<PAGE> 1
Filed Pursuant to Rule 424(b)3
Registration Statement
No. 033-64001
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* *
* Information contained in this Prospectus Supplement is subject to *
* completion pursuant to Rule 424 under the Securities Act of 1933, as *
* amended. A registration statement relating to these securities has *
* been filed with the Securities and Exchange Commission pursuant to *
* Rule 415 under the Securities Act of 1933, as amended. A final *
* Prospectus Supplement and Prospectus will be delivered to purchasers *
* of these securities. This Prospectus Supplement and the Prospectus *
* shall not constitute an offer to sell or the solicitation of an offer *
* to buy nor shall there be any sale of these securities in any State *
* in which such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
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SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT DATED MAY 15, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 15, 1996)
3,000,000 CONVERTIBLE PREFERRED SECURITIES
NORAM FINANCING I
% CONVERTIBLE TRUST ORIGINATED PREFERRED SECURITIES(SM) (CONVERTIBLE
TOPRS(SM))
(LIQUIDATION AMOUNT $50 PER CONVERTIBLE PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND
CONVERTIBLE INTO COMMON STOCK OF,
[NORAM ENERGY CORP. LOGO]
------------------------
The % Convertible Trust Originated Preferred Securities(SM) (the
"Convertible TOPrS(SM)" or "Convertible Preferred Securities") offered hereby
represent preferred undivided beneficial interests in the assets of NorAm
Financing I, a statutory business trust formed under the laws of the State of
Delaware ("NorAm Financing" or the "Trust"). NorAm Energy Corp., a Delaware
corporation ("NorAm" or the "Company"), will directly or indirectly own all the
common securities (the "Common Securities" and, together with the Convertible
Preferred Securities, the "Trust Securities") representing undivided beneficial
interests in the assets of NorAm Financing. NorAm Financing exists for the sole
purpose of issuing the Convertible Preferred Securities and Common Securities
and investing the proceeds thereof in an equivalent amount of % Convertible
Junior Subordinated Debentures (the "Convertible Debentures") of NorAm.
Each Convertible Preferred Security is convertible in the manner described
herein at the option of the holder, at any time prior to the Conversion
Expiration Date (as defined herein), into shares of common stock, par value
$.625 per share, of NorAm ("NorAm Common Stock"), at the rate of shares
of NorAm Common Stock for each Convertible Preferred Security (equivalent to a
conversion price of $ per share of NorAm Common Stock), subject to
adjustment in certain circumstances. See "Description of the Convertible
Preferred Securities -- Conversion Rights." NorAm Common Stock is quoted under
the symbol "NAE" on the New York Stock Exchange ("NYSE"). On May 14, 1996, the
last reported sale price of NorAm Common Stock on the NYSE Composite Tape was
$10 7/8 per share.
Concurrently with this offering of the Convertible Preferred Securities,
NorAm is offering, by means of a separate prospectus, 10,000,000 shares of NorAm
Common Stock, par value $.625 per share (the "Common Stock"). The sale of the
Convertible Preferred Securities offered hereby and the sale of the Common Stock
are not conditioned on each other. See "Common Stock Offering."
(continued on page S-3)
SEE "RISK FACTORS" BEGINNING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE CONVERTIBLE PREFERRED
SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH
PAYMENTS OF DISTRIBUTIONS ON THE CONVERTIBLE PREFERRED SECURITIES MAY BE
DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH
DEFERRAL.
The Convertible Preferred Securities have been approved for listing on the
NYSE, subject to official notice of issuance. Trading of the Convertible
Preferred Securities on the NYSE is expected to commence within a 30-day period
after the initial delivery of the Convertible Preferred Securities.
------------------------
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>
==============================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSION(2) TRUST(3)(4)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Convertible Preferred Security..... $50.00 (3) $50.00
- --------------------------------------------------------------------------------------------------------------
Total(5)............................... $ (3) $
==============================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from June , 1996.
(2) The Trust and NorAm have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Convertible
Preferred Securities will be invested in the Convertible Debentures, NorAm
has agreed to pay to the Underwriters, as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such proceeds,
$ per Convertible Preferred Security (or $ in the aggregate).
See "Underwriting."
(4) Expenses of the offering which are payable by NorAm are estimated to be
$130,000.
(5) The Trust and NorAm have granted the Underwriters an option, exercisable
within 30 days after the date of this Prospectus Supplement, to purchase up
to an additional 450,000 Convertible Preferred Securities, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Commission and Proceeds to Trust will be
$ , $ and $ , respectively.
------------------------
The Convertible Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Convertible Preferred Securities will be made only
in book-entry form through the facilities of The Depository Trust Company, on or
about June , 1996.
------------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is June , 1996.
- ---------------
(SM) "Convertible Trust Originated Preferred Securities" and "Convertible TOPrS"
are service marks of Merrill Lynch & Co., Inc.
<PAGE> 2
THE COMPANY'S PRINCIPAL FACILITIES
NATURAL GAS DISTRIBUTION
[MAP]
INTERSTATE PIPELINES
[MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE
PREFERRED SECURITIES OFFERED HEREBY OR NORAM COMMON STOCK AT LEVELS ABOVE THOSE
THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
S-2
<PAGE> 3
(continued from cover page)
The Convertible Debentures and the Convertible Preferred Securities in
respect of which this Prospectus Supplement is being delivered shall be referred
to herein as the "Offered Securities." The Convertible Debentures when issued
will be unsecured obligations of NorAm. Upon an event of default under the
Declaration (as defined herein), the holders of Convertible Preferred Securities
will have a preference over the holders of the Common Securities with respect to
payments in respect of distributions and payments upon redemption, liquidation
and otherwise.
Holders of the Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation
amount of $50 per Convertible Preferred Security, accruing from the date of
original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing September 30, 1996
("distributions"). The payment of distributions out of moneys held by NorAm
Financing and payments on liquidation of NorAm Financing or the redemption of
Convertible Preferred Securities, as described below, are guaranteed by NorAm
(the "Guarantee") to the extent NorAm Financing has funds available therefor.
See "Description of the Convertible Preferred Securities Guarantees" in the
accompanying Prospectus and "Risk Factors -- Rights Under the Guarantee" herein.
The Guarantee covers payments of distributions and other payments on the
Convertible Preferred Securities only if and to the extent that NorAm has made a
payment of interest or principal or other payments on the Convertible Debentures
held by NorAm Financing as its sole asset. The Guarantee, when taken together
with NorAm's obligations under the Convertible Debentures and the Subordinated
Indenture (as defined below) and its obligations under the Declaration (as
defined below), including its liabilities to pay costs, expenses, debts and
obligations of NorAm Financing (other than with respect to the Trust
Securities), provide a full and unconditional guarantee of amounts due on the
Convertible Preferred Securities. The obligations of NorAm under the Guarantee
are subordinate and junior in right of payment to all other liabilities of NorAm
and pari passu with the most senior preferred stock issued, from time to time,
if any, by NorAm. The obligations of NorAm under the Convertible Debentures are
subordinate and junior in right of payment to all present and future Senior
Indebtedness (as defined herein) of NorAm, which aggregated approximately
$1,547.2 million at March 31, 1996, and rank pari passu with NorAm's other
general unsecured creditors. The Convertible Debentures purchased by NorAm
Financing may be subsequently distributed pro rata to holders of the Convertible
Preferred Securities and Common Securities in connection with the dissolution of
NorAm Financing, upon the occurrence of certain events.
The distribution rate and the distribution payment date and other payment
dates for the Convertible Preferred Securities will correspond to the interest
rate and interest payment date and other payment dates on the Convertible
Debentures, which will be the sole assets of NorAm Financing. As a result, if
principal or interest is not paid on the Convertible Debentures, no amounts will
be paid on the Convertible Preferred Securities. If NorAm does not make
principal or interest payments on the Convertible Debentures, NorAm Financing
will not have sufficient funds to make distributions on the Convertible
Preferred Securities, in which event, the Guarantee will not apply to such
distributions until NorAm Financing has sufficient funds available therefor.
NorAm has the right to defer payments of interest on the Convertible
Debentures by extending the interest payment period on the Convertible
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period") but not beyond the maturity of the Convertible Debentures. If interest
payments are so deferred, distributions on the Convertible Preferred Securities
will also be deferred. During such Extension Period, distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
an annual rate of % per annum compounded quarterly, and during any
Extension Period, holders of Convertible Preferred Securities will be required
to include deferred interest income in their gross income for United States
federal income tax purposes in advance of receipt of the cash distributions with
respect to such deferred interest payments. There could be multiple Extension
Periods of varying lengths throughout the term of the Convertible Debentures.
See "Description of the Convertible Debentures -- Option to Extend Interest
Payment Period," "Risk Factors -- Option to Extend Interest Payment Period" and
"United States Federal Income Taxation -- Original Issue Discount."
S-3
<PAGE> 4
The Convertible Debentures are redeemable by NorAm, in whole or in part,
from time to time, (i) on or after June , 2000, if and only if for 20 trading
days within any period of 30 consecutive trading days, including the last
trading day of such period, the Current Market Price (as defined herein) of
NorAm Common Stock equals or exceeds 125% of the then applicable conversion
price of the Convertible Debentures or (ii) at any time in certain circumstances
upon the occurrence of a Tax Event (as defined herein). If NorAm redeems
Convertible Debentures, NorAm Financing must redeem Trust Securities, on a pro
rata basis, having an aggregate liquidation amount equal to the aggregate
principal amount of the Convertible Debentures so redeemed at $50 per
Convertible Preferred Security plus accrued and unpaid distributions thereon
(the "Redemption Price") to the date fixed for redemption. See "Description of
the Convertible Preferred Securities -- Redemption." The Convertible Preferred
Securities will be redeemed upon maturity of the Convertible Debentures. The
Convertible Debentures mature on June , 2026, but the maturity date may be
extended once only for up to an additional 19 years at the election of NorAm,
provided that NorAm satisfies certain requirements and conditions. See
"Description of the Convertible Debentures -- Option to Extend Maturity Date."
In addition, upon the occurrence of a Tax Event arising from a change in law or
a change in legal interpretation regarding tax matters, unless the Convertible
Debentures are redeemed in the limited circumstances described herein, NorAm
Financing shall be dissolved, with the result that the Convertible Debentures
will be distributed to the holders of the Convertible Preferred Securities, on a
pro rata basis, in lieu of any cash distribution. See "Description of the
Convertible Preferred Securities -- Tax Event Redemption or Distribution." In
certain circumstances, NorAm will have the right to redeem the Convertible
Debentures, which would result in the redemption by NorAm Financing of Trust
Securities in the same amount on a pro rata basis. If the Convertible Debentures
are distributed to the holders of the Convertible Preferred Securities, NorAm
will use its best efforts to have the Convertible Debentures listed on the New
York Stock Exchange or on such other exchange as the Convertible Preferred
Securities are then listed. See "Description of the Convertible Preferred
Securities -- Tax Event Redemption or Distribution" and "Description of the
Convertible Debentures."
In the event of the involuntary or voluntary dissolution, winding-up or
termination of NorAm Financing, the holders of the Convertible Preferred
Securities will be entitled to receive for each Convertible Preferred Security a
liquidation amount of $50 plus accrued and unpaid distributions thereon
(including interest thereon) to the date of payment, unless, in connection with
such dissolution, winding-up, or termination, the Convertible Debentures are
distributed to the holders of the Convertible Preferred Securities. See
"Description of the Convertible Preferred Securities -- Liquidation Distribution
Upon Dissolution."
S-4
<PAGE> 5
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements (including notes thereto)
appearing elsewhere in this Prospectus Supplement or incorporated by reference
in the accompanying Prospectus. Except where otherwise indicated, the
information in this Prospectus Supplement assumes the over-allotment option is
not exercised. See "Underwriting."
THE COMPANY
NorAm Energy Corp. ("NorAm" or the "Company") is principally engaged in the
distribution and transmission of natural gas, including gathering, storage and
marketing of natural gas. The Company is currently organized into five operating
units: (i) natural gas distribution; (ii) interstate pipelines; (iii) wholesale
energy marketing; (iv) retail energy marketing; and (v) natural gas gathering.
During 1995, such operating units generated approximately 53%, 35%, 2%, 7% and
3%, respectively, of the Company's business unit operating income.
Natural Gas Distribution. The Company's natural gas distribution business
("Natural Gas Distribution") is conducted through three divisions, Arkla, Entex
and Minnegasco, which collectively form the nation's third largest gas
distribution operation with over 400 billion cubic feet ("Bcf") of annual
throughput to over 2.7 million customers. Through these divisions, the Company
engages in both the sale and transportation of natural gas. The facilities and
terms of service related to these three divisions are largely regulated by state
public service commissions and municipalities. Natural Gas Distribution will
continue to serve as a core business providing a base of regulated revenues to
the Company. In addition to controlling costs, NorAm's distribution divisions,
by coordinating activities, are sharing marketing successes and adding new
products and services. Further, the Company's distribution divisions are
developing new and innovative rate structures to provide incentives if costs are
controlled and to mitigate the potential impact of retail unbundling.
Interstate Pipelines. The Company's interstate natural gas pipeline
business ("Interstate Pipelines") is conducted principally through NorAm Gas
Transmission Company ("NGT") and Mississippi River Transmission Corporation
("MRT"), two wholly-owned subsidiaries of the Company, together with certain
subsidiaries and affiliates. Through these subsidiaries and affiliates, the
Company engages in the transmission, sale and storage of natural gas. These
operations are subject to regulation principally by the Federal Energy
Regulatory Commission ("FERC"). A major focus of Interstate Pipelines is to seek
to profit from the growing demand to transport gas from west-to-east through the
Company's pipelines to serve Midwest and East Coast markets. In addition,
Interstate Pipelines are focusing on combining their activities and reducing
their capital expenditures and operating expenses. To this end, a significant
cost reduction initiative was implemented in early 1996.
Wholesale Energy Marketing. The Company's wholesale energy marketing
business is engaged in marketing natural gas and providing risk management
services to natural gas resellers and certain large volume customers. This
business is principally conducted by NorAm Energy Services, Inc., together with
certain affiliates (collectively, "Wholesale Energy Marketing" or "NES"). NES is
one of the largest natural gas marketers in the country, having increased its
average daily volumes from 0.9 Bcf per day in 1994 to 1.4 Bcf per day in 1995
and 2.2 Bcf per day during the first quarter of 1996. This growth can be
attributed largely to NES becoming a marketer on a national scale. In addition,
NES has begun to market electricity in wholesale markets in recent periods.
NES's activities are not generally subject to rate regulation.
Retail Energy Marketing. The Company's retail energy marketing business is
principally conducted by NorAm Energy Management, Inc. and certain affiliates
(collectively, "Retail Energy Marketing" or "NEM"). NEM was created in 1995 to
consolidate the existing unregulated retail marketing activities of NorAm's
distribution companies into one business segment. NEM is focusing on industrial
and large commercial customers behind the "city gate." Services offered to these
customers include natural gas supply, electric power services, management of
commodity pricing risks, total energy management, and supply and financing of
gas burning equipment, including inside-the-fence cogeneration. NorAm is also
organizing a
S-5
<PAGE> 6
company which will provide unbundled services to smaller customers in the
residential and small commercial categories behind the "city gate." Further,
NorAm is seeking to position itself as a "provider of choice" of new,
unregulated services such as appliance repair and preventive maintenance
contracts and home security systems to retail customers. NEM's activities are
not generally subject to traditional cost-of-service regulation.
Natural Gas Gathering. The Company's natural gas gathering activities are
principally carried out by NorAm Field Services Corp. and certain affiliates
(collectively, "Natural Gas Gathering" or "NFS"). NFS operates approximately
3,500 miles of gathering pipelines which collect gas from more than 200 separate
systems located in major producing fields in Oklahoma, Louisiana, Arkansas and
Texas. NFS is implementing plans to provide additional services including
compression, line looping and administrative services to its customers. NFS has
opened a regional office in Tulsa, Oklahoma and is exploring opportunities for
growth through acquisitions and partnerships which meet the Company's strategic
objectives.
In addition to the growth provided by the Company's five core businesses,
NorAm believes that it can expand its business opportunities in other areas.
International. NorAm intends to begin operations internationally with an
initial emphasis on natural gas distribution in Latin America. The Company
believes that significant opportunities exist to participate in energy
infrastructure development in areas which currently do not have natural gas
service. To exploit such opportunities, NorAm's strategy is to form partnerships
with reputable local companies as well as other international energy companies.
NorAm has entered into joint ventures and partnerships which are exploring
opportunities in several geographic areas including Argentina, Bolivia, Colombia
and Mexico.
Finance. From 1991 to 1995, annual interest expense has been reduced by
approximately $50 million. NorAm intends to continue to optimize its capital
structure by reducing its outstanding debt and increasing the strength of its
balance sheet. At March 31, 1996, the Company had $746 million of debt with an
average interest rate of 9.40% which matures or becomes callable prior to
December 31, 1999.
S-6
<PAGE> 7
THE OFFERING
The Issuer....................... NorAm Financing I, a Delaware statutory
business trust. Substantially all the
assets of the Trust will consist of the
Convertible Debentures.
Securities Offered............... 3,000,000 % Convertible Trust
Originated Preferred Securities(SM). The
Trust and the Company have granted the
Underwriters an option, exercisable within
30 days after the date of this Prospectus
Supplement, to purchase up to an additional
450,000 Convertible Preferred Securities at
the initial offering price, solely to cover
over-allotments, if any.
Distributions.................... Distributions on the Convertible Preferred
Securities will accrue from June , 1996
and will be payable at the annual rate
of % of the liquidation amount of $50
per Convertible Preferred Security. Subject
to the extension of distribution payment
periods described below, distributions will
be payable quarterly in arrears on each
March 31, June 30, September 30, and
December 31, commencing September 30, 1996.
Because distributions on the Convertible
Preferred Securities constitute interest
for United States federal income tax
purposes, corporate holders thereof will
not be entitled to a dividends-received
deduction.
Option to Extend Distribution
Payment Periods.................. The ability of NorAm Financing to pay
distributions on the Convertible Preferred
Securities is solely dependent on its
receipt of interest payments from the
Company on the Convertible Debentures. The
Company has the right at any time, and from
time to time, to defer interest payments on
the Convertible Debentures for successive
periods not exceeding 20 consecutive
quarters for each such Extension Period.
Quarterly distributions on the Convertible
Preferred Securities would be deferred by
the Trust (but would continue to accumulate
quarterly and would accrue interest) until
the end of any such Extension Period. See
"Risk Factors -- Option to Extend Interest
Payment Period," "Description of the
Convertible Preferred
Securities -- Distributions" and
"Description of the Convertible
Debentures -- Option to Extend Interest
Payment Period." If an extension of an
interest payment period occurs, the holders
of the Convertible Preferred Securities
will continue to accrue income for United
States federal income tax purposes in
advance of any corresponding cash
distribution. See "Risk Factors -- Option
to Extend Interest Payment Period" and
"-- Trading Characteristics of Convertible
Preferred Securities; Original Issue
Discount."
Rights Upon Extension of
Distribution Payment Periods..... During any Extension Period, interest on
the Convertible Debentures will compound
quarterly, and quarterly distributions
(compounded quarterly at the distribution
rate) will accrue on the Convertible
Preferred Securities. The Company has
agreed, among other things, not to declare
or pay
S-7
<PAGE> 8
any dividend on any of its preferred or
common stock during any Extension Period
(except for: (i) purchases or acquisitions
of shares of its common stock in connection
with the satisfaction by the Company of its
obligations under any employee benefit
plans or the satisfaction of its
obligations pursuant to any contract or
security requiring the Company to purchase
shares of its common stock, (ii) as a
result of a reclassification of the
Company's capital stock or the exchange or
conversion of one class or series of the
Company's capital stock for another class
or series of the Company's capital stock,
(iii) the payment of dividends or
distributions in shares of its capital
stock of the same class on which such
dividends or distributions are being paid,
or (iv) the purchase of fractional
interests in shares of the Company's
capital stock pursuant to the conversion or
exchange provisions of such capital stock
or the security being converted or
exchanged). See "Description of the
Convertible Debentures -- Option to Extend
Interest Payment Period."
Conversion into NorAm Common
Stock............................ Each Convertible Preferred Security is
convertible at the option of the holder
into shares of NorAm Common Stock, at an
initial conversion rate of shares
of NorAm Common Stock for each Convertible
Preferred Security (equivalent to a
conversion price of $ per share of
NorAm Common Stock) subject to adjustment
in certain circumstances. On May 14, 1996,
the last reported sale price of NorAm
Common Stock on the NYSE Composite Tape was
$10 7/8 per share. In connection with any
conversion of a Convertible Preferred
Security, the Conversion Agent (as defined
herein) will exchange such Convertible
Preferred Security for the appropriate
principal amount of the Convertible
Debentures held by NorAm Financing and
immediately convert such Convertible
Debentures into NorAm Common Stock. No
fractional shares of NorAm Common Stock
will be issued as a result of conversion,
but in lieu thereof such fractional
interest will be paid in cash by NorAm. See
"Description of the Convertible Preferred
Securities -- Conversion Rights."
Liquidation Amount............... In the event of any liquidation of the
Trust, holders will be entitled to receive,
after satisfaction of liabilities to
creditors, $50 per Convertible Preferred
Security plus an amount equal to any
accrued and unpaid distributions thereon to
the date of payment, unless Convertible
Debentures are distributed to such holders.
See "Description of the Convertible
Preferred Securities -- Liquidation
Distribution Upon Dissolution."
Redemption....................... The Convertible Debentures will be
redeemable for cash, at the option of the
Company, in whole or in part, from time to
time, (i) on or after June , 2000, if and
only if for 20 trading days within any
period of 30 consecutive trading days,
including the last trading day of such
period, the Current Market (as defined
herein) Price of NorAm Common Stock equals
or exceeds 125% of the then applicable
S-8
<PAGE> 9
conversion price of the Convertible
Debentures or (ii) at any time in certain
circumstances upon occurrence of a Tax
Event. Upon any redemption of the
Convertible Debentures, the Trust
Securities will be redeemed on a pro rata
basis at the Redemption Price. The
Convertible Preferred Securities will not
have a stated maturity date, although they
will be subject to mandatory redemption
upon the maturity of the Convertible
Debentures or to the extent the Convertible
Debentures are redeemed. See "Description
of the Convertible Preferred Securities --
Redemption."
Option to Extend Maturity Date... The Convertible Debentures will mature on
June , 2026, but the maturity date may be
extended once only at the election of NorAm
for up to an additional 19 years, provided
certain requirements and conditions are
met. If the maturity of the Convertible
Debentures is extended by NorAm, the
Convertible Preferred Securities will
remain outstanding for the same time
period, subject to earlier redemption of
the Convertible Debentures as described
under "Redemption" above. See "Description
of the Convertible Debentures -- Option to
Extend Maturity Date."
Guarantee........................ The Company will irrevocably and
unconditionally guarantee, on a
subordinated basis and to the extent set
forth herein, the payment in full of (i)
any accrued and unpaid distributions which
are required to be paid on the Convertible
Preferred Securities to the extent of funds
of the Trust available therefor, (ii) the
Redemption Price, including all accrued and
unpaid distributions to the extent of funds
of the Trust available therefor and (iii)
generally, the liquidation amount of the
Convertible Preferred Securities to the
extent of the assets of the Trust available
for distribution to holders of Convertible
Preferred Securities. The Guarantee will be
unsecured and will rank (i) subordinate and
junior to all other liabilities of the
Company, (ii) pari passu with the most
senior preferred or preference stock now or
hereafter issued by the Company and with
any guarantee now or hereafter entered into
by NorAm in respect of any preferred or
preference stock of any affiliate of the
Company and (iii) senior to NorAm Common
Stock. Upon the liquidation, dissolution or
winding-up of the Company, its obligations
under the Guarantee will rank junior to all
of its other liabilities, except as
aforesaid, and, as a result, funds may not
be available for payment under the
Guarantee. See "Risk Factors -- Ranking of
Subordinate Obligations Under the Guarantee
and Convertible Debentures" and
"Description of the Guarantee."
Voting Rights.................... Generally, holders of the Convertible
Preferred Securities will not have any
voting rights. See "Description of the
Convertible Preferred Securities -- Voting
Rights."
Tax Event Redemption or
Distribution..................... Upon the occurrence of a Tax Event (as
defined herein), except in certain limited
circumstances, the Company will cause the
Regular Trustees (as defined herein) to
liquidate
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<PAGE> 10
NorAm Financing and cause the Convertible
Debentures to be distributed to the holders
of the Convertible Preferred Securities. In
certain circumstances involving a Tax
Event, the Company will have the right to
redeem the Convertible Debentures, in whole
or in part, in lieu of a distribution of
the Convertible Debentures, in which event
the Convertible Preferred Securities will
be redeemed at the Redemption Price. See
"Description of the Convertible Preferred
Securities -- Tax Event Redemption or
Distribution."
Convertible Debentures........... The Convertible Debentures will mature on
June , 2026 (unless the maturity date is
extended at the election of NorAm as
described above under "Option to Extend
Maturity Date"). The Convertible Debentures
will bear interest at the rate of % per
annum, payable quarterly in arrears.
Interest payment periods may be extended
from time to time by the Company for
successive periods not exceeding 20
consecutive quarters for each such period.
During any such Extension Period, interest
will continue to accrue and compound
quarterly. Prior to the termination of any
Extension Period of less than 20
consecutive quarters, the Company may
further extend the Extension Period as long
as such Extension Period, as further
extended, does not exceed 20 consecutive
quarters and does not extend beyond the
stated maturity date of the Convertible
Debentures. The Convertible Debentures will
have provisions with respect to interest,
optional redemption and conversion into
NorAm Common Stock and certain other terms
substantially similar or analogous to those
of the Convertible Preferred Securities.
See "Description of the Convertible
Debentures."
Form of Convertible Preferred
Securities....................... The Convertible Preferred Securities will
be represented by a global certificate or
certificates registered in the name of Cede
& Co., as nominee for The Depository Trust
Company ("DTC"). Beneficial interests in
the Convertible Preferred Securities will
be evidenced by, and transfers thereof will
be effected only through, records
maintained by the participants in DTC.
Except under the limited circumstances
described herein, Convertible Preferred
Securities in certificated form will not be
issued in exchange for the global
certificate or certificates. See
"Description of the Convertible Preferred
Securities -- Book-Entry Only
Issuance -- The Depository Trust Company."
S-10
<PAGE> 11
Use of Proceeds.................. All of the proceeds from the sale of the
Convertible Preferred Securities will be
invested by the Trust in the Convertible
Debentures. The net proceeds to the Company
from the sale of Convertible Debentures are
estimated to be $ million (or $
million if the Underwriters' over-allotment
option is exercised in full). The Company
will apply the net proceeds from the sale
of the Convertible Debentures together with
the net proceeds of the separate offering
of Common Stock described under "Common
Stock Offering" and short-term borrowings
of the Company to redeem all $109.1 million
outstanding principal amount of the
Company's 9.875% Debentures due 2018 (the
"9.875% Debentures") and for general
corporate purposes. Pending such use for
general corporate purposes, the remainder
of such net proceeds will be used to pay in
full the Company's outstanding Bank Term
Loan. See "Use of Proceeds."
Listing.......................... The Convertible Preferred Securities have
been approved for listing on the NYSE,
subject to official notice of issuance.
Trading of the Convertible Preferred
Securities on the NYSE is expected to
commence within a 30-day period after the
initial delivery of the Convertible
Preferred Securities.
Risk Factors..................... See "Risk Factors" for a discussion of
certain risks involved in the purchase of
Convertible Preferred Securities.
S-11
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial information of the Company shown below
for the three-year period ended December 31, 1995 has been derived from the
Company's audited consolidated financial statements and for the three-month
periods ended March 31, 1996 and 1995 has been derived from the Company's
unaudited consolidated financial statements that include, in the opinion of
management of the Company, all adjustments (consisting solely of normal
recurring accruals, except as noted) necessary to present fairly the data for
such periods. This information should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, incorporated by reference in the
accompanying Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AND OPERATING DATA)
INCOME STATEMENT DATA:
Operating revenues.................. $1,417.7 $ 888.1 $2,964.7 $2,857.9 $2,988.3
Gross profit........................ 390.1 346.9 1,107.5 1,078.4 1,087.4
Operating income
Natural Gas Distribution......... 122.4 92.7 158.0 145.5 160.1
Interstate Pipelines............. 30.8 31.0 103.8 105.4 100.6
Wholesale Energy Marketing....... 9.2 3.8 4.2 (3.0) (22.4)
Retail Energy Marketing.......... 9.1 6.1 22.2 18.4 15.1
Natural Gas Gathering(1)......... 2.7 1.8 8.7 5.6 --
Corporate and other.............. (5.3) (0.7) (9.6) (7.0) (16.9)
-------- ------ -------- -------- --------
168.9 134.7 287.3 264.9 236.5
Other items, net(2).............. (22.3) -- -- -- (28.6)
-------- ------ -------- -------- --------
Operating income................. 146.6 134.7 287.3 264.9 207.9
-------- ------ -------- -------- --------
Income from continuing operations... 61.2 52.1 65.5 51.3 39.9(3)
Per share data:
Continuing operations............ $ 0.47 $ 0.41 $ 0.47 $ 0.36 $ 0.26(3)
Discontinued operations, less
taxes.......................... -- -- -- (0.02) --
Extraordinary item, less taxes... 0.00 0.00 0.00 (0.01) (0.03)
-------- ------ -------- -------- --------
Net income....................... $ 0.47 $ 0.41 $ 0.47 $ 0.33 $ 0.23(3)
BALANCE SHEET DATA (END OF PERIOD):
Property, plant and equipment,
net.............................. $2,403.2 $2,372.5 $2,407.8 $2,377.1 $2,357.1
Total assets........................ 3,687.8 3,435.1 3,666.0 3,561.5 3,727.8
Long-term debt, less current
maturities....................... 1,467.5 1,323.7 1,474.9 1,414.4 1,629.4
Stockholders' equity................ 831.6 768.2 767.3 717.4 708.0
THROUGHPUT (BCF, EXCEPT AS NOTED):
Natural Gas Distribution............ 177.8 155.3 408.4 397.4 422.2
Interstate Pipelines(4)............. 304.5 269.0 976.3 835.1 871.0
Wholesale Energy Marketing.......... 201.9 105.7 512.8 317.9 244.7
Retail Energy Marketing............. 55.1 50.9 195.0 144.3 109.1
Natural Gas Gathering(1)............ 55.8 58.7 232.3 229.7 --
</TABLE>
- ---------------
(1) Included with Interstate Pipelines in 1993.
(2) For the three months ended March 31, 1996, includes charges for early
retirement and severance of $16.5 million and $5.8 million associated with
Interstate Pipelines and Natural Gas Distribution, respectively. For 1993,
includes (i) a $34.2 million charge associated with a comprehensive
settlement with a pipeline supplier and (ii) $5.6 million of operating
income associated with Louisiana Intrastate Gas Corporation.
(3) Income from continuing operations for 1993 includes pre-tax gains of
approximately $42.8 million (approximately $20.8 million or $0.17 per share
after tax) principally related to the Company's sale of Louisiana Intrastate
Gas Corporation and the Company's former Nebraska distribution properties.
(4) Interstate Pipelines throughput data is expressed in millions of MMBtu.
S-12
<PAGE> 13
RISK FACTORS
Prospective purchasers of Convertible Preferred Securities should carefully
review the information contained elsewhere in this Prospectus Supplement and in
the accompanying Prospectus and should particularly consider the following
matters.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
NorAm's obligations under the Guarantee are subordinate and junior in right
of payment to all liabilities of NorAm and pari passu with the most senior
preferred stock issued, from time to time, if any, by NorAm. The obligations of
NorAm under the Convertible Debentures are subordinate and junior in right of
payment to all present and future Senior Indebtedness of NorAm and pari passu
with obligations to or rights of NorAm's other general unsecured creditors. No
payment of principal (including redemption payments, if any), premium, if any,
or interest on the Convertible Debentures may be made if (i) any Senior
Indebtedness of NorAm is not paid when due and any applicable grace period with
respect to such default has ended with such default not having been cured or
waived or ceasing to exist, or (ii) the maturity of any Senior Indebtedness has
been accelerated because of a default. As of March 31, 1996, Senior Indebtedness
aggregated approximately $1,547.2 million. There are no terms in the Convertible
Preferred Securities, the Convertible Debentures or the Guarantee that limit
NorAm's ability to incur additional indebtedness, including indebtedness that
ranks senior to the Convertible Debentures and the Guarantee. See "Description
of the Convertible Preferred Securities Guarantees -- Status of the Convertible
Preferred Securities Guarantees" in the accompanying Prospectus and "Description
of the Convertible Debentures -- Subordination" herein.
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Bank of New York will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act (the
"Guarantee Trustee"). The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Convertible Preferred Securities.
The Guarantee guarantees to the holders of the Convertible Preferred
Securities the payment of (i) any accrued and unpaid distributions that are
required to be paid on the Convertible Preferred Securities, to the extent NorAm
Financing has funds available therefor, (ii) the Redemption Price, including all
accrued and unpaid distributions with respect to Convertible Preferred
Securities called for redemption by NorAm Financing, to the extent NorAm
Financing has funds available therefor, and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of NorAm Financing (other
than in connection with the distribution of Convertible Debentures to the
holders of Convertible Preferred Securities or a redemption of all the
Convertible Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Convertible
Preferred Securities to the date of the payment to the extent NorAm Financing
has funds available therefor or (b) the amount of assets of NorAm Financing
remaining available for distribution to holders of the Convertible Preferred
Securities in liquidation of NorAm Financing. The holders of a majority in
liquidation amount of the Convertible Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee
Trustee fails to enforce its rights under the Guarantee, a holder of Convertible
Preferred Securities may institute a legal proceeding directly against NorAm to
enforce the Guarantee Trustee's rights under the Guarantee without first
instituting any legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. A holder of Convertible Preferred Securities may also
institute a legal proceeding directly against NorAm to enforce such holder's
right to receive payment under the Guarantee without first (i) directing the
Guarantee Trustee to enforce the terms of the Guarantee or (ii) instituting a
legal proceeding against the Trust or any other person or entity. If NorAm were
to default on its obligation to pay amounts payable on the Convertible
Debentures, NorAm Financing would lack available funds for the payment of
distributions or amounts payable on redemption of the Convertible Preferred
Securities or otherwise, and, in such event, holders of the Convertible
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, holders of the Convertible Preferred Securities would
rely on the
S-13
<PAGE> 14
enforcement (1) by the Property Trustee of its rights as registered holder of
the Convertible Debentures against NorAm pursuant to the terms of the
Convertible Debentures or (2) by such holder of its right against NorAm to
enforce payments on Convertible Debentures. See "Description of the Convertible
Preferred Securities Guarantees" and "Description of the Subordinated Debt
Securities" in the accompanying Prospectus. The Declaration provides that each
holder of Convertible Preferred Securities, by acceptance thereof, agrees to the
provisions of the Guarantee, including the subordination provisions thereof, and
the Subordinated Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CONVERTIBLE PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Convertible Preferred Securities would rely on
the enforcement by the Property Trustee of its rights as a holder of the
Convertible Debentures against NorAm. In addition, the holders of a majority in
liquidation amount of the Convertible Preferred Securities will have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee or to direct the exercise of any trust
or power conferred upon the Property Trustee under the Declaration, including
the right to direct the Property Trustee to exercise the remedies available to
it as a holder of the Convertible Debentures. If the Property Trustee fails to
enforce its rights under the Convertible Debentures, a holder of Convertible
Preferred Securities may institute a legal proceeding directly against NorAm to
enforce the Property Trustee's rights under the Convertible Debentures without
first instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of NorAm to pay interest or principal on the Convertible Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Convertible Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Debentures having
a principal amount equal to the aggregate liquidation amount of the Convertible
Preferred Securities of such holder (a "Direct Action") on or after the
respective due date specified in the Convertible Debentures. In connection with
such Direct Action, NorAm will be subrogated to the rights of such holder of
Convertible Preferred Securities under the Declaration to the extent of any
payment made by NorAm to such holder of Convertible Preferred Securities in such
Direct Action. Consequently, NorAm will be entitled to payment of amounts that a
holder of Convertible Preferred Securities receives in respect of an unpaid
distribution that resulted in the bringing of a Direct Action to the extent that
such holder receives or has already received full payment with respect to such
unpaid distribution from NorAm Financing. The holders of Convertible Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Convertible Debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
NorAm has the right under the Subordinated Indenture (as such term is
defined in "Description of Convertible Debentures" herein) to defer payments of
interest on the Convertible Debentures by extending the interest payment period
at any time, and from time to time, on the Convertible Debentures. As a
consequence of such an extension, quarterly distributions on the Convertible
Preferred Securities would be deferred (but despite such deferral would continue
to accrue with interest thereon compounded quarterly) by NorAm Financing during
any such extended interest payment period. Such right to extend the interest
payment period for the Convertible Debentures is limited to a period not
exceeding 20 consecutive quarters. In the event that NorAm exercises this right
to defer interest payments, then (a) NorAm shall not declare or pay dividends
on, or make a distribution with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of NorAm Common Stock in connection with
the satisfaction by NorAm of its obligations under any employee benefit plans or
the satisfaction by NorAm of its obligations pursuant to any contract or
security requiring NorAm to purchase shares of NorAm capital stock, (ii) as a
result of a reclassification of NorAm capital stock or the exchange or
conversion of one class or series of NorAm's capital stock for another class or
series of NorAm capital stock, (iii) the payment of dividends or distributions
in shares of its capital stock of the same class on which such dividends or
distributions are being paid, or (iv) the purchase of fractional interests in
shares of
S-14
<PAGE> 15
NorAm's capital stock pursuant to the conversion or exchange provisions of such
NorAm capital stock or the security being converted or exchanged (or make any
guarantee payments with respect to the foregoing) and (b) NorAm shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities issued by NorAm that rank pari passu with or
junior to the Convertible Debentures. Prior to the termination of any such
extension period, NorAm may further extend the interest payment period;
provided, that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive quarters. Upon the
termination of any Extension Period and the payment of all amounts then due,
NorAm may commence a new Extension Period, subject to the above requirements.
See "Description of the Convertible Preferred Securities -- Distributions" and
"Description of the Convertible Debentures -- Option to Extend Interest Payment
Period."
Should NorAm exercise its right to defer payments of interest by extending
the interest payment period, each holder of Convertible Preferred Securities
will continue to accrue income for United States federal income tax purposes (as
original issue discount ("OID")) in respect of the deferred interest allocable
to its Convertible Preferred Securities which will be allocated but not
distributed, to holders of record of Convertible Preferred Securities. As a
result, each such holder of Convertible Preferred Securities will recognize
income for United States federal income tax purposes in advance of the receipt
of cash and will not receive the cash from NorAm Financing related to such
income if such holder disposes of its Convertible Preferred Securities prior to
the record date for the date on which distributions of such amounts are made.
NorAm has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Convertible Debentures.
However, should NorAm determine to exercise such right in the future, the market
price of the Convertible Preferred Securities is likely to be affected. A holder
that disposes of its Convertible Preferred Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Convertible Preferred Securities. In addition,
as a result of the existence of NorAm's right to defer interest payments, the
market price of the Convertible Preferred Securities (which represent an
undivided beneficial interest in the Convertible Debentures) may be more
volatile than other securities on which OID accrues that do not have such
rights. See "United States Federal Income Taxation -- Original Issue Discount."
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes (the
"Proposed Legislation") that would, among other things, treat as equity for
United States federal income tax purposes certain debt obligations, such as the
Convertible Debentures, issued on or after December 7, 1995. If the Proposed
Legislation were to apply to the Convertible Debentures, the Company would not
be allowed to deduct interest payable on the Convertible Debentures and holders
of the Convertible Preferred Securities would generally be treated as receiving
dividend distributions, rather than interest payments from the Company. On March
29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways
and Means Committee Chairman Bill Archer issued a joint statement (the "Joint
Statement") indicating their intent that the Proposed Legislation, if adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action." Based
upon the Joint Statement, it is expected that if the Proposed Legislation were
to be enacted, such legislation would not apply to the Convertible Debentures.
There can be no assurances, however, that the effective date guidance contained
in the Joint Statement will be incorporated into the Proposed Legislation, if
enacted, or that other legislation enacted after the date hereof will not
otherwise adversely affect the tax treatment of the Convertible Debentures,
including the ability of NorAm to deduct the interest payable on the Convertible
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. See "Description of the Convertible Preferred Securities -- Tax Event
Redemption or Distribution."
TAX EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Tax Event, NorAm Financing shall be dissolved,
except in the limited circumstance described below, with the result that the
Convertible Debentures will be distributed to the holders of the Trust
Securities in connection with the liquidation of NorAm Financing. In certain
S-15
<PAGE> 16
circumstances, NorAm shall have the right to redeem the Convertible Debentures,
in whole or in part, in lieu of a distribution of the Convertible Debentures by
NorAm Financing; in which event NorAm Financing will redeem the Trust Securities
on a pro rata basis to the same extent as the Convertible Debentures are
redeemed by NorAm. See "Description of the Convertible Preferred
Securities -- Tax Event Redemption or Distribution."
Under current United States federal income tax law, a distribution of
Convertible Debentures upon the dissolution of NorAm Financing would not be a
taxable event to holders of the Convertible Preferred Securities. Upon
occurrence of a Tax Event, however, a dissolution of NorAm Financing in which
holders of the Convertible Preferred Securities receive cash would be a taxable
event to such holders. See "United States Federal Income Taxation -- Receipt of
Convertible Debentures or Cash Upon Liquidation of NorAm Financing."
There can be no assurance as to the market prices for the Convertible
Preferred Securities or the Convertible Debentures that may be distributed in
exchange for Convertible Preferred Securities if a dissolution or liquidation of
NorAm Financing were to occur. Accordingly, the Convertible Preferred Securities
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Convertible Debentures that a holder of Convertible
Preferred Securities may receive on dissolution and liquidation of NorAm
Financing, may trade at a discount to the price that the investor paid to
purchase the Convertible Preferred Securities offered hereby. Because holders of
Convertible Preferred Securities may receive Convertible Debentures upon the
occurrence of a Tax Event, prospective purchasers of Convertible Preferred
Securities are also making an investment decision with regard to the Convertible
Debentures and should carefully review all the information regarding the
Convertible Debentures contained herein and in the accompanying Prospectus. See
"Description of the Convertible Preferred Securities -- Tax Event Redemption or
Distribution" and "Description of the Convertible Debentures -- General."
LIMITED VOTING RIGHTS
Holders of Convertible Preferred Securities will have limited voting rights
and will not be entitled to vote to appoint, remove or replace, or to increase
or decrease the number of, NorAm Trustees, which voting rights are vested
exclusively in the holder of the Common Securities. See "Description of
Convertible Preferred Securities -- Voting Rights."
TRADING CHARACTERISTICS OF CONVERTIBLE PREFERRED SECURITIES; ORIGINAL ISSUE
DISCOUNT
The Convertible Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. A holder who disposes of its Convertible
Preferred Securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the Convertible
Debentures through the date of disposition in income as ordinary income (i.e.,
OID) and to add such amount to his adjusted tax basis in his pro rata share of
the underlying Convertible Debentures deemed disposed. To the extent the selling
price is less than the holder's adjusted tax basis (which will include, in the
form of OID, all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"United States Federal Income Taxation -- Original Issue Discount" and "-- Sales
of Convertible Preferred Securities."
S-16
<PAGE> 17
ACCOUNTING TREATMENT
The financial statements of NorAm Financing will be reflected in NorAm's
consolidated financial statements with the Convertible Preferred Securities
shown as Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of Subsidiary Trust holding solely $ aggregate principal
amount of % Convertible Debentures.
USE OF PROCEEDS
All of the proceeds from the sale of the Convertible Preferred Securities
will be invested by NorAm Financing in Convertible Debentures of NorAm issued
pursuant to the Subordinated Indenture therefor described herein. NorAm will use
the net proceeds of the Convertible Debentures issued to the Trust
(approximately $ million if the Underwriters' over-allotment option is
exercised in full) together with the net proceeds from the offering of Common
Stock by the Company (if completed) described under "Common Stock Offering"
(estimated at $ million or $ million if the over-allotment
option granted to the underwriters of the Common Stock is exercised in full) and
short-term borrowings of the Company (i) to redeem all $109.1 million
outstanding principal amount of the 9.875% Debentures at a redemption price of
105.93% of the principal amount thereof and (ii) for general corporate purposes.
Pending such use for general corporate purposes, the remainder of such net
proceeds will be used to reduce the Company's outstanding Bank Term Loan. At
March 31, 1996, the outstanding borrowings under the Bank Term Loan were $150
million, which bore interest at 6.44% per annum through June 19, 1996 (LIBOR
plus 87 1/2 basis points).
The offerings of the Convertible Preferred Securities and the Common Stock
are not conditioned on each other. If the offering of the Common Stock is not
completed, the net proceeds from the sale of the Convertible Preferred
Securities will be used to redeem the 9.875% Debentures in full and for general
corporate purposes.
COMPANY EXCHANGE OF $3.00 CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK, SERIES A
In accordance with the terms of the Company's $3.00 Convertible
Exchangeable Preferred Stock, Series A (the "Series A Preferred Stock"), on May
16, 1996 the Company gave notice to all holders of the Series A Preferred Stock
that, effective as of June 17, 1996, the Company will exercise its right to
exchange all outstanding shares of Series A Preferred Stock for the Company's 6%
Convertible Subordinated Debentures due 2012 (the "Exchange Debentures") at the
rate of $50 principal amount of Exchange Debentures per share of Series A
Preferred Stock, or $130 million principal amount of Exchange Debentures in the
aggregate. Each $50 principal amount of the Exchange Debentures will be
convertible, at the option of the holder at any time, unless previously
redeemed, into approximately 1.75 shares of NorAm Common Stock, subject to
adjustment in certain circumstances. See "Description of Capital
Stock -- Convertible Exchangeable Preferred Stock, Series A" in the accompanying
Prospectus.
COMMON STOCK OFFERING
Concurrently with this offering of the Convertible Preferred Securities,
NorAm is engaged in an offering by means of a separate prospectus of 10,000,000
shares of NorAm's Common Stock (plus a 15% underwriters' over-allotment option).
NorAm will use the net proceeds of the offering of the Common Stock as described
above under "Use of Proceeds."
The sale of the Convertible Preferred Securities offered hereby is not
conditioned on the sale of the Common Stock by NorAm.
S-17
<PAGE> 18
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the NYSE. The range of closing prices of the
Common Stock as reported on the NYSE Composite Tape and dividends paid or
declared are shown in the following table for the periods indicated.
<TABLE>
<CAPTION>
CLOSING PRICES QUARTERLY
------------------ DIVIDENDS
HIGH LOW PER SHARE
------- ------- ---------
<S> <C> <C> <C>
1994
First Quarter............................................ $ 9 $ 6 3/4 $ .07
Second Quarter........................................... 6 1/2 5 5/8 .07
Third Quarter............................................ 7 3/4 5 3/4 .07
Fourth Quarter........................................... 6 1/2 5 1/4 .07
1995
First Quarter............................................ $ 6 $ 5 1/8 $ .07
Second Quarter........................................... 6 3/4 5 1/4 .07
Third Quarter............................................ 8 1/8 6 1/4 .07
Fourth Quarter........................................... 9 7 1/8 .07
1996
First Quarter............................................ $ 9 3/8 $ 8 1/4 $ .07
Second Quarter (through May 14).......................... 11 8 5/8 .07
</TABLE>
Cash dividends on the Common Stock have been paid every year since 1954.
The most recent quarterly dividend of $0.07 per share was declared by the Board
of Directors on May 14, 1996, and will be paid on June 14, 1996, to stockholders
of record on May 24, 1996. Future dividends are dependent on the Company's
earnings, cash flow, financial condition, capital requirements and other
factors.
The Company has a Direct Stock Purchase and Dividend Reinvestment Plan
pursuant to which registered holders of Common Stock may reinvest all or a
portion of their Common Stock cash dividends in shares of the Common Stock at
the applicable market price. Stockholders and others may also make optional cash
purchases of shares of Common Stock in amounts up to $120,000 per calendar year
at the applicable market price.
Under the provisions of the Company's revolving credit facility, the
Company's total debt capacity is limited and it is required to maintain a
minimum level of stockholders' equity, which requirements may limit the
Company's ability to pay dividends. See Note 3 of the Notes to Consolidated
Financial Statements incorporated by reference into Item 8 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form
10-K") incorporated by reference in the accompanying Prospectus. On May 13,
1996, the Company had 44,504 common stockholders of record.
S-18
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1996, as adjusted to give effect to the sale of the
Convertible Preferred Securities offered hereby and the application of the net
proceeds as described in "Use of Proceeds" in this Prospectus Supplement
(including the exchange of the Series A Preferred Stock for the Exchange
Debentures), and as further adjusted to give effect to the sale of the Common
Stock by the Company and the application of the net proceeds from the sale
thereof as described under "Common Stock Offering." The table should be read in
conjunction with the historical financial statements of the Company and related
notes included in the 1995 Form 10-K and the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1996. See "Incorporation of Certain
Documents By Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AS AS
ADJUSTED FURTHER
FOR ADJUSTED
CONVERTIBLE FOR
MARCH 31, PREFERRED COMMON
1996 SECURITIES STOCK
ACTUAL OFFERING(1)(2) OFFERING(3)
--------- -------------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Short-Term Debt:
Notes Payable.................................... $ -- $ -- $ 14.5
Long-Term Debt Due Within One Year............... 48.8 48.8 48.8
--------- --------- ---------
Total Short-Term Debt....................... 48.8 48.8 63.3
--------- --------- ---------
Long-Term Debt:
Senior Long-Term Debt............................ 1,467.5 1,324.8 1,208.4
Convertible Subordinated Debentures.............. -- 130.0 130.0
--------- --------- ---------
Total Long-Term Debt........................ 1,467.5 1,454.8 1,338.4
--------- --------- ---------
Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of Subsidiary
Trust(4)......................................... -- 150.0 150.0
Stockholders' Equity:
$3.00 Convertible Exchangeable Preferred Stock,
Series A; 10,000,000 Shares Authorized; 2,600,000
Shares Outstanding; 0 Shares Outstanding
As Adjusted...................................... 130.0 -- --
Common Stock; 250,000,000 Shares Authorized;
125,249,110 Shares Outstanding; 135,249,110
Shares Outstanding As Adjusted................ 78.3 78.3 84.6
Paid-in Capital.................................. 884.2 884.2 979.8
Accumulated Deficit.............................. (286.7 ) (290.6) (290.6)
Unrealized Gain on Investment, net(5)............ 25.8 25.8 25.8
--------- --------- ---------
Total Stockholders' Equity.................. 831.6 697.7 799.6
--------- --------- ---------
Total Capitalization..................... $2,347.9 $ 2,351.3 $ 2,351.3
========= ========= =========
</TABLE>
- ---------------
(1) Includes adjustment for the exchange of the Series A Preferred Stock for the
Exchange Debentures. See "Company Exchange of $3.00 Convertible Exchangeable
Preferred Stock, Series A" in this Prospectus Supplement and "Description of
Capital Stock -- Convertible Exchangeable Preferred Stock, Series A" in the
accompanying Prospectus.
(2) Assumes the redemption of all $109.1 million of the 9.875% Debentures at a
redemption price of 105.93% of the principal amount and repayment of a
portion of the Bank Term Loan using the proceeds of the Convertible
Preferred Securities offered hereby. See "Use of Proceeds."
(3) Assumes repayment of the remaining portion of the Bank Term Loan with the
proceeds of the offering of the Common Stock, if completed, and short-term
borrowings. See "Common Stock Offering."
(4) The sole asset of the Trust will be the Convertible Debentures with a
principal amount of $ million due 2026, unless extended. Upon redemption
of the Convertible Debentures, an equal amount of the Convertible Preferred
Securities will be mandatorily redeemable.
(5) Based on the market price of Itron, Inc. common stock at March 31, 1996 on
the Nasdaq National Market.
S-19
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial information of the Company shown below
for the five-year period ended December 31, 1995 has been derived from the
Company's audited consolidated financial statements and for the three-month
periods ended March 31, 1996 and 1995 has been derived from the Company's
unaudited consolidated financial statements that include, in the opinion of
management of the Company, all adjustments (consisting solely of normal
recurring accruals, except as noted) necessary to present fairly the data for
such periods. This information should be read in conjunction with the financial
statements and related notes included in the 1995 Form 10-K and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated
by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------------------
1996 1995 1995 1994(1) 1993(1)(2) 1992(2) 1991(2)
-------- -------- -------- -------- ---------- -------- --------
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues.......... $1,417.7 $ 888.1 $2,964.7 $2,857.9 $2,988.3 $2,782.2 $2,759.2
Operating Expenses:
Cost of Natural Gas
Purchased, Net.......... 1,027.6 541.2 1,857.2 1,779.5 1,900.9 1,758.4 1,730.4
Operation, Maintenance,
Cost of Sales and
Other................... 150.9 144.3 570.5 559.6 588.7 579.1 557.7
Depreciation and
Amortization(3)......... 35.7 38.6 147.1 153.0 151.9 151.4 146.2
Taxes Other Than Income
Taxes................... 34.6 29.3 102.6 100.9 104.7 100.9 98.9
Early Retirement and
Severance............... 22.3(4) -- -- -- -- -- --
Contract Termination
Charge.................. -- -- -- -- 34.2(5) -- --
Regulatory Settlement..... -- -- -- -- -- -- 15.0(6)
-------- ------ -------- -------- -------- -------- --------
Operating Income........ 146.6 134.7 287.3 264.9 207.9 192.4 211.0
Interest Expense, Net....... 36.2 39.8 158.0 169.3 172.4 185.2 169.8
Other Expense (Income),
Net....................... 3.4 2.7 8.4 9.9 (50.9)(7) (11.5) 6.3
Provision for Income
Taxes..................... 45.8 40.1 55.4 34.4 46.5 12.5 18.4
-------- ------ -------- -------- -------- -------- --------
Income from Continuing
Operations............ 61.2 52.1 65.5 51.3 39.9 6.2 16.5
Discontinued Operations,
Less Taxes................ -- -- -- (2.1)(8) -- (34.8)(9) (6.9)(10)
Cumulative Effect of Changes
in Accounting
Principles................ -- -- -- -- -- (4.9)(11) (64.4)(12)
Extraordinary Items, Less
Taxes..................... (0.3)(13) (0.1)(13) 0.0(13) (1.1)(13) (3.8)(13) (195.0)(14) --
-------- ------ -------- -------- -------- -------- --------
Net Income (Loss)....... 60.9 52.0 65.5 48.1 36.1 (228.5) (54.8)
Preferred Stock Dividend
Requirement............... 2.0 2.0 7.8 7.8 7.8 7.8 7.8
-------- ------ -------- -------- -------- -------- --------
Earnings (Loss) Available
to Common Stock......... $ 58.9 $ 50.0 $ 57.7 $ 40.3 $ 28.3 $ (236.3) $ (62.6)
======== ====== ======== ======== ======== ======== ========
Earnings (Loss) per Common
Share:
Continuing Operations..... $ 0.47 $ 0.41 $ 0.47 $ 0.36 $ 0.26 $ (0.01) $ 0.08
Discontinued Operations,
Less Taxes.............. -- -- -- (0.02) -- (0.29) (0.06)
Cumulative Effect of
Changes in Accounting
Principles.............. -- -- -- -- -- (0.04) (0.56)
Extraordinary Items, Less
Taxes................... 0.00 0.00 0.00 (0.01) (0.03) (1.60) --
-------- ------ -------- -------- -------- -------- --------
Net Income (Loss)....... $ 0.47 $ 0.41 $ 0.47 $ 0.33 $ 0.23 $ (1.94) $ (0.54)
======== ====== ======== ======== ======== ======== ========
Dividends per Common
Share................. $ 0.07 $ 0.07 $ 0.28 $ 0.28 $ 0.28 $ 0.48 $ 1.08
======== ====== ======== ======== ======== ======== ========
Weighted Average Shares
Outstanding (in
thousands)............ 124,991 122,960 123,868 122,424 122,305 121,820 115,981
======== ====== ======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF
PERIOD):
Property, Plant and
Equipment, Net.......... $2,403.2 $2,372.5 $2,407.8 $2,377.1 $2,357.1 $2,523.9 $2,668.1
Total Assets.............. 3,687.8 3,435.1 3,666.0 3,561.5 3,727.8 4,059.0 4,806.9
Long-Term Debt............ 1,467.5 1,323.7 1,474.9 1,414.4 1,629.4 1,783.1 1,551.5
Stockholders' Equity...... 831.6 768.2 767.3 717.4 708.0 712.9 948.0
</TABLE>
S-20
<PAGE> 21
- ---------------
(1) The Company engaged in the acquisition and disposition of significant
distribution properties during 1994 and 1993.
(2) The assets, liabilities and results of operations for Louisiana Intrastate
Gas Corporation are included until its sale at June 30, 1993.
(3) Pursuant to a revised study of the useful lives of certain assets, in July
1995, the Company changed the depreciation rates associated with certain of
its pipeline and gathering assets. The effect of this change was to reduce
first-quarter 1996 depreciation expense by approximately $2.7 million from
the amount which would have been recorded if the first-quarter 1995
depreciation rates had been applied to these assets during 1996. The
estimated annual effect of this change is to decrease depreciation expense
by approximately $10.8 million.
(4) Represents costs associated with: (i) a reorganization at Interstate
Pipelines resulting in the elimination of approximately 275 positions, (ii)
an early retirement program at Entex accepted by approximately 100
employees, and (iii) the reorganization of certain functions at Minnegasco
resulting in the elimination of approximately 25 positions. The Company
expects that a substantial portion of these costs will be offset by
associated cost savings during 1996.
(5) Represents the costs associated with a comprehensive settlement entered
into with a gas supplier, terminating or modifying a number of contractual
arrangements.
(6) Represents the costs associated with a settlement entered into with the
Arkansas Public Service Commission in June 1991, including the issuance of
$8.3 million of credits to certain customers and the payment of certain
related expenses.
(7) Includes approximately $42.8 million of gains from the sale of certain
assets, including Louisiana Intrastate Gas Corporation and the Company's
former Nebraska distribution properties.
(8) Principally legal costs associated with the Company's discontinued savings
and loan business.
(9) Includes losses associated with the discontinued operations and disposal of
the Company's former operations in the exploration and production, radio
communications, savings and loan and gas grill manufacturing businesses.
(10) Includes losses associated with the discontinued operations of the
Company's former exploration and production, gas grill manufacturing and
radio communications businesses.
(11) Represents the cumulative effect of the Company's adoption of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits."
(12) Represents the cumulative effect of the Company's adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
(13) Losses incurred upon early extinguishment of debt, net of related tax
benefit.
(14) Represents the charge associated with the Company's discontinuance of the
application of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" to the
Company's NorAm Gas Transmission Company subsidiary effective December 31,
1992.
S-21
<PAGE> 22
THE COMPANY
GENERAL
The Company is principally engaged in the distribution and transmission of
natural gas including gathering, marketing and storage of natural gas. In
recognition of changes within the natural gas industry and the manner in which
the Company manages its portfolio of businesses, the Company has organized its
operations into the following five operating units: (i) Natural Gas
Distribution; (ii) Interstate Pipelines; (iii) Wholesale Energy Marketing; (iv)
Retail Energy Marketing; and (v) Natural Gas Gathering. The Company is also
evaluating certain international investment opportunities including those
emerging from privatization initiatives in Latin America.
The following table summarizes the operating income (loss) of each of the
Company's five operating units for each of the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ --------------------------------
1996(1) 1995 1995 1994 1993
------ ----- ------ ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Natural Gas Distribution.......... $122.4 $92.7 $158.0 $145.5 $160.1
Interstate Pipelines.............. 30.8 31.0 103.8 105.4 100.6
Wholesale Energy Marketing........ 9.2 3.8 4.2 (3.0) (22.4)
Retail Energy Marketing........... 9.1 6.1 22.2 18.4 15.1
Natural Gas Gathering(2).......... 2.7 1.8 8.7 5.6 --
</TABLE>
- ---------------
(1) Excludes the impact of early retirement and severance costs of $5.8 million
and $16.5 million for Natural Gas Distribution and Interstate Pipelines,
respectively. See "Selected Consolidated Financial Data."
(2) Included with Interstate Pipelines in 1993.
The Company's principal executive offices are located at 1600 Smith Street,
32nd Floor, Houston, Texas 77002. Its mailing address is P.O. Box 2628, Houston,
Texas 77252-2628, and its telephone number is (713) 654-5699.
STRATEGY
NorAm's strategy is to emphasize growth through offering an expanded
selection of natural gas, electric power and related value-added services. NorAm
intends to (i) extend products and services that are proven in current core
markets to new geographic markets, (ii) broaden the Company's product line based
on experience gained in all markets and (iii) leverage the Company's strengths,
including its operating expertise, physical facilities, contract rights, large
diverse customer base, purchasing power and systems and processes.
NorAm has identified six core areas of growth.
Natural Gas Distribution. NorAm's three distribution divisions serve as a
core business providing a base of regulated revenues for the Company. In
addition to controlling costs, NorAm's distribution divisions, by coordinating
activities, are sharing marketing successes and adding new products and
services. Further, the Company's distribution divisions are developing new and
innovative rate structures to provide incentives if costs are controlled, and
mitigate the potential impact of retail unbundling.
Interstate Pipelines. A major focus of Interstate Pipelines will be to seek
to profit from the growing demand to move gas from west-to-east through the
Company's pipelines to serve Midwest and East Coast markets. In 1995, NGT and
MRT, Natural Gas Gathering and Wholesale Energy Marketing, were placed under the
direction of a new management team. Since that time, the Interstate Pipelines
unit has focused on combining the activities at NorAm's pipelines and reducing
capital expenditures and operating expenses. As a result, a significant cost
reduction initiative was implemented in early 1996.
Wholesale Energy Marketing and Natural Gas Gathering. NES has seen its
volume and profits increase substantially in the past two years. NES is one of
the largest natural gas marketers in the country, having
S-22
<PAGE> 23
increased its average daily volumes from an average of 0.9 Bcf per day in 1994
to 1.4 Bcf per day in 1995 and 2.2 Bcf per day during the first quarter of 1996.
This growth can be attributed largely to NES becoming a marketer on a national
scale. In addition, in recent periods, NES has begun to market electricity in
wholesale markets.
NFS, NorAm's natural gas gathering company, is implementing plans to bring
additional services including compression, line looping and administrative
services to its customers. NFS has opened a regional office in Tulsa, Oklahoma,
and is exploring opportunities for growth through acquisitions and partnerships
which meet the Company's strategic objectives.
Retail Energy Marketing. Retail Energy Marketing is an area of increasing
emphasis in the Company's strategic plan. NEM was created in 1995 to consolidate
the existing unregulated retail marketing activities of NorAm's distribution
companies into one business segment. NEM will focus on industrial and large
commercial customers behind the "city gate." Services offered to its customers
include natural gas supply, electric power services, management of commodity
pricing risks, total energy management, and supply and financing of gas burning
equipment, including inside-the-fence cogeneration. Further, NorAm is organizing
a company which will provide unbundled services to smaller customers in the
residential and small commercial categories behind the "city gate." NorAm is
also seeking to position itself as a "provider of choice" of new, unregulated
services such as appliance repair and preventive maintenance contracts and home
security systems to retail customers.
International. NorAm intends to begin operations internationally with an
initial emphasis on natural gas distribution in Latin America. The Company
believes that significant opportunities exist to participate in energy
infrastructure development in areas which currently do not have natural gas
service. To exploit such opportunities, NorAm's strategy is to form partnerships
with reputable local companies as well as other international energy companies.
NorAm has entered into joint ventures and partnerships which are exploring
opportunities in several geographic areas including Argentina, Bolivia, Colombia
and Mexico.
Finance. From 1991 to 1995, annual interest expense has been reduced by
approximately $50 million. NorAm intends to continue to optimize its capital
structure by reducing its outstanding debt and increasing the strength of its
balance sheet. At March 31, 1996, the Company had $746 million of debt with an
average interest rate of 9.40% which matures or becomes callable prior to
December 31, 1999.
THE BUSINESS
Natural Gas Distribution. The Company's natural gas distribution business
is conducted through three divisions, Arkla, Entex and Minnegasco, which
collectively form the nation's third largest gas distribution operation. These
three divisions serve over 2.7 million customers in six states, including the
metropolitan areas of Minneapolis, Minnesota; Houston, Texas; and Little Rock,
Arkansas. Historically, the Company's natural gas distribution business included
substantially all the activities conducted by these three divisions. In
recognition of the fact that certain of these activities are not subject to
traditional cost-of-service rate regulation and, as such, have different risk
profiles and return potentials, and in order to concentrate its
similarly-targeted marketing efforts in a single business unit, certain
large-volume marketing activities, including the provision of services to a
number of customers previously reported as part of Natural Gas Distribution,
have been aggregated and are now reported as part of Retail Energy Marketing.
Thus, Natural Gas Distribution, as presently constituted consists principally of
natural gas sales to and natural gas transportation for residential, commercial
and a limited number of industrial customers, substantially all of which are
located behind the "city gate" and are subject to traditional cost-of-service
rate regulation.
S-23
<PAGE> 24
The following table summarizes by state the number of communities and the
estimated number of customers served by the Company as of December 31, 1995:
<TABLE>
<CAPTION>
SERVICE AREA COMMUNITIES NUMBER OF
LOCATIONS SERVED CUSTOMERS
----------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Texas............................................................ 365 1,203,712
Minnesota........................................................ 243 626,556
Arkansas......................................................... 383 425,423
Louisiana........................................................ 179 262,480
Mississippi...................................................... 91 118,520
Oklahoma......................................................... 97 114,794
----- ---------
Total.................................................. 1,358 2,751,485
===== =========
</TABLE>
The following table summarizes the estimated number of customers served by
each of the divisions as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
CUSTOMERS BY DIVISION 1995 1994
------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Entex............................................................. 1,394,292 1,375,393
Arkla............................................................. 730,637 721,185
Minnegasco........................................................ 626,556 612,254
--------- ---------
Total................................................... 2,751,485 2,708,832
========= =========
</TABLE>
The Company's approximately 54,982 miles of gas distribution mains vary in
size from one-half inch to 24 inches. Generally, in each of the cities, towns
and rural areas it serves, the Company owns the underground gas mains and
service lines, metering and regulating equipment located on customers' premises,
and the district regulating equipment necessary for pressure maintenance. With a
few exceptions, the measuring stations at which the Company receives gas from
its suppliers are owned, operated and maintained by others, and the distribution
facilities of the Company begin at the outlet of the measuring equipment. These
facilities include odorizing equipment usually located on the land owned by
suppliers and district regulator installations, in most cases located on small
parcels of land which are leased or owned by the Company.
Throughput and customer data of the distribution divisions are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -------------------------
THROUGHPUT 1996 1995 1995 1994 1993
----------------------------------------------- ----- ----- ----- ----- -----
(BILLIONS OF CUBIC FEET)
<S> <C> <C> <C> <C> <C>
Sales
Residential.................................. 95.7 80.5 183.3 180.0 193.6
Commercial................................... 54.2 47.1 123.3 119.1 126.7
Industrial................................... 14.5 13.2 52.4 53.4 49.7
Transportation................................. 13.4 14.5 49.4 44.9 52.2
----- ----- ----- ----- -----
Total................................ 177.8 155.3 408.4 397.4 422.2
===== ===== ===== ===== =====
</TABLE>
Interstate Pipelines. The Company's interstate natural gas pipeline
business is conducted principally through NGT and MRT, together with certain
subsidiaries and affiliates. A major focus of NorAm's Interstate Pipelines will
be to seek to profit from the growing demand to move gas from west-to-east on
the Company's pipelines to serve Midwest and East Coast markets.
NGT owns and operates a natural gas pipeline system located in portions of
Arkansas, Louisiana, Mississippi, Missouri, Kansas, Oklahoma, Tennessee and
Texas. The NGT system consists of approximately 6,400 miles of transmission
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
S-24
<PAGE> 25
eastern Oklahoma and Arkansas to the Mississippi River, from eastern Texas to
northern Louisiana and central Arkansas, from the mainline system in Oklahoma
and Arkansas to south central Kansas and southwestern Missouri. In its system,
NGT operates various product extraction plants and compressor facilities related
to its transmission business. NGT's peak day gas handled during the 1995/96
heating season was approximately 2.4 Bcf. NGT, on behalf of various shippers,
transports and delivers gas to distributors for resale for ultimate public
consumption, to industrial customers for their own use and consumption, and to
third party pipeline interconnects located in the states of Arkansas, Kansas,
Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. In 1995, NGT's
throughput totaled 630.1 million MMBtu.
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 approximately 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
eastern Texas to Perryville, Louisiana. The system also includes various other
branch, lateral, transmission and gathering lines and compressor stations. In
1995, MRT's throughput totaled 395.1 million MMBtu. Approximately one-half of
MRT's total 1995 volumes were delivered to its traditional markets along its
system in Missouri, Illinois and Arkansas, with the remaining volumes delivered
to off-system customers. MRT's peak day deliveries during the 1995/96 heating
season to its traditional market area customers were approximately 1.0 million
MMBtu.
The Company owns and operates seven gas storage fields. Four storage fields
are associated with NGT's pipeline and have a combined maximum deliverability of
approximately 665 million cubic feet ("MMcf") per day and a working gas capacity
of approximately 22.8 Bcf. Three storage fields are associated with MRT's
pipeline and have a maximum aggregate deliverability of approximately 580 MMcf
per day and a working gas capacity of approximately 31 Bcf. During 1995, all of
MRT's storage capacity was subscribed on a firm basis by its customers.
In early 1996, Interstate Pipelines implemented a reorganization plan which
resulted in the elimination of a total of approximately 275 positions at NGT and
MRT. The reorganization plan is intended to allow Interstate Pipelines to
operate more efficiently, improving its ability to compete in its market areas.
The Company recorded a first-quarter 1996 pre-tax charge of $16.5 million
associated with the reorganization plan, which amount is expected to be
substantially offset by the associated cost savings during 1996.
Consolidated throughput data for Interstate Pipelines are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- --------------------------
THROUGHPUT 1996 1995 1995 1994 1993
------------------------------------------ ------ ------ ------ ------ ------
(MILLIONS OF MMBTU)
<S> <C> <C> <C> <C> <C>
Sales..................................... 12.5 12.9 79.5 63.2 115.1
Transportation............................ 303.8 268.4 974.3 831.8 780.1
FERC Order 636 Elimination(1)............. (11.8) (12.3) (77.5) (59.9) (24.2)
------ ------ ------ ------ ------
Total........................... 304.5 269.0 976.3 835.1 871.0
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) When sold volumes are also transported by Interstate Pipelines, the
throughput statistics will include the same physical volumes in both the
sales and transportation categories, requiring an elimination to prevent
the over-statement of actual total throughput. No elimination is made for
volumes of 60.7 million MMBtu, 51.6 million MMBtu, 196.6 million MMBtu,
145.8 million MMBtu and 158.2 million MMBtu in the three months ended March
31, 1996 and 1995, and for 1995, 1994 and 1993, respectively, which were
transported on both the NGT and MRT systems.
The Company is committed under certain agreements to purchase certain
quantities of gas in the future. In order to reduce the risk from market
fluctuations in the price of natural gas and transportation during the
S-25
<PAGE> 26
terms of these commitments, the Company enters into futures contracts, swaps and
options. In no case are these derivatives held for trading purposes. To the
extent that the Company expects that these commitments will result in losses
over the contract term, the Company has established reserves equal to such
expected losses.
Wholesale Energy Marketing. The Company's wholesale energy marketing
activities, the marketing of natural gas and risk management services to natural
gas resellers and certain large volume industrial consumers, is principally
conducted by NES, together with certain affiliates. NES, previously reported as
a part of Interstate Pipelines, historically has operated primarily in those
states served by the NGT and MRT systems but recently has had significant sales
in various other states as it seeks to extend its activities throughout North
America. NES has increased its average daily volumes from 0.9 Bcf per day in
1994 to 1.4 Bcf per day in 1995 and 2.2 Bcf per day during the first quarter of
1996. This growth can be attributed largely to NES becoming a marketer on a
national scale. NES markets gas under daily, baseload and term agreements which
include either market sensitive or fixed pricing provisions. NES gas supplies
are purchased from others on both a daily and term basis. Most gas supplies are
purchased based on market sensitive pricing. Gas sales for 1995 were
approximately 513 million MMBtu of which approximately 85.2% was to unaffiliated
parties. Customers are located on both the NGT system and other pipelines. Gas
is transported to customers using both firm and interruptible transportation.
Fixed priced sales or purchase contracts are hedged using gas futures contracts
or other derivative financial instruments. In addition, in recent periods, NES
has begun to market electricity in wholesale markets. Sales and services
provided by NES are generally not subject to any form of rate regulation.
Retail Energy Marketing. The Company's retail energy marketing business is
conducted primarily by NEM. NEM will focus on commercial and large industrial
customers behind the "city gate" of local gas distribution companies. This
recently-formed business unit includes a number of activities previously
included within Natural Gas Distribution and will execute the Company's plan for
serving these markets more coherently and effectively. Certain of NEM's
activities, while not subject to traditional cost-of-service rate determination,
are subject to the jurisdiction of various regulatory bodies as to the
allocation of joint costs between such activities and certain of the Company's
regulated activities.
Natural Gas Gathering. On February 1, 1995, pursuant to a "spindown" order
from the FERC, the Company transferred the natural gas gathering assets of NGT
into NFS. These assets consist principally of approximately 3,500 miles of
gathering pipelines which collect gas from more than 200 separate systems
located in major producing fields in Oklahoma, Louisiana, Arkansas and Texas.
NFS is not generally subject to cost-of-service regulation, although the
spindown order required that it offer to continue any pre-existing gathering
services generally under the terms of NGT's tariff, including the applicable
stated maximum gathering rate of $0.1417 per MMBtu for a two-year period until
February 1, 1997, except to the extent that separate terms and conditions have
been negotiated. Natural Gas Gathering also includes Arkla Chemical Company
which performs gas processing, liquids extraction and marketing activities,
generally in conjunction with certain of NFS's gathering activities. In the
future, the majority of NFS's gas processing activities will be conducted by
Waskom Gas Processing Company, a joint venture of NFS and NGC Corp.
NORAM FINANCING I
NorAm Financing is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of November 2, 1995, executed
by NorAm, as sponsor (the "Sponsor"), and the trustees of NorAm Financing (the
"NorAm Trustees") and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on November 2, 1995. Such
declaration will be amended and restated in its entirety (as so amended and
restated, the "Declaration") substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Upon issuance of the Convertible Preferred Securities, the
purchasers thereof will own all of the Convertible Preferred Securities. See
"Description of the Convertible Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." NorAm will directly or indirectly
acquire
S-26
<PAGE> 27
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of NorAm Financing. NorAm Financing exists for the exclusive purposes of
(i) issuing the Trust Securities representing undivided beneficial interests in
the assets of the Trust, (ii) investing the gross proceeds of the Trust
Securities in the Convertible Debentures and (iii) engaging in only those other
activities necessary or incidental thereto.
Pursuant to the Declaration, the number of NorAm Trustees will initially be
four. Two of the NorAm Trustees (the "Regular Trustees") will be persons who are
employees or officers of or who are affiliated with NorAm. The third trustee
will be a financial institution that maintains its principal place of business
in the state of Delaware and is unaffiliated with NorAm, which trustee will
serve as institutional trustee under the Declaration and as indenture trustee
for the purposes of compliance with the provisions of the Trust Indenture Act
(the "Property Trustee"). Initially, The Bank of New York, a national banking
corporation, will be the Property Trustee until removed or replaced by the
holder of the Common Securities. For the purpose of compliance with the
provisions of the Trust Indenture Act, The Bank of New York will act as trustee
(the "Guarantee Trustee") under the Guarantee and as Debt Trustee (as defined
herein) under the Subordinated Indenture. The fourth trustee will be an entity
that maintains its principal place of business in the state of Delaware (the
"Delaware Trustee"). Initially, The Bank of New York (Delaware) an affiliate of
the Property Trustee, will act as Delaware Trustee. See "Description of the
Preferred Securities Guarantees" in the accompanying Prospectus. See
"Description of the Convertible Preferred Securities -- Voting Rights."
The Property Trustee will hold title to the Convertible Debentures for the
benefit of the holders of the Trust Securities and the Property Trustee will
have the power to exercise all rights, powers and privileges under the
Subordinated Indenture (as defined herein) as the holder of the Convertible
Debentures. In addition, the Property Trustee will maintain exclusive control of
a segregated non-interest bearing bank account (the "Property Account") to hold
all payments made in respect of the Convertible Debentures for the benefit of
the holders of the Trust Securities. The Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Convertible Preferred Securities. NorAm, as the direct or indirect holder of all
the Common Securities, will have the right to appoint, remove or replace any
NorAm Trustee and to increase or decrease the number of NorAm Trustees. NorAm
will pay all fees and expenses related to NorAm Financing and the offering of
the Trust Securities. See "Description of the Convertible
Debentures -- Miscellaneous."
The rights of the holders of the Convertible Preferred Securities,
including economic rights, rights to information and voting rights, are set
forth in the Declaration, the Delaware Business Trust Act (the "Trust Act") and
the Trust Indenture Act. See "Description of the Convertible Preferred
Securities."
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities will be issued pursuant to the terms
of the Declaration. The Declaration will be qualified as an indenture under the
Trust Indenture Act. The Property Trustee will act as indenture trustee for the
Convertible Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Convertible Preferred Securities will include those stated in the Declaration
and those made part of the Declaration by the Trust Indenture Act. The following
summary of the principal terms and provisions of the Convertible Preferred
Securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Declaration, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement is a
part, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of NorAm
Financing the Trust Securities, which represent undivided beneficial interests
in the assets of NorAm Financing. All of the Common Securities will be owned,
directly or indirectly, by NorAm. The Common Securities rank pari passu, and
payments will be made thereon on a pro rata basis, with the Convertible
Preferred Securities, except that upon the occurrence of a Declaration Event of
Default, the rights of the holders of the Common Securities to
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receive payment of periodic distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Convertible Preferred Securities. The Declaration does not permit the
issuance by NorAm Financing of any securities other than the Trust Securities or
the incurrence of any indebtedness by NorAm Financing. Pursuant to the
Declaration, the Property Trustee will own the Convertible Debentures purchased
by NorAm Financing for the benefit of the holders of the Trust Securities. The
payment of distributions out of money held by NorAm Financing, and payments upon
redemption of the Convertible Preferred Securities or liquidation of NorAm
Financing, are guaranteed by NorAm to the extent described under "Description of
the Convertible Preferred Securities Guarantees" in the accompanying Prospectus.
The Guarantee will be held by The Bank of New York, the Guarantee Trustee, for
the benefit of the holders of the Convertible Preferred Securities. The
Guarantee does not cover payment of distributions when NorAm Financing does not
have sufficient available funds to pay such distributions. In such event, the
remedy of a holder of Convertible Preferred Securities is to (i) vote to direct
the Property Trustee to enforce the Property Trustee's rights under the
Convertible Debentures or (ii) if the failure of NorAm Financing to pay
distributions is attributable to the failure of NorAm to pay interest or
principal on the Convertible Debentures, to institute a proceeding directly
against NorAm for enforcement of payment to such holder of the principal of or
interest on the Convertible Debentures having a principal amount equal to the
aggregate liquidation amount of the Convertible Preferred Securities of such
holder on or after the respective due date specified in the Convertible
Debentures. See "Description of the Convertible Preferred Securities -- Voting
Rights."
DISTRIBUTIONS
Distributions on the Convertible Preferred Securities will be fixed at a
rate per annum of % of the stated liquidation amount of $50 per Convertible
Preferred Security. Distributions in arrears for more than one quarter will bear
interest thereon at the rate per annum of % thereof compounded quarterly.
The term "distribution" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Convertible Preferred Securities will be cumulative,
will accrue from the date of original issuance, and will be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing September 30, 1996, when, as and if available for payment,
distributions will be made by the Property Trustee, except as otherwise
described below.
The distribution rate and the distribution payment dates and other payment
dates for the Convertible Preferred Securities will correspond to the interest
rate and interest payment dates and other payment dates on the Convertible
Debentures.
NorAm has the right under the Subordinated Indenture to defer payments of
interest on the Convertible Debentures by extending the interest payment period
from time to time on the Convertible Debentures, which, if exercised, would
defer quarterly distributions on the Convertible Preferred Securities (though
such distributions would continue to accrue with interest since interest would
continue to accrue on the Convertible Debentures) during any such extended
interest payment period. Such right to extend the interest payment period for
the Convertible Debentures is limited to a period not exceeding 20 consecutive
quarters. In the event that NorAm exercises this right to defer interest
payments, then (a) NorAm shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of NorAm Common Stock in connection with the
satisfaction by NorAm of its obligations under any employee benefit plans or the
satisfaction by NorAm of its obligations pursuant to any contract or security
requiring NorAm to purchase shares of NorAm's capital stock, (ii) as a result of
a reclassification of NorAm capital stock or the exchange or conversion of one
class or series of NorAm's capital stock for another class or series of NorAm
capital stock, (iii) the payment of dividends or distributions in shares of its
capital stock of the same class on which such dividends or distributions are
being paid, or (iv) the purchase of fractional interests in shares of NorAm's
capital stock pursuant to the conversion or exchange provisions of such NorAm
capital stock or the security being converted or exchanged) or make any
guarantee payments with respect to the foregoing and (b) NorAm shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or
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redeem any debt securities issued by NorAm that rank pari passu with or junior
to such Convertible Debentures. Prior to the termination of any such Extension
Period, NorAm may further extend the interest payment period; provided, that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity
date of the Convertible Debenture. Upon the termination of any Extension Period
and the payment of all amounts then due, NorAm may select a new Extension
Period, subject to the above requirements. See "Description of the Convertible
Debentures -- Interest" and "-- Option to Extend Interest Payment Period." If
distributions are deferred, the deferred distributions and accrued interest
thereon shall be paid to holders of record of the Convertible Preferred
Securities as they appear on the books and records of NorAm Financing on the
record date next following the termination of such deferral period.
Distributions on the Convertible Preferred Securities must be paid on the
dates payable to the extent that NorAm Financing has funds available for the
payment of such distributions in the Property Account. NorAm Financing's funds
available for distribution to the holders of the Convertible Preferred
Securities will be limited to payments received from NorAm on the Convertible
Debentures. See "Description of the Convertible Debentures." The payment of
distributions out of moneys held by NorAm Financing is guaranteed by NorAm to
the extent set forth under "Description of the Convertible Preferred Securities
Guarantees" in the accompanying Prospectus.
Distributions on the Convertible Preferred Securities will be payable to
the holders thereof as they appear on the books and records of NorAm Financing
on the relevant record dates, which, as long as the Convertible Preferred
Securities remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the Property
Trustee who will hold amounts received in respect of the Convertible Debentures
in the Property Account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "-- Book-Entry
Only Issuance -- The Depository Trust Company" below. In the event that the
Convertible Preferred Securities do not continue to remain in book-entry only
form, the relevant record dates shall conform to the rules of any securities
exchange on which the Convertible Preferred Securities are listed and, if none,
the Regular Trustee shall have the right to select relevant record dates, which
shall be at least fifteen Business Days prior to the relevant payment dates. In
the event that any date on which distributions are to be made on the Convertible
Preferred Securities is not a Business Day, then payment of the distributions
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such record date. A "Business Day"
shall mean any day other than Saturday, Sunday or any other day on which banking
institutions in New York City (in the State of New York) are authorized or
required by any applicable law to close.
CONVERSION RIGHTS
General. The Convertible Preferred Securities will be convertible at any
time, at the option of the holders thereof and in the manner described below,
into shares of NorAm Common Stock at an initial conversion rate of shares of
NorAm Common Stock for each Convertible Preferred Security (equivalent to a
conversion price of $ per share of NorAm Common Stock), subject to
adjustment as described under "-- Conversion Price Adjustments -- General"
below.
The terms of the Convertible Preferred Securities provide that a holder of
a Convertible Preferred Security wishing to exercise its conversion right shall
surrender such Convertible Preferred Security, together with an irrevocable
conversion notice, to the Property Trustee, as conversion agent (the "Conversion
Agent"), which shall, on behalf of such holder, exchange such Convertible
Preferred Security for an equivalent amount of the Convertible Debentures and
immediately convert such Convertible Debentures into NorAm Common Stock. Holders
may obtain copies of the required form of the conversion notice from the
Conversion Agent. So long as a book-entry system for the Convertible Preferred
Securities is in effect, however, procedures for converting the Convertible
Preferred Securities into shares of NorAm Common Stock will differ, as described
under "-- Book-Entry Only Issuance -- The Depository Trust Company."
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Holders of Convertible Preferred Securities at the close of business on a
dividend record date will be entitled to receive any distribution(whether or not
declared) on such Convertible Preferred Securities with respect to the
corresponding distribution payment date notwithstanding the conversion of such
Convertible Preferred Securities following such distribution record date but
prior to such distribution payment date. Except as provided in the immediately
preceding sentence, neither NorAm Financing nor NorAm will make, or be required
to make, any payment, allowance or adjustment for accumulated and unpaid
distributions, whether or not in arrears, on converted Convertible Preferred
Securities, and the delivery of the NorAm Common Stock upon conversion of the
Convertible Preferred Securities shall be deemed to constitute full payment for
all accrued and unpaid distributions on the Convertible Preferred Securities.
NorAm will make no payment or allowance for distributions on the shares of NorAm
Common Stock issued upon such conversion, except to the extent that such shares
of NorAm Common Stock are held of record on the record date for any such
dividends. Each conversion will be deemed to have been effected immediately
prior to the close of business on the day on which the related conversion notice
was received by the Conversion Agent.
No fractional shares of NorAm Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by NorAm
in cash based upon the last reported sales price of the NorAm Common Stock on
the date such Convertible Preferred Securities are surrendered for conversion.
Conversion Price Adjustments -- General. The conversion price is also
subject to adjustment in certain events, including (a) the issuance of shares of
NorAm Common Stock as a dividend or a distribution with respect to NorAm Common
Stock, (b) subdivisions, combinations and reclassifications of NorAm Common
Stock, (c) the issuance to all holders of NorAm Common Stock of rights or
warrants entitling them (for a period not exceeding 45 days) to subscribe for or
purchase shares of NorAm Common Stock at less than the current market price, (d)
the distribution to all holders of NorAm Common Stock of evidences of
indebtedness of the Company, or a subsidiary of NorAm, capital stock, cash or
assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to above and dividends and distributions paid
exclusively in cash), (e) the payment of dividends (and other distributions) on
NorAm Common Stock exclusively in cash, excluding regular cash dividends if the
annualized per share amount thereof does not exceed 15% of the current market
price of NorAm Common Stock as of the trading day immediately preceding the date
of declaration of such dividend, and (f) payment to holders of Common Stock in
respect of a tender or exchange offer (other than an odd-lot offer) by NorAm or
a subsidiary of NorAm for NorAm Common Stock at a price in excess of 110% of the
current market price of NorAm Common Stock as of the trading day next succeeding
the last date tenders or exchanges may be made pursuant to such tender or
exchange offer.
NorAm from time to time may upon a determination by its Board of Directors
reduce the conversion price of the Convertible Debentures (and thus the
conversion price of the Convertible Preferred Securities) by any amount selected
by NorAm for any period of at least 20 days, in which case NorAm shall give at
least 15 days' notice of such reduction. NorAm may, at its option, make such
reductions in the conversion price, in addition to those set forth above, as
NorAm deems advisable to avoid or diminish any income tax to holders of NorAm
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"United States Federal Income Taxation -- Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of NorAm Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of NorAm and
the investment of additional optional amounts in shares of NorAm Common Stock
under any such plan and the issuance of any shares of NorAm Common Stock or
options or rights to purchase such shares pursuant to any employee benefit plan
or program of NorAm or pursuant to any option, warrant, right or exercisable,
exchangeable or convertible security outstanding as of the date the Convertible
Debentures were first issued, shall not be deemed to constitute an issuance of
such Common Stock or exercisable or exchangeable securities in respect of which
an adjustment may be made. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least one percent
(1%) in the price then in effect; provided, however, that any adjustment that
would not be required to be made shall be carried forward and taken into account
in any subsequent adjustment. If any action would require
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adjustment of the conversion price pursuant to more than one of the provisions
described above, only one adjustment shall be made and such adjustment shall be
the amount of adjustment that has the highest absolute value to the holder of
the Convertible Preferred Securities.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
NorAm. In the event that NorAm shall be a party to any transaction (including,
without limitation, and with certain exceptions, (a) recapitalization or
reclassification of the NorAm Common Stock, (b) consolidation of NorAm with, or
merger of NorAm into, any other Person, or any merger of another Person into
NorAm, (c) any sale or transfer of all or substantially all of the assets of
NorAm or (d) any compulsory share exchange) pursuant to which the NorAm Common
Stock is converted into the right to receive other securities, cash or other
property, (each of the foregoing being referred to as a "Transaction"), then the
holders of Convertible Preferred Securities then outstanding shall have the
right to convert the Convertible Preferred Securities into the kind and amount
of securities, cash and other property receivable upon the consummation of such
Transaction by a holder of the number of shares of NorAm Common Stock issuable
upon conversion of such Convertible Preferred Securities immediately prior to
such Transaction.
In the case of a Transaction, each Convertible Preferred Security would
become convertible into the securities, cash or property receivable by a holder
of the number of shares of NorAm Common Stock into which such Convertible
Preferred Security was convertible immediately prior to such Transaction. This
change could substantially lessen or eliminate the value of the conversion
privilege associated with the Convertible Preferred Securities in the future.
For example, if NorAm were acquired in a cash merger, each Convertible Preferred
Security would become convertible solely into cash and would no longer be
convertible into securities whose value would vary depending on the future
prospects of NorAm and other factors.
Conversion price adjustments or omissions in making such adjustments, may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends to holders of Convertible Preferred Securities or to the holders of
NorAm Common Stock. See "United States Federal Income Taxation."
REDEMPTION
The Convertible Preferred Securities have no stated maturity date but will
be redeemed upon the maturity of the Convertible Debentures or to the extent the
Convertible Debentures are redeemed. The Convertible Debentures will mature on
June , 2026 (unless the maturity date is extended at the election of NorAm to
a date not later than June , 2045 upon satisfaction by NorAm of the
requirements and conditions described under "Description of the Convertible
Debentures -- Option to Extend Maturity Date"). The Convertible Debentures may
be redeemed, in whole or in part, at any time (i) on or after June , 2000, if
and only if, for 20 trading days within any period of 30 consecutive trading
days, including the last trading day of such period, the Current Market Price of
NorAm Common Stock equals or exceeds 125% of the then applicable conversion
price of the Convertible Debentures, (ii) or at any time in certain
circumstances upon the occurrence of a Tax Event. Upon the repayment of the
Convertible Debentures, whether at maturity or upon redemption, the proceeds
from such repayment or payment shall simultaneously be applied to redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Convertible Debentures so repaid or redeemed at the
Redemption Price; provided, that holders of Trust Securities shall be given not
less than 30 nor more than 60 days' notice of such redemption. See "Description
of the Convertible Debentures -- Optional Redemption." In the event that fewer
than all of the outstanding Convertible Preferred Securities are to be redeemed,
the Convertible Preferred Securities will be redeemed pro rata as described
under "-- Book-Entry Only Issuance -- the Depository Trust Company" below.
The term "Current Market Price" of NorAm Common Stock for any day means the
reported last sale price, regular way, on such day, or, if no sale takes place
on such day, the average of the reported closing bid and asked prices on such
day, regular way, in either case as reported on the NYSE Composite Tape, or, if
the NorAm Common Stock is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which the NorAm Common Stock is listed
or admitted to trading, or if the NorAm Common Stock is not listed or admitted
to trading on a national securities exchange, on the National Market System of
the National Association of Securities Dealers, Inc., or, if the NorAm Common
Stock is not quoted or
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admitted to trading on such quotation system, on the principal quotation system
on which the NorAm Common Stock is listed or admitted to trading or quoted, or,
if not listed or admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing bid and asked prices of
the NorAm Common Stock in the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or, if not so available in such manner, as furnished
by any NYSE member firm selected from time to time by the Board of Directors of
NorAm for that purpose or, if not so available in such manner, as otherwise
determined in good faith by such Board of Directors.
TAX EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that on or after the date of the
Prospectus Supplement, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing authority thereof or
therein, or (b) any amendment to, or change in, an interpretation or application
of any such laws or regulations by any legislative body, court, governmental
agency or regulatory authority, which amendment or change is enacted,
promulgated, issued or announced or which interpretation or pronouncement is
issued or announced or which action is taken, in each case on or after the date
of the Prospectus Supplement, there is more than an insubstantial risk that (i)
the Trust is or will be within 90 days of the date thereof, subject to United
States federal income tax with respect to interest accrued or received on the
Convertible Debentures, (ii) the Trust is, or will be within 90 days of the date
thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges, or (iii) interest payable by the Convertible Debenture
Issuer to the Trust on the Convertible Debentures is not, or within 90 days of
the date thereof will not be, deductible, in whole or in part, by the
Convertible Debenture Issuer for United States federal income tax purposes.
If, at any time, a Tax Event (as defined above) shall occur and be
continuing, NorAm Financing shall, except in the limited circumstances described
below, be dissolved with the result that Convertible Debentures with an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, and having the
same record date for payment as, the Trust Securities, would be distributed to
the holders of the Trust Securities in liquidation of such holders' interests in
NorAm Financing on a pro rata basis within 90 days following the occurrence of
such Tax Event; provided, that such dissolution and distribution shall be
conditioned on (i) the Regular Trustee's receipt of an opinion of nationally
recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that the holders of the Trust
Securities will not recognize any gain or loss for United States federal income
tax purposes as a result of such dissolution and distribution of Convertible
Debentures and (ii) NorAm Financing being unable to eliminate such Tax Event
within such 90 day period by taking some ministerial action or pursuing some
other reasonable measure that will have no adverse effect on NorAm Financing,
NorAm or the holders of the Trust Securities. Furthermore, if after receipt of a
Dissolution Tax Opinion by the Regular Trustee (i) NorAm has received an opinion
(a "Redemption Tax Opinion") of nationally recognized independent tax counsel
experienced in such matters that, as a result of a Tax Event, there is more than
an insubstantial risk that NorAm would be precluded from deducting the interest
on the Convertible Debentures for United States federal income tax purposes,
even after the Convertible Debentures were distributed to the holders of Trust
Securities in liquidation of such holders' interests in NorAm Financing as
described above, or (ii) the Regular Trustees shall have been informed by such
tax counsel that they cannot deliver a No Recognition Opinion to NorAm
Financing, NorAm shall have the right, upon not less than 30 nor more than 60
days notice, to redeem the Convertible Debentures, in whole or in part, for cash
within 90 days following the occurrence of such Tax Event, and, following such
redemption, Trust Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures so redeemed shall be
redeemed by NorAm Financing at the Redemption Price on a pro rata basis;
provided, however, that if at the time there is available to NorAm or NorAm
Financing the opportunity to eliminate, within such 90 day period, the Tax Event
by taking some
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ministerial action, such as filing a form or making an election or pursuing some
other similar reasonable measure that has no adverse effect on NorAm Financing,
NorAm or the holders of the Trust Securities, NorAm or NorAm Financing will
pursue such measure in lieu of redemption.
If the Convertible Debentures are distributed to the holders of the
Convertible Preferred Securities, NorAm will use its best efforts to cause the
Convertible Debentures to be listed on the NYSE or on such other exchange as the
Convertible Preferred Securities are then listed.
After the date for any distribution of Convertible Debentures and
dissolution of NorAm Financing, (i) the Convertible Preferred Securities will no
longer be deemed to be outstanding, (ii) the Depositary or its nominee, as the
record holder of the Convertible Preferred Securities, will receive a registered
global certificate or certificates representing the Convertible Debentures to be
delivered upon such distribution, and (iii) any certificates representing
Convertible Preferred Securities not held by the Depositary or its nominee will
be deemed to represent Convertible Debentures having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on such Convertible Preferred
Securities until such certificates are presented to NorAm or its agent for
transfer or reissuance.
There can be no assurance as to the market prices for either the
Convertible Preferred Securities or the Convertible Debentures that may be
distributed in exchange for the Convertible Preferred Securities if a
dissolution and liquidation of NorAm Financing were to occur. Accordingly, the
Convertible Preferred Securities that an investor may purchase, whether pursuant
to the offer made hereby or in the secondary market, or the Convertible
Debentures that an investor may receive if a dissolution and liquidation of
NorAm Financing were to occur, may trade at a discount to the price that the
investor paid to purchase the Convertible Preferred Securities offered hereby.
REDEMPTION PROCEDURES
NorAm Financing may not redeem fewer than all of the outstanding
Convertible Preferred Securities unless all accrued and unpaid distributions
have been paid on all Convertible Preferred Securities for all quarterly
distribution periods terminating on or prior to the date of redemption.
If NorAm Financing gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, provided that NorAm has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Convertible Debentures, NorAm Financing will
irrevocably deposit with the Depositary funds sufficient to pay the applicable
Redemption Price and will give the Depositary irrevocable instructions and
authority to pay the Redemption Price to the holders of the Convertible
Preferred Securities. See "Book-Entry Only Issuance -- The Depository Trust
Company." If notice of redemption shall have been given and funds deposited as
required, then, immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Convertible Preferred Securities so called for redemption will cease, except the
right of the holders of such Convertible Preferred Securities to receive the
Redemption Price but without interest on such Redemption Price. In the event
that any date fixed for redemption of Convertible Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day that is a Business Day (without any interest or
other payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Convertible Preferred Securities is improperly withheld or refused
and not paid either by NorAm Financing, or by NorAm pursuant to the Guarantee,
distributions on such Convertible Preferred Securities will continue to accrue
at the then applicable rate from the original redemption date to the date of
payment, in which case the actual payment date will be considered the date fixed
for redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Convertible Preferred
Securities are to be redeemed, the Convertible Preferred Securities will be
redeemed pro rata as described below under "-- Book-Entry Only Issuance -- The
Depository Trust Company."
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Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), NorAm may at any time, and from time to
time, purchase outstanding Convertible Preferred Securities by tender, in the
open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary, dissolution, winding-up or
termination of NorAm Financing (each a "Liquidation"), the then holders of the
Convertible Preferred Securities will be entitled to receive out of the assets
of NorAm Financing, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $50 per Convertible Preferred Security plus accrued and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Convertible Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Convertible Preferred Securities have been distributed on a pro rata basis to
the holders of the Convertible Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because NorAm Financing has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by NorAm Financing on the Convertible Preferred Securities shall be paid on a
pro rata basis. The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Convertible Preferred Securities, except that if a Declaration Event of Default
has occurred and is continuing, the Convertible Preferred Securities shall have
a preference over the Common Securities with regard to such distributions.
Pursuant to the Declaration, NorAm Financing shall terminate (i) on June
, 2046, the expiration of the term of the Trust, (ii) upon the bankruptcy of
NorAm or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the holder of the
Common Securities or NorAm, the filing of a certificate of cancellation with
respect to NorAm Financing, or the revocation of the charter of the holder of
the Common Securities or NorAm and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon the distribution of
Convertible Debentures upon the occurrence of a Tax Event, (v) upon the entry of
a decree of a judicial dissolution of the holder of the Common Securities, NorAm
or NorAm Financing, or (vi) upon the redemption of all the Trust Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Subordinated Indenture (a "Subordinated
Indenture Event of Default") constitutes an event of default under the
Declaration with respect to the Trust Securities (a "Declaration Event of
Default"); provided, that pursuant to the Declaration, the holder of the Common
Securities will be deemed to have waived any Declaration Event of Default with
respect to the Common Securities until all Declaration Events of Default with
respect to the Convertible Preferred Securities have been cured, waived or
otherwise eliminated. Until such Declaration Events of Default with respect to
the Convertible Preferred Securities have been so cured, waived, or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Convertible Preferred Securities and only the holders of the
Convertible Preferred Securities will have the right to direct the Property
Trustee with respect to certain matters under the Declaration, and therefore the
Subordinated Indenture. If the Property Trustee fails to enforce its rights
under the Convertible Debentures any holder of Convertible Preferred Securities
may institute a legal proceeding against NorAm to enforce the Property Trustee's
rights under the Subordinated Debt Securities. Notwithstanding the foregoing, if
a Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of NorAm to pay interest or principal on the
Convertible Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), then a holder of
Convertible Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of or interest
on the Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of such holder on or
after the respective due date specified in the Convertible Debentures. In
connection with such Direct Action, NorAm will be subrogated to the rights of
such holder of
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Convertible Preferred Securities under the Declaration to the extent of any
payment made by NorAm to such holder of Convertible Preferred Securities in such
Direct Action. Consequently, NorAm will be entitled to payment of amounts that a
holder of Convertible Preferred Securities receives in respect of an unpaid
distribution that resulted in the bringing of a Direct Action to the extent such
holder receives or has already received full payment with respect to such unpaid
distribution from NorAm Financing. The holders of Convertible Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee
as the sole holder of the Convertible Debentures will have the right under the
Subordinated Indenture to declare the principal of and interest on the
Convertible Debentures to be immediately due and payable. NorAm and NorAm
Financing are each required to file annually with the Property Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Preferred Securities Guarantees -- Modification of
the Convertible Preferred Securities Guarantees; Assignment" in the accompanying
Prospectus, and as otherwise required by law and the Declaration, the holders of
the Convertible Preferred Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Convertible
Preferred Securities, have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee, or
direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration including the right to direct the Property Trustee, as
holder of the Convertible Debentures, to (i) exercise the remedies available
under the Subordinated Indenture with respect to the Convertible Debentures,
(ii) waive any past Subordinated Indenture Event of Default that is waivable
under Section 6.6 of the Subordinated Base Indenture (as defined herein), or
(iii) exercise any right to rescind or annul a declaration that the principal of
all the Convertible Debentures shall be due and payable; provided, however,
that, where a consent or action under the Subordinated Indenture would require
the consent or act of holders of more than a majority in principal amount of the
Convertible Debentures (a "Super-Majority") affected thereby, only the holders
of at least such Super-Majority of the Convertible Preferred Securities may
direct the Property Trustee to give such consent or take such action. If the
Property Trustee fails to enforce its rights under the Convertible Debentures, a
record holder of Convertible Preferred Securities may, after such holder's
written request to the Property Trustee to enforce such rights, institute a
legal proceeding directly against NorAm to enforce the Property Trustee's rights
under the Convertible Debentures without first instituting any legal proceeding
against the Property Trustee or any other person or entity. The Property Trustee
shall notify all holders of the Convertible Preferred Securities of any notice
of default received from the Debt Trustee with respect to the Convertible
Debentures. Such notice shall state that such Subordinated Indenture Event of
Default also constitutes a Declaration Event of Default. Except with respect to
directing the time, method and place of conducting a proceeding for a remedy,
the Property Trustee shall not take any of the actions described in clauses (i),
(ii) or (iii) above unless the Property Trustee has obtained an opinion of tax
counsel to the effect that, as a result of such action, NorAm Financing will not
fail to be classified as a grantor trust for United States federal income tax
purposes.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Subordinated Indenture with
respect to any amendment, modification or termination of the Subordinated
Indenture, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or termination
and shall vote with respect to such amendment, modification or termination as
directed by a majority in liquidation amount of the Trust Securities voting
together as a single class; provided, however, that where a consent under the
Indenture would require the consent of a Super-Majority, the Property Trustee
may only give such consent at the direction of the holders of at least the
proportion in liquidation amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Convertible
Debentures outstanding. The Property Trustee
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shall be under no obligation to take any such action in accordance with the
directions of the holders of the Trust Securities unless the Property Trustee
has obtained an opinion of tax counsel to the effect that, for the purposes of
United States federal income tax, NorAm Financing will not be classified as
other than a grantor trust.
A waiver of a Subordinated Indenture Event of Default will constitute a
waiver of the corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all of the
holders of Trust Securities or pursuant to written consent. The Regular Trustees
will cause a notice of any meeting at which holders of Convertible Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record of
Convertible Preferred Securities. Each such notice will include a statement
setting forth the following information: (i) the date of such meeting or the
date by which such action is to be taken; (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to vote
or of such matter upon which written consent is sought; and (iii) instructions
for the delivery of proxies or consents. No vote or consent of the holders of
Convertible Preferred Securities will be required for NorAm Financing to redeem
and cancel Convertible Preferred Securities or distribute Convertible Debentures
in accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Convertible Preferred Securities that are owned at such time by NorAm or
any entity directly or indirectly controlling or controlled by, or under direct
or indirect common control with, NorAm, shall not be entitled to vote or consent
and shall, for purposes of such vote or consent, be treated as if such
Convertible Preferred Securities were not outstanding.
The procedures by which holders of Convertible Preferred Securities may
exercise their voting rights are described below. See "-- Book-Entry Only
Issuance -- The Depository Trust Company" below.
Holders of the Convertible Preferred Securities will have no rights to
appoint or remove the NorAm Trustees, who may be appointed, removed or replaced
solely by NorAm as the indirect or direct holder of all of the Common
Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Property Trustee), provided that, if
any proposed amendment provides for, or the Regular Trustees otherwise propose
to effect, (i) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of amendment to the
Declaration or otherwise or (ii) the dissolution, winding-up or termination of
NorAm Financing other than pursuant to the terms of the Declaration, then the
holders of the Trust Securities voting together as a single class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of at least a majority in
liquidation amount of the Trust Securities affected thereby; provided, that, if
any amendment or proposal referred to in clause (i) above would adversely affect
only the Convertible Preferred Securities or the Common Securities, then only
the affected class will be entitled to vote on such amendment or proposal and
such amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause NorAm
Financing to be classified for purposes of United States federal income taxation
as other than a grantor trust, (ii) reduce or otherwise adversely affect the
powers of the Property Trustee or (iii) cause NorAm Financing to be deemed an
"investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
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MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
NorAm Financing may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. NorAm Financing may, with the consent of the Regular Trustees
and without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided, that (i) such successor entity either (x)
expressly assumes all of the obligations of NorAm Financing under the Trust
Securities or (y) substitutes for the Convertible Preferred Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) NorAm expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Convertible Debentures, (iii) the
Convertible Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the
Convertible Preferred Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Convertible
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (vi) such successor entity
has a purpose identical to that of NorAm Financing, (vii) prior to such merger,
consolidation, amalgamation or replacement, NorAm has received an opinion of a
nationally recognized independent counsel to NorAm Financing experienced in such
matters to the effect that, (A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), and (B) following such merger, consolidation,
amalgamation or replacement, neither NorAm Financing nor such successor entity
will be required to register as an investment company under the 1940 Act and
(viii) NorAm guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee and the
Common Securities Guarantee. Notwithstanding the foregoing, NorAm Financing
shall not, except with the consent of holders of 100% in liquidation amount of
the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause NorAm Financing or the Successor
Entity to be classified as other than a grantor trust for United States federal
income tax purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Convertible Preferred Securities. The Convertible Preferred Securities will
be issued only as fully-registered securities registered in the name of Cede &
Co. (DTC's nominee). One or more fully-registered global Convertible Preferred
Securities certificates, representing the total aggregate number of Convertible
Preferred Securities, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global
Convertible Preferred Securities as represented by a global certificate.
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 Securities Exchange
Act of 1934, as amended (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,
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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 ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, 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 transactions through or maintain a direct or indirect
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 Convertible Preferred Securities within the DTC system must be
made by or through Direct Participants, which will receive a credit for the
Convertible Preferred Securities on DTC's records. The ownership interest of
each actual purchaser of each Convertible Preferred Security ("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 purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Convertible Preferred Securities.
Transfers of ownership interests in the Convertible Preferred Securities are to
be accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Convertible Preferred Securities, except in the
event that use of the book-entry system for the Convertible Preferred Securities
is discontinued.
To facilitate subsequent transfers, all the Convertible Preferred
Securities deposited by Participants with DTC are registered in the name of
DTC's nominee, Cede & Co. The deposit of Convertible Preferred Securities with
DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Convertible Preferred Securities. DTC's records reflect only the identity of
the Direct Participants to whose accounts such Convertible Preferred Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Convertible Preferred Securities are being redeemed, DTC will reduce the amount
of the interest of each Direct Participant in such Convertible Preferred
Securities in accordance with its procedures.
Although voting with respect to the Convertible Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to Convertible Preferred Securities.
Under its usual procedures, DTC would mail an Omnibus Proxy to NorAm Financing
as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.
consenting or voting rights to those Direct Participants to whose accounts the
Convertible Preferred Securities are credited on the record date (identified in
a listing attached to the Omnibus Proxy). NorAm and NorAm Financing believe that
the arrangements among DTC, Direct and Indirect Participants, and Beneficial
Owners will enable the Beneficial Owners to exercise rights equivalent in
substance to the rights that can be directly exercised by a holder of a
beneficial interest in NorAm Financing.
Distribution payments on the Convertible Preferred Securities will be made
to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name," and such payments will be the responsibility of such Participant
and not of DTC, NorAm Financing or NorAm, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to time. Payment of
distributions to DTC is the responsibility of NorAm Financing, disbursement of
such
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payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Convertible
Preferred Security certificate will not be entitled to receive physical delivery
of Convertible Preferred Securities. Accordingly, each Beneficial Owner must
rely on the procedures of DTC to exercise any rights under the Convertible
Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Convertible Preferred Securities at any time by giving reasonable
notice to NorAm Financing. Under such circumstances, in the event that a
successor securities depositary is not obtained, Convertible Preferred
Securities certificates are required to be printed and delivered. Additionally,
the Regular Trustees (with the consent of NorAm) may decide to discontinue use
of the system of book-entry transfers through DTC (or any successor depositary)
with respect to the Convertible Preferred Securities. In that event,
certificates for the Convertible Preferred Securities will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that NorAm and NorAm Financing believe to be
reliable, but neither NorAm nor NorAm Financing takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care and skill as a prudent person would exercise under the circumstances in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Convertible Preferred Securities,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The holders of Convertible
Preferred Securities will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Property Trustee to
take any action following a Declaration Event of Default.
CONVERSION AGENT AND PAYING AGENT
The Property Trustee shall act as Conversion Agent. In addition, in the
event that the Convertible Preferred Securities do not remain in book-entry only
form, the following provisions would apply:
The Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Convertible Preferred Securities will be
effected without charge by or on behalf of NorAm Financing, but upon payment
(with the giving of such indemnity as NorAm Financing or NorAm may require) in
respect of any tax or other government charges that may be imposed in relation
to it.
NorAm Financing will not be required to register or cause to be registered
the transfer of Convertible Preferred Securities after such Convertible
Preferred Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities will be governed
by, and construed in accordance with, the internal laws of the State of
Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate NorAm Financing
in such a way so that NorAm Financing will not be required to register as an
"investment company" under the 1940 Act or characterized as other than a grantor
trust for United States federal income tax purposes and to cooperate with NorAm
to ensure that the Convertible Debentures will be treated as indebtedness of
NorAm for United States federal income tax purposes. In this connection, NorAm
Financing and the Regular Trustees are authorized to
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take any action, not inconsistent with applicable law, the certificate of trust
of NorAm Financing, that the Regular Trustees determine in their discretion to
be necessary or desirable to achieve such end, as long as such action does not
adversely affect the interests of the holders of the Convertible Preferred
Securities.
Holders of the Convertible Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Pursuant to the Guarantee, NorAm will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full, to the holders of the
Convertible Preferred Securities issued by NorAm Financing, the Guarantee
Payments (as defined in the accompanying Prospectus) (except to the extent paid
by NorAm Financing), as and when due, regardless of any defense, right of
set-off or counterclaim which NorAm Financing may have or assert. If the Company
does not make interest payments on the Convertible Debentures purchased by NorAm
Financing, NorAm Financing will not pay distributions on the Convertible
Preferred Securities and will not have funds available therefor. NorAm's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by NorAm to the holders of Convertible Preferred Securities or
by causing NorAm Financing to pay such amounts to such holders. The Guarantee
will be qualified as an indenture under the Trust Indenture Act. The Bank of New
York will act as indenture trustee under the Guarantee (the "Guarantee
Trustee"). The terms of the Guarantee will be those set forth in such Guarantee
and those made part of such Guarantee by the Trust Indenture Act. The Guarantee
will be held by the Guarantee Trustee for the benefit of the holders of the
Convertible Preferred Securities. A summary description of the Guarantee appears
in the accompanying Prospectus under the caption "Description of the Convertible
Preferred Securities Guarantees."
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which NorAm Financing will invest the proceeds from the issuance
and sale of the Trust Securities. This description supplements the description
of the general terms and provisions of the Convertible Debentures set forth in
the accompanying Prospectus under the caption "Description of the Subordinated
Debt Securities." The following description does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the description
in the accompanying Prospectus and the Subordinated Indenture, to be dated as of
June , 1996, (the "Subordinated Base Indenture") between NorAm and The Bank of
New York, as Trustee (the "Debt Trustee"), as supplemented by a First
Supplemental Subordinated Indenture, to be dated as of June , 1996 (the
Subordinated Base Indenture, as so supplemented, is hereinafter referred to as
the "Subordinated Indenture"), the forms of which are filed as Exhibits to the
Registration Statement of which this Prospectus Supplement and the accompanying
Prospectus form a part. Certain capitalized terms used herein are defined in the
Subordinated Indenture.
Under certain circumstances involving the dissolution of NorAm Financing
following the occurrence of a Tax Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of NorAm
Financing. See "Description of the Convertible Preferred Securities -- Tax Event
Redemption or Distribution."
If the Convertible Debentures are distributed to the holders of the
Convertible Preferred Securities, NorAm will use its best efforts to have the
Convertible Debentures listed on the NYSE or on such other national securities
exchange or similar organization on which the Convertible Preferred Securities
are then listed or quoted.
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Subordinated Indenture. The Convertible Debentures will be limited in aggregate
principal amount to approximately $ ($ if the Underwriters'
over-allotment option is exercised in full), such amount being the sum of the
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aggregate stated liquidation of the Convertible Preferred Securities and the
capital contributed by NorAm in exchange for the Common Securities (the "NorAm
Payment").
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon including
Compound Interest (as defined herein) and Additional Interest (as defined
herein), if any, on June , 2026 (unless the maturity date is extended at the
election of NorAm to a date not later than June , 2045 upon satisfaction by
NorAm of the requirements and conditions described under "Option to Extend
Maturity Date" below).
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in NorAm
Financing, such Convertible Debentures will initially be issued as a Global
Security (as defined herein). As described herein, under certain limited
circumstances, Convertible Debentures may be issued in certificated form in
exchange for a Global Security. See "Book-Entry and Settlement" below. In the
event that Convertible Debentures are issued in certificated form, such
Convertible Debentures will be in denominations of $50 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Convertible Debentures issued as a Global Security will be made to
DTC, a successor depositary or, in the event that no depositary is used, to a
Paying Agent for the Convertible Debentures. In the event Convertible Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Convertible Debentures will be registrable and Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Property Trustee in New York, New York; provided, that at the option of
NorAm payment of interest may be made at the option of NorAm by check mailed to
the address of the persons entitled thereto or by wire transfer to an account
appropriately designated by the holder entitled thereto. Notwithstanding the
foregoing, so long as the holder of any Convertible Debentures is the Property
Trustee, the payment of principal and interest on the Convertible Debentures
held by the Property Trustee will be made at such place and to such account as
may be designated by the Property Trustee.
NorAm does not intend to issue and sell the Convertible Debentures to any
purchasers other than the Trust.
The Subordinated Indenture does not contain provisions that afford the
Convertible Debentures protection in the event of a highly leveraged transaction
involving NorAm.
SUBORDINATION
The Subordinated Indenture provides that the Convertible Debentures are
subordinated and junior in right of payment to all Senior Indebtedness of NorAm.
No payment of principal (including redemption and sinking fund payments),
premium, if any, or interest on the Convertible Debentures may be made (i) if
any Senior Indebtedness of NorAm is not paid when due, (ii) any applicable grace
period with respect to such default has ended and such default has not been
cured or waived or ceased to exist, or (iii) if the maturity of any Senior
Indebtedness of NorAm has been accelerated because of a default. Upon any
distribution of assets of NorAm to creditors upon any dissolution, winding-up,
liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness of
NorAm must be paid in full before the holders of Convertible Debentures are
entitled to receive or retain any payment. Upon satisfaction of all claims of
all Senior Indebtedness then outstanding, the rights of the holders of the
Convertible Debentures will be subrogated to the rights of the holders of
Indebtedness of NorAm to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Convertible Debentures are paid in
full.
The term "Senior Indebtedness" means, with respect to NorAm, (i) the
principal, premium, if any, and interest in respect of (1) indebtedness of such
obligor, for money borrowed and (2) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor,
including, without limitation, in the case of NorAm, all obligations under the
indenture, dated as of March 7, 1987, between NorAm and The Chase Manhattan Bank
(National Association), as trustee, (ii) all capital lease obligations of such
obligor, (iii) all obligations of such obligor issued or assumed as the deferred
purchase price of property, all
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conditional sale obligations of such obligor and all obligations of such obligor
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business), (iv) all obligations of such
obligor for the reimbursement on any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction, (v) all obligations of
the type referred to in clauses (i) through (iv) above of other persons for the
payment of which such obligor is responsible or liable as obligor, guarantor or
otherwise and (vi) all obligations of the type referred to in clauses (i)
through (v) above of other persons secured by any lien on any property or asset
of such obligor (whether or not such obligation is assumed by such obligor),
except for (1) any such indebtedness that is by its terms subordinated to or
pari passu with the Convertible Debentures and (2) any indebtedness between or
among such obligor or its affiliates, including all other debt securities and
guarantees in respect of those debt securities, issued to (a) any other NorAm
Trust or a trustee of such trust and (b) any other trust, or a trustee of such
trust, partnership or other entity affiliated with NorAm that is a financing
vehicle of NorAm (a "financing entity") in connection with the issuance by such
financing entity of Convertible Preferred Securities or other securities similar
to the Convertible Preferred Securities. Such Senior Indebtedness shall continue
to be Senior Indebtedness and be entitled to the benefits of the subordination
provisions irrespective of any amendment, modification or waiver of any term of
such Senior Indebtedness.
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by NorAm. As of March 31, 1996, Senior
Indebtedness of NorAm aggregated approximately $1,547.2 million.
OPTIONAL REDEMPTION
NorAm shall have the right to redeem the Convertible Debentures, in whole
or in part, from time to time, (i) on or after June , 2000, if and only if for
20 trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the Current Market Price of NorAm Common Stock
equals or exceeds 125% of the then applicable conversion price of the
Convertible Debentures, or (ii) at any time in certain circumstances upon the
occurrence of a Tax Event as described under "Description of the Convertible
Preferred Securities-Tax Event Redemption or Distribution," upon not less than
30 nor more than 60 days notice, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest, including
Additional Interest, if any, to the redemption date. If a partial redemption of
the Convertible Preferred Securities resulting from a partial redemption of the
Convertible Debentures would result in the delisting of the Convertible
Preferred Securities, NorAm may only redeem the Convertible Debentures in whole.
INTEREST
Each Convertible Debenture shall bear interest at the rate of % per
annum from the original date of issuance, payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year (each an "Interest
Payment Date"), commencing September 30, 1996, to the person in whose name such
Convertible Debenture is registered, subject to certain exceptions, at the close
of business on the Business Day next preceding such Interest Payment Date. In
the event the Convertible Debentures shall not continue to remain in book-entry
only form, NorAm shall have the right to select record dates, which shall be at
least one Business Day prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed in such a
30-day month. In the event that any date on which interest is payable on the
Convertible Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
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PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes (the
"Proposed Legislation") that would, among other things, treat as equity for
United States federal income tax purposes certain debt obligations, such as the
Convertible Debentures, issued on or after December 7, 1995. If the Proposed
Legislation were to apply to the Convertible Debentures, the Company would not
be allowed to deduct interest payable on the Convertible Debentures and holders
of the Convertible Preferred Securities would generally be treated as receiving
dividend distributions, rather than interest payments from the Company. On March
29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways
and Means Committee Chairman Bill Archer issued a joint statement (the "Joint
Statement") indicating their intent that the Proposed Legislation, if adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action." Based
upon the Joint Statement, it is expected that if the Proposed Legislation were
to be enacted, such legislation would not apply to the Convertible Debentures.
There can be no assurances, however, that the effective date guidance contained
in the Joint Statement will be incorporated into the Proposed Legislation, if
enacted, or that other legislation enacted after the date hereof will not
otherwise adversely affect the tax treatment of the Convertible Debentures,
including the ability of NorAm to deduct the interest payable on the Convertible
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. See "Description of the Convertible Preferred Securities -- Tax Event
Redemption or Distribution."
OPTION TO EXTEND MATURITY DATE
The maturity date of the Convertible Debentures is June , 2026 (the
"Scheduled Maturity Date"). NorAm, however, may, within 180 days prior to the
Scheduled Maturity Date, elect to extend such maturity date no more than one
time, for up to an additional 19 years from the Scheduled Maturity Date,
provided that (a) NorAm is not in bankruptcy or otherwise insolvent, (b) NorAm
is not in default on the Convertible Debentures, (c) NorAm has made timely
payments on the Convertible Debentures for the immediately preceding six
quarters without deferrals, (d) the Trust is not in arrears on payments of
distributions on the Convertible Preferred Securities, and (e) the Convertible
Debentures are rated in one of the four highest rating categories by either
Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investor
Services, Inc., Duff & Phelps Credit Rating Company or any other nationally
recognized statistical rating organization. Pursuant to the Declaration, the
Regular Trustees are required to give at least 60 days notice of NorAm's
election to extend the Scheduled Maturity Date to the holders of the Convertible
Preferred Securities.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
NorAm shall have the right at any time, and from time to time, during the
term of the Convertible Debentures to defer payments of interest by extending
the interest payment period for a period not exceeding 20 consecutive quarters,
at the end of which Extension Period, NorAm shall pay all interest then accrued
and unpaid (including any Additional Interest, as herein defined) together with
interest thereon compounded quarterly at the rate specified for the Convertible
Debentures to the extent permitted by applicable law ("Compound Interest");
provided, that during any such Extension Period, (a) NorAm shall not declare or
pay dividends on, make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to any of its capital stock
(other than (i) purchases or acquisitions of shares of NorAm Common Stock in
connection with the satisfaction by NorAm of its obligations under any employee
benefit plans or the satisfaction by NorAm of its obligations pursuant to any
contract or security requiring NorAm to purchase shares of NorAm capital stock,
(ii) as a result of a reclassification of NorAm capital stock or the exchange or
conversion of one class or series of NorAm's capital stock for another class or
series of NorAm capital stock, (iii) the payment of dividends or distributions
in shares of its capital stock of the same class on which such dividends or
distributions are being paid, or (iv) the purchase of fractional interests in
shares of NorAm's capital stock pursuant to the conversion or exchange
provisions of such NorAm capital stock or the security being converted or
exchanged) or make any guarantee payments with respect to the foregoing) and (b)
NorAm shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or
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redeem any debt securities issued by NorAm that rank pari passu with or junior
to the Convertible Debentures. Prior to the termination of any such Extension
Period, NorAm may further defer payments of interest by extending the interest
payment period; provided, however, that, such Extension Period, including all
such previous and further extensions, may not exceed 20 consecutive quarters or
beyond the maturity of the Convertible Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, NorAm may commence a
new Extension Period, subject to the terms set forth in this section. No
interest during an Extension Period, except at the end thereof, shall be due and
payable. NorAm has no present intention of exercising its right to defer
payments of interest by extending the interest payment period on the Convertible
Debentures. If the Property Trustee shall be the sole holder of the Convertible
Debentures, NorAm shall give the Regular Trustees and the Property Trustee
notice of its selection of such Extension Period one Business Day prior to the
earlier of (i) the date distributions on the Convertible Preferred Securities
are payable or (ii) the date the Regular Trustees are required to give notice to
the New York Stock Exchange (or other applicable self-regulatory organization)
or to holders of the Convertible Preferred Securities of the record date or the
date such distribution is payable. The Regular Trustees shall give notice of
NorAm's selection of such Extension Period to the holders of the Convertible
Preferred Securities. If the Property Trustee shall not be the sole holder of
the Convertible Debentures, NorAm shall give the holders of the Convertible
Debentures notice of its selection of such Extension Period ten Business Days
prior to the earlier of (i) the Interest Payment Date or (ii) the date upon
which NorAm is required to give notice to the New York Stock Exchange (or other
applicable self-regulatory organization) or to holders of the Convertible
Debentures of the record or payment date of such related interest payment.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into NorAm Common Stock at the
option of the holders of the Convertible Debentures at any time at the initial
conversion price set forth on the cover page of this Prospectus subject to the
conversion price adjustments described under "Description of the Convertible
Preferred Securities -- Conversion Rights". The Trust has agreed not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Convertible Preferred
Securities. Upon surrender of each Convertible Preferred Security to the
Conversion Agent for conversion, the Trust will distribute $50 principal amount
of the Convertible Debentures to the Conversion Agent on behalf of the holder of
the Convertible Preferred Securities so converted, whereupon the Conversion
Agent will convert such Convertible Debentures to NorAm Common Stock on behalf
of such holder. NorAm's delivery to the holders of the Convertible Debentures
(through the Conversion Agent) of the fixed number of shares of NorAm Common
Stock into which the Convertible Debentures are convertible (together with the
cash payment, if any, in lieu of fractional shares) will be deemed to satisfy
NorAm's obligation to pay the principal amount of the Convertible Debentures so
converted, and the accrued and unpaid interest thereon attributable to the
period from the last date to which interest has been paid or duly provided for;
provided, however, that if any Convertible Debenture is converted after a record
date for payment of interest, the interest payable on the related interest
payment date with respect to such Convertible Debenture shall be paid to the
Trust (which will distribute such interest to the converting holder) or other
holder of Convertible Debentures, as the case may be, despite such conversion.
ADDITIONAL INTEREST
If at any time NorAm Financing shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, NorAm will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by NorAm Financing after paying any such taxes, duties, assessments or
other governmental charges will be not less than the amounts NorAm Financing
would have received had no such taxes, duties, assessments or other governmental
charges been imposed.
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INDENTURE EVENTS OF DEFAULT
If any Subordinated Indenture Event of Default shall occur and be
continuing, the Property Trustee, as the holder of the Convertible Debentures,
will have the right to declare the principal of and the interest on the
Convertible Debentures (including any Compound Interest and Additional Interest,
if any) and any other amounts payable under the Subordinated Indenture to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to the Convertible Debentures. See "Description of the Subordinated Debt
Securities -- Events of Default" in the accompanying Prospectus for a
description of the Events of Default. A Subordinated Indenture Event of Default
also constitutes a Declaration Event of Default. The holders of Convertible
Preferred Securities in certain circumstances have the right to direct the
Property Trustee to exercise its rights as the holder of the Convertible
Debentures. See "Description of the Convertible Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of NorAm to pay
interest or principal on the Convertible Debentures on the date such interest or
principal is otherwise payable, NorAm acknowledges that then a holder of
Convertible Preferred Securities may institute a Direct Action for payment on or
after the respective due date specified in the Convertible Debentures. NorAm may
not amend the First Supplemental Subordinated Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of all the
holders of the Convertible Preferred Securities of NorAm Financing.
Notwithstanding any payment made to such holder of Convertible Preferred
Securities in connection with a Direct Action, NorAm shall remain obligated to
pay the principal of or interest on the Convertible Debentures held by NorAm
Financing or the Property Trustee of NorAm Financing, and NorAm will be
subrogated to the rights of such holder of Convertible Preferred Securities with
respect to payments on the Convertible Preferred Securities to the extent of any
payments made by NorAm to such holder in any such Direct Action. The holders of
Convertible Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Convertible Preferred Securities in connection
with the involuntary or voluntary dissolution, winding-up or liquidation of
NorAm Financing as a result of the occurrence of a Tax Event, the Convertible
Debentures will be issued in the form of one or more global certificates (each a
"Global Security") registered in the name of the depositary or its nominee.
Except under the limited circumstances described below, Convertible Debentures
represented by the Global Security will not be exchangeable for, and will not
otherwise be issuable as, Convertible Debentures in definitive form. The Global
Securities described above may not be transferred except by the depositary 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 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 such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders (as defined
in the Subordinated Indenture) thereof for any purpose under the Subordinated
Indenture, and no Global Security representing Convertible Debentures shall be
exchangeable, 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 or 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 Subordinated Indenture.
THE DEPOSITARY
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in NorAm
Financing, DTC will act as securities depositary for the Convertible
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Debentures. For a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Convertible Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company." As of
the date of this Prospectus Supplement, the description therein of DTC's
book-entry system and DTC's practices as they relate to purchases, transfers,
notices and payments with respect to the Convertible Preferred Securities apply
in all material respects to any debt obligations represented by one or more
Global Securities held by NorAm. NorAm may appoint a successor to DTC or any
successor depositary in the event DTC or such successor depositary is unable or
unwilling to continue as a depository for the Global Securities.
None of NorAm, NorAm Financing, the Property Trustee, any paying agent and
any other agent of NorAm or the Debt 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 a Global Security for such Convertible
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the depositary notifies NorAm that it is unwilling or unable to continue
as a depositary for such Global Security and no successor depositary shall have
been appointed, (ii) the depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to be
so registered to act as such depositary and no successor Depositary shall have
been appointed, (iii) NorAm, in its sole discretion, determines that such Global
Security shall be so exchangeable or (iv) there shall have occurred an Event of
Default with respect to such Convertible Debentures. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Convertible Debentures registered in such names as the Depositary shall direct.
It is expected that such instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
GOVERNING LAW
The Subordinated Indenture and the Convertible Debentures will be governed
by, and construed in accordance with, the internal laws of the State of New
York.
MISCELLANEOUS
The Subordinated Indenture will provide that NorAm will pay all fees and
expenses related to (i) the offering of the Trust Securities and the Convertible
Debentures, (ii) the organization, maintenance and dissolution of NorAm
Financing, (iii) the retention of the NorAm Trustees and (iv) the enforcement by
the Property Trustee of the rights of the holders of the Convertible Preferred
Securities. The payment of such fees and expenses will be fully and
unconditionally guaranteed by NorAm.
NorAm will have the right at all times to assign any of its respective
rights or obligations under the Indenture to a direct or indirect wholly-owned
subsidiary of NorAm; provided that, in the event of any such assignment, NorAm
will remain liable for all of their respective obligations. Subject to the
foregoing, the Subordinated Indenture will be binding upon and inure to the
benefit of the parties thereto and their respective successors and assigns. The
Subordinated Indenture provides that it may not otherwise be assigned by the
parties thereto.
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EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of NorAm Financing is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of NorAm Financing, and to invest the proceeds from such issuance and
sale in the Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures will match the distribution rate and distribution and other payment
dates for the Convertible Preferred Securities; (iii) pursuant to the
Subordinated Base Indenture and the First Supplemental Subordinated Indenture,
NorAm shall pay all, and NorAm Financing shall not be obligated to pay, directly
or indirectly, all costs, expenses, debt and obligations of NorAm Financing
(other than with respect to the Trust Securities); and (iv) the Declaration
further provides that the NorAm Trustees shall not take or cause or permit NorAm
Financing to, among other things, engage in any activity that is not consistent
with the purposes of NorAm Financing.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Convertible Preferred Securities (to the extent funds
therefor are available) are guaranteed by NorAm as and to the extent set forth
under "Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If NorAm does not make interest payments on the Convertible
Debentures purchased by NorAm Financing, it is expected that NorAm Financing
will not have sufficient funds to pay distributions on the Convertible Preferred
Securities. The Guarantee is a full guarantee on a subordinated basis with
respect to the Convertible Preferred Securities issued by the Trust from the
time of its issuance but does not apply to any payment of distributions unless
and until NorAm Financing has sufficient funds for the payment of such
distributions. The Guarantee covers the payment of distributions and other
payments on the Convertible Preferred Securities only if and to the extent that
NorAm has made a payment of interest or principal on the Convertible Debentures
held by NorAm Financing as its sole asset. The Guarantee, when taken together
with NorAm's obligations under the Convertible Debentures, the Subordinated
Indenture and the Declaration, including its obligations to pay costs, expenses,
debts and liabilities of NorAm Financing (other than with respect to the Trust
Securities), provide a full and unconditional guarantee of amounts due on the
Convertible Preferred Securities.
If NorAm fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Convertible Preferred
Securities, using the procedures described in "Description of the Convertible
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company" and "-- Voting Rights," may direct the Property Trustee to enforce its
rights under the Convertible Debentures. If the Property Trustee fails to
enforce its rights under the Convertible Debentures, a holder of Convertible
Preferred Securities may institute a legal proceeding against NorAm to enforce
the Property Trustee's rights under the Convertible Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of NorAm to pay interest or principal on the Convertible Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption on the redemption date), then a holder of Convertible Preferred
Securities may institute a Direct Action for payment on or after the respective
due date specified in the Convertible Debentures. In connection with such Direct
Action, NorAm will be subrogated to the rights of such holder of Convertible
Preferred Securities under the Declaration to the extent of any payment made by
NorAm to such holder of Convertible Preferred Securities in such Direct Action.
Consequently, NorAm will be entitled to payments of amounts that a holder of
Preferred Securities receives in respect of an unpaid distribution that resulted
in the bringing of a Direct Action to the extent such holder receives or has
already received full payment with respect to such unpaid distribution from
NorAm Financing. NorAm, under the Guarantee, acknowledges that the Guarantee
Trustee shall enforce the Guarantee on behalf of the holders of the Convertible
Preferred Securities. If NorAm fails to
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make payments under the Guarantee, the Guarantee provides a mechanism whereby
the holders of the Convertible Preferred Securities may direct the Guarantee
Trustee to enforce its rights thereunder. If the Guarantee Trustee fails to
enforce its rights under the Guarantee, a holder of Convertible Preferred
Securities may institute a legal proceeding directly against NorAm to enforce
the Guarantee Trustee's rights under the Guarantee without first instituting any
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. A holder of Convertible Preferred Securities may also institute a legal
proceeding directly against NorAm to enforce such holder's right to receive
payment under the Guarantee without first (i) directing the Guarantee Trustee to
enforce the terms of the Guarantee or (ii) instituting a legal proceeding
against the Trust or any other person or entity.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
In the opinion of Skadden, Arps, Slate, Meagher & Flom, special tax counsel
to NorAm and NorAm Financing, the following is a summary of the material United
States federal income tax consequences of the purchase, ownership and
disposition of Convertible Preferred Securities. Unless otherwise stated, this
summary deals only with Convertible Preferred Securities held as capital assets
by holders who purchase the Convertible Preferred Securities upon original
issuance ("Initial Holders"). This summary addresses the United States federal
income tax considerations to holders of Convertible Preferred Securities who are
citizens or residents of the United States, corporations, partnerships, or other
entities created or organized in or under the laws of the United States or any
political subdivision thereof or therein, estates or trusts the income of which
is subject to United States federal income taxation regardless of its source or
other holders who are otherwise subject to United States federal income taxation
on a net income basis with respect to the Convertible Preferred Securities
("U.S. Holders") and does not address the tax consequences to holders of
Convertible Preferred Securities who are not U.S. Holders. The tax treatment of
a holder may vary depending on its particular situation. This summary does not
address all the tax consequences that may be relevant to holders who may be
subject to special tax treatment such as, for example, banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that will
hold the Convertible Preferred Securities as a position in a "straddle," as part
of a "synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. This summary also
does not address the tax consequences to persons that have a functional currency
other than the U.S. Dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Convertible Preferred Securities. Further, it does
not include any description of any alternative minimum tax consequences or the
tax laws of any state or local government or of any foreign government that may
be applicable to the Convertible Preferred Securities. This summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company intends to take the position that the Convertible Debentures
will be classified for United States federal income tax purposes as indebtedness
of NorAm under current law, and, by acceptance of a Convertible Preferred
Security, each holder covenants to treat the Convertible Debentures as
indebtedness and the Convertible Preferred Securities as evidence of an indirect
beneficial ownership interest in the Convertible Debentures. No assurance can be
given, however, that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Convertible
Debentures will be classified for United States federal income tax purposes as
indebtedness of NorAm.
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CLASSIFICATION OF NORAM FINANCING
NorAm Financing will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Convertible Preferred Securities generally will be considered the owner of an
undivided interest in the Convertible Debentures, and, pursuant to the agreement
to treat the Convertible Debentures as indebtedness, each holder will be
required to include in its gross income any OID accrued with respect to its
allocable share of those Convertible Debentures.
ORIGINAL ISSUE DISCOUNT
Because NorAm has the option, under the terms of the Convertible
Debentures, to defer payments of interest by extending interest payment periods
for up to 20 quarters, all of the stated interest payments on the Convertible
Debentures will be treated as "original issue discount." Holders of debt
instruments issued with OID must include that discount in income on an economic
accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a holder's
taxable interest income with respect to the Convertible Debentures will be
accounted for as OID, and actual distributions of stated interest will not be
separately reported as taxable income. The amount of OID that accrues in any
month will approximately equal the amount of the interest that accrues on the
Convertible Debentures in that month at the stated interest rate. In the event
that the interest payment period is extended, holders will continue to accrue
OID approximately equal to the amount of the interest payment due at the end of
the extended interest payment period on an economic accrual basis over the
length of the extended interest period.
Because income on the Convertible Preferred Securities will constitute OID,
corporate holders of Convertible Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Convertible Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Convertible Preferred Securities other than Initial Holders may
be considered to have acquired their undivided interests in the Convertible
Debentures with market discount or acquisition premium as such phrases are
defined for United States federal income tax purposes. Such holders are advised
to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Convertible Preferred Securities.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF NORAM FINANCING
Under certain circumstances, as described under the caption "Description of
the Convertible Preferred Securities -- Tax Event Redemption or Distribution,"
Convertible Debentures may be distributed to holders in exchange for the
Convertible Preferred Securities and in liquidation of NorAm Financing. Under
current law, such a distribution, for United States federal income tax purposes,
would be treated as a non-taxable event to each holder, and each holder would
receive an aggregate tax basis in the Convertible Debentures equal to such
holder's aggregate tax basis in its Convertible Preferred Securities. A holder's
holding period in the Convertible Debentures so received in liquidation of NorAm
Financing would include the period during which the Convertible Preferred
Securities were held by such holder. If, however, the related special event is a
Tax Event which results in the Trust being treated as an association taxable as
a corporation, the distribution would likely constitute a taxable event to
holders of the Convertible Preferred Securities.
Under certain circumstances described herein (see "Description of the
Convertible Preferred Securities"), the Convertible Debentures may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Convertible Preferred Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Convertible Preferred Securities, and a
holder would recognize gain or loss as if it sold such redeemed Convertible
Preferred Securities for cash. See "United States Federal Income
Taxation -- Sales of Convertible Preferred Securities."
S-49
<PAGE> 50
SALES OF CONVERTIBLE PREFERRED SECURITIES
A holder that sells Convertible Preferred Securities will recognize gain or
loss equal to the difference between its adjusted tax basis in the Convertible
Preferred Securities and the amount realized on the sale of such Convertible
Preferred Securities. A holder's adjusted tax basis in the Convertible Preferred
Securities generally will be its initial purchase price increased by OID
previously includible in such holder's gross income to the date of disposition
and decreased by payments received on the Convertible Preferred Securities. Such
gain or loss generally will be a capital gain or loss and generally will be a
long-term capital gain or loss if the Convertible Preferred Securities have been
held for more than one year.
The Convertible Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. A holder who disposes of or converts his
Convertible Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest on
the Convertible Debentures through the date of disposition in income as ordinary
income, and to add such amount to his adjusted tax basis in his pro rata share
of the underlying Convertible Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest) a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES
A holder of Convertible Preferred Securities will not recognize income,
gain, or loss upon the exchange, through the Conversion Agent, of Convertible
Preferred Securities for a proportionate share of Convertible Debentures held by
NorAm Financing. A holder of Convertible Preferred Securities will not recognize
income, gain or loss upon the conversion, through the Conversion Agent, of
Convertible Debentures into NorAm Common Stock. A holder of Convertible
Preferred Securities will, however, recognize gain upon the receipt of cash in
lieu of a fractional share of NorAm Common Stock equal to the amount of cash
received less such holder's tax basis in such fractional share. Such a holder's
tax basis in the NorAm Common Stock received upon conversion should generally be
equal to such holder's tax basis in the Convertible Preferred Securities
delivered to the Conversion Agent for exchange less the basis allocated to any
fractional share for which cash is received, and such holder's holding period in
the NorAm Common Stock received upon conversion should generally begin on the
date such holder acquired the Convertible Preferred Securities delivered to the
Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would treat
holders of Convertible Preferred Securities as having received a constructive
distribution from NorAm in the event the conversion ratio of the Convertible
Debentures were adjusted if (i) as a result of such adjustment, the
proportionate interest (measured by the quantum of NorAm Common Stock into or
for which the Convertible Debentures are convertible or exchangeable) of the
holders of the Convertible Preferred Securities in the assets or earnings and
profits of NorAm were increased, and (ii) the adjustment was not made pursuant
to a bona fide, reasonable anti-dilution formula. An adjustment in the
conversion ratio would not be considered made pursuant to such a formula if the
adjustment was made to compensate for certain taxable distributions with respect
to the NorAm Common Stock. Thus, under certain circumstances, a reduction in the
conversion price for the holders may result in deemed dividend income to holders
to the extent of the current or accumulated earnings and profits of NorAm.
Holders of the Convertible Preferred Securities would be required to include
their allocable share of such deemed dividend in gross income but will not
receive any cash related thereto.
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes (the
"Proposed Legislation") that would, among other things, treat as equity for
United States federal income tax purposes certain debt obligations, such as the
Convertible Debentures, issued on or after December 7, 1995. If the Proposed
S-50
<PAGE> 51
Legislation were to apply to the Convertible Debentures, the Company would not
be allowed to deduct interest payable on the Convertible Debentures and holders
of the Convertible Preferred Securities would generally be treated as receiving
dividend distributions, rather than interest payments, from the Company. On
March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House
Ways and Means Committee Chairman Bill Archer issued a joint statement (the
"Joint Statement") indicating their intent that the Proposed Legislation, if
adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based upon the Joint Statement, it is expected that if the Proposed
Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures. There can be no assurances, however, that the effective
date guidance contained in the Joint Statement will be incorporated into the
Proposed Legislation, if enacted, or that other legislation enacted after the
date hereof will not otherwise adversely affect the tax treatment of the
Convertible Debentures, including the ability of NorAm to deduct the interest
payable on the Convertible Debentures. Accordingly, there can be no assurance
that a Tax Event will not occur. See "Description of the Convertible Preferred
Securities -- Tax Event Redemption or Distribution."
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Convertible
Preferred Securities will be reported to holders on Forms 1099, which forms
should be mailed to holders of Convertible Preferred Securities by January 31
following each calendar year.
NorAm Financing will be obligated to report annually to Cede & Co., as
holder of record of the Convertible Preferred Securities, the OID related to the
Convertible Debentures that accrued during the year. NorAm Financing currently
intends to report such information on Form 1099 prior to January 31 following
each calendar year even though NorAm Financing is not legally required to report
to record holders until April 15 following each calendar year. The Underwriters
have indicated to NorAm Financing that, to the extent that they hold Convertible
Preferred Securities as nominees for beneficial holders, they currently expect
to report to such beneficial holders on Forms 1099 by January 31 following each
calendar year. Under current law, holders of Convertible Preferred Securities
who hold as nominees for beneficial holders will not have any obligation to
report information regarding the beneficial holders to NorAm Financing. NorAm
Financing, moreover, will not have any obligation to report to beneficial
holders who are not also record holders. Thus, beneficial holders of Convertible
Preferred Securities who hold their Convertible Preferred Securities through the
Underwriters will receive Forms 1099 reflecting the income on their Convertible
Preferred Securities from such nominee holders rather than NorAm Financing.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Convertible Preferred
Securities or the Convertible Debentures distributed to holders of the
Convertible Preferred Securities may be subject to a "backup" withholding tax of
31% unless the holder complies with certain identification requirements. Any
withheld amounts will be allowed as a refund or a credit against the holder's
United States federal income tax, provided the required information is provided
to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
S-51
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the Underwriters
named below, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Salomon Brothers Inc and Smith Barney Inc. are
acting as representatives (the "Representatives"), has severally agreed to
purchase the number of Convertible Preferred Securities set forth opposite its
name below. In the Purchase Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Convertible Preferred Securities offered hereby if any of the Convertible
Preferred Securities are purchased. In the event of default by an Underwriter,
the Purchase Agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting Underwriters may be increased or the Purchase
Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
UNDERWRITER SECURITIES
----------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................
Salomon Brothers Inc .....................................................
Smith Barney Inc. ........................................................
---------
Total........................................................ 3,000,000
=========
</TABLE>
The Underwriters propose to offer the Convertible Preferred Securities, in
part, directly to the public at the initial public offering price set forth on
the cover page of this Prospectus Supplement, and, in part, to certain
securities dealers at such price less a concession not in excess of $ per
Convertible Preferred Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per Convertible Preferred Security to
certain brokers and dealers. After the Convertible Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus Supplement, to purchase up to an
additional 450,000 Convertible Preferred Securities, solely to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of Convertible Preferred Securities to be purchased by it shown in the
above table is of the Convertible Preferred Securities initially offered hereby.
If purchased, the Underwriters will offer such additional Convertible Preferred
Securities on the same terms as those on which the Convertible Preferred
Securities are being offered.
In view of the fact that the proceeds of the sale of the Convertible
Preferred Securities will be used to purchase the Convertible Debentures of
NorAm, the Purchase Agreement provides that NorAm will pay as compensation
("Underwriters' Compensation") to the Underwriters arranging the investment
therein of such proceeds an amount in same day funds of $ per Convertible
Preferred Security (or $ in the aggregate) for the accounts of the several
Underwriters.
S-52
<PAGE> 53
During a period of 90 days from the date of the Prospectus Supplement,
neither NorAm nor the Trust will, without the prior written consent of the
Underwriters, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any Convertible Preferred Securities, any
equity securities substantially similar to the Convertible Preferred Securities,
Convertible Debentures or any debt securities substantially similar to the
Convertible Debentures, or any security convertible into or exchangeable or
exercisable for Convertible Preferred Securities, any equity securities
substantially similar to the Convertible Preferred Securities, Convertible
Debentures or any Convertible Preferred Securities offered hereby.
The Convertible Preferred Securities have been approved for listing on the
NYSE. Trading of the Convertible Preferred Securities on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Convertible
Preferred Securities. The Representatives have advised the Trust that they
intend to make a market in the Convertible Preferred Securities prior to the
commencement of trading on the NYSE. The Representatives will have no obligation
to make a market in the Convertible Preferred Securities, however, and may cease
market making activities, if commenced at any time.
Prior to this offering there has been no public market for the Convertible
Preferred Securities. In order to meet one of the requirements for listing the
Convertible Preferred Securities on the NYSE, the Underwriters will undertake to
sell lots of 100 or more Convertible Preferred Securities to a minimum of 400
beneficial holders.
Certain of the Underwriters, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated, are also acting as underwriters in connection with the
concurrent offering by the Company of the Common Stock. The offering of the
Convertible Preferred Securities and the sale of the Common Stock are not
conditioned on each other. See "Common Stock Offering."
The Trust and NorAm have agreed to indemnify the Underwriters, against, or
contribute to payments that the Underwriters may be required to make in respect
of, certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
LEGAL OPINIONS
The validity of the Convertible Preferred Securities, Convertible
Debentures, the Guarantee and certain matters relating thereto and certain
United States federal income taxation matters and will be passed upon for NorAm
and NorAm Financing by Skadden, Arps, Slate, Meagher & Flom, New York, New York,
special counsel to the Company. The validity of the NorAm Common Stock issuable
upon conversion will be passed upon for NorAm and NorAm Financing by Hubert
Gentry, Jr., Senior Vice President, General Counsel, and Secretary of NorAm. As
of April 30, 1996, Mr. Gentry beneficially owned or had options to purchase
45,808 shares of the Common Stock. Certain legal matters will be passed upon for
the Underwriters by Coudert Brothers, New York, New York.
S-53
<PAGE> 54
PROSPECTUS
NORAM ENERGY CORP.
SUBORDINATED DEBT SECURITIES
NORAM FINANCING I
NORAM FINANCING II
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
[NORAM ENERGY CORP. LOGO]
---------------------
NorAm Financing I and NorAm Financing II, each a statutory business trust
formed under the laws of Delaware (each, a "NorAm Trust"), may from time to time
offer preferred securities ("Preferred Securities") evidencing undivided
beneficial interests in the assets of the respective NorAm Trust. The payment of
periodic cash distributions ("distributions") with respect to Preferred
Securities of each of the NorAm Trusts, out of moneys held by each of the NorAm
Trusts, and payments on liquidation, redemption or otherwise with respect to
such Preferred Securities will be guaranteed by NorAm Energy Corp. (the
"Company") to the extent described herein (the "Preferred Securities
Guarantee"). The Company's obligations under the Preferred Securities Guarantees
will be subordinate and junior in right of payment to all other liabilities of
the Company and pari passu with the most senior preferred or preference stock
issued by the Company. Subordinated debt securities ("Subordinated Debt
Securities") may be issued and sold from time to time in one or more series by
the Company to a NorAm Trust in connection with the investment of the proceeds
from the offering of Preferred Securities and Common Securities (as defined
herein) of such NorAm Trust. The Subordinated Debt Securities subsequently may
be distributed pro rata to holders of Preferred Securities and Common Securities
in connection with the dissolution of such NorAm Trust upon the occurrence of
certain events as may be described in the Prospectus Supplement. The Preferred
Securities Guarantee, when taken together with the Company's obligations under
the Subordinated Debt Securities, the Subordinated Indenture and the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of such NorAm Trust (other than with respect to the Trust
Securities), will provide a full and unconditional guarantee on a subordinated
basis by the Company of payments due on the Preferred Securities.
Specific terms of the particular Subordinated Debt Securities of any series
or the Preferred Securities of any NorAm Trust in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in
the accompanying Prospectus Supplement with respect to such series of
Subordinated Debt Securities or such Preferred Securities, which will describe,
without limitation and where applicable the following: (i) in the case of
Subordinated Debt Securities, the specific designation, aggregate principal
amount, denomination, maturity, premium, if any, interest rate (or the method of
determining such rate), if any, dates on which premium, if any, and interest, if
any, will be payable, any redemption provisions, any sinking fund provisions,
the initial public offering price, the conversion terms (if any), the
subordination terms, any listing on a securities exchange and any other terms
and (ii) in the case of Preferred Securities, the specific designation, number
of Preferred Securities, distribution rate (or the method of determining such
rate), dates on which distributions will be payable, liquidation amount, voting
rights (if any), any redemption provisions, terms for any conversion or exchange
into other securities (if any), the initial public offering price, any listing
on a securities exchange, and any other rights, preferences, privileges,
limitations and restrictions.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Offered Securities shall not exceed
$500,000,000. The Prospectus Supplement relating to any series of Offered
Securities will contain information concerning certain United States federal
income tax considerations, if applicable, to the Offered Securities.
The Offered Securities will be sold directly, through agents, underwriters
or dealers as designated from time to time, or through a combination of such
methods. If agents or any dealers or underwriters are involved in the sale of
the Offered Securities in respect of which this Prospectus is being delivered,
the names of such agents, dealers or underwriters and any applicable commissions
or discounts will be set forth in or may be calculated from the Prospectus
Supplement with respect to such Offered Securities.
This Prospectus may not be used to consummate sales of securities unless
accompanied by 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.
---------------------
The date of this Prospectus is May 15, 1996.
<PAGE> 55
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 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 SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN 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 informational 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"). Such 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: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, Suite 1300, 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.
No separate financial statements of the NorAm Trusts are included herein.
NorAm does not believe that such statements would be material to holders of the
Preferred Securities. The NorAm Trusts are not currently subject to the
informational reporting requirements of the Exchange Act. The NorAm Trusts will
become subject to such requirements upon the effectiveness of the Registration
Statement of which this Prospectus forms a part, although they intend to seek
and expect to receive an exemption therefrom.
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, 1995 (the "Form 10-K") and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and its
Current Report on Form 8-K dated February 7, 1996, which has 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) 654-5699.
2
<PAGE> 56
THE NORAM FINANCING TRUSTS
Each of NorAm Financing I and NorAm Financing II is a statutory business
trust formed under Delaware law pursuant to (i) a separate declaration of trust
(each a "Declaration") executed by the Company, as sponsor for such trust (the
"Sponsor") and the NorAm Trustees (as defined herein) for such trust and (ii)
the filing of a certificate of trust with the Delaware Secretary of State on
November 2, 1995. Each NorAm Trust exists for the exclusive purposes of (i)
issuing the Preferred Securities and common securities representing undivided
beneficial interests in the assets of such Trust (the "Common Securities" and,
together with the Preferred Securities, the "Trust Securities"), (ii) investing
the gross proceeds of the Trust Securities in the Subordinated Debt Securities
and (iii) engaging in only those other activities necessary or incidental
thereto. All of the Common Securities will be directly or indirectly owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities except that upon an event
of default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Company will, directly or indirectly, acquire
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of each NorAm Trust. Each NorAm Trust has a term of approximately 55
years, but may earlier terminate as provided in the Declaration. Each NorAm
Trust's business and affairs will be conducted by the trustees (the "NorAm
Trustees") appointed by the Company, as the direct or indirect holder of all the
Common Securities. The holder of the Common Securities will be entitled to
appoint, remove or replace any of, or increase or reduce the number of, the
NorAm Trustees of a NorAm Trust. The duties and obligations of the NorAm
Trustees shall be governed by the Declaration of such NorAm Trust. Each NorAm
Trust will have two NorAm Trustees who are employees or officers of or who are
affiliated with the Company. One NorAm Trustee of each NorAm Trust will be a
financial institution which will be unaffiliated with the Company and which
shall act as property trustee and as indenture trustee for purposes of the Trust
Indenture Act of 1939 (the "Trust Indenture Act"), pursuant to the terms set
forth in a Prospectus Supplement (the "Property Trustee"). In addition, unless
the Property Trustee maintains a principal place of business in the State of
Delaware, and otherwise meets the requirements of applicable law, one NorAm
Trustee of each NorAm Trust will have its principal place of business or reside
in the State of Delaware (the "Delaware Trustee"). The Company will pay all fees
and expenses related to the NorAm Trusts and the offering of Trust Securities.
The office of the Delaware Trustee for each NorAm Trust in the State of Delaware
is 23 White Clay Center, Route 273, Newark, Delaware 19711. The principal place
of business of each NorAm Trust shall be c/o NorAm Energy Corp., 1600 Smith
Street, 32nd Floor, Houston, Texas 77002.
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. A current summary description of the Company's activities will be
set forth in the applicable Prospectus Supplement.
The Company's principal executive offices are located at 1600 Smith Street,
32nd Floor, Houston, Texas 77002. Its mailing address is P. O. Box 2628,
Houston, Texas 77252-2628, and its telephone number is (713) 654-5699.
3
<PAGE> 57
RATIOS OF EARNINGS TO FIXED CHARGES
INCLUDING PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios of Earnings to Fixed Charges
Including Preferred Stock
Dividends(1)........................... 3.44(2) 2.93 1.64 1.44 1.43 1.09 1.17
</TABLE>
- ---------------
(1) The ratios of earnings to fixed charges, including preferred stock
dividends, have been computed using earnings which are the sum of income
from continuing operations, income taxes and fixed charges, including
preferred stock dividends. Fixed charges are interest, amortization of debt
discount and expense, the estimated interest portion of rental charges and
preferred stock dividends.
(2) Because of the seasonal nature of the Company's business and other factors,
the ratio for the three month period ended March 31, 1996 may not
necessarily be indicative of the ratio which will result for the full year
1996.
USE OF PROCEEDS
Each NorAm Trust will invest all proceeds received from the sale of its
Trust Securities in Subordinated Debt Securities. Unless otherwise specified in
the Prospectus Supplement, the Company will apply the net proceeds from the sale
of the Subordinated Debt Securities to its general funds.
The summaries set forth below and in the applicable Prospectus Supplement
address the material terms of the Preferred Securities but do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the applicable Declaration.
DESCRIPTION OF THE PREFERRED SECURITIES
Each NorAm Trust may issue, from time to time, only one series of Preferred
Securities having terms described in the Prospectus Supplement relating thereto.
The Declaration of each NorAm Trust authorizes the Regular Trustees of such
NorAm Trust to issue on behalf of such NorAm Trust one series of Preferred
Securities. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Preferred Securities will have such terms, including
distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such restrictions as shall be set forth in
the Declaration or made part of the Declaration by the Trust Indenture Act.
Reference is made to the Prospectus Supplement relating to the Preferred
Securities of the Company for specific terms, including (i) the distinctive
designation of such Preferred Securities; (ii) the number of Preferred
Securities issued by such NorAm Trust; (iii) the annual distribution rate (or
method of determining such rate) for Preferred Securities issued by such NorAm
Trust and the date or dates upon which such distributions shall be payable;
provided, however, that distributions on such Preferred Securities shall be
payable on a quarterly basis to holders of such Preferred Securities as of a
record date in each quarter during which such Preferred Securities are
outstanding; (iv) whether distributions on Preferred Securities issued by such
NorAm Trust shall be cumulative, and, in the case of Preferred Securities having
such cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Preferred Securities issued by
such NorAm Trust shall be cumulative; (v) the amount or amounts which shall be
paid out of the assets of such NorAm Trust to the holders of Preferred
Securities of such NorAm Trust upon voluntary or involuntary dissolution,
winding-up or termination of such NorAm Trust; (vi) the obligation, if any, of
such NorAm Trust to purchase or redeem Preferred Securities issued by such NorAm
Trust and the price or prices at which, the period or periods within which, and
the terms and conditions upon which, Preferred Securities issued by such NorAm
Trust shall be purchased or redeemed, in whole or in part, pursuant to such
obligation; (vii) the voting rights, if any, of Preferred Securities issued by
such NorAm Trust in addition to those required by law, including the number of
votes per Preferred Security and any requirement for the approval by the holders
of Preferred Securities, or
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of Preferred Securities issued by one or more NorAm Trusts, or of both, as a
condition to specified action or amendments to the Declaration of such NorAm
Trust; (viii) the terms and conditions, if any, upon which Preferred Securities
issued by such NorAm Trust may be converted into shares of NorAm Common Stock,
including the conversion price per share and the circumstances, if any, under
which any such conversion right shall expire; (ix) the terms and conditions, if
any, upon which the Subordinated Debt Securities may be distributed to holders
of Preferred Securities; (x) if applicable, any securities exchange upon which
the Preferred Securities shall be listed; and (xi) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
issued by such NorAm Trust not inconsistent with the Declaration of such NorAm
Trust or with applicable law. All Preferred Securities offered hereby will be
guaranteed by the Company to the extent set forth below under "Description of
the Preferred Securities Guarantees." Any United States federal income tax
considerations applicable to any offering of Preferred Securities will be
described in the Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each NorAm Trust
will issue one series of Common Securities. The Declaration of each NorAm Trust
authorizes the Regular Trustees of such trust to issue on behalf of such NorAm
Trust one series of Common Securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be set
forth therein. The terms of the Common Securities issued by a NorAm Trust will
be substantially identical to the terms of the Preferred Securities issued by
such trust and the Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities except that, upon an event
of default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. Except in certain limited circumstances, the Common
Securities will also carry the right to vote to appoint, remove or replace any
of the NorAm Trustees of a NorAm Trust. All of the Common Securities of each
NorAm Trust will be directly or indirectly owned by the Company.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an Event of Default under the Declaration of a NorAm Trust occurs and is
continuing, then the holders of Preferred Securities of such NorAm Trust would
rely on the enforcement by the Property Trustee of its rights as a holder of the
applicable series of Subordinated Debt Securities against the Company. In
addition, the holders of a majority in liquidation amount of the Preferred
Securities of such NorAm Trust will have the right to direct the time, method,
and place of conducting any proceeding for any remedy available to the Property
Trustee or to direct the exercise of any trust or power conferred upon the
Property Trustee under the applicable Declaration, including the right to direct
the Property Trustee to exercise the remedies available to it as a holder of the
Subordinated Debt Securities. If the Property Trustee fails to enforce its
rights under the applicable series of Subordinated Debt Securities, a holder of
Preferred Securities of such NorAm Trust may institute a legal proceeding
directly against the Company to enforce the Property Trustee's rights under the
applicable series of Subordinated Debt Securities without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default under the applicable
Declaration has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the applicable series of
Subordinated Debt Securities on the date such interest or principal is otherwise
payable (or in the case of redemption, on the redemption date), then a holder of
Preferred Securities of such NorAm Trust may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
applicable series of Subordinated Debt Securities having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder (a "Direct Action") on or after the respective due date specified in the
applicable series of Subordinated Debt Securities. In connection with such
Direct Action, NorAm will be subrogated to the rights of such holder of
Preferred Securities under the applicable Declaration to the extent of any
payment made by NorAm to such holder of Preferred Securities in such Direct
Action. Consequently, NorAm will be entitled to payment of amounts that a holder
of Preferred Securities receives in respect of an unpaid distribution that
resulted in the bringing of a Direct Action to the extent that such holder
receives or has already received full payment with respect to such unpaid
distribution from such NorAm Trust.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 250,000,000
shares of Common Stock, and (ii) 10,000,000 shares of Preferred Stock, of which
124,881,936 shares of Common Stock and 2,600,000 shares of $3.00 Convertible
Exchangeable Preferred Stock, Series A ("Series A Preferred"), were issued and
outstanding at January 31, 1996. The following summary description of these
securities is qualified in its entirety by reference to the Restated Certificate
of Incorporation of the Company ("Certificate") which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of the Common Stock are entitled to one vote for each share held of
record. The Company provides for cumulative voting in the election of directors.
Subject to the preferential rights of the holders of Preferred Stock, the
holders of Common Stock are entitled to receive any dividends which may be
declared by the Company's Board of Directors out of funds legally available
therefor and to share pro rata in the net assets of the Company upon
liquidation. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities and there are no
redemption provisions with respect to such shares. All outstanding shares of
Common Stock are fully paid and not subject to further calls or assessments. The
Company's Common Stock is listed on the New York Stock Exchange and prices are
reported by the New York Stock Exchange Composite Tape under the symbol "NAE."
The Transfer Agent and Registrar of the Company's Common Stock is First Chicago
Trust Company.
PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the Prospectus
Supplement relating to such series of Preferred Stock. The description set forth
below is subject to and qualified in its entirety by reference to the
Certificate and the form of Certificate of Designations (the "Designation")
establishing a particular series of Preferred Stock.
GENERAL. Under the Certificate, the Board of Directors of the Company (the
"Board of Directors") is authorized, without further shareholder action, to
provide for the issuance of up to 10,000,000 shares of Preferred Stock, in one
or more series, and to fix the designations, terms, and relative rights and
preferences, including the dividend rate, voting rights, conversion rights,
redemption and sinking fund provisions and liquidation values of each such
series. The Company may amend the Certificate from time to time to increase the
number of authorized shares of Preferred Stock. Any such amendment would require
the approval of the holders of a majority of the outstanding shares of all
series of Preferred Stock voting together as a single class without regard to
series.
The Preferred Stock will have the dividend, liquidation, redemption,
conversion, and voting rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the particular series
of the Preferred Stock offered thereby for specific terms, including, (i) the
title and liquidation preference per share of such Preferred Stock and the
number of shares offered; (ii) the price at which such Preferred Stock will be
issued; (iii) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence to
accumulate; (iv) any redemption or sinking fund provisions of such Preferred
Stock; (v) any conversion or exchange provisions of such Preferred Stock; (vi)
the voting rights, if any, of such Preferred Stock; and (vii) any additional
dividend, liquidation, redemption, sinking fund and other rights, preferences,
privileges, limitations, and restrictions of such Preferred Stock. The Preferred
Stock will, when issued, be fully paid and nonassessable.
DIVIDEND RIGHTS. The Preferred Stock will be preferred over the Common
Stock as to payment of dividends. Before any dividends or distributions on the
Common Stock shall be declared and set apart for payment or paid, the holders or
shares of each series of Preferred Stock shall be entitled to receive dividends
(either in cash, shares of Common Stock or Preferred Stock, or otherwise) when,
as, and if declared by the
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Board of Directors, at the rate and on the date or dates as set forth in the
Prospectus Supplement. With respect to each series of Preferred Stock, the
dividends on each share of such series with respect to which dividends are
cumulative shall be cumulative from the date of issue of such share unless some
other date is set forth in the Prospectus Supplement relating to any such
series. Accruals of dividends shall not bear interest.
RIGHTS UPON LIQUIDATION. The Preferred Stock shall be preferred over the
Common Stock as to assets so that the holders of each series of Preferred Stock
shall be entitled to be paid, upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company, and before any distribution is made
to the holders of Common Stock, the amount set forth in the Prospectus
Supplement relating to any such series, but in such case the holders of such
series of Preferred Stock shall not be entitled to any other or further payment.
If upon any such liquidation, dissolution, or winding-up of the Company its net
assets shall be insufficient to permit the payment in full of the respective
amounts to which the holders of all outstanding Preferred Stock are entitled,
the entire remaining net assets of the Company shall be distributed among the
holders of each series of Preferred Stock in amounts proportionate to the full
amounts to which the holders of each such series are respectively so entitled.
REDEMPTION AND CONVERSION. All shares of any series of Preferred Stock
shall be redeemable to the extent set forth in the Prospectus Supplement
relating to any such series. All shares of any series of Preferred Stock shall
be convertible into shares of Common Stock or into shares of any other series of
Preferred Stock to the extent set forth in the Prospectus Supplement relating to
any such series.
VOTING RIGHTS. All shares of any series of Preferred Stock shall have the
voting rights set forth in the Prospectus Supplement relating to any such
series.
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES A
On March 24, 1987, the Company issued 2,600,000 shares of Series A
Preferred Stock. Each share of Series A Preferred Stock has a liquidation
preference of $50 per share and is convertible at the option of the holder at
any time, unless previously redeemed, into shares of Common Stock at a
conversion price of $28.625 per share of Common Stock, subject to adjustment in
certain events. The Series A Preferred Stock is redeemable for cash at any time
in whole or in part, at the option of the Company, at redemption prices
declining to $50 on March 15, 1997, plus accrued dividends to the redemption
date. Dividends on the Series A Preferred Stock are cumulative and are payable
quarterly at a rate of $3.00 annually. The Series A Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company, on any
dividend payment date for the Company's 6% Convertible Subordinated Debentures
due 2012 (the "Debentures") at the rate of $50 principal amount of Debentures
per share of Series A Preferred Stock. The Debentures, if issued, will be
convertible at the option of the holder at any time, unless previously redeemed,
into shares of Common Stock at a price equivalent to the conversion price
applicable to the Series A Preferred Stock for which the Debentures were
exchanged, subject to adjustment in certain events. The holders of the Series A
Preferred Stock do not have voting rights. However, in the event that dividends
payable on the Series A Preferred Stock are in arrears and unpaid in an amount
equal to or exceeding the amount of dividends payable thereon for six quarterly
dividend periods, the holders thereof have the right to elect two directors to
the Company's Board. Holders of Series A have no preemptive rights.
CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
Under the Certificate, holders of Common Stock are entitled to cumulative
voting rights for the election of Company directors. Holders of Common Stock are
not otherwise entitled to cumulative voting rights. Under cumulative voting, a
stockholder may multiply the number of shares owned by the number of directors
to be elected, and cast that total number of votes in any proportion among as
many nominees as the stockholder desires.
The By-laws of the Company contain certain requirements concerning advance
notice of (i) nominations by stockholders of persons for election to the Board,
and (ii) other matters introduced by stockholders at annual meetings.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by the Company for
the benefit of the holders from time to time of Preferred Securities. Each
Preferred Securities Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Bank of New York will act as indenture trustee under each
Preferred Securities Guarantee (the "Preferred Guarantee Trustee"). The terms of
each Preferred Securities Guarantee will be those set forth in such Preferred
Securities Guarantee and those made part of such Preferred Securities Guarantee
by the Trust Indenture Act. The summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the form of Preferred Securities Guarantee, which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part,
and the Trust Indenture Act. Each Guarantee will be held by the Preferred
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the applicable NorAm Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee, the Company will agree, to
the extent set forth therein, to pay in full, to the holders of the Preferred
Securities issued by a NorAm Trust, the Guarantee Payments (as defined
herein)(except to the extent paid by such NorAm Trust), as and when due,
regardless of any defense, right of set-off or counterclaim which such NorAm
Trust may have or assert. The following payments with respect to Preferred
Securities issued by a NorAm Trust to the extent not paid by such NorAm Trust
(the "Guarantee Payments"), will be subject to the Preferred Securities
Guarantee thereon (without duplication): (i) any accrued and unpaid
distributions which are required to be paid on such Preferred Securities, to the
extent such NorAm Trust shall have funds available therefor; (ii) the redemption
price, including all accrued and unpaid distributions (the "Redemption Price"),
to the extent such NorAm Trust has funds available therefor with respect to any
Preferred Securities called for redemption by such NorAm Trust and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of such NorAm
Trust (other than in connection with the distribution of Subordinated Debt
Securities to the holders of Preferred Securities or the redemption of all of
the Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on such Preferred Securities to
the date of payment, to the extent such NorAm Trust has funds available therefor
and (b) the amount of assets of such NorAm Trust remaining available for
distribution to holders of such Preferred Securities in liquidation of such
NorAm Trust. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Preferred Securities or by causing the applicable NorAm Trust to pay
such amounts to such holders.
Each Preferred Securities Guarantee will be a guarantee on a subordinated
basis with respect to the Preferred Securities issued by the applicable NorAm
Trust, but will not apply to any payment of distributions except to the extent
such NorAm Trust shall have funds available therefor. If the Company does not
make interest payments on the Subordinated Debt Securities purchased by a NorAm
Trust, such NorAm Trust will not pay distributions on the Preferred Securities
issued by such NorAm Trust and will not have funds available therefor. See
"Description of the Subordinated Debt Securities -- Certain Covenants." The
Preferred Securities Guarantee, when taken together with the Company's
obligations under the Subordinated Debt Securities, the Subordinated Indenture
and the Declaration, including its obligations to pay costs, expenses, debts and
liabilities of such NorAm Trust (other than with respect to the Trust
Securities), will provide a full and unconditional guarantee on a subordinated
basis by the Company of payments due on the Preferred Securities.
The Company has also agreed separately to guarantee the obligations of the
NorAm Trusts with respect to the Common Securities (the "Common Securities
Guarantees") to the same extent as the Preferred Securities Guarantee, except
that upon an event of default under the Subordinated Indenture, holders of
Preferred Securities shall have priority over holders of Common Securities with
respect to distributions and payments on liquidation, redemption or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
In each Preferred Securities Guarantee, the Company will covenant that, so
long as any Preferred Securities issued by the applicable NorAm Trust remain
outstanding, if there shall have occurred any event that would constitute an
event of default under such Preferred Securities Guarantee or the Declaration of
such NorAm Trust, then (a) the Company shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of NorAm Common Stock in connection with the
satisfaction by NorAm of its obligations under any employee benefit plans or the
satisfaction by NorAm of its obligations pursuant to any contract or security
requiring NorAm to purchase shares of NorAm Common Stock, (ii) as a result of a
reclassification of NorAm capital stock or the exchange or conversion of one
class or series of NorAm's capital stock for another class or series of NorAm
capital stock or, (iii) the purchase of fractional interests in shares of
NorAm's capital stock pursuant to the conversion or exchange provisions of such
NorAm capital stock or the security being converted or exchanged) or make any
guarantee payments with respect to the foregoing) and (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company which rank pari passu with or junior to such Subordinated Debt
Securities.
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities issued by the applicable NorAm Trust. The
manner of obtaining any such approval of holders of such Preferred Securities
will be as set forth in an accompanying Prospectus Supplement. All guarantees
and agreements contained in a Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Preferred Securities of the
applicable NorAm Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable NorAm Trust (a) upon full payment of the
Redemption Price of all Preferred Securities of such NorAm Trust, (b) upon
distribution of the Subordinated Debt Securities held by such NorAm Trust to the
holders of the Preferred Securities of such NorAm Trust or (c) upon full payment
of the amounts payable in accordance with the Declaration of such NorAm Trust
upon liquidation of such NorAm Trust. Each Preferred Securities Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of Preferred Securities issued by the applicable NorAm Trust
must restore payment of any sums paid under such Preferred Securities or such
Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
(a) the failure of the Company to perform any of its payment or other
obligations thereunder or (b) if applicable, the failure by the Company to
deliver NorAm Common Stock upon an appropriate election by the holder or holders
of Preferred Securities to convert the Preferred Securities into shares of NorAm
Common Stock.
The holders of a majority in liquidation amount of the Preferred Securities
relating to such Preferred Securities Guarantee have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of the Preferred Securities Guarantee
or to direct the exercise of any trust or power conferred upon the Preferred
Guarantee Trustee under such Preferred Securities Guarantee. If the Preferred
Guarantee Trustee fails to enforce its right under the Preferred Securities
Guarantee, a holder of Preferred Securities may institute a legal proceeding
directly against NorAm to enforce the Preferred Guarantee Trustee's rights under
the Preferred Securities Guarantee, without first instituting a legal proceeding
against the relevant NorAm Trust, the Preferred Guarantee Trustee or any other
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person or entity. A holder of Preferred Securities may also institute a legal
proceeding directly against NorAm to enforce such holder's right to receive
payment under the Preferred Securities Guarantee without first (i) directing the
Preferred Guarantee Trustee to enforce the terms of the Preferred Securities
Guarantee or (ii) instituting a legal proceeding against the relevant NorAm
Trust or any other person or entity. The Company waives any right or remedy to
require that any action be brought first against such NorAm Trust or any other
person or entity before proceeding directly against the Company.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations
of the Company and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Company, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered into by NorAm in respect of any preferred
or preference stock of any affiliate of the Company; and (iii) senior to the
Company's common stock. The terms of the Preferred Securities provide that each
holder of Preferred Securities issued by the applicable NorAm Trust by
acceptance thereof agrees to the subordination provisions and other terms of the
Preferred Securities Guarantee relating thereto.
The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care and skill as a prudent
person would exercise under the circumstances in the conduct of his or her own
affairs. Subject to such provisions, the Preferred Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Preferred Securities
Guarantee at the request of any holder of Preferred Securities, unless offered
reasonable indemnity against the costs, expenses and liabilities which might be
incurred thereby.
The Company and certain of its affiliates maintain a banking relationship
with the Preferred Guarantee Trustee.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
Subordinated Debt Securities may be issued from time to time in one or more
series under a Subordinated Indenture (the "Subordinated Indenture"), between
the Company and The Bank of New York, as Trustee (the "Debt Trustee"). The terms
of the Subordinated Debt Securities will include those stated in the
Subordinated Indenture and those made part of the Subordinated Indenture by
reference to the Trust Indenture Act. The following summary does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Subordinated Indenture, which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and the Trust Indenture Act. Whenever particular provisions or defined
terms in the Subordinated Indenture are referred to herein, such provisions or
defined terms are incorporated by reference herein. Section and Article
references used herein are references to provisions of the Subordinated
Indenture unless otherwise noted.
GENERAL
The Subordinated Debt Securities will be unsecured, subordinated
obligations of the Company. The Subordinated Indenture does not limit the
aggregate principal amount of Subordinated Debt Securities which
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may be issued thereunder and provides that the Subordinated Debt Securities may
be issued from time to time in one or more series. The Subordinated Debt
Securities are issuable in one or more series pursuant to an indenture
supplemental to the Subordinated Indenture or a resolution of the Company's
Board of Directors or a special committee thereof (each, a "Supplemental
Subordinated Indenture") (Section 2.1).
In the event Subordinated Debt Securities are issued to a NorAm Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
such NorAm Trust, such Subordinated Debt Securities subsequently may be
distributed pro rata to the holders of such Trust Securities in connection with
the dissolution of such NorAm Trust upon the occurrence of certain events
described in the Prospectus Supplement relating to such Trust Securities. Only
one series of Subordinated Debt Securities will be issued to a NorAm Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
such NorAm Trust.
Reference is made to the Prospectus Supplement which will accompany this
Prospectus for the following terms of the series of Subordinated Debt Securities
being offered thereby: (i) the specific title of such Subordinated Debt
Securities; (ii) any limit on the aggregate principal amount of such
Subordinated Debt Securities; (iii) the date or dates on which the principal of
such Subordinated Debt Securities is payable and the right, if any, to extend
such date or dates; (iv) the rate or rates at which such Subordinated Debt
Securities will bear interest or the method of determination of such rate or
rates; (v) the date or dates from which such interest shall accrue, the interest
payment dates on which such interest will be payable or the manner of
determination of such interest payment dates and the record dates for the
determination of holders to whom interest is payable on any such interest
payment dates; (vi) the right, if any, to extend the interest payment periods
and the duration of such extension; (vii) the period or periods within which,
the price or prices at which, and the terms and conditions upon which, such
Subordinated Debt Securities may be redeemed, in whole or in part, at the option
of the Company; (viii) the right and/or obligation, if any, of the Company to
redeem or purchase such Subordinated Debt Securities pursuant to any sinking
fund or analogous provisions or at the option of the holder thereof and the
period or periods for which, the price or prices at which, and the terms and
conditions upon which, such Subordinated Debt Securities shall be redeemed or
purchased, in whole or part, pursuant to such right and/or obligation; (ix) the
terms and conditions, if any, upon which the Subordinated Debt Securities may be
converted into shares of NorAm Common Stock, including the conversion price and
the circumstances, if any, under which such conversion right shall expire; (x)
the terms of subordination; (xi) the form of such Subordinated Debt Securities;
(xii) if other than denominations of $25 or any integral multiple thereof, the
denominations in which such Subordinated Debt Securities shall be issuable;
(xiii) any and all other terms with respect to such series; and (xiv) whether
such Subordinated Debt Securities are issuable as a global security, and in such
case, the identity of the depositary. (Section 2.1).
The Subordinated Indenture does not contain any provisions that afford
holders of Subordinated Debt Securities protection in the event of a highly
leveraged transaction involving the Company.
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes (the
"Proposed Legislation") that would, among other things, treat as equity for
United States federal income tax purposes certain debt obligations, such as the
Subordinated Debt Securities, issued on or after December 7, 1995. If the
Proposed Legislation were to apply to the Subordinated Debt Securities, the
Company would not be allowed to deduct interest payable on the Subordinated Debt
Securities, which could result in the distribution of the Subordinated Debt
Securities to holders of the Preferred Securities or, at the Company's option,
redemption of the Subordinated Debt Securities. On March 29, 1996, Senate
Finance Committee Chairman William V. Roth, Jr. and House Ways and Means
Committee Chairman Bill Archer issued a joint statement (the "Joint Statement")
indicating their intent that the Proposed Legislation, if adopted by either of
the tax-writing committees of Congress, would have an effective date that is no
earlier than the date of "appropriate Congressional action." Based upon the
Joint Statement, it is expected that if the Proposed Legislation were to be
enacted, such legislation would not apply to the Subordinated Debt Securities.
There can be no assurances, however, that the effective date guidance contained
in the Joint Statement will be incorporated into the
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Proposed Legislation, if enacted, or that other legislation enacted after the
date hereof will not otherwise adversely affect the tax treatment of the
Subordinated Debt Securities, including the ability of the Company to deduct the
interest payable on the Subordinated Debt Securities. See "Description of the
Preferred Securities -- Tax Event Redemption or Distribution" in the applicable
Prospectus Supplement.
SUBORDINATION
The Subordinated Debt Securities will be subordinated and junior in right
of payment to certain other indebtedness of the Company to the extent set forth
in the Prospectus Supplement that will accompany this Prospectus.
The Prospectus Supplement relating to an issue of Subordinated Debt
Securities will set forth the aggregate amount of outstanding indebtedness as of
the most recent practicable date that by the terms of such Subordinated Debt
Securities will be senior to the Subordinated Debt Securities. The Prospectus
Supplement will also describe any limitations on the issuance of additional
indebtedness senior to the Subordinated Debt Securities.
CERTAIN COVENANTS
If Subordinated Debt Securities are issued to a NorAm Trust or a trustee of
such trust in connection with the issuance of Trust Securities by such NorAm
Trust and (i) there shall have occurred any event that would constitute an Event
of Default, (ii) the Company shall be in default with respect to its payment of
any obligations under the related Preferred Securities Guarantee or Common
Securities Guarantee, (iii) NorAm shall have given notice of its election to
defer payments of interest in such securities by extending the interest payment
period and such period or any extension thereof shall be continuing then (a) the
Company shall not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of shares of
NorAm Common Stock in connection with the satisfaction by NorAm of its
obligations under any employee benefit plans or the satisfaction by NorAm of its
obligations pursuant to any contract or security requiring NorAm to purchase
shares of NorAm capital stock, (ii) as a result of a reclassification of NorAm
capital stock or the exchange or conversion of one class or series of NorAm's
capital stock for another class or series of Nor Am capital stock, (ii) the
payment of dividends or distributions in shares of its capital stock of the same
class on which such dividends or distributions are being paid, or (iii) the
purchase of fractional interests in shares of NorAm's capital stock pursuant to
the conversion or exchange provisions of such NorAm capital stock or the
security being converted or exchanged) or make any guarantee payments with
respect to the foregoing), and (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company which rank pari passu with or junior to
such Subordinated Debt Securities.
In the event Subordinated Debt Securities are issued to a NorAm Trust or a
trustee of such trust in connection with the issuance of Trust Securities of
such NorAm Trust, for so long as such Trust Securities remain outstanding, the
Company will covenant (i) to directly or indirectly maintain 100% ownership of
the Common Securities of such NorAm Trust; provided, however, that any permitted
successor of the Company under the Subordinated Indenture may succeed to the
Company's ownership of such Common Securities, (ii) to use its reasonable
efforts to cause such NorAm Trust (a) to remain a statutory business trust,
except in connection with the distribution of Subordinated Debt Securities to
the holders of Trust Securities in liquidation of such NorAm Trust, the
redemption of all of the Trust Securities of such NorAm Trust, or certain
mergers, consolidations or amalgamations, each as permitted by the Declaration
of such NorAm Trust, and (b) to otherwise continue not to be classified as an
association taxable as a corporation or partnership for United States federal
income tax purposes and (iii) to use its reasonable efforts to cause each holder
of Trust Securities to be treated as owning an undivided beneficial interest in
the Subordinated Debt Securities. (Section 4.7).
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<PAGE> 66
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Subordinated Debt Securities of each series will be issued in registered
form and in either certificated form or represented by one or more global
securities. If not represented by one or more global securities, Subordinated
Debt Securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed) or exchange, at the office of the
Debenture Registrar or at the office of any transfer agent designated by the
Company for such purpose with respect to any series of Subordinated Debt
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 Subordinated Indenture. Such transfer or exchange will be
effected upon the Debenture 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 Debt Trustee as Debenture
Registrar with respect to the Subordinated Debt Securities. (Section 2.5). If a
Prospectus Supplement refers to any transfer agents (in addition the Debenture
Registrar) initially designated by the Company with respect to any series of
Subordinated Debt Securities, the Company may at any time rescind the
designation of any such transfer agent or approve additional locations at which
any such transfer agent acts. (Section 4.2). The Company may at any time
designate additional transfer agents with respect to any series of Subordinated
Debt Securities.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange any Subordinated Debt
Securities during a period beginning at the opening of business 15 days before
any selection for redemption of Subordinated Debt Securities of like tenor and
of the series of which such Subordinated Debt Securities are a part, and ending
at the close of business on the earliest date on which the relevant notice of
redemption is mailed to holders of Subordinated Debt Securities of any
securities or portions thereof called and (ii) register the transfer of or
exchange any Subordinated Debt Securities so selected for redemption, in whole
or in part, except the unredeemed portion of any Subordinated Debt Securities
being redeemed in part. (Section 2.5).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium (if any) on any Subordinated Debt Securities will be
made only against surrender to the Paying Agent of such Subordinated Debt
Securities. Unless otherwise indicated in an applicable Prospectus Supplement,
principal of and any premium and interest, if any, on Subordinated 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 Debenture Register with respect to
such Subordinated Debt Securities. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of interest on a Subordinated Debt Security on
any Interest Payment Date will be made to the person in whose name such
Subordinated Debt Security (or predecessor security) is registered at the close
of business on the Regular Record Date for such interest payment. (Section 2.3).
The Company will act as Paying Agent with respect to the Subordinated Debt
Securities. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agents 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 each series of the
respective Subordinated Debt Securities. (Sections 4.2 and 4.3).
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or premium or interest, if any, on any Subordinated Debt Securities
of any series which remain unclaimed at the end of two years after such
principal, premium, if any, or interest shall have become due and payable will
be repaid to the Company and the holder of such Subordinated Debt Securities
will thereafter look only to the Company for payment thereof. (Section 11.5).
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<PAGE> 67
GLOBAL SECURITIES
If any Subordinated Debt Securities of a series are represented by one or
more global securities (each, a "Global Security"), the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such Global Security may exchange such interests for
Subordinated Debt Securities of such series and of like tenor and principal
amount in any authorized form and denomination. Principal of and any premium and
interest on a Global Security will be payable in the manner described in the
applicable Prospectus Supplement. (Section 2.11).
The specific terms of the depositary arrangement with respect to any
portion of a series of Subordinated Debt Securities to be represented by a
Global Security will be described in the applicable Prospectus Supplement.
MODIFICATION OF THE SUBORDINATED INDENTURE
The Subordinated Indenture contains provisions permitting the Company and
the Debt Trustee, with the consent of the holders of not less than a majority in
principal amount of the Subordinated Debt Securities of each series which are
affected by the modification, to modify the Subordinated Indenture or any
supplemental indenture affecting that series or the rights of the holders of
that series of Subordinated Debt Securities; provided that no such modification
may, without the consent of the holder of each outstanding Subordinated Debt
Security affected thereby, (i) extend the fixed maturity of any Subordinated
Debt Securities of any series, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, or reduce any
premium payable upon the redemption thereof, without the consent of the holder
of each Subordinated Debt Security so affected or (ii) reduce the percentage of
Subordinated Debt Securities, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of each then
outstanding Subordinated Debt Security affected thereby. (Section 9.2). If a
NorAm Trust or the Property Trustee of a NorAm Trust holds a series of
Subordinated Debt Securities, no such supplemental indenture which requires the
approval of the holders of a certain percentage in aggregate principal amount of
Subordinated Debt Securities shall be effective without the approval of the
holders of the same percentage of aggregate liquidation preference of Preferred
Securities.
In addition, the Company and the Debt Trustee may execute, without the
consent of any holder of Subordinated Debt Securities, any supplemental
indenture for one or more of the following purposes: (i) to cure any ambiguity,
defect, or inconsistency herein, in the Subordinated Debt Securities of any
series; (ii) to comply with Article Ten of the Subordinated Indenture; (iii) to
provide for uncertificated Subordinated Debt Securities in addition to or in
place of certificated Subordinated Debt Securities; (iv) to add to the covenants
of the Company for the benefit of the holders of all or any Series of
Subordinated Debt Securities (and if such covenants are to be for the benefit of
less than all series of Subordinated Debt Securities, stating that such
covenants are expressly being included solely for the benefit of such series) or
to surrender any right or power herein conferred upon the Company; (v) to add
to, delete from, or revise the conditions, limitations, and restrictions on the
authorized amount, terms, or purposes of issue, authentication, and delivery of
Subordinated Debt Securities, as set forth in the Subordinated Indenture; (vi)
to make any change that does not adversely affect the rights of any holder of
Subordinated Debt Securities in any material respect; or (vii) to provide for
the issuance of and establish the form and terms and conditions of the
Subordinated Debt Securities of any series, to establish the form of any
certifications required to be furnished pursuant to the terms of this
Subordinated Indenture or any series of Subordinated Debt Securities, or to add
to the rights of the holders of any series of Subordinated Debt Securities.
EVENTS OF DEFAULT
The Subordinated Indenture provides that any one or more of the following
described events which has occurred and is continuing constitutes an "Event of
Default" with respect to each series of Subordinated Debt Securities:
(a) failure for 90 days to pay interest on the Subordinated Debt
Securities of that series, including any Additional Interest in respect
thereof, when due; provided, however, that a valid extension of the
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<PAGE> 68
interest payment period by the Company shall not constitute a default in
the payment of interest for this purpose; or
(b) failure to pay principal or premium, if any, on any Subordinated
Debt Securities of that series when due whether at maturity, upon
redemption by declaration or otherwise, or to make any sinking fund payment
with respect to that series; provided, however, that a valid extension of
the maturity of such Subordinated Debt Securities shall not constitute a
default for this purpose; or
(c) if applicable, failure by the Company to deliver NorAm Common
Stock upon an appropriate election by the holder or holders of Preferred
Securities to convert the Preferred Securities into shares of NorAm Common
Stock; or
(d) failure to observe or perform any other covenant or agreement
(other than those specifically relating to another series) contained in the
Indenture for 90 days after written notice to the Company from the Debt
Trustee or the holders of at least 25% in principal amount of the
outstanding Subordinated Debt Securities of that series; or
(e) certain events in bankruptcy, insolvency or reorganization of the
Company; or
(f) in the event Subordinated Debt Securities are issued to a NorAm
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such NorAm Trust, the voluntary or involuntary dissolution,
winding-up or termination of such NorAm Trust, except in connection with
the distribution of Subordinated Debt Securities to the holders of Trust
Securities in liquidation of such NorAm Trust, the redemption of all of the
Trust Securities of such NorAm Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration of such NorAm Trust.
(Section 6.1).
The holders of a majority in aggregate outstanding principal amount of any
series of the Subordinated Debt Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debt Trustee for that series. (Section 6.6). The Debt Trustee or the holders of
not less than 25% in aggregate outstanding principal amount of any particular
series of the Subordinated Debt Securities may declare the principal due and
payable immediately on default with respect to such series, but the holders of a
majority in aggregate outstanding principal amount of such series may annul such
declaration and waive the default with respect to such series if the default has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and any applicable premium has been
deposited with the Debt Trustee. (Sections 6.1 and 6.6).
The holders of a majority in aggregate outstanding principal amount of any
series of the Subordinated Debt Securities affected thereby may, on behalf of
the holders of all the Subordinated Debt Securities of such series, waive any
past default, except (i) a default in the payment of principal, premium, if any,
or interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration and any applicable premium has been deposited with the Debt
Trustee) or (ii) a default in the covenants described in the first or second
paragraph under "-- Certain Covenants." (Section 6.6).
CONSOLIDATION, MERGER AND SALE
The Subordinated Indenture does not contain any covenant which restricts
the ability of the Company to merge or consolidate with or into any other
corporation, sell or convey all or substantially all of its assets to any
person, firm or corporation or otherwise engage in restructuring transactions.
(Section 10.1).
DEFEASANCE AND DISCHARGE
Under the terms of the Subordinated Indenture, the Company will be
discharged from any and all obligations in respect of the Subordinated Debt
Securities of any series (except in each case for certain obligations to
register the transfer or exchange of Subordinated Debt Securities, replace
stolen, lost or mutilated Subordinated Debt Securities, maintain paying agencies
and hold moneys for payment in trust) if the Company deposits with the Debt
Trustee, in trust, moneys or Government Obligations, in an amount sufficient to
pay all the principal of, and interest on, the Subordinated Debt Securities of
such series on the
15
<PAGE> 69
dates such payments are due in accordance with the terms of such Subordinated
Debt Securities. (Section 11.2).
GOVERNING LAW
The Subordinated Indenture and the Subordinated Debt Securities will be
governed by, and construed in accordance with, the internal laws of the State of
New York. (Section 13.5).
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Subordinated Indenture and, after default,
shall exercise the same degree of care and skill as a prudent man would exercise
under the circumstances in the conduct of his or her own affairs. (Section 7.1).
Subject to such provision, the Debt Trustee is under no obligation to exercise
any of the powers vested in it by the Subordinated Indenture at the request of
any holder of Subordinated Debt Securities, unless offered reasonable indemnity
by such holder against the costs, expenses and liabilities which might be
incurred thereby. (Section 7.2). The Debt Trustee is not required to expand or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if there is reasonable ground for believing that
repayment or adequate indemnity is not reasonably assured to it. (Section 7.1).
The Company and certain of its affiliates maintain a banking relationship
with the Debt Trustee.
MISCELLANEOUS
The Company will have the right at all times to assign any of its
respective rights or obligations under the Subordinated Indenture to a direct or
indirect wholly-owned subsidiary of the Company; provided that, in the event of
any such assignment, the Company will remain liable for all such obligations.
Subject to the foregoing, the Subordinated Indenture will be binding upon and
inure to the benefit of the parties thereto and their respective successors and
assigns. The Subordinated Indenture provides that it may not otherwise be
assigned by the parties thereto. (Section 13.12).
PLAN OF DISTRIBUTION
The Company may sell any series of Subordinated Debt Securities and the
NorAm Trusts may sell the Preferred Securities being offered hereby in one or
more of the following ways from time to time: (i) to underwriters for resale to
the public or to institutional investors; (ii) directly to institutional
investors; or (iii) through agents to the public or to institutional investors.
The Prospectus Supplement with respect to any Offered Securities will set forth
the terms of the offering of such Offered Securities, including the name or
names of any underwriters or agents, the purchase price of such Offered
Securities and the proceeds to the Company or the applicable NorAm Trust, as the
case may be, from such sale, any underwriting discounts or agency fees and other
item's constituting underwriters' or agents' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers and any securities exchanges on which such Offered Securities may be
listed.
If underwriters are used in the sale, such Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Unless otherwise set forth in the Prospectus Supplement, the obligations of
the underwriters to purchase any series of Offered Securities will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all of such series of Offered Securities, if any are purchased.
Underwriters and agents may be entitled under agreements entered into with
the Company and/or a NorAm Trust to indemnification by the Company and/or such
NorAm Trust against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the
underwriters or agents may be required to make in respect thereof. Underwriters
and agents may be customers
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<PAGE> 70
of, engage in transactions with, or perform services for the Company and its
affiliates in the ordinary course of business.
Each series of Offered Securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom Offered
Securities are sold by a NorAm Trust 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. The
Offered Securities may or may not be listed on a national securities exchange.
VALIDITY OF OFFERED SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the Preferred Securities Guarantees, Subordinated Debt Securities
and certain United States federal income taxation matters will be passed upon by
Skadden, Arps, Slate, Meagher & Flom, special counsel to the Company.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995
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.
17
<PAGE> 71
===============================================================================
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 OR THE ACCOMPANYING
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 NORAM ENERGY CORP., NORAM
FINANCING I OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF NORAM ENERGY CORP. OR NORAM FINANCING I SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR 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>
Prospectus Supplement Summary.......................................... S-5
Risk Factors........................................................... S-13
Accounting Treatment................................................... S-17
Use of Proceeds........................................................ S-17
Company Exchange of $3.00 Convertible Exchangeable
Preferred Stock, Series A............................................ S-17
Common Stock Offering.................................................. S-17
Price Range of Common Stock and Dividends.............................. S-18
Capitalization......................................................... S-19
Selected Consolidated Financial Data.................................... S-20
The Company ........................................................... S-22
NorAm Financing I...................................................... S-26
Description of the Convertible Preferred Securities.................... S-27
Description of the Guarantee........................................... S-40
Description of the Convertible Debentures.............................. S-40
Effect of Obligations Under the Convertible Debentures and
the Guarantee........................................................ S-47
United States Federal Income Taxation.................................. S-48
Underwriting........................................................... S-52
Legal Opinions......................................................... S-53
PROSPECTUS
Available Information.................................................. 2
Incorporation of Certain Documents by Reference........................ 2
The NorAm Financing Trusts............................................. 3
The Company............................................................ 3
Ratios of Earnings to Fixed Charges Including Preferred Stock Dividends 4
Use of Proceeds........................................................ 4
Description of the Preferred Securities................................ 4
Description of Capital Stock........................................... 6
Description of the Preferred Securities Guarantees..................... 8
Description of the Subordinated Debt Securities........................ 10
Plan of Distribution................................................... 16
Validity of Offered Securities......................................... 17
Experts................................................................ 17
</TABLE>
===============================================================================
===============================================================================
3,000,000
CONVERTIBLE PREFERRED SECURITIES
NORAM FINANCING I
% CONVERTIBLE TRUST
ORIGINATED PREFERRED
SECURITIES(SM) ("CONVERTIBLE TOPRS(SM)")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY, AND
CONVERTIBLE INTO
COMMON STOCK OF,
[NORAM ENERGY CORP. LOGO]
---------------------
PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JUNE , 1996
===============================================================================
