PROSPECTUS SUPPLEMENT
(To Prospectus dated May 13, 1999)
STRUCTURED PRODUCTS CORP., THE DEPOSITOR
1,160,000 CORPORATE-BACKED TRUST SECURITIES (CORTSK) CERTIFICATES
(PRINCIPAL AMOUNT $25 PER CERTIFICATE)
ISSUED BY
CORTSK TRUST FOR SOUTHERN COMPANY CAPITAL TRUST I, THE TRUST
RELATING TO
SOUTHERN COMPANY CAPITAL TRUST I 8.19% EXCHANGE CAPITAL SECURITIES
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The Trust will issue a single class of Certificates, which will represent
interests in the Trust and will be paid only from the assets of the Trust. The
assets of the Trust will consist of $29,000,000 8.19% Exchange Capital
Securities issued by Southern Company Capital Trust I and all future payments of
interest, any premium payable upon an early redemption of the underlying
Exchange Capital Securities and a single payment of principal due on the
underlying Exchange Capital Securities, as described in this Prospectus
Supplement. The sole assets of the Southern Company Capital Trust I are the
8.19% Series A Exchange Junior Subordinated Deferrable Interest Notes issued by
Southern Company Capital Funding, Inc.
The Certificates will evidence the right to receive semi-annual interest
payments on the principal amount of your Certificates at an interest rate of
8.19% per annum, the right to receive your pro rata amount of a single payment
of principal of $29,000,000 due on February 1, 2037 or on such earlier date as
described in this Prospectus Supplement and any premium payable upon an early
redemption of the underlying Exchange Capital Securities. The Certificates will
represent interests in the Trust only and will not represent an interest in or
obligations of any other party. No governmental agency or instrumentality has
insured or guaranteed the Certificates or the underlying Exchange Capital
Securities.
YOU SHOULD FULLY CONSIDER THE RISK FACTORS ON PAGE S-8 IN THIS PROSPECTUS
SUPPLEMENT PRIOR TO INVESTING IN THE CERTIFICATES.
The Certificates have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange. Trading of the Certificates
on the New York Stock Exchange is expected to commence within a 30-day period
after the initial delivery thereof. See "Underwriting" herein.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Per
Certificate Total
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Public offering price...................... $25 $29,000,000
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Underwriting discount...................... $0.7875 $913,500
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Proceeds to Trust (before expenses)........ $24.2125 $28,086,500
The Underwriters expect to deliver your Certificates in book-entry form
only through the Depository Trust Company on or about October 28, 1999.
SM "CorTS" is a service mark of Salomon Smith Barney Inc.
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SALOMON SMITH BARNEY PAINEWEBBER INCORPORATED
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October 28, 1999
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INFORMATION ABOUT CERTIFICATES
We provide information to you about the Certificates in two separate
documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
the Certificates; and (b) this Prospectus Supplement, which describes the
specific terms of your Certificates.
You are urged to read both the Prospectus and this Prospectus Supplement
in full to obtain material information concerning the Certificates. If the
descriptions of the Certificates vary between this Prospectus Supplement and the
Prospectus, you should rely on the information contained in this Prospectus
Supplement.
We include cross-references in this Prospectus Supplement and the
Prospectus to captions in these materials where you can find further related
discussions. The Table of Contents for this Prospectus Supplement and the
Prospectus identify the pages where these sections are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement and the accompanying Prospectus are defined under the
caption "Index of Terms" beginning on page S-23 in this document and beginning
on page 41 in the accompanying Prospectus.
The Depositor has filed with the Securities and Exchange Commission a
registration statement (of which this Prospectus Supplement and the accompanying
Prospectus form a part) under the Securities Act of 1933, as amended, with
respect to the Certificates. This Prospectus Supplement and the accompanying
Prospectus do not contain all of the information contained in the registration
statement. For further information regarding the documents referred to in this
Prospectus Supplement and the Prospectus, you should refer to the registration
statement and the exhibits thereto. The registration statement and such exhibits
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional
Office, John C. Kluczynski Federal Building, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can also be obtained electronically through the Securities and Exchange
Commission's internet web site (http://www.sec.gov).
You should rely only on the information contained in this Prospectus
Supplement or the Prospectus. Neither the Depositor nor the Underwriters have
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. Neither the Depositor nor the Underwriters are making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this Prospectus Supplement or
the Prospectus is accurate as of the date on their respective front covers only.
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SUMMARY
This summary highlights selected information from this Prospectus
Supplement. It does not contain all of the information you need to consider in
making your investment decision. To understand all of the terms of the offering
of the Certificates, you should read carefully this Prospectus Supplement and
the accompanying Prospectus in full.
ESTABLISHMENT OF THE TRUST.
Structured Products Corp., the Depositor, is establishing a Trust to be
designated as CorTSsm Trust For Southern Company Capital Trust I. The assets of
the Trust will consist of the Underlying Exchange Capital Securities, which are
$29,000,000 8.19% Exchange Capital Securities due February 1, 2037 issued by
Southern Company Capital Trust I, the Underlying Issuer, and payments of
principal and interest and any redemption premium made on the Underlying
Exchange Capital Securities as discussed in more detail under "Description of
the Certificates" herein. The Underlying Issuer is a Delaware business trust
formed for the exclusive purposes of issuing the Underlying Exchange Capital
Securities and investing the proceeds thereof in the 8.19% Series A Exchange
Junior Subordinated Deferrable Interest Notes issued by Southern Company Capital
Funding, Inc. Southern Company Capital Funding, Inc. is an indirect,
wholly-owned subsidiary of The Southern Company. The Southern Company has
guaranteed the payment of distributions on the Underlying Exchange Capital
Securities but only to the extent that the Underlying Issuer has funds legally
and immediately available therefor. The Southern Company has also guaranteed the
due and punctual payment of principal, redemption premium, if any, and interest
on the 8.19% Series A Exchange Junior Subordinated Deferrable Interest Notes
when and as the same becomes due and payable, whether at maturity, upon
redemption or otherwise.
OFFERED SECURITIES
The Trust will issue the Certificates in a single class.
As holder of Certificates, you will have the right to receive from the Trust:
o periodic payments of interest on the principal amount of your Certificates
accruing from the closing date at a rate of 8.19% per annum, on each February 1
and August 1 (absent the occurrence of a deferral of interest payments
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by the Underlying Issuer), commencing on February 1, 2000, until the principal
amount of your Certificates is paid in full as described below; and
o the pro rata share for your Certificates of a single payment of principal of
$29,000,000. It is expected that you will receive your pro rata share of the
principal payment on February 1, 2037, the maturity date of the Underlying
Exchange Capital Securities, or on such earlier date on which the Trust redeems
your Certificates as described under "Description of the Certificates-Redemption
of Certificates Upon Redemption of Underlying Exchange Capital Securities"
herein.
The Certificates are expected to trade flat. This means that any accrued and
unpaid interest on the Certificates will be reflected in the trading price, and
purchasers will not pay and sellers will not receive any accrued and unpaid
interest on the Certificates not included in the trading price.
REDEMPTION OF THE CERTIFICATES
The Underlying Issuer has the right, at its option, to redeem the Underlying
Exchange Capital Securities in whole or in part on or after February 1, 2007, at
an amount equal to the par amount of, plus accrued interest on, the Underlying
Exchange Capital Securities to be redeemed, plus a redemption premium (as
described below), if any.
The Underlying Issuer also has the right to redeem the Underlying Exchange
Capital Securities in whole at any time if there is more than an insubstantial
risk that certain adverse tax events may occur with respect to The Southern
Company, Southern Company Capital Funding, Inc. or the Underlying Issuer or that
a determination could be made that the Underlying Issuer is an Investment
Company under the Investment Company Act of 1940, at an amount at least equal to
the par amount of, plus accrued interest on, the Underlying Exchange Capital
Securities.
If the Underlying Exchange Capital Securities are redeemed in whole, the Trust
will redeem all Certificates, and if the Underlying Exchange Capital Securities
are redeemed in part, the Trust will
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redeem an equal principal amount of Certificates selected by lot, in each case,
for an amount at least equal to their principal amount. The amount, if any, by
which the redemption price paid on the Underlying Exchange Capital Securities
exceeds their principal amount is called the redemption premium. If the
Underlying Issuer pays a redemption premium on the Underlying Exchange Capital
Securities, you will receive a pro rata amount of such redemption premium
corresponding to the principal amount of your Certificates being redeemed. See
"Description of the Certificates--Redemption of Certificates Upon Redemption of
Underlying Exchange Capital Securities" herein.
The Underlying Issuer is not required to redeem the Underlying Exchange Capital
Securities. Therefore, there can be no assurance that the Trust will repurchase
your Certificates prior to February 1, 2037. Should the Trust redeem your
Certificates prior to February 1, 2037, the Trustee will notify you by mail at
least 15 days before such redemption date.
DEFERRAL OF INTEREST
Interest payments on the Certificates will be deferred if, and during the period
that, Southern Company Capital Funding, Inc. elects to defer interest payments
on the 8.19% Series A Exchange Junior Subordinated Deferrable Interest Notes.
UNDERLYING EXCHANGE CAPITAL SECURITIES
Southern Company Capital Trust I 8.19% Exchange Capital Securities.
TRUSTEE AND TRUST AGREEMENT
U.S. Bank Trust National Association will act as Trustee pursuant to a trust
agreement dated May 21, 1999, as supplemented by a supplement dated as of the
closing date. You may inspect the trust agreement and the supplement at the
office of the Trustee at 100 Wall Street, Suite 1600, New York, NY 10005.
DENOMINATIONS
Each Certificate will have a principal amount of $25.
REGISTRATION, CLEARANCE AND SETTLEMENT
Your Certificates will be registered in the name of Cede & Co., as the nominee
of The Depository Trust Company.
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TAX CONSIDERATIONS
Orrick, Herrington & Sutcliffe LLP, counsel to the Depositor, is of the opinion
that under existing law (1) the Trust will be a grantor trust and not a
partnership or an association taxable as a corporation; and (2) your
Certificates will represent beneficial interests in the Underlying Exchange
Capital Securities. For information reporting purposes, absent the occurrence of
a deferral of interest payments by the Underlying Issuer, interest payments on
the Underlying Exchange Capital Securities will be reported to you (and the
Internal Revenue Service) as interest and not original issue discount and will
be included in your income as it is paid (or, if you are an accrual method
taxpayer, as it is accrued) as interest (and not as original issue discount).
See "Certain Federal Income Tax Considerations" in the Prospectus.
ERISA CONSIDERATIONS
An "employee benefit plan" subject to the Employee Retirement Income Security
Act of 1974, as amended, or a "plan" subject to Section 4975 of the Internal
Revenue Code of 1986, contemplating the purchase of Certificates should consult
with its counsel before making such a purchase. The fiduciary of such an
employee benefit plan or plan and such legal advisors should consider whether
the Certificates will satisfy all of the requirements of the "publicly-offered
securities exception" described herein or the possible application of other
"prohibited transaction exemptions" described herein. See "Certain ERISA
Considerations" herein.
LISTING
The Certificates have been approved for listing, subject to official notice of
issuance, on the New York Stock Exchange. Trading of the Certificates on the New
York Stock Exchange is expected to commence within a 30-day period after the
initial delivery thereof. See "Underwriting" herein.
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RATINGS
It is a condition to issuance of the Certificates that they be rated identically
to the Underlying Exchange Capital Securities by each of Moody's Investors
Service, Inc. and Standard & Poor's Ratings Services. As of the date of this
prospectus supplement, the Underlying Exchange Capital Securities are rated "a3"
and "BBB+" by Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services, respectively.
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RISK FACTORS
You should consider the following factors in deciding whether to purchase the
Certificates:
1 NO INVESTIGATION OF THE UNDERLYING EXCHANGE CAPITAL SECURITIES, THE
UNDERLYING ISSUER, THE SOUTHERN COMPANY OR SOUTHERN COMPANY CAPITAL
FUNDING, INC. HAS BEEN MADE BY THE DEPOSITOR, UNDERWRITERS OR TRUSTEE.
None of the Depositor, the Underwriters or the Trustee has made, or will
make, any investigation of the business condition, financial or otherwise,
of the Underlying Issuer, The Southern Company or Southern Company Capital
Funding, Inc., or verify any reports or information filed by the
Underlying Issuer or The Southern Company with the Securities and Exchange
Commission or otherwise made available to the public. It is strongly
recommended that prospective investors in the Certificates consider
publicly available financial and other information regarding the
Underlying Issuer, The Southern Company and Southern Company Capital
Funding, Inc. See "The Underlying Issuer," "Description of the Underlying
Exchange Capital Securities," and "Appendix A-Description of Underlying
Exchange Capital Securities" herein.
2. UNDERLYING ISSUER IS THE ONLY PAYMENT SOURCE. The payments made by the
Underlying Issuer on the Underlying Exchange Capital Securities are the
only source of payment for your Certificates. Southern Company Capital
Funding, Inc. and The Southern Company are subject to laws permitting
bankruptcy, moratorium, reorganization or other actions; should Southern
Company Capital Funding, Inc. or The Southern Company experience financial
difficulties, this could result in delays in payment, partial payment or
non-payment of your Certificates. In the event of nonpayment on the
Underlying Exchange Capital Securities by the Underlying Issuer, you will
bear the risk of such nonpayment. See "Description of the
Certificates--Recovery on Underlying Exchange Capital Securities Following
Payment Default or Acceleration" herein.
3. CERTAIN PAYMENTS TO THE DEPOSITOR. On February 1, 2000 as payment of the
balance of the purchase price for the Underlying Exchange Capital
Securities, the Trustee will pay to the Depositor the amount of the
interest accrued on the Underlying Exchange Capital Securities from August
1, 1999 to but not including the closing date. In the event a payment
default or acceleration on the Underlying Exchange Capital Securities
occurs on or prior to February 1, 2000 and the Depositor is not paid such
accrued interest on such date, the Depositor will have a claim for such
accrued interest, and will share pro rata with holders of the Certificates
to the extent of such claim in the proceeds from the recovery on the
Underlying Exchange Capital Securities. See "Description of the
Certificates--Recovery on Underlying Exchange Capital Securities Following
Payment Default or Acceleration" herein.
4. DISTRIBUTIONS ON THE UNDERLYING EXCHANGE CAPITAL SECURITIES, AND
CONSEQUENTLY THE CERTIFICATES, MAY BE DEFERRED. Distributions on the
Underlying Exchange Capital Securities, and consequently the
Certificates, may be deferred by the Underlying Issuer in the event
Southern Company Capital Funding, Inc. defers payments on its 8.19%
Series A Exchange Junior Subordinated Deferrable Interest Notes. The
deferral may be for up to ten (10) semiannual interest distribution dates
provided that such extension period may not extend beyond February 1,
2037. During any extension period, interest on the 8.19% Series A
Exchange Junior Subordinated Deferrable Interest Notes, and consequently
the Certificates, will continue to accrue (and the amount of
distributions to which holders of such notes, and consequently the
Certificateholders, will continue to accumulate) at the rate of 8.19% per
annum, compounded semi-annually. See "Description of the
Certificates--Distributions" herein.
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5. POSSIBLE TAX AND MARKET PRICE CONSEQUENCES OF A DEFERRAL OF
DISTRIBUTIONS. Should Southern Company Capital Funding, Inc. exercise
its right to defer payments of interest on the 8.19% Series A Exchange
Junior Subordinated Deferrable Interest Notes, each holder of the
Underlying Exchange Capital Securities, and thus each holder of the
Certificates, will be required to accrue income (as original issue
discount) in respect of the deferred interest allocable to its Underlying
Exchange Capital Securities or Certificates, as the case may be, for
United States federal income tax purposes, which will be allocated but
not distributed to it. As a result, each such holder of a Certificate
will recognize income for United States federal income tax purposes in
advance of the receipt of cash and will not receive the cash related to
such income from the Underlying Issuer if the holder disposes of its
Certificates prior to the record date for the payment of distributions
thereafter. See "Certain Federal Income Tax Consequences" herein.
Should Southern Company Capital Funding, Inc. elect to exercise its right
to defer payments of interest on the 8.19% Series A Exchange Junior
Subordinated Deferrable Interest Notes in the future, the market price of
the Underlying Exchange Capital Securities, and consequently the
Certificates, is likely to be adversely affected. A holder that disposes
of its Certificates during a deferral period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Certificates. In addition, merely as a result of the existence of Southern
Company Capital Funding, Inc.'s right to defer payments of interest on the
8.19% Series A Exchange Junior Subordinated Deferrable Interest Notes, the
market price of the Underlying Exchange Capital Securities, and
consequently the Certificates, may be more volatile than the market prices
of other securities that are not subject to such deferrals.
6. THE 8.19% SERIES A EXCHANGE JUNIOR SUBORDINATED DEFERRABLE INTEREST NOTES
ARE SUBORDINATED TO OTHER OBLIGATIONS OF SOUTHERN COMPANY CAPITAL
FUNDING, INC., AND THE SOUTHERN COMPANY'S GUARANTEE OF PAYMENTS DUE ON
THE 8.19% SERIES A EXCHANGE JUNIOR SUBORDINATED DEFERRABLE INTEREST NOTES
iS SUBORDINATED TO OTHER OBLIGATIONS OF THE SOUTHERN COMPANY. The
obligations of Southern Company Capital Funding, Inc. under the 8.19%
Series A Exchange Junior Subordinated Deferrable Interest Notes will be
unsecured and rank subordinate and junior in right of payment to all
senior indebtedness of Southern Company Capital Funding, Inc. The
Southern Company's guarantee of the payments due on the 8.19% Series A
Exchange Junior Subordinated Deferrable Interest Notes will be unsecured
and rank subordinate and junior in right of payment to all senior
indebtedness of The Southern Company. There is no limitation on the
amount of secured or unsecured debt, including senior indebtedness, that
may be incurred by Southern Company Capital Funding, Inc or by The
Southern Company or by any of its subsidiaries. The ability of the
Underlying Issuer to pay amounts due on the Underlying Exchange Capital
Securities is solely dependent upon Southern Company Capital Funding,
Inc. or The Southern Company making payments on the 8.19% Series A
Exchange Junior Subordinated Deferrable Interest Notes as and when
required. See "Description of the Underlying Exchange Capital
Securities" herein.
7. THE UNDERLYING EXCHANGE CAPITAL SECURITIES MAY BE REDEEMED BY THE
UNDERLYING ISSUER IN THE EVENT CERTAIN ADVERSE TAX EVENTS OR AN
INVESTMENT COMPANY ACT EVENT OCCUR. If a Tax Event (as defined herein)
or an Investment Company Act Event (as defined herein) occurs, then on
not less than 30 nor more than 60 days' notice, Southern Company Capital
Funding, Inc. will have the right to prepay the 8.19% Series A Exchange
Junior Subordinated Deferrable Interest Notes in whole prior to February
1, 2007 and therefore cause a mandatory redemption of the Underlying
Exchange Capital Securities, and consequently the Certificates at the
Special Event Prepayment Price. See "Description of the
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Certificates--Redemption of Certificates Upon Redemption of Underlying
Exchange Capital Securities" herein.
8. CONDITIONAL RIGHT TO ADVANCE MATURITY. If there is a more than an
insubstantial risk of the occurrence and continuation of certain adverse
tax events, Southern Company Capital Funding, Inc. has the right under
certain conditions to advance the maturity date of the 8.19% Series A
Exchange Junior Subordinated Deferrable Interest Notes. See "Description
of the Certificates--Conditional Right to Advance Maturity" herein.
FORMATION OF THE TRUST
Structured Products Corp. (the "Depositor" or the "Company") will
establish a Trust, to be designated as CorTSsm Trust For Southern Company
Capital Trust I (the "Trust") under New York law pursuant to the Trust Agreement
dated May 21, 1999 (the "Trust Agreement"), as supplemented by the CorTSsm
Supplement 1999-4 dated as of the Closing Date. The "Closing Date" means the
date of initial delivery of the Certificates. The assets of the Trust will
consist of $29,000,000 8.19% Exchange Capital Securities due February 1, 2037
(the "Underlying Exchange Capital Securities" or, as referred to in the
Prospectus, the "Term Assets") issued by Southern Company Capital Trust I (the
"Underlying Issuer" or, as referred to in the Prospectus, the "Term Assets
Issuer") and payments of principal and interest made by the Underlying Issuer on
the Underlying Exchange Capital Securities as discussed in more detail under
"Description of the Certificates" herein. The sole asset of the Underlying
Issuer is $29,000,000 principal amount of the 8.19% Series A Exchange Junior
Subordinated Deferrable Interest Notes (the "Junior Subordinated Notes") issued
by Southern Company Capital Funding, Inc. ("Capital Funding"). Capital Funding
is an indirect wholly-owned subsidiary of The Southern Company ("Southern
Company"). The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Concurrently with
the execution and delivery of the Trust Agreement, the Company will deposit with
the Trustee the Underlying Exchange Capital Securities and the Trustee, on
behalf of the Trust, will accept such Underlying Exchange Capital Securities and
deliver the Certificates to or upon the order of the Company. The Trustee will
hold the Underlying Exchange Capital Securities for the benefit of the holders
of the Certificates (the "Certificateholders").
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Certificates will be used to purchase the Underlying Exchange Capital
Securities, which, after the purchase thereof, will be deposited by the Company
with the Trust and will be the sole Deposited Assets (as defined in the
Prospectus) of the Trust.
THE UNDERLYING ISSUER
This Prospectus Supplement does not provide information with respect to
the Underlying Issuer, Southern Company or Capital Funding. No investigation has
been made of the financial condition or creditworthiness of the Underlying
Issuer, Southern Company or Capital Funding in connection with the issuance of
the Certificates. The Company is not an affiliate of the Underlying Issuer,
Southern Company or Capital Funding.
The Underlying Issuer is a Delaware business trust formed for the
exclusive purposes of issuing the Underlying Exchange Capital Securities and
investing the proceeds thereof in the Junior Subordinated Notes. Southern
Company is subject to the informational requirements of the Securities Exchange
Act of 1934 and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by Southern
Company with the Commission pursuant to
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the informational requirements of the Exchange Act can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional
Office, John C. Kluczynski Federal Building, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be maintained upon written request addressed to the Securities and Exchange
Commission, Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
at http://www.sec.gov containing reports, proxy statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy statements and other information can also be inspected at the
offices of the New York Stock Exchange, on which one or more of Southern
Company's securities are listed.
THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS, THE UNDERLYING EXCHANGE
CAPITAL SECURITIES PROSPECTUS AND THE UNDERLYING EXCHANGE CAPITAL SECURITIES
REGISTRATION STATEMENT DESCRIBES THE MATERIAL TERMS OF THE UNDERLYING EXCHANGE
CAPITAL SECURITIES. THIS PROSPECTUS SUPPLEMENT IS QUALIFIED IN ITS ENTIRETY BY,
AND SHOULD BE READ IN CONJUNCTION WITH, (I) THE PROSPECTUS, (II) THE UNDERLYING
EXCHANGE CAPITAL SECURITIES PROSPECTUS AND (III) THE UNDERLYING EXCHANGE CAPITAL
SECURITIES REGISTRATION STATEMENT OF WHICH SUCH UNDERLYING EXCHANGE CAPITAL
SECURITIES PROSPECTUS IS A PART. NO REPRESENTATION IS MADE BY THE TRUST, THE
TRUSTEE, THE UNDERWRITERS OR THE COMPANY AS TO THE ACCURACY OR COMPLETENESS OF
THE INFORMATION CONTAINED IN THE UNDERLYING EXCHANGE CAPITAL SECURITIES
REGISTRATION STATEMENT.
DESCRIPTION OF THE UNDERLYING EXCHANGE CAPITAL SECURITIES
The Underlying Exchange Capital Securities of the Trust will consist
solely of $29,000,000 aggregate principal amount of Southern Company Capital
Trust I 8.19% Exchange Capital Securities issued by the Underlying Issuer,
having the characteristics described in a Prospectus dated August 4, 1997 (the
"Underlying Exchange Capital Securities Prospectus"). The Underlying Exchange
Capital Securities were originally issued by the Underlying Issuer as part of an
underwritten public offering of $325,000,000 aggregate principal amount of such
securities, pursuant to a registration statement no. 333-28349 (together with
all amendments and exhibits thereto, the "Underlying Exchange Capital Securities
Registration Statement"), filed by the Underlying Issuer with the Commission
under the Securities Act of 1933, as amended (the "Securities Act").
Distributions are required to be made on the Underlying Exchange Capital
Securities (i) semiannually on the 1st of each February and August, commencing
on February 1, 2000, or if such day is not a Business Day, on the next
succeeding Business Day and (ii) a single payment of principal of $29,000,000
payable on February 1, 2037 (the "Maturity Date") or upon earlier redemption.
The payments of interest on the Junior Subordinated Notes, and thus the
Underlying Exchange Capital Securities and the Certificates, may be deferred by
Capital Funding at any time or from time to time for up to ten (10) semiannual
interest periods. During any such period, neither Southern Company nor Capital
Funding will be permitted to make a payment on its capital stock or any debt
securities that rank equal to or junior to, the Junior Subordinated Notes or
Southern Company's guarantees, respectively. The Junior Subordinated Notes, and
consequently the Underlying Exchange Capital Securities, rank subordinate and
junior to all senior indebtedness of Capital Funding. Southern Company has
guaranteed the payment of distributions on the Underlying Exchange Capital
Securities but only to the extent that the Underlying Issuer has funds legally
and immediately available therefor. Southern Company has also guaranteed the due
and punctual payment of principal, redemption premium, if any, and interest on
the Junior Subordinated Notes when and as the same become due and payable,
whether at maturity, upon redemption or otherwise. Southern Company's guarantee,
however, is an unsecured obligation of Southern Company and ranks subordinate
and junior to all senior indebtedness of Southern Company.
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This Prospectus Supplement sets forth material terms with respect to the
Underlying Exchange Capital Securities, but does not provide detailed
information with respect thereto. This Prospectus Supplement relates only to the
Certificates offered hereby and is not an offering document for the Underlying
Exchange Capital Securities. All disclosure contained herein with respect to the
Underlying Exchange Capital Securities is derived from publicly available
documents described above. The Underlying Issuer and Southern Company are
subject to the information reporting requirements of the Securities Exchange Act
of 1934 (the "Exchange Act"). Accordingly, the Underlying Issuer and Southern
Company are obligated to file reports and other information with the Commission.
Although the Company has no reason to believe the information concerning the
Underlying Exchange Capital Securities or the Underlying Issuer set forth in the
Underlying Exchange Capital Securities Prospectus or any report filed under the
Exchange Act is not reliable, neither the Company nor any of the Underwriters
has participated in the preparation of such documents, or made any due diligence
inquiry with respect to the information provided therein. Neither the Company
nor any of the Underwriters has verified the accuracy or completeness of such
documents or reports. Information contained in such documents and reports is as
of the date(s) stated therein, and comparable information, if given as of the
date hereof, may be different. There can be no assurance that events affecting
the Underlying Exchange Capital Securities, the Underlying Issuer, Capital
Funding or Southern Company have not occurred, which have not yet been publicly
disclosed, which would affect the accuracy or completeness of the publicly
available documents described above.
RATINGS
The Underlying Exchange Capital Securities have been rated "a3" by Moody's
Investors Service, Inc. ("Moody's") and "BBB+" by Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies ("S&P"). Any rating of the
Underlying Exchange Capital Securities is not a recommendation to purchase, hold
or sell such Underlying Exchange Capital Securities or the Certificates, and
there can be no assurance that a rating will remain for any given period of time
or that a rating will not be revised or withdrawn entirely by a rating agency if
in its judgment circumstances in the future so warrant.
YEAR 2000
Certain information technology ("IT") and non-IT systems (i.e. embedded
technology such as microcontrollers) may utilize older computer programs that
were written using two digits rather than four to define the applicable year.
Consequently, such computer programs may recognize a date using "00" as the year
1900 rather than the year 2000. These computer programs may fail to operate
properly in the year 2000 and after if they are not modified or replaced to
comply with year 2000 requirements.
The Underlying Issuer may not timely conduct or complete a year 2000
assessment and there can be no assurance that the Underlying Issuer will make
any necessary modifications or replacements of its IT or non-IT systems in time,
if at all. Failure to do so could result in a disruption of operations of the
Underlying Issuer, including, among other things, a temporary inability to
process funds or engage in similar normal business practices. As a result,
payments to Certificateholders may be interrupted or impaired.
THE UNDERWRITERS AND THE UNDERLYING ISSUER
From time to time, Salomon Smith Barney Inc. and PaineWebber Incorporated
(collectively, the "Underwriters") may be engaged by the Underlying Issuer,
Capital Funding or Southern Company as underwriters or placement agents, in an
advisory capacity or in other business
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arrangements. In addition, the Underwriters or an affiliate of the Depositor may
make a market in other outstanding securities of the Underlying Issuer, Capital
Funding or Southern Company.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement. The following summary as well as other pertinent information included
elsewhere in this Prospectus Supplement and in the Prospectus describes material
terms of the Certificates and the Trust Agreement, but does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Certificates and the Trust Agreement. The following
summary supplements the description of the general terms and provisions of the
Certificates of any given series and the related Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
The Certificates will be denominated and distributions with respect
thereto will be payable in United States Dollars, which will be the "Specified
Currency" as such term is defined in the Prospectus. The Certificates represent
in the aggregate the entire beneficial ownership interest in the Trust. The
property of the Trust will consist of (i) the Underlying Exchange Capital
Securities and (ii) all payments on or collections in respect of the Underlying
Exchange Capital Securities accrued on or after the Closing Date, together with
any proceeds thereof. The property of the Trust will be held for the benefit of
the holders of the Certificates by the Trustee. The Certificates represent a pro
rata portion of the then-current aggregate principal balance of all outstanding
Certificates and will equal the portion of the proceeds received from the
Underlying Exchange Capital Securities that the holder of such Certificate is
entitled to receive on February 1, 2037.
All distributions to Certificateholders will be made only from the
property of the Trust as described herein. The Certificates do not represent an
interest in or obligation of the Depositor, the Underlying Issuer, Southern
Company, the Trustee, the Underwriters, or any affiliate if any thereof.
DISTRIBUTIONS
Each Certificate evidences the right to receive, to the extent received on
the Underlying Exchange Capital Securities, a semiannual distribution of
interest on February 1 and August 1 of each year, commencing February 1, 2000,
and a distribution of principal on February 1, 2037, or if any such day is not a
Business day, the next succeeding Business Day, or upon early redemption. For
purposes of the foregoing, "Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed. Distributions of
interest on the Certificates, however, may be deferred as a result in the
deferral of payment on the Junior Subordinated Notes held by the Underlying
Issuer. Distributions on the Junior Subordinated Notes may be deferred by
Capital Funding for up to ten (10) consecutive semiannual interest periods (such
deferral period, the "Extension Period") provided that no Extension Period
extends beyond February 1, 2037. During any Extension Period, interest on the
Junior Subordinated Notes, and consequently the Certificates, will continue to
accrue (and the amount of distributions to which holders of the Junior
Subordinated Notes, and consequently the Certificateholders, will continue to
accumulate) at the rate of 8.19% per annum, compounded semi-annually.
ADDITIONAL UNDERLYING EXCHANGE CAPITAL SECURITIES AND CERTIFICATES
From time to time hereafter, additional Underlying Exchange Capital
Securities may be sold to the Trust, in which case additional Certificates will
be issued in a principal amount equal to the
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principal amount of Underlying Exchange Capital Securities so sold to the
Trustee. Any such additional Certificates issued will rank pari passu with the
Certificates issued on the date hereof.
REDEMPTION OF CERTIFICATES UPON REDEMPTION OF UNDERLYING EXCHANGE CAPITAL
SECURITIES
Upon receipt by the Trustee of a notice that all or a portion of the
Underlying Exchange Capital Securities are to be redeemed, the Trustee will
select by lot an equal principal amount of Certificates for redemption and
establish the date such Certificates are to be redeemed. Notice of such
redemption will be given by the Trustee to the registered Certificateholders not
less than 15 days prior to the redemption date by mail to each registered
Certificateholder at such registered Certificateholder's last address on the
register maintained by the Trustee, provided, however, that the Trustee will not
be required to give any notice of redemption prior to the third business day
after the date it receives notice of such redemption.
The Underlying Exchange Capital Securities as originally issued are
redeemable, in whole or in part on or after February 1, 2007, on not less than
30 nor more than 60 days' notice, at the option of the Underlying Issuer (such
redemption, an "Optional Redemption"). The redemption price in the case of an
Optional Redemption of the Underlying Exchange Capital Securities will be equal
to the par value of the Underlying Exchange Capital Securities to be redeemed
plus accrued interest on the principal amount being redeemed, plus the
redemption premium, if any. The redemption premium will be equal to the
percentages set forth below as of February 1 of each of the years set forth
below:
YEAR PREMIUM
2007..................................... 4.0950%
2008..................................... 3.6855%
2009..................................... 3.2760%
2010..................................... 2.8665%
2011..................................... 2.4570%
2012..................................... 2.0475%
2013..................................... 1.6380%
2014..................................... 1.2285%
2015..................................... 0.8190%
2016..................................... 0.4095%
2017 and thereafter...................... 0.0000%
In addition, if a Special Event (as defined below) occurs, on not less
than 30 nor more than 60 days' notice, Capital Funding will have the option
either to redeem the Junior Subordinated Notes in whole, thus causing a
redemption of the Underlying Exchange Capital Securities, (such redemption, a
"Special Event Redemption") or to cause the termination of Southern Company
Capital Trust I and the distribution of the Junior Subordinated Notes pro rata
to the holders of the Underlying Exchange Capital Securities. The redemption
price in the case of a Special Event Redemption prior to February 1, 2007 will
be the Special Event Prepayment Price. The "Special Event Prepayment Price" will
equal the greater of (i) 100% of the principal amount of the Underlying Exchange
Capital Securities or (ii) the sum of the present value of the remaining
scheduled payments of principal of, and accrued interest on, the Junior
Subordinated Notes through February 1, 2007 discounted to the date of redemption
on a semi-annual basis (assuming a 360-day year consisting of twelve thirty day
months) at a certain treasury benchmark rate plus 0.50%, plus, in each case (i)
and (ii), accrued interest thereon to the date of redemption. "Special Event"
means either (A) the receipt by Southern Company, Capital Funding and the
Underlying Issuer of an opinion of independent tax counsel experienced in such
matters (which may be counsel to Southern Company or Capital Funding) to the
effect that, as a result of (i) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political
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subdivision or taxing authority thereof or therein, or (ii) any amendment to or
change in an interpretation or application of such laws or regulations, there is
more than an insubstantial risk that (a) the Underlying Issuer would be subject
to United States federal income tax with respect to income accrued or received
on the Junior Subordinated Notes, (b) interest payable to the Underlying Issuer
on the Junior Subordinated Notes would not be deductible by a member of Southern
Company's consolidated tax group for United States federal income tax purposes
or (c) the Underlying Issuer would be subject to more than a de minimis amount
of other taxes, duties or other governmental charges, which charge or amendment
becomes effective after February 4, 1997 ( a "Tax Event") or (B) the receipt by
Southern Company, Capital Funding and the Underlying Issuer of an opinion of
independent counsel (which may be counsel to Southern Company or Capital
Funding) to the effect that as a result of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority after
February 4, 1997, there is more than an insubstantial risk that the Underlying
Issuer is or will be considered an investment company under the Investment
Company Act of 1940 (an "Investment Company Act Event").
In the event that the Junior Subordinated Notes are distributed to the
Trust in exchange for the Underlying Exchange Capital Securities upon the
occurrence of a Special Event Redemption, such distribution will not cause the
Certificates to be redeemed. The Trust will hold the Junior Subordinated Notes
for the benefit of the Certificateholders in accordance with the terms of the
Trust Agreement.
The holder of a Certificate which is redeemed will receive, on the
redemption date, a payment equal to its pro rata share of the distributions made
on the Underlying Exchange Capital Securities pursuant to an Optional Redemption
or a Special Event Redemption as set forth above.
CONDITIONAL RIGHT TO ADVANCE MATURITY
If a Tax Event occurs, Capital Funding will have the right (a) prior to
the dissolution of the Underlying Issuer, to advance the stated maturity of the
Junior Subordinated Notes to the minimum extent required, but not less than 19
and one-half years from the date of original issuance thereof, or (b) to
dissolve the Underlying Issuer (if not previously dissolved) and advance the
stated maturity of the Junior Subordinated Notes to the minimum extent required,
but not less than 19 and one-half years from the date of original issuance
thereof, in each case such that in the opinion of counsel to Capital Funding
experienced in such matters, after advancing the stated maturity, interest paid
on the Junior Subordinated Notes will be deductible for federal income tax
purposes.
RECOVERY ON UNDERLYING EXCHANGE CAPITAL SECURITIES FOLLOWING PAYMENT
DEFAULT OR ACCELERATION
If a Payment Default or an Acceleration occurs, the Trustee will promptly
give notice to The Depository Trust Company ("DTC") or, for any Certificates
which are not then held by DTC or any other depository, directly to the
registered holders of the Certificates thereof. Such notice will set forth (i)
the identity of the issue of Underlying Exchange Capital Securities, (ii) the
date and nature of such Payment Default or Acceleration, (iii) the amount of the
interest or principal in default, (iv) the Certificates affected by the Payment
Default or Acceleration, and (v) any other information which the Trustee may
deem appropriate.
In the event of a Payment Default, the Trustee is required to proceed
against the Underlying Issuer or Capital Funding on behalf of the
Certificateholders to enforce the Underlying Exchange Capital Securities or
otherwise to protect the interests of the Certificateholders, subject to the
receipt of indemnity in form and substance satisfactory to the Trustee;
provided, that holders of Certificates representing a majority of the Voting
Rights on the Certificates will be entitled to direct the Trustee
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in any such proceeding or direct the Trustee to sell the Underlying Exchange
Capital Securities, subject to the Trustee's receipt of satisfactory indemnity.
In the event of an Acceleration and a corresponding payment on the Underlying
Exchange Capital Securities, the Trustee will distribute the proceeds to the
Certificateholders no later than two Business Days after the receipt of
immediately available funds.
A "Payment Default" means a default in the payment of any amount due on
the Underlying Exchange Capital Securities after the same becomes due and
payable (and the expiration of any applicable grace period on the Underlying
Exchange Capital Securities). An "Acceleration" means the acceleration of the
maturity of the Underlying Exchange Capital Securities after the occurrence of
any default on the Underlying Exchange Capital Securities other than a Payment
Default.
In the event that the Trustee receives money or other property in respect
of the Underlying Exchange Capital Securities (other than a scheduled payment on
or with respect to an interest payment date) as a result of a Payment Default on
the Underlying Exchange Capital Securities (including from the sale thereof),
the Trustee will promptly give notice as provided in the Trust Agreement to DTC,
or for any Certificates which are not then held by DTC or any other depository,
directly to the registered holders of the Certificates then outstanding and
unpaid. Such notice will state that, not later than 30 days after the receipt of
such moneys or other property, the Trustee will allocate and distribute such
moneys or other property to the holders of Certificates then outstanding and
unpaid, pro rata by principal amount (after deducting the costs incurred in
connection therewith and subject to the provisions set forth under "Description
of the Trust Agreement - Certain Payments to the Depositor" herein). Property
other than cash will be liquidated by the Trustee, and the proceeds thereof
distributed in cash, only to the extent necessary to avoid distribution of
fractional securities to Certificateholders. Any such amounts received by the
Trustee in excess of principal and accrued unpaid interest on the Certificates
will be distributed to the Depositor. In-kind distribution of Underlying
Exchange Capital Securities to Certificateholders will be deemed to reduce the
principal amount of Certificates on a dollar-for-dollar basis. Following such in
kind distribution, all Certificates will be cancelled. Other than as set forth
under "Description of the Trust Agreement - Certain Payments to the Depositor",
no amounts will be distributed to the Depositor in respect of the Underlying
Exchange Capital Securities unless and until principal and accrued interest on
the Certificates has been paid (or reduced by distributions in kind) in full.
Interest and principal payments on the Underlying Exchange Capital
Securities are payable solely by the Underlying Issuer. Capital Funding and
Southern Company are subject to laws permitting bankruptcy, liquidation,
moratorium, reorganization or other actions which, in the event of financial
difficulties of Capital Funding or Southern Company, could result in delays in
payment, partial payment or non-payment of the Certificates relating to the
Underlying Exchange Capital Securities.
LISTING ON THE NEW YORK STOCK EXCHANGE
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange ("NYSE"). There can be no assurance
that the Certificates, once listed, will continue to be eligible for trading on
the NYSE.
FORM OF THE CERTIFICATES
The Certificates will be delivered in registered form. The Certificates
will be issued, maintained and transferred on the book-entry records of DTC and
its Participants in minimum denominations of $25 and integral multiples thereof.
Certificateholders will not receive physical certificates.
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DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Trust Agreement, a form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the Prospectus form a part. A Current Report on Form
8-A relating to the Certificates containing a copy of the CorTSsm Supplement
1999-4 to the Trust Agreement as executed will be filed by the Company with the
Commission following the issuance and sale of the Certificates. The assets of
the Trust created under the Trust Agreement will consist of (i) the Underlying
Exchange Capital Securities and (ii) all payments on or collections in respect
of the Underlying Exchange Capital Securities due after the Closing Date.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust, the terms and conditions of the Trust
Agreement and the Certificates. The following summaries of certain provisions of
the Trust Agreement do not purport to be complete and are subject to the
detailed provisions contained in the form of Trust Agreement, to which reference
is hereby made for a full description of such provisions, including the
definition of certain terms used herein.
CERTAIN PAYMENTS TO THE DEPOSITOR
On February 1, 2000, as payment of the balance of the purchase price for
the Underlying Exchange Capital Securities, the Trustee will pay to the
Depositor the amount of the interest accrued on the Underlying Exchange Capital
Securities from August 1, 1999 to but not including the Closing Date. In the
event the Depositor is not paid such accrued interest on such date, the
Depositor will have a claim for such accrued interest, and will share pari passu
with Certificateholders to the extent of such claim in the proceeds from the
recovery on the Underlying Exchange Capital Securities.
THE TRUSTEE
U.S. Bank Trust National Association, a national banking association, will
act as Trustee for the Certificates and the Trust pursuant to the Trust
Agreement. The Trustee's offices are located at 100 Wall Street, Suite 1600, New
York, New York 10005 and its telephone number is (212) 361-2500.
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent thereof will be indemnified by the Trust and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Trust Agreement or the Certificates or the
performance of the Trustee's duties under the Trust Agreement, other than any
loss, liability or expense that was incurred by reason of willful misconduct,
bad faith or negligence in the performance of the Trustee's duties under the
Trust Agreement.
Pursuant to the Trust Agreement, as compensation for the performance of
its duties under such agreement, the Trustee will be entitled to payment of
Trustee fees and reimbursement of expenses by the Company pursuant to a separate
agreement with the Company, but will not have any claim against the Trust with
respect thereto.
EVENT OF DEFAULT
There are no events of default with respect to the Certificates. If a
Payment Default or Acceleration occurs (or other default with respect to the
Underlying Exchange Capital Securities occurs), the Trustee will act upon the
instruction of Certificateholders to recover amounts due on the Underlying
Exchange Capital Securities and distribute the proceeds from such recovery
(after deducting the costs incurred in connection therewith and subject to the
provisions set forth above
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under "--Certain Payments to the Depositor") to the Certificateholders. See
"Description of the Certificates--Recovery on Underlying Exchange Capital
Securities Following Payment Default or Acceleration" herein.
NO DERIVATIVE TRANSACTIONS
The Trust is not permitted to engage in derivative transactions.
VOTING RIGHTS
The Certificateholders will have 100% of the total voting rights as
specified in the Trust Agreement (the "Voting Rights"). All Voting Rights with
respect to the Certificates will be allocated in proportion to the respective
principal balances of the then-outstanding Certificates held by such
Certificateholders on any date of determination.
VOTING OF UNDERLYING EXCHANGE CAPITAL SECURITIES
The Trustee, as holder of the Underlying Exchange Capital Securities, has
the right to vote and give consents and waivers in respect of such Underlying
Exchange Capital Securities as permitted by the depositary with respect thereto
and except as otherwise limited by the Trust Agreement. In the event that the
Trustee receives a request from the Underlying Issuer for its consent to any
amendment, modification or waiver of the Underlying Exchange Capital Securities
or any document relating thereto, or receives any other solicitation for any
action with respect to the Underlying Exchange Capital Securities, the Trustee
will mail a notice of such proposed amendment, modification, waiver or
solicitation to each Certificateholder of record as of such date. The Trustee
will request instructions from the Certificateholders as to whether or not to
consent to or vote to accept such amendment, modification, waiver or
solicitation. The Trustee will consent or vote, or refrain from consenting or
voting, in the same proportion (based on the relative principal balances of the
Certificates) as the Certificates of the Trust were actually voted or not voted
by the Certificateholders thereof as of a date determined by the Trustee prior
to the date on which such consent or vote is required; PROVIDED, HOWEVER, that,
notwithstanding anything to the contrary stated herein, the Trustee will at no
time vote in favor of or consent to any matter (i) which would alter the timing
or amount of any payment on the Underlying Exchange Capital Securities,
including, without limitation, any demand to accelerate the Underlying Exchange
Capital Securities or (ii) which would result in the exchange or substitution of
any Underlying Exchange Capital Security pursuant to a plan for the refunding or
refinancing of such Underlying Exchange Capital Security, except in each case
with the unanimous consent of the Certificateholders and subject to the
requirement that such vote or consent would not, based on an opinion of counsel,
materially increase the risk that the Trust would fail to qualify as a grantor
trust for federal income tax purposes. The Trustee will have no liability for
any failure to act resulting from Certificateholders' late return of, or failure
to return, directions requested by the Trustee from the Certificateholders.
TERMINATION OF THE TRUST
The Trust will terminate upon (i) the payment in full at maturity or upon
early redemption of the Certificates or (ii) the distribution of the proceeds
received upon a recovery on the Underlying Exchange Capital Securities (after
deducting the costs incurred in connection therewith) after a Payment Default or
an Acceleration thereof (or other default with respect to the Underlying
Exchange Capital Securities).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Orrick, Herrington & Sutcliffe LLP, counsel to the Depositor, is of the
opinion that under existing law (1) the Trust will be a grantor trust and not a
partnership or an association taxable as a corporation; and (2) your
Certificates will represent beneficial interests in the Underlying Exchange
Capital Securities. For information reporting purposes, absent the occurrence of
a deferral of interest payments by the Underlying Issuer, interest payments on
the Underlying Exchange Capital Securities will be reported to you on Form 1099
(and the Internal Revenue Service) as interest and not original issue discount
and will be included in your income as it is paid (or, if you are an accrual
method taxpayer, as it is accrued) as interest (and not as original issue
discount). See "Certain Federal Income Tax Considerations" in the Prospectus.
Should Capital Funding exercise its right to defer payments of interest on
the Junior Subordinated Notes, each holder of the Underlying Exchange Capital
Securities, and thus each holder of the Certificates, will be required to accrue
income (as original issue discount) in respect of the deferred interest
allocable to its Underlying Exchange Capital Securities or Certificates, as the
case may be, for United States federal income tax purposes, which will be
allocated but not distributed to it. As a result, each such holder of a
Certificate will recognize income for United States federal income tax purposes
in advance of the receipt of cash and will not receive the cash related to such
income from the Underlying Issuer if the holder disposes of its Certificates
prior to the record date for the payment of distributions thereafter.
CERTAIN ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on (a) an employee
benefit plan (as defined in Section 3(3) of ERISA), (b) a plan described in
Section 4975(e)(1) of the Code, including an individual retirement account
("IRA") or Keogh plan or (c) any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity (each, a "Plan").
ERISA and Section 4975 of the Code prohibit certain transactions involving
the assets of a Plan and persons who have specified relationships to the Plan,
I.E., "parties in interest" within the meaning of ERISA or "disqualified
persons" within the meaning of the Code (collectively, "Parties in Interest").
Thus, a Plan fiduciary considering an investment in Certificates should consider
whether such an investment might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code. The Underlying Issuer, the
Underwriters, the Trustee and their respective affiliates may be Parties in
Interest with respect to many Plans.
If an investment in Certificates by a Plan were to result in the assets of
the Trust being deemed to constitute "plan assets" of such Plan, certain aspects
of such investment, including the operations of the Trust and the deemed
extension of credit between the Underlying Issuer and the holder of a
Certificate (as a result of the Underlying Exchange Capital Securities being
deemed to be plan assets), as well as subsequent transactions involving the
Trust or its assets, might constitute or result in prohibited transactions under
Section 406 of ERISA and Section 4975 of the Code unless exemptive relief were
available under an applicable exemption issued by the United States Department
of Labor (the "DOL"). Neither ERISA nor the Code defines the term "plan assets."
Under Section 2510.3-101 of the DOL regulations (the "Regulation"), a Plan's
assets may include the assets of an entity if the Plan acquires an "equity
interest" in such entity unless an exception applies under the Regulation. Thus,
if a Plan acquires a Certificate, for certain purposes (including the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code),
the Plan would be considered to own an undivided interest in the underlying
assets of the Trust unless such Certificate is a "publicly-offered security" or
another exception applies under the Regulation.
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The Underwriters expect that the Certificates will satisfy the criteria
for treatment as publicly-offered securities under the Regulation. A
publicly-offered security is a security that is (i) freely transferable, (ii)
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another at the conclusion of the initial offering, and
(iii) either is (A) part of a class of securities registered under Section 12(b)
or 12(g) of the Exchange Act, or (B) sold to the Plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and the class of securities of which such security is a part
is registered under the Exchange Act within 120 days (or such later time as may
be allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred.
The Underwriters will verify that there will be at least 100 separate
purchasers (whom the Underwriters have no reason to believe are not independent
of the Company or of one another) at the conclusion of the initial offering.
There is no assurance that the 100 independent investor requirement of the
"publicly-offered security" exception will, in fact, be satisfied.
NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION THAT AN INVESTMENT
IN THE CERTIFICATES WOULD MEET ANY OR ALL OF THE RELEVANT LEGAL REQUIREMENTS
WITH RESPECT TO INVESTMENTS BY, OR IS APPROPRIATE FOR, PLANS GENERALLY OR ANY
PARTICULAR PLAN. ANY PLAN OR ANY OTHER ENTITY THE ASSETS OF WHICH ARE DEEMED TO
BE "PLAN ASSETS," SUCH AS AN INSURANCE COMPANY INVESTING ASSETS OF ITS GENERAL
ACCOUNT, PROPOSING TO ACQUIRE CERTIFICATES SHOULD CONSULT WITH ITS COUNSEL.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") between the Underwriters named below
and the Company, the Company will sell the Certificates to the Underwriters, and
each of the Underwriters named below have agreed to purchase from the Company
the respective number of Certificates set forth opposite its name. In the
Underwriting Agreement, the Underwriters named below have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates if
any Certificates are purchased.
Number of
UNDERWRITERS CERTIFICATES
PaineWebber Incorporated....................... 580,000
Salomon Smith Barney........................... 580,000
-------
Total 1,160,000
=========
The Company has been advised by the Underwriters that it proposes
initially to offer the Certificates to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $.50 per Certificate.
The Underwriters may allow and such dealers may reallow a concession not in
excess of $.25. After the initial public offering, the public offering price and
the concessions may be changed.
The Certificates are a new issue of securities with no established trading
market. The Certificates will be approved for listing, subject to official
notice of issuance, on the NYSE. Trading of the Certificates on the NYSE is
expected to commence within the 30-day period after the initial delivery
thereof. In order to meet one of the requirements for listing the Certificates
on the NYSE, the Underwriters have undertaken to sell the Certificates to a
minimum of 400 beneficial owners. The Underwriters have told the Company that it
presently intends to make a market in the
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Certificates prior to commencement of trading on the NYSE, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however, to
make a market in the Certificates. Any market making by the Underwriters may be
discontinued at any time at the sole discretion of the Underwriters. No
assurance can be given as to whether a trading market for the Certificates will
develop or as to the liquidity of any trading market.
The Certificates are expected to trade flat. This means that any accrued
and unpaid interest on the Certificates will be reflected in the trading price,
and purchasers will not pay and sellers will not receive any accrued and unpaid
interest on the Certificates not included in the trading price.
Until the distribution of the Certificates is completed, rules of the
Commission may limit the ability of the Underwriters to bid for and purchase the
Certificates. As an exception to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Certificates.
Possible transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Certificates.
If the Underwriters create a short position in the Certificates in
connection with this offering, that is, if they sell a greater aggregate
principal amount of Certificates than is set forth on the cover page of this
Prospectus Supplement, the Underwriters may reduce that short position by
purchasing Certificates in the open market. The Underwriters may also impose a
penalty bid on certain selling group members. This means that if an Underwriter
purchases Certificates in the open market to reduce its short position or to
stabilize the price of the Certificates, it may reclaim the amount of the
selling concession from the selling group members who sold those Certificates as
part of the offering.
In general, purchase of a security for the purposes of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a Certificate to the extent that it
were to discourage resales of the Certificates.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above might have on the price of the Certificates. In addition,
neither the Company nor the Underwriters make any representation that the
Underwriters will engage in such transactions. Such transactions, once
commenced, may be discontinued without notice.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
Salomon Smith Barney Inc. is an affiliate of the Company, and the
participation by Salomon Smith Barney Inc. in the offering of the Certificates
complies with Conduct Rule 2720 of the National Association of Securities
Dealers, Inc. regarding underwriting securities of an affiliate.
RATINGS
It is a condition to the establishment of the Trust and the issuance of
the Certificates that the Certificates be rated identically to the Underlying
Exchange Capital Securities by both Moody's and S&P. Moody's and S&P have rated
the Underlying Exchange Capital Securities "a3" and "BBB+" respectively.
The ratings address the likelihood of the receipt by holders of the
Certificates of payments required under the Trust Agreement, and are based
primarily on the credit quality of the Underlying Exchange Capital Securities.
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A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by S&P and Moody's.
Each security rating should be evaluated independently of any other security
rating.
The Company has not requested a rating on the Certificates by any rating
agency other than the S&P and Moody's. However, there can be no assurance as to
whether any other rating agency will rate the Certificates, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
ratings assigned to the Certificates by the S&P and Moody's.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company and for the Underwriters by Orrick, Herrington & Sutcliffe LLP, New
York, New York.
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INDEX OF TERMS
Acceleration.....................................................16
Business Day.....................................................13
Capital Funding..................................................10
Certificateholders...............................................10
Closing Date.....................................................10
Commission.......................................................10
Company..........................................................10
Depositor........................................................10
DOL..............................................................19
DTC..............................................................15
ERISA............................................................19
Exchange Act.....................................................12
Extension Period.................................................13
Investment Company Act Event.....................................15
IRA..............................................................19
IT...............................................................12
Junior Subordinated Notes........................................10
Maturity Date....................................................11
Moody's..........................................................12
NYSE.............................................................16
Optional Redemption..............................................14
Parties in Interest..............................................19
Payment Default..................................................16
Plan.............................................................19
Regulation.......................................................19
S&P..............................................................12
Securities Act...................................................11
Southern Company.................................................10
Special Event....................................................14
Special Event Prepayment Price...................................14
Special Event Redemption.........................................14
Tax Event........................................................15
Trust............................................................10
Trust Agreement..................................................10
Trust Indenture Act..............................................10
Underlying Exchange Capital Securities...........................10
Underlying Exchange Capital Securities Prospectus................11
Underlying Exchange Capital Securities Registration Statement....11
Underlying Issuer................................................10
Underwriters.....................................................12
Underwriting Agreement...........................................20
Voting Rights....................................................18
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APPENDIX A
DESCRIPTION OF THE UNDERLYING EXCHANGE CAPITAL SECURITIES
Issuer: Southern Company Capital Trust I
Underlying Exchange Capital Securities: 8.19% Exchange Capital
Securities due February 1, 2037
Maturity Date: February 1, 2037
Original Principal Amount Issued: $325,000,000
CUSIP No.: 84258PAC1
Stated Interest Rate: 8.19% per annum
Interest Payment Dates: February 1 and August 1
Optional Redemption: The Underlying Exchange Capital
Securities, and consequently the
Certificates, will be redeemable,
in whole or in part, at the
option of the Underlying Issuer,
on not less than 30 nor more than
60 days notice, at a price equal
to 104.095% plus accrued interest
on February 1, 2007 and at
declining prices thereafter to
100.00% plus accrued interest on
February 1, 2017.
Special Event Redemption: The Underlying Exchange Capital
Securities are redeemable, in
whole but not in part, at any time
by the Underlying Issuer if
certain adverse tax events occur
with respect to Southern Company,
Capital Funding or the Underlying
Issuer or a determination could
be made that the Underlying Issuer
is an Investment Company under
the Investment Company Act of
1940.
Principal Amount of Underlying
Capital Securities Deposited
Under Trust Agreement: $29,000,000
The above summary is qualified in its entirety by reference to the
Underlying Exchange Capital Securities Prospectus. Neither the Depositor nor any
of its affiliates make any representation about the completeness, accuracy or
timeliness of information in the Underlying Exchange Capital Securities
Prospectus.
AVAILABLE INFORMATION
Southern Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by Southern Company with the Commission pursuant to
the informational requirements of the Exchange Act can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional
Office, John C. Kluczynski Federal Building, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be maintained upon written request addressed to the Securities and Exchange
Commission, Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy statements and other information can also be inspected at the
offices of the New York Stock Exchange, on which one or more of Southern
Company's securities are listed.
