Filed Pursuant To Rule 424(b)(4)
Registration No. 333-50659
333-50659-01
333-50659-02
PROSPECTUS
8,000,000 PREFERRED SECURITIES
SOUTHERN COMPANY CAPITAL TRUST IV
7 1/8% TRUST ORIGINATED PREFERRED SECURITIES(SM)("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
(SOUTHERN COMPANY LOGO)
---------------------------
The 7 1/8% Trust Originated Preferred Securities (the "Preferred
Securities") offered hereby evidence preferred undivided beneficial interests,
representing 97% undivided beneficial interests in the assets of Southern
Company Capital Trust IV, a statutory business trust created under the laws of
the State of Delaware (the "Trust"). Southern Company Capital Funding, Inc., a
Delaware corporation ("Capital") and an indirect, wholly-owned subsidiary of The
Southern Company, a Delaware corporation ("Southern"), will own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing the remaining 3% undivided beneficial
interests in the assets of the Trust. The Trust exists for the sole purpose of
issuing the Preferred Securities and Common Securities and investing the
proceeds thereof in an equivalent amount of Capital's Series D 7 1/8% junior
subordinated deferrable interest notes due June 30, 2028 (the "Junior
Subordinated Notes"). Southern will irrevocably and unconditionally guarantee
the due and punctual payment of the Junior Subordinated Notes (the "Notes
Guarantee"). See "Description of the Notes Guarantee."
(Continued on next page)
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD DURING WHICH AND
CIRCUMSTANCES UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED SECURITIES
MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
SUCH DEFERRAL.
---------------------------
Application has been made to list the Preferred Securities on the New York
Stock Exchange, Inc. (the "NYSE"). If approved, trading of the Preferred
Securities on the NYSE is expected to commence within a 30-day period after the
initial delivery of the Preferred Securities. See "Underwriting."
---------------------------
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.
<TABLE>
<CAPTION>
======================================================================================================================
Initial Public Underwriting Proceeds to
Offering Price(1) Discount(2)(3) Trust(2)(3)(4)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security..................... $25.00 $.7875 $24.2125
- ----------------------------------------------------------------------------------------------------------------------
Total...................................... $200,000,000 $6,300,000 $193,700,000
======================================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from the Issue Date.
(2) Southern, Capital and the Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Because the proceeds of the sale of the Preferred Securities will be
invested in the Junior Subordinated Notes, Southern has agreed to pay to the
Underwriters, as compensation (the "Underwriters' Compensation") for
arranging the investment therein of such proceeds, $.7875 per Preferred
Security, except for Preferred Securities sold to certain institutions, for
which the Underwriters' Compensation will be $.50 per Preferred Security.
Therefore, to the extent that Preferred Securities are sold to such
institutions, the actual amount of Underwriters' Compensation will be less
than and the Proceeds to Trust will be greater than the aggregate amounts
specified above. See "Underwriting."
(4) Expenses of the offering to be paid by Southern are estimated to be
approximately $360,000.
---------------------------
The Preferred Securities 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 Preferred Securities will be made in book-entry only form through the
facilities of The Depository Trust Company on or about June 25, 1998 (the "Issue
Date") against payment therefor in immediately available funds.
---------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
SALOMON SMITH BARNEY
---------------------------
The date of this Prospectus is June 18, 1998.
(SM)"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
(Continued from the previous page)
The Junior Subordinated Notes will be unsecured obligations of Capital and
will be subordinate and junior in right of payment to all Senior Indebtedness of
Capital, as described herein. See "Description of the Junior Subordinated
Notes -- Subordination." The Notes Guarantee will be an unsecured obligation of
Southern and will be subordinate and junior in right of payment to all Senior
Indebtedness of Southern. See "Description of the Notes Guarantee." Holders of
the Preferred Securities are entitled to receive cumulative cash distributions
at the rate of 7 1/8% per annum (the "Securities Rate"), accruing from the date
of original issuance and payable, unless deferred, quarterly in arrears on March
31, June 30, September 30 and December 31 of each year commencing September 30,
1998 (each, a "Distribution Date").
The Securities Rate and the Distribution Dates for the Preferred Securities
will correspond to the interest rate and interest and other payment dates on the
Junior Subordinated Notes, which will constitute substantially all the assets of
the Trust. As a result, if principal or interest is not paid on the Junior
Subordinated Notes, no amounts will be paid on the Preferred Securities. CAPITAL
HAS THE RIGHT TO DEFER PAYMENTS OF INTEREST ON THE JUNIOR SUBORDINATED NOTES BY
EXTENDING THE INTEREST PAYMENT PERIOD ON THE JUNIOR SUBORDINATED NOTES, AT ANY
TIME AND FROM TIME TO TIME, FOR UP TO 20 CONSECUTIVE QUARTERS (EACH, AN
"EXTENSION PERIOD"). If interest payments are so deferred, distributions on the
Preferred Securities also will be deferred and neither Southern nor Capital will
be permitted, subject to certain exceptions described herein, to declare or pay
any dividend or distribution on any of its capital stock or make any guarantee
payments with respect to the foregoing, or make any payment on any debt
securities issued by it which rank pari passu (equal in priority) with or junior
to the Junior Subordinated Notes or the Notes Guarantee. During any Extension
Period, holders of Preferred Securities will be required to include income in
the form of original issue discount ("OID") in their gross income for United
States federal income tax purposes in advance of the receipt of the cash
payments attributable to such deferred interest. See "Description of the Junior
Subordinated Notes -- Option to Extend Interest Payment Period," "Risk
Factors -- Option to Extend Interest Payment Period" and "Certain Federal Income
Tax Considerations -- Original Issue Discount" and "--Market Discount." Deferred
installments of interest on the Junior Subordinated Notes will bear interest,
compounded quarterly, at a rate per annum equal to the Securities Rate to the
extent permitted by applicable law. The payment of such deferred interest,
together with interest thereon, will be distributed to the holders of the
Preferred Securities as received at the end of any Extension Period.
The Trust Securities are subject to mandatory redemption upon repayment of
the Junior Subordinated Notes at maturity or their earlier redemption. The
Junior Subordinated Notes are redeemable at the option of Capital (in whole or
in part), from time to time, on or after June 30, 2003, or at any time in whole
upon the occurrence of a Tax Event or Investment Company Act Event (either, a
"Special Event"). Capital will have the right at any time to terminate the Trust
and cause the Junior Subordinated Notes to be distributed to the holders of the
Preferred Securities in liquidation of the Trust. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution." If the Junior
Subordinated Notes are distributed to the holders of the Preferred Securities,
Southern and Capital will use their best efforts to have the Junior Subordinated
Notes listed on the NYSE or on such other exchange as the Preferred Securities
are then listed. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution," "-- Liquidation Distribution Upon Dissolution" and
"Description of the Junior Subordinated Notes."
The payment of distributions on the Preferred Securities is guaranteed by
Southern under the Preferred Securities Guarantee Agreement, but only to the
extent that the Trust has funds legally and immediately available therefor (the
"Preferred Securities Guarantee"). If Capital fails to make required payments on
the Junior Subordinated Notes, the Trust will not have sufficient funds to pay
such distributions, and the Preferred Securities Guarantee does not cover the
payment of distributions when the Trust does not have sufficient funds legally
available therefor. In such event, the remedy of a holder of Preferred
Securities is to enforce the Junior Subordinated Notes and the Notes Guarantee.
See "Description of the Junior Subordinated Notes" and "Description of the Notes
Guarantee." Southern's obligations under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all of its other liabilities and
will rank pari passu with the most senior preferred stock of Southern which may
be issued. See "Description of the Preferred Securities Guarantee." Southern and
Capital have, through the Preferred Securities Guarantee, the Notes Guarantee,
2
<PAGE>
the Subordinated Note Indenture, the Junior Subordinated Notes, the Trust
Agreement and the Agreement as to Expenses and Liabilities, fully and
unconditionally guaranteed, subject to certain subordination provisions, all the
Trust's obligations with respect to the Preferred Securities.
In the event of the redemption of the Junior Subordinated Notes or the
voluntary or involuntary dissolution, winding-up or termination of the Trust,
the holders of the Preferred Securities will be entitled to receive, for each
Preferred Security, a liquidation amount of $25 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment (the
"Redemption Price"), unless in connection with such dissolution, winding-up or
termination, the Junior Subordinated Notes are distributed to the holders of the
Preferred Securities. See "Description of the Preferred
Securities -- Liquidation Distribution Upon Dissolution."
The Preferred Securities initially will be represented by a global
certificate or certificates registered in the name of The Depository Trust
Company ("DTC") or its nominee. Beneficial interests in such Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by Participants (as defined herein) in DTC. Except
as described herein, Preferred Securities in certificated form will not be
issued in exchange for the global certificates. See "Description of the
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company."
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
3
<PAGE>
AVAILABLE INFORMATION
Southern, Capital and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a combined registration statement on Form S-3 (the
"Registration Statement," which term encompasses any amendments thereof and
exhibits thereto) under the Securities Act of 1933, as amended (the "1933 Act").
As permitted by the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, to which reference is hereby made.
Southern is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material may also be obtained at prescribed rates
by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants including Southern that file electronically at
http://www.sec.gov. In addition, reports and other material concerning Southern
may be inspected at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005, on which Exchange the common stock of Southern is
listed.
No separate financial statements of Capital or the Trust have been included
herein. Southern, Capital and the Trust do not consider that such financial
statements would be material to holders of the Preferred Securities because each
of Capital and the Trust is a special purpose entity, has no operating history
or independent operations and is not engaged in and does not propose to engage
in any activity other than, in the case of Capital, obtaining financing for
Southern and direct and indirect subsidiaries of Southern other than the
operating affiliates (as defined herein) and, in the case of the Trust, holding
as trust assets the Junior Subordinated Notes, issuing the Trust Securities and
engaging in other activities as are necessary, advisable or incidental thereto.
See "Southern Company Capital Funding, Inc.," "Southern Company Capital Trust
IV," "Description of the Preferred Securities," "Description of the Junior
Subordinated Notes," Description of the Notes Guarantee" and "Description of the
Preferred Securities Guarantee." In addition, Southern does not expect that
Capital or the Trust will file reports, proxy statements and other information
under the 1934 Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by Southern with the Commission
pursuant to the 1934 Act and are incorporated herein by reference and made a
part of this Prospectus:
(a) Southern's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(b) Southern's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998; and
(c) Southern's Current Report on Form 8-K dated February 11, 1998.
All documents filed by Southern with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated herein by reference and made a part of this Prospectus from the
respective dates of filing of such documents. Any statement contained in a
document 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 statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
SOUTHERN WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS
IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY
OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN THE EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE).
SUCH REQUESTS SHOULD BE DIRECTED TO TOMMY CHISHOLM, SECRETARY, THE SOUTHERN
COMPANY, 270 PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30303, TELEPHONE: (770)
393-0650.
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information contained elsewhere in this
Prospectus or incorporated herein by reference. Capitalized terms not otherwise
defined shall have the meanings assigned in the Glossary.
THE SOUTHERN COMPANY
Southern was incorporated under the laws of Delaware on November 9, 1945.
Southern is domesticated under the laws of Georgia and is qualified to do
business as a foreign corporation under the laws of Alabama. The principal
executive offices of Southern are located at 270 Peachtree Street, N.W.,
Atlanta, Georgia 30303, and the telephone number is (770) 393-0650.
Southern owns all the outstanding common stock of Alabama Power Company
("ALABAMA"), Georgia Power Company ("GEORGIA"), Gulf Power Company ("GULF"),
Mississippi Power Company ("MISSISSIPPI") and Savannah Electric and Power
Company ("SAVANNAH")(ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH being
collectively referred to herein as the "operating affiliates"), each of which is
an operating public utility company, and of Southern Company Services, Inc. (the
system service company). ALABAMA and GEORGIA each owns 50% of the outstanding
common stock of Southern Electric Generating Company ("SEGCO"). The operating
affiliates supply electric service in the states of Alabama, Georgia, Florida,
Mississippi and Georgia, respectively, and SEGCO owns generating units at a
large electric generating station which supplies power to ALABAMA and GEORGIA.
Southern also owns all the outstanding common stock of Southern Energy, Inc.
("Southern Energy"), Southern Company Energy Solutions, Inc. ("Energy
Solutions"), Southern Nuclear Operating Company, Inc. ("Southern Nuclear") and
Southern Communications Services, Inc. ("Southern Communications"). Southern
Energy designs, builds, owns and operates power production and delivery
facilities and provides a broad range of technical services to industrial
companies and utilities in the United States and a number of international
markets. Energy Solutions explores, develops and markets energy management
services and other business lines relating to Southern's core business of
generating and distributing energy. Southern Nuclear provides services to the
Southern electric system's nuclear plants. Southern Communications provides
digital wireless communications services to the operating affiliates and
regional non-affiliates.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- 1998(1)
1993 1994(1) 1995(1) 1996(1) 1997(1) (UNAUDITED)
------ ------- ------- ------- ------- -----------
(MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues....................... $8,489 $8,297 $9,180 $10,358 $12,611 $12,540
Income Before Interest Charges........... $1,827 $1,756 $1,900 $ 1,944 $ 2,037 $ 2,123
Consolidated Net Income.................. $1,002 $ 989 $1,103 $ 1,127 $ 972 $ 1,026
Earnings per Share of Common Stock....... $ 1.57 $ 1.52 $ 1.66 $ 1.68 $ 1.42 $ 1.49
Dividends Paid per Share of Common
Stock.................................. $ 1.14 $ 1.18 $ 1.22 $ 1.26 $ 1.30 $ 1.31
Ratio of Earnings to Fixed Charges(2).... 3.41 3.63 3.75 3.68 2.87 2.83
Ratio of Earnings to Fixed Charges Plus
Preferred Dividend Requirements (Pre-
Income Tax Basis)(3)................... 2.84 3.01 3.13 3.12 2.67 2.69
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION AS OF
MARCH 31, 1998
-------------------------------
ACTUAL AS ADJUSTED(4)
--------- -------------------
(MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Common Stock Equity......................................... $ 9,744 $ 9,744 42.5%
Preferred Stock of Subsidiaries............................. 453 453 2.0
Company or Subsidiary Obligated Mandatorily Redeemable
Capital and Preferred Securities.......................... 1,790 1,990 8.7
Long-Term Debt.............................................. 10,419 10,749 46.8
------- ------- -----
Total, excluding amounts due within one year of
$935 million.................................... $22,406 $22,936 100.0%
======= ======= =====
</TABLE>
- ---------------
(1) "Income Before Interest Charges" and "Consolidated Net Income" for the years
ended December 31, 1994, 1995, 1996 and 1997 and the twelve months ended
March 31, 1998 reflect charges of approximately $61,000,000, $17,000,000,
$53,000,000, $31,000,000 and $30,000,000, respectively, after taxes relating
to benefits provided pursuant to work force reduction programs. In addition,
"Income Before Interest Charges" and "Consolidated Net Income" for the year
ended December 31, 1997 and the twelve months ended March 31, 1998 reflect a
charge of $111,000,000, after taxes, resulting from a windfall profits tax
assessed against Southern's South Western Electricity plc subsidiary in the
United Kingdom.
(2) This ratio is computed as follows: (i) "Earnings" have been calculated by
adding to "Income Before Interest Charges" all income taxes deducted
therefrom and the debt portion of allowance for funds used during
construction; and (ii) "Fixed Charges" consist of "Net Interest Charges"
plus the debt portion of allowance for funds used during construction.
(3) In computing this ratio, "Preferred Dividend Requirements" represent the
before-tax earnings necessary to pay such dividends, computed at the
effective tax rates for the applicable periods.
(4) Reflects (i) the issuance in April 1998 by ALABAMA of $190,000,000 principal
amount of its Series C 7% Senior Notes due March 31, 2048, (ii) the issuance
in May 1998 by MISSISSIPPI of $55,000,000 principal amount of its Series A
6.75% Senior Insured Quarterly Notes due June 30, 2038, (iii) the issuance
in May 1998 by MISSISSIPPI of $35,000,000 principal amount of its Series B
6.05% Senior Notes due May 1, 2003, (iv) the proposed issuance in June 1998
by GULF of $50,000,000 principal amount of its Series A 6.70% Senior Insured
Quarterly Notes due June 30, 2038, and (v) the issuance of the Preferred
Securities offered hereby.
6
<PAGE>
SOUTHERN COMPANY CAPITAL FUNDING, INC.
Capital was established to obtain financing for Southern and direct and
indirect subsidiaries of Southern other than the operating affiliates. Capital
does not and will not engage in business activities other than such financing.
Capital was incorporated under the laws of Delaware on January 24, 1997 and
is a wholly-owned subsidiary of Southern Energy, Inc. (formerly known as SEI
Holdings, Inc.), which itself is a wholly-owned subsidiary of Southern. The
principal executive offices of Capital are located at 270 Peachtree Street,
N.W., Atlanta, Georgia 30303, and the telephone number is (770) 393-0650.
(GRAPH)
7
<PAGE>
THE OFFERING
The Trust.................. Southern Company Capital Trust IV is a statutory
business trust created under Delaware law solely
for the purpose of holding Capital's Junior
Subordinated Notes and issuing Preferred Securities
and Common Securities evidencing the entire
beneficial interest therein (and engaging in
activities necessary, appropriate, convenient or
incidental thereto).
The Trustees............... Bankers Trust Company will act as property trustee
(the "Property Trustee") of the Trust. Two
employees of a subsidiary of Southern also will act
as trustees (the "Administrative Trustees") of the
Trust. Bankers Trust (Delaware) will be an
additional trustee (the "Delaware Trustee") of the
Trust. Bankers Trust Company also will act as
trustee (the "Indenture Trustee") under the
Subordinated Note Indenture pursuant to which the
Junior Subordinated Notes will be issued and will
act as trustee under the Preferred Securities
Guarantee (the "Guarantee Trustee").
The Property Trustee, Delaware Trustee and
Administrative Trustees are sometimes referred to
as the "Securities Trustees."
Preferred Securities
Offered.................. The Trust will offer 8,000,000 Preferred Securities
evidencing preferred undivided beneficial interests
in the assets of the Trust. Holders of the
Preferred Securities are entitled to receive
cumulative cash distributions at the Securities
Rate, 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 on September 30, 1998 (each, a
"Distribution Date"). The Securities Rate and the
Distribution Dates for the Preferred Securities
will correspond to the interest rate and payment
dates on the Junior Subordinated Notes, which will
constitute substantially all the assets of the
Trust. As a result, if principal or interest is not
paid on the Junior Subordinated Notes, no amounts
will be paid on the Preferred Securities. See
"Description of the Preferred Securities" herein.
Record Date................ The record date for each Distribution Date will be
the close of business on the 15th calendar day
prior to such Distribution Date.
Junior Subordinated
Notes.................... The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of Capital's
Series D 7 1/8% junior subordinated deferrable
interest notes due June 30, 2028. The Junior
Subordinated Notes will be subordinate and junior
in right of payment to all indebtedness for
borrowed money and other obligations of Capital
included in the definition of Senior Indebtedness.
See "Description of the Junior Subordinated
Notes -- Subordination."
Preferred Securities
Guarantee and Notes
Guarantee................ The payment of distributions on the Preferred
Securities is guaranteed by Southern under the
Preferred Securities Guarantee, but only to the
extent the Trust has funds legally and immediately
available to make such distributions. If Capital
does not make principal or interest payments on the
Junior Subordinated Notes, the Trust will not have
sufficient funds to make distributions on the
Preferred Securities, in which event the Preferred
Securities Guarantee will not apply to such
distributions until the Trust has sufficient funds
legally available therefor.
8
<PAGE>
In such event, the remedy of a holder of Preferred
Securities is to enforce the Junior Subordinated
Notes and the Notes Guarantee. The obligations of
Southern under the Preferred Securities Guarantee
will be subordinate and junior in right of payment
to all other liabilities of Southern and will rank
pari passu with the most senior preferred stock
which may be issued by Southern. See "Risk
Factors -- Ranking of and Rights Under the
Preferred Securities Guarantee."
Pursuant to the Subordinated Note Indenture,
Southern will irrevocably and unconditionally
guarantee the due and punctual payment of
principal, premium, if any, and interest on the
Junior Subordinated Notes when and as the same
shall become due and payable, whether at maturity,
upon redemption or otherwise. The Notes Guarantee
will be junior in right of payment to all present
and future Senior Indebtedness of Southern. See
"Description of the Notes Guarantee."
Southern and Capital have, through the Preferred
Securities Guarantee, the Notes Guarantee, the
Subordinated Note Indenture, the Junior
Subordinated Notes, the Trust Agreement and the
Agreement as to Expenses and Liabilities, fully and
unconditionally guaranteed, subject to certain
subordination provisions, all the Trust's
obligations with respect to the Preferred
Securities.
Interest Deferral.......... Capital has the right to defer payments of interest
on the Junior Subordinated Notes by extending the
interest payment period on the Junior Subordinated
Notes, at any time and from time to time, for up to
20 consecutive quarters (each, an "Extension
Period"). The only restrictions on Capital's
ability to defer payments of interest are that
during the Extension Period neither Southern nor
Capital may, subject to certain exceptions
described herein, (i) pay dividends on or redeem
any of its capital stock or (ii) pay principal or
interest on any debt securities ranking pari passu
with or subordinate to the Junior Subordinated
Notes or the Notes Guarantee. There could be
multiple Extension Periods of varying lengths
throughout the term of the Junior Subordinated
Notes. See "Description of the Preferred
Securities -- Distributions" and "Description of
the Junior Subordinated Notes -- Option to Extend
Interest Payment Period."
If interest payments on the Junior Subordinated
Notes are deferred, distributions on the Preferred
Securities will also be deferred. During an
Extension Period, holders of Preferred Securities
will be required to include income in the form of
OID in their gross income for federal income tax
purposes in advance of the receipt of the cash
payments attributable to such deferred interest.
See "Description of the Junior Subordinated
Notes -- Option to Extend Interest Payment Period"
and "Certain Federal Income Tax
Considerations -- Original Issue Discount" and
"-- Market Discount." Deferred interest will bear
interest, compounded quarterly, at a rate per annum
equal to the Securities Rate from the date of
deferral to the date of payment.
Redemption; Distribution... The Preferred Securities are subject to mandatory
redemption upon repayment of the Junior
Subordinated Notes at maturity or their earlier
redemption. The Junior Subordinated Notes are
redeemable by Capital (in whole or in part), from
time to time on or after June 30, 2003, or at any
time in whole upon the occurrence of a Special
Event. If a partial
9
<PAGE>
redemption of the Junior Subordinated Notes would
result in the delisting of the Preferred
Securities, Capital may only redeem the Junior
Subordinated Notes in whole. Any partial redemption
of the Junior Subordinated Notes will be effected
by the redemption of an equivalent amount of Trust
Securities, to be allocated approximately 97% to
the Preferred Securities and 3% to the Common
Securities. See "Description of the Preferred
Securities -- Redemption" and "-- Special Event
Redemption or Distribution."
Capital will have the right at any time to
terminate the Trust and cause the Junior
Subordinated Notes to be distributed to the holders
of the Preferred Securities in liquidation of the
Trust. This right is optional and wholly within the
discretion of Capital. Circumstances under which
Capital may determine to exercise such right could
include the occurrence of an Investment Company Act
Event or a Tax Event, adverse tax consequences to
Southern, Capital or the Trust that are not within
the definition of a Tax Event because they do not
result from an amendment or change described in
such definition, and changes in the accounting
requirements applicable to the Preferred Securities
as described under "Accounting Treatment." See
"Description of the Preferred Securities -- Special
Event Redemption or Distribution."
Special Event.............. A Special Event means a Tax Event or an Investment
Company Act Event. A "Tax Event" means that the
Administrative Trustees, Southern and Capital shall
have received an opinion from independent tax
counsel experienced in such matters (which may be
counsel to Southern or Capital) to the effect that,
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 such laws or regulations, there is
more than an insubstantial risk that (i) the Trust
would be subject to United States federal income
tax with respect to income accrued or received on
the Junior Subordinated Notes, (ii) interest
payable on the Junior Subordinated Notes would not
be deductible by a member of Southern's
consolidated tax group for United States federal
income tax purposes, or (iii) the Trust would be
subject to more than a de minimis amount of other
taxes, duties or other governmental charges, which
change or amendment becomes effective on or after
the Issue Date. An "Investment Company Act Event"
means that the Administrative Trustees, Southern
and Capital shall have received an opinion of
independent counsel (which may be counsel to
Southern or Capital) 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
the Issue Date, there is more than an insubstantial
risk that the Trust is or will be considered an
investment company under the Investment Company Act
of 1940, as amended (the "1940 Act").
Redemption Price........... In the event of the redemption of the Trust
Securities or other termination of the Trust
without distribution of the Junior Subordinated
Notes, each Preferred Security shall be entitled to
receive a liquidation amount of $25 plus accrued
and unpaid distributions thereon (including
interest thereon) to the date of payment.
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RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus and should consider
particularly the following matters:
RANKING OF AND RIGHTS UNDER THE JUNIOR SUBORDINATED NOTES AND THE NOTES
GUARANTEE
No amounts will be available to make payments on the Preferred Securities
except from payments made on the Junior Subordinated Notes. The obligations of
Capital under the Junior Subordinated Notes are subordinate and junior in right
of payment to all Senior Indebtedness of Capital whenever incurred. Capital
currently has no Senior Indebtedness outstanding. The obligations of Southern
under the Notes Guarantee will be subordinate and junior to all present and
future Senior Indebtedness of Southern. At March 31, 1998, Senior Indebtedness
of Southern aggregated approximately $687,000,000. There are no terms in the
Preferred Securities, the Junior Subordinated Notes, the Preferred Securities
Guarantee or the Notes Guarantee that limit Southern's or Capital's ability to
incur additional indebtedness, including indebtedness that ranks senior to the
Junior Subordinated Notes or the Notes Guarantee. See "Description of the
Preferred Securities Guarantee," "Description of the Junior Subordinated
Notes -- Subordination" and "Description of the Notes Guarantee."
RANKING OF AND RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
Southern's obligations under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all liabilities of Southern and
will be pari passu with the most senior preferred stock issued by Southern. If
Capital were to default in its obligation to pay amounts payable on the Junior
Subordinated Notes, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and in such event holders of the Preferred Securities would not be
able to rely upon the Preferred Securities Guarantee for payment of such
amounts.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Capital has the right under the Subordinated Note Indenture, and at any
time, and from time to time, to defer payments of interest on the Junior
Subordinated Notes for a period of up to 20 consecutive quarters (each, an
"Extension Period"), but not beyond the stated maturity of the Junior
Subordinated Notes. Prior to the termination of any Extension Period, Capital
may further defer payments of interest, 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, Capital may select a new Extension Period,
subject to the above requirements. There could be multiple Extension Periods of
varying lengths throughout the term of the Junior Subordinated Notes. Deferred
installments of interest on the Junior Subordinated Notes will bear interest,
compounded quarterly, at a rate per annum equal to the Securities Rate to the
extent permitted by applicable law. The payment of such deferred interest,
together with interest thereon, will be passed through to the holders of the
Preferred Securities as received at the end of any Extension Period.
The only restrictions on Capital's ability to defer payments of interest
are that during any Extension Period neither Southern nor Capital may, subject
to certain exceptions described herein, (i) pay dividends on or redeem any of
its capital stock or (ii) pay principal or interest on any debt securities
ranking pari passu with or subordinate to the Junior Subordinated Notes or the
Notes Guarantee. See "Description of the Preferred Securities -- Distributions"
and "Description of the Junior Subordinated Notes -- Option to Extend Interest
Payment Period."
Should Capital exercise its rights to defer payments of interest, each
holder of Preferred Securities will be required to include income in the form of
OID in its gross income for United States federal income tax purposes in respect
of the deferred interest allocable to its Preferred Securities. As a result,
holders of 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 the Trust related to such income if such holders dispose of their
Preferred Securities prior to the record date for the date on which
distributions of such amounts are
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made. See "Certain Federal Income Tax Considerations -- Original Issue Discount"
and "-- Sale of Preferred Securities." INVESTORS SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE
PREFERRED SECURITIES.
Capital has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Junior Subordinated
Notes. However, should Capital determine to exercise such right in the future,
the market price of the Preferred Securities is likely to be affected. A holder
that disposes of its Preferred Securities during an Extension Period, therefore,
might not receive the same return on its investment as a holder that continues
to hold its Preferred Securities. In addition, as a result of the existence of
Capital's right to defer interest payments, the market price of the Preferred
Securities (which represent an undivided beneficial interest in the Junior
Subordinated Notes) may be more volatile than other similar securities that do
not have such rights.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If a Special Event shall occur and be continuing, Capital will have the
option to redeem the Junior Subordinated Notes in cash (with the result that the
Preferred Securities shall be redeemed). In addition, Capital will have the
right at any time to terminate the Trust and cause the Junior Subordinated Notes
to be distributed to the holders of the Preferred Securities in liquidation of
the Trust. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
There can be no assurance as to the market price for the Junior
Subordinated Notes that may be distributed in exchange for Preferred Securities
if a termination or liquidation of the Trust were to occur. Accordingly, the
Junior Subordinated Notes that the investor may receive on termination and
liquidation of the Trust may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby. See "Description of
the Junior Subordinated Notes."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and, except
for the rights of holders of Preferred Securities to appoint a Substitute
Property Trustee upon the occurrence of certain events described herein, will
not be entitled to vote to appoint, remove or replace the Securities Trustees,
which voting rights are vested exclusively in the holder of the Common
Securities.
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities are expected to be listed on the NYSE, subject to
official notice of issuance. The Preferred Securities are expected to trade at a
price that takes into account the value, if any, of accrued but unpaid
distributions; thus, purchasers will not pay and sellers will not receive
accrued and unpaid interest with respect to the Preferred Securities that is not
included in the trading price thereof. If a Preferred Security is disposed of
prior to the occurrence of an Extension Period, any portion of the amount
received that is attributable to accrued interest will be treated as interest
income to a U.S. holder for tax purposes and will not be treated as part of the
amount realized for purposes of determining gain or loss on the disposition of
the Preferred Security. If an Extension Period occurs, interest on the Junior
Subordinated Notes will be included in the gross income of U.S. holders of
Preferred Securities as it accrues rather than when it is paid. Should an
Extension Period occur, a holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon would be required to
include accrued but unpaid interest on the Junior Subordinated Notes through the
date of disposition in income as OID, and to add such amount to his adjusted tax
basis in his pro rata share of the related Junior Subordinated Notes deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis, a holder generally 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 "Certain Federal Income Tax
Considerations -- Original Issue Discount" and "-- Sale of Preferred
Securities."
The trading price of the Preferred Securities is likely to be sensitive to
the level of interest rates generally. If interest rates rise in general, the
trading price of the Preferred Securities may decline to reflect the
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additional yield requirements of the purchasers. Conversely, a decline in
interest rates may increase the trading price of the Preferred Securities,
although any increase will be moderated by Capital's ability to call the Junior
Subordinated Notes at any time on or after June 30, 2003 at a redemption price
equal to 100% of the principal amount to be redeemed plus accrued but unpaid
interest. In addition, because holders of Preferred Securities will be paid only
from payments on the Junior Subordinated Notes and may receive Junior
Subordinated Notes upon the termination of the Trust, prospective purchasers of
Preferred Securities are making an investment decision with regard to the Junior
Subordinated Notes and should carefully review all the information regarding the
Junior Subordinated Notes contained herein. See "Description of the Preferred
Securities -- Special Event Redemption or Distribution," "Description of the
Junior Subordinated Notes" and "Description of the Notes Guarantee."
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THE SOUTHERN COMPANY
Southern was incorporated under the laws of Delaware on November 9, 1945.
Southern is domesticated under the laws of Georgia and is qualified to do
business as a foreign corporation under the laws of Alabama. The principal
executive offices of Southern are located at 270 Peachtree Street, N.W.,
Atlanta, Georgia 30303, and the telephone number is (770) 393-0650.
Southern owns all the outstanding common stock of Alabama Power Company
("ALABAMA"), Georgia Power Company ("GEORGIA"), Gulf Power Company ("GULF"),
Mississippi Power Company ("MISSISSIPPI") and Savannah Electric and Power
Company ("SAVANNAH") (ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH being
collectively referred to herein as the "operating affiliates"), each of which is
an operating public utility company, and of Southern Company Services, Inc. (the
system service company). ALABAMA and GEORGIA each owns 50% of the outstanding
common stock of Southern Electric Generating Company ("SEGCO"). The operating
affiliates supply electric service in the states of Alabama, Georgia, Florida,
Mississippi and Georgia, respectively, and SEGCO owns generating units at a
large electric generating station which supplies power to ALABAMA and GEORGIA.
Southern also owns all the outstanding common stock of Southern Energy, Inc.
("Southern Energy"), Southern Company Energy Solutions, Inc. ("Energy
Solutions"), Southern Nuclear Operating Company, Inc. ("Southern Nuclear") and
Southern Communications Services, Inc. ("Southern Communications"). Southern
Energy designs, builds, owns and operates power production and delivery
facilities and provides a broad range of technical services to industrial
companies and utilities in the United States and a number of international
markets. Energy Solutions explores, develops and markets energy management
services and other business lines relating to Southern's core business of
generating and distributing energy. Southern Nuclear provides services to the
Southern electric system's nuclear plants. Southern Communications provides
digital wireless communications services to the operating affiliates and
regional non-affiliates.
SOUTHERN COMPANY CAPITAL FUNDING, INC.
Capital was established to obtain financing for Southern and direct and
indirect subsidiaries of Southern other than the operating affiliates. Capital
does not and will not engage in business activities other than such financing.
Capital was incorporated under the laws of Delaware on January 24, 1997 and
is a wholly-owned subsidiary of Southern Energy, Inc., which itself is a
wholly-owned subsidiary of Southern. The principal executive offices of Capital
are located at 270 Peachtree Street, N.W., Atlanta, Georgia 30303, and the
telephone number is (770) 393-0650.
SOUTHERN COMPANY CAPITAL TRUST IV
The Trust is a statutory business trust created under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
March 17, 1998. The Trust's business is defined in a trust agreement, executed
by Capital, as Depositor, and Bankers Trust (Delaware), as the Delaware Trustee
thereunder. This trust agreement will be amended and restated in its entirety on
the Issue Date (the "Trust Agreement"). The Trust 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 Junior Subordinated Notes, and (iii) engaging in only
those other activities necessary, appropriate, convenient or incidental thereto.
The Trust has a term of approximately 35 years, but may terminate earlier as
provided in the Trust Agreement.
Upon issuance of the Preferred Securities, the purchasers thereof will own
all of the Preferred Securities. Capital will acquire all of the Common
Securities, which will have an aggregate liquidation amount equal to
approximately 3% of the total capital of the Trust. The Common Securities will
rank pari passu, and payments will be made thereon pro rata, with the Preferred
Securities, except that upon the occurrence and continuance of a Subordinated
Note Indenture Event of Default, the rights of the holders of Common Securities
to
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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 Trust's business and affairs will be conducted by the Securities
Trustees, which shall be appointed by Capital as the holder of the Common
Securities. Two employees of a subsidiary of Southern initially will serve as
Administrative Trustees. Bankers Trust Company will serve as Property Trustee
and will hold legal title to the Junior Subordinated Notes issued by Capital on
behalf of the Trust and the holders of the Trust Securities. Bankers Trust
(Delaware) will serve as Delaware Trustee. In certain circumstances, the holders
of a majority in liquidation amount of the Preferred Securities will be entitled
to appoint a Substitute Property Trustee. See "Description of the Preferred
Securities -- Voting Rights."
The Property Trustee will hold legal title to the Junior Subordinated Notes
for the benefit of the Trust and the holders of the Trust Securities and will
have the power to exercise all rights, powers and privileges under the
Subordinated Note Indenture as the holder of the Junior Subordinated Notes. The
Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities.
Subject to the right of the holders of the Preferred Securities to appoint a
Substitute Property Trustee in certain instances, Capital, as the holder of all
the Common Securities, will have the right to appoint, remove or replace all the
Securities Trustees.
The Junior Subordinated Notes will constitute substantially all of the
assets of the Trust. Other assets that may constitute "Trust Property" (as that
term is defined in the Trust Agreement) include any cash on deposit in, or owing
to, the payment account as established under the Trust Agreement, as well as any
other property or assets held by the Property Trustee pursuant to the Trust
Agreement. In addition, the Trust may, from time to time, receive cash pursuant
to the Agreement as to Expenses and Liabilities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the Trust
Agreement, the Delaware Business Trust Act, and the Trust Indenture Act of 1939,
as amended (the "1939 Act"). See "Description of the Preferred Securities."
The Trust's office in the State of Delaware is c/o Bankers Trust
(Delaware), E.A. Delle Donne Corporate Center, Montgomery Building, 1011 Centre
Road, Suite 200, Wilmington, Delaware 19805-1266. The principal place of
business of the Trust shall be c/o Southern, 270 Peachtree Street, N.W.,
Atlanta, Georgia 30303, telephone (770) 393-0650, Attn: Secretary.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of Southern and, accordingly, the accounts of the Trust will be included in the
consolidated financial statements of Southern. The Preferred Securities will be
presented as a separate line item in the consolidated balance sheet of Southern,
and appropriate disclosures concerning the Preferred Securities, the Preferred
Securities Guarantee, the Junior Subordinated Notes and the Notes Guarantee will
be included in the notes to the consolidated financial statements. For financial
reporting purposes, Southern will record distributions payable on the Preferred
Securities as an expense.
USE OF PROCEEDS
The Trust will invest all of the proceeds from the sale of the Preferred
Securities in the Junior Subordinated Notes. The proceeds from such investment
will be remitted to Southern and used by it to repay a portion of its
outstanding short-term debt which aggregated approximately $831,000,000 as of
June 17, 1998.
RECENT RESULTS OF OPERATIONS; RECENT DEVELOPMENT
For the twelve months ended March 31, 1998, the amounts of "Operating
Revenues," "Income Before Interest Charges," "Consolidated Net Income,"
"Earnings per Share of Common Stock" and "Dividends Paid per Share of Common
Stock" were $12,540,000,000, $2,123,000,000, $1,026,000,000, $1.49 and $1.31,
respectively. In the opinion of the management of Southern, the above amounts
for the twelve months ended March 31, 1998 reflect all adjustments (which were
only normal recurring adjustments, except as indicated in
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Note (1) to the Selected Consolidated Financial Information under "Summary"
above) necessary to present fairly the results of operations for such period.
The "Ratio of Earnings to Fixed Charges" and the "Ratio of Earnings to Fixed
Charges Plus Preferred Dividend Requirements (Pre-Income Tax Basis)" for the
twelve months ended March 31, 1998 were 2.83 and 2.69, respectively.
On June 18, 1998, Southern Energy sold an additional 26% economic interest
in SWEB Holdings Limited ("Holdings"), the parent of Southern Investments UK plc
which in turn owns South Western Electricity plc, to a subsidiary of PP&L
Resources, Inc. ("PP&L") for approximately $170,000,000. PP&L previously
acquired a 25% interest in Holdings from Southern Energy in July 1996. Under the
arrangement with PP&L, Southern Energy will continue to own a majority of the
voting shares in Holdings and will retain operational and management control of
Holdings and its subsidiaries.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the 1939
Act. The Property Trustee will act as the indenture trustee with respect to the
Trust, as well as the Preferred Securities Guarantee, for purposes of compliance
with the provisions of the 1939 Act. The terms of the Preferred Securities will
include those stated in the Trust Agreement, the Delaware Business Trust Act,
and those made part of the Trust Agreement by the 1939 Act. The following
summary of the principal terms and provisions of the Preferred Securities does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Trust Agreement, the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part, as well as the
Delaware Business Trust Act and the 1939 Act.
GENERAL
The Trust Agreement authorizes the Administrative Trustees, on behalf of
the Trust, to issue the Preferred Securities, which represent preferred
undivided beneficial interests in the assets of the Trust, and the Common
Securities, which represent common undivided beneficial interests in the assets
of the Trust. All of the Common Securities will be owned by Capital. The Common
Securities rank pari passu, and payments will be made thereon on a pro rata
basis, with the Preferred Securities, except that upon the occurrence of a
Subordinated Note Indenture Event of Default, the rights of the holders of the
Common Securities to receive payment of periodic distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Preferred Securities. The Trust Agreement does not permit the
issuance by the Trust of any securities other than the Trust Securities or the
incurrence of any indebtedness by the Trust. Pursuant to the Trust Agreement,
the Property Trustee will own and hold the Junior Subordinated Notes for the
benefit of the Trust and the holders of the Trust Securities. The payment of
distributions out of money held by the Trust, and payments upon redemption of
the Preferred Securities or liquidation of the Trust, are guaranteed by Southern
on a subordinated basis as and to the extent described under "Description of the
Preferred Securities Guarantee." The Preferred Securities Guarantee does not
cover payment of distributions on the Preferred Securities when the Trust does
not have legally and immediately available funds sufficient to make such
distributions. In such event, the remedy of a holder of Preferred Securities is
to direct the Property Trustee to enforce its rights under the Junior
Subordinated Notes. In addition, a holder of Preferred Securities may institute
a legal proceeding directly against Capital, without first instituting a legal
proceeding against the Property Trustee or any other person or entity, for
enforcement of payment to such holder of principal of or interest on the Junior
Subordinated Notes having a principal amount equal to the aggregate stated
liquidation amount of the Preferred Securities of such holder on or after the
due dates specified in the Junior Subordinated Notes. The above mechanisms and
obligations, together with Southern's obligations under the Notes Guarantee and
the Agreement as to Expenses and Liabilities, constitute a full and
unconditional guarantee by Southern and Capital of payments due on the Preferred
Securities. See "-- Voting Rights" below.
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DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at the Securities
Rate and will accrue from the Issue Date and, except in the event of an
Extension Period, will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year commencing September 30, 1998. In the
event that any date on which distributions are to be made on the Preferred
Securities is not a Business Day, then payment of the distributions 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, 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. A "Business Day" shall mean any day
other than a Saturday or Sunday, a day on which banks in New York City are
authorized or obligated by law or executive order to remain closed or a day on
which the principal corporate trust office of the Property Trustee or the
Indenture Trustee is closed for business.
Distributions payable on any Distribution Date will be payable to the
holders of record on the Record Date for such Distribution Date, which is the
close of business on the fifteenth calendar day preceding such Distribution
Date. Subject to any applicable laws and regulations and the provisions of the
Trust Agreement, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. The amount
of distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months.
Capital has the right under the Subordinated Note Indenture to defer
payments of interest on the Junior Subordinated Notes by extending the interest
payment period from time to time on the Junior Subordinated Notes (each, an
"Extension Period") which, if exercised, would defer quarterly distributions on
the Preferred Securities during any such extended interest payment period.
Deferred installments of interest on the Junior Subordinated Notes will bear
interest, compounded quarterly, at a rate per annum equal to the Securities Rate
to the extent permitted by applicable law. If distributions are deferred, the
deferred distributions and accrued interest thereon shall be paid, if funds are
legally available therefor, to holders of record of the Preferred Securities as
they appear on the books and records of the Trust on the Record Date next
following the termination of such Extension Period. See "Description of the
Junior Subordinated Notes -- Interest" and "-- Option to Extend Interest Payment
Period."
Distributions on the Preferred Securities must be paid on the Distribution
Dates to the extent that the Trust has funds legally and immediately available
for the payment of such distributions. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Junior Subordinated Notes. See "Description of the
Junior Subordinated Notes."
REDEMPTION
The Preferred Securities are subject to mandatory redemption upon repayment
of the Junior Subordinated Notes at maturity or their earlier redemption. The
Junior Subordinated Notes will mature on June 30, 2028 and may be redeemed, in
whole or in part, at the option of Capital, at any time on or after June 30,
2003 or at any time in whole upon the occurrence of a Special Event. Upon the
repayment of the Junior Subordinated Notes, whether at maturity or upon
redemption, the proceeds from such repayment or payment shall simultaneously be
applied to redeem a like amount of Trust Securities upon not less than 30 nor
more than 60 days' notice, at the Redemption Price (as defined below). See
"Description of the Junior Subordinated Notes -- Optional Redemption." If a
partial redemption of the Junior Subordinated Notes would result in the
delisting of the Preferred Securities, Capital may only redeem the Junior
Subordinated Notes in whole. In the event that fewer than all of the outstanding
Trust Securities are to be redeemed, the Preferred Securities to be redeemed
will be selected as described under "-- Book-Entry Only Issuance -- The
Depository Trust Company" below. If the Preferred Securities are no longer in
book-entry only form, the Preferred Securities to be redeemed will be selected
by such method as the Property Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions (equal to $25 or
integral multiples thereof) of the aggregate liquidation amount of Preferred
Securities of a denomination larger than $25; provided, however, that before
undertaking the redemption of the Preferred Securities on other than a pro
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rata basis, the Property Trustee shall have received an opinion of counsel that
the status of the Trust as a grantor trust for federal income tax purposes would
not be adversely affected.
The Redemption Price for each Preferred Security shall equal the stated
liquidation amount of $25 plus accrued and unpaid distributions thereon to the
date of payment.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event at any time, Capital will have the
option to redeem the Junior Subordinated Notes in whole (and thus cause the
redemption of the Preferred Securities in whole). A Special Event is either an
Investment Company Act Event or a Tax Event.
An "Investment Company Act Event" means that the Administrative Trustees,
Southern and Capital shall have received an opinion of independent counsel
(which may be counsel to Southern or Capital) 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 the Issue Date, there is more than an
insubstantial risk that the Trust is or will be considered an investment company
under the 1940 Act.
"Tax Event" means that the Administrative Trustees, Southern and Capital
shall have received an opinion from independent tax counsel experienced in such
matters (which may be counsel to Southern or Capital) to the effect that, 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 such laws or
regulations, there is more than an insubstantial risk that (i) the Trust would
be subject to United States federal income tax with respect to income accrued or
received on the Junior Subordinated Notes, (ii) interest payable on the Junior
Subordinated Notes would not be deductible by a member of Southern's
consolidated tax group for United States federal income tax purposes or (iii)
the Trust would be subject to more than a de minimis amount of other taxes,
duties or other governmental charges, which change or amendment becomes
effective on or after the Issue Date.
The Internal Revenue Service (the "IRS") recently challenged the
deductibility, for federal income tax purposes, of interest payments pursuant to
instruments similar to the Junior Subordinated Notes held by an entity similar
in certain respects to the Trust. Based on information currently available,
Southern and Capital do not believe that deductibility of interest payments on
the Junior Subordinated Notes is jeopardized by the position taken by the IRS in
its challenge. However, developments favoring the IRS's position in respect of
the above-described challenge, or other unrelated subsequent developments, could
give rise to a Tax Event.
Capital will have the right at any time to terminate the Trust and, after
satisfaction of liabilities to creditors of the Trust, if any, cause the Junior
Subordinated Notes to be distributed to the holders of the Preferred Securities
in liquidation of the Trust. See "-- Liquidation Distribution Upon Dissolution"
below. This right is optional and wholly within the discretion of Capital.
Circumstances under which Capital may determine to exercise such right could
include the occurrence of an Investment Company Act Event or a Tax Event,
adverse tax consequences to Southern, Capital or the Trust that are not within
the definition of a Tax Event because they do not result from an amendment or
change described in such definition, and changes in the accounting requirements
applicable to the Preferred Securities as described under "Accounting
Treatment."
If Junior Subordinated Notes are distributed to the holders of the
Preferred Securities, Southern and Capital will use their best efforts to have
the Junior Subordinated Notes listed on the NYSE or on such other exchange as
the Preferred Securities are then listed. After the date for any distribution of
Junior Subordinated Notes upon termination of the Trust, (i) the Preferred
Securities and the Preferred Securities Guarantee will no longer be deemed to be
outstanding, (ii) the depositary or its nominee, as the record holder of the
Preferred Securities, will receive a registered global certificate or
certificates representing the Junior Subordinated Notes to be delivered upon
such distribution and (iii) any certificates representing Preferred Securities
and the Preferred Securities Guarantee not held by the depositary or its nominee
will be deemed to represent Junior
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Subordinated Notes having an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the Securities
Rate of, and accrued and unpaid interest equal to accrued and unpaid
distributions on, such Preferred Securities, until such certificates are
presented to Capital or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Notes that may be distributed in exchange
for the Preferred Securities if a termination and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
or the Junior Subordinated Notes that the investor may receive on termination
and liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
In the event that fewer than all of the Trust Securities are to be
redeemed, then the aggregate liquidation amount of the Trust Securities to be
redeemed shall be allocated 97% to the Preferred Securities and 3% to the Common
Securities.
The Preferred Securities redeemed on each redemption date shall be redeemed
at the applicable Redemption Price with the proceeds from the contemporaneous
redemption of the Junior Subordinated Notes. The Redemption Price of Preferred
Securities shall be deemed payable on each redemption date only to the extent
that the Trust has funds legally and immediately available for payment of such
Redemption Price.
If the Property Trustee gives a notice of redemption in respect of
Preferred Securities (which notice will be irrevocable), then, by 2:00 P.M., New
York City time, on the redemption date, subject to the immediately preceding
paragraph, the Property Trustee will irrevocably deposit with the securities
depositary, so long as the Preferred Securities are in book-entry only form,
sufficient funds to pay the applicable Redemption Price. See "-- Book-Entry Only
Issuance -- The Depository Trust Company" below. If the Preferred Securities are
not in book-entry only form, the Property Trustee, subject to the immediately
preceding paragraph, shall irrevocably deposit with the Paying Agent funds
sufficient to pay the applicable Redemption Price and will give the Paying Agent
irrevocable instructions to pay the Redemption Price to the holders thereof upon
surrender of their Preferred Securities certificates. 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 Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the applicable Redemption Price, but without interest on
such Redemption Price. In the event that any date fixed for redemption of
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 which is a Business
Day (and 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 Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by Southern pursuant to
the Preferred Securities Guarantee or the Notes Guarantee, distributions on such
Preferred Securities will continue to accrue at the then applicable rate, from
such redemption date originally established by the Trust for such Preferred
Securities to the date such Redemption Price is actually paid. See "-- Events of
Default" below, "Relationship Among the Preferred Securities, the Junior
Subordinated Notes, the Preferred Securities Guarantee and the Notes Guarantee"
and "Description of the Preferred Securities Guarantee -- Events of Default."
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), Southern, Capital or any of
their affiliates may, at any time and from time to time, purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as the initial securities depositary for the Preferred
Securities. The Preferred Securities will be issued only as fully registered
securities registered in the name of Cede & Co., DTC's nominee. One or
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more fully registered global Preferred Securities certificates will be issued,
representing in the aggregate the total number of Preferred Securities, and will
be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the 1934 Act. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Preferred Securities ("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 Preferred Securities.
Transfers of ownership interests in the 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 Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities. DTC's records reflect only the identity of the Direct Participants
to whose accounts such 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 as
may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Preferred
Securities are being redeemed, DTC will reduce the amount of the interest of
each Direct Participant in the Preferred Securities in accordance with its
procedures.
Although voting with respect to the 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 Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Distribution payments on the 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 registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Trust, any trustee,
Capital or Southern, subject
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to any statutory or regulatory requirements as may be in effect from time to
time. Payment of distributions to DTC is the responsibility of the Trust,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities. 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 a global Preferred Security.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates will be printed
and delivered to the holders of record. Additionally, Southern, Capital or the
Trust may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depositary) with respect to the Preferred
Securities. In that event, certificates for the Preferred Securities will be
printed and delivered to the holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Southern, Capital and the Trust believe to
be reliable, but Southern, Capital and the Trust take no responsibility for the
accuracy thereof. The Trust has no responsibility for the performance by DTC or
its Participants of their respective obligations as described herein or under
the rules and procedures governing their respective operations.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Trust shall terminate on December 31,
2033, or earlier upon (i) the occurrence of a Bankruptcy Event (as defined in
the Trust Agreement) in respect of Capital, dissolution or liquidation of
Capital, or dissolution of the Trust pursuant to a judicial decree; (ii) the
delivery of written direction to the Property Trustee by Capital, as Depositor,
at any time (which direction is optional and wholly within the discretion of
Capital, as Depositor) to terminate the Trust and distribute the Junior
Subordinated Notes to the holders of the Trust Securities in liquidation of the
Trust (see "-- Special Event Redemption or Distribution" above); or (iii) the
payment at maturity or redemption of all of the Junior Subordinated Notes, and
the consequent payment of the Trust Securities.
If an early termination occurs as described in clause (i) or (ii) above,
the Trust shall be liquidated, and the Property Trustee shall distribute to each
holder of Preferred Securities and Common Securities a like amount of Junior
Subordinated Notes, unless in the case of an event described in clause (i) such
distribution is determined by the Administrative Trustees not to be practical,
in which event such holders will be entitled to receive, out of the assets of
the Trust available for distribution to holders after satisfaction of
liabilities to creditors, an amount equal to the aggregate of the stated
liquidation preference of $25 per Trust Security plus accrued and unpaid
distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then subject to the next succeeding sentence, the
amounts payable directly by the Trust on the Trust Securities shall be paid on a
pro rata basis. The holder of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Subordinated Note Indenture Event of
Default has occurred and is continuing, the holders of Preferred Securities
shall have a preference over the holders of Common Securities.
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EVENTS OF DEFAULT
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement ("Trust Agreement Event of Default") with respect to the Trust
Securities issued thereunder (whatever the reason for such Event of Default, and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) the occurrence of an "Event of Default" as defined in Section 501
of the Subordinated Note Indenture ("Subordinated Note Indenture Event of
Default") (see "Description of the Junior Subordinated Notes -- Events of
Default"); or
(ii) default by the Trust in the payment of any distribution when it
becomes due and payable, and the continuation of such default for a period
of 30 days; or
(iii) default by the Trust in the payment of any Redemption Price of
any Preferred Security or Common Security when it becomes due and payable;
or
(iv) default in the performance, or breach, of any covenant or
warranty of the Securities Trustees in the Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (ii) or (iii) above), and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to such Securities Trustees by the holders
of at least 10% in liquidation amount of the outstanding Preferred
Securities a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Trust.
Within 90 days after the occurrence of any Trust Agreement Event of
Default, the Property Trustee shall transmit notice of any default known to the
Property Trustee to the holders of Trust Securities, Southern and Capital,
unless such Trust Agreement Event of Default shall have been cured or waived.
If a Trust Agreement Event of Default occurs and is continuing, then,
pursuant to the Trust Agreement, holders of a majority in aggregate liquidation
amount of Preferred Securities have the right to direct the exercise of any
trust or power conferred upon the Property Trustee under the Trust Agreement,
including the right to direct the Property Trustee under the Trust Agreement to
exercise the remedies available to it as holder of the Junior Subordinated Notes
and the Notes Guarantee. If the Property Trustee fails to enforce its rights
under the Junior Subordinated Notes and the Notes Guarantee, a holder of
Preferred Securities may, to the fullest extent permitted by applicable law,
institute a legal proceeding directly against Southern and Capital to enforce
its rights under the Trust Agreement without first instituting any legal
proceeding against the Property Trustee or the Trust. Notwithstanding the
foregoing, a holder of Preferred Securities may institute a legal proceeding
directly against Southern and Capital, without first instituting a legal
proceeding against the Property Trustee or any other person or entity, for
enforcement of payment to such holder of principal of or interest on the Junior
Subordinated Notes having a principal amount equal to the aggregate stated
liquidation amount of the Preferred Securities of such holder on or after the
due dates specified in the Junior Subordinated Notes. See "Relationship Among
the Preferred Securities, the Junior Subordinated Notes, the Preferred
Securities Guarantee and the Notes Guarantee" and "Description of the Preferred
Securities Guarantee -- Events of Default."
Unless a Subordinated Note Indenture Event of Default shall have occurred
and be continuing, the Securities Trustees may be removed at any time by act of
the holder of the Common Securities. If a Subordinated Note Indenture Event of
Default has occurred and is continuing, any Securities Trustee may be removed at
such time by act of the holders of a majority in liquidation amount of the
Preferred Securities, delivered to the appropriate Securities Trustee (in its
individual capacity and on behalf of the Trust). No resignation or removal of
any Securities Trustee and no appointment of a successor shall be effective
until the acceptance of appointment by the successor Trustee in accordance with
the requirements of the Trust Agreement.
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If a Subordinated Note Indenture Event of Default has occurred and is
continuing, the holders of Preferred Securities shall have a preference over the
holders of Common Securities upon dissolution of the Trust as described above.
See "-- Liquidation Distribution Upon Dissolution."
VOTING RIGHTS
Except as provided below and under "Description of the Preferred Securities
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Preferred Securities will have no voting
rights.
If any proposed amendment to the Trust Agreement provides for, or the
Securities Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Preferred
Securities, whether by way of amendment to the Trust Agreement or otherwise, or
(ii) the dissolution, winding-up or termination of the Trust, other than
pursuant to the Trust Agreement, then the holders of outstanding Preferred
Securities will be entitled to vote as a class on such amendment or proposal of
the Securities Trustees, and such amendment or proposal shall not be effective
except with the approval of the holders of at least 66 2/3% in liquidation
amount of such outstanding Preferred Securities.
So long as any Junior Subordinated Notes are held by the Property Trustee,
the Securities Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee (as
defined herein), or executing any trust or power conferred on the Indenture
Trustee with respect to the Junior Subordinated Notes, (ii) waive any past
default which is waivable under the applicable provisions of the Subordinated
Note Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all Junior Subordinated Notes shall be due and payable, or (iv)
consent to any amendment, modification or termination of the Subordinated Note
Indenture or the Junior Subordinated Notes, where such consent shall be
required, or to any other action, as the holder of the Junior Subordinated
Notes, under the Subordinated Note Indenture, without, in each case, obtaining
the prior approval of the holders of at least 66 2/3% in liquidation amount of
the outstanding Preferred Securities; provided, however, that where a consent
under the Subordinated Note Indenture would require the consent of each holder
of Junior Subordinated Notes affected thereby, no such consent shall be given by
the Securities Trustees without the prior consent of each holder of Preferred
Securities. The Securities Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Preferred Securities,
except pursuant to a subsequent vote of such holders. The Property Trustee shall
notify all holders of the Preferred Securities of any notice of default received
from the Indenture Trustee with respect to the Junior Subordinated Notes. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Securities
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that the Trust will not be classified as other than a grantor trust for
federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
separate meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which holders of Preferred Securities are entitled to vote to be
given to each holder of record of Preferred Securities in the manner set forth
in the Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned by Southern, Capital, the Securities Trustees or any
affiliate of Southern, Capital or any Securities Trustee, shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE
At any time or times, for the purpose of meeting the legal requirements of
the 1939 Act or of any jurisdiction in which any part of the Trust Property (as
defined in the Trust Agreement) may at the time be located, the holder of the
Common Securities and the Property Trustee shall have power to appoint, and upon
the written request of the Property Trustee, Capital, as Depositor, shall for
such purpose join with the Property Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to appoint,
one or more persons approved by the Property Trustee either to act as
co-property trustee, jointly with
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the Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or persons
in such capacity, any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. If Capital, as
Depositor, does not join in such appointment within 15 days after the receipt by
it of a request so to do, or in case a Subordinated Note Indenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment.
AMENDMENT OF THE TRUST AGREEMENT
The Trust Agreement may be amended from time to time by Capital and the
Securities Trustees without the consent of the holders of the Trust Securities
(i) to cure any ambiguity, correct or supplement any provision therein which may
be inconsistent with any other provision therein, or to make any other
provisions with respect to matters or questions arising under the Trust
Agreement, which shall not be inconsistent with the other provisions of the
Trust Agreement, provided that the amendment does not adversely affect in any
material respect the interests of any holder of Trust Securities, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that the Trust will not be classified as other
than a grantor trust for federal income tax purposes. Except as provided in the
succeeding paragraph, other amendments to the Trust Agreement may be made (i)
upon approval of the holders of not less than 66 2/3% in aggregate liquidation
amount of the Trust Securities then outstanding and (ii) upon receipt by the
Securities Trustees of an opinion of counsel to the effect that such amendment
will not affect the Trust's status as a grantor trust or the Trust's exemption
from the 1940 Act.
Notwithstanding the foregoing, without the consent of each affected holder
of Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any distribution on the Trust Securities or otherwise
adversely affect the amount of any distribution required to be made in respect
of the Trust Securities as of a specified date, (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date, or (iii) change the consent required to amend the
Trust Agreement.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust 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. The Trust may at the request of Capital, with the consent of
the Administrative 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 (A) expressly assumes all of the obligations of the
Trust with respect to the Trust Securities or (B) substitutes for the 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 in priority with respect to distributions
and payments upon liquidation, redemption and otherwise, (ii) Capital expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Junior Subordinated Notes,
(iii) the 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 other organization on which the Preferred
Securities are then listed, (iv) such merger, consolidation, amalgamation or
replacement does not cause the 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, (vi) such successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, Southern has received an opinion of counsel 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, and (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act, and (viii) Southern guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Preferred Securities Guarantee. Notwithstanding the foregoing,
the Trust shall not,
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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 the Trust or the successor entity to be classified as
other than a grantor trust for federal income tax purposes.
Any corporation or other body into which any of the Property Trustee, the
Delaware Trustee or any Administrative Trustee that is not a natural person may
be merged or converted or with which it may be consolidated, or any corporation
or other body resulting from any merger, conversion or consolidation to which
any such Securities Trustee shall be a party, or any corporation or other body
succeeding to all or substantially all the corporate trust business of any such
Securities Trustee, shall be the successor of such Securities Trustee under the
Trust Agreement, provided such corporation is otherwise qualified and eligible
under the Trust Agreement.
PAYMENT AND PAYING AGENT
So long as DTC is acting as securities depositary for the Preferred
Securities, payments in respect of the Preferred Securities in global form shall
be made to DTC, which is to credit the relevant accounts at DTC on the
applicable Distribution Dates. If the Preferred Securities are not held by DTC,
such payments shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the Securities Register (as
such term is defined in the Trust Agreement). The Paying Agent shall initially
be the Property Trustee. The Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Administrative Trustees and Capital.
In such event, the Administrative Trustees shall appoint a successor to act as
Paying Agent.
REGISTRAR AND TRANSFER AGENT
It is anticipated that the Property Trustee, or one of its affiliates, will
act as registrar and transfer agent (the "Securities Registrar") for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment in respect of any tax or
other governmental charges which may be imposed in relation to it.
The Securities Registrar will not be required to register or cause to be
registered any transfer of Preferred Securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a Trust Agreement Event of
Default with respect to the Trust Securities, undertakes to perform only such
duties as are specifically set forth in the Trust Agreement and, after default,
shall exercise the same degree of care as a prudent individual would exercise 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
Trust Agreement at the request of any holder of Preferred Securities, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby.
Bankers Trust Company, the Property Trustee, also serves as Indenture
Trustee and Guarantee Trustee. Southern and certain of its subsidiaries maintain
deposit accounts and banking relationships with Bankers Trust Company. Bankers
Trust Company serves as trustee under other indentures pursuant to which
securities of subsidiaries of Southern are outstanding.
GOVERNING LAW
The Trust Agreement and the Trust Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware;
provided that the immunities and standard of care of the Property Trustee shall
be governed by New York law.
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MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the
Trust so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or taxed as other than a grantor
trust for federal income tax purposes and so that the Junior Subordinated Notes
will be treated as indebtedness of Capital for federal income tax purposes. In
this connection, the Administrative Trustees and Capital are authorized to take
any action, not inconsistent with applicable law, the Trust's certificate of
trust or the Trust Agreement, that the Administrative Trustees and Capital
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially and adversely affect the interests of
the holders of the Preferred Securities.
DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES
Set forth below is a description of the terms of the Junior Subordinated
Notes. The following description does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Subordinated Note
Indenture, dated as of June 1, 1997, among Capital, Southern and Bankers Trust
Company, as trustee (the "Indenture Trustee"), as to be supplemented by a
supplemental indenture thereto (the Subordinated Note Indenture, as so
supplemented, is hereinafter referred to as the "Subordinated Note Indenture"),
the forms of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part. The Subordinated Note Indenture will be qualified as
an indenture under the 1939 Act. The terms of the Junior Subordinated Notes will
include those stated in the Subordinated Note Indenture and those made a part of
the Subordinated Note Indenture by reference to the 1939 Act. Certain
capitalized terms used herein are defined in the Subordinated Note Indenture.
GENERAL
The Junior Subordinated Notes will be issued as a series of junior
subordinated notes under the Subordinated Note Indenture. The Junior
Subordinated Notes will be limited in aggregate principal amount to
$206,186,000, such amount being the approximate aggregate liquidation amount of
the Trust Securities.
The entire principal amount of the Junior Subordinated Notes will mature
and become due and payable, together with any accrued and unpaid interest
thereon, including Additional Interest, if any, on June 30, 2028. The Junior
Subordinated Notes are not subject to any sinking fund provision.
The terms of the Junior Subordinated Notes correspond to those of the
Preferred Securities, as described herein.
The Subordinated Note Indenture does not contain provisions that afford
holders of Junior Subordinated Notes protection in the event of a highly
leveraged transaction involving Southern or Capital.
SUBORDINATION
The Junior Subordinated Notes are subordinated and junior in right of
payment to all Senior Indebtedness (as defined below) of Capital. No payment of
principal of (including redemption payments, if any), or premium, if any, or
interest on (including Additional Interest (as defined herein)) the Junior
Subordinated Notes may be made if (a) any Senior Indebtedness is not paid when
due and any applicable grace period with respect to such default has ended with
such default not being cured or waived or otherwise ceasing to exist, or (b) the
maturity of any Senior Indebtedness has been accelerated because of a default,
or (c) notice has been given of the exercise of an option to require repayment,
mandatory payment or prepayment or otherwise. Upon any payment or distribution
of assets of Capital to creditors upon any liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors, marshalling of assets
or liabilities, or any bankruptcy, insolvency or similar proceedings of Capital,
the holders of Senior Indebtedness shall be entitled to receive payment in full
of all amounts due or to become due on or in respect of all Senior Indebtedness
before the holders of the Junior Subordinated Notes are entitled to receive or
retain any payment or distribution. Subject to the prior payment of all Senior
Indebtedness, the rights of the holders of the Junior Subordinated Notes will be
subrogated to the rights of the holders of Senior Indebtedness to
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receive payments and distributions applicable to such Senior Indebtedness until
all amounts owing on the Junior Subordinated Notes are paid in full.
The term "Senior Indebtedness" means, with respect to any person, (i) any
payment due in respect of indebtedness of such person, whether outstanding at
the date of execution of the Subordinated Note Indenture or thereafter incurred,
created or assumed, (a) in respect of money borrowed (including any financial
derivative, hedging or futures contract or similar instrument) and (b) evidenced
by securities, debentures, bonds, notes or other similar instruments issued by
such person that, by their terms, are senior or senior subordinated debt
securities; (ii) all capital lease obligations; (iii) all obligations issued or
assumed as the deferred purchase price of property, all conditional sale
obligations and all obligations of such person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business and long-term purchase obligations); (iv) all obligations for the
reimbursement of 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 the payment of which such
person 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 person (whether or
not such obligation is assumed by such person), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the Junior
Subordinated Notes and (2) any unsecured indebtedness between or among such
person or its affiliates. Such Senior Indebtedness shall continue to be Senior
Indebtedness and be entitled to the benefits of the subordination provisions
contained in the Subordinated Note Indenture irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Subordinated Note Indenture does not limit the aggregate amount of
Senior Indebtedness that may be issued by Capital. Capital currently has no
Senior Indebtedness outstanding.
OPTIONAL REDEMPTION
Capital shall have the right to redeem the Junior Subordinated Notes, in
whole or in part, without premium, from time to time, on or after June 30, 2003,
or at any time in whole upon the occurrence of a Special Event as described
under "Description of the Preferred Securities -- Special 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 Junior Subordinated Notes would
result in the delisting of the Preferred Securities, Capital may only redeem the
Junior Subordinated Notes in whole.
INTEREST
Each Junior Subordinated Note shall bear interest at the Securities Rate
from the Issue Date, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year commencing September 30, 1998 to the
person in whose name such Junior Subordinated Note is registered at the close of
business on the fifteenth calendar day prior to such payment date. The amount of
interest payable will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Junior Subordinated Notes is not a Business Day, then payment of the interest
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 date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Capital shall have the right at any time, and from time to time, to defer
payments of interest on the Junior Subordinated Notes by extending the interest
payment period for up to 20 consecutive quarters, but not beyond the stated
maturity date. At the end of an Extension Period, Capital shall pay all interest
then accrued and unpaid (including any Additional Interest) (together with
interest thereon at the Securities Rate
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compounded quarterly to the extent permitted by applicable law); provided, that
if Capital shall have given notice of its election to select an Extension
Period, subject to the exceptions described under "-- Certain Covenants" below,
(a) neither Southern nor Capital shall declare or pay any dividend or
distribution on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock or make any guarantee payments with respect
to the foregoing, and (b) neither Southern nor Capital shall make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by it which rank pari passu with or junior to the Junior
Subordinated Notes or the Notes Guarantee. Prior to the termination of any
Extension Period, Capital may further defer payments of interest by extending
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, Capital may select a new Extension Period, subject to the
above requirements. Capital has no present intention of exercising its rights to
defer payments of interest by extending the interest payment period on the
Junior Subordinated Notes. See "Certain Federal Income Tax
Considerations -- Original Issue Discount."
Capital shall give the holder or holders of the Junior Subordinated Notes
and the Indenture Trustee notice of its selection or extension of an Extension
Period at least one Business Day prior to the earlier of (i) the record date
relating to the interest payment date on which the Extension Period is to
commence or relating to the interest payment date on which an Extension Period
that is being extended would otherwise terminate or (ii) the date Capital or the
Trust is required to give notice to any applicable self-regulatory organization
of the record date or the date such distributions are payable.
ADDITIONAL INTEREST
"Additional Interest" is defined in the Subordinated Note Indenture as (i)
such additional amounts as may be required so that the net amounts received and
retained by a holder of Junior Subordinated Notes (if the holder is a Trust)
after paying taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
taxing authority will not be less than the amounts the holder would have
received had no such taxes, duties, assessments, or other governmental charges
been imposed; and (ii) any interest due and not paid on an interest payment
date, together with interest thereon from such interest payment date to the date
of payment, compounded quarterly, on each interest payment date.
NOTES GUARANTEE
Pursuant to the Subordinated Note Indenture, Southern will irrevocably and
unconditionally guarantee the Junior Subordinated Notes as described under
"Description of the Notes Guarantee."
CERTAIN COVENANTS
Southern and Capital each covenants in the Subordinated Note Indenture, for
the benefit of the holders of each series of Junior Subordinated Notes, that,
(i) if at such time Capital shall have given notice of its election to extend an
interest payment period for such series of Junior Subordinated Notes and such
extension shall be continuing, (ii) if at such time Southern shall be in default
with respect to its payment or other obligations under (A) the Preferred
Securities Guarantee with respect to the Trust Securities, if any, related to
such series of Junior Subordinated Notes or (B) the Notes Guarantee, if any,
related to such series of Junior Subordinated Notes, or (iii) if at such time an
Event of Default thereunder with respect to such series of Junior Subordinated
Notes shall have occurred and be continuing, (a) neither Southern nor Capital
shall declare or pay any dividend or make any distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock, and (b) neither Southern nor Capital shall make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by it which rank pari passu with or junior to the Junior
Subordinated Notes or the Notes Guarantee. None of the foregoing, however, shall
restrict (i) any of the actions described in the preceding sentence resulting
from any reclassification of Southern's or Capital's capital stock or the
exchange or conversion of one class or series of Southern's or Capital's capital
stock for another class or series of Southern's or Capital's
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capital stock, (ii) the purchase of fractional interests in shares of Southern's
or Capital's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (iii)
dividends, payments or distributions payable in shares of capital stock, (iv)
redemptions, purchases or other acquisitions of shares of capital stock in
connection with any employment contract, incentive plan, benefit plan or other
similar arrangement of Southern or any of its subsidiaries or in connection with
a dividend reinvestment or stock purchase plan, or (v) any declaration of a
dividend in connection with implementation of any stockholders' rights plan, or
the issuance of rights, stock or other property under any such plan, or the
redemption, repurchase or other acquisition of any such rights pursuant thereto.
The Subordinated Note Indenture further provides that, for so long as the
Trust Securities of any Trust remain outstanding, Capital covenants (i) to
directly or indirectly maintain 100% ownership of the Common Securities of such
Trust; provided, however, that any permitted successor of Capital or Southern
under the Subordinated Note Indenture may succeed to Capital's ownership of such
Common Securities, and (ii) to use its reasonable efforts to cause such Trust
(a) to remain a statutory business trust, except in connection with the
distribution of Junior Subordinated Notes to the holders of Trust Securities in
liquidation of such Trust, the redemption of all of the Trust Securities of such
Trust, or certain mergers, consolidations or amalgamations, each as permitted by
the related Trust Agreement, and (b) to otherwise continue to be classified as a
grantor trust for United States federal income tax purposes.
EVENTS OF DEFAULT
The Subordinated Note Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Notes of any
series, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Junior Subordinated Notes of such series:
(a) failure for 10 days to pay interest on the Junior Subordinated
Notes of such series, including any Additional Interest (as defined in
clause (ii) of the definition thereof in the Subordinated Note Indenture)
in respect thereof, when due on an Interest Payment Date other than at
maturity or upon earlier redemption; provided, however, that a valid
extension of the interest payment period by Capital shall not constitute a
default in the payment of interest for this purpose; or
(b) failure for 10 days to pay Additional Interest (as defined in
clause (i) of the definition thereof in the Subordinated Note Indenture);
or
(c) failure to pay principal or premium, if any, or interest,
including Additional Interest (as defined in clause (ii) of the definition
thereof in the Subordinated Note Indenture), on the Junior Subordinated
Notes of such series when due at maturity or upon earlier redemption; or
(d) failure for three Business Days to deposit any sinking fund
payment when due by the terms of a Junior Subordinated Note of such series;
or
(e) failure to observe or perform any other covenant or warranty in
the Subordinated Note Indenture (other than a covenant or warranty which
has expressly been included therein solely for the benefit of one or more
series of Junior Subordinated Notes other than such series) for 90 days
after written notice to Southern and Capital from the Indenture Trustee or
the holders of at least 25% in principal amount of the outstanding Junior
Subordinated Notes of such series; or
(f) certain events of bankruptcy, insolvency, or reorganization of
Southern or Capital.
The holders of not less than a majority in aggregate outstanding principal
amount of the Junior Subordinated Notes of any series have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee with respect to the Junior Subordinated Notes of such
series. If a Subordinated Note Indenture Event of Default occurs and is
continuing with respect to the Junior Subordinated Notes of any series, then the
Indenture Trustee or the holders of not less than 25% in aggregate outstanding
principal amount of the Junior Subordinated Notes of such series may declare the
principal amount thereof due and payable immediately by notice in writing to
Southern and Capital (and to the Indenture Trustee if given by the holders), and
upon any such declaration such principal amount shall
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become immediately due and payable. At any time after such a declaration of
acceleration with respect to the Junior Subordinated Notes of any series has
been made and before a judgment or decree for payment of the money due has been
obtained as provided in Article Five of the Subordinated Note Indenture, the
holders of not less than a majority in aggregate outstanding principal amount of
the Junior Subordinated Notes of such series may rescind and annul such
declaration and its consequences if the default has been cured or waived and
Southern or Capital has paid or deposited with the Indenture Trustee a sum
sufficient to pay all matured installments of interest (including any Additional
Interest) and principal due otherwise than by acceleration and all sums paid or
advanced by the Indenture Trustee, including reasonable compensation and
expenses of the Indenture Trustee.
A holder of Preferred Securities may institute a legal proceeding directly
against Southern and Capital, without first instituting a legal proceeding
against the Property Trustee or any other person or entity, for enforcement of
payment to such holder of principal of or interest on the Junior Subordinated
Notes of the related series having a principal amount equal to the aggregate
stated liquidation amount of the Preferred Securities of such holder on or after
the due dates specified in the Junior Subordinated Notes of such series.
The holders of not less than a majority in aggregate outstanding principal
amount of the Junior Subordinated Notes of any series may, on behalf of the
holders of all the Junior Subordinated Notes of such series, waive any past
default with respect to such series, except (i) a default in the payment of
principal or interest or (ii) a default in respect of a covenant or provision
which under Article Nine of the Subordinated Note Indenture cannot be modified
or amended thereunder without the consent of the holder of each outstanding
Junior Subordinated Note of such series affected thereby.
BOOK-ENTRY AND ISSUANCE
If distributed to holders of Trust Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of the Trust,
the Junior Subordinated Notes are expected to be issued in the form of one or
more global certificates registered in the name of the securities depositary or
its nominee. In such event, the procedures applicable to the transfer and
payment of the Junior Subordinated Notes are expected to be substantially
similar to those described with respect to the Preferred Securities in
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company."
REGISTRATION AND TRANSFER
Capital shall not be required to (i) issue, register the transfer of or
exchange Junior Subordinated Notes of any series during a period of 15 days
immediately preceding the date notice is given identifying the Junior
Subordinated Notes of such series called for redemption, or (ii) register the
transfer of or exchange any Junior Subordinated Notes so selected for
redemption, in whole or in part, except the unredeemed portion of any Junior
Subordinated Note being redeemed in part.
PAYMENT AND PAYING AGENT
Payment of principal of any Junior Subordinated Notes will be made only
against surrender to the Paying Agent of such Junior Subordinated Notes.
Principal of and interest on Junior Subordinated Notes will be payable, subject
to any applicable laws and regulations, at the office of such Paying Agent or
Paying Agents as Capital may designate from time to time, except that, at the
option of Capital, payment of any interest may be made by wire transfer or by
check mailed to the address of the person entitled thereto as such address shall
appear in the Security Register with respect to the Junior Subordinated Notes.
Payment of interest on Junior Subordinated Notes on any interest payment date
will be made to the person in whose name the Junior Subordinated Notes (or
predecessor security) are registered at the close of business on the Record Date
for such interest payment (the fifteenth calendar day before such interest
payment date).
The Indenture Trustee will act as Paying Agent with respect to the Junior
Subordinated Notes. Capital 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.
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All monies paid by Capital to a Paying Agent for the payment of the
principal of or interest on the Junior Subordinated Notes of any series which
remain unclaimed at the end of two years after such principal or interest shall
have become due and payable will be repaid to Capital, and the holder of such
Junior Subordinated Notes will thereafter look only to Capital for payment
thereof.
MODIFICATION
The Subordinated Note Indenture contains provisions permitting Capital,
Southern and the Indenture Trustee, with the consent of the holders of not less
than a majority in principal amount of the outstanding Junior Subordinated Notes
of each series affected thereby, to modify the Subordinated Note Indenture or
the rights of the holders of the Junior Subordinated Notes of such series;
provided, that no such modification may, without the consent of the holder of
each outstanding Junior Subordinated Note affected thereby, (i) change the
stated maturity of the principal of, or any installment of principal of or
interest on, any Junior Subordinated Note, or reduce the principal amount
thereof or the rate of interest (including Additional Interest) thereon or any
premium payable upon the redemption thereof, or change the method of calculating
the rate of interest thereon, or impair the right to institute suit for the
enforcement of any such payment on or after the stated maturity thereof (or, in
the case of redemption, on or after the redemption date), or (ii) reduce the
percentage of principal amount of the outstanding Junior Subordinated Notes of
any series, the consent of whose holders is required for any such supplemental
indenture, or the consent of whose holders is required for any waiver (of
compliance with certain provisions of the Subordinated Note Indenture or certain
defaults thereunder and their consequences) provided for in the Subordinated
Note Indenture, or (iii) modify any of the provisions of the Subordinated Note
Indenture relating to supplemental indentures, waiver of past defaults, or
waiver of certain covenants, except to increase any such percentage or to
provide that certain other provisions of the Subordinated Note Indenture cannot
be modified or waived without the consent of the holder of each outstanding
Junior Subordinated Note affected thereby, or (iv) reduce any amount payable
under, delay or defer the required time of payment under, or impair the right to
institute suit to enforce any payment under the Notes Guarantee, or (v) modify
the provisions of the Subordinated Note Indenture with respect to the
subordination of the Junior Subordinated Notes or the Notes Guarantee in a
manner adverse to such holder.
In addition, Capital, Southern and the Indenture Trustee may execute,
without the consent of any holders of Junior Subordinated Notes, any
supplemental indenture for certain other usual purposes, including the creation
of any new series of junior subordinated notes.
CONSOLIDATION, MERGER AND SALE
Neither Southern nor Capital shall consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets substantially
as an entirety to any person, unless (1) such other corporation or person is a
corporation organized and existing under the laws of the United States, any
state thereof or the District of Columbia and such other corporation or person
expressly assumes, by supplemental indenture executed and delivered to the
Indenture Trustee, the payment of the principal of (and premium, if any) and
interest (including Additional Interest) on all the Junior Subordinated Notes
and the performance of every covenant of the Subordinated Note Indenture and the
Notes Guarantee on the part of Southern or Capital, as the case may be, to be
performed or observed; (2) immediately after giving effect to such transactions,
no Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be continuing; and (3)
Southern or Capital, as the case may be, has delivered to the Indenture Trustee
an officers' certificate and an opinion of counsel, each stating that such
transaction complies with the provisions of the Subordinated Note Indenture
governing consolidation, merger, conveyance, transfer or lease and that all
conditions precedent thereto have been complied with.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to an Event of Default with respect to Junior
Subordinated Notes of any series, undertakes to perform, with respect to Junior
Subordinated Notes of such series, only such duties as are specifically set
forth in the Subordinated Note Indenture and, in case an Event of Default with
respect to
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Junior Subordinated Notes of any series has occurred and is continuing, shall
exercise, with respect to Junior Subordinated Notes of such series, the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provision, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Subordinated Note
Indenture at the request of any holder of Junior Subordinated Notes of any
series, unless offered reasonable indemnity by such holder against the costs,
expenses and liabilities which might be incurred thereby. The Indenture Trustee
is not required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
Bankers Trust Company, the Indenture Trustee, also serves as Property
Trustee and as Guarantee Trustee. Southern and certain of its subsidiaries
maintain deposit accounts and banking relationships with Bankers Trust Company.
Bankers Trust Company also serves as trustee under other indentures pursuant to
which securities of subsidiaries of Southern are outstanding.
GOVERNING LAW
The Subordinated Note Indenture and the Junior Subordinated Notes will be
governed by, and construed in accordance with, the internal laws of the State of
New York.
MISCELLANEOUS
Each of Southern and Capital will have the right at all times to assign any
of its rights or obligations under the Subordinated Note Indenture to a direct
or indirect wholly-owned subsidiary of Southern; provided, that, in the event of
any such assignment, Southern or Capital, as the case may be, will remain
primarily liable for all such obligations. Subject to the foregoing, the
Subordinated Note Indenture will be binding upon and inure to the benefit of the
parties thereto and their respective successors and assigns.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Preferred
Securities Guarantee that will be executed and delivered by Southern for the
benefit of the holders of Preferred Securities from time to time. The Preferred
Securities Guarantee will be qualified as an indenture under the 1939 Act.
Bankers Trust Company will act as indenture trustee under the Preferred
Securities Guarantee (the "Guarantee Trustee") for purposes of the 1939 Act. The
terms of the Preferred Securities Guarantee will be those set forth therein and
those made part thereof by the 1939 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 Preferred Securities Guarantee,
the form of which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, and the 1939 Act. The Preferred Securities
Guarantee will be held by the Guarantee Trustee for the benefit of holders of
the Preferred Securities.
GENERAL
Pursuant to the Preferred Securities Guarantee, Southern will irrevocably
and unconditionally agree, to the extent set forth therein, to pay in full, to
the holders of the Preferred Securities, the Guarantee Payments (as defined
herein), to the extent not paid by, or on behalf of, the Trust, regardless of
any defense, right of set-off or counterclaim that Southern may have or assert
against any person. The following payments or distributions with respect to the
Preferred Securities to the extent not paid or made by, or on behalf of, the
Trust will be subject to the Preferred Securities Guarantee (without
duplication): (i) any accrued and unpaid distributions required to be paid on
the Preferred Securities but if and only if and to the extent that the Trust has
funds legally and immediately available therefor, (ii) the applicable Redemption
Price with respect to any Preferred Securities called for redemption by the
Trust, but if and only to the extent the Trust has funds legally and immediately
available therefor, and (iii) upon a dissolution, winding-up or termination of
the Trust (other than in connection with the distribution of Junior Subordinated
Notes to the holders of Trust 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 the Preferred Securities to the date
of payment, to the extent the
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Trust has funds legally and immediately available therefor, and (b) the amount
of assets of the Trust remaining available for distribution to holders of
Preferred Securities in liquidation of the Trust (the "Guarantee Payments").
Southern's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by Southern to the holders of the Preferred
Securities or by causing the Trust to pay such amounts to such holders.
The Preferred Securities Guarantee will be a guarantee of the Guarantee
Payments with respect to the Preferred Securities from the time of issuance of
the Preferred Securities, but will not apply to the payment of distributions and
other payments on the Preferred Securities when the Trust does not have
sufficient funds legally and immediately available to make such distributions or
other payments. IF CAPITAL DOES NOT MAKE INTEREST PAYMENTS ON THE JUNIOR
SUBORDINATED NOTES HELD BY THE PROPERTY TRUSTEE, THE TRUST WILL NOT MAKE
DISTRIBUTIONS ON THE PREFERRED SECURITIES.
SUBORDINATION
Southern's obligations under the Preferred Securities Guarantee to make the
Guarantee Payments will constitute an unsecured obligation of Southern and will
rank (i) subordinate and junior in right of payment to all other liabilities of
Southern, except those obligations or liabilities made pari passu or subordinate
by their terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by Southern and with any guarantee now or
hereafter entered into by Southern in respect of any preferred or preference
securities of any affiliate of Southern, and (iii) senior to all common stock of
Southern. The terms of the Preferred Securities will provide that each holder of
Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Preferred Securities Guarantee.
The Preferred Securities Guarantee 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 first instituting a legal proceeding against any other person
or entity).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially and adversely
affect the rights of holders of the Preferred Securities (in which case no
consent will be required), the Preferred Securities Guarantee may be amended
only with the prior approval of the holders of not less than 66 2/3% in
liquidation amount of the outstanding Preferred Securities. The manner of
obtaining any such approval of holders of the Preferred Securities is set forth
under "Description of the Preferred Securities -- Voting Rights." All guarantees
and agreements contained in the Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of Southern and
shall inure to the benefit of the holders of the Preferred Securities then
outstanding.
TERMINATION
The Preferred Securities Guarantee will terminate and be of no further
force and effect as to the Preferred Securities upon full payment of the
applicable Redemption Price of all Preferred Securities, upon distribution of
Junior Subordinated Notes to the holders of such Preferred Securities, or upon
full payment of the amounts payable upon liquidation of the Trust. The Preferred
Securities Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the Preferred Securities must restore
payment of any sums paid with respect to the Preferred Securities or under the
Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under the Preferred Securities Guarantee will occur
upon the failure by Southern to perform any of its payment obligations
thereunder. The holders of a majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Preferred Securities Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Preferred Securities
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Guarantee. Any holder of Preferred Securities may institute a legal proceeding
directly against Southern to enforce its rights under the Preferred Securities
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee or any other person or entity. The holders of a majority in liquidation
amount of Preferred Securities may, by vote, on behalf of the holders of all the
Preferred Securities, waive any past event of default and its consequences.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of any event of default with
respect to the Preferred Securities Guarantee and after the curing or waiving of
all events of default with respect to the Preferred Securities Guarantee,
undertakes to perform only such duties as are specifically set forth in the
Preferred Securities Guarantee and, in case an event of default has occurred,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Preferred Securities Guarantee at the request of any holder of the Preferred
Securities, unless offered reasonable indemnity against the costs, expenses and
liabilities which might be incurred thereby.
Bankers Trust Company, the Guarantee Trustee, also serves as Property
Trustee and as Indenture Trustee. Southern and certain of its subsidiaries
maintain deposit accounts and banking relationships with Bankers Trust Company.
Bankers Trust Company serves as trustee under other indentures pursuant to which
securities of subsidiaries of Southern are outstanding.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by, and construed in
accordance with, the internal laws of the State of New York.
THE AGREEMENT AS TO EXPENSES AND LIABILITIES
Pursuant to an Agreement as to Expenses and Liabilities to be entered into
by Southern under the Trust Agreement, Southern will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust becomes
indebted or liable the full payment of any indebtedness, expenses or liabilities
of the Trust, other than obligations of the Trust to pay to the holders of the
Preferred Securities or other similar interests in the Trust the amounts due
such holders pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be.
DESCRIPTION OF THE NOTES GUARANTEE
Pursuant to the Subordinated Note Indenture, Southern will irrevocably and
unconditionally guarantee the due and punctual payment of principal, premium, if
any, and interest on the Junior Subordinated Notes when and as the same shall
become due and payable, whether at maturity, upon redemption or otherwise. The
Notes Guarantee will constitute an unsecured obligation of Southern and will
rank subordinate and junior to all Senior Indebtedness that may be issued by
Southern. As of March 31, 1998, Senior Indebtedness of Southern aggregated
approximately $687,000,000. Since Southern is a holding company, the right of
Southern and, hence, the right of creditors of Southern (including the holders
of the Junior Subordinated Notes) to participate in any distribution of the
assets of any subsidiary of Southern, whether upon liquidation, reorganization
or otherwise, is subject to prior claims of creditors of each such subsidiary.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED NOTES, THE PREFERRED SECURITIES GUARANTEE
AND THE NOTES GUARANTEE
As long as payments of interest and other payments are made when due on the
Junior Subordinated Notes, such payments will be sufficient to cover
distributions and payments due on the Trust Securities primarily because (i) the
aggregate principal amount of Junior Subordinated Notes will be equal to the sum
of
34
<PAGE>
the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and interest and other payment dates on the Junior Subordinated
Notes will match the distribution rate and distribution and other payment dates
for the Preferred Securities; (iii) Southern shall pay for all costs and
expenses of the Trust pursuant to the Agreement as to Expenses and Liabilities;
and (iv) the Trust Agreement provides that the Securities Trustees shall not
cause or permit the Trust to, among other things, engage in any activity that is
not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are legally and
immediately available) and other payments due on the Preferred Securities (to
the extent funds therefor are legally and immediately available) are guaranteed
by Southern as and to the extent set forth under "Description of the Preferred
Securities Guarantee." If Capital does not make interest payments on the Junior
Subordinated Notes, it is not expected that the Trust will have sufficient funds
to pay distributions on the Preferred Securities. The Preferred Securities
Guarantee is a guarantee from the time of its issuance, but does not apply to
any payment of distributions unless and until the Trust has sufficient funds
legally and immediately available for the payment of such distributions.
If Capital fails to make interest or other payments on the Junior
Subordinated Notes when due (taking into account any Extension Period), the
Trust Agreement provides a mechanism whereby the holders of the Preferred
Securities may appoint a substitute Property Trustee. Such holders may also
direct the Property Trustee to enforce its rights under the Junior Subordinated
Notes and the Notes Guarantee, including proceeding directly against Capital to
enforce the Junior Subordinated Notes and Southern to enforce the Notes
Guarantee. If the Property Trustee fails to enforce its rights under the Junior
Subordinated Notes or the Notes Guarantee, to the fullest extent permitted by
applicable law, any holder of Preferred Securities may institute a legal
proceeding directly against Capital to enforce the Property Trustee's rights
under the Junior Subordinated Notes and against Southern to enforce the holder's
rights under the Notes Guarantee without first instituting any legal proceeding
against the Property Trustee or any other person or entity. Notwithstanding the
foregoing, a holder of Preferred Securities may institute a legal proceeding
directly against Southern and Capital, without first instituting a legal
proceeding against the Property Trustee or any other person or entity, for
enforcement of payment to such holder of principal of or interest on the Junior
Subordinated Notes having a principal amount equal to the aggregate stated
liquidation amount of the Preferred Securities of such holder on or after the
due dates specified in the Junior Subordinated Notes.
If Southern fails to make payments under the Preferred Securities
Guarantee, the Preferred Securities Guarantee provides a mechanism whereby the
holders of the Preferred Securities may direct the Guarantee Trustee to enforce
its rights thereunder. In addition, any holder of Preferred Securities may
institute a legal proceeding directly against Southern to enforce the Guarantee
Trustee's rights under the Preferred Securities Guarantee without first
instituting a legal proceeding against the Guarantee Trustee or any other person
or entity.
The Notes Guarantee, the Preferred Securities Guarantee, the Subordinated
Note Indenture, the Junior Subordinated Notes, the Trust Agreement and the
Agreement as to Expenses and Liabilities, as described above, constitute a full
and unconditional guarantee by Southern and Capital of the payments due on the
Preferred Securities.
Upon any voluntary or involuntary dissolution, winding-up or termination of
the Trust, unless the Junior Subordinated Notes are distributed in connection
therewith, the holders of Preferred Securities will be entitled to receive, out
of assets legally available for distribution to holders, the Liquidation
Distribution in cash. See "Description of the Preferred
Securities -- Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of Capital, the Property Trustee, as
holder of the Junior Subordinated Notes, would be a subordinated creditor of
Capital, subordinated in right of payment to all Senior Indebtedness, but
entitled to receive payment in full of principal and interest, before any
stockholders of Capital receive payments or distributions. Because Southern is
guarantor under the Preferred Securities Guarantee and the Notes Guarantee and
has agreed to pay for all costs, expenses and liabilities of the Trust (other
than the Trust's obligations to holders of the Preferred Securities) pursuant to
the Agreement as to Expenses and Liabilities, the positions of a holder of
Preferred Securities and a holder of Junior Subordinated
35
<PAGE>
Notes relative to other creditors and to stockholders of Southern in the event
of liquidation or bankruptcy of Southern would be substantially the same.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Subordinated Note Indenture.
However, in the event of payment defaults under, or acceleration of, Senior
Indebtedness, the subordination provisions of the Junior Subordinated Notes
provide that no payments may be made in respect of the Junior Subordinated Notes
until such Senior Indebtedness has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on the
Junior Subordinated Notes would constitute an Event of Default under the
Subordinated Note Indenture except that failure to make interest payments on the
Junior Subordinated Notes will not be an Event of Default during an Extension
Period; provided, however, that any Extension Period may not exceed 20
consecutive quarters or extend beyond the maturity of the Junior Subordinated
Notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences of the ownership and disposition of the Preferred Securities
and constitutes the opinion of Troutman Sanders LLP, counsel to Southern,
Capital and the Trust, insofar as it relates to matters of law and legal
conclusions. This summary deals only with Preferred Securities held as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended to the date hereof (the "Code"), by Holders (as defined herein).
Moreover, it does not discuss all of the tax consequences that may be relevant
to a Holder in light of his particular circumstances or to Holders subject to
special rules, such as certain financial institutions, insurance companies,
dealers in securities, individual retirement and certain tax deferred accounts,
and persons who engage in a straddle or a hedge relating to a Preferred
Security. Prospective investors should consult their own tax advisors with
regard to the application of the tax considerations discussed below to their
particular situations as well as the application of any state, local or other
tax laws. This summary is based on laws, existing and proposed regulations, and
applicable judicial and administrative determinations, all of which are subject
to change at any time, and any such changes may be retroactively applied in a
manner that could adversely affect Holders. As used herein, the term "Holder"
means a beneficial owner of a Preferred Security that for United States federal
income tax purposes is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust if (a) a court within the United States
is able to exercise primary supervision over the administration of the trust and
(b) one or more U.S. persons have the authority to control all substantial
decisions of the trust. Thus, the following summary does not address any tax
consequences that apply specifically to nonresident aliens or foreign entities.
TREATMENT OF THE TRUST AND PREFERRED SECURITIES FOR FEDERAL INCOME TAX PURPOSES
The Trust will be treated as a "grantor trust" and not as an association
taxable as a corporation for federal income tax purposes. Thus, for federal
income tax purposes, each Holder will be treated as the beneficial owner of a
pro rata undivided interest in the Junior Subordinated Notes and, consequently,
will be required to include in income the Holder's pro rata share of the entire
income from the Junior Subordinated Notes. Each Holder generally will determine
its net income or loss with respect to the Trust in accordance with its own
method of accounting, although income arising from OID, if any, must be taken
into account under the accrual method of accounting even if the Holder otherwise
would use the cash receipts and disbursements method.
PAYMENTS OF INTEREST
Except as set forth below, stated interest on a Junior Subordinated Note
will generally be taxable to a Holder as ordinary income at the time it is paid
or accrued in accordance with the Holder's own method of accounting.
36
<PAGE>
ORIGINAL ISSUE DISCOUNT
Under applicable income tax regulations, Southern and Capital believe that
the Junior Subordinated Notes will not be treated as issued with OID. It should
be noted that these regulations have not yet been addressed in any rulings or
other interpretations by the IRS. Accordingly, it is possible that the IRS could
take a position contrary to the interpretations described herein.
The terms of the Junior Subordinated Notes permit Capital to defer the
payment of interest on the Junior Subordinated Notes at any time and from time
to time by extending the interest payment period for up to 20 consecutive
quarters with respect to each Extension Period; provided, however, that no
Extension Period may extend beyond the stated maturity date of the Junior
Subordinated Notes. Should Capital exercise this option to defer payments of
interest, the Junior Subordinated Notes would at that time be treated as issued
with OID and all the stated interest payments on the Junior Subordinated Notes
would thereafter be treated as OID for as long as they remained outstanding. As
a result, all Holders would, in effect, be required to accrue interest income
even if such Holders are on a cash method of accounting. Consequently, in the
event that the payment of interest is deferred, a Holder could be required to
include OID in income on an economic accrual basis, notwithstanding that Capital
will not make any interest payments during such period on the Junior
Subordinated Notes.
MARKET DISCOUNT
A purchaser of a Preferred Security at a discount from the liquidation
amount at maturity of such purchaser's pro rata share of the Junior Subordinated
Notes acquires such Preferred Security with "market discount." However, market
discount with respect to a Preferred Security will be considered to be zero if
it is de minimis. Market discount will be de minimis with respect to a Preferred
Security if it is less than the product of (i) 0.25% of the adjusted issue price
of the purchaser's pro rata share of the Junior Subordinated Notes multiplied by
(ii) the number of complete years to maturity of such Junior Subordinated Notes
after the date of purchase. The purchaser of a Preferred Security with more than
a de minimis amount of market discount generally will be required to treat any
gain on the sale, exchange, redemption or other disposition of all or part of
the Preferred Securities (or related Junior Subordinated Notes) as ordinary
income to the extent of accrued (but not previously taxed) market discount.
Market discount generally will accrue ratably during the period from the date of
purchase of such Preferred Security to the maturity date of the Junior
Subordinated Notes, unless the Holder irrevocably elects to accrue such market
discount on the basis of a constant interest rate.
A Holder who has acquired a Preferred Security at a market discount
generally will be required to defer any deductions of interest expense
attributable to any indebtedness incurred or continued to purchase or carry the
Preferred Security, to the extent such interest expense exceeds the related
interest income. Any such deferred interest expense generally will be allowable
as a deduction not later than the year in which the related market discount
income is recognized. As an alternative to the inclusion of market discount in
income upon disposition of all or a portion of a Preferred Security or the
related Junior Subordinated Notes (including redemptions thereof), a Holder may
make an election (which may not be revoked without the IRS's consent) to include
market discount in income as it accrues on all market discount instruments
acquired by the Holder during or after the taxable year for which the election
is made. In that case, the preceding deferral rule for interest expense will not
apply.
In lieu of the foregoing treatment of market discount and interest expense,
a Holder may elect to treat any market discount (including a de minimis amount)
as OID and accrue such discount on a constant-yield basis in the same manner as
the Holder accrues OID.
SALE OF PREFERRED SECURITIES
Upon the sale, retirement (including redemption) or other taxable
disposition of all or part of a Preferred Security, a Holder thereof will
recognize gain or loss equal to the difference between the amount realized on
such sale, retirement or other disposition and such Holder's adjusted tax basis
in the Preferred Security or part thereof. If the Holder disposes of a Preferred
Security prior to the occurrence of an Extension Period, any
37
<PAGE>
portion of the amount received that is attributable to accrued interest will be
treated as interest income to the Holder and will not be treated as part of the
amount realized for purposes of determining gain or loss on the disposition of
the Preferred Security. Any recognized gain or loss will be capital gain or
loss, except to the extent of any accrued market discount (see "Market Discount"
above), and such capital gain or loss will be long-term if the holding period
for the Preferred Security is more than one year at the time of sale, retirement
or other disposition. In the case of individuals, "net capital gain," i.e., the
excess of net long-term capital gain over net short-term capital loss, is
generally subject to a reduced rate of federal income tax. Capital gains and
losses from property held for more than 18 months will be taken into account in
determining "adjusted net capital gain," which is subject to a further reduction
in the rate of tax pursuant to a recent amendment of the Code. Also, in taxable
years beginning after December 31, 2000, an additional reduction in the rate of
tax may be available in certain circumstances for capital gains from property
held by the taxpayer for more than five years. A Holder's adjusted tax basis in
a Preferred Security acquired by purchase will equal the cost of such Preferred
Security to the Holder, increased by the amount of any related accrued OID and
market discount included in taxable income by the Holder and reduced by any
prior payments on the Junior Subordinated Notes which are not qualified stated
interest. The redemption of only part of a Preferred Security will require an
allocation of the Holder's adjusted tax basis in his pro rata share of the
related Junior Subordinated Notes between the portion of the Junior Subordinated
Notes redeemed and retained by the Holder in order to determine gain or loss.
RECEIPT OF JUNIOR SUBORDINATED NOTES UPON LIQUIDATION OF THE TRUST
As described under "Description of the Preferred Securities -- Special
Event Redemption or Distribution," Junior Subordinated Notes may be distributed
to Holders in exchange for the Preferred Securities and in liquidation of the
Trust. Such a distribution would be treated as a non-taxable event to each
Holder and each Holder would receive an aggregate tax basis in the Holder's
Junior Subordinated Notes equal to the Holder's aggregate tax basis in its
Preferred Securities. A Holder's holding period with respect to the Junior
Subordinated Notes so received in liquidation of the Trust would include the
period for which the Preferred Securities were held by such Holder.
INFORMATION REPORTING TO HOLDERS
Income on the Preferred Securities will be reported to Holders on Form
1099, which form should be mailed to Holders of Preferred Securities by January
31 following each calendar year.
BACKUP WITHHOLDING
A Holder may be subject to "backup withholding" under certain
circumstances. Backup withholding applies to a Holder if the Holder, among other
things, (i) fails to furnish his social security number or other taxpayer
identification number ("TIN") to the payor responsible for backup withholding
(for example, the Holder's securities broker), (ii) furnishes such payor an
incorrect TIN, (iii) fails to provide such payor with a certified statement,
signed under penalties of perjury, that the TIN provided to the payor is correct
and that the Holder is not subject to backup withholding, or (iv) fails to
report properly interest and dividends on his tax return. Backup withholding,
however, does not apply to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. The backup withholding rate is 31% of
"reportable payments," which generally will include distributions of interest
and principal payments on the Junior Subordinated Notes.
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE MAY NOT BE APPLICABLE TO
A HOLDER, DEPENDING UPON A HOLDER'S PARTICULAR SITUATION, AND THEREFORE EACH
HOLDER SHOULD CONSULT HIS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAW.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to the Underwriters
named below, and the Underwriters, for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Goldman, Sachs & Co., Lehman Brothers Inc., Morgan Stanley &
Co. Incorporated, Prudential Securities Incorporated, The Robinson-Humphrey
Company, LLC and Smith Barney Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase the number of Preferred
Securities set forth opposite their respective names below. In the Underwriting
Agreement, the Underwriters have agreed, subject to the terms and conditions set
forth therein, to purchase all of the Preferred Securities offered hereby if any
of the Preferred Securities are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME PREFERRED SECURITIES
---- --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 840,000
Goldman, Sachs & Co. ....................................... 820,000
Lehman Brothers Inc. ....................................... 820,000
Morgan Stanley & Co. Incorporated........................... 820,000
Prudential Securities Incorporated.......................... 820,000
The Robinson-Humphrey Company, LLC.......................... 820,000
Smith Barney Inc............................................ 820,000
ABN AMRO Incorporated....................................... 80,000
Robert W. Baird & Co. Incorporated.......................... 80,000
Bear, Stearns & Co. Inc. ................................... 80,000
J.C. Bradford & Co. ........................................ 80,000
CIBC Oppenheimer Corp. ..................................... 80,000
Cowen & Company............................................. 80,000
Credit Suisse First Boston Corporation...................... 80,000
Dain Rauscher Wessels....................................... 80,000
A.G. Edwards & Sons, Inc. .................................. 80,000
EVEREN Securities, Inc. .................................... 80,000
Legg Mason Wood Walker, Incorporated........................ 80,000
J.P. Morgan Securities Inc. ................................ 80,000
OLDE Discount Corporation................................... 80,000
Piper Jaffray Inc. ......................................... 80,000
Raymond James & Associates, Inc. ........................... 80,000
Tucker Anthony Incorporated................................. 80,000
Wheat First Securities, Inc. ............................... 80,000
Crowell, Weedon & Co. ...................................... 40,000
Fahnestock & Co., Inc. ..................................... 40,000
First Albany Corporation.................................... 40,000
Gibralter Securities Co. ................................... 40,000
Gruntal & Co., L.L.C. ...................................... 40,000
Hilliard Lyons Inc. ........................................ 40,000
Wayne Hummer Investments, LLC .............................. 40,000
Interstate/Johnson Lane Corporation......................... 40,000
Janney Montgomery Scott Inc. ............................... 40,000
McDonald & Company Securities, Inc. ........................ 40,000
Mesirow Financial, Inc. .................................... 40,000
Morgan Keegan & Company, Inc. .............................. 40,000
Regions Investment Company, Inc. ........................... 40,000
Roney Capital Markets....................................... 40,000
Scott & Stringfellow, Inc. ................................. 40,000
Muriel Siebert & Co., Inc. ................................. 40,000
Stephens Inc................................................ 40,000
Sterne, Agee & Leach, Inc. ................................. 40,000
Stifel, Nicolaus & Company, Incorporated.................... 40,000
Stone & Youngberg........................................... 40,000
Trilon International Inc. .................................. 40,000
Utendahl Capital Partners, L.P. ............................ 40,000
---------
Total............................................. 8,000,000
=========
</TABLE>
39
<PAGE>
The Underwriters have advised Southern, Capital and the Trust that they
propose to offer the Preferred Securities in part directly to the public at the
initial public offering price, as set forth on the cover page of this
Prospectus, and in part to certain securities dealers at such price less a
concession not in excess of $.50 per Preferred Security. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.49 per
Preferred Security to certain other dealers. After the 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 Underwriters.
The Preferred Securities are expected to be approved for listing on the
NYSE, subject to official notice of issuance. Trading of the Preferred
Securities on the NYSE is expected to commence within a 30-day period after the
initial delivery of the Preferred Securities. The Representatives have advised
Southern, Capital and the Trust that they intend to make a market in the
Preferred Securities prior to the commencement of trading on the NYSE. The
Representatives will have no obligation to make a market in the 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 Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the NYSE, the Underwriters will undertake to sell lots of 100 or
more Preferred Securities to a minimum of 400 beneficial holders.
In connection with the offering, the Underwriters may purchase and sell the
Preferred Securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Preferred Securities; and
syndicate short positions involve the sale by the Underwriters of a greater
number of Preferred Securities than they are required to purchase from the Trust
in the offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker dealers in respect of
the securities sold in the offering for their account may be reclaimed by the
syndicate if such Preferred Securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Preferred Securities, which may be
higher than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the NYSE, in the over-the-counter market or otherwise.
Southern, Capital and the Trust have agreed, during the period of 15 days
from the date of the Underwriting Agreement, not to sell, offer to sell, grant
any option for the sale of, or otherwise dispose of any Preferred Securities,
any security convertible into or exchangeable into or exercisable for Preferred
Securities or the Junior Subordinated Notes or any debt securities substantially
similar to the Junior Subordinated Notes or equity securities substantially
similar to the Preferred Securities (except for the Junior Subordinated Notes
and the Preferred Securities issued pursuant to the Underwriting Agreement),
without the prior written consent of the Representatives.
Southern, Capital and the Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the 1933 Act. The
Underwriters have agreed to reimburse Southern for certain expenses.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, Southern and its affiliates in the ordinary
course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of Capital and the Trust by Richards,
Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to Capital
and the Trust. The validity of the Junior Subordinated Notes, the Preferred
Securities Guarantee and the Notes Guarantee and certain matters relating
thereto will be passed upon on behalf of Southern and Capital by Troutman
Sanders LLP, Atlanta, Georgia. Troutman Sanders LLP will also pass upon certain
matters relating to United States federal income tax considerations. Certain
legal matters will be passed upon for the Underwriters by Dewey Ballantine LLP,
New York, New York.
40
<PAGE>
EXPERTS
The consolidated financial statements and schedule of Southern included in
Southern's Annual Report on Form 10-K for the year ended December 31, 1997,
incorporated by reference in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in giving said reports.
41
<PAGE>
GLOSSARY
1933 Act................... The Securities Act of 1933, as amended.
1934 Act................... The Securities Exchange Act of 1934, as amended.
1939 Act................... The Trust Indenture Act of 1939, as amended.
1940 Act................... The Investment Company Act of 1940, as amended.
Additional Interest........ Amounts payable by Capital as defined under
"Description of the Junior Subordinated
Notes -- Additional Interest."
Administrative Trustees.... Wayne Boston and Richard A. Childs.
Agreement as to Expenses
and Liabilities.......... The agreement between Southern and the Trust
pursuant to which Southern has agreed to pay all
indebtedness, expenses or liabilities of the Trust,
other than the Trust's obligations to pay to the
holders of the Preferred Securities the amounts due
such holders pursuant to the terms thereof.
Capital.................... Southern Company Capital Funding, Inc.
Code....................... The Internal Revenue Code of 1986, as amended.
Common Securities.......... The Trust Securities being sold to Capital.
Delaware Trustee........... Bankers Trust (Delaware).
DTC........................ The Depository Trust Company, a "clearing
corporation" that initially will hold (through its
agents) a global certificate evidencing the
Preferred Securities.
Distribution Dates......... March 31, June 30, September 30 and December 31 of
each year commencing September 30, 1998.
Extension Period........... Any period during which interest is not paid on the
Junior Subordinated Notes (and, consequently, on
the Preferred Securities) at the election of
Capital to the extent permitted under the terms of
the Junior Subordinated Notes.
Guarantee Payments......... Payments required to be made pursuant to the
Preferred Securities Guarantee as described in
"Description of the Preferred Securities
Guarantee -- General."
Guarantee Trustee.......... The trustee under the Preferred Securities
Guarantee; initially, Bankers Trust Company.
Indenture Trustee.......... The trustee under the Subordinated Note Indenture;
initially, Bankers Trust Company.
Issue Date................. The date set forth on the cover page on which the
Junior Subordinated Notes and Preferred Securities
are scheduled to be issued.
Investment Company Act
Event.................... An event of the type described in "Description of
the Preferred Securities -- Special Event
Redemption or Distribution."
Junior Subordinated
Notes.................... The Series D 7 1/8% junior subordinated deferrable
interest notes of Capital due June 30, 2028.
42
<PAGE>
Notes Guarantee............ The guarantee by Southern of the payments by
Capital on the Junior Subordinated Notes.
NYSE....................... New York Stock Exchange.
Preferred Securities....... The Trust Securities being offered to investors
pursuant to this Prospectus.
Preferred Securities
Guarantee................ The guarantee by Southern of the payments by the
Trust on the Preferred Securities from time to
time.
Property Trustee........... A trustee under the Trust designated to hold the
trust property; initially Bankers Trust Company.
Record Date................ The close of business on the 15th calendar day
prior to a Distribution Date.
Redemption Price........... The stated liquidation amount of $25 per Preferred
Security, plus accrued and unpaid distributions
thereon (and interest thereon) to the date of
payment.
Securities Rate............ The per annum interest rate expressed as a
percentage of the stated liquidation amount of $25
per Preferred Security, and set forth on the cover
page of this Prospectus.
Securities Trustees........ The Property Trustee, Administrative Trustees and
Delaware Trustee.
Senior Indebtedness........ Indebtedness described under "Description of the
Junior Subordinated Notes -- Subordination."
Southern................... The Southern Company.
Special Event.............. A Tax Event or Investment Company Act Event.
Subordinated Note
Indenture................ The indenture pursuant to which Capital's Junior
Subordinated Notes will be issued.
Subordinated Note Indenture
Event of Default......... As described under "Description of the Junior
Subordinated Notes -- Events of Default."
Tax Event.................. An event of the type described in "Description of
the Preferred Securities -- Special Event
Redemption or Distribution."
Trust...................... Southern Company Capital Trust IV, a Delaware
business trust that will issue the Trust
Securities.
Trust Agreement............ The agreement pursuant to which the Trust is
organized as it may be amended and restated from
time to time.
Trust Agreement Event of
Default.................. As described under "Description of the Preferred
Securities -- Events of Default."
Trust Securities........... The Preferred Securities and the Common Securities.
43
<PAGE>
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SOUTHERN, CAPITAL, THE TRUST OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF SOUTHERN, CAPITAL OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents by
Reference........................... 4
Summary............................... 5
Risk Factors.......................... 11
The Southern Company.................. 14
Southern Company Capital Funding,
Inc................................. 14
Southern Company Capital Trust IV..... 14
Accounting Treatment.................. 15
Use of Proceeds....................... 15
Recent Results of Operations; Recent
Development......................... 15
Description of the Preferred
Securities.......................... 16
Description of the Junior Subordinated
Notes............................... 26
Description of the Preferred
Securities Guarantee................ 32
Description of the Notes Guarantee.... 34
Relationship Among the Preferred
Securities, the Junior Subordinated
Notes, the Preferred Securities
Guarantee and the Notes Guarantee... 34
Certain Federal Income Tax
Considerations...................... 36
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 41
Glossary.............................. 42
</TABLE>
======================================================
======================================================
8,000,000 PREFERRED SECURITIES
SOUTHERN COMPANY
CAPITAL TRUST IV
7 1/8% TRUST ORIGINATED PREFERRED
SECURITIES(SM)
("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER
PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
(SOUTHERN COMPANY LOGO)
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES
INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY
SALOMON SMITH BARNEY
JUNE 18, 1998
======================================================
