<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 33-48750
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 4, 1995)
$200,000,000
[NORAM LOGO]
7 1/2% NOTES DUE AUGUST 1, 2000
------------------------
Interest on the 7 1/2% Notes due August 1, 2000 (the "Notes") of NorAm
Energy Corp. (the "Company") is payable semi-annually on February 1 and August 1
of each year, beginning on February 1, 1996. The Notes are not redeemable prior
to maturity and have no sinking fund provisions. The Notes mature on August 1,
2000.
------------------------
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
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............................. 99.474% 1.25% 98.224%
--------------------------------------------------------------------------------------------------------
Total................................. $198,948,000 $2,500,000 $196,448,000
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from August 1, 1995.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $200,000.
------------------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York on or about August 14,
1995.
------------------------
MERRILL LYNCH & CO.
CITICORP SECURITIES, INC.
SALOMON BROTHERS INC
------------------------
The date of this Prospectus Supplement is August 9, 1995.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY
NorAm Energy Corp., a Delaware corporation (the "Company"), was
incorporated in 1928 and is principally engaged in the distribution and
transmission of natural gas including gathering, storage and marketing of
natural gas.
The Company's natural gas distribution business is conducted through three
divisions, Arkla (formerly known as Arkansas Louisiana Gas Company), Entex and
Minnegasco, and their affiliates, which collectively form the nation's third
largest gas distribution operation with over 500 billion cubic feet ("Bcf") of
annual throughput to over 2.7 million customers. Through these divisions and
their affiliates, the Company engages in both the natural gas distribution sales
and transport businesses. The facilities and terms of service related to
Arkla's, Entex's and Minnegasco's sales to their customers are largely regulated
by state public service commissions and, in Texas, by municipalities.
The Company's natural gas pipeline business is conducted principally
through the following wholly-owned subsidiaries of the Company: NorAm Gas
Transmission Company ("NGT", formerly known as Arkla Energy Resources Company),
Mississippi River Transmission Corporation ("MRT"), NorAm Energy Services, Inc.
("NES", formerly known as Arkla Energy Marketing Company), NorAm Field Services
Corp. ("NFS", formerly known as Arkla Gathering Services Company) and NorAm Hub
Services, Inc. Such subsidiaries form the NorAm Trading and Transportation
Group. Through these subsidiaries and their affiliates, the Company engages in
the transmission and sale of natural gas, including gathering, storage and
marketing of natural gas. NGT and MRT are interstate pipeline companies, NES
serves as the Company's principal natural gas supply aggregator and marketer and
NFS owns and operates the natural gas gathering assets previously held by NGT.
The Company's principal executive offices are located at 1600 Smith Street,
11th Floor, Houston, Texas 77002. Its mailing address is P.O. Box 2628, Houston,
Texas 77252-2628, and its telephone number is (713) 654-5100.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used primarily to
retire the Company's currently maturing long-term indebtedness. Pending such
application, such net proceeds will be used to reduce the Company's revolving
bank borrowings and for general corporate purposes.
S-2
<PAGE> 3
CERTAIN TERMS OF THE NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and conditions of "Debt
Securities" set forth under the heading "Description of Debt Securities" in the
accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Notes offered hereby will be issued under the Indenture (the
"Indenture") referred to in the accompanying Prospectus between the Company and
Citibank, N.A., as trustee (the "Trustee"). The Notes will be unsecured
obligations of the Company. The Notes will be limited to $200 million aggregate
principal amount and will mature on August 1, 2000. Each Note will bear interest
at the rate per annum set forth on the cover page of this Prospectus Supplement
from August 1, 1995, payable semiannually on February 1 and August 1 of each
year (each an "Interest Payment Date"), commencing February 1, 1996, to the
person in whose name such Note (or any predecessor Note) is registered, subject
to certain exceptions, at the close of business on the January 15 or July 15
next preceding such Interest Payment Date. The Notes will not be redeemable in
whole or in part prior to maturity and will not be entitled to the benefits of
any sinking fund.
The Notes will be issued in book-entry form through the facilities of the
Depositary (as described below). As described herein, under certain limited
circumstances Notes may be issued in certificated form in exchange for the
Global Security (as defined below). See "Book-Entry and Settlement". In the
event that Notes are issued in certificated form, such Notes will be in
denominations of $1,000 and integral multiples thereof and may be transferred or
exchanged at the offices described in the immediately following paragraph.
Payments on Notes issued in book-entry form will be made to the Depositary.
In the event Notes are issued in certificated form, principal and interest will
be payable, the transfer of the Notes will be registrable and Notes will be
exchangeable for Notes bearing identical terms and provisions at the office or
agency of the Company in The City of New York designated for such purpose,
provided, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto.
BOOK-ENTRY AND SETTLEMENT
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources (including the
Depositary) that the Company believes to be reliable, but the Company takes no
responsibility for the accuracy thereof.
The Notes will be issued in the form of one global certificate (the "Global
Security") registered in the name of the nominee of the Depositary. Except under
the limited circumstances described below, Notes represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Notes in definitive form. The Global Security described above may not be
transferred except by the Depositary for the Global Security to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or to a successor Depositary or its nominee.
The Global Security is exchangeable for Notes registered in the name of a
Holder (as defined in the Indenture) other than the Depositary only if the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary or the Depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the Company
in its sole discretion instructs the Trustee that the Global Security shall be
so exchangeable. Notes issued in exchange for the Global Security shall be
registered in the name or names of such person or persons as the Depositary
shall instruct the Trustee. It is expected that such instructions may be based
upon directions received by the Depositary from its participants with respect to
ownership of beneficial interests in the Global Security. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in the Global Security.
Except as provided above, owners of beneficial interests in the Global
Security (the "Beneficial Owners") will not be entitled to receive physical
delivery of Notes in definitive form and will not be considered the Holders
thereof for any purpose under the Indenture, and the Global Security shall not
be exchangeable,
S-3
<PAGE> 4
except for another Global Security of like denomination and tenor to be
registered in the name of the Depositary or its nominee or to a successor
Depositary or its nominee. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture. The Depositary, as a
Holder, may appoint agents and otherwise authorize participants to give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder is entitled to give or take under the Indenture. The
Company understands that under existing industry practices, in the event that
the Company requests any action of Holders or a Beneficial Owner desires to give
or take any action that a Holder is entitled to give or take under the
Indenture, the Depositary would authorize the participants holding the relevant
interests of the Beneficial Owner to give or to take such action, and such
participants would authorize Beneficial Owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
Beneficial Owners owning through them.
The Depository Trust Company ("DTC"), New York, New York, has advised the
Company and the Underwriters named herein as follows:
DTC will act as securities depositary (the "Depositary") for the
Notes. The Notes will be issued in the name of Cede & Co. (DTC's
partnership nominee) in the form of one fully-registered global certificate
in the principal amount of $200,000,000. The certificate 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
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of
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 ("Indirect Participants"). The Rules
applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each Beneficial Owner is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchase,
but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of
their holdings, from the Direct or Indirect Participant through which the
Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Notes are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in
Notes, except in the event that use of the book-entry system for the Notes
is discontinued.
To facilitate subsequent transfers, all Notes deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Notes 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 Notes; DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Notes 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
S-4
<PAGE> 5
Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Notes.
Under its usual procedures, DTC mails an Omnibus Proxy to the Company as
soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the date on
which interest is payable 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 date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of such
Participant and not of DTC, the Trustee or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Company or the Trustee, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as Depositary at any time
by giving reasonable notice to the Company or the Trustee. Under such
circumstances, in the event that a successor Depositary is not obtained,
certificates for the Notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor Depositary). In that event,
certificates for the Notes will be printed and delivered.
None of the Company, the Trustee, any paying agent or any other agent of
the Company or the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. The Underwriters named herein are Direct Participants of DTC.
CONCERNING THE TRUSTEE
Pursuant to the Trust Indenture Act of 1939, as amended, should a default
occur with respect to the Notes, Citibank, N.A. ("Citibank") would be required
to resign as Trustee under the Indenture within 90 days of such default unless
such default were cured, duly waived or otherwise eliminated. Citibank, the
Trustee under the Indenture, has normal commercial banking relationships with
the Company and is the agent bank and a lending bank under the Company's
$400,000,000 revolving credit agreement. In addition, Citibank is an affiliate
of Citicorp Securities, Inc.
S-5
<PAGE> 6
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
the related underwriting agreement (collectively, the "Underwriting Agreement"),
the Company has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Citicorp Securities, Inc. and Salomon Brothers Inc (the
"Underwriters"), and the Underwriters have severally agreed to purchase, the
respective principal amounts of the Notes set forth after their names below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................... $ 68,000,000
Citicorp Securities, Inc. ..................................... 66,000,000
Salomon Brothers Inc........................................... 66,000,000
------------
Total.............................................. $200,000,000
============
</TABLE>
The Company has been advised by the Underwriters that they propose to offer
the Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession of .75% of the principal amount per Note; that the
Underwriters and such dealers may allow a discount of .25% of the principal
amount on sales to certain other dealers; and that after the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Underwriters.
The Notes are a new issue of securities with no established trading market.
The Underwriters have advised the Company that they intend to act as market
makers for the Notes. However, the Underwriters are not obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or contribute to payments which the Underwriters may be required to
make in respect thereof.
Each of the Underwriters engages in transactions with and performs services
for the Company and certain of its subsidiaries from time to time in the
ordinary course of business.
S-6
<PAGE> 7
PROSPECTUS
$401,000,000
[NORAM LOGO]
DEBT SECURITIES
------------------------
NorAm Energy Corp. (the "Company", formerly known as Arkla, Inc.) may offer
from time to time its unsecured debt securities consisting of notes, debentures
or other evidences of indebtedness (the "Debt Securities") at an aggregate
initial offering price of not more than $401,000,000. The Debt Securities may be
offered as separate series in amounts, at prices and on terms to be determined
in light of market conditions at the time of sale and set forth in a Prospectus
Supplement or Prospectus Supplements.
The terms of each series of Debt Securities, including, where applicable,
the specific designation, aggregate principal amount, authorized denominations,
maturity rate or rates and time or times of payment of any interest, any terms
for optional or mandatory redemption or payment of additional amounts or any
sinking fund provisions, any initial public offering price, the proceeds to the
Company and any other specific terms in connection with the offering and sale of
such series ("Offered Securities") will be set forth in a Prospectus Supplement
or Prospectus Supplements. Debt Securities may be issued with amounts payable in
respect of principal of or premium or interest on the Debt Securities determined
by reference to the value, rate or price of one or more specific indices.
The Debt Securities may be sold directly by the Company, through agents
designated from time to time or to or through underwriters or dealers. See "Plan
of Distribution". If any agents of the Company or any underwriters are involved
in the sale of any Debt Securities in respect of which this Prospectus is being
delivered, the names of such agents or underwriters and any applicable
commissions or discounts will be set forth in a Prospectus Supplement. The net
proceeds to the Company from such sale also will be set forth in a Prospectus
Supplement.
------------------------
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 Debt Securities
unless accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is August 4, 1995.
<PAGE> 8
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER OR AGENT. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY AND THEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALES MADE HEREUNDER AND
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
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., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Certain securities of the Company are listed on, and reports,
proxy statements and other information concerning the Company can be inspected
at the offices of, The New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
This Prospectus does not contain all of the information set forth in the
Registration Statement, of which this Prospectus is a part, and exhibits
relating thereto which the Company has filed with the Commission under the
Securities Act of 1933, as amended (the "Act"). Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Debt Securities offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference herein its Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"), its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and its
Current Report on Form 8-K dated August 3, 1995, which have been filed
previously with the Commission under File No. 1-3751.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein or
in a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein 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 WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH
PERSON, A COPY OF ANY AND ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS
SHOULD BE DIRECTED TO THE OFFICE OF THE SECRETARY, NORAM ENERGY CORP., P.O. BOX
2628, HOUSTON, TEXAS 77252, TELEPHONE NUMBER (713) 654-5100.
2
<PAGE> 9
THE COMPANY
NorAm Energy Corp., a Delaware corporation (the "Company"), was
incorporated in 1928 and is principally engaged in the distribution and
transmission of natural gas including gathering, storage and marketing of
natural gas. On May 10, 1994, the stockholders of the Company approved an
amendment to the Company's Restated Certificate of Incorporation to change the
Company name from Arkla, Inc. to NorAm Energy Corp. The purpose of the name
change is to more accurately describe the geographical area served by the
Company.
The Company's natural gas distribution business is conducted through three
divisions, Arkla (formerly known as Arkansas Louisiana Gas Company), Entex and
Minnegasco, and their affiliates, which collectively form the nation's third
largest gas distribution operation with over 500 billion cubic feet ("Bcf") of
annual throughput to over 2.7 million customers. Through these divisions and
their affiliates, the Company engages in both the natural gas distribution sales
and transport businesses. The facilities and terms of service related to
Arkla's, Entex's and Minnegasco's sales to their customers are largely regulated
by state public service commissions and, in Texas, by municipalities.
The Company's natural gas pipeline business (collectively referred to as
"Pipeline") is conducted principally through the following wholly-owned
subsidiaries of the Company: NorAm Gas Transmission Company ("NGT", formerly
known as Arkla Energy Resources Company), Mississippi River Transmission
Corporation ("MRT"), NorAm Energy Services, Inc. ("NES", formerly known as Arkla
Energy Marketing Company), NorAm Field Services Corp. ("NFS", formerly known as
Arkla Gathering Services Company) and NorAm Hub Services, Inc. ("NHS"). Such
subsidiaries form the NorAm Trading and Transportation Group. Through these
subsidiaries and their affiliates, the Company engages in the transmission and
sale of natural gas, including gathering, storage and marketing of natural gas.
NGT and MRT are interstate pipeline companies, NES serves as the Company's
principal natural gas supply aggregator and marketer and NFS owns and operates
the natural gas gathering assets previously held by NGT.
In March 1993, the Company transferred assets, liabilities and service
obligations of Arkla Energy Resources, formerly a division of the Company, into
a then newly-formed wholly-owned subsidiary of the Company, now called NGT,
pursuant to an order from the Federal Energy Regulatory Commission (the "FERC")
approving the transfer. As a result of this transfer of assets, liabilities and
service obligations, the FERC now has jurisdiction over NGT's interstate
pipeline business, including transportation services and certain of NGT's
transactions with affiliates of the Company, which historically were subject to
state regulatory oversight.
Effective February 1, 1995, after receipt of all necessary authorization
from the FERC, NFS assumed ownership and operation of NGT's gathering assets
pursuant to a transfer from NGT to NFS of such assets. While the FERC provided
for a two-year gathering service option for existing customers under existing
terms and conditions, the scope of the FERC's jurisdiction over NFS is limited,
and NFS is not generally subject to traditional cost-of-service rate regulation.
These gathering assets consist primarily of 3,500 miles of gathering pipeline
which collect gas from more than 200 separate systems in major producing fields
in Arkansas, Oklahoma, Louisiana and Texas.
NGT owns and operates a natural gas pipeline system located in portions of
Arkansas, Louisiana, Mississippi, Missouri, Kansas, Oklahoma, Tennessee and
Texas. At December 31, 1994, the NGT system consisted of approximately 6,400
miles of transmission lines and approximately 3,000 miles of gathering lines.
The NGT pipeline system extends generally in an easterly direction from the
Anadarko Basin area of the Texas Panhandle and western Oklahoma through the
Arkoma Basin area of eastern Oklahoma and central Arkansas, from the mainline
system in Oklahoma and Arkansas to south central Kansas and southwest Missouri.
In its system, NGT operates various product extraction plants and compressor
facilities related to its transmission business.
The MRT system consists of approximately 2,200 miles of pipeline serving
principally the greater St. Louis area in Missouri and Illinois. This pipeline
system includes the "Main Line System," the "East Line," and the "West Line."
The Main Line System includes three transmission lines extending approxi-
3
<PAGE> 10
mately 435 miles from Perryville, Louisiana, to the greater St. Louis area. The
East Line, also a main transmission line, extends approximately 94 miles from
southwestern Illinois to St. Louis. The West Line extends approximately 140
miles from east Texas to Perryville, Louisiana. The system also includes various
other branch, lateral, transmission and gathering lines and compressor stations.
The Company owns and operates seven gas storage fields. Four fields are
associated with NGT's pipeline and have a combined maximum deliverability of
approximately 655 million cubic feet ("MMcf") per day and a working gas capacity
of approximately 22.5 Bcf. Three storage fields are associated with MRT's
pipeline and have a maximum aggregate deliverability of approximately 570 MMcf
per day and a working gas capacity of approximately 31 Bcf.
NES markets gas under daily, baseload and term agreements which include
either market sensitive or fixed pricing provisions. Fixed price sales or
purchase contracts are hedged using gas futures contracts or other derivative
financial instruments. See Notes 1 and 11 of Notes to the Company's Consolidated
Financial Statements included in the Form 10-K.
On December 31, 1992, the Company completed the sale of Arkla Exploration
Company to Seagull Energy Corporation. The sale terminated the Company's
activities in the oil and gas exploration and production business. On June 30,
1993 the Company completed the sale of its intrastate pipeline businesses as
conducted by Louisiana Intrastate Gas Corporation and its subsidiaries, LIG
Chemical Company, LIG Liquids Corporation and Tuscaloosa Pipeline to a
subsidiary of Equitable Resources, Inc.
The Company's principal executive offices are located at 1600 Smith Street,
11th Floor, Houston, Texas 77002. Its mailing address is P.O. Box 2628, Houston,
Texas 77252-2628, and its telephone number is (713) 654-5100.
USE OF PROCEEDS
Unless otherwise indicated in the Prospectus Supplement, the net proceeds
from the sale of the Debt Securities will be used to reduce the Company's
indebtedness and for general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------
JUNE 30, 1995 1994 1993 1992 1991 1990
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1).......... 1.97(2) 1.47 1.47 1.10 1.19 1.97
</TABLE>
---------------
(1) The ratios of earnings to fixed charges have been computed using earnings
which are the sum of income from continuing operations, income taxes and
fixed charges. Fixed charges are interest, amortization of debt discount and
expense and the estimated interest portion of rental charges.
(2) The ratio of earnings to fixed charges for the three month period ended
March 31, 1995 was 3.14. Because of the seasonal nature of the Company's
business, the ratios for the three and six month periods may not necessarily
be indicative of the ratio which will result for the full year 1995.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture dated as of April 15,
1990 (the "Indenture"), between the Company and Citibank, N.A., as trustee (the
"Trustee"), a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The statements under this caption are brief
summaries of certain provisions of the Indenture, do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Indenture, including the definitions therein of certain
terms. Wherever particular Sections of the Indenture or terms that are defined
in the Indenture are referred to herein or in a Prospectus Supplement, it is
intended that such Sections or defined terms shall be incorporated by reference
herein or therein, as the case may be.
4
<PAGE> 11
The term "Securities", as used under this caption, refers to all Securities
issued under the Indenture and includes the Debt Securities.
The Debt Securities may be issued from time to time in one or more series.
The following description sets forth certain general terms and provisions of the
Debt Securities. The particular terms of each series of Debt Securities offered
by any Prospectus Supplement or Prospectus Supplements will be described in such
Prospectus Supplement or Prospectus Supplements relating to such series.
GENERAL
The Indenture does not limit the aggregate amount of Securities which may
be issued thereunder and Securities may be issued thereunder from time to time
in separate series up to the aggregate amount from time to time authorized by
the Company for each series. The Securities will be unsecured obligations of the
Company and will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Company.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the Offered Securities; (1) the title of the
Offered Securities; (2) any limitation on the aggregate principal amount of the
Offered Securities; (3) whether any of the Offered Securities are to be issuable
in permanent global form (a "Global Security") and the circumstances under which
any such Global Security or Securities may be exchanged for Securities
registered in the name of, and any transfer of such Global Security or
Securities may be registered to, a Person other than the depositary for such
Global Security (the "Depositary") or its nominee; (4) the price or prices
(expressed as a percentage of the aggregate principal amount thereof) at which
the Offered Securities will be issued; (5) the date or dates on which the
principal of the Offered Securities will be payable; (6) the rate or rates per
annum at which the Offered Securities will bear interest, if any, or the formula
pursuant to which such rate or rates will be determined, and the date or dates
from which any such interest will accrue; (7) the Interest Payment Dates on
which any such interest on the Offered Securities will be payable and the
Regular Record Date for any interest payable on any Offered Securities on any
Interest Payment Date; (8) the Person to whom any interest on any Offered
Security will be payable, if other than the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest; (9) the place or places where the
principal of and any premium and interest on the Offered Securities will be
payable and where the Offered Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Offered Securities and the Indenture may be served; (10) the
period or periods within which and the price or prices at which the Offered
Securities may, pursuant to any optional redemption provisions, be redeemed, in
whole or in part, and the other detailed terms and conditions of any such
optional redemption provisions; (11) the obligation, if any, of the Company to
redeem or purchase the Offered Securities pursuant to any sinking fund or
analogous provisions or at the option of the Holder thereof and the period or
periods within which and the price or prices at which the Offered Securities
will be redeemed or purchased, in whole or in part, pursuant to such obligation,
and the other detailed terms and conditions of such obligation; (12) the
denominations in which any Offered Securities will be issuable, if other than
denominations of $1,000 and any integral multiple thereof; (13) if the amount of
payments of principal of and any premium and interest on any of the Offered
Securities may be determined with reference to an index, the manner in which
such amounts shall be determined; (14) whether the Offered Securities will have
the benefit of the covenant described under "Put Right of Holders Upon a
Designated Event and a Rating Decline" and, if so, the dates as of which such
covenant shall become effective and expire, as applicable; (15) any additional
events of default or covenants applicable to the Offered Securities; (16) if
other than the principal amount thereof, the portion of the principal amount of
the Offered Securities which shall be payable upon declaration of acceleration
of the Maturity thereof; and (17) any other terms of the Offered Securities not
inconsistent with the provisions of the Indenture. (Section 3.01)
Securities may be issued as Original Issue Discount Securities to be sold
at a substantial discount below their principal amount. Special United States
federal income tax considerations applicable to Securities issued at an original
issue discount, including Original Issue Discount Securities, are described
under "United States Federal Income Taxation -- U.S. Holders -- Original Issue
Discount Debt Securities."
5
<PAGE> 12
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Although the Indenture provides for the issuance of securities either in
registered or bearer form, the Company intends to issue Debt Securities of each
series solely as Registered Securities. Securities of a series may be
represented, in whole or in part, by one or more permanent Global Securities in
a denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Securities to be represented by such Global
Security or Securities. Any Global Security deposited with the Depositary or its
nominee identified in the applicable Prospectus Supplement may not be
surrendered for transfer or exchange except as may be specified in the
applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of Securities to be represented by one or more Global
Securities will be described in the applicable Prospectus Supplement. Beneficial
interests in Global Securities will only be evidenced by, and transfers thereof
will only be effected through, records maintained by the Depositary and the
institutions that are participants in the Depositary.
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Securities of any series will be
exchangeable for other Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. (Section 3.05)
Securities may be presented for exchange or registration of transfer (with
the form of transfer endorsed thereon duly executed) as provided above, at the
office of the Security Registrar or at the office of any transfer agent
designated by the Company for such purpose with respect to any series of
Securities and referred to in an applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon the
Security Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request. The
Company has appointed the Trustee as Security Registrar. (Section 3.05) If a
Prospectus Supplement refers to any transfer agents (in addition to the Security
Registrar) initially designated by the Company with respect to any series of
Securities, the Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Company will be required to maintain a
transfer agent in each Place of Payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of
Securities. (Section 10.02)
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before any selection for redemption
of Securities of like tenor and of the series of which such Security is a part,
and ending at the close of business on the day of mailing of the relevant notice
of redemption to all Holders of Securities of like tenor and of such series to
be redeemed or; (ii) register the transfer of or exchange any Security so
selected for redemption, in whole or in part, except the unredeemed portion of
any security being redeemed in part. (Section 3.05)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement,
principal of (and premium, if any) and interest on Debt Securities will be
payable, subject to any applicable laws and regulations, at the office of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register. Unless otherwise indicated in an 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
Predecessor Security) is registered at the close of business on the Regular
Record Date for such interest. (Section 3.07)
Unless otherwise indicated in an applicable Prospectus Supplement, the
Corporate Trust Office of the Trustee in The City of New York will be designated
as the Company's sole Paying Agent for payments with respect to Offered
Securities of each series. Any Paying Agents initially designated by the Company
for the Offered Securities will be named in an applicable Prospectus Supplement.
The Company may at any time
6
<PAGE> 13
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 such series. (Section 10.02)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of (and premium, if any) or interest on any Security of any series
which remain unclaimed at the end of two years after such principal (and
premium, if any) or interest shall have become due and payable will be repaid to
the Company and the Holder of such Security will thereafter look only to the
Company for payment thereof. (Section 10.03)
CERTAIN DEFINITIONS
"Consolidated Net Tangible Assets" means the total amount of assets of the
Company and its Subsidiaries less, without duplication: (a) total current
liabilities (excluding indebtedness due within 12 months); (b) all reserves for
depreciation and other asset valuation reserves but excluding reserves for
deferred federal income taxes; (c) all intangible assets such as goodwill,
trademarks, trade names, patents and unamortized debt discount and expense
carried as an asset; and (d) appropriate adjustments on account of minority
interests of other persons holding common stock in any Subsidiary, all as
reflected on the Company's most recent audited consolidated balance sheet
preceding the date of determination. (Section 1.01)
The term "indebtedness," as applied to the Company or any Subsidiary, means
bonds, debentures, notes and other instruments representing obligations created
or assumed by any such corporation, (i) for money borrowed (other than
unamortized debt discount or premium); (ii) evidenced by a note or similar
instrument given in connection with the acquisition of any business, properties
or assets of any kind; (iii) as lessee under leases required to be capitalized
on the balance sheet of the lessee under generally accepted accounting
principles; and (iv) any amendments, renewals, extensions, modifications and
refundings of any such indebtedness or obligation listed in clause (i), (ii), or
(iii) above. All indebtedness secured by a lien upon property owned by the
Company or any Subsidiary and upon which indebtedness any such corporation
customarily pays interest, although any such corporation has not assumed or
become liable for the payment of such indebtedness, is also deemed to be
indebtedness of any such corporation. All indebtedness for money borrowed
incurred by other persons which is directly guaranteed as to payment of
principal by the Company or any Subsidiary shall for all purposes of the
Indenture be deemed to be indebtedness of any such corporation, but no other
contingent obligation of any such corporation in respect of indebtedness
incurred by other persons shall for any purpose be deemed indebtedness of such
corporation. Indebtedness of the Company or any or any Subsidiary does not
include (i) amounts which are payable only out of all or a portion of the oil,
gas, natural gas, helium, coal, metals, minerals, steam, timber, hydrocarbons,
or geothermal or other natural resources produced, derived or extracted from
properties owned or developed by such corporation; (ii) any indebtedness
incurred to finance oil, gas, natural gas, helium, coal, metals, minerals,
steam, timber, hydrocarbons, or geothermal or other natural resources or
synthetic fuel exploration or development, payable, with respect to principal
and interest, solely out of the proceeds of oil, gas, natural gas, helium, coal,
metals, minerals, steam, timber, hydrocarbons, or geothermal or other natural
resources or synthetic fuel to be produced, sold, and/or delivered by the
Company or any Subsidiary, (iii) indirect guarantees or other contingent
obligations in connection with the indebtedness of others, including agreements,
contingent or otherwise, with such other persons or with third persons with
respect to, or to permit or ensure the payment of, obligations of such other
persons, including, without limitation, agreements to advance or supply funds to
or to invest in such other persons, or agreements to pay for property, products
or services of such other persons (whether or not conferred, delivered or
rendered), and any demand charge, throughput, take-or-pay, keep-well,
make-whole, cash deficiency, maintenance of working capital or earnings or
similar agreements; and (iv) any guarantees with respect to lease or other
similar periodic payments to be made by other persons. (Section 1.01)
"Principal Property" means any natural gas distribution property, natural
gas pipeline or gas processing plant located in the United States, except any
such property that in the opinion of the Board of Directors is not of material
importance to the total business conducted by the Company and its consolidated
subsidiaries. "Principal Property" shall not include any oil or gas property or
the production or proceeds of production from
7
<PAGE> 14
an oil or gas producing property or the production or any proceeds of production
of gas processing plants or oil or gas or petroleum products in any pipeline or
storage field. (Section 1.01)
"Restricted Subsidiary" means any Subsidiary which owns a Principal
Property. "Subsidiary" means any corporation of which at least a majority of all
outstanding stock having by the terms thereof ordinary voting power in the
election of directors of such corporation (irrespective of whether or not at the
time stock of any class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by the Company or by one or more Subsidiaries, or
by the Company and one or more other Subsidiaries. (Section 1.01)
"Sale and Leaseback Transaction" means any arrangement with any person
providing for the leasing to the Company or any Restricted Subsidiary of any
Principal Property (except for temporary leases for a term, including any
renewal thereof, of not more than three years and except for leases between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries), which
Principal Property has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such person. (Section 10.09)
RESTRICTIVE COVENANTS
The Indenture contains the covenants summarized below, which are applicable
so long as any of the Debt Securities are outstanding.
Limitations On Liens. The Company will not, and will not permit any
Restricted Subsidiary to pledge, mortgage or hypothecate, or permit to exist,
except in favor of the Company or any Restricted Subsidiary, any mortgage,
pledge, lien or other encumbrance upon, any Principal Property at any time owned
by it or a Restricted Subsidiary, to secure any indebtedness (as defined above),
unless effective provision is made whereby outstanding Debt Securities will be
secured equally and ratably therewith (or prior thereto). This restriction will
not apply to: (a) mortgages, pledges, liens or encumbrances on any property held
or used by the Company or a Restricted Subsidiary in connection with the
exploration for, development of or production of, oil, gas, natural gas, other
hydrocarbons, helium, coal, metals, minerals, steam, timber or geothermal or
other natural resources or synthetic fuels, such properties to include, but not
be limited to, the Company's or a Restricted Subsidiary's interest in any
mineral fee interests, oil, gas or other mineral leases, royalty, overriding
royalty or net profits interests, production payments and other similar
interests, wellhead production equipment, tanks, field gathering lines,
leasehold or field separation and processing facilities, compression facilities
and other similar personal property and fixtures; (b) mortgages, pledges, liens
or encumbrances on oil, gas, natural gas, other hydrocarbons, helium, coal,
metals, minerals, steam, timber, or geothermal or other natural resources or
synthetic fuels produced or recovered from any property, an interest in which is
owned or leased by the Company or a Restricted Subsidiary; (c) mortgages,
pledges, liens or encumbrances (or certain extensions, renewals or refundings
thereof) upon any property acquired before or after the date of the Indenture,
created at the time of acquisition or within one year thereafter to secure all
or a portion of the purchase price thereof or the cost of construction or
improvement, or existing thereon at the date of acquisition, provided that every
such mortgage, pledge, lien or encumbrance applies only to the property so
acquired or constructed and fixed improvements thereon; (d) mortgages, pledges,
liens or encumbrances upon any property acquired by any corporation that is or
becomes a Restricted Subsidiary after the date of the Indenture ("Acquired
Entity"), provided that every such mortgage, pledge, lien or encumbrance (1)
shall either (i) exist prior to the time the Acquired Entity becomes a
Restricted Subsidiary or (ii) be created at the time the Acquired Entity becomes
a Restricted Subsidiary or within one year thereafter to secure payment of the
acquisition price thereof and (2) shall only apply to those properties owned by
the Acquired Entity at the time it becomes a Restricted Subsidiary or thereafter
acquired by it from sources other than the Company or any other Restricted
Subsidiary; (e) pledges of current assets, in the ordinary course of business,
to secure current liabilities; (f) mechanics' or materialmen's liens, any
mortgages, pledges, liens, encumbrances or charges arising by reason of pledge
or deposits to secure certain public or statutory obligations; (g) mortgages,
pledges, liens or encumbrances upon any office, data processing or
transportation equipment; (h) mortgages, pledges, liens or encumbrances created
or assumed in connection with the issuance of debt securities, the interest on
which is excludable from gross income of the holder of such security pursuant to
the Internal Revenue Code of 1986, as amended (the "Code"), for the purpose of
financing the acquisition or construction
8
<PAGE> 15
of property to be used by the Company or a Restricted Subsidiary; (i) pledges or
assignments of accounts receivable or conditional sales contracts or chattel
mortgages and evidence of indebtedness secured thereby, received in connection
with the sale of goods or merchandise to customers; (j) certain liens for taxes,
judgments and attachments, or (k) certain other liens or encumbrances. (Section
10.08)
Notwithstanding the foregoing, the Company or a Restricted Subsidiary may
issue, assume or guarantee indebtedness secured by a mortgage which would
otherwise be subject to the foregoing restrictions in an aggregate amount which,
together with all other indebtedness of the Company or a Restricted Subsidiary
secured by a mortgage which (if originally issued, assumed or guaranteed at such
time) would otherwise be subject to the foregoing restrictions (not including
secured indebtedness permitted under the foregoing exceptions) and the value of
Sale and Leaseback Transactions existing at such time (other than Sale and
Leaseback Transactions the proceeds of which have been applied to the retirement
of Debt Securities or of certain long-term indebtedness or to the purchase of
another Principal Property (Section 10.09) and other than Sale and Leaseback
Transactions in which the property involved would have been permitted to be
mortgaged under (c) or (d) above) does not at the time such indebtedness is
incurred exceed 5% of Consolidated Net Tangible Assets, as shown on the
Company's most recent audited consolidated balance sheet preceding the date of
determination. (Section 10.08)
Limitation on Sale and Leaseback Transactions. Sale and Leaseback
Transactions by the Company or any Restricted Subsidiary of any Principal
Property are generally prohibited unless the net proceeds of such sale are at
least equal to the fair value of such Principal Property and either (a) the
Company or such Restricted Subsidiary would be entitled to incur indebtedness
secured by a lien on the Principal Property to be leased without equally and
ratably securing the Debt Securities of each series, or (b) the Company applies
an amount not less than the fair value of such property (i) to the optional
redemption of Debt Securities in accordance with the provisions of the Indenture
and the terms of the Debt Securities so to be redeemed, (ii) to the retirement
of certain long-term indebtedness of the Company or a Restricted Subsidiary or
(iii) to the purchase at not more than the fair value of Principal Property
(other than that involved in such Sale and Leaseback Transaction). (Section
10.09)
Put Right of Holders Upon a Designated Event and a Rating Decline. If so
specified in the terms of the Debt Securities of any series, such series shall
have the benefit of the following covenant. In the event that there occurs at
any time prior to any date specified in the terms of such series of Debt
Securities both (a) a Designated Event (as hereinafter defined) with respect to
the Company and (b) a Rating Decline (as hereinafter defined), each holder of
the Debt Securities shall have the right, at the holder's option, to require the
Company to purchase all or any part of such holder's Debt Securities on the date
("Repurchase Date") that is 100 days after the last to occur of public notice of
the Designated Event and the Rating Decline, at 100% of the principal amount
thereof or such other price as is specified in the applicable Prospectus
Supplement, plus accrued interest to the Repurchase Date.
On or about the twenty-eighth day after the last to occur of public notice
of the occurrence of a Designated Event and the Rating Decline, the Company is
obligated to notify the Trustee of such events and give notice to all holders of
the Debt Securities of such series regarding the Designated Event, the Rating
Decline and the repurchase right. The notice shall state the Repurchase Date,
the date by which the repurchase right must be exercised (which date shall be at
least ten days prior to the Repurchase Date), the applicable price for such Debt
Securities and the procedure which the holder must follow to exercise this
right. To exercise this right, the holder of such Debt Securities must deliver
at least ten days prior to the Repurchase Date written notice to the Company (or
an agent designated by the Company for such purpose and notified to the Trustee
and the holders) of the holder's exercise of such right, the name in which such
Debt Securities were registered and the principal amount to be repurchased,
together with the Debt Securities with respect to which the right is being
exercised, duly endorsed for transfer to the Company. Such written notice shall
be irrevocable. Debt Securities repurchased pursuant to this covenant shall be
cancelled as provided in the Indenture.
A default in the performance of this covenant which continues for 90 days
after the date on which written notice thereof is given to the Company by the
Trustee or the holders of 25% or more in aggregate principal
9
<PAGE> 16
amount of the Outstanding Debt Securities of all series entitled to the benefits
of this covenant will be an Event of Default with respect to Debt Securities of
all series entitled to the benefits of this covenant. The holders of 66 2/3% in
principal amount of the Outstanding Debt Securities of any series entitled to
the benefits of this covenant may on behalf of the holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with this covenant.
As used herein, a "Designated Event" shall be deemed to have occurred at
such time as (i) a "person" or "group" (within the meaning of Sections 13(d)(3)
of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 30% of the total voting power of all
classes of stock then outstanding of the Company normally entitled to vote in
elections of directors ("Voting Stock"); or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Company's Board of Directors (together with any new director whose election
by the Company's Board of Directors or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office; or (iii) the Company consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of its
assets to any person, or any corporation consolidates with or merges into the
Company, in either event pursuant to a transaction in which Voting Stock of the
Company is changed into or exchanged for cash, securities and other property,
provided that such transaction (a) between the Company and its Subsidiaries or
between Subsidiaries or (b) involving the exchange of the Company's Voting Stock
as consideration in the acquisition of another business or businesses (without
change or exchange of the Company's outstanding Voting Stock into or for cash,
securities or other property) shall be excluded from the operation of this
clause (iii); or (iv) the Company, one or more employee benefit plans ("Employee
Benefit Plans") as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, maintained by the Company or any Subsidiary
thereof, or any Subsidiary of the Company purchases or otherwise acquires,
directly or indirectly, beneficial ownership of Voting Stock of the Company if,
after giving effect to such purchase or acquisition, the Company (together with
such Employee Benefit Plans and such Subsidiaries) acquires 20% or more of the
Company's Voting Stock within any 12-month period; or (v) on any date (a
"Calculation Date") the Company makes any distribution or distributions of cash,
property or securities (other than regular dividends, and distributions of
capital stock of the Company) to holders of Voting Stock of the Company or the
Company, any Employee Benefit Plan or any Subsidiary purchases or otherwise
acquires beneficial ownership of Voting Stock of the Company and the sum of the
fair market value of such distribution or purchase, plus the fair market value
of all other such distributions and purchases which have occurred during the
preceding 12-month period, is at least 20% of the fair market value of the
outstanding Voting Stock of the Company. The percentage in (v) above is
calculated on such Calculation Date by determining the percentage of fair market
value of the Company's outstanding Voting Stock as of such Calculation Date
which is represented by the fair market value of the distributions and purchases
which have occurred on such date and adding to that percentage all of the
percentages which have been similarly calculated on the Calculation Dates of all
such distributions and purchases during the preceding 12-month period.
As used herein, a "Rating Decline" shall be deemed to have occurred if on
any date within the 90-day period following public notice of the occurrence of a
Designated Event (which period shall be extended so long as the rating of the
Debt Securities is under publicly announced consideration for possible downgrade
by a Rating Agency (as hereinafter defined)) (i) in the event the Debt
Securities are rated by one or both Rating Agencies on the Rating Date (as
hereinafter defined) as Investment Grade (as hereinafter defined), the rating of
the Debt Securities by such Rating Agency or Rating Agencies shall fall below
Investment Grade, or (ii) in the event the Debt Securities are rated by both
Rating Agencies on the Rating Date below Investment Grade, the rating of the
Debt Securities by either Rating Agency shall be at least one Full Rating
Category (as hereinafter defined) below the rating of the Debt Securities by
such Rating Agency on the Rating Date. Since a Rating Decline will be deemed to
exist only if the conditions set forth in either (i) or (ii) above have
occurred, it is possible that events could occur which would result in a
significant downgrade in the rating of the Debt Securities without necessarily
allowing the Holders of Debt Securities entitled to the benefits of this
covenant the option to exercise such right.
10
<PAGE> 17
As used herein, "Rating Agency" shall mean Standard & Poor's Corporation
and its successors ("S&P"), and Moody's Investors Service, Inc. and its
successors ("Moody's"), or if S&P or Moody's or both shall not make a rating on
the Debt Securities publicly available, a nationally recognized statistical
rating agency or agencies, as the case may be, selected by the Company which
shall be substituted for S&P or Moody's or both, as the case may be; "Investment
Grade" shall mean BBB -- or higher by S&P or Baa3 or higher by Moody's or the
equivalent of such ratings by S&P or Moody's or by any other Rating Agency
selected as provided above, and "Rating Date" shall mean the date which is 121
days prior to public notice of the occurrence of a Designated Event.
As used herein, the term "Full Rating Category" shall mean (i) with respect
to S&P, any of the following categories; BB, B, CCC, CC and C, (ii) with respect
to Moody's any of the following categories: Ba, B, Caa, Ca and C and (iii) with
respect to any other Rating Agency, the equivalent of any such category of S&P
or Moody's used by such other Rating Agency. In determining whether the rating
of the Debt Securities has decreased by the equivalent of one Full Rating
Category, gradation within Full Rating Categories (+ and - for S&P; 1, 2, and 3
for Moody's; or the equivalent gradation for another Rating Agency) shall be
taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to
BB-, or from BB to B+, will constitute a decrease of less than one Full Rating
Category).
The Company will comply with any applicable provisions of the federal
securities laws in connection with the put right described above, including, if
applicable, Section 14(e) of the Exchange Act and the rules and regulations of
the Commission thereunder.
Other than the Debt Securities entitled to the benefit of the put right
described above, there are no other obligations of the Company which would
become accelerated upon the triggering of such put right.
In the event that the put right described above were triggered, funds to
repurchase the Debt Securities entitled to the benefit of the put right would be
obtained from cash on hand and other internally generated funds, from external
financing or from a combination of these sources.
Because a Designated Event could be expected to occur in connection with
certain forms of takeover attempts, these provisions could deter hostile or
friendly acquisitions of the Company where the person attempting the acquisition
views itself as unable to finance the purchase of the principal amount of the
Debt Securities which may be tendered to the Company upon occurrence of a
Designated Event and a Rating Decline. (Section 10.14)
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
Debt Securities of any series: (i) failure to pay principal of, or premium, if
any, on any Debt Security of that series when due; (ii) failure to pay any
interest on any Debt Security of that series when due, which failure continues
for 30 days; (iii) failure to deposit any sinking fund payment, when due, in
respect of any Debt Security of that series; (iv) failure to observe or perform
any other covenants or agreements of the Company in the Indenture other than a
covenant or agreement a default in whose performance or whose breach is
elsewhere specifically dealt with in the Indenture or which is specifically
included in the Indenture solely for the benefit of a series of Debt Securities
other than that series, which continues for 90 days after written notice as
provided in the Indenture; (v) certain events in bankruptcy, insolvency or
reorganization; and (vi) any other Event of Default provided with respect to
Debt Securities of that series. (Section 5.01)
A default under any indebtedness of the Company other than the Debt
Securities will not be an Event of Default under the Indenture. An Event of
Default under one series of Debt Securities will not necessarily be an Event of
Default with respect to any other series of Debt Securities.
The Indenture provides that (1) if an Event of Default described in clause
(i), (ii), (iii) or (vi) above occurs and is continuing with respect to Debt
Securities of any series, either the Trustee or the holders of not less than 25%
in aggregate principal amount of the Debt Securities of such series then
outstanding may declare the principal (or, if the Debt Securities of that series
are Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms of that series) of all outstanding Debt
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Securities of that series and the interest accrued thereon, if any, to be due
and payable immediately, (2) if an Event of Default described in clause (iv)
above occurs and is continuing, then in such case the Trustee or the Holders of
not less than 25% in aggregate principal amount of all the then Outstanding
Securities (treated as one class) of each series entitled to the benefit of the
covenant or agreement which the Company has failed to observe or perform may
declare the principal amount (or, if any such Securities are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of that series) of all of such Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by the Holders) and upon any such declaration such principal amount (or
specified portion thereof) of such Securities shall become immediately due and
payable, and (3) if an Event of Default described in clause (v) above occurs and
is continuing, either the Trustee or the holders of not less than 25% in
aggregate principal amount of all Debt Securities then outstanding (treated as
one class) may declare the principal (or, in the case of Original Issue Discount
Securities, the portion of the principal amount thereof specified in the terms
thereof) of all Debt Securities then outstanding and the interest accrued
thereon, if any, to be due and payable immediately. (Section 5.02) Upon certain
conditions such declarations may be annulled and past defaults (except for a
default in the payment of principal of, or premium, if any, or interest on such
Debt Securities or in respect of covenants or provisions which cannot be
modified or amended without the consent of the holder of each Debt Security
affected) may be waived by the holders of a majority in aggregate principal
amount of the then outstanding Debt Securities of each such series. (Section
5.13) For information as to waiver of defaults, see "Meetings, Modification and
Waiver" below.
The Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights and powers under the Indenture
at the request or direction of any of the holders, unless such holders shall
have offered to the Trustee reasonable indemnity. (Sections 6.01 and 6.03)
Subject to such provisions for indemnification of the Trustee, the holders of a
majority in principal amount of the outstanding Securities of any series will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, with respect to the Debt Securities of that series.
(Section 5.12)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 10.11)
Under the Indenture the Trustee must give to the holders of each series of
Debt Securities notice of all uncured defaults with respect to such series
within 90 days after the occurrence of such a default (the term default to
include the events specified above without grace periods); provided that, except
in the case of default in the payment of principal of (or premium, if any) or
interest on, any of the Debt Securities, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interests of the holders of the Debt Securities of such
series. (Section 6.02)
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than 66 2/3% in
aggregate principal amount of the Outstanding Securities of each series affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on any Security, (b) reduce the
principal amount of, or premium or interest on, any Security, (c) change any
obligation of the Company to pay additional amounts, (d) reduce the amount of
principal of an Original Issue Discount Security payable upon acceleration of
the Maturity thereof, (e) change the coin or currency in which any Security or
any premium or interest thereon is payable, (f) impair the right to institute
suit for the enforcement of any payment on or with respect to any Security, (g)
reduce the percentage in principal amount of Outstanding Securities of any
series, the consent of whose Holders is required for modification or amendment
of the Indenture or for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults, (h) reduce the requirements
contained in the Indenture for quorum or voting, (i) change
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any obligation of the Company to maintain an office or agency in the places and
for the purposes required by the Indenture, or (j) modify any of the above
provisions. (Section 9.02)
The Holders of at least 66 2/3% in aggregate principal amount of the
Outstanding Securities of each series may, on behalf of the Holders of all the
Securities of that series, waive, insofar as that series is concerned,
compliance by the Company with certain restrictive provisions of the Indenture.
(Section 10.15) The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities of each series may, on behalf of all
Holders of Securities of that series, waive any past default under the Indenture
with respect to Securities of that series, except a default (a) in the payment
of principal of (or premium, if any) or interest on any Security of such series,
or (b) in respect of a covenant or provision of the Indenture which cannot be
modified or amended without the consent of the Holder of each Outstanding
Security of such series affected. (Section 5.13)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver thereunder or are
present at a meeting of Holders of Securities for quorum purposes, the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding shall be the amount of the principal thereof that would be due and
payable as of the date of such determination upon acceleration of the Maturity
thereof. (Section 1.01)
The Indenture contains provisions for convening meetings of the Holders of
Securities of a series. (Section 13.01) A meeting may be called at any time by
the Trustee, and also by the Company or the Holders of at least 10% in principal
amount of the Outstanding Securities of such series if the Trustee fails to call
the meeting upon request of the Company or such Holders, in any such case upon
notice given in accordance with "Notices" below. (Section 13.02) Except for any
consent which must be given by the Holder of each Outstanding Security affected
thereby, as described above, any resolution presented at a meeting or adjourned
meeting at which a quorum is present may be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Securities of
that series; provided, however, that any resolution with respect to any consent,
waiver, request, demand, notice, authorization, direction or other action which
may be given by the Holders of no less than a specified percentage in principal
amount of the Outstanding Securities of a series may be adopted at a meeting or
an adjourned meeting at which a quorum is present only by the affirmative vote
of the Holders of not less than such specified percentage in principal amount of
the Outstanding Securities of that series. Except for any consent which must be
given by the Holder of each Outstanding Security affected thereby, as described
above, any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Securities of that series. The quorum at any meeting
called to adopt a resolution, and at any adjourned meeting, will be persons
holding or representing a majority in principal amount of the Outstanding
Securities of a series; provided, however, that if any action is to be taken at
such meeting with respect to a consent, waiver, request, demand, notice,
authorization, direction or other action which may be given by the Holders of
not less than 66 2/3% in principal amount of the Outstanding Securities of a
series, the persons holding or representing such 66 2/3% in principal amount of
the Outstanding Securities of such series will constitute a quorum. (Section
13.04)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Outstanding
Securities under the Indenture, may consolidate or merge with or into, or
transfer or lease its assets substantially as an entirety to, any Person or may
permit any such Person to consolidate with or merge into the Company or convey,
transfer or lease its properties and assets substantially as an entirety to the
Company, provided that any successor Person is a corporation, partnership or
trust organized and validly existing under the laws of any domestic
jurisdiction, which assumes the Company's obligations on the Securities and
under the Indenture, that after giving effect to the transaction no Event of
Default, and no event which, after notice or lapse of time, would become an
Event of Default, shall have happened and be continuing, and that certain other
conditions are met. (Sections 8.01 and 8.02)
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NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they appear in the Security Register. (Section
1.06)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the registered owner of any Debt Security as the absolute owner thereof
(whether or not such Debt Security shall be overdue and notwithstanding any
notice to the contrary) for the purpose of making payment and for all other
purposes. (Section 3.08)
REPLACEMENT OF SECURITIES
Any mutilated Security will be replaced by the Company at the expense of
the Holder upon surrender of such Security to the Trustee. Securities that
become destroyed, lost or stolen will be replaced by the Company at the expense
of the Holder upon delivery to the Trustee of evidence of the destruction, loss
or theft thereof satisfactory to the Company and the Trustee. In the case of a
destroyed, lost or stolen Security, an indemnity satisfactory to the Trustee and
the Company may be required at the expense of the Holder of such Security before
a replacement Security will be issued. (Section 3.06)
GOVERNING LAW
The Indenture is and the Securities will be governed by, and construed in
accordance with, the laws of the State of New York. (Section 1.13)
DISCHARGE AND TERMINATION
The Company may terminate its obligations with respect to any series of
Debt Securities on the terms and subject to the conditions specified in the
Indenture, by irrevocably depositing in trust with the Trustee cash or U.S.
Government Obligations the principal of and interest on which are sufficient
(without reinvestment and assuming no tax liability will be imposed on the
Trustee) to pay principal of and interest on such series to redemption or
maturity. The right of the Company to so terminate its obligations is
conditioned upon delivery to the Trustee of an opinion of counsel to the Company
to the effect that holders of Debt Securities will not recognize any income,
gain or loss for federal income tax purposes as a result of such deposit and
termination. Upon termination of the Company's obligations with respect to the
Debt Securities of a series, the Trustee, at the request of the Company, will
release the Company from its obligations under the Indenture, subject to the
continuation of certain obligations as set forth in the Indenture. Such
termination and release, however, will not relieve the Company of its obligation
to pay when due principal of or interest on such Debt Securities, if such Debt
Securities are not paid from the cash or U.S. Government Obligations held by the
Trustee for payment thereof. (Section 4.02, 4.03 and 4.04)
REGARDING THE TRUSTEE
Citibank, N.A., the Trustee under the Indenture, has normal commercial
banking relationships with the Company and is the agent bank and a lending bank
under the Company's $400,000,000 revolving credit agreement.
UNITED STATES FEDERAL INCOME TAXATION
The following summary describes the principal United States federal income
tax consequences to purchasers that are likely to result from the purchase,
ownership, and sale or other taxable disposition of Debt Securities under
currently applicable law. This summary is based upon the current provisions of
the Code, applicable Treasury Regulations, judicial authority, and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service ("IRS") will not take a contrary view, and no ruling from the
IRS has been or will be sought. Legislative, judicial, or administrative changes
or interpretations may be
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forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders of Debt Securities. Finally, it is
possible that, based upon the specific terms of a Debt Security as proposed to
be issued or upon subsequent changes in, or interpretations of, applicable law,
the material United States federal income tax consequences could differ from
those described herein.
The following discussion does not address all aspects of United States
federal income taxation that may be relevant to holders subject to special rules
under the United States federal income tax laws, such as individual retirement
and other tax-deferred accounts, life insurance companies, tax exempt
organizations, dealers in securities or currencies, financial institutions,
persons holding Debt Securities as part of a hedging, straddle, or conversion
transaction, or persons whose functional currency is not the United States
dollar. This discussion deals only with Debt Securities held as capital assets
and, except as otherwise noted, by initial purchasers. As used herein, a "U.S.
Holder" of a Debt Security means a holder that is a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is subject to United States federal
income tax regardless of its source. A Non-U.S. Holder is a holder other than a
U.S. Holder.
PROSPECTIVE PURCHASERS OF THE DEBT SECURITIES SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF ACQUIRING, HOLDING, AND
DISPOSING OF THE DEBT SECURITIES IN LIGHT OF THEIR PARTICULAR SITUATIONS,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL, OR FOREIGN
TAX LAWS, AND THE PROSPECTS FOR, AND THE POTENTIAL IMPACT OF, ANY CHANGES IN THE
APPLICABLE TAX LAWS.
U.S. HOLDERS
Stated Interest. Except as set forth below, all interest payments on a
Debt Security will be includable in a U.S. Holder's gross income as ordinary
interest income in accordance with such holder's regular method of accounting
for tax purposes. For cash basis U.S. Holders, such payments will be includable
in income when received (or when made available for receipt, if earlier). For
accrual basis U.S. Holders, such payments will be includable in income when all
events necessary to establish the right to receive such payments have occurred.
Original Issue Discount Debt Securities. The following summary is based on
existing, proposed, temporary, and final Treasury Regulations, changes to any of
which subsequent to the date of this Prospectus may affect the tax consequences
described herein. Accordingly, it is possible that the federal income tax
treatment of a Debt Security issued with original issue discount ("OID") may
differ from that described below.
For United States federal income tax purposes, a Debt Security may be
issued with OID if the excess of its "stated redemption price at maturity" over
its "issue price" equals or exceeds 0.25% of such Debt Security's stated
redemption price at maturity multiplied by the number of complete years from the
issue date to the Stated Maturity of the Debt Security. (Debt Securities issued
with OID are referred to herein as "OID Debt Securities.") For purposes of the
OID rules, the "stated redemption price at maturity" of a debt instrument is
equal to its principal amount as of the date of original issuance plus all
amounts (other than "qualified stated interest") payable prior to or at
maturity. The "issue price" of a debt instrument issued for cash is generally
the first price at which a substantial amount of debt instruments is sold (other
than to an underwriter, placement agent or wholesaler). The term "qualified
stated interest" generally means stated interest that is unconditionally payable
in cash or in property (other than debt instruments of the issuer), or that will
be constructively received under Section 451 of the Code, at least annually in
an amount equal to the product of the outstanding principal amount of the Debt
Security and a single fixed rate of interest (adjusted to reflect differing
lengths of time between payments, as appropriate), certain variable rates of
interest, or certain combinations thereof. Stated interest that exceeds
qualified stated interest is included in the Debt Security's stated redemption
price at maturity. Notice will be given in the applicable Prospectus Supplement
if the Company determines that a particular Debt Security will bear interest
that is not qualified stated interest.
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When the Company determines that a particular Debt Security will be an OID
Debt Security, notice will be given in the applicable Prospectus Supplement. A
U.S. Holder of an OID Debt Security may be required to include OID in income in
advance of the receipt of some of all of the related cash payments. Thus, the
effect of holding an OID Debt Security generally will be to accelerate the
inclusion of interest income for cash method taxpayers.
In the case of a Debt Security issued with de minimis OID (i.e., discount
that is not OID because it is less than 0.25% of the stated redemption price at
maturity multiplied by the number of complete years to maturity), a U.S. Holder
generally must include such de minimis OID in income as stated principal
payments on the Debt Securities are made in proportion to the ratio of such
principal payment to the stated principal amount of the Debt Security. Any
amount of de minimis OID that is included in income shall be treated as capital
gain recognized on retirement of the Debt Security.
For any taxable year, a U.S. Holder of an OID Debt Security that is not de
minimis and that has a term in excess of one year must include in gross income
the sum of the daily portions of OID for each day during such taxable year or
portion of the taxable year in which such holder held the OID Debt Security. The
daily portion generally is determined by allocating to each day in any "accrual
period" a ratable portion of the OID allocable to that accrual period. The
"accrual period" for an OID Debt Security may be of any length and may vary in
length over the term of the Debt Security, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs on the first day or the final day of an accrual period. The amount of OID
allocable to an accrual period is generally an amount equal to the excess, if
any, of (i) the product of the Debt Security's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period), over (ii) the sum of
any qualified stated interest payments allocable to the accrual period. OID
allocable to a final accrual period is the difference between the amount payable
at maturity (other than a payment of qualified stated interest) and the adjusted
issue price at the beginning of the final accrual period. Special rules apply
for calculating OID for an initial short accrual period and for an accrual
period where the interval between payments of qualified stated interest contains
more than one accrual period. The "adjusted issue price" of a Debt Security at
the beginning of an accrual period is equal to its issue price increased by the
amount of accrued OID for each prior accrual period (determined without regard
to the amortization of any acquisition premium, as described below) and reduced
by any payments made on such Debt Security (other than qualified stated
interest) on or before the first day of the accrual period. Under these rules, a
U.S. Holder will have to include in income increasingly greater amounts of OID
in successive accrual periods. The Company is required to provide information
returns stating the amount of OID accrued on Debt Securities held of record by
persons other than corporations and other exempt holders.
For purposes of calculating the yield and maturity of a Debt Security
subject to an issuer or holder right to accelerate principal repayment
(respectively, a "call option" or "put option"), such call option or put option
is presumed exercised if the yield on the Debt Security would be less or more,
respectively, than it would be if the option were not exercised. The effect of
this rule generally may be to accelerate or defer the inclusion of OID in the
income of a holder whose Debt Security is subject to a put option or a call
option, as compared to a Debt Security that does not have such an option. If any
such option presumed to be exercised is not in fact exercised, the Debt Security
is treated as reissued on the date of presumed exercise for an amount equal to
its adjusted issue price on that date for purposes of redetermining such Debt
Security's yield and maturity and any related subsequent accruals of OID.
Purchasers of Debt Securities with such features should carefully review the
applicable Prospectus Supplement and should consult their own tax advisors with
respect to the consequences of a Debt Security having such an option.
Short-Term Debt Securities. In general, an individual or other cash method
U.S. Holder of an OID Debt Security that has a term of one year or less from the
date of its issuance (a "Short-Term OID Debt Security") is not required to
accrue OID unless such holder elects to do so. Accrual method U.S. Holders and
certain other U.S. Holders, including banks and dealers in securities, are
required to accrue OID on Short-Term OID Debt Securities on a straight-line
basis unless an election is made to accrue OID according to a constant yield
method based on daily compounding. In the case of a U.S. Holder who is not
required and does not elect to include OID in income currently, any gain
recognized by such holder upon the sale or exchange
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(including by reason of redemption or retirement) of the Short-Term OID Debt
Security will be treated as ordinary income to the extent of the OID that has
accrued on a straight-line basis (or, if elected, according to a constant yield
method based on daily compounding) through the date of such sale or maturity.
Furthermore, such a holder of a Short-Term OID Debt Security may be required to
defer deductions for a portion of the U.S. Holder's interest expense with
respect to any indebtedness incurred or maintained to purchase or carry a
Short-Term OID Debt Security. In the case of U.S. Holders that include OID on
Short-Term OID Debt Securities in income currently, the amount of accrued OID
that is included in income will be added to such holder's tax basis in the Debt
Security.
Sale or Exchange of Debt Securities. If a Debt Security is sold or
exchanged (including by reason of redemption or retirement), the disposing U.S.
Holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale or exchange (less any amount received in payment
of accrued but unpaid interest if the interest constitutes qualified stated
interest, which will be taxable as such) and the U.S. Holder's tax basis in the
Debt Security. A U.S. Holder's initial tax basis in a Debt Security will
generally be equal to such holder's cost of the Debt Security. At any time, a
U.S. Holder's tax basis in a Debt Security will generally be equal to his
initial tax basis, plus any OID (and accruals of market discount and discount
with respect to Short-Term OID Debt Securities, if any) previously included in
such holder's gross income with respect to the Debt Security, minus any
principal payments received by such holder, any allowable accruals of
amortizable bond premium, and in the case of OID Debt Securities or Short-Term
OID Debt Securities, any other payments on the Debt Security not constituting
qualified stated interest, as defined above.
Except as otherwise noted in this discussion, any gain or loss on the sale
or exchange of a Debt Security will be capital gain or loss. Any capital gain or
loss recognized on the sale or exchange of a Debt Security will be long-term
capital gain or loss if the Debt Security was held for more than one year as of
the time of its disposition. Under current law, net capital gains of certain
non-corporate taxpayers are, under certain circumstances, taxed at lower rates
than items of ordinary income. The deductibility of capital losses is subject to
limitations.
Treatment of Acquisition Premium; Amortizable Bond Premium. If a U.S.
Holder purchases an OID Debt Security for an amount that is greater than its
adjusted issue price at the time of purchase but equal to or less than the sum
of all amounts payable on the Debt Security after the purchase date other than
payments of qualified stated interest ("acquisition premium"), the amount
includable in income as OID will be reduced by the portion of such acquisition
premium properly allocated to such year. If a U.S. Holder purchases any Debt
Security for an amount in excess of the sum of all amounts payable on the Debt
Security after the purchase date other than qualified stated interest such
holder will not be required to accrue OID with respect to the Debt Security and
may generally elect to amortize the amount of such excess purchase price as
"amortizable bond premium" under a constant interest rate method over the
remaining term of the Debt Security. U.S. Holders who elect to amortize bond
premium must reduce their tax bases in the related obligations by the amount of
the aggregate allowable accruals of amortizable bond premium. Any such election
applies to all taxable debt instruments held by such holder at the beginning of
the first taxable year to which the election applies and to all taxable debt
instruments thereafter acquired. The election may not be revoked without the
consent of the IRS. Amortizable bond premium is treated for United States
federal income tax purposes as an offset to interest income on the Debt
Security, rather than as interest expense.
Market Discount. A U.S. Holder of a Debt Security will be subject to the
"market discount" rules of the Code if such holder acquires a Debt Security that
has a term of more than one year from its issue date at a market discount that
is greater than the de minimis amount described below. Market discount is
defined as the excess of (i) the debt instrument's stated redemption price at
maturity, or, in the case of an OID Debt Security, its adjusted issue price (as
that term is defined above), over (ii) the U.S. Holder's basis for the debt
instrument immediately after its acquisition by such holder. However, under a de
minimis rule, if such excess is less than 0.25% of the stated redemption price
at maturity of the Debt Security multiplied by the number of complete years to
maturity remaining after the U.S. Holder acquired the Debt Security, market
discount is deemed to be zero.
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A U.S. Holder of a Debt Security containing market discount generally will
be required to treat any principal payments (or, in the case of an OID Debt
Security, any payment that does not constitute qualified stated interest) on, or
any gain realized on the sale or exchange (including by reason of redemption or
retirement) of a Debt Security as ordinary interest income to the extent of the
market discount that has accrued during the time the holder held the Debt
Security and that has not previously been included in income. If such Debt
Security is disposed of in a non-taxable transaction (other than specified
nonrecognition transactions), accrued market discount will be includable as
ordinary income to the holder as if such holder has sold the Debt Security at
its then fair market value.
The accrual of market discount is generally calculated on a straight-line
basis. However, a U.S. Holder may elect to calculate the accrual of market
discount on a constant interest rate basis. The market discount rules may
require the deferral of all or a portion of the interest deduction on debt
incurred or continued to purchase or carry a Debt Security containing market
discount. Neither the rule requiring characterization of gain as ordinary income
nor the rule requiring the deferral of interest deductions will apply to a U.S.
Holder who elects to include market discount in income as it accrues either on a
ratable basis or a constant interest rate basis. This current inclusion
election, once made, applies to all market discount obligations acquired by the
U.S. Holder on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. U.S.
Holders should consult their own tax advisors regarding the application of the
de minimis market discount rule to a Debt Security and regarding the
advisability of making any of the elections allowed under the market discount
rules.
Election to Treat All Interest as OID. A U.S. Holder may elect to treat
all interest on any Debt Security as OID and calculate the amount includable in
gross income under the constant yield method. For the purposes of this election,
interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount, and unstated interest, as adjusted
by any amortizable bond premium or acquisition premium. If a U.S. Holder makes
this election for a Debt Security with market discount or amortizable bond
premium, the election is treated as an election under the market discount or
amortizable bond premium provisions, described above, and the electing U.S.
Holder will be required to amortize bond premium or include market discount in
income currently for all of such holder's other debt instruments with market
discount or amortizable bond premium. The election is to be made for the taxable
year in which the U.S. Holder acquires the Debt Security and may not be revoked
without the consent of the IRS. U.S. Holders should consult their own tax
advisors regarding the advisability of making this election.
Indexed Debt Securities. The United States federal income tax consequences
to a U.S. Holder of the ownership and disposition of Debt Securities, payments
on which are determined by reference to one or more specified indices, will be
summarized in the applicable Prospectus Supplement.
NON-U.S. HOLDERS
Notwithstanding the foregoing discussion, a Non-U.S. Holder will, subject
to the discussion of backup withholding below, generally not be subject to
United States federal withholding taxes on payments of principal, premium, if
any, and interest (including any OID) on any Debt Securities provided that (i)
the Non-U.S. Holder does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of voting stock of the Company, (ii)
the Non-U.S. Holder is not a controlled foreign corporation related to the
Company through stock ownership, (iii) the beneficial owner is not a bank whose
receipt of interest on a Debt Security is described in Section 881(c)(3)(A) of
the Code, and (iv) the Company or its agent receives certification, under
penalties of perjury, either (a) from the beneficial owner of the Debt Security
certifying that the beneficial owner is not a United States person and the
owner's name and address, and United States taxpayer identification number, if
any, are provided, or (b) in the case of a Debt Security held by a securities
clearing organization, a bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution"), from the financial institution certifying that it or a
financial institution between it and the beneficial owner has received a
certificate from the beneficial owner and a copy of such certificate is
furnished to the Company or its agent. Certification by the beneficial owner may
be made on an IRS Form W-8 or a substantially similar form. A certificate
described in this paragraph is effective only with respect to payments
(including original issue discount) made
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to the certifying Non-U.S. Holder after issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar years.
Payments to Non-U.S. Holders not meeting the requirements of the prior
paragraph and thus subject to withholding of United States federal income tax
may nevertheless be exempt from such withholding if the beneficial owner of the
Debt Security provides the Company with a properly executed (i) Internal Revenue
Service Form 1001 (or successor form) claiming an exemption from withholding
under the benefit of a tax treaty or (ii) Internal Revenue Service Form 4224 (or
successor form) stating that interest paid on the Debt Security is not subject
to withholding tax because it is effectively connected with the owner's conduct
of a trade or business in the United States.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and premium, if any, interest, and OID on the Debt Security are effectively
connected with the conduct of such trade or business, the Non-U.S. Holder may be
subject to United States federal income tax on such premium, interest, and OID
in the same manner as if such holder were a U.S. Holder. In addition, if such
holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For purposes of the branch profits tax, interest
(including OID) on a Debt Security will be included in such foreign
corporation's earnings and profits.
Any gain or income realized by a Non-U.S. Holder upon the sale or
disposition (including by reason of redemption or retirement) of a Debt Security
(other than amounts representing stated interest or accrued OID, the treatment
of which is described above) will not be subject to United States federal income
tax if (i) such gain or income is not effectively connected with a trade or
business in the United States of such holder, and (ii) in the case of an
individual holder, the holder is not present in the United States for a period
or periods aggregating 183 days in the taxable year of the sale or disposition.
An individual holder of a Debt Security who is not a citizen or resident of
the United States at the time of his or her death will not be subject to United
States federal estate tax as a result of such individual's death, if (i) (a)
such holder does not own, actually or constructively, on the date of death 10%
or more of the total combined voting power of all classes of the voting stock of
the Company, and (b) any interest received on the Debt Security, if received by
such holder at the time of his or her death, would not be effectively connected
with the conduct of a trade or business in the United States or (ii) an
exemption is otherwise available.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of principal, interest, OID, and premium made within the United
States by the Company or any paying agent are generally subject to information
reporting and possibly to "backup" withholding at a rate of 31%. The amount
required to be reported by the Company may not be the same as the amounts of OID
required to be included in the gross income of a U.S. Holder who is not an
original purchaser. A U.S. Holder will be subject to 31% backup withholding in
respect of a payment, unless such holder provides its taxpayer identification
number (e.g., social security number in the case of an individual) in the manner
prescribed in applicable United States Treasury Regulations and certain other
conditions are met. Such certification may be made on an IRS Form W-9 or
substantially similar form. Backup withholding, however, does not generally
apply to payments to certain "exempt recipients" such as corporations. Non-U.S.
Holders generally may establish an exemption from backup withholding with
respect to payments by the Company or any paying agency thereof by providing the
certification described in clause (iv) in the first paragraph under "Non-U.S.
Holders" above. Such certification may be made on an IRS Form W-8 or
substantially similar form.
Payments of principal, interest, OID or premium to the beneficial owner of
a Debt Security by the United States office of a custodian, nominee, or agent,
or payment of the proceeds of a sale of a Debt Security to the seller thereof by
the United States office of a "broker" (as that term is defined in applicable
United States Treasury Regulations), will be subject to information reporting
and backup withholding unless such owner (i) certifies that he is a Non-U.S.
Holder (provided the payor does not have actual knowledge that such beneficial
holder is a United States person), (ii) provides his taxpayer identification
number, or (iii) otherwise establishes an exemption. Payment of principal,
interest, OID or premium to the beneficial
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<PAGE> 26
owner of a Debt Security by the non-United States office of a foreign custodian,
foreign nominee, or other foreign agent of such beneficial owner, or payment of
the proceeds of a sale of a Debt Security to the seller thereof by the
non-United States office of a foreign broker, generally, will not be subject to
backup withholding or information reporting. If, however, such nominee,
custodian, agent, or broker is, for United States federal income tax purposes, a
controlled foreign corporation, a foreign person that derives 50% or more of its
gross income for certain specified periods from the conduct of a trade or
business in the United States, or, in the case of a nominee, custodian, or
agent, a United States person, such payment will be subject to information
reporting, unless the custodian, nominee, agent, or broker has documentary
evidence in its records that the beneficial owner or seller is not or was not,
as the case may be, a United States person and certain conditions are met or the
beneficial owner or seller otherwise establishes an exemption. Payment of the
proceeds of a sale of a Debt Security to the seller thereof by the foreign
office of a United States broker will generally not be subject to backup
withholding, but will be subject to information reporting unless the broker has
documentary evidence in its records that the seller is not or was not, as the
case may be, a United States person and certain conditions are met or the seller
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a refund or credit against such holder's United States
federal income tax, provided that the required information is furnished to the
IRS.
The backup withholding rules are currently under review by the United
States Treasury Department, and their application to the Debt Securities is
subject to change. Non-U.S. Holders should consult their tax advisors regarding
the application of information reporting and backup withholding in their
particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to one or more underwriters for public
offering and sale by them or may sell Debt Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Offered Securities will be named in an applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may offer and sell the Offered Securities in
exchange for one or more of its outstanding issues of debt or convertible debt
securities. The Company also may, from time to time, authorize underwriters
acting as the Company's agents to offer and sell the Offered Securities upon the
terms and conditions as shall be set forth in any Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Offered Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions (which may be changed from time to time) from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions, under the Act.
Underwriters, dealers and agents may be entitled, under agreements with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Act, and to reimbursement by the
Company for certain expenses.
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<PAGE> 27
If so indicated in an applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in such Prospectus Supplement. Institutions with whom Contracts,
when authorized, may be made to include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Offered Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Offered Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Offered Securities
less the principal amount thereof covered by Contracts. Agents and underwriters
will have no responsibility in respect of the delivery or performance of
Contracts.
All Offered Securities will be a new issue of securities with no
established trading market. Any underwriters to whom Offered Securities are sold
by the Company for public offering and sale may make a market in such Offered
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of or the trading markets for any Offered Securities.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
VALIDITY OF OFFERED SECURITIES
The validity of the Offered Securities will be passed upon for the Company
by Hubert Gentry, Jr., Senior Vice President and General Counsel of the Company,
P.O. Box 2628, Houston, Texas 77252, and for any underwriters or agents by Mudge
Rose Guthrie Alexander & Ferdon LLP, 180 Maiden Lane, New York, New York 10038.
Mudge Rose Guthrie Alexander & Ferdon LLP will rely on the opinion of Mr. Gentry
as to all matters involving state regulatory consents and approvals. Mr. Gentry
beneficially owns 39,805 shares of common stock of the Company acquired pursuant
to various employee benefit plans of the Company. Mudge Rose Guthrie Alexander &
Ferdon LLP has from time to time performed legal services for the Company.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1994 and
1993 and the consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994
incorporated by reference in the Form 10-K, which is incorporated by reference
in this Prospectus, have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN
THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company........................... S-2
Use of Proceeds....................... S-2
Certain Terms of the Notes............ S-3
Underwriting.......................... S-6
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 4
Ratios of Earnings to Fixed Charges... 4
Description of Debt Securities........ 4
United States Federal Income
Taxation............................ 14
Plan of Distribution.................. 20
Validity of Offered Securities........ 21
Experts............................... 21
</TABLE>
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$200,000,000
[NORAM LOGO]
7 1/2% NOTES
DUE AUGUST 1, 2000
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
MERRILL LYNCH & CO.
CITICORP SECURITIES, INC.
SALOMON BROTHERS INC
AUGUST 9, 1995
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