the Proposed Amendment, and, if it is
adopted, receive a special cash payment. This "option package" which may be
granted to each and every Operating Subsidiary preferred stockholder in
connection with the transactions clearly is fair and equitable under the
circumstances. ITEM 4. REGULATORY APPROVAL.
The issuance of Debentures by PSO will have been authorized by the
Corporation Commission of the State of Oklahoma.
No other state regulatory authority and no federal regulatory
authority, other than the Commission, has jurisdiction over the proposed
transactions.
The Operating Subsidiaries consider that the SPE will be exempt from
regulation under the Investment Company Act of 1940, as amended, pursuant to the
<PAGE>
"finance company" exemption afforded by Rule 3a-5 or the Rule 3a-7 exemption
under such Act.
ITEM 5. PROCEDURE.
As stated in Item 1, the Company respectfully requests that the
Commission issue the order authorizing the Proxy Solicitation and issue and
publish no later than January 7, 1997, the requisite notice under Rule 23 with
respect to the filing of this Application-Declaration, such notice to specify a
date not later than February 10, 1997, as the date after which a second order
granting and permitting this Application-Declaration to become effective may be
entered by the Commission and the Commission enter not later than February 11,
1997, an appropriate second order granting and permitting this
Application-Declaration to become effective.
The Company respectfully requests that appropriate and timely action be
taken by the Commission in this matter in order to permit consummation of the
proposed transactions in accordance with the schedule outlined above.
No recommended decision by a hearing officer or any other responsible
officer of the Commission is necessary or required in this matter. The Division
of Investment Management of the Commission may assist in the preparation of the
Commission's decision in this matter. There should be no 30-day waiting period
between the issuance and the effective date of any order issued by the
Commission in this matter; and it is respectfully requested that any such order
be made effective immediately upon the entry thereof. ITEM 6. EXHIBITS AND
FINANCIAL STATEMENTS.
Exhibit 1(a) - Restated Articles of Incorporation, as amended,
of CPL (incorporated herein by reference to Exhibit 4(a)
to CPL's Registration Statement No. 33-4897, Exhibits 5
and 7 to Form U-1, File No. 70-7171, Exhibits 5, 8.1,
8.2 and 19 to Form U-1, File No. 70-7472 and CPL's Form
10-Q for the quarterly period ended September 30, 1992,
ITEM 6, Exhibit 1).
Exhibit 1(b) - Restated Certificate of Incorporation of PSO
(incorporated herein by reference to Exhibit 3 to PSO's
1987 Form 10-K, File No. 0-343).
Exhibit 1(c) - Restated Certificate of Incorporation, as
amended, of SWEPCO (incorporated herein by reference to
<PAGE>
Exhibit 3 to SWEPCO's 1980 Form 10-K, File No. 1-3146,
Exhibit 2 to Form U-1, File No. 70-6819, Exhibit 3 to
Form U-1, File No. 70-6924 and Exhibit 4 to Form U-1,
File No. 70-7360).
Exhibit 1(d) - Restated Articles of Incorporation, as amended,
of WTU (incorporated herein by reference to Exhibit 3(e)
1 to WTU's 1994 Form 10-K, File No. 0-340).
Exhibit 2 - Form of Offer to Purchase and Proxy Statement (to be
filed by amendment).
Exhibit 3 - Form of Notice of Special Meeting (to be filed by
amendment).
Exhibit 4 - Form of Proxy (to be filed by amendment).
Exhibit 5 - Draft form of Letter of Transmittal (to be filed by
amendment).
Exhibit 6(a) - Form of Limited Partnership Agreement of Special
Purpose Subsidiary (to be filed by amendment).
Exhibit 6(b) - Form of Trust Agreement of Special Purpose
Subsidiary (to be filed by amendment).
Exhibit 6(c) - Form of Limited Liability Company Agreement of
Special Purpose Subsidiary (to be filed by amendment).
Exhibit 7 - Form of Action of General Partner (to be filed by
amendment).
Exhibit 8 - Form of Indenture (to be filed by amendment).
Exhibit 9 - Form of Supplemental Indenture including Form of
Debenture (to be filed by amendment).
Exhibit 10 - Form of Guarantee (to be filed by amendment).
Exhibit 11 - Form of Underwriting Agreement (to be filed by
amendment).
Exhibit 12(a) -Registration Statement filed by CSW under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof (to be
filed by amendment).
Exhibit 12(b) -Registration Statement filed by CPL under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof (to be
filed by amendment).
Exhibit 12(c) -Registration Statement filed by PSO under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof (to be
filed by amendment).
Exhibit 12(d) -Registration Statement filed by SWEPCO under the
Securities Act of 1933, as amended, relating to the
<PAGE>
various securities which are the subject hereof (to be
filed by amendment).
Exhibit 12(e) -Registration Statement filed by WTU under the
Securities Act of 1933, as amended, relating to the
various securities which are the subject hereof (to be
filed by amendment).
Exhibit 13 - Preliminary Opinion of Milbank, Tweed, Hadley &
McCloy, counsel to the Operating Subsidiaries (to be
filed by amendment).
Exhibit 14 - Proposed Notice of Proceeding.
Exhibit 15 - Financial Statements per books and pro forma as of
___________ of CSW and Operating Subsidiaries (to be
filed by amendment).
Exhibit 16 - Final or "past tense" opinion of Milbank, Tweed,
Hadley & McCloy, Counsel to the Operating Subsidiaries
(to be filed with Certificate of
Notification).
Exhibit 17 - Application to the Corporation Commission of the
State of Oklahoma for authority to issue and sell the
debentures (to be filed by amendment).
Exhibit 18 - Order of State Commissions referred to in Exhibit 17
(to be filed by amendment).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
As described in Item 1, the proposed transactions are of a routine and
strictly financial nature in the ordinary course of the respective Operating
Subsidiary's business. Accordingly, the Commission's action in this matter will
not constitute any major federal action having a significant effect on the human
environment. To the best of CSW's and the Operating Subsidiaries' knowledge, no
federal agency has prepared or is preparing an environmental impact statement
with respect to the proposed transactions.
<PAGE>
S I G N A T U R E
- - - - - - - - -
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned company has duly caused this document to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: December 20, 1996
CENTRAL AND SOUTH WEST CORPORATION
By:/S/ WENDY G. HARGUS
Wendy G. Hargus
Treasurer
CENTRAL POWER AND LIGHT COMPANY
By: /S/ WENDY G. HARGUS
Wendy G. Hargus
Treasurer
PUBLIC SERVICE COMPANY OF OKLAHOMA
By: /S/ WENDY G. HARGUS
Wendy G. Hargus
Treasurer
SOUTHWESTERN ELECTRIC POWER COMPANY
By: /S/ WENDY G. HARGUS
Wendy G. Hargus
Treasurer
WEST TEXAS UTILITIES COMPANY
By: /S/ WENDY G. HARGUS
Wendy G. Hargus
Treasurer
<PAGE>
INDEX OF EXHIBITS
EXHIBIT TRANSMISSION
NUMBER EXHIBITS METHOD
- ------- -------- ------------
1(a) CPL Restated Articles of Incorporation. Incorporated
By Reference
1(b) PSO Restated Certificate of Incorporation. Incorporated
By Reference
1(c) SWEPCO Restated Certificate of Incorporation. Incorporated
By Reference
1(d) WTU Restated Articles of Incorporation. Incorporated
By Reference
2 Form of Offer to Purchase and Proxy ---
Statement (to be filed by amendment).
3 Form of Notice of Special Meeting (to be filed ---
by amendment).
4 Form of Proxy (to be filed by amendment). ---
5 Draft Form of Letter of Transmittal (to be ---
filed by amendment).
6(a) Form of Limited Partnership Agreement of ---
Special Purpose Subsidiary (to be filed
by amendment).
6(b) Form of Trust Agreement of Special Purpose ---
Subsidiary (to be filed by amendment).
6(c) Form of Limited Liability Company Agreement ---
of Special Purpose Subsidiary (to be filed
by amendment).
7 Form of Action of General Partner (to be ---
filed by amendment).
8 Form of Indenture (to be filed by amendment). ---
9 Form of Supplemental Indenture including ---
Form of Debenture (to be filed by amendment).
10 Form of Guarantee (to be filed by amendment). ---
11 Form of Underwriting Agreement (to be filed ---
by amendment).
<PAGE>
INDEX OF EXHIBITS
(CONTINUED)
EXHIBIT TRANSMISSION
NUMBER EXHIBITS METHOD
- ------- -------- ------------
12(a) Registration Statement filed by CSW under ---
the Securities Act of 1933, as amended,
relating to the various securities which
are the subject hereof (to be filed by
amendment).
12(b) Registration Statement filed by CPL under ---
the Securities Act of 1933, as amended,
relating to the various securities which
are the subject hereof (to be filed by
amendment).
12(c) Registration Statement filed by PSO under ---
the Securities Act of 1933, as amended,
relating to the various securities which
are the subject hereof (to be filed by
amendment).
12(d) Registration Statement filed by SWEPCO ---
under the Securities Act of 1933, as
amended, relating to the various securities
which are the subject hereof (to be filed
by amendment).
12(e) Registration Statement filed by WTU under ---
the Securities Act of 1933, as amended,
relating to the various securities which
are the subject hereof (to be filed by
amendment).
13 Preliminary Opinion of Milbank, Tweed,
Hadley & McCloy, counsel to the Operating
Subsidiaries (to be filed by amendment).
14 Proposed Notice of Proceeding. Electronic
15 Financial Statements per books and pro ---
forma as of ___________ of CSW and
Operating Subsidiaries (to be filed by
amendment).
16 Final or "past tense" opinion of Milbank, ---
Tweed, Hadley & McCloy, Counsel to the Operating Subsidiaries (to
be filed with Certificate of Notification).
<PAGE>
INDEX OF EXHIBITS
(CONTINUED)
EXHIBIT TRANSMISSION
NUMBER EXHIBITS METHOD
- ------- -------- ------------
17 Application to the Corporate Commission of the ---
State of Oklahoma for authority to issue and
sell the Debentures (to be filed by amendment).
18 Order of State Commissions referred to in ---
Exhibit 17 (to be filed by amendment).
<PAGE>
EXHIBIT 14
----------
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35 - _______________)
Filings Under the Public Utility Holding Company Act of 1935 ("Act")
________________, 1997
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to the provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendment(s) thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
__________, 1997 to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the relevant applicant(s) and/or
declarant(s) at the address(es) specified below. Proof of service (by affidavit
or, in the case of an attorney at law, by certificate) should be filed with the
request. Any request for hearing shall identify specifically the issues of fact
or law that are disputed. A person who so requests will be notified of any
hearing, if ordered, and will receive a copy of any notice or order issued in
the matter. After said date, the application(s) and/or declaration(s), as filed
or as amended, may be granted and/or permitted to become effective.
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION, ET AL. (70- )
Central and South West Corporation ("CSW"), a registered holding
company located at 1616 Woodall Rodgers Freeway, Dallas, TX 75202, and four of
its operating subsidiaries, Central Power and Light Company ("CPL"), 539 N.
Carancahua Street, Corpus Christi, TX 78401-2802, Public Service Company of
Oklahoma ("PSO"), 212 East Sixth Street, Tulsa, Oklahoma 74119-1212,
Southwestern Electric Power Company ("SWEPCO"), 428 Travis Street, Shreveport,
Louisiana 71156-0001, and West Texas Utilities Company ("WTU"), 301 Cypress
Street, Abilene, Texas 79601-5820, (collectively, "Operating Subsidiaries" and
with CSW, the "Companies") have filed an application-declaration under Sections
6(a), 7, 9(a), 10, 12(b), 12(c) and 12(e) of the Act and Rules 42, 45, 51, 54,
62 and 65 thereunder.
The Operating Subsidiaries' amended Articles of Incorporation or
Certificates of Incorporation, as the case may be, (collectively, the
"Articles") currently provide that, without the consent of the holders of not
less than a majority of the total number of shares of preferred stock of all
series then outstanding for each Operating Subsidiary, an Operating Subsidiary
may not issue or assume any securities representing unsecured indebtedness
(other than for purposes of refunding or renewing outstanding unsecured
indebtedness resulting in later maturities or funding existing unsecured
indebtedness) if, immediately after such issue or assumption, (1) the total
outstanding principal amount of all securities representing unsecured debt would
exceed 20% of the aggregate of: (i) the total principal amount of all then
outstanding secured debt of the relevant Operating Subsidiary; and (ii) the
capital and surplus of the relevant Operating Subsidiary, as stated on the
relevant Operating Subsidiary's books ("20% Limitation") or (2) the principal
amount on all unsecured obligations maturing in less than ten years, issued or
assumed by the relevant Operating Subsidiary and then outstanding, computed as
provided by the Articles, would exceed 10% of such aggregate ("10% Limitation").
Each of the Operating Subsidiaries' outstanding shares of common stock ("Common
Stock"), are held by CSW. The Operating Subsidiaries' cumulative outstanding
<PAGE>
preferred stock, all of which is publicly held, consists of 3,292,900 shares of
cumulative preferred stock, par value $100 per share ("Preferred Stock"), issued
in fourteen series (each a "Series").1 The Common Stock and Preferred Stock of
each series are entitled to one vote per share for purposes of the proposed
amendments described below.
The Operating Subsidiaries propose to submit to the holders of the
outstanding shares of Preferred Stock of all Series, and to CSW, as the sole
holder of all the outstanding shares of Common Stock, a proposal to amend the
Articles of each Operating Subsidiary to eliminate the 20% and 10% Limitations
by deleting them in their entirety from the Articles of each Operating
Subsidiary ("Proposed Amendments").2 As to each Operating Subsidiary, approval
of the Proposed Amendments requires the affirmative vote at a special meeting
(in person by ballot or by proxy) or by consent in lieu of a special meeting of
the holders of not less than two-thirds of the total number of shares of
Preferred Stock of all Series, voting together as a class, and two-thirds of the
- ----------------------
1 CPL has seven series of Preferred Stock consisting of a MMP Series, of
which 750,000 shares are outstanding; an ARP Series A, of which 425,000
shares are outstanding; an ARP Series B of which 425,000 shares are
outstanding; an 8.72% Series, of which 500,000 shares are outstanding; a
7.12% Series, of which 260,000 shares are outstanding; a 4.20% Series, of
which 75,000 shares are outstanding; and a 4.00% Series, of which 100,000
shares are outstanding. PSO has two series of Preferred Stock consisting
of a 4.24% Series, of which 100,000 shares are outstanding and a 4.00%
Series, of which 97,900 shares are outstanding. SWEPCO has four series of
Preferred Stock consisting of a 6.95% Series, of which 340,000 shares are
outstanding; a 5.00% Series, of which 75,000 shares are outstanding; a
4.65% Series, of which 25,000 shares are outstanding; and a 4.28% Series,
of which 60,000 shares are outstanding. WTU has one series of Preferred
Stock consisting of a 4.40% Series, of which 60,000 shares are
outstanding.
2 The Operating Subsidiaries state that they are seeking to eliminate the
20% and 10% Limitations because they impede the Operating Subsidiaries'
ability to fully avail themselves of the benefits of unsecured debt in
order to maintain financial flexibility and minimize their financing
costs, and thus work to the detriment of the Operating Subsidiaries'
utility customers and, indirectly, the Operating Subsidiaries' investors.
The Operating Subsidiaries also state that they may eventually be at a
competitive disadvantage if the 20% and 10% Limitations are not removed
because new competitors in the utility industry (such as power marketers,
independent power producers and owners of cogeneration facilities)
generally are not subject to similar financing restrictions in their
organizational documents.
<PAGE>
Common Stock. CSW has informed the Operating Subsidiaries that it will vote the
Common Stock in favor of the Proposed Amendments. The Operating Subsidiaries
each propose to either submit the Proposed Amendments for consideration and
action at a special meeting of their stockholders to be held as soon as possible
(each a "Special Meeting" and collectively, the "Special Meetings") or to seek
consents in lieu of a Special Meeting. If the Proposed Amendments are submitted
at a Special Meeting, the Operating Subsidiaries propose to solicit proxies from
the holders of their outstanding shares of Preferred Stock and Common Stock for
use at such Special Meeting ("Proxy Solicitation").3 If the Proposed Amendments
are adopted, each Operating Subsidiary will make a special cash payment ("Cash
Payment") to each of its preferred stockholders who voted (in person, by ballot
or by proxy), his or her shares of Preferred Stock (each a "Share") in favor of,
or gave consent to, the adoption of the Proposed Amendments (except that no Cash
Payment will be made with respect to any Share validly tendered pursuant to any
concurrent tender offer described below). Any Cash Payments will be disbursed
out of the applicable Operating Subsidiary's general funds.
Concurrently with or shortly before the commencement of the Proxy
Solicitation by the Operating Subsidiaries, and subject to the terms and
conditions stated in an Offer to Purchase and Proxy Statement and accompanying
Letters of Transmittal and Proxy (collectively, the "Offer Documents"), CSW
proposes to make an offer ("Tender Offer") to acquire from the holders of the
Preferred Stock of certain Series any and all Shares of those Series (except for
CPL's MMP, ARP Series A and ARP Series B for which no Tender Offer will be
made), at respective cash purchase prices to be determined based on market
conditions (each, a "Purchase Price").4 Additionally, the Operating Subsidiaries
- ---------------------
3 The Operating Subsidiaries will engage an information agent in connection
with the Proxy Solicitation. The information agent will be paid a fee and
reimbursed for its reasonable out-of-pocket expenses totaling
approximately $75,000.
4 The Proxy Solicitation and Tender Offer, except with respect to CPL, will
be effectuated by means of the same core document: a combined proxy
statement and issuer tender offer statement filed under the Securities
Exchange Act of 1934 ("Exchange Act") and the applicable rules and
regulations thereunder. Applicants state that they will comply fully with
all requirements of the Exchange Act and the rules and regulations
thereunder applicable to the Proxy Solicitation and Tender Offer, and
acknowledge that any Commission authorization granted under the Act is
conditioned upon such compliance. Applicants also state that the Tender
Offer will satisfy the requirements of Rule 51 under the Act.
<PAGE>
may call certain series of preferred stock at the applicable price. The Purchase
Price would be based on a number of factors, including the dividend payable of
the preferred stock, the redemption price on the date of acquisition and the
then current market rates for similar securities, all of which are relevant to
the decision of an informed holder of the preferred stock as to whether to hold
or sell the preferred stock. The Tender Offer will consist of separate offers
for certain of the outstanding Series, except for CPL's MMP Series, ARP Series A
and ARP Series B for which no Tender Offer will be made, and each Tender Offer
will be independent from the Tender Offer for any other Series. Applicants
anticipate that the Tender Offer will expire at 5:00 p.m. on March 6, 1997
("Expiration Date"), but it may be extended or terminated early under certain
circumstances.5 Tenders of Shares made pursuant to the Tender Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders
- -------------------------
5 The Offer Documents provide that, at any time or from time to time, CSW
may extend the Expiration Date applicable to any Series, without extending
the Expiration Date for any other Series, by giving notice of such
extension to the depositary ("Depositary"). During any such
extension, all Shares of the applicable Series previously tendered
will remain subject to the Tender Offer, and may be withdrawn at any
time prior to the Expiration Date as extended. Conversely, CSW may elect
in its sole discretion to terminate the Tender Offer prior to the
scheduled Expiration Date and not accept for payment and pay for Shares
tendered, subject to applicable provisions of the Exchange Act requiring
CSW either to pay the consideration offered or to return the tendered
Shares promptly after the termination or withdrawal of the Tender Offer,
upon the occurrence of any of the conditions of closing enumerated in the
Offer Documents, by giving notice of such termination to the Depositary
and making a public announcement thereof. Subject to compliance with
applicable law, CSW also reserves the right in the Offer Documents, in its
sole discretion, to amend the Tender Offer or the information concerning
the Tender Offer, or if it waives a material condition of the Tender Offer
(such as the potential condition, mentioned below, that the Proposed
Amendments be adopted), CSW will extend the Expiration Date to the extent
required by the applicable provisions of the Exchange Act and the rules
promulgated thereunder.
<PAGE>
will be irrevocable, subject to certain exceptions identified in the Offer
Documents. The Tender Offer will not be conditioned upon any minimum number of
Shares of the applicable Series being tendered. However, CSW's obligation to
proceed with the Tender Offer and to accept for payment and to pay for any
Shares tendered will be subject to the receipt of Commission authorization under
the Act to acquire the tendered shares and may be subject to various conditions
enumerated in the Offer Documents, including the approval and adoption of the
Proposed Amendments. If Special Meetings are held, the Tender Offer may also be
conditioned upon the tendering preferred stockholder validly casting a vote (in
person, by ballot or by proxy) in favor of the applicable Proposed Amendment at
the applicable Special Meeting. Shares validly tendered will be held by CSW
until the Expiration Date (or returned in the event the Tender Offer is
terminated). Subject to the terms and conditions of the Offer Documents, as
promptly as practicable after the Expiration Date, CSW will accept for payment
(and thereby purchase) and pay for the Shares validly tendered and not
withdrawn.6 CSW is requesting authority to use its general funds and/or funds
borrowed pursuant to its commercial paper program (see HCAR No. 26254, March 21,
1995) to pay for the tendered Shares on an interim basis until such tendered
shares can be reacquired by the Operating Subsidiaries as described below. CSW
will select one or more dealer managers in connection with the Tender Offer.7
- ---------------------
6 With respect to Shares validly tendered and accepted for payment by CSW,
each tendering preferred stockholder will be entitled to receive as
consideration from CSW only the applicable Purchase Price (which may
reflect a premium over the current market price at the commencement of the
Tender Offer). Any such holder will not be entitled to receive additional
consideration in the form of a Cash Payment from the Operating
Subsidiaries with respect to such tendered Shares. The latter payment will
be payable by the Operating Subsidiaries solely in respect of Shares voted
in favor of the Proposed Amendments by preferred stockholders, provided
that (a) such Shares have not been tendered pursuant to the Tender Offer
and (b) the Proposed Amendments are adopted.
7 CSW will pay the dealer manager(s) a fee based on negotiation and
investigation of fees in similar transactions for any Shares
tendered, accepted for payment and paid for pursuant to the Tender
Offer and to reimburse the dealer managers for their reasonable
out-of-pocket expenses, including attorney's fees. In addition,
CSW has agreed to pay soliciting brokers and dealers a separate fee for
any Shares tendered, accepted for payment and paid for pursuant to the
Tender Offer. CSW expects to pay a depositary fee of approximately
$30,000.
<PAGE>
If the Proposed Amendments are adopted, promptly after consummation of
the Tender Offer, the Operating Subsidiaries will reacquire, at the respective
Purchase Price, all the Shares tendered to and acquired by CSW pursuant to the
Tender Offer, and the Operating Subsidiaries will thereupon retire and cancel
such Shares. The Operating Subsidiaries intend to use their general funds to
reacquire the Shares. If adoption of the Proposed Amendments is a condition to
the Tender Offer and the Proposed Amendments are not adopted, CSW, subject to
applicable law, may elect, but is not obligated, to waive adoption of the
Proposed Amendments as a condition to its obligation to proceed with the Tender
Offer. In that case, as promptly as practicable after CSW's waiver of such
condition and its purchase of the Shares validly tendered pursuant to the Tender
Offer, the Operating Subsidiaries (after requesting and receiving any additional
Commission authorizations required under the Act) anticipate that they would
each call a new special meeting of their respective common and preferred
stockholders to solicit proxies therefrom for the same purpose, or would solicit
consents for such purpose (i.e., to secure the requisite two-thirds affirmative
vote of stockholders to amend the Articles to eliminate the 20% and 10%
Limitations). In that case, CSW would vote any Shares acquired by it pursuant to
the Tender Offer or otherwise (as well as all of its shares of Common Stock) in
favor of the Proposed Amendments. If the Proposed Amendments are then adopted,
and in any event within one year of the Expiration Date (including any extension
thereof), the Operating Subsidiaries will promptly after such meeting, or
request for consents in lieu of any meeting or at the expiration of such
one-year period, as applicable, reacquire from CSW at the respective Purchase
Price all of the Shares held by CSW, and each Operating Subsidiary will
thereupon retire and cancel such Shares.
The Companies further propose to issue and sell Junior Subordinated
Debentures ("Debentures") through December 31, 2001. Each series of Debentures
<PAGE>
will mature in not more than 49 years in aggregate principal amounts of up to
the following: (1) $500 million for CSW (2) $350 million for CPL; (3) $100
million for PSO; (4) $150 million for SWEPCO; and (5) $80 million for WTU. The
Debentures are expected to be sold through negotiation with underwriters, agents
or other entities. The Debentures will be offered for sale at an initial public
offering price resulting in a yield to maturity which is not expected to exceed
by more than 3.0% the yield to maturity on United States Treasury bonds of
similar maturity at the time of pricing of the Debentures. The commission
payable to agents or underwriters will not exceed 3.5% of the principal amount
of the Debentures sold.
The Companies may have the right to defer payment of interest on the
Debentures for up to five years. However, the Companies may not declare and pay
dividends (other than in common stock) on their outstanding stock if payments
under the Debentures are deferred. The payment of principal, premium and
interest on the Debentures will be subordinated in right of payment to the prior
payment in full of senior indebtedness of the Companies. The Companies will
agree to specific redemption provisions, if any, at the time of the pricing of
the Debentures.
If the Companies determine that it is not advisable to sell the
Debentures directly to the public, each may organize a separate special purpose
entity as either: (1) a limited liability company under the Delaware Limited
Liability Company Act ("LLC Act") or another similar statute; (2) a limited
partnership under the Delaware Revised Uniform Limited Partnership Act or
another similar statute; or (3) a statutory business or other form of trust
under the Delaware Business Trust Act or another similar statute ("Special
Purpose Entity"). In the event that any Company organizes its Special Purpose
Entity as a limited liability company, it may also organize a second special
purpose wholly owned subsidiary ("Investment Sub") for the purpose of acquiring
and holding Special Purpose Entity common stock to comply with the requirement
under the applicable LLC Act that a limited liability company have at least two
members. If any Company organizes its Special Purpose Entity as a limited
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partnership, it may also organize an Investment Sub for the purpose of acting,
or may itself act, as the general partner of the Special Purpose Entity and may
acquire, either directly or indirectly through such Investment Sub, a limited
partnership interest in such Special Purpose Entity to ensure that such Special
Purpose Entity will have a limited partner to the extent required by applicable
law.
The Special Purpose Entities may then issue and sell at any time or
from time-to-time, in one or more series through December 31, 2001, preferred
securities ("Preferred Securities"), up to: (1) $500 million aggregate par or
stated value or liquidation preference of Preferred Securities, with a par or
stated value or liquidation preference of up to $100 per security in the case of
CSW; (2) $350 million aggregate par or stated value or liquidation preference of
Preferred Securities, with a par or stated value or liquidation preference of up
to $100 per security in the case of CPL; (3) $100 million aggregate par or
stated value or liquidation preference of Preferred Securities, with a par or
stated value or liquidation preference of up to $100 per security in the case of
PSO; (4) $150 million aggregate par or stated value or liquidation preference of
Preferred Securities, with a par or stated value or liquidation preference of up
to $100 per security in the case of SWEPCO; and (5) $80 million aggregate par or
stated value or liquidation preference of Preferred Securities, with a par or
stated value or liquidation preference of up to $100 per security in the case of
WTU.
Each Company and/or its respective Investment Sub will acquire all of
the general partnership interests or common membership interests, as the case
may be, or will become the grantor and holder of junior trust certificates, of
the Special Purpose Entity in an amount up to 10% of the total equity
capitalization or deposits from time-to-time of such Special Purpose Entity
("Equity Contribution"). Each Company may issue and sell to its Special Purpose
Entity the Debentures, at any time or from time-to-time, in one or more series
and such Special Purpose Entity will apply both the Equity Contribution made to
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it and the proceeds from the sale of Preferred Securities by it from
time-to-time to purchase the Company's Debentures. The payment rate, terms,
redemption and other similar provisions of the Preferred Securities will
correspond to those of the Debentures purchased from the related Company.
Each Company may also guarantee ("Guarantee"): (1) payment of
dividends or distributions on the Preferred Securities of its Special Purpose
Entity if and only to the extent such Special Purpose Entity has declared
dividends or distributions out of funds legally available therefor; (2) payments
to the Preferred Securities holders of amounts due upon liquidation of such
Special Purpose Entity or redemption of the Preferred Securities of such Special
Purpose Entity; (3) certain additional amounts that may be payable in respect of
such Preferred Securities; and/or (4) certain other matters.
It is expected that for federal income tax purposes each Company's
interest payments on the Debentures issued by it will be deductible and that its
Special Purpose Entity will be treated as a trust or a partnership. If Preferred
Securities are issued, any series may be redeemable at the option of the Special
Purpose Entity issuing such series, with the consent or at the direction of the
Company, at a price equal to their par or stated value or liquidation
preference, plus any accrued and unpaid dividends or distributions, upon the
occurrence of certain events. The Preferred Securities of any series may also be
subject to mandatory redemption upon the occurrence of certain events. Each
Company may also have the right to exchange the Preferred Securities of its
Special Purpose Entity for the related Debentures of a Company.
In the event that any Special Purpose Entity is required to withhold
or deduct certain amounts in connection with dividend, distribution or other
payments, it may also have the obligation to "gross up" the payments so that the
holders of the Preferred Securities issued by the Special Purpose Entity will
receive the same payment after such withholding or deduction as they would have
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received if no such withholding or deduction were required and the related
Company's true-up would be required to make corresponding payments under the
Debentures. If any Special Purpose Entity is required to pay taxes with respect
to income derived from interest payments on the Debentures issued to it, the
related Company may be required to pay such additional interest on the
Debentures as shall be necessary in order that net amounts received and retained
by the Special Purpose Entity, after the payment of such taxes, shall result in
its having such funds as it would have had in the absence of such payment of
taxes.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of any Special Purpose Entity, the holders of the Preferred
Securities will be entitled to receive, out of the assets available for
distribution to its members, partners or certificate holders, before any
distribution of assets to the common membership interest holders, general
partner, grantor or junior trust certificate holder of the Special Purpose
Entity, an amount equal to the par or stated value or liquidation preference of
such Preferred Securities plus any accrued and unpaid dividends or
distributions.
Each Company expects to apply the net proceeds of the Debentures to
finance the retirement, through redemption, repurchase or otherwise of one or
more series of outstanding first mortgage bonds or preferred stock, or any
combination thereof, for the payment of outstanding short-term borrowings and
for other general corporate purposes.
The Companies propose to manage interest rate risk and/or lower their
interests costs through the use of hedging products, including
fixed-for-floating interest rate swaps and caps and collars. The Companies also
request authorization to enter into reverse (or offsetting) interest rate swap
arrangements, or other contractual arrangements, in order to limit the impact of
anticipated movements in interest rates or offset the effects of existing
interest rate swap agreements.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
Jonathan G. Katz
Secretary
