*******************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS *
* PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. *
*******************************************************************************
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued July 24, 1996)
(To Prospectus dated July 23, 1996)
$235,000,000
System Energy Resources, Inc.
$ FIRST MORTGAGE BONDS, % SERIES DUE 1999
$ FIRST MORTGAGE BONDS, % SERIES DUE 2001
------------------------
Interest payable February 1 and August 1
------------------------
THE 1999 SERIES BONDS AND THE 2001 SERIES BONDS (COLLECTIVELY, THE "OFFERED
BONDS"), TOGETHER WITH ALL OTHER FIRST MORTGAGE BONDS OUTSTANDING UNDER THE
COMPANY'S MORTGAGE, ARE SECURED BY A FIRST MORTGAGE LIEN ON SUBSTANTIALLY
ALL OF THE COMPANY'S PROPERTIES, WHICH CONSIST OF THE COMPANY'S INTEREST
IN THE GRAND GULF NUCLEAR ELECTRIC GENERATING STATION, AND BY THE
ASSIGNMENT OF THE COMPANY'S RIGHTS TO PAYMENTS UNDER CERTAIN
SUPPORT AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES.
OTHER INDEBTEDNESS OF THE COMPANY IS SECURED BY ASSIGNMENTS
OF THESE SUPPORT AGREEMENTS, AND THE COMPANY HAS RETAINED
THE RIGHT TO ASSIGN THESE AGREEMENTS TO FUTURE HOLDERS
OF ITS INDEBTEDNESS. THE COMPANY HAS ALSO RETAINED
THE RIGHT TO TERMINATE THESE AGREEMENTS WITHOUT
THE CONSENT OF HOLDERS OF THE OFFERED BONDS,
SUBJECT TO CERTAIN CONDITIONS. SEE "THE
COMPANY -- CONTRACTUAL ARRANGEMENTS FOR
THE BENEFIT OF OTHER CREDITORS" AND
"DESCRIPTION OF THE NEW
BONDS -- SECURITY" IN THE
ACCOMPANYING PROSPECTUS.
------------------------
EXCEPT AS DESCRIBED IN THE NEXT SENTENCE, THE OFFERED BONDS WILL NOT BE
REDEEMABLE AT THE OPTION OF THE COMPANY. THE OFFERED BONDS ARE REDEEMABLE AT
ANY TIME UPON AT LEAST 30 DAYS' NOTICE AT THE SPECIAL REDEMPTION PRICE
WITH CERTAIN DEPOSITED CASH OR THE PROCEEDS OF RELEASED PROPERTY. IN
ALL SUCH REDEMPTIONS, ACCRUED INTEREST TO THE DATE FIXED FOR
REDEMPTION IS ALSO PAYABLE. SEE "DESCRIPTION OF THE OFFERED
BONDS -- REDEMPTION AND PURCHASE OF OFFERED BONDS" HEREIN.
------------------------
SEE "RISK FACTOR" AT PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLE-
MENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE OF 1999 SERIES BONDS % AND ACCRUED INTEREST
PRICE OF 2001 SERIES BONDS % AND ACCRUED INTEREST
------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
---------------- ---------------- ---------------
Per 1999 Series Bond........ % % %
Total................... $ $ $
Per 2001 Series Bond........ % % %
Total................... $ $ $
- ------------
(1) Plus accrued interest from August 1, 1996.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated at $280,000.
------------------------
The Offered Bonds are offered by the Underwriters, subject to prior sale,
when, as and if issued by the Company and accepted by the Underwriters and
subject to approval of certain legal matters by Winthrop, Stimson, Putnam &
Roberts, counsel for the Underwriters. It is expected that delivery of the
Offered Bonds will be made on or about August , 1996 through the book-entry
facilities of DTC, against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
July , 1996
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES
HEREBY OFFERED AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Reference is made to "Incorporation of Certain Documents by Reference" in
the accompanying Prospectus. At the date of this Prospectus Supplement, the
Incorporated Documents (as defined in the accompanying Prospectus) include the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the
"1995 10-K") and the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
RECENT DEVELOPMENT
The Company filed an application with the Federal Energy Regulatory
Commission ("FERC") on May 12, 1995 for a $65.5 million rate increase. The
request seeks changes to the Company's rate schedule, including increases in the
revenue requirement associated with decommissioning costs, the depreciation rate
and the rate of return on common equity. On December 12, 1995, the Company
implemented a $65.5 million rate increase, subject to refund. Management has
elected to record a reserve for a portion of the rate increase. On July 11,
1996, an administrative law judge ("ALJ") issued an initial decision in this
proceeding that agreed with certain of the Company's proposals, while rejecting
a proposed increase in return on common equity and recommending a slight
decrease. The ALJ also rejected the Company's proposed change in the
decommissioning cost methodology. The decision of the ALJ is preliminary and
may be modified in the final decision from FERC which is expected in the first
quarter of 1997. The Company is unable to predict the final outcome of the rate
increase request, or the amount of any refunds in excess of reserves that may
be required.
USE OF PROCEEDS
The net proceeds to be received from the issuance and sale of the Offered
Bonds will be used, together with other available corporate funds, to repay at
maturity $250,000,000 in principal amount of the Company's First Mortgage Bonds,
10.5% Series due 1996.
S-2
SELECTED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The selected financial information of the Company set forth below has been
derived from and should be read in conjunction with the financial statements and
other financial information contained in the Incorporated Documents.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
------------------------------------------------------------------------
DECEMBER 31,
MARCH 31, ----------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues............... $ 610,399 $ 605,639 $ 474,963 $ 650,768 $ 723,410 $ 686,664
Operating Income................. 238,469 236,295 171,767 272,202 323,176 318,812
Interest Expense (net)........... 149,869 149,543 175,102 190,424 204,116 229,057
Net Income....................... 94,005 93,039 5,407(a) 93,927 130,141 104,622
Ratio of Earnings to Fixed
Charges........................ 2.08 2.07 1.23(a) 1.87 2.04 1.74
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996 (UNAUDITED)
-------------------------------------------------
ACTUAL AS ADJUSTED
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Capitalization:
Common Stock and Paid-in
Capital.......................... $ 789,350 37.9 $ 789,350 34.0
Retained Earnings................ 75,151 3.6 75,151 3.2
------------ ------- ------------ -------
Total Common Shareholder's
Equity.................... 864,501 41.5 864,501 37.2
First Mortgage Bonds............. 280,319(b) 13.4 515,319(c) 22.2
Debentures....................... 30,000 1.4 30,000 1.3
Other Long-Term Debt............. 910,833(b) 43.7 910,833 39.3
------------ ------- ------------ -------
Total Capitalization........ $ 2,085,653 100.0 $ 2,320,653 100.0
============ ======= ============ =======
</TABLE>
- ------------
(a) Earnings for the twelve months ended December 31, 1994 include a charge of
$80.2 million as a result of the settlement of a long-standing dispute at
the FERC (the "FERC Settlement") involving income tax allocation
procedures of the Company. For further information with respect to the FERC
Settlement, reference is made to Note 2, "Rate and Regulatory Matters," of
the Company's Notes to Financial Statements on page 138 of the 1995 10-K.
(b) Excludes current maturities of First Mortgage Bonds that totaled $250
million at March 31, 1996. See "Use of Proceeds." There were no current
maturities of Other Long-Term Debt at March 31, 1996.
(c) Includes the issuance and sale of the Offered Bonds.
DESCRIPTION OF THE OFFERED BONDS
The following description of the terms of the Offered Bonds offered hereby,
supplements the description of the general terms and provisions of the Offered
Bonds set forth in the accompanying Prospectus under the heading "Description
of the New Bonds," to which description reference is hereby made. As used in
this Prospectus Supplement, the terms "Corporate Trustee," "First Mortgage
Bonds," "Mortgage," "Participants" and "DTC" shall have the same meanings
as the same terms used under the headings "Description of the New Bonds" and
"Book-Entry Securities" in the accompanying Prospectus.
ISSUANCE, INTEREST, MATURITY AND PAYMENT. The 1999 Series Bonds and the
2001 Series Bonds will be issued pursuant to the provisions of the Twentieth and
Twenty-first Supplemental Indentures, respectively, each to be dated as of
August 1, 1996, will mature August 1, 1999 and 2001, respectively, and will bear
interest at the rate shown in their title, payable August 1 and February 1 of
each year, commencing February 1, 1997 for the period beginning August 1, 1996.
Interest will be paid to the persons in whose names the Offered Bonds are
registered at the close of business on January 15 or July 15, as the case may
be, preceding each semiannual interest payment date (with certain exceptions, as
provided for in the Mortgage). Principal and interest are payable in New York
City. For so long as the Offered Bonds are registered in the name of DTC, or its
nominee, the principal and interest due on the Offered Bonds will be payable by
the Company or its agent to DTC for payment to its Participants for subsequent
disbursement to the beneficial owners. The Company has covenanted to pay
interest on any overdue principal and (to the extent that payment of such
interest is
S-3
enforceable under applicable law) on any overdue installment of interest on the
First Mortgage Bonds of all series at the rate of interest per annum shown in
their title.
REDEMPTION AND PURCHASE OF OFFERED BONDS. Except as described in the next
sentence, the Offered Bonds will not be redeemable at the option of the Company.
The Offered Bonds will be redeemable, in whole or in part, on 30 days' notice at
any time at a special redemption price equal to their principal amount with the
proceeds of insurance or released property or upon certain dispositions of
property, including condemnation or abandonment of substantially all of the
Grand Gulf Station or certain dispositions of property which would materially
impair the continuing electrical generation operations of the Company's share of
the Grand Gulf Station, in each case together with accrued interest to the date
fixed for redemption.
If, at the time notice of redemption is given, the redemption monies are
not held by the Corporate Trustee, the redemption may be made subject to receipt
of such monies before the date fixed for redemption, and such notice shall be of
no effect unless such monies are so received.
Cash deposited under any provision of the Mortgage (with certain
exceptions) may be applied to the redemption or purchase (including the purchase
from the Company) of First Mortgage Bonds of any series.
ADDITIONAL SECURITY FOR OFFERED BONDS. The Offered Bonds will have as
additional security the sole and exclusive benefit of the Thirtieth and
Thirty-first Assignments of Availability Agreement, Consents and Agreements and
the Thirtieth and Thirty-first Supplementary Capital Funds Agreements and
Assignments, respectively. (See "The Company -- Contractual Arrangements for
the Benefit of Other Creditors" and "Description of the New
Bonds -- Security" in the accompanying Prospectus.)
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated July , 1996, the underwriters named below (the
"Underwriters") have severally agreed to purchase from the Company, and the
Company has agreed to sell to them, severally, the respective principal amounts
of the Offered Bonds set forth opposite their respective names below:
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
NAME 1999 SERIES BONDS 2001 SERIES BONDS
- ----------------------------------- ------------------- -------------------
Morgan Stanley & Co. Incorporated.. $ $
Bear, Stearns & Co. Inc. ..........
Goldman, Sachs & Co. ..............
Lehman Brothers Inc................
------------------- -------------------
Total.................... $ $
=================== ===================
The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Offered Bonds is subject to the approval
of certain legal matters by their counsel and to certain other conditions. The
Underwriters are committed to take and pay for all of the Offered Bonds if any
are taken, provided, that under certain circumstances involving a default of one
Underwriter, less than all of the Offered Bonds may be purchased. Default by one
Underwriter would not relieve any non-defaulting Underwriter from its several
obligation, and in the event of such a default, the non-defaulting Underwriters
may be required by the Company to purchase the principal amount of the Offered
Bonds that they have severally agreed to purchase and, in addition, to purchase
the principal amount of the Offered Bonds that the defaulting Underwriter or
Underwriters shall have failed to purchase up to a principal amount equal to
one-ninth of the principal amount of the Offered Bonds that such non-defaulting
Underwriter or Underwriters have otherwise agreed to purchase.
The Underwriters initially propose to offer part of the Offered Bonds
directly to the public at the price to public set forth on the cover page of
this Prospectus Supplement, and part to certain dealers at a price which
represents a concession not in excess of % of the principal amount of the 1999
Series Bonds and % of the principal amount of the 2001 Series Bonds,
respectively. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of % of the principal amount of the 1999 Series Bonds
and % of the principal amount of the 2001 Series Bonds, respectively, to
certain other dealers. After the initial public offering, the public offering
price and concessions may be changed by the Underwriters.
S-4
The Company does not intend to apply for listing of the Offered Bonds on a
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Offered Bonds, as permitted by
applicable law and regulations. The Underwriters are not obligated, however, to
make a market in the Offered Bonds, and any such market making may be
discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of the trading market
for the Offered Bonds
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
S-5
<PAGE>
PROSPECTUS
- ----------
$695,000,000
SYSTEM ENERGY RESOURCES, INC.
FIRST MORTGAGE BONDS
DEBT SECURITIES
------------------------
System Energy Resources, Inc. ("System Energy" or the "Company")
intends to offer from time to time up to $695,000,000 aggregate principal amount
of its securities, of which at least $160,000,000 will consist of First Mortgage
Bonds of the Company (the "New Bonds"), and at least $235,000,000 will consist
of unsecured Debt Securities of the Company (the "Debt Securities" and
together with the New Bonds, the "Securities"). The remaining $300,000,000
will consist of New Bonds and/or Debt Securities, or any combination thereof, in
one or more series at prices and on terms to be determined at the time of sale.
For each issue of Securities for which this Prospectus is being delivered (the
"Offered Bonds" or the "Offered Debt Securities", as the case may be, and,
together, the "Offered Securities") there will be an accompanying Prospectus
Supplement (the "Prospectus Supplement") that sets forth, without limitation
and to the extent applicable, the specific designation, aggregate principal
amount, denomination, maturity, premium, if any, rate of interest (which may be
fixed or variable) or method of calculation thereof, time of payment of
interest, any terms for redemption, any sinking fund provisions, any
subordination provisions (in the case of the Debt Securities only), the initial
public offering price, the names of any underwriters or agents, the principal
amounts, if any, to be purchased by any such underwriters, the compensation of
any such underwriters or agents, the amount and proposed use of proceeds to the
Company from the Offered Securities and any other special terms of or pertinent
information with respect to the Offered Securities. The Prospectus Supplement
relating to the Offered Securities will also contain information concerning
certain U.S. Federal income tax considerations if applicable to the Offered
Securities.
SEE "RISK FACTOR" AT PAGE 3 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement. The Offered Securities will be
sold through one or more underwriters, dealers or agents, or directly to one or
more purchasers. The Prospectus Supplement will set forth the names of the
underwriters, dealers or agents, if any, any applicable commissions or discounts
and the net proceeds to the Company from any such sale of the Offered
Securities. See "Plan of Distribution."
------------------------
THE DATE OF THIS PROSPECTUS IS JULY 23, 1996.
AVAILABLE INFORMATION
System Energy is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports include information, as
of particular dates, concerning the Company's directors and officers, their
remuneration, the principal holders of the Company's securities and any material
interests of such persons in transactions with the Company. Such reports and
other information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W., Room
1024, Washington, D.C. 20549-1004; and at the following Regional Offices of the
Commission: Chicago Regional Office, 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661, and New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can also be obtained at
prescribed rates from the Public Reference Branch of the Commission at its
principal office at 450 Fifth Street N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding reporting companies under the
Exchange Act, including the Company, at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
In addition, all documents filed by the Company with the Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents (such documents, and the documents enumerated
above, being herein referred to as "Incorporated Documents," provided,
however, that the documents enumerated above or subsequently filed by the
Company pursuant to Section 13, 14 or 15(d) of the Exchange Act prior to the
filing of the Company's next Annual Report on Form 10-K with the Commission
shall not be Incorporated Documents or be incorporated by reference in this
Prospectus or be a part hereof from and after any such filing of an Annual
Report on Form 10-K).
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for all purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document or in a Prospectus Supplement modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the Incorporated Documents, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference herein. Requests for
such copies should be directed to Christopher T. Screen, P.O. Box 61000, New
Orleans, La. 70161, telephone: (504) 576-4212.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, as supplemented or amended, or
with respect to the Securities, and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
2
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date of this Prospectus.
RISK FACTOR
Prospective purchasers of the Securities offered hereby should carefully
consider the matters set forth below, as well as the other information contained
in this Prospectus and the Incorporated Documents, in evaluating an investment
in the Securities.
RISKS OF OWNERSHIP OF NUCLEAR GENERATING FACILITIES
The Company is subject to the risks attendant upon the ownership and
operation of Grand Gulf 1 ("Grand Gulf 1"), a 1,250 megawatt nuclear powered
generating unit, which is the Company's principal asset. These include risks
arising from the operation of nuclear facilities and the storage, handling and
disposal of high-level and low-level radioactive materials, limitations on the
amounts and types of insurance commercially available in respect of losses that
might arise in connection with nuclear operations, and uncertainties with
respect to the technological and financial aspects of decommissioning nuclear
plants at the end of their licensed lives. The Nuclear Regulatory Commission
(the "NRC") has broad authority under Federal law to impose licensing and
safety-related requirements upon owners and operators of nuclear generating
facilities and, in the event of non-compliance, has the authority to impose
fines or shut down a unit, or both, depending upon its assessment of the
severity of the situation, until compliance is achieved. Safety requirements
promulgated by the NRC have, in the past, necessitated substantial capital
expenditures at nuclear plants and additional such expenditures could be
required in the future. In addition, although the Company has no reason to
anticipate a serious nuclear incident at Grand Gulf 1, if such an incident did
occur, it could have a material but presently undeterminable adverse effect on
the financial position of the Company.
THE COMPANY
GENERAL
The Company's principal executive offices are located at Echelon One, 1340
Echelon Parkway, Jackson, Mississippi 39213. The Company's telephone number is
601-368-5000. The Company is a wholly-owned subsidiary of Entergy Corporation
("Entergy"), a registered public utility holding company under the Public
Utility Holding Company Act of 1935, as amended, which also owns all of the
common stock of Entergy Arkansas, Inc., formerly Arkansas Power & Light Company
("Entergy Arkansas"), Entergy Gulf States, Inc., formerly Gulf States
Utilities Company, Entergy Louisiana, Inc., formerly Louisiana Power & Light
Company ("Entergy Louisiana"), Entergy Mississippi, Inc., formerly Mississippi
Power & Light Company ("Entergy Mississippi"), Entergy New Orleans, Inc.,
formerly New Orleans Public Service Inc. ("Entergy New Orleans," together with
Entergy Arkansas, Entergy Louisiana and Entergy Mississippi, the "System
Operating Companies"). Other subsidiaries of Entergy include Entergy Services,
Inc., a service company, Entergy Operations, Inc., a nuclear management services
company ("Entergy Operations"), CitiPower Ltd., a retail electric distribution
company servicing Melbourne, Australia and surrounding suburbs, Entergy Power,
Inc., a wholesale power company, and Entergy Enterprises, Inc., a non-utility
company. The System Operating Companies own System Fuels, Inc., which is
responsible for the procurement, transportation and storage of fuel supplies for
their generating plants.
NATURE OF THE COMPANY'S BUSINESS
The Company's principal asset consists of a 90% ownership/leasehold
interest in Grand Gulf 1, a 1,250 megawatt nuclear powered electric generating
unit near Port Gibson, Mississippi. The other 10% of Grand Gulf 1 is owned by
South Mississippi Electric Power Association, a wholesale cooperative in
Mississippi. The Company has approximately a 78.5% ownership interest and,
pursuant to a sale and leaseback transaction, an 11.5% leasehold interest in
Grand Gulf 1. The Company sells the capacity and energy from its 90% interest
exclusively to four affiliated companies that are also subsidiaries of Entergy.
These sales
3
are made under the Unit Power Sales Agreement among the Company and the System
Operating Companies (the "Unit Power Sales Agreement") which has been approved
by the Federal Energy Regulatory Commission ("FERC"). (See "Source of
Revenue" below.) At March 31, 1996, the Company had utility plant (net of
accumulated depreciation) of $2.6 billion, long-term debt of $1.2 billion and
common shareholder's equity of $865 million.
The Company was formed in 1974 to construct, finance and own certain
base-load generating units for the operating subsidiaries of Entergy. At that
time, the Company contracted with Entergy Mississippi to act as the Company's
agent for the design, construction, operation and maintenance of the Grand Gulf
Station, a proposed two-unit nuclear-powered electric generating station having
a capacity of 2,500 MW. Grand Gulf 1 was placed in commercial operation on July
1, 1985. Construction of the proposed second unit of the Grand Gulf Station was
suspended in 1985 and this unit was canceled and written off in 1989. On July
28, 1986, the Company's name was changed from "Middle South Energy, Inc."to
"System Energy Resources, Inc.," and effective December 20, 1986, the Company
assumed the primary responsibilities, previously assigned to Entergy
Mississippi, for the management, operation and maintenance of the Grand Gulf
Station. In 1990, Entergy Operations took over responsibility for operating
Grand Gulf 1.
SOURCE OF REVENUE
The operating revenues of the Company are derived from the allocation of
the capacity and energy associated with the Company's 90% share of Grand Gulf 1
pursuant to the Unit Power Sales Agreement. Under that agreement, the Company
has agreed to sell all of its 90% owned and leased share of capacity and energy
from Grand Gulf 1 to the System Operating Companies in accordance with specified
percentages (Entergy Arkansas 36%, Entergy Louisiana 14%, Entergy Mississippi
33% and Entergy New Orleans 17%) as ordered by FERC. Charges under this
agreement are paid as consideration for the respective entitlements of the
System Operating Companies to receive capacity and energy, and are payable
irrespective of the quantity of energy delivered so long as the unit remains in
commercial operation. The current monthly obligation for payments from the
System Operating Companies to the Company under the Unit Power Sales Agreement
is approximately $58 million.
The financial condition of the Company depends exclusively upon the receipt
of payments from the System Operating Companies and on the continued commercial
operation of Grand Gulf 1. The Company has no reason to believe that these
companies will not be in a position to meet their financial obligations to pay
for their allocated portions of Grand Gulf 1 capacity and energy. For
information with respect to other commitments and contingent obligations of the
System Operating Companies, reference is made to Note 8, "Commitments and
Contingencies"of the Notes to Financial Statements of each of Entergy Arkansas,
Entergy Louisiana, Entergy Mississippi and Entergy New Orleans in its respective
Annual Report on Form 10-K for the year ended December 31, 1995.
The Unit Power Sales Agreement will remain in effect until terminated by
the parties (such termination being subject to FERC approval), which the Company
expects to occur upon Grand Gulf 1's retirement from service at the expiration
date of its operating license, which currently is June 16, 2022, but which the
Company currently is seeking to extend to November 1, 2024. In general, approval
by holders of any of the Company's outstanding indebtedness for borrowed money
would not be required for termination, amendment or modification of the Unit
Power Sales Agreement. For further information with respect to the Unit Power
Sales Agreement, reference is made to Part I, Item 1, "Certain System Financial
and Support Agreements,"on page 8 of the 1995 10-K, and to Note 8,
"Commitments and Contingencies" of the Company's Notes to Financial Statements
on page 164 of the 1995 10-K.
CONTRACTUAL ARRANGEMENTS FOR THE BENEFIT OF OTHER CREDITORS
Substantially all of the Company's property is subject to the lien of the
Mortgage (as defined hereinafter) which secured approximately $530.3 million of
outstanding debt at March 31, 1996. In addition, certain indebtedness for
borrowed money of the Company, including its outstanding First Mortgage Bonds,
is secured by assignments of the Company's rights under the Capital Funds
Agreement, dated as of June 21, 1974, as amended and supplemented, between the
Company and Entergy (the "Capital
4
Funds Agreement") and under the Availability Agreement, dated as of June 21,
1974, as amended, among the Company and the System Operating Companies (the
"Availability Agreement").
Pursuant to the Capital Funds Agreement, Entergy has agreed to supply to
the Company sufficient capital to (1) maintain the Company's equity capital at
an amount equal to a minimum of 35% of its total capitalization (excluding
short-term debt), and (2) permit the continuation of commercial operation of
Grand Gulf 1 and to pay in full all indebtedness for borrowed money of the
Company when due under any circumstances.
Pursuant to the Availability Agreement and the assignments thereof, the
System Operating Companies are individually obligated to make payments or
subordinated advances to the Company in accordance with stated percentages
(Entergy Arkansas 17.1%, Entergy Louisiana 26.9%, Entergy Mississippi 31.3% and
Entergy New Orleans 24.7%) in amounts that, when added to amounts received under
the Unit Power Sales Agreement or otherwise, are adequate to cover all of the
Company's (i) operating expenses for the Grand Gulf Station, including
depreciation at a specified rate and permanent shutdown costs, (ii) interest
charges, and (iii) an amount sufficient to amortize the Company's investment in
Grand Gulf 2 over 27 years. The respective percentages of payments due by the
System Operating Companies were agreed upon by the parties pursuant to an
amendment to the Availability Agreement in connection with the financing of the
construction costs of Grand Gulf 1. The different percentages of allocation of
capacity and energy from Grand Gulf 1, and the corresponding payments due by the
System Operating Companies, under the Unit Power Sales Agreement were ordered by
FERC in June 1985 based upon FERC's determination of these companies' system
wide demand responsibilities.
The Availability Agreement provides assurances that the Company would have
available to it adequate cash resources to cover its operating expenses,
interest costs and depreciation charges and permanent shutdown costs in the
event of a shortfall of funds available to the Company from sales of capacity
and energy under the Unit Power Sales Agreement and from other sources. These
assurances do not cover or provide for a return on equity. On the other hand,
payments to the Company under the Unit Power Sales Agreement cover the Company's
full cost of service, to the extent allowed pursuant to FERC ratemaking
practices, including a return on equity. The Availability Agreement by its terms
provides that amounts payable thereunder in respect of Grand Gulf 1 are payable
even if the unit is not in service for any reason. As discussed above, payments
under the Unit Power Sales Agreement are required to be made so long as Grand
Gulf 1 remains in commercial operation. Since commercial operation of Grand Gulf
1 began, payments under the Unit Power Sales Agreement to the Company have
exceeded the amounts payable under the Availability Agreement. Accordingly, no
payments under the Availability Agreement by the System Operating Companies have
ever been required.
The Capital Funds Agreement and the Availability Agreement may be
terminated, amended or modified by mutual agreement of the parties thereto, and
upon obtaining, if required, the consent of those holders of the Company's
indebtedness then outstanding who have received assignments of such agreements
as referred to above and described further below. Unlike the New Bonds, the
Company's obligation to pay when due the principal of and premium, if any, and
interest on the Debt Securities will not be secured by any assets of the Company
or by any pledge of the Company's First Mortgage Bonds, nor by any assignment of
the Company's rights under the Capital Funds Agreement or the Availability
Agreement. Holders of the Debt Securities offered hereby will have no direct
legal recourse against the Company, Entergy or the System Operating Companies
under the terms of the Capital Funds Agreement or the Availability Agreement.
For further information with respect to these agreements, reference is made to
Part I, Item 1, "Certain System Financial and Support Agreements," on page 8
of the 1995 10-K, and to Note 8, "Commitments and Contingencies" of the
Company's Notes to Financial Statements on page 164 of the 1995 10-K.
The information above relating to the Company does not purport to be
comprehensive and should be read together with the financial statements and
other information contained in the Incorporated Documents. For further
information concerning Entergy and the System Operating Companies, reference is
made to the
5
information relating to such companies contained in the Annual Report on Form
10-K for the year ended December 31, 1995 of Entergy and the System Operating
Companies.
USE OF PROCEEDS
Except as otherwise described in any Prospectus Supplement, the net
proceeds to be received from the issuance and sale of the Offered Securities are
expected to be applied primarily to the redemption, repurchase, repayment or
retirement of outstanding indebtedness of the Company. The interest rate and
maturity of any indebtedness to be discharged with the proceeds of any series of
the Offered Securities will be set forth in the applicable Prospectus
Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-----------------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------------------------
1996 1995 1994 1993 1992 1991
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges... 2.08 2.07 1.23(a) 1.87 2.04 1.74
</TABLE>
- ------------
(a) Earnings for the twelve months ended December 31, 1994 include a charge of
$80.2 million as a result of the settlement of a long-standing dispute at
the Federal Energy Regulatory Commission (the "FERC Settlement") involving
income tax allocation procedures of the Company. For further information
with respect to the FERC Settlement, reference is made to Note 2, "Rate and
Regulatory Matters" of the Company's Notes to Financial Statements on page
138 of the 1995 10-K.
DESCRIPTION OF THE NEW BONDS
GENERAL
Set forth below are certain general terms and provisions of the New Bonds,
which may be issued from time to time in one or more series. The particular
terms of each series of Offered Bonds will be described in a Prospectus
Statement relating thereto. Accordingly, for a description of the terms of any
particular series, reference must be made to both the description set forth
below and the Prospectus Supplement relating thereto.
The statements under this heading do not purport to be complete and are
subject to the detailed provisions of System Energy's Mortgage and Deed of
Trust, dated as of June 15, 1977, to United States Trust Company of New York
(the "Corporate Trustee") and Gerard F. Ganey (successor to Malcolm J. Hood)
(the "Co-Trustee," and together with the Corporate Trustee, the "Trustees"),
as supplemented by nineteen supplemental indentures thereof and as further
supplemented by one or more supplemental indentures thereto (collectively, the
"Mortgage"), all of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. All of the bonds issued under the
Mortgage together with the New Bonds are collectively referred to as "First
Mortgage Bonds."Capitalized terms not otherwise defined herein shall have the
respective meaning assigned to them in the Mortgage.
The New Bonds may be issued in one or more series under the Mortgage.
Reference is made to the Prospectus Supplement relating to any particular series
of Offered Bonds for the following terms, including among others: (1) the
designation of such series of the New Bonds; (2) the aggregate principal amount
of such series; (3) the date on which such series will mature; (4) the rate at
which such series will bear interest and the date from which such interest
accrues; (5) the dates on which interest will be payable; (6) the price,
including the "general redemption prices" and the "special redemption
prices" and the other terms and conditions upon which the particular series may
be redeemed by the Company prior to maturity; and (7) the designation of the
particular Supplementary Capital Funds Agreement and Assignment and the
Assignment of Availability Agreement, Consent and Agreement to a given series of
New Bonds.
6
FORM, EXCHANGE AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the New
Bonds of each series will be issued only in fully registered form in
denominations of $1,000 and, at the option of the Company, in any multiple or
multiples of $1,000.
At the option of the registered owner, subject to the terms of the Mortgage
and the limitations applicable to global securities, any New Bonds, upon
surrender thereof for cancellation at the office or agency of the Company in the
Borough of Manhattan, The City of New York, shall be exchangeable for a like
aggregate principal amount of bonds of the same series of other authorized
denominations.
Subject to the terms of the Mortgage and the limitations applicable to
global securities, the New Bonds shall be transferable, upon the surrender
thereof for cancellation, together with a written instrument of transfer in form
approved by the registrar duly executed by the registered owner or by his duly
authorized attorney, at the office or agency of the Company in the Borough of
Manhattan, The City of New York.
Upon any exchange or transfer of the New Bonds, the Company may make a
charge therefor, sufficient to reimburse it for any tax or taxes or other
governmental charge, as provided in any supplemental indenture, but the Company
hereby waives any right to make a charge in addition thereto for any exchange or
transfer of the New Bonds. (Mortgage, Article II).
REDEMPTION
Any terms for the optional or mandatory redemption of any series of New
Bonds will be set forth in the applicable Prospectus Supplement.
Cash deposited under any provisions of the Mortgage (with certain
exceptions) may be applied to the redemption or purchase (including the purchase
from System Energy) of First Mortgage Bonds of any series. (Mortgage, Article
X).
SECURITY
The New Bonds, together with all other First Mortgage Bonds now or
hereafter issued under the Mortgage, are secured by the Mortgage, which
constitutes, in the opinion of Wise Carter Child & Caraway, Professional
Association (counsel for System Energy): (i) a valid, first lien on all real
property, which does not include property held by the Company under leases, and
interests in real property and the improvements thereon specifically described
in the granting clauses of the Mortgage (and not excepted from the Lien of the
Mortgage by the provisions thereof) and (ii) a first perfected security interest
in all personal property, interests in personal property and fixtures
specifically described in the granting clauses of the Mortgage (and not excepted
from the Lien of the Mortgage by the provisions thereof), in each case subject
to no liens, charges or encumbrances, other than (a) Excepted Encumbrances, (b)
minor defects and encumbrances customarily found in properties of like size and
character which do not materially impair the use of the property affected
thereby in the conduct of the business of the Company, and (c) liens, defects
and encumbrances, if any, existing or placed thereon at the time of acquisition
thereof by the Company and except as limited by bankruptcy law. There are
excepted from the Lien certain property, including all cash and securities, all
products, equipment, apparatus, materials or supplies held for sale or other
disposition or consumable during use including Nuclear Fuel; rolling stock,
automobiles, vehicles and aircraft and any Space Satellites; timber, minerals,
mineral rights and royalties; and receivables, contracts, leases and operating
agreements.
The Mortgage contains provisions for subjecting after acquired property
(subject to pre-existing liens) to the Lien thereof, subject to limitations in
the case of consolidation, merger or sale of substantially all of System
Energy's assets. (Mortgage, Sections 16.02 and 16.03).
The Mortgage requires that most proceeds of property insurance be held by
the Corporate Trustee pending release to the Company or to stated uses in
respect of First Mortgage Bonds. See Note 8, "Commitments and
Contingencies -- Nuclear Insurance" of the Company's Notes to Financial
Statements
7
in the 1995 10-K for information with respect to an NRC rule which could
significantly restrict the availability of insurance proceeds to the Corporate
Trustee and the holders of First Mortgage Bonds.
The Ninth, Tenth, Fifteenth, Sixteenth and Seventeenth Series Bonds have as
additional security the sole and exclusive benefit of the Eighteenth,
Nineteenth, Twenty-sixth, Twenty-seventh and Twenty-ninth Assignments of
Availability Agreement, Consent and Agreement, respectively, and the Eighteenth,
Nineteenth, Twenty-sixth, Twenty-seventh and Twenty-ninth Supplementary Capital
Funds Agreements and Assignments, respectively, and all proceeds therefrom.
(Eleventh, Twelfth, Seventeenth, Eighteenth and Nineteenth Supplemental
Indentures, Section 7.01).
Each series of the New Bonds will have as additional security the sole and
exclusive benefit of its own Assignment of Availability Agreement, Consent and
Agreement among the Company, the System Operating Companies and the Trustees and
its own Supplementary Capital Funds Agreement and Assignment among the Company,
Entergy and the Trustees, and all proceeds therefrom. Under the Eighteenth,
Nineteenth, Twenty-sixth, Twenty-seventh and Twenty-ninth Assignments of
Availability Agreement, Consent and Agreement and each such Assignment relating
to the New Bonds, provisions of the Availability Agreement and such Assignments
may be amended or waived at any time upon the receipt of consents from the
holders of more than 50% of the aggregate outstanding principal amount of the
affected series of First Mortgage Bonds and any other necessary consents.
Similarly, the Eighteenth, Nineteenth, Twenty-sixth, Twenty-seventh and
Twenty-ninth Supplementary Capital Funds Agreements and Assignments and each
Supplementary Capital Funds Agreement and Assignment relating to the New Bonds
will provide that the provisions of the Capital Funds Agreement and such
Supplements may be amended or waived at any time upon the receipt of consents
from the holders of more than 50% of the aggregate outstanding principal amount
of the affected series of First Mortgage Bonds and any other necessary consents.
Under each Assignment of Availability Agreement, Consent and Agreement,
System Energy has assigned to the bondholders secured thereby its rights, on a
PARI PASSU basis, to certain payments which the System Operating Companies have
agreed to make to System Energy in respect of the Grand Gulf Station. Under each
Supplementary Capital Funds Agreement and Assignment, System Energy has assigned
to the bondholders secured thereby its rights, on a PARI PASSU basis, to certain
payments which Entergy has agreed to make to System Energy. System Energy has
reserved the right to assign its rights to these payments from the System
Operating Companies and Entergy to other lenders on a PARI PASSU basis. At
present these rights are also assigned to a group of banks providing letters of
credit in respect of a lease of approximately an 11.5% undivided ownership
interest in Grand Gulf 1. See Note 8, "Commitments and Contingencies --
Reimbursement Agreement" and Note 9, "Leases -- Sale and Leaseback
Transactions" of the Company's Notes to Financial Statements on pages 164 and
165, and pages 172 and 173, respectively, in the 1995 10-K and subsequent
Incorporated Documents for further information.
For a further description of the terms of the Availability Agreement and
the Capital Funds Agreement and related agreements, reference is made to
"Capital Requirements and Future Financing -- Certain System Financial and
Support Agreements" on pages 8 and 10 in the 1995 10-K and subsequent
Incorporated Documents.
Further, System Energy has reserved the right to terminate the Availability
Agreement, the Eighteenth, Nineteenth, Twenty-sixth, Twenty-seventh, and
Twenty-ninth Assignments of Availability Agreement, Consent and Agreement and
each Assignment of the Availability Agreement, Consent and Agreement relating to
the New Bonds, and the Capital Funds Agreement and the Eighteenth, Nineteenth,
Twenty-sixth, Twenty-seventh, and Twenty-ninth Supplementary Capital Funds
Agreements and Assignments and each Supplementary Capital Funds Agreement and
Assignment relating to the New Bonds upon delivery to the Corporate Trustee of
an Officers' Certificate stating that: (i) System Energy's First Mortgage Bonds
have been rated A3, A-, or A- or better, respectively, by Moody's Investors
Service, Standard & Poor's and Duff & Phelps, for at least the preceding 6
consecutive months, and (ii) System Energy has obtained written confirmation
from each such rating agency, or their successors, that the ratings of System
Energy's First Mortgage Bonds rated by such rating agency had not then dropped
below A3, A- or A-, respectively, and (iii) said Agreements are similarly
terminated as to all other outstanding series of First Mortgage Bonds and
8
all other indebtedness of System Energy. (Eleventh and Twelfth Supplemental
Indentures, Section 9.07, Seventeenth Supplemental Indenture, Section 9.04, and
Eighteenth and Nineteenth Supplemental Indentures, Section 9.05).
System Energy has reserved the additional right to terminate the
Availability Agreement, each Assignment relating to the New Bonds, the Capital
Funds Agreement and each Supplementary Capital Funds Agreement and Assignment
relating to the New Bonds upon delivery to the Corporate Trustee of an Officers'
Certificate stating that (i) with respect to each series of First Mortgage Bonds
established prior to June 1, 1992, either (a) no First Mortgage Bonds of such
series remain Outstanding or (b) the requisite number of First Mortgage Bonds of
such series have consented to the termination of the Availability Agreement and
the Assignments thereof, the Capital Funds Agreement and the Supplements
thereto, and (ii) said Agreements are similarly terminated as to all other
Outstanding series of First Mortgage Bonds and all other indebtedness of System
Energy. (Seventeenth Supplemental Indenture, Section 9.04, and
Eighteenth and Nineteenth Supplemental Indentures, Section 9.05).
Under each Supplemental Indenture relating to the New Bonds, System Energy
will covenant that it will not grant any security interest in its rights under
the System Agreement, the Availability Agreement, the related Assignment of
Availability Agreement, the Capital Funds Agreement or the related Supplementary
Capital Funds Agreement and Assignment, except for security interests
contemplated by such Assignment of Availability Agreement and Supplementary
Capital Funds Agreement and Assignment, respectively. In addition, with certain
restrictions, System Energy has covenanted that it will not grant a security
interest in its rights under any agreement for the sale of capacity and or
energy from Grand Gulf 1 unless it simultaneously or prior thereto, grants to
the holder of all First Mortgage Bonds a PRO RATA, PARI PASSU interest in such
collateral.
Each Supplemental Indenture relating to the New Bonds will also permit
System Energy to deposit with the Corporate Trustee cash or United States
Government obligations, either of which would provide security for the New Bonds
in lieu of the Lien of the Mortgage. In such event, System Energy would remain
liable to pay when due the principal of, premium, if any, and interest on the
New Bonds, but would no longer be subject to the general covenants of such
Supplemental Indenture. If all Outstanding Bonds are similarly defeased, System
Energy would no longer be subject to the covenants of the Mortgage.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Subject to the general restrictions on indebtedness referred to below under
" -- Restrictions on Indebtedness," First Mortgage Bonds of any series may be
issued from time to time on the bases of (1) 60% of the lesser of the cost or
fair value of property additions after adjustments to offset retirements; (2)
retirement of First Mortgage Bonds; and (3) deposit of cash. Deposited cash may
be withdrawn upon the bases stated in (1) and (2). Property additions generally
include electric property acquired but may not include items excepted from the
Lien as summarized above under "Security". Various earnings tests are
applicable in certain cases for the issuance of additional First Mortgage Bonds.
(See " -- Restrictions on Indebtedness"). System Energy presently expects to
issue all of the New Bonds against the retirement of First Mortgage Bonds or
available property additions. At March 31, 1996, System Energy had $435.7
million of available property additions, against which $261.4 million of First
Mortgage Bonds could have been issued. The issuance tests in the Mortgage are
not expected to limit the ability of System Energy to issue the New Bonds.
RESTRICTIONS ON INDEBTEDNESS
The Mortgage provides that no First Mortgage Bonds shall be delivered (with
certain exceptions relating to issuance upon the basis of the retirement of
First Mortgage Bonds) unless the Revised Adjusted Net Earnings for 12
consecutive months out of the preceding 15 months equal at least 2 times the
annual interest requirements on all First Mortgage Bonds at the time
Outstanding, including the additional issue and all indebtedness of prior or
equal rank. No expenses for interest or for the amortization of debt discount
and expense, amortization of property (other than depreciation or other similar
provisions for property retirement), or for other amortization, or for any other
extraordinary charge to income of whatever kind or
9
nature, or for refunds of revenues previously collected by System Energy subject
to possible refund, or for any sinking fund or other device for the retirement
of any indebtedness are required to be deducted from System Energy's revenues or
its other income and no extraordinary items of any kind shall be included in
calculating Revised Adjusted Net Earnings. (Ninth and Tenth Supplemental
Indentures, Article III).
RELEASE AND SUBSTITUTION OF PROPERTY
Property may be released upon the bases of (i) deposit of cash or, to a
limited extent, purchase money mortgages, (ii) property additions, after
adjustments in certain cases to offset retirements and after making adjustments
for Qualified Lien Bonds outstanding against property additions, and (iii)
waiver of the right to issue First Mortgage Bonds, without applying any earnings
test. Cash may be withdrawn upon the bases stated in (ii) and (iii) above
subject to certain restrictions. (Mortgage, Article XI).
The Mortgage contains special provisions with respect to Qualified Lien
Bonds pledged, and disposition of moneys received on pledged prior lien bonds.
(Mortgage, Articles VIII and IX).
DEFAULTS
Defaults are defined as being in default in payment of principal or any
premium; default for 60 days in payment of interest; certain events in
bankruptcy, insolvency or reorganization; various defaults by Entergy or System
Energy or any of the System Operating Companies in connection with the
Supplementary Capital Funds Agreement and Assignment related to the New Bonds,
the Availability Agreement, the Assignment of Availability Agreement related to
the New Bonds or the System Agreement, all generally subject to 30-day grace
periods and with the right of the holders of at least 15% in principal amount of
the New Bonds then Outstanding to give notice of Default in certain such cases;
the cessation of the Supplementary Capital Funds Agreement and Assignment
related to the New Bonds, the Availability Agreement, and the Assignment of
Availability Agreement related to the New Bonds to be in full force and effect
under certain circumstances, and unless a substitute agreement is provided under
certain conditions; certain sales, mortgage or pledge of common stock of System
Energy or the System Operating Companies, but not including certain permitted
mergers and dispositions of gas properties; and default for 90 days after notice
of other covenants. (Mortgage, Section 13.01). The Trustees may withhold notice
of default (except in payment of principal, interest or an installment of any
fund for retirement of First Mortgage Bonds) if they think it is in the interest
of the holders of First Mortgage Bonds. (Mortgage, Section 13.02).
The Corporate Trustee or holders of 25% of all First Mortgage Bonds may
declare the principal and interest due on Default. However, a majority in
principal amount of all Outstanding First Mortgage Bonds may annul such
declaration if the Default has been cured. (Mortgage, Section 13.03). Holders of
a majority of First Mortgage Bonds may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustees or exercising
any trust or power conferred upon the Trustees, but the Trustees are not
required to follow such direction if not sufficiently indemnified for
expenditures. (Mortgage, Section 13.07).
RESTRICTION ON DIVIDENDS AND STOCK REDEMPTIONS
System Energy may not declare dividends, other than stock dividends, or
make other distributions on or acquisitions of, its stock (except where
concurrently certain contributions or stock proceeds are received) unless
certain defaults do not exist and the sum of certain indebtedness does not
exceed 65% of adjusted capitalization. Certain other restrictions on the payment
of common stock dividends by System Energy are discussed under Note 8,
"Commitment and Contingencies -- Reimbursement Agreement" of the Company's
Notes to Financial Statements on pages 164 and 165 in the 1995 10-K and
subsequent Incorporated Documents.
MODIFICATION OF THE MORTGAGE
The rights of the holders of First Mortgage Bonds generally may be modified
with the consent of the holders of 66 2/3% of the First Mortgage Bonds and, if
less than all series of First Mortgage Bonds are affected, the consent also of
the holders of 66 2/3% of the First Mortgage Bonds of each series affected.
10
(Mortgage, Article XIX). The Company has reserved the right (without any consent
or other action by holders of any series of bonds created after 1991, including
the New Bonds) to substitute for the foregoing provisions the following:
Bondholders' rights may be modified with the consent of the holders of a
majority of the First Mortgage Bonds, but if less than all series of the First
Mortgage Bonds are so affected, only the consent of a majority of the affected
First Mortgage Bonds is required. In general, no modification of the terms of
payment of principal or interest and no modification affecting the lien or
reducing the percentage required for modification is effective against any
Bondholder without his consent.
However, various supplemental indentures provide that certain provisions of
the Mortgage may be amended or waived by the holders of a majority of First
Mortgage Bonds of the related particular series. (Eleventh, Twelfth, Eighteenth
and Nineteenth Supplemental Indentures, Section 9.04 and Seventeenth
Supplemental Indenture, Section 9.03).
DESCRIPTION OF DEBT SECURITIES
Set forth below are certain general terms and provisions of the Debt
Securities, which may be issued from time to time in one or more series. The
particular terms of each series of Offered Debt Securities will be described in
a Prospectus Supplement relating thereto. Accordingly, for a description of the
terms of any particular series, reference must be made to both the description
set forth below and the Prospectus Supplement relating thereto.
The statements under this heading do not purport to be complete and are
subject to the detailed provisions of an Indenture dated as of September 1, 1995
(the "Indenture") between the Company and Chemical Bank, as trustee (the
"Indenture Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. References in
parentheses below refer to section numbers in the Indenture and capitalized
terms not otherwise defined herein shall have the respective meanings ascribed
to them in the Indenture.
GENERAL
The Debt Securities may be issued in one or more new series under the
Indenture. The Indenture does not contain any limitation on the principal amount
of Debt Securities which may be issued thereunder. The Debt Securities will be
unsecured obligations of the Company.
Reference is made to the Prospectus Supplement relating to any particular
series of Offered Debt Securities for the following terms, including among
others: (1) the title of such Debt Securities; (2) any limit on the aggregate
principal amount of such Debt Securities or the series of which they are a part;
(3) the date or dates on which the principal of any of such Debt Securities will
be payable; (4) the rate or rates at which any of such Debt Securities will bear
interest, if any, the date or dates from which any such interest will accrue,
the Interest Payment Dates on which any such interest will be payable and the
Regular Record Date for any such interest payable on any Interest Payment Date;
(5) the place or places where the principal of and premium, if any, and interest
on any of such Debt Securities will be payable; (6) the period or periods within
which, the price or prices at which and the terms and conditions on which any of
such Debt Securities may be redeemed, in whole or in part, at the option of the
Company; (7) the obligation, if any, of the Company to redeem or purchase any of
such Debt Securities pursuant to any sinking fund or analogous provision or at
the option of the Holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions on which any of such Debt
Securities will be redeemed or purchased, in whole or in part, pursuant to any
such obligation; (8) the denominations in which any of such Debt Securities will
be issuable if other than denominations of $1,000 and any integral multiple
thereof; (9) if the amount of principal of or any premium or interest on any of
such Debt Securities will be determined with reference to an index or pursuant
to a formula, the manner in which such amounts will be determined; (10) if any
such Debt Securities will be issued in global form and, if so, any and all
matters incidental to such Debt Securities; (11) any addition to the Events of
Default applicable to any of such Debt Securities; (12) any addition to the
covenants of the Company for the benefit of the Holders of such Debt Securities
in the
11
Indenture; and (13) any other terms of such Debt Securities not inconsistent
with the provisions of the Indenture. (Section 301).
FORM, EXCHANGE AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of each series will be issuable only in fully registered form
without coupons and in denominations of $1,000 and any integral multiple
thereof. (Sections 201 and 302).
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to global securities, Debt Securities of any series will
be exchangeable for other Debt Securities of the same series, of any authorized
denomination and of like tenor and aggregate principal amount. (Section 305).
Subject to the terms of the Indenture and the limitations applicable to
global securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or accompanied by a duly
executed instrument of transfer) at the office of the Security Registrar or at
the office of any transfer agent designated by the Company for such purpose. The
Company may designate itself the Security Registrar. No service charge will be
made for any registration of transfer or exchange of Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Such transfer or exchange
will be effected upon the Security Registrar or such transfer agent, as the case
may be, being satisfied with the documents of title and identity of the person
making the request. (Section 305). Any transfer agent (in addition to the
Security Registrar) initially designated by the Company for any Debt Securities
will be named in the applicable Prospectus Supplement. The Company may at any
time designate additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which any transfer
agent acts, except that the Company will be required to maintain a transfer
agent in each Place of Payment for the Debt Securities of each series. (Section
602).
The Company will not be required to (i) issue, register the transfer of, or
exchange any Debt Security or any Tranche thereof during a period beginning at
the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security called for redemption and ending at the
close of business on the day of such mailing or (ii) register the transfer of or
exchange any Debt Security so selected for redemption, in whole or in part,
except the unredeemed portion of any such Debt Security being redeemed in part.
(Section 305).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
person in whose name such Debt Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest. (Section 307).
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time. Unless otherwise
indicated in the applicable Prospectus Supplement, the corporate trust office of
the Indenture Trustee in New York City will be designated as the Company's sole
Paying Agent for payments with respect to Debt Securities of each series. Any
other Paying Agents initially designated by the Company for the Debt Securities
of a particular series will be named in the applicable Prospectus Supplement.
The Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent or approve a change in the office through which
any Paying Agent acts, except that the Company will be required to maintain a
Paying Agent in each Place of Payment for the Debt Securities of a particular
series. (Section 602).
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such
12
principal, premium or interest has become due and payable will be repaid to the
Company, and the Holder of such Debt Security thereafter may look only to the
Company for payment thereof. (Section 603).
REDEMPTION
Any terms for the optional or mandatory redemption of any series of Debt
Securities will be set forth in the applicable Prospectus Supplement. Except as
shall otherwise be provided in the applicable Prospectus Supplement with respect
to Debt Securities that are redeemable at the option of the Holder, Debt
Securities will be redeemable only upon notice by mail not less than 30 nor more
than 60 days prior to the date fixed for redemption, and, if less than all the
Debt Securities of a series, or any Tranche thereof, are to be redeemed, the
particular Debt Securities to be redeemed will be selected by such method as
shall be provided for any particular series, or in the absence of any such
provision, by such method of random selection as the Security Registrar deems
fair and appropriate. (Section 403 and 404).
Any notice of redemption at the option of the Company may state that such
redemption will be conditional upon receipt by the Paying Agent or Agents, on or
prior to the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such Debt Securities
and that if such money has not been so received, such notice will be of no force
and effect and the Company will not be required to redeem such Debt Securities.
(Section 404).
EVENTS OF DEFAULT
The Indenture defines the occurrence of any one or more of the following
events to be an "Event of Default":
(a) failure to pay any interest on any Debt Security within 60 days
after the same becomes due and payable;
(b) failure to pay the principal of or premium, if any, on any Debt
Security when due and payable;
(c) failure to perform or breach of any other covenant or warranty of
the Company in the Indenture (other than a covenant or warranty of the
Company in the Indenture solely for the benefit of one or more series of
Debt Securities other than such series), for 60 days after written notice
to the Company by the Indenture Trustee, or to the Company and the
Indenture Trustee by the Holders of at least 33% in principal amount of the
Debt Securities Outstanding under the Indenture as provided in the
Indenture;
(d) certain events of bankruptcy, insolvency or reorganization; or
(e) any other Event of Default specified with respect to the Debt
Securities. (Section 801).
No Event of Default with respect to a particular series of the Debt
Securities necessarily constitutes an Event of Default with respect to any other
series of Debt Securities that may be issued under the Indenture.
REMEDIES
If an Event of Default occurs and is continuing with respect to Debt
Securities of any series at the time Outstanding, then either the Indenture
Trustee or the Holders of not less than 33% in principal amount of the
Outstanding Debt Securities of such series may declare the principal amount (or
if any of the Debt Securities of such series are Discount Securities, such
portion of the principal amount of such Debt Securities as may be specified in
the applicable Prospectus Supplement) of all of the Debt Securities of such
series to be due and payable immediately; provided, however, that if an Event of
Default occurs and is continuing with respect to more than one series of Debt
Securities, the Indenture Trustee or the Holders of not less than 33% in
aggregate principal amount of the Outstanding Debt Securities of all such
series, considered as one class, may make such declaration of acceleration, and
not the Holders of the Debt Securities of any one of such series.
13
At any time after the declaration of acceleration with respect to the Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee, the Event
of Default giving rise to such declaration of acceleration will, without further
act, be deemed to have been waived, and such declaration and its consequences
will, without further act, be deemed to have been rescinded and annulled, if:
(a) the Company has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(1) all overdue interest on the Debt Securities of such series;
(2) the principal of and premium, if any, on the Debt Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Debt Securities;
(3) interest upon overdue interest at the rate or rates prescribed
therefore in the Debt Securities of such series, to the extent that
payment of such interest is lawful; and
(4) all amounts due to the Indenture Trustee under the Indenture;
and
(b) any other Event or Events of Default with respect to the Debt
Securities of such series, other than the nonpayment of the principal of
the Debt Securities of such series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Indenture. (Section 802).
If an Event of Default occurs and is continuing with respect to a series of
Debt Securities, the Holders of a majority in principal amount of the
Outstanding Debt Securities of such series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee, or exercising any trust or power conferred on the
Indenture Trustee, with respect to the Debt Securities of such series; provided,
however, that if an Event of Default occurs and is continuing with respect to
more than one series of Debt Securities issued under the Indenture, the Holders
of a majority in aggregate principal amount of the Outstanding Debt Securities
of all such series, considered as one class, will have the right to make such
direction, and not the Holders of the Debt Securities of any one of such series;
and provided, further, that (a) such direction will not be in conflict with any
rule of law or with the Indenture and will not involve the Indenture Trustee in
personal liability in circumstances where reasonable indemnity would not in the
Indenture Trustee's sole discretion be adequate and (b) the Indenture Trustee
may take any other action it deems proper which is not inconsistent with such
direction. (Section 812).
The Holders of a majority in principal amount of the then Outstanding Debt
Securities of any series may waive any past default under the Indenture except a
default (a) in the payment of the principal of or premium, if any, or interest,
if any, on any Debt Security of such series or (b) with respect to a covenant or
provision of the Indenture which under the Indenture cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security of
such series affected. (Section 813).
The right of a Holder of a Debt Security to institute a proceeding with
respect to the Indenture is subject to certain conditions precedent, but each
Holder has an absolute right to receive payment of principal and premium, if
any, and interest, if any, on or after the applicable due date specified in such
Debt Security and to institute suit for the enforcement of any such payment.
(Sections 807 and 808). The Indenture provides that the Indenture Trustee,
within 90 days after the occurrence of any default thereunder with respect to
the Debt Securities of any series, is required to give the Holders of the Debt
Securities of such series notice of such default, unless cured or waived;
provided, however, that, except in the case of a default in the payment of
principal of or premium, if any, or interest, if any, on the Debt Securities of
such series, the Indenture Trustee may withhold such notice if the Indenture
Trustee determines that it is in the interest of such Holders to do so; and
provided, further, that in the case of an Event of Default of the character
specified above in clause (c) under "Events of Default,"no such notice shall
be given to such Holders until at least 75 days after the occurrence thereof.
(Section 902).
The Company will be required to furnish annually to the Indenture Trustee a
statement by an appropriate officer as to such officer's knowledge of the
Company's compliance with all conditions and
14
covenants under the Indenture, such compliance to be determined without regard
to any period of grace or requirement of notice under the Indenture. (Section
606).
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company will not consolidate with or merge into any other corporation
or convey, transfer, or lease its properties and assets substantially as an
entirety to any Person unless (a) the corporation formed by such consolidation
or into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the property and assets of the Company
substantially as an entirety, is a Person organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia,
and such Person expressly assumes, by supplemental indenture, the due and
punctual payment of the principal of and premium, if any, and interest, if any,
on all the Outstanding Debt Securities and the performance of all of the
covenants of the Company under the Indenture, (b) immediately after giving
effect to such transactions, no Event of Default, and no event which after
notice and lapse of time would become an Event of Default, will have occurred
and be continuing, and (c) the Company will have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel as provided in the
Indenture. (Section 1101).
Unless otherwise indicated in the applicable Prospectus Supplement, there
are no provisions that will afford the Holders of Debt Securities protection in
the event of a highly leveraged transaction involving the Company. There are
also no provisions that will require the repurchase of the Debt Securities upon
a change in control of the Company.
MODIFICATION OF INDENTURE
Without the consent of any Holders of Debt Securities, the Company and the
Indenture Trustee may enter into one or more supplemental indentures, in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company in the
Indenture and the Debt Securities;
(b) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Outstanding Debt Securities or to surrender
any right or power conferred upon the Company by the Indenture;
(c) to add any additional Events of Default with respect to all or any
series of Outstanding Debt Securities;
(d) to change or eliminate any provision of the Indenture or to add
any provision to the Indenture; provided that if such change, elimination
or addition will adversely affect the interests of the Holders of Debt
Securities of any series in any material respect, such change, elimination
or addition will become effective with respect to such series only when
there is no Debt Security of such series remaining Outstanding under the
Indenture;
(e) to provide collateral security for the Debt Securities;
(f) to establish the form or terms of Debt Securities of any series as
permitted by the Indenture;
(g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest, if any,
thereon and for the registration, exchange and replacement thereof and for
the giving of notice to, and the solicitation of the vote or consent of,
the holders thereof, and any matters incidental thereto;
(h) to evidence and provide for the acceptance of appointment of a
separate or successor Indenture Trustee under the Indenture with respect to
the Debt Securities of one or more series and to add to or change any of
the provisions of the Indenture as shall be necessary to provide for or to
facilitate the administration of the trusts under the Indenture by more
than one Indenture Trustee;
(i) to provide for the procedures required to permit the utilization
of a noncertificated system of registration for any series of Debt
Securities;
15
(j) to change any place or places where (1) the principal of and
premium, if any, and interest, if any, on all or any series of Debt
Securities shall be payable, (2) all or any series of Debt Securities may
be surrendered for registration of transfer, (3) all or any series of Debt
Securities may be surrendered for exchange, and (4) notices and demands to
or upon the Company in respect of all or any series of Debt Securities may
be served; or
(k) to cure any ambiguity, defect or inconsistency or to make any
other changes to the provisions of the Indenture with respect to matters
and questions arising under the Indenture, provided such action shall not
adversely affect the interests of the Holders of Debt Securities of any
series in any material respect. (Section 1201).
The consent of the Holders of a majority in aggregate principal amount of
the Debt Securities of all series then Outstanding under the Indenture,
considered as one class, is required for the purpose of adding any provisions
to, or changing in any manner or eliminating any of the provisions of, the
Indenture pursuant to an indenture or supplemental indenture; provided, however,
that if less than all of the series of Debt Securities Outstanding under the
Indenture are directly affected by a supplemental indenture, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of all series so directly affected, considered as
one class, will be required; and provided, further, that if the Debt Securities
of any series have been issued in more than one Tranche and if the proposed
supplemental indenture directly affects the rights of the Holders of Debt
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of all Tranches so directly affected, considered as
one class, will be required; and provided, further, that no such supplemental
indenture will, without the consent of the Holder of each Outstanding Security
under the Indenture of each such series directly affected thereby, (a) change
the Stated Maturity of, or any installment of principal of or interest on, any
Debt Security, or reduce the principal thereof or the rate of interest (or the
amount of any installment of interest thereon), if any, thereon or redemption
premium thereon, or change the method of calculating the rate of interest
thereon, or reduce the amount of the principal of any Discount Security that
would be due and payable upon a declaration of acceleration of the Maturity
thereof, or change the coin or currency (or other property) in which any Debt
Security or any premium or the interest thereon is payable or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity of any Debt Security (or, in the case of redemption, on or after the
Redemption Date), (b) reduce the percentage in principal amount of the Debt
Securities Outstanding under such series, the consent of the Holders of which is
required for any supplemental indenture or waiver of compliance with any
provision of the Indenture or any default thereunder and its consequences or to
reduce the requirements for quorum and voting under the Indenture, or (c) modify
certain of the provisions of the Indenture relating to supplemental indentures,
waivers of certain covenants and waivers of past defaults.
A supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of one or more particular series of Debt Securities or one or more
Tranches thereof, or which modifies the rights of the Holders of Debt Securities
of such series or Tranches with respect to such covenant or other provision,
shall be deemed not to affect the rights under the Indenture of the Holders of
Debt Securities of any other series or Tranche. (Section 1202).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver under the
Indenture or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) Debt Securities owned by the Company or any other obligor upon
the Debt Securities or any Affiliate of the Company or of such other obligor
(unless the Company, such Affiliate or such obligor owns all Outstanding Debt
Securities under the Indenture, or all Outstanding Debt Securities of each such
series and each such Tranche, as the case may be, determined without regard to
this clause (i)) shall be disregarded and deemed not to be Outstanding; (ii) the
principal amount of a Discount Security that shall be deemed to be Outstanding
for such purposes shall be the amount of the principal thereof that would be due
and payable as of the date of such determination upon a declaration of
acceleration of the Maturity thereof as provided in the Indenture; and (iii) the
principal amount of a Debt Security denominated in one or more foreign
currencies or a composite currency that will be deemed to be Outstanding will be
the amount of Dollars
16
which could have been purchased by the principal amount (or, in the case of a
Debt Security described in clause (ii) above, of the amount described in such
clause) of such currency or composite currency evidenced by such Debt Security.
(Section 101).
If the Company shall solicit from Holders any request, demand,
authorization, direction, notice, consent, election, waiver or other Act, the
Company may, at its option, by Board Resolution, fix in advance a record date
for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, election, waiver or other Act, but
the Company shall have no obligation to do so. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, election,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on the record date shall be deemed to
be Holders for the purposes of (i) determining whether Holders of the requisite
proportion of the Outstanding Debt Securities have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act and for that purpose the Outstanding Debt Securities shall
be computed as of the record date or (ii) determining which Holders may revoke
any such Act. Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of a Holder shall bind every future Holder of the
same Debt Security and the Holder of every Debt Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Debt Security. (Section 104).
DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement for a
series of Offered Securities, any series of Debt Securities, or any portion of
the principal amount thereof, will be deemed to have been paid for purposes of
the Indenture (except as to any surviving rights of registration of transfer or
exchange expressly provided for in the Indenture), and the entire indebtedness
of the Company in respect thereof will be deemed to have been satisfied and
discharged, if there shall have been irrevocably deposited with the Indenture
Trustee or any Paying Agent (other than the Company), in trust: (a) money in an
amount which will be sufficient, or (b) Government Obligations (as defined
below), which do not contain provisions permitting the redemption or other
prepayment thereof at the option of the issuer thereof, the principal of and the
interest on which when due, without any regard to reinvestment thereof, will
provide moneys which, together with the money, if any, deposited with or held by
the Indenture Trustee or such Paying Agent, will be sufficient, or (c) a
combination of (a) and (b) which will be sufficient, to pay when due the
principal of and premium, if any, and interest, if any, due and to become due on
such Debt Securities of such series or portions thereof. (Section 701). For this
purpose, Government Obligations include direct obligations of, or obligations
unconditionally guaranteed by, the United States of America entitled to the
benefit of the full faith and credit thereof and certificates, depository
receipts or other instruments which evidence a direct ownership interest in such
obligations or in any specific interest or principal payments due in respect
thereof.
For Federal income tax purposes, any deposit contemplated in the preceding
paragraph would be treated as a taxable exchange of the related Debt Securities
for other property. Accordingly, Holders of such Debt Securities would recognize
a gain or loss for Federal income tax purposes in an amount equal to the fair
market value of such property over their adjusted tax basis in the Debt
Securities deemed exchanged. In addition, such Holders thereafter may be
required to recognize income from such property which could be different from
the income that would be recognized in the absence of such deposit. Prospective
investors are urged to consult their own tax advisors as to the specific
consequences to them of such deposit.
RESIGNATION OF THE INDENTURE TRUSTEE
The Indenture Trustee may resign at any time by giving written notice
thereof to the Company or may be removed at any time by Act of the Holders of a
majority in principal amount of the then Outstanding Debt Securities delivered
to the Indenture Trustee and the Company. No resignation or removal of the
Indenture Trustee and no appointment of a successor trustee will become
effective until the acceptance of appointment by a successor trustee in
accordance with the requirements of the Indenture. So long as no Event of
Default or event which, after notice or lapse of time, or both, would become an
Event of Default
17
has occurred and is continuing and except with respect to a Indenture Trustee
appointed by Act of the Holders, if the Company has delivered to the Indenture
Trustee a resolution of its Board of Directors appointing a successor trustee
and such successor has accepted such appointment in accordance with the terms of
the Indenture, the Indenture Trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as trustee in accordance with
the Indenture. (Section 910).
BOOK-ENTRY SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, The
Depository Trust Company, New York, New York ("DTC") will act as securities
depository for the Securities. The Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
partnership nominee). One or more fully-registered global certificates will be
issued for the Securities representing the aggregate principal amount of such
series of Securities and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants (the "Direct Participants") deposit
with DTC. DTC also facilitates the settlement among Direct Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Direct Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. DTC is
owned by a number of its Direct Participants and by The New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly (the "Indirect Participants,"and together with the
Direct Participants, the "Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security (a
"Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' respective records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interest in the Securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interest in
Securities except in the event that use of the book-entry system for the
Securities is discontinued.
To facilitate subsequent transfers, all Securities deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of the Securities with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Securities; DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Securities of an issue are being redeemed, DTC's practice is to determine by lot
the amount of the interest of each Direct Participant in such series to be
redeemed.
18
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an omnibus proxy (an "Omnibus
Proxy") to the Participants as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and interest payments on the Securities will be
made to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities for the accounts of customers in bearer form or registered in
"street-name," and will be the responsibility of such Participant and not of
DTC, the underwriters, or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
redemption premium, if any, and interest to DTC is the responsibility of the
Company or the respective trustees. Disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the
Company. Under such circumstances and in the event that a successor securities
depository is not obtained, Securities certificates are required to be printed
and delivered. In addition, the Company may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor securities
depository). In that event, securities certificates will be printed and
delivered.
The Company will not have any responsibility or obligation to Participants
or the persons for whom they act as nominees with respect to the accuracy of the
records of DTC, its nominee or any Direct or Indirect Participant with respect
to any ownership interest in the Securities, or with respect to payments to or
providing of notice for the Direct Participants, the Indirect Participants or
the Beneficial Owners.
So long as Cede & Co. is the registered owner of the Securities, as nominee
of DTC, references herein to Holders of the Securities shall mean Cede & Co. or
DTC and shall not mean the Beneficial Owners of the Securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC. Neither the Company, the respective trustees nor the
underwriters, dealers or agents takes responsibility for the accuracy or
completeness thereof.
PLAN OF DISTRIBUTION
The Company may sell the Securities: (i) through underwriters or dealers,
(ii) directly to one or more purchasers, (iii) through agents or (iv) through a
combination of any such methods of sale. The applicable Prospectus Supplement
with respect to the Offered Securities shall set forth the terms of the offering
of the Offered Securities, including the name or names of any underwriters,
dealers or agents, the purchase price of such Offered Securities and the
proceeds to the Company from such sale, any underwriting discounts and other
items constituting underwriters' compensation, any initial public offering price
and any discounts or concessions allowed or reallowed or paid by any
underwriters to dealers. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers by any underwriters may be
changed from time to time.
If underwriters are used in the sale of the Offered Securities, such
Offered Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The underwriters with respect to a particular
underwritten offering of Offered Securities will be named in the applicable
Prospectus Supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover page of such Prospectus Supplement. In connection with the sale of
Offered Securities, the underwriters may receive compensation from the Company
or from purchasers in the form of discounts, concessions or commissions. The
19
underwriters will be, and any dealers participating in the distribution of the
Offered Securities may be, deemed to be underwriters within the meaning of the
Securities Act of 1933, as amended. The Company has agreed to indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended. The underwriting agreement pursuant to which
any Offered Securities are to be sold will provide that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will be obligated to purchase all of the Offered Securities if any
are purchased; provided that the agreement between the Company and the
underwriter providing for the sale of the Offered Securities may provide that
under certain circumstances involving a default of underwriters that less than
all of the Offered Securities may be purchased.
Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time. The applicable Prospectus
Supplement shall set forth the name of any agent involved in the offer or sale
of the Offered Securities in respect of which such Prospectus Supplement is
delivered as well as any commissions payable by the Company to such agent.
Unless otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject to those conditions set forth in the
applicable Prospectus Supplement, and such Prospectus Supplement will set forth
the commission payable for solicitation of such contracts.
EXPERTS AND LEGALITY
The Company's balance sheet as of December 31, 1994 and 1995 and the
statements of income, retained earnings, and cash flows and the related
financial statement schedule for each of the two years in the period ended
December 31, 1995, incorporated by reference in this Prospectus, have been
incorporated by reference herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The statements of income, retained earnings, and cash flows for the year
ended December 31, 1993, incorporated in this Prospectus by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report dated February 11, 1994 (November 30, 1994 as to Note 2, "Rate and
Regulatory Matters -- FERC Settlement"), also incorporated by reference herein
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The legality of the Securities will be passed upon for the Company by Reid
& Priest LLP, New York, New York and Wise Carter Child & Caraway, Professional
Association, Jackson, Mississippi. Certain legal matters will be passed upon for
any underwriters, dealers or agents by Winthrop, Stimson, Putnam & Roberts, New
York, New York. Matters pertaining to New York law will be passed upon by Reid &
Priest LLP, New York counsel to the Company, matters pertaining to Mississippi
law will be passed upon by Wise Carter Child & Caraway, Professional
Association, Mississippi counsel to the Company and matters pertaining to
Arkansas law will be passed upon by Friday, Eldredge & Clark, Arkansas counsel
to the Company.
The statements made as to matters of law and legal conclusions made under
"Description of the New Bonds" and the "Description of Debt Securities" have
been reviewed by Wise Carter Child & Caraway, Professional Association, Jackson,
Mississippi, and, except as to "Security" under "Description of the New
Bonds", have been reviewed by Reid & Priest LLP, New York, New York, and are
set forth herein in reliance upon the opinions of said firm, respectively, and
upon their authority as experts.
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