File No. 70-8375
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form U-1
__________________________________
AMENDMENT NO. 2
to
APPLICATION-DECLARATION
under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
__________________________________
Gulf States Utilities Company
350 Pine Street
Beaumont, TX 77701
(Name of company filing this statement and address
of principal executive offices)
__________________________________
Entergy Corporation
(Name of top registered holding company parent of each
applicant or declarant)
__________________________________
Frank Gallaher Glenn E. Harder
President Vice President-Financial
Gulf States Utilities Company Strategies and Treasurer
350 Pine Street Entergy Services, Inc.
Beaumont, TX 77701 P.O. Box 61000
New Orleans, LA 70161
(Names and addresses of agents for service)
__________________________________
The Commission is also requested to send copies of any
communications in connection with this matter to:
Laurence M. Hamric, Esq. Benny Hughes, Esq.
Entergy Services, Inc. Orgain, Bell & Tucker, L. L. P.
225 Baronne Street 470 Orleans Street
New Orleans, LA 70113 Beaumont, TX 77701
Bonnie Wilkinson, Esq. David P. Falck, Esq.
Reid & Priest Winthrop, Stimson, Putnam & Roberts
40 West 57th Street One Battery Park Plaza
New York, NY 10019 New York, NY 10004
<PAGE>
Item 1. Description of Proposed Transactions
Item 1 is hereby restated and amended to read in its entirety as
follows:
"Section A. Overview
"Gulf States Utilities Company ("Company"), a
subsidiary of Entergy Corporation ("Entergy"), a
registered holding company under the Public Utility
Holding Company Act of 1935 ("Holding Company Act"),
proposes, at one time or from time to time through
December 31, 1995, (1) to issue and sell not more than
$700,000,000 aggregate principal amount of par or
stated value of one or more series of its First
Mortgage Bonds("Bonds") and/or one or more new sub-
series of the Medium Term Note Series of its First
Mortgage Bonds, as described below ("MTNs"), and/or one
or more new series of its Preferred Stock, Cumulative,
$100 Par Value and/or Preferred Stock, Cumulative,
without par value ("Preferred"), (2) to enter into
arrangements for the issuance and sale of not to exceed
$250,000,000 principal amount of tax-exempt bonds ("Tax-
Exempt Bonds") in one or more series for the financing
of certain facilities, including but not limited to
sewage and/or solid waste disposal facilities that have
not heretofore been the subject of such financing or
for the refinancing of outstanding tax-exempt bonds
issued for that purpose, (the financings contemplated
above, collectively "New Financing Plan"), and (3) to
acquire, from time to time by tender offer, open market
or negotiated purchases, all or a portion of one or
more series of (a) the Company's outstanding First
Mortgage Bonds, Debentures, Preference Stock and/or
Preferred Stock, and/or (b) outstanding tax-exempt
bonds previously issued for the benefit of the Company
(collectively, "New Acquisition Program"). Each of
these proposed transactions is discussed in greater
detail below.
"Section B. Issuance and Sale of the Bonds, MTNs and Preferred
"1. The Bonds are to be issued under the Company's
Indenture of Mortgage, dated as of September 1, 1926,
to Chase National Bank of the City of New York, as
Trustee, to which Chemical Bank is successor Trustee ,
(the "Trustee"), as heretofore supplemented
("Mortgage"), and as proposed to be further
supplemented by additional Supplemental Indenture(s),
each relating to one or more series of Bonds. The
Bonds and MTNs would be issued on the basis of unfunded
net property additions and/or previously retired First
Mortgage Bonds.
"2. The terms of the Fifty-seventh Supplemental Indenture
to the Mortgage provide for a series of First Mortgage
Bonds to be known as and entitled "First Mortgage
Bonds, Medium Term Note Series" (the "Medium Term Note
Series"). The MTNs will be issued as sub-series of the
Medium Term Note Series. The First Mortgage Bonds of
the Medium Term Note Series are equally secured with
other First Mortgage Bonds issued under the Mortgage,
except so far as any sinking fund and/or improvement
fund, maintenance and replacement fund or other fund
established in accordance with the provisions of the
Mortgage may afford additional security for the bonds
of any additional series or, if applicable, sub-series
of the Medium Term Note Series. The Company believes
that issuance of MTNs could be advantageous because:
(a) interest rates should be lower on MTNs than on
Bonds because the MTNs can be offered on a continual
basis, insuring that supply does not exceed investor
demand at any given time; (b) MTNs provide flexibility
in structuring the size and maturity of each issuance
to match the Company's cash needs; and (c) the ability
to price and issue MTNs quickly will permit the Company
to take advantage of market opportunities as they
arise.
"3. Each series of Bonds or sub-series of MTNs will be sold
at such price, will bear interest at such rate or rates
and will mature on such date as will be determined at
the time of sale or when the agreement to sell is made,
as the case may be. No series of Bonds or sub-series
of MTNs will be issued at rates in excess of those
generally obtained at the time of pricing for sales of
first mortgage bonds or medium-term notes having the
same maturity, issued by companies of comparable credit
quality and having similar terms, conditions and
features. At April 15, 1994, such rates are estimated
to be approximately 8.65% per annum for first mortgage
bonds and medium-term notes having a maturity of 30
years and no optional redemption for the first five
years after initial issuance. The price, exclusive of
accrued interest, to be paid to the Company for each
series of Bonds to be sold at competitive bidding will
be within a range (to be specified by the Company to
prospective purchasers) of not more than five
percentage points, but shall not exceed five percentage
points above or below 100% of the principal amount of
such series of Bonds. The price of each sub-series of
MTNs will be within a range of 95%-105% of principal
amount. Each series of Bonds or sub-series of MTNs
will mature not later than forty years from the first
day of the month of issuance.
"4. One or more series of Bonds or sub-series of MTNs may
include terms that deviate from the Securities and
Exchange Commission's ("Commission") Statement of
Policy Regarding First Mortgage Bonds (Holding Company
Act Release No. 13105, February 16, 1956, as modified
by Holding Company Act Release No. 16369, May 8, 1969)
in the following respects:
(a) Redemption provisions: One or more
series of Bonds or sub-series of MTNs may include
provisions for redemption prior to maturity at
various percentages of the principal amount and
may include various restrictions on optional
redemption for a given number of years or for the
life of the Bond or MTN. In addition, one or more
series of Bonds or sub-series of MTNs may include
provisions for the retirement of all or varying
percentages of such series prior to maturity. The
MTNs may also be subject to redemption at the
option of the holders thereof on specified dates
at a price equal to the principal amount thereof
together with accrued interest to the date fixed
for redemption.
(b) Sinking fund provisions: The MTNs
will not be subject to any sinking fund. Further,
one or more series of Bonds may not have sinking
fund provisions.
(c) Dividend covenant: In connection
with the issuance of each new series of Bonds, the
Company will reaffirm in the related supplemental
indenture to the Mortgage the dividend covenant
contained in the Mortgage. This existing covenant
differs from the Statement of Policy requirement
in that it prohibits dividends or other
distributions on common stock if the amount of
such dividends and distributions after December
31, 1945 would exceed aggregate net income
available for dividends accumulated after such
date to and including a date close to the date of
payment, plus $378,000.
(d) Maintenance and replacement fund
provisions: The Company has provided in connection
with previous issuances of First Mortgage Bonds
that its obligations with respect to the
maintenance and replacement fund under the
Mortgage shall terminate on June 2, 2010 or such
earlier date as requisite consents to eliminate
these obligations have been obtained from the
holders of outstanding bonds, and has obtained
such consents with respect to recently issued
series. The Company intends to include similar
provisions with respect to each new series of
Bonds and sub-series of MTNs.
(e) Mortgage terms: The terms of the Mortgage, as
supplemented to date, which will be applicable to
the series of Bonds and MTNs, vary in certain
respects from the terms of the Statement of Policy
Regarding First Mortgage Bonds, cited above. (See
Exhibit H-2 hereto for information on these
variations, which the Company does not believe are
material.)
To the extent that the foregoing deviates from the
Statement of Policy Regarding First Mortgage Bonds,
cited above, the Company hereby requests authorization
by the Commission of any such deviation.
"5. Reference is made to Exhibits A-1, A-2, A-4, A-5 and B-
1 hereto for further information with respect to the
terms of each series of Bonds and sub-series of MTNs.
"6. The Company expects that each series of the Preferred
will consist of shares of the Company's Preferred
Stock, Cumulative, $100 Par Value ("$100 Preferred"),
or Preferred Stock, Cumulative, without par value ("No
Par Preferred") (collectively "Preferred Stock"), as
currently authorized by the Company's Restated Articles
of Incorporation, as amended ("Articles"). In
accordance with the Articles, the Company had
authorized and unissued at December 31, 1993, 3,625,523
shares of its $100 Preferred and 10,000,000 shares of
its No Par Preferred.
"7. The price, exclusive of accumulated dividends, to be
paid to the Company for each series of Preferred will
be determined at the time of sale and will not be less
than par or stated value on a per share basis. With
respect to any series of Preferred to be sold at
competitive bidding, the price to be paid to the
Company will not be less than the par value or stated
value nor more than 102.75% thereof per share plus
accumulated dividends, if any. No series of Preferred
would be sold if the dividend rate thereon would exceed
those generally obtained at the time of pricing for
sales of preferred stock of the same par or stated
value, issued by companies of comparable credit quality
and having similar terms, conditions and features. At
April 15, 1994, such rate is estimated to be
approximately 8.125% per annum for preferred stock
having a par or stated value of $100, no sinking fund,
and no optional redemption for the first five years
after initial issuance.
"8. The terms of one or more series of Preferred may
deviate from the Commission's Statement of Policy
Regarding Preferred Stock Subject to the Public Utility
Holding Company Act of 1935 (Holding Company Act
Release No. 13106, February 16, 1956, as modified by
Holding Company Act Release No. 16758, June 22, 1970),
in the following respects:
(a) Redemption provisions: One or more series of
Preferred Stock may include provisions for redemption
at various redemption prices and may include various
restrictions on optional redemption for a given number
of years. The Company may include provisions for a
sinking fund for any series of Preferred designed to
redeem annually (or to make purchases in lieu of
redemption), commencing a specified number of years
after the first day of the calendar month in which such
series is issued, at the par or stated value per share
of such series, plus accumulated dividends, a number of
shares equal to a given percentage of the total number
of shares of such series, with the Company possibly
having a non-cumulative option to redeem (or to make
purchases in lieu of redemption) annually an additional
number of shares up to a given percentage of the total
number of shares of such series. Any such sinking fund
provisions would be designed to redeem all outstanding
shares of such series not later than 30 years after the
date of original issuance thereof.
(b) Articles terms: The terms of the Articles, as
amended to date, which will be applicable to the series
of Preferred, vary in certain respects from the terms
of the Statement of Policy Regarding Preferred Stock,
cited above. (See Exhibit H-3 hereto for information
on these variations, which the Company does not believe
are material.)
To the extent that the foregoing deviates from the
Statement of Policy Regarding Preferred Stock, the
Company hereby requests authorization by the Commission
of any such deviation.
"9. Depending upon market conditions at the time of the
offering of a given series of the Preferred, if the
Company determines that preferred stock having a public
offering price of less than $100 per share is likely to
have a materially better market reception than shares
of $100 Preferred, and it is not deemed appropriate to
use No Par Preferred, the Company may issue and sell
such series of $100 Preferred to underwriters for
deposit with a bank or trust company ("Depositary").
The underwriters would then receive from the Depositary
and deliver to the repurchasers in the subsequent
public offering shares of depositary preferred stock
("Depositary Preferred"), each representing a stated
fraction of a share of the new series of $100
Preferred. Depositary Preferred would be evidenced by
depositary receipts. Each owner of Depositary Preferred
would be entitled proportionally to all the rights and
preferences of the series of $100 Preferred (including
dividends, redemption and voting). A holder of
Depositary Preferred will be entitled to surrender
Depositary Preferred to the Depositary and receive the
number of whole shares of $100 Preferred represented
thereby. A holder of $100 Preferred will be entitled
to surrender shares of $100 Preferred to the Depositary
and receive a proportional amount of Depositary
Preferred.
"10. For further information as to the terms of the
Preferred, including possible depositary arrangements,
reference is made to Exhibits A-6 through A-18.
"11. The issuance and sale of certain series of Bonds and/or
Preferred may be pursuant to the competitive bidding
requirements of Rule 50, as modified by Holding Company
Act Release Nos. 22623 (September 2, 1982) and 23122
(November 17, 1983).<FN1> However, the Company
believes that, due to the complexity of the Company's
pending regulatory matters and litigation surrounding
its River Bend nuclear unit, the recent acquisition of
the Company by Entergy, the possible offering of any
series of the Preferred in conjunction with Depositary
Preferred and the possible need to structure the terms
of a series to meet the demands of the retail market, a
public offering of one or more series of Bonds and/or
Preferred may require an advance marketing effort on
the part of underwriters. Any such advance marketing
effort would not be possible under competitive bidding
requirements. Even with an advance marketing effort, a
public offering of a particular series of Bonds and/or
Preferred may not be as advantageous as a private
placement, and, with respect to the Preferred, the
aggregate dollar amount of a series thereof may be too
small to economically justify the greater issuance
costs of a public offering compared to a private
placement. Consequently, the interests of the Company,
its investors and consumers require that the Company
have the flexibility to sell each series of Bonds
and/or Preferred by means of a negotiated public
offering or private placement with institutional
investors in order to secure the advantages of an
advance marketing effort and/or the best available
terms.
"12. With respect to the means of selling
MTNs, such securities are sold primarily on the basis
of their credit ratings, and are, in a sense,
interchangeable among issuers. As a result, they are
usually sold with interest rates negotiated at the time
of the sale on the basis of spreads over comparable
maturity Treasury securities. An MTN program provides
for competition in the marketplace because there will
likely be many institutional bidders competing for
these securities within a certain range of maturities
and bearing certain ratings. However, the bids may be
submitted through or by an agent rather than directly
to the Company and therefore would not under such a
program technically comply with the requirements of
____________________________
<FN1>* The Company presently is eligible to use Rule 415 under the
Securities Act of 1933 (relating to delayed or continuous offerings
of securities) with respect to both Bonds and Preferred. However,
in the event that the Company is not eligible to use Rule 415 in
the future, the Company believes that use of the alternative
bidding procedures approved in the above releases would still be
appropriate for, and the Company would use such procedures in
connection with, the offering of any series of Bonds and/or
Preferred to be sold at competitive bidding.
<PAGE>
Rule 50. Under such a program, the Company would sell
the MTNs either through agents that engage in the
placement of securities, with commissions paid to such
agents based on the principal amount of the MTNs, or to
such agents as principals for resale to investors at a
discount equal to such commission. The Commission will
have reviewed and approved the reasonableness of the
range of any agent's compensation for distribution of
MTNs, and detailed information regarding the completed
transactions under the program will be filed pursuant
to Rule 24. Further, MTNs are designed to be issuable
quickly to take advantage of market conditions and may
be placed directly with primarily institutional
investors. In view of these factors, the Company
believes that it is in the interests of the Company,
its investors and consumers that it have the
flexibility to issue the MTNs by means of negotiated
arrangements with agents or direct purchasers.
"13. For the foregoing reasons, the Company
hereby requests that, pursuant to paragraph (a)(5) of
Rule 50 under the Holding Company Act, the Commission's
notice of proposed transactions issued pursuant to Rule
23(e) under the Holding Company Act grant the Company
an exception from the competitive bidding requirements
of Rule 50, authorizing the Company to undertake
negotiations with respect to the arrangements for sale
MTNs and, if the Company determines that a negotiated
public offering or private placement would be
preferable under the circumstances, with respect to the
issuance and sale of Bonds and/or Preferred. The
Company understands that any such authorization to
negotiate would not authorize it to issue and sell the
proposed securities, but rather that such authorization
would contemplate Commission review of the negotiated
terms and conditions prior to issuance of a final
order, which would contain the authority to issue and
sell the particular securities pursuant to an exception
from the Commission's competitive bidding rules.
"14. Reference is made to Exhibits B-1, B-
2, B-3, B-4, B-5, B-6 and B-7 for information with
respect to, among other things, the procedures to be
followed in connection with the issuance and sale of
Bonds, MTNs and/or Preferred. The sale(s) of Bonds and
the sale(s) of MTNs and the sale(s) of Preferred are
separate transactions not contingent upon one another.
"15. The Company proposes to use the net
proceeds derived from the issuance and sale of Bonds,
MTNs and/or Preferred for general corporate purposes,
including, but not limited to, the repayment of
outstanding securities when due and/or the possible
redemption, acquisition, or refunding of certain
outstanding securities prior to their stated maturity
or due date. The Company's request for authorization
for such sales is in part to provide the flexibility to
permit a quick response to changing market conditions
if it becomes beneficial for the Company to refinance,
refund, or otherwise acquire outstanding high cost
securities. (See "Acquisition Program" below.)
"16. The Mortgage and Articles include
earnings coverage tests for the issuance of additional
First Mortgage Bonds and Preferred Stock, respectively.
Reference is made to Exhibits I-1 and I-2 hereto for
information on the amounts issuable based on such
tests. The Company will not issue any Bonds, MTNs or
Preferred unless the relevant earnings coverage test,
if applicable to the proposed issuance, is satisfied.
"Section C. Issuance and Sale of Tax-Exempt Bonds and Related
Transactions
"1. The Company also may seek to enter into arrangements
for the issuance of Tax-Exempt Bonds, and the Company
proposes from time to time through December 31, 1995 to
enter into one or more Equipment Leases and Subleases
and/or possibly one or more supplements and/or
amendments thereto (collectively, the "Equipment
Lease") with one or more issuing governmental
authorities (each an "Issuer") which will contemplate
the issuance and sale by the Issuer(s) of one or more
series of Tax-Exempt Bonds in an aggregate principal
amount not to exceed $250,000,000 pursuant to one or
more trust indentures and/or possibly one or more
supplements thereto (collectively, the "Indenture")
between the Issuer(s) and one or more trustees
(collectively, the "Trustee").
"2. The proceeds of the sale of Tax-Exempt Bonds, net of
any underwriters' discounts or other expenses payable
from proceeds, will be applied to finance certain
facilities including but not limited to sewage and/or
solid waste disposal or pollution control facilities
("Facilities") that have not heretofore been the
subject of such financing, or to refinance outstanding
tax-exempt bonds issued for that purpose. Pursuant to
the terms of each Equipment Lease, the Company will
agree to purchase, acquire, construct and install the
Facilities and lease such Facilities to the Issuer. The
Issuer will agree to pay to the Company as rental for
the use of the Facilities an amount equal to the lesser
of the (a) the total amount of the proceeds from the
sale of the Tax-Exempt Bonds or (b) the total cost of
construction of the Facilities. Pursuant to the
provisions of the Equipment Lease, the Issuer will
sublease the Facilities to the Company at subrentals
sufficient to pay the principal or redemption price of,
premium, if any, interest and other amounts owing on
the Tax-Exempt Bonds together with related expenses.
Such subrentals will be paid by the Company directly to
the Trustee pursuant to the Indenture. Under the
Equipment Lease, the Company may also be obligated to
pay (i) the fees and charges of the Trustee and any
registrar or paying agent under the Indenture, and, if
any, the Remarketing Agent and the Tender Agent
hereinafter referred to, (ii) all expenses incurred by
the Issuer in connection with its rights and
obligations under the Equipment Lease, (iii) all
expenses necessarily incurred by the Issuer or the
Trustee under the Indenture in connection with the
transfer or exchange of Tax-Exempt Bonds, and (iv)
certain other fees and expenses.
"3. The Indenture may provide that, upon the occurrence of
certain events relating to the operation of the
Facilities financed, Tax-Exempt Bonds will be
redeemable by the Issuer at the direction of the
Company. Any series of Tax-Exempt Bonds may be made
subject to a mandatory cash sinking fund under which
stated portions of Tax-Exempt Bonds of such series are
to be retired at stated times. Tax-Exempt Bonds may be
subject to mandatory redemption in certain other cases.
The payments by the Company in such circumstances shall
be sufficient (together with any other moneys held by
the Trustee under the Indenture and available therefor)
to pay the principal of all Tax-Exempt Bonds to be
redeemed or retired, the premium, if any, together with
interest accrued or to accrue to the redemption date on
such bonds.
"4. It is proposed that each series of the Tax-Exempt Bonds
mature not earlier than five years from the first day
of the month of issuance nor later than forty years
from the date of issuance. Tax-Exempt Bonds will be
subject to optional redemption by the Issuer, at the
direction of the Company, in whole or in part at the
redemption prices (expressed as percentages of the
principal amount thereof) plus accrued interest to the
redemption date, and at the times, set forth in the
Indenture.
"5. The Equipment Lease and the Indenture may provide for a
fixed interest rate for one or more series of Tax-
Exempt Bonds and/or for an adjustable interest rate for
one or more series of Tax-Exempt Bonds as hereinafter
described. No series of Tax-Exempt Bonds would be sold
if the fixed interest rate or initial adjustable
interest rate thereon would exceed the lower of 13% or
rates generally obtained at the time of pricing for
sales of tax-exempt bonds having the same maturity,
issued for the benefit of companies of comparable
credit quality and having similar terms, conditions and
features. At April 15, 1994, such rate is estimated to
be approximately 7% per annum for tax-exempt bonds
having a maturity of 30 years, no optional redemption
for the first ten years after initial issuance and no
Collateral Bonds (as defined below) or other security
arrangements. As to series having an adjustable
interest rate, the interest rate for Tax-Exempt Bonds
of such series during the first Rate Period
(hereinafter referred to) would be determined in
discussions between the Company and the purchasers of
such series from the Issuer and be based on the current
tax-exempt market rate for comparable bonds having a
maturity comparable to the length of the initial Rate
Period. Thereafter, for each Rate Period, the interest
rate on such Tax-Exempt Bonds would be that rate which
would when set be sufficient to remarket the Tax-Exempt
Bonds of such series at their principal amount. Such
subsequent interest rates would not exceed a specified
maximum rate that will not be greater than the lower of
13% or rates generally obtained at the time of
remarketing of tax-exempt bonds having the same
maturity, issued for the benefit of companies of
comparable credit quality and having comparable terms.
Such interest rates would be determined based upon the
market rates for bonds of comparable maturity and
quality. Paragraphs 6 - 9 below relate to Tax-Exempt
Bonds having an adjustable interest rate while such
rate is adjustable.
"6. The term "Rate Period", as used herein, means a period
during which the interest rate on such Tax-Exempt Bonds
of a particular series while bearing an adjustable rate
(or method of determination of such interest rate) is
fixed. The initial Rate Period would commence on the
date as of which interest begins to accrue on such Tax-
Exempt Bonds of such series. The length of each Rate
Period would be no less than one day nor more than five
years.
"7. The Equipment Lease and the Indenture would provide
that holders of Tax-Exempt Bonds would have the right
to tender or be required to tender their Tax-Exempt
Bonds and have them purchased at a price equal to the
principal amount thereof, plus any accrued and unpaid
interest thereon, on dates specified in, or established
in accordance with, the Indenture. A Tender Agent may
be appointed to facilitate the tender of any Tax-Exempt
Bonds by holders. Any holders of Tax-Exempt Bonds
wishing to have such Tax-Exempt Bonds purchased may be
required to deliver such Tax-Exempt Bonds during a
specified period of time preceding such purchase date
to the Tender Agent, if one shall be appointed, or to
the Remarketing Agent appointed to reoffer such
tendered Tax-Exempt Bonds for sale.
"8. Under the Equipment Lease, the Company would be
obligated to pay amounts equal to the amounts to be
paid by the Remarketing Agent or the Tender Agent
pursuant to the Indenture for the purchase of Tax-
Exempt Bonds so tendered, such amounts to be paid by
the Company on the dates such payments by the
Remarketing Agent or the Tender Agent are to be made;
provided, however, that the obligation of the Company
to make any such payment under the Equipment Lease
would be reduced by the amount of any other moneys
available therefor, including the proceeds of the sale
of such tendered Tax-Exempt Bonds by the Remarketing
Agent.
"9. Upon the delivery of such Tax-Exempt Bonds by holders
to the Remarketing Agent or the Tender Agent for
purchase, the Remarketing Agent would use its best
efforts to sell such Tax-Exempt Bonds at a price equal
to the principal amount of such Tax-Exempt Bonds.
"10. In order to obtain a more favorable rating on any
series of Tax-Exempt Bonds and, thereby, improve the
marketability thereof, the Company may arrange for one
or more irrevocable letter(s) of credit for an
aggregate amount up to $300,000,000 from a bank (the
"Bank") in favor of the Trustee. In such event,
payments with respect to principal, premium, if any,
interest and purchase obligations in connection with
such series of Tax-Exempt Bonds, coming due during the
term of such letter of credit, such term not to exceed
10 years, would be secured by, and payable from funds
drawn under, the letter of credit. In order to induce
the Bank to issue such letter of credit, the Company
would enter into a Letter of Credit and Reimbursement
Agreement ("Reimbursement Agreement") with the Bank
pursuant to which the Company would agree to reimburse
the Bank for all amounts drawn under such letter of
credit within a specified period (not to exceed 60
months) after the date of the draw and with interest
thereon at a rate that would not exceed rates generally
obtained at the time of entering into the Reimbursement
Agreement by companies of comparable credit quality on
letters of credit having comparable terms and, in any
event, not in excess of the Bank's prime commercial
loan rate plus 2%. The terms of the Reimbursement
Agreement would correspond to the terms in the letter
of credit.
"11. It is anticipated that the Reimbursement Agreement
would require the payment by the Company to the Bank of
up-front letter of credit fees not to exceed $100,000
and annual fees not to exceed 1-1/4% of the face amount
of the letter of credit per annum. Any such letter of
credit may expire or be terminated prior to the
maturity date of the series of Tax-Exempt Bonds which
such letter of credit supports and, in connection with
such expiration or termination, such series of Tax-
Exempt Bonds may be made subject to mandatory
redemption or purchase on or prior to the date of
expiration or termination of such letter of credit,
subject to the right of owners of Tax-Exempt Bonds of
such series not to have their Tax-Exempt Bonds redeemed
or purchased. Provision may be made, as to any such
series of Tax-Exempt Bonds, for extension of the term
of such letter of credit or for the replacement
thereof, upon its expiration or termination, by another
letter of credit (having substantially the same terms
as the original letter of credit) from the Bank or a
different bank. Such extended or replacement letters
would expire not later than the final maturity date of
the related Tax-Exempt Bonds.
"12. In addition or as an alternative to the security
provided by a letter of credit, in order to obtain a
more favorable rating on Tax-Exempt Bonds and
consequently improve the marketability thereof, the
Company may (a) determine to provide an insurance
policy for the payment of the principal of and/or
interest and/or premium on one or more series of Tax-
Exempt Bonds, and/or (b) provide security for holders
of Tax-Exempt Bonds and/or the Bank by obtaining the
authentication of and pledging one or more new series
of First Mortgage Bonds and/or MTNs("Collateral Bonds")
under the Mortgage, as it may be supplemented. Premiums
on any insurance policies will not exceed the rate of
premiums generally obtained at the time of entering
into the insurance arrangements by companies of
comparable credit quality on insurance policies having
comparable terms. Collateral Bonds would be issued on
the basis of unfunded net property additions and/or
retired bond credits and would be delivered to the
Trustee under the Indenture and/or the Bank to
evidence, in part, and secure the Company's obligation
to pay the subrentals for the Facilities financed
and/or the Company's obligation to reimburse the Bank
under the Reimbursement Agreement. These Collateral
Bonds could be issued in several ways. First, if Tax-
Exempt Bonds bear a fixed interest rate, Collateral
Bonds could be issued in a principal amount equal to
the principal amount of such Tax-Exempt Bonds and bear
interest at a rate equal to the rate of interest on
such Tax-Exempt Bonds. Secondly, they could be issued
in a principal amount equivalent to the principal
amount of such Tax-Exempt Bonds plus an amount equal to
interest on those Bonds for a specified period. In
such case, Collateral Bonds would bear no interest.
Thirdly, Collateral Bonds could be issued in a
principal amount equivalent to the principal amount of
such Tax-Exempt Bonds plus an amount equal to interest
on those Tax-Exempt Bonds for a specified period, but
carry a fixed interest rate that would be lower than
the fixed interest rate of the Tax-Exempt Bonds.
Fourthly, they could be issued in a principal amount
equivalent to the principal amount of Tax-Exempt Bonds
at an adjustable rate of interest, varying with such
Tax-Exempt Bonds but having a "cap" (not greater than
13%) above which the interest on Collateral Bonds could
not rise. For further information with respect to the
Reimbursement Agreement, the proposed insurance
arrangement and the Collateral Bonds, reference is made
to Exhibits A-3, A-6, B-10 and B-11. The Company will
not use a combination of letter of credit, insurance
arrangements and/or Collateral Bonds to secure any
series of Tax-Exempt Bonds unless the resulting
effective interest cost savings on such series is
greater than the total cost of providing such
additional security.
"13. Each series of the Collateral Bonds that bear interest
would bear interest at a fixed interest rate or initial
adjustable interest rate not to exceed 13%. The
maximum aggregate principal amount of the Collateral
Bonds would be $300,000,000. The Collateral Bonds
would in addition to the aggregate limitation on the
Bonds authorized in Section B above. The terms of the
Collateral Bonds relating to maturity, interest payment
dates, if any, redemption provisions and acceleration
will correspond to the terms of the related Tax-Exempt
Bonds. Upon issuance, the terms of each series of the
Collateral Bonds will not vary during the life of such
series except for the interest rate of any such series
that bears interest at an adjustable rate.
"14. For further information with respect to the terms of
the Equipment Lease and Indenture, reference is made to
Exhibits B-8 and B-9.
"15. It is contemplated that Tax-Exempt Bonds may be sold by
the Issuer pursuant to arrangements with an underwriter
or a group of underwriters or by private placement in a
negotiated sale or sales. The Company will not be
party to the underwriting or placement arrangements;
however, the Agreement will provide that the terms of
Tax-Exempt Bonds, and their sale by the Issuer(s),
shall be satisfactory to the Company, and the Company
would provide certain related representations and
certain indemnities for liabilities arising from
material misstatements or omissions in disclosures made
by the Company in connection with the issuance of Tax-
Exempt Bonds. The Company understands that interest
payable on Tax-Exempt Bonds will not be included in the
gross income of the holders thereof for Federal income
tax purposes under the provisions of Section 103 of the
Internal Revenue Code of 1986, as amended to the day of
issuance of Tax-Exempt Bonds (except for interest on
any Tax-Exempt Bond during a period in which it is held
by a person who is a "substantial user" of the
Facilities or a "related person" within the meaning of
Section 147(a) of such Code). The interest rates on
tax-exempt bonds have been, and are expected to be,
lower at the time(s) of issuance of Tax-Exempt Bonds
than the interest rates on bonds of similar tenor,
maturities and comparable quality, interest on which is
fully subject to Federal income tax.
"Section D. Acquisition Program
"1. The Company further proposes to use, in addition to or
as an alternative for the proceeds from the sale of
Bonds, MTNs, Preferred and/or Tax-Exempt Bonds, other
available funds to acquire by tender offer, open market
or negotiated purchases or other forms of purchases, at
any time or from time to time for the period through
December 31, 1995, in whole or in part, prior to their
respective maturities (subject to any limitations or
conditions on acquisition of particular series) not to
exceed $600,000,000 aggregate principal amount and par
value and/or stated value of (1) one or more series of
the Company's outstanding First Mortgage Bonds or sub-
series of MTNs, (2) one or more series of the Company's
outstanding Preferred Stock, (3) one or more series of
outstanding Pollution Control Revenue Bonds and
Industrial Development Revenue Bonds heretofore issued
for the benefit of the Company, (4) the Company's
outstanding series of Debentures, and/or (5) the
Company's outstanding series of Preference Stock (such
First Mortgage Bonds, MTNs, Preferred Stock, Pollution
Control Revenue Bonds, Industrial Development Revenue
Bonds, Debentures and Preference Stock collectively
referred to as the "Outstanding Securities")
(collectively, "New Acquisition Program").
"2. The Company is currently precluded from redeeming
certain series of the Outstanding Securities due to
refunding or other redemption restrictions.
Accordingly, the Company proposes to repurchase for
cash all or a portion of one or more such series of
Outstanding Securities through tender offer,
negotiated, open market or other forms of purchase
(subject to any limitations or conditions on
acquisition of particular series). The Company may
also choose to acquire Outstanding Securities of series
which are not subject to refunding or other redemption
limitations by means of tender offer, negotiated, open
market or other forms of purchases (subject to any
limitations or conditions on acquisition of particular
series) if such means of acquisition are more
beneficial to the Company than redemption at the
applicable redemption price. If any Outstanding
Securities are acquired by means of tender offer, the
Company may offer to acquire specified amounts of a
particular series or an entire series of such
Outstanding Securities.
"3. The Company shall not use the proceeds from the sale of
Bonds, MTNs, Preferred and/or Tax-Exempt Bonds to enter
into refinancing transactions unless (A) the estimated
present value savings derived from the net difference
between interest or dividend payments on a new issue of
comparable securities and those securities refunded is,
on an after-tax basis, greater than the present value
of all repurchasing, redemption, tendering and issuing
costs, assuming an appropriate discount rate,
determined on the basis of the then estimated after-tax
cost of capital of Entergy Corporation and its
subsidiaries, consolidated, or (B) the Company shall
have notified the Commission of the proposed
refinancing transaction (including the terms thereof)
by post-effective amendment hereto and obtained
appropriate supplemental authorization from the
Commission to consummate such transaction.
"4. The authority sought hereby is in addition to any
acquisitions, retirements or redemptions that may be
effected by the Company pursuant to the exemptions set
forth in Rule 42 under the Holding Company Act or other
rules or orders of the Commission from time to time in
effect.
"Section E. Other
"The proceeds to be received from the issuance
and sale of the Bonds, MTNs, Preferred and Tax-Exempt
Bonds will not be used to invest directly or indirectly
in an exempt wholesale generator ("EWG") or foreign
utility company, as defined in Section 32 or 33,
respectively, of the Holding Company Act. If the
proceeds of such sales are used to refund outstanding
securities, any savings derived from the refunding
transaction will not be used to acquire or otherwise
invest in an EWG or foreign utility company.
"Information with respect to Entergy
Corporation's EWG investments will be supplied by
amendment."
Item 6. Exhibits and Financial Statements.
(a) Exhibits:
H-2 Reconciliation of Indenture of Mortgage with Statement
of Policy Regarding First Mortgage Bonds.
H-3 Comparison of Articles with Statement of Policy
Regarding Preferred Stock.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned company has duly caused this
amendment to be signed on its behalf by the undersigned thereunto
duly authorized.
GULF STATES UTILITIES COMPANY
By: /s/ Glenn E. Harder
Glenn E. Harder
Vice President-Financial
Strategies and Treasurer
Dated: April 25, 1994
Exhibit H-2
M E M O R A N D U M
August 25, 1992
RE: Gulf States Utilities Company
Reconciliation of Indenture of Mortgage
with Statement of Policy
The following is a comparison of the terms of the
Indenture of Mortgage, dated September 1, 1926, as
supplemented ("Mortgage"), executed by Gulf States
Utilities Company ("Company" or "GSU") to The Chase
National Bank of the City of New York (to which Chemical
Bank is now successor), as Trustee, with the provisions of
the Statement of Policy Regarding First Mortgage Bonds
Subject to the Public Utility Holding Company Act of 1935,
as amended (the "Statement"). The Statement, as originally
adopted in 1956 (Rel. No. 35-13105), was applicable to
applications or declarations filed under the Public Utility
Holding Company Act ("PUHCA") after March 31, 1956.
Effective May 8, 1969 (Rel. No. 35-16369), the Securities
and Exchange Commission (the "Commission") adopted a
modification of the policies in the Statement regarding
redemption provisions.
While historically conformity with the Statement
was generally required, with deviations permitted in
appropriate circumstances, Commission has recently termed
the Statement "anachronistic in today's financial markets"
(SEC Release No. 35-25059 (1990)), and has increasingly
permitted deviations from the Statement on a case-by-case
basis. (See, e.g.,Release No. 35-25573 (1992); Louisiana
Power & Light Company, Release No. 35-25279 (1991).)
Moreover, the SEC, in promulgating recent
amendments to Rule 52 under PUHCA (which affords an
exemption from Sections 6(a) and (7) of PUHCA for, among
other things, the issuance and sale of securities issued by
public-utility subsidiary companies of registered holding
companies where the transaction has been authorized by the
appropriate state commission), reaffirmed its prior view
that the Statement is "no longer relevant to contemporary
financial markets", and eliminated the requirement of
compliance with the Statement as a condition to the
exemption afforded by the Rule (SEC Release No. 35-25573
(1992)). For those companies, however, not entitled to use
Rule 52 for the issuance and sale of their securities (for
example, because the applicable state commission does not
exercise securities issuance jurisdiction), the SEC stated
that it would continue to permit, on a case-by-case basis,
the issuances of securities that do not conform to the
Statement.
Upon consummation of the proposed combination
with Entergy Corporation, GSU, a Texas Corporation, will
continue to be subject to the jurisdiction of the Louisiana
Public Service Commission, the Public Utilities Commission
of Texas and, in certain respects, various Texas
municipalities. However, none of these regulatory bodies
has, or will have, jurisdiction over the proposed issuance
and sale by GSU of its securities. Accordingly, the
exemptive provisions of Rule 52 will not be available to
GSU, and therefore the Statement technically will remain
applicable to GSU.
The comparison given below is in outline form and
organized to reflect the principal subject matters included
in the Statement. The references are to sections of the
modified Mortgage contained in the Seventh Supplemental
Indenture, dated as of May 1, 1946.
Redemption Provisions Generally
1. The Statement, as modified in 1969, provides
that bonds should be callable by the obligor for redemption
at any time subject to no more than a five-year refunding
limitation, upon reasonable notice and with reasonable
redemption premiums. Not all the bonds now outstanding
under the Mortgage may be redeemed. While the Mortgage
contains the specific terms upon which redeemable series of
bonds may be redeemed, it ordinarily requires not less than
thirty days' notice prior to a date fixed for redemption.
Although the Statement does not specify what constitutes
reasonable notice, the Commission has frequently
interpreted such notice provision as being adequate with
regard to the Statement.
Issuance of Additional Bonds
2. The Statement, in subdivision (a)(1), allows
a principal amount of bonds to be issued upon the deposit
of a like amount of cash. Section 5.05 of the Mortgage
complies with this provision.
3. The Statement, in subdivision (a)(2), allows
a principal amount of bonds to be issued equal to a like
principal amount of retired bonds. Section 5.06 of the
Mortgage generally complies with this provision.
4. The Statement, in subdivision (a)(3), allows
a principal amount of bonds to be issued equal to 60% of
the bondable value of net property additions. Section 5.04
of the Mortgage generally complies with this provision.
5. The earnings test requirement described in
subdivision (a) of the Statement is complied with pursuant
to the provisions of Sections 1.09, 5.04, 5.05 and 5.06 of
the Mortgage. It should be noted, however, that the
Mortgage does not permit refunding at a higher interest
rate without meeting an earnings test, although the
Statement would permit such a refunding within two years of
maturity.
Sinking and Improvement Fund
6. Various series of outstanding bonds have
sinking or improvement fund provisions similar but not
identical to those required by the Statement. Future
indentures supplemental to the Mortgage may include such
provisions for new series of bonds.
Maintenance and Replacement Fund
7. The provisions in the Mortgage relating to
the Maintenance and Replacement Fund are similar but not
identical to the requirement of the Statement. The
Mortgage provides that the Company will pay or deliver to
the Trustee on or before April 1 of each year, an amount in
cash, bonds, or refundable indebtedness equal to the amount
of the minimum provision for depreciation (10% of operating
revenues less the cost of gas and electricity purchased for
resale and certain other deductions, after deducting from
such percentage the amount expended for maintenance and
repairs) for the preceding calendar year, less certain
credits for property additions, debt retirements and
waivers of the right to authentication of bonds. The
Company may at any time substitute such cash or credits,
one for another, on similar bases. The Company may also
have any of such cash applied to the redemption of bonds
which are then subject to redemption or to the purchase of
bonds or refundable indebtedness. As long as certain
series of bonds remain outstanding, no bonds or refundable
indebtedness so redeemed or purchased may be used as the
basis for the issue of additional bonds, the release of
properties or the withdrawal of cash from the trust estate
unless and until requisite cash or property additions shall
have been substituted therefor. (Section 4.04.) The
Company's obligations with respect to the Maintenance and
Replacement Fund shall terminate on June 2, 2010, unless
the requisite consents to eliminate this obligation shall
have been earlier obtained from the holders of the bonds of
other series.
Limitation on Dividends
8. The Mortgage includes a dividend restriction
embodying concepts similar to those reflected in the
Statement. Specifically, it provides that so long as any
bonds remain outstanding, the Company will not declare any
dividend (other than dividends payable in common stock of
the Company) on any shares of its common stock, unless such
dividend is declared to be payable within 60 days after the
date of declaration thereof, and further, it will not (a)
declare any such dividend or make any other distribution on
any shares of its common stock, or (b) purchase or
otherwise retire for a consideration (other than in
exchange for or from the proceeds of other shares of
capital stock of the Company) any shares of its common
stock, if the aggregate amount so declared, distributed or
expended after December 31, 1945, would exceed the
aggregate of the net income of the Company available for
dividends on its common stock accumulated after December
31, 1945, to and including a date not earlier than the end
of the second calendar month preceding the date of
declaration in the case of a dividend and the date of
payment in any other case, plus the sum of $378,000
(Section 9.10. Also Section 1.06 of the Fifty-fourth
Supplemental Indenture).
Property Additions Subject to a Prior Lien and
Prior Lien Obligations
9. Under the Mortgage, property subject to any
prior lien cannot constitute property additions for use as
a basis of a credit under the Mortgage, unless such lien is
established as a refundable lien and (1) the principal
amount of the outstanding indebtedness secured by such
prior lien will not exceed 60% of the amount of the
property subject thereto, (2) the total principal amount of
prior lien indebtedness to be outstanding will not exceed
15% of the total principal amount of bonds then outstanding
and bonds which the Company would then be entitled to have
authenticated and delivered, and (3) the principal amount
of prior lien indebtedness being established as refundable
will not exceed 60% of available net additions (Section
2.01). This provision is similar to but not identical to
the provisions of the Statement.
10. The Mortgage does not contain any provision
permitting the use of prior lien obligations upon the
deposit thereof with the Trustee, or their retirement, for
the same purposes under the Mortgage that retired bonds may
be used. Such a provision would be permitted by
subdivision (k) of the Statement.
Definitions and Miscellaneous Provisions of the Statement
11. The provisions of subdivision (l) of the
Statement, to the effect that only the cost or fair value
of property additions, whichever is less, may be used under
an indenture, is substantially complied with (primarily in
Sections 1.06 and 5.04 of the Mortgage).
12. The provisions of subdivision (n) of the
Statement, to the effect that duplicate credits generally
may not be taken with respect to property additions, cash,
bonds, retired bonds, prior lien obligations and other
property under an indenture, are complied with (primarily
in Section 2.01 of the Mortgage).
13. The provisions of subdivision (o) of the
Statement, to the effect that bonds authenticated and
delivered under an indenture and prior lien obligations
which, in either case, have been retired with money or
other property, constituting funded property, may not be
used for any purpose, are complied with (primarily in
Section 2.04 of the Mortgage).
14. The restriction on the use of retired bonds
contained in subdivision (p) of the Statement is complied
with (primarily in Section 5.06 of the Mortgage).
15. The provisions of subdivision (q) of the
Statement, regarding the calculation of net earnings, are
substantially complied with (primarily in Section 1.09 of
the Mortgage). However, the amount of net earnings that
may be from other income (net) is combined with revenues
obtained from the operation of property not included in the
trust estate and the limitation on this combined amount is
15% of the total of net earnings available for interest,
including such restricted income and revenues. The
Statement on the other hand provides only for a restriction
on the amount of other income to be included in the
calculation of net earnings, and limits other income to not
more than 10% of net earnings before the addition of such
other income.
16. With reference to subdivision (r) of the
Statement, GSU has advised us that its provisions for
depreciation have been, and are anticipated to be,
sufficient to depreciate its depreciable properties over
their estimated useful lives.
17. The provisions of the Mortgage generally do
not contemplate the use of consolidated data as permitted
in appropriate cases by subdivision (v) of the Statement.
18. None of the provisions of the Mortgage are
in contravention of the provisions deemed to be included
pursuant to Sections 310 through 317 of the Trust Indenture
Act of 1939. Accordingly, subdivision (w) of the Statement
is complied with.
REID & PRIEST
Exhibit H-3
M E M O R A N D U M
August 24, 1992
RE: Comparison of Gulf States Utilities Company's
Articles of Incorporation with the Statement of
Policy Regarding Preferred Stock Subject to the
Public Utility Holding Company Act of 1935
This memorandum compares the provisions of the Restated
Articles of Incorporation, as amended ("Articles"), of Gulf
States Utilities Company ("GSU" or the "Company"), relating to
the terms of its Preferred and Preference Stocks, with the
provisions of the Statement of Policy Regarding Preferred Stock
Subject to the Public Utility Holding Company Act of 1935 (the
"Statement") (Release Nos. 35-13106 (1956) and 35-16758 (1970)).
While, historically, conformity with the Statement was
generally required in connection with filings under the Public
Utility Holding Company Act of 1935 ("PUHCA") pursuant to
sections 6 and 7 (with deviations permitted in appropriate
circumstances), the Securities and Exchange Commission ("SEC")
has recently termed the Statement "anachronistic in today's
financial markets" (Release No. 35-25059 (1990)), and has
increasingly permitted deviations from the Statement on a case-by-
case basis. (See, e.g., Release No. 35-25573 (1992); Jersey
Central Power & Light Company, Release No. 35-25073 (1990).)
Moreover, the SEC has recently promulgated amendments
to Rule 52 under PUHCA, which affords an exemption from sections
6(a) and (7) of PUHCA for, among other things, the issuance and
sale of securities issued by public-utility subsidiary companies
of registered holding companies where the transaction has been
authorized by the appropriate state commission. In so doing, the
SEC reaffirmed its prior view that the Statement is "no longer
relevant to contemporary financial markets", and eliminated the
requirement of compliance with the Statement as a condition to
the exemption afforded by the Rule. (Release No. 35-25573
(1992).) For those companies, however, not entitled to use Rule
52 for the issuance of their securities (for example, because the
applicable state commission does not exercise securities issuance
jurisdiction), the SEC stated that it would continue to permit,
on a case-by-case basis, issuances of securities that do not
conform to the Statement.
Upon consummation of the proposed combination with
Entergy Corporation, GSU, a Texas corporation, will continue to
be subject to the jurisdiction of the Louisiana Public Service
Commission, the Public Utilities Commission of Texas and, in
certain respects, various Texas municipalities. However, none of
these regulatory or governmental bodies has, or will have,
jurisdiction over the proposed issuance and sale by GSU of its
securities. Accordingly, the provisions of Rule 52 will not be
available to GSU, and therefore the Statement technically will
remain applicable to GSU.
GSU's Capitalization
GSU's Articles provide for four classes of authorized
capital stock consisting of 200,000,000 shares of Common Stock,
without par value; 6,000,000 shares of Preferred Stock, $100 par
value; 10,000,000 shares of Preferred Stock, without par value;
and 20,000,000 shares of Preference Stock, without par value. As
of June 30 1992, 114,055,065 shares of the Common Stock and
4,213,634 shares of the $100 par value Preferred Stock were
issued and outstanding. No shares of Preferred Stock without par
value or of Preference Stock without par value were issued and
outstanding at that date.
Set forth below in outline form is a summary of the
provisions of the Statement and of the related provisions of
GSU's Articles. The Articles in many respects are in substantial
compliance with the Statement. Where material deviations exist,
they are noted. (References to the appropriate provisions of the
Articles are noted in parentheses.)
Cumulative Dividends; Reasonable Redemption Premiums and
Reasonable Notice of Redemption
The opening portion of the Statement provides that
dividends on Preferred Stock shall be cumulative. GSU's Articles
are consistent with this standard. (Article VI, 2 and 9.)
The Statement also provides that Preferred Stock shall be
callable for redemption at any time by the issuer upon reasonable
notice of redemption and the payment of reasonable redemption
premiums.
GSU's Articles are consistent with this requirement.
While the Statement does not define "reasonable notice", GSU's
Articles specify that, for both the Preferred and Preference
Stocks, notice of redemption must be given between thirty and
sixty days prior to the date fixed for redemption, by
publication, at least once, in an English-language newspaper of
general circulation published each business day in Beaumont,
Texas and the Borough of Manhattan. GSU also has the option to
mail such notice personally to the holders of record of its
Preferred and Preference Stocks. (Article VI, 4 and 11.)
These provisions would appear to satisfy the Statement's standard
of "reasonable notice".
With respect to the optional redemption premiums, all
outstanding series of the $100 par value Preferred Stock are
redeemable at the option of GSU upon payment of the redemption
prices specified in respect of each series, which reflect, among
other things, market conditions in effect at the time of the
creation and issuance of each such series. Moreover, all
financial restrictions upon optional redemption have expired.
(Article VI, 4 and 11.)
Rights of Holders of the Preferred Stock to Elect Directors
The Statement provides that if dividends are in arrears
in an amount equal to four or more quarter-yearly payments, the
holders of all series of Preferred Stock as a class are entitled
to elect the smallest number of directors necessary to constitute
a majority of the entire board of directors until such time as
all arrearages have been paid or provided for. Such election of
directors is to be made at a meeting to be held between 45 and 90
days after the accrual of this right.
GSU's Articles are substantially consistent with these
provisions of the Statement. In the event the Company fails to
make any quarterly Preferred Stock dividend payment, and that
failure continues beyond the fourth succeeding quarterly dividend
payment date, holders of Preferred Stock, voting as a single
class for this purpose, have the right to elect a majority of the
board, and that right continues until all dividends accrued and
payable are made current. Similar provision is made for the
holders of Preference Stock, voting as a separate class, to elect
two directors, upon the failure of the Company to have made any
quarterly dividend payment, which failure continues beyond the
sixth succeeding quarterly dividend payment date. For both the
Preferred and Preference Stocks, the Articles provide for the
election of directors at any time after the accrual of the right.
(Article IV, 6 and 13.)
Issuance of Securities Representing Unsecured Debt
The Statement provides for the consent of the holders
of a majority of the outstanding shares of Preferred Stock before
an issuer may issue unsecured debt in excess of specified
amounts. GSU's Articles do not restrict the issuance of
unsecured debt.
Limitation on Junior Stock Dividends
In general, the Statement restricts an issuer's
declaration of dividends on stock which is ranked below the
Preferred Stock as to dividends or assets, such as preference
stock or common stock (collectively referred to in the Statement
as "junior stock"), as follows: (a) if the junior stock equity,
as defined, is less than 20% of the company's total
capitalization, as defined, (or if the declaration of the
dividend would result in the company's junior stock equity being
less than 20% of total capitalization), then the company may not
declare junior stock dividends which, when aggregated with all
other junior stock dividends paid within the twelve-month period
prior to the month in which the dividend is to be declared, would
exceed 50% of the company's net income available for junior stock
dividends for the twelve-month period prior to the month in which
the dividend is declared; and (b) if the company's junior stock
equity is between 20% and 25% of its total capitalization (or if
the declaration of the dividend would result in the company's
junior stock equity being between 20% and 25% of its total
capitalization), then the company may not declare junior stock
dividends which, when aggregated with all other junior stock
dividends paid within the twelve-month period prior to the month
in which the dividend is to be declared, would exceed 75% of the
company's net income available for junior stock dividends for the
twelve-month period prior to the month in which the dividend is
declared.
GSU's Articles restrict dividends on Common Stock, and
reflect concepts similar to those embodied in the Statement.
Specifically, Common Stock dividends may not be declared if the
total amount of dividends on the Common Stock paid after May 31,
1958 would be greater than either (a) the net income of the
corporation available for Common Stock dividends; or (b) 75% of
the net income available for Common Stock dividends, if the total
of (1) the Common Capital Stock Account, (2) the Earned Surplus
Account and (3) the Capital Surplus Account, is less than 25% of
the total of (i) the principal amount of debt, (ii) the
Preferred, Preference and Common Capital Stock Accounts, (iii)
the Earned Surplus Account and (iv) the Capital Surplus Account.
(Article VI, 14.) There are no similar restrictions on the
declaration of dividends on the Preference Stock.
Merger or Consolidation
The Statement prohibits an issuer from merging or
consolidating with or into another company, or from disposing of
all or substantially all of its assets unless ordered or approved
under PUHCA or unless a majority of the total number of shares of
Preferred Stock outstanding consents to such transaction.
GSU's Articles with respect to the Preferred Stock
comply with this standard. (Article VI, 5(g).) There is no
similar provision for the Preference Stock.
Alteration of Preferred Stock Provisions
Under the Statement, the consent of the holders of at
least two-thirds of the total number of shares of Preferred Stock
outstanding is required for any amendment, alteration or repeal
of the rights, preferences or powers of the Preferred Stock so as
to adversely affect the holders thereof. GSU's Articles are
substantially consistent with this provision. (Article VI,
5(d) and 12(c).)
Issuance of Additional Preferred Stock
The Statement limits the creation or authorization of
any stock with a rank senior to the Preferred Stock without the
consent of two-thirds of the total number of outstanding shares
of Preferred Stock, and similarly prohibits, without such
consent, the issuance of such senior stock more than twelve
months after the date the company was empowered to create such
senior stock.
GSU's Articles are in substantial compliance with these
provisions, except that they do not limit the period of time in
which senior stock may be issued following shareholder consent.
(Article VI, 5(a) and 12(a).)
The Statement also provides for a majority vote of the
outstanding Preferred Stock before an issuer may issue additional
Preferred Stock (with certain exceptions) unless the following
two conditions are satisfied: (a) for twelve consecutive months
within a period of fifteen months immediately prior to the
issuance, the company's gross income is at least equal to 1 1/2
times the annual interest charges on the company's debt and the
annual dividend requirements on the company's Preferred Stock to
be outstanding; and (b) the company's junior stock equity, at a
minimum, equals the amount to be paid on the Preferred Stock and
stock ranking prior to or on a parity with the Preferred Stock,
upon an involuntary liquidation of the company. Further, if for
purposes of satisfying the test in (b) above, the company is
required to take into account any earned surplus, then it may not
pay dividends or acquire junior stock which would reduce the
junior stock equity to less than the amount payable on the
Preferred Stock and all equal and prior ranking stock upon
involuntary liquidation of the company.
GSU's Articles provide, among other things, that the
Company shall not, without the affirmative vote of a majority of
the total number of shares of each class of Preferred Stock then
outstanding (one third or more of the total number of such shares
of each such class not having voted in the negative) issue
additional shares of Preferred Stock unless two earnings tests
are met. These earnings tests require that: (i) the net income
of the Company available for dividends, for the specified twelve-
month period, be at least 2 1/2 times the annual dividend
requirements on all Preferred Stock and all other prior and
equally ranking stock to be outstanding immediately after the
proposed issuance; and (ii) the Company's earnings available for
interest, amortization and dividends be at least 1 1/2 times the
annual interest requirements on all indebtedness and the annual
dividend requirements on all Preferred Stock and all other prior
and equally ranking stock to be outstanding immediately after the
proposed issuance. The Articles do not contain the
capitalization restriction described in (b) above. (Article VI,
5(f).)
There are no earnings or capitalization restrictions
with respect to the issuance by GSU of its Preference Stock.
Acquisition or Redemption of Preferred Stock
The Statement provides for SEC approval under PUHCA for
an acquisition of Preferred Stock if the company is in arrears as
to dividends on the Preferred Stock, unless all shares of
Preferred Stock are to be redeemed. GSU's Articles contain no
such provision for either the Preferred or Preference Stocks.
Voluntary Liquidation Preference
The Statement provides that in the case of a voluntary
liquidation the amount to be paid to each Preferred Stock holder
is the current redemption price of each share.
GSU's Articles provide that the holders of Preferred
and Preference Stock are entitled to receive, upon voluntary
liquidation, the fixed liquidation price plus the fixed liqui
dation premium, if any, established for the respective series
thereof, together in each case, with a sum equal to all dividends
accrued or in arrears thereon. These provisions are in substan
tial conformity with the Statement. (Article VI, 3 and 10.)
Miscellaneous
The Statement permits the use of consolidated data "in
appropriate cases". GSU's Articles are silent on this point.
The Statement also specifies that a share of Preferred
Stock is not to be deemed "outstanding" for various purposes if
its redemption has been provided for. GSU's Articles are
consistent with this provision. (Article VI, 4 and 11.)
Other Provisions
GSU's Articles contain other deviations from the
Statement in a number of minor respects which, singly and in the
aggregate, are not deemed material.
REID & PRIEST
