File No. 70-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION OR DECLARATION
under
The Public Utility Holding Company Act of 1935
THE SOUTHERN COMPANY
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Name of company or companies filing this statement
and addresses of principal executive offices)
THE SOUTHERN COMPANY
(Name of top registered holding company parent of each
applicant or declarant)
Tommy Chisholm, Secretary
The Southern Company
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(Names and addresses of agents for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
W. L. Westbrook John D. McLanahan, Esq.
Financial Vice President Troutman Sanders LLP
The Southern Company 600 Peachtree Street, N.E.
270 Peachtree Street, N.W. Suite 5200
Atlanta, Georgia 30303 Atlanta, Georgia 30308-2216
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INFORMATION REQUIRED
Item 1. Description of Proposed Transactions
The Southern Company ("Southern") is a registered holding company under
the Public Utility Holding Company Act of 1935, as amended (the "Act"). Southern
proposes to organize and acquire all of the common stock of one or more
subsidiaries (collectively, the "Financing Subsidiary")1 for the purpose of
effecting various financing transactions from time to time through September 30,
2003 involving the issuance and sale of up to an aggregate of $1,500,000,000 in
any combination of Preferred Securities, Debt Securities, Preferred Stock, Stock
Purchase Contracts and Stock Purchase Units, all as described herein. Southern
further proposes that it may effect directly (i.e., without the Financing
Subsidiary) any such transaction involving Preferred Securities, Debt
Securities, Stock Purchase Contracts or Stock Purchase Units as described
herein.
Financing Subsidiary
1.1 Southern will acquire all of the outstanding shares of common stock
of the Financing Subsidiary for amounts (inclusive of capital contributions that
may be made from time to time to the Financing Subsidiary by Southern)
aggregating up to 35% of the total capitalization of the Financing Subsidiary.
The business of the Financing Subsidiary will be limited to effecting financing
transactions for Southern and its affiliates. In connection with such financing
transactions, Southern will enter into one or more guarantee or other credit
support agreements in favor of the Financing Subsidiary.
1 It is also proposed that Southern may acquire as a Finance Subsidiary
Southern Company Capital Funding, Inc., currently a wholly-owned subsidiary of
Southern Energy, Inc.
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Preferred Securities
1.2 In connection with the issuance of Preferred Securities (as
hereinafter defined), Southern or the Financing Subsidiary proposes to organize
one or more separate special purpose subsidiaries as any one or any combination
of (a) a limited liability company under the Limited Liability Company Act (the
"LLC Act") of the State of Delaware or other jurisdiction considered
advantageous by Southern, (b) a limited partnership under the Revised Uniform
Limited Partnership Act of the State of Delaware or other jurisdiction
considered advantageous by Southern, (c) a business trust under the laws of the
State of Delaware or other jurisdiction considered advantageous by Southern or
(d) any other entity or structure, foreign or domestic, that is considered
advantageous by Southern. The special purpose subsidiaries to be so organized
are hereinafter referred to individually as a "Special Purpose Subsidiary" and
collectively as the "Special Purpose Subsidiaries." In the event that any
Special Purpose Subsidiary is organized as a limited liability company, Southern
or the Financing Subsidiary may also organize a second special purpose
wholly-owned subsidiary under the General Corporation Law of the State of
Delaware or other jurisdiction ("Investment Sub") for the purpose of acquiring
and holding Special Purpose Subsidiary membership interests so as to comply with
the requirement under the applicable LLC Act that a limited liability company
have at least two members. In the event that any Special Purpose Subsidiary is
organized as a limited partnership, Southern or the Financing Subsidiary also
may organize an Investment Sub for the purpose of acting as the general partner
of such Special Purpose Subsidiary and may acquire, either directly or
indirectly through such Investment Sub, a limited partnership interest in such
Special Purpose Subsidiary to ensure that such Special Purpose Subsidiary will
at all times have a limited partner to the extent required by applicable law.
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The respective Special Purpose Subsidiaries then will issue and sell at
any time or from time to time preferred securities described hereinbelow (the
"Preferred Securities"), with a specified par or stated value or liquidation
preference per security.
1.3 Southern, the Financing Subsidiary and/or an Investment Sub will
acquire all of the common stock or all of the general partnership or other
common equity interests, as the case may be, of any Special Purpose Subsidiary
for an amount up to 21% of the total equity capitalization from time to time of
such Special Purpose Subsidiary (the aggregate of such investment by Southern,
the Financing Subsidiary and/or an Investment Sub being herein referred to as
the "Equity Contribution"). The Financing Subsidiary may issue and sell to any
Special Purpose Subsidiary, at any time or from time to time in one or more
series, subordinated debentures, promissory notes or other debt instruments
(individually, a "Note" and collectively, the "Notes") governed by an indenture
or other document, and such Special Purpose Subsidiary will apply both the
Equity Contribution made to it and the proceeds from the sale of Preferred
Securities by it from time to time to purchase Notes. Alternatively, the
Financing Subsidiary may enter into a loan agreement or agreements with any
Special Purpose Subsidiary under which such Special Purpose Subsidiary will loan
to the Financing Subsidiary (individually, a "Loan" and collectively, the
"Loans") both the Equity Contribution to such Special Purpose Subsidiary and the
proceeds from the sale of the Preferred Securities by such Special Purpose
Subsidiary from time to time, and the Financing Subsidiary will issue to such
Special Purpose Subsidiary Notes evidencing such borrowings.
1.4 Southern or the Financing Subsidiary may also guarantee
(individually, a "Guaranty" and collectively, the "Guaranties") (i) payment of
dividends or distributions on the Preferred Securities of any Special Purpose
Subsidiary if and to the extent such Special Purpose Subsidiary has funds
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legally available therefor, (ii) payments to the Preferred Securities holders of
amounts due upon liquidation of such Special Purpose Subsidiary or redemption of
the Preferred Securities of such Special Purpose Subsidiary and (iii) certain
additional amounts that may be payable in respect of such Preferred Securities.
1.5 Each Note will have a term of up to 50 years. Prior to maturity,
the Financing Subsidiary will pay interest only on the Notes at a rate equal to
the dividend or distribution rate on the related series of Preferred Securities,
which dividend or distribution rate may be either a fixed rate or an adjustable
rate to be determined on a periodic basis by auction or remarketing procedures,
in accordance with a formula or formulae based upon certain reference rates, or
by other predetermined methods. Such interest payments will constitute each
respective Special Purpose Subsidiary's only income and will be used by it to
pay dividends or distributions on the Preferred Securities issued by it and
dividends or distributions on the common stock or the general partnership or
other common equity interests of such Special Purpose Subsidiary. Dividend
payments or distributions on the Preferred Securities will be made on a monthly
or other periodic basis and must be made to the extent that the Special Purpose
Subsidiary issuing such Preferred Securities has legally available funds and
cash sufficient for such purposes. However, the Financing Subsidiary may have
the right to defer payment of interest on any issue of Notes for up to five or
more years. Each Special Purpose Subsidiary will have the parallel right to
defer dividend payments or distributions on the related series of Preferred
Securities for up to five or more years, provided that if dividends or
distributions on the Preferred Securities of any series are not paid for up to
18 or more consecutive months, then the holders of the Preferred Securities of
such series may have the right to appoint a trustee, special general partner or
other special representative to enforce the Special Purpose Subsidiary's rights
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under the related Note and Guaranty. The dividend or distribution rates, payment
dates, redemption and other similar provisions of each series of Preferred
Securities will be substantially identical to the interest rates, payment dates,
redemption and other provisions of the Note issued by the Financing Subsidiary
with respect thereto. The Preferred Securities may be convertible or
exchangeable into common stock of Southern.
1.6 The Notes and related Guaranties will be subordinate to all other
existing and future unsubordinated indebtedness for borrowed money of the
Financing Subsidiary and may have no cross-default provisions with respect to
other indebtedness of the Financing Subsidiary - i.e., a default under any other
outstanding indebtedness of the Financing Subsidiary would not result in a
default under any Note or Guaranty. However, Southern and/or the Financing
Subsidiary may be prohibited from declaring and paying dividends on its
outstanding capital stock and making payments in respect of pari passu debt
unless all payments then due under the Notes and Guaranties (without giving
effect to the deferral rights discussed above) have been made.
1.7 It is expected that the Financing Subsidiary's interest payments on
the Notes will be deductible for federal income tax purposes and that each
Special Purpose Subsidiary will be treated as either a partnership or a passive
grantor trust for federal income tax purposes. Consequently, holders of the
Preferred Securities and Southern (and any Investment Sub) will be deemed to
have received distributions in respect of their ownership interests in the
respective Special Purpose Subsidiary and will not be entitled to any "dividends
received deduction" under the Internal Revenue Code. The Preferred Securities of
any series, however, may be redeemable at the option of the Special Purpose
Subsidiary issuing such series (with the consent or at the direction of
Southern) at a price equal to their par or stated value or liquidation
preference, plus any accrued and unpaid dividends or distributions, (i) at any
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time after a specified date not later than approximately 10 years from their
date of issuance, or (ii) upon the occurrence of certain events, among them that
(x) such Special Purpose Subsidiary is required to withhold or deduct certain
amounts in connection with dividend, distribution or other payments or is
subject to federal income tax with respect to interest received on the Notes
issued to such Special Purpose Subsidiary, or (y) it is determined that the
interest payments by the Financing Subsidiary on the related Notes are not
deductible for income tax purposes, or (z) such Special Purpose Subsidiary
becomes subject to regulation as an "investment company" under the Investment
Company Act of 1940, as amended. The Preferred Securities of any series may also
be subject to mandatory redemption upon the occurrence of certain events. The
Financing Subsidiary also may have the right in certain cases or in its
discretion to exchange the Preferred Securities of any Special Purpose
Subsidiary for the Notes or other junior subordinated debt issued to such
Special Purpose Subsidiary.
In the event that any Special Purpose Subsidiary is required to
withhold or deduct certain amounts in connection with dividend, distribution or
other payments, such Special Purpose Subsidiary may also have the obligation to
"gross up" such payments so that the holders of the Preferred Securities issued
by such Special Purpose Subsidiary will receive the same payment after such
withholding or deduction as they would have received if no such withholding or
deduction were required. In such event, the Financing Subsidiary's obligations
under its related Note and Guaranty may also cover such "gross up" obligation.
In addition, if any Special Purpose Subsidiary is required to pay taxes with
respect to income derived from interest payments on the Notes issued to it, the
Financing Subsidiary may be required to pay such additional interest on the
related Notes as shall be necessary in order that net amounts received and
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retained by such Special Purpose Subsidiary, after the payment of such taxes,
shall result in the Special Purpose Subsidiary's having such funds as it would
have had in the absence of such payment of taxes.
1.8 In the event of any voluntary or involuntary liquidation,
dissolution or winding up of any Special Purpose Subsidiary, the holders of the
Preferred Securities of such Special Purpose Subsidiary will be entitled to
receive, out of the assets of such Special Purpose Subsidiary available for
distribution to its shareholders, partners or other owners (as the case may be),
an amount equal to the par or stated value or liquidation preference of such
Preferred Securities plus any accrued and unpaid dividends or distributions.
1.9 The constituent instruments of each Special Purpose Subsidiary,
including its Limited Liability Company Agreement, Limited Partnership Agreement
or Trust Agreement, as the case may be, will provide, among other things, that
such Special Purpose Subsidiary's activities will be limited to the issuance and
sale of Preferred Securities from time to time and the lending to the Financing
Subsidiary or Investment Sub of (i) the proceeds thereof and (ii) the Equity
Contribution to such Special Purpose Subsidiary, and certain other related
activities. Accordingly, it is proposed that no Special Purpose Subsidiary's
constituent instruments include any interest or dividend coverage or
capitalization ratio restrictions on its ability to issue and sell Preferred
Securities as each such issuance will be supported by a Note and Guaranty and
such restrictions would therefore not be relevant or necessary for any Special
Purpose Subsidiary to maintain an appropriate capital structure.
Each Special Purpose Subsidiary's constituent instruments will further
state that its common stock or general partnership or other common equity
interests are not transferable (except to certain permitted successors), that
its business and affairs will be managed and controlled by Southern, the
Financing Subsidiary and/or its Investment Sub (or permitted successor), and
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that Southern or the Financing Subsidiary (or permitted successor) will pay all
expenses of such Special Purpose Subsidiary.
Debt Securities
1.10 Southern proposes that, in addition to, or as an alternative to,
any Preferred Securities financing as described hereinabove, the Financing
Subsidiary may issue and sell Notes directly to investors without an intervening
Special Purpose Subsidiary. It is proposed that any Notes so issued will be
unsecured, may be either senior or subordinated obligations of the Financing
Subsidiary, may be convertible or exchangeable into common stock of Southern or
Preferred Securities, and otherwise will have terms and provisions substantially
as described hereinabove (the "Debt Securities").
Preferred Stock
1.11 It is proposed that the Financing Subsidiary may issue and sell
from time to time shares of its preferred stock (the "Preferred Stock"). Any
such issue of Preferred Stock will have a specified par or stated value per
share and, in accordance with applicable state law, will have such voting powers
(if any), designations, preferences, rights and qualifications, limitations or
restrictions as shall be stated and expressed in the resolution or resolutions
providing for such issue adopted by the board of directors of the Financing
Subsidiary pursuant to authority vested in it by the provisions of its
certificate of incorporation. The foregoing may include rights of conversion or
exchange into common stock of Southern or Preferred Securities.
Stock Purchase Contracts and Stock Purchase Units
1.12 It is proposed that the Financing Subsidiary may issue and sell
from time to time stock purchase contracts ("Stock Purchase Contracts"),
including contracts obligating holders to purchase from Southern, and Southern
to sell to the holders, a specified number of shares of common stock of Southern
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at a future date or dates. The consideration per share of common stock may be
fixed at the time the Stock Purchase Contracts are issued or may be determined
by reference to a specific formula set forth in the Stock Purchase Contracts.
The Stock Purchase Contracts may be issued separately or as a part of units
("Stock Purchase Units") consisting of a Stock Purchase Contract and Debt
Securities, Preferred Securities or other debt obligations of third parties,
including U.S. Treasury securities, securing holders' obligations to purchase
the common stock of Southern under the Stock Purchase Contracts. The Stock
Purchase Contracts may require Southern or the Financing Subsidiary to make
periodic payments to the holders of the Stock Purchase Units or vice versa, and
such payments may be unsecured or prefunded on some basis. The Stock Purchase
Contracts may require holders to secure their obligations thereunder in a
specified manner.
Use of Proceeds
1.13 It is proposed that the proceeds of the Preferred Securities, Debt
Securities, Preferred Stock, Stock Purchase Contracts and Stock Purchase Units
may be utilized to pay dividends to Southern to the extent permitted under
applicable state law, to acquire the securities of associate companies in
transactions that are exempt from Section 9(a)(1) of the Act pursuant to Rule
52(d), to make capital contributions or open account advances to subsidiaries in
transactions that are exempt from Section 12(b) of the Act pursuant to Rule
45(b)(4), to acquire the securities of one or more "exempt wholesale generators"
("EWGs"), "foreign utility companies" ("FUCOs") or "exempt telecommunications
companies" in transactions that are exempt from the application requirements of
the Act pursuant to Section 32(g), Section 33(c) or Section 34(d) of the Act, as
applicable, and/or as authorized pursuant to orders of the Commission issued in
separate proceedings or as permitted under other rules of general applicability
(including general corporate purposes such as repayment of indebtedness).
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Item 2. Fees, Commissions and Expenses
The estimated fees and expenses paid or incurred, or to be paid or
incurred, directly or indirectly, in connection with the proposed transactions
will be supplied by amendment.
Item 3. Applicable Statutory Provisions
Southern considers that Sections 6(a), 7, 9(a), 10, 12(b), 12(c),
12(f), 32 and 33 of the Act and Rules 42, 45, 46 and 53 thereunder are
applicable to the proposed transactions.
Rule 53 Analysis. The proposed transactions are subject to Rule 53,
which provides that, in determining whether to approve the issue or sale of a
security for purposes of financing the acquisition of an "exempt wholesale
generator" ("EWG") or "foreign utility company" ("FUCO"), the Commission shall
not make certain adverse findings if the conditions set forth in Rule 53(a)(1)
through (a)(4) are met, and are not otherwise made inapplicable by reason of the
existence of any of the circumstances described in Rule 53(b).
Southern currently meets all of the conditions of Rule 53(a), except
for clause (1). At May 31, 1998, Southern's "aggregate investment," as defined
in Rule 53(a)(1), in EWGs and FUCOs was approximately $2.997 billion, or about
78.40% of Southern's "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended March 31, 1998 ($3,823 million). With
respect to Rule 53(a)(1), however, the Commission has determined that Southern's
financing of investments in EWGs and FUCOs in an amount greater than the amount
that would otherwise be allowed by Rule 53(a)(1) would not have either of the
adverse effects set forth in Rule 53(c). See The Southern Company, Holding
Company Act Release No. 16501, dated April 1, 1996 (the "Rule 53(c) Order"); and
Holding Company Act Release No. 26646, dated January 15, 1997 (order denying
request for reconsideration and motion to stay).
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In addition, Southern has complied and will continue to comply with the
record-keeping requirements of Rule 53(a)(2), the limitation under Rule 53(a)(3)
on the use of Operating Company personnel to render services to EWGs and FUCOs,
and the requirements of Rule 53(a)(4) concerning the submission of copies of
certain filings under the Act to retail rate regulatory commissions. Further,
none of the circumstances described in Rule 53(b) has occurred.
Item 4. Regulatory Approval
No state commission and no federal commission (other than the
Securities and Exchange Commission) has jurisdiction over the proposed
transactions.
Item 5. Procedure
Southern hereby requests that the Commission's order be issued as soon
as the rules allow. Southern hereby waives a recommended decision by a hearing
officer or other responsible officer of the Commission, consents that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order in this matter, unless such Division opposes
the transactions proposed herein, and requests that there be no 30-day waiting
period between the issuance of the Commission's order and the date on which it
is to become effective.
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Item 6. Exhibits and Financial Statements
(a) Exhibits
A-1 - Composite Certificate of Incorporation of Southern
reflecting all amendments thereto
through January 5, 1994. (Designated in
Registration No. 33-3546 as Exhibit 4(a), in
Certificate of Notification, File No. 70-7341, as
Exhibit A, and in Certificate of
Notification, File No. 70-8181, as Exhibit A.)
A-2 - By-Laws of Southern as amended effective October 21,
1991 and presently in effect.
(Designated in Form U-1, File No. 70-8181, as
Exhibit A-2.)
A-3 - Certificate of Incorporation of Financing Subsidiary.
(To be filed by amendment.)
A-4 - By-Laws of Financing Subsidiary. (To be filed by
amendment.)
B - None.
C - Registration Statement pursuant to the Securities
Act of 1933, as amended. (To be filed by amendment.)
D - None.
E - None.
F - Opinion of Troutman Sanders LLP. (To be filed by
amendment.)
G - Form of Notice.
Exhibits heretofore filed with the Securities and Exchange Commission
and designated as set forth above are hereby incorporated herein by reference
and made a part hereof with the same effect as if filed herewith.
(b) Financial Statements.
Condensed balance sheet of Southern at March 31,
1998. (Designated in Southern's Form 10-Q for the quarter
ended March 31, 1998, File no. 1-3526.)
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Statements of income and cash flows of Southern for
the six months ended March 31, 1998. (Designated in Southern's
Form 10-Q for the quarter ended March 31, 1998, File no.
1-3526.)
Since March 31, 1998, there have been no material adverse changes, not
in the ordinary course of business, in the financial condition of Southern from
that set forth in or contemplated by the foregoing financial statements.
Item 7. Information as to Environmental Effects
a) As described in Item 1, the proposed transactions are of a routine
and strictly financial nature in the ordinary course of Southern's business.
Accordingly, the Commission's action in this matter will not constitute any
major federal action significantly affecting the quality of the human
environment.
b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transactions.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: July 20, 1998 THE SOUTHERN COMPANY
By:/s/ Tommy Chisholm
Tommy Chisholm
Secretary
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Exhibit G
The Southern Company
Proposed Notice of Proceedings
The Southern Company ("Southern"), a registered holding company under
the Public Utility Holding Company Act of 1935, as amended (the "Act"), has
filed an application-declaration (the "Application") under Sections 6(a), 7,
9(a), 10, 12(b), 12(c), 12(f), 32 and 33 of the Act and Rules 42, 45, 46 and 53
thereunder.
Southern seeks authorization to organize and acquire all of the common
stock of one or more subsidiaries (collectively, the "Financing Subsidiary")1
for the purpose of effecting various financing transactions from time to time
through September 30, 2003 involving the issuance and sale of up to an aggregate
of $1,500,000,000 in any combination of Preferred Securities, Debt Securities,
Preferred Stock, Stock Purchase Contracts and Stock Purchase Units, all as
described in the Application. Southern further proposes that it may effect
directly (i.e., without the Financing Subsidiary) any such transaction involving
Preferred Securities, Debt Securities, Stock Purchase Contracts or Stock
Purchase Units as described in the Application.
Financing Subsidiary
Southern proposes to acquire all of the outstanding shares of common
stock of the Financing Subsidiary for amounts (inclusive of capital
contributions that may be made from time to time to the Financing Subsidiary by
Southern) aggregating up to 35% of the total capitalization of the Financing
Subsidiary. The business of the Financing Subsidiary will be limited to
effecting financing transactions for Southern and its affiliates. In connection
with such financing transactions, Southern will enter into one or more guarantee
or other credit support agreements in favor of the Financing Subsidiary.
Preferred Securities
In connection with the issuance of Preferred Securities (as hereinafter
defined), Southern or the Financing Subsidiary proposes to organize one or more
separate special purpose subsidiaries as any one or any combination of (a) a
limited liability company under the Limited Liability Company Act (the "LLC
Act") of the State of Delaware or other jurisdiction considered advantageous by
Southern, (b) a limited partnership under the Revised Uniform Limited
Partnership Act of the State of Delaware or other jurisdiction considered
advantageous by Southern, (c) a business trust under the laws of the State of
Delaware or other jurisdiction considered advantageous by Southern or (d) any
other entity or structure, foreign or domestic, that is considered advantageous
by Southern. The special purpose subsidiaries to be so organized are hereinafter
referred to individually as a "Special Purpose Subsidiary" and collectively as
- --------
1 Southern also proposes to acquire as a Finance Subsidiary Southern Company
Capital Funding, Inc., currently a wholly-owned subsidiary of Southern Energy,
Inc.
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the "Special Purpose Subsidiaries." In the event that any Special Purpose
Subsidiary is organized as a limited liability company, Southern or the
Financing Subsidiary may also organize a second special purpose wholly-owned
subsidiary under the General Corporation Law of the State of Delaware or other
jurisdiction ("Investment Sub") for the purpose of acquiring and holding Special
Purpose Subsidiary membership interests so as to comply with the requirement
under the applicable LLC Act that a limited liability company have at least two
members. In the event that any Special Purpose Subsidiary is organized as a
limited partnership, Southern or the Financing Subsidiary also may organize an
Investment Sub for the purpose of acting as the general partner of such Special
Purpose Subsidiary and may acquire, either directly or indirectly through such
Investment Sub, a limited partnership interest in such Special Purpose
Subsidiary to ensure that such Special Purpose Subsidiary will at all times have
a limited partner to the extent required by applicable law.
The respective Special Purpose Subsidiaries then will issue and sell at
any time or from time to time preferred securities described hereinbelow (the
"Preferred Securities"), with a specified par or stated value or liquidation
preference per security.
Southern, the Financing Subsidiary and/or an Investment Sub will
acquire all of the common stock or all of the general partnership or other
common equity interests, as the case may be, of any Special Purpose Subsidiary
for an amount up to 21% of the total equity capitalization from time to time of
such Special Purpose Subsidiary (the aggregate of such investment by Southern,
the Financing Subsidiary and/or an Investment Sub being herein referred to as
the "Equity Contribution"). The Financing Subsidiary may issue and sell to any
Special Purpose Subsidiary, at any time or from time to time in one or more
series, subordinated debentures, promissory notes or other debt instruments
(individually, a "Note" and collectively, the "Notes") governed by an indenture
or other document, and such Special Purpose Subsidiary will apply both the
Equity Contribution made to it and the proceeds from the sale of Preferred
Securities by it from time to time to purchase Notes. Alternatively, the
Financing Subsidiary may enter into a loan agreement or agreements with any
Special Purpose Subsidiary under which such Special Purpose Subsidiary will loan
to the Financing Subsidiary (individually, a "Loan" and collectively, the
"Loans") both the Equity Contribution to such Special Purpose Subsidiary and the
proceeds from the sale of the Preferred Securities by such Special Purpose
Subsidiary from time to time, and the Financing Subsidiary will issue to such
Special Purpose Subsidiary Notes evidencing such borrowings.
Southern or the Financing Subsidiary may also guarantee (individually,
a "Guaranty" and collectively, the "Guaranties") (i) payment of dividends or
distributions on the Preferred Securities of any Special Purpose Subsidiary if
and to the extent such Special Purpose Subsidiary has funds legally available
therefor, (ii) payments to the Preferred Securities holders of amounts due upon
liquidation of such Special Purpose Subsidiary or redemption of the Preferred
Securities of such Special Purpose Subsidiary and (iii) certain additional
amounts that may be payable in respect of such Preferred Securities.
Each Note will have a term of up to 50 years. Prior to maturity, the
Financing Subsidiary will pay interest only on the Notes at a rate equal to the
dividend or distribution rate on the related series of Preferred Securities,
which dividend or distribution rate may be either a fixed rate or an adjustable
rate to be determined on a periodic basis by auction or remarketing procedures,
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in accordance with a formula or formulae based upon certain reference rates, or
by other predetermined methods. Such interest payments will constitute each
respective Special Purpose Subsidiary's only income and will be used by it to
pay dividends or distributions on the Preferred Securities issued by it and
dividends or distributions on the common stock or the general partnership or
other common equity interests of such Special Purpose Subsidiary. Dividend
payments or distributions on the Preferred Securities will be made on a monthly
or other periodic basis and must be made to the extent that the Special Purpose
Subsidiary issuing such Preferred Securities has legally available funds and
cash sufficient for such purposes. However, the Financing Subsidiary may have
the right to defer payment of interest on any issue of Notes for up to five or
more years. Each Special Purpose Subsidiary will have the parallel right to
defer dividend payments or distributions on the related series of Preferred
Securities for up to five or more years, provided that if dividends or
distributions on the Preferred Securities of any series are not paid for up to
18 or more consecutive months, then the holders of the Preferred Securities of
such series may have the right to appoint a trustee, special general partner or
other special representative to enforce the Special Purpose Subsidiary's rights
under the related Note and Guaranty. The dividend or distribution rates, payment
dates, redemption and other similar provisions of each series of Preferred
Securities will be substantially identical to the interest rates, payment dates,
redemption and other provisions of the Note issued by the Financing Subsidiary
with respect thereto. The Preferred Securities may be convertible or
exchangeable into common stock of Southern.
The Notes and related Guaranties will be subordinate to all other
existing and future unsubordinated indebtedness for borrowed money of the
Financing Subsidiary and may have no cross-default provisions with respect to
other indebtedness of the Financing Subsidiary - i.e., a default under any other
outstanding indebtedness of the Financing Subsidiary would not result in a
default under any Note or Guaranty. However, Southern and/or the Financing
Subsidiary may be prohibited from declaring and paying dividends on its
outstanding capital stock and making payments in respect of pari passu debt
unless all payments then due under the Notes and Guaranties (without giving
effect to the deferral rights discussed above) have been made.
It is expected that the Financing Subsidiary's interest payments on the
Notes will be deductible for federal income tax purposes and that each Special
Purpose Subsidiary will be treated as either a partnership or a passive grantor
trust for federal income tax purposes. Consequently, holders of the Preferred
Securities and Southern (and any Investment Sub) will be deemed to have received
distributions in respect of their ownership interests in the respective Special
Purpose Subsidiary and will not be entitled to any "dividends received
deduction" under the Internal Revenue Code. The Preferred Securities of any
series, however, may be redeemable at the option of the Special Purpose
Subsidiary issuing such series (with the consent or at the direction of
Southern) at a price equal to their par or stated value or liquidation
preference, plus any accrued and unpaid dividends or distributions, (i) at any
time after a specified date not later than approximately 10 years from their
date of issuance, or (ii) upon the occurrence of certain events, among them that
(x) such Special Purpose Subsidiary is required to withhold or deduct certain
amounts in connection with dividend, distribution or other payments or is
subject to federal income tax with respect to interest received on the Notes
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issued to such Special Purpose Subsidiary, or (y) it is determined that the
interest payments by the Financing Subsidiary on the related Notes are not
deductible for income tax purposes, or (z) such Special Purpose Subsidiary
becomes subject to regulation as an "investment company" under the Investment
Company Act of 1940, as amended. The Preferred Securities of any series may also
be subject to mandatory redemption upon the occurrence of certain events. The
Financing Subsidiary also may have the right in certain cases or in its
discretion to exchange the Preferred Securities of any Special Purpose
Subsidiary for the Notes or other junior subordinated debt issued to such
Special Purpose Subsidiary.
In the event that any Special Purpose Subsidiary is required to
withhold or deduct certain amounts in connection with dividend, distribution or
other payments, such Special Purpose Subsidiary may also have the obligation to
"gross up" such payments so that the holders of the Preferred Securities issued
by such Special Purpose Subsidiary will receive the same payment after such
withholding or deduction as they would have received if no such withholding or
deduction were required. In such event, the Financing Subsidiary's obligations
under its related Note and Guaranty may also cover such "gross up" obligation.
In addition, if any Special Purpose Subsidiary is required to pay taxes with
respect to income derived from interest payments on the Notes issued to it, the
Financing Subsidiary may be required to pay such additional interest on the
related Notes as shall be necessary in order that net amounts received and
retained by such Special Purpose Subsidiary, after the payment of such taxes,
shall result in the Special Purpose Subsidiary's having such funds as it would
have had in the absence of such payment of taxes.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of any Special Purpose Subsidiary, the holders of the Preferred
Securities of such Special Purpose Subsidiary will be entitled to receive, out
of the assets of such Special Purpose Subsidiary available for distribution to
its shareholders, partners or other owners (as the case may be), an amount equal
to the par or stated value or liquidation preference of such Preferred
Securities plus any accrued and unpaid dividends or distributions.
The constituent instruments of each Special Purpose Subsidiary,
including its Limited Liability Company Agreement, Limited Partnership Agreement
or Trust Agreement, as the case may be, will provide, among other things, that
such Special Purpose Subsidiary's activities will be limited to the issuance and
sale of Preferred Securities from time to time and the lending to the Financing
Subsidiary or Investment Sub of (i) the proceeds thereof and (ii) the Equity
Contribution to such Special Purpose Subsidiary, and certain other related
activities. Accordingly, Southern proposes that no Special Purpose Subsidiary's
constituent instruments include any interest or dividend coverage or
capitalization ratio restrictions on its ability to issue and sell Preferred
Securities as each such issuance will be supported by a Note and Guaranty and
such restrictions would therefore not be relevant or necessary for any Special
Purpose Subsidiary to maintain an appropriate capital structure.
Each Special Purpose Subsidiary's constituent instruments will further
state that its common stock or general partnership or other common equity
interests are not transferable (except to certain permitted successors), that
its business and affairs will be managed and controlled by Southern, the
Financing Subsidiary and/or its Investment Sub (or permitted successor), and
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that Southern or the Financing Subsidiary (or permitted successor) will pay all
expenses of such Special Purpose Subsidiary.
Debt Securities
Southern proposes that, in addition to, or as an alternative to, any
Preferred Securities financing as described hereinabove, the Financing
Subsidiary may issue and sell Notes directly to investors without an intervening
Special Purpose Subsidiary. Southern proposes that any Notes so issued will be
unsecured, may be either senior or subordinated obligations of the Financing
Subsidiary, may be convertible or exchangeable into common stock of Southern or
Preferred Securities, and otherwise will have terms and provisions substantially
as described hereinabove (the "Debt Securities").
Preferred Stock
Southern proposes that the Financing Subsidiary may issue and sell from
time to time shares of its preferred stock (the "Preferred Stock"). Any such
issue of Preferred Stock will have a specified par or stated value per share
and, in accordance with applicable state law, will have such voting powers (if
any), designations, preferences, rights and qualifications, limitations or
restrictions as shall be stated and expressed in the resolution or resolutions
providing for such issue adopted by the board of directors of the Financing
Subsidiary pursuant to authority vested in it by the provisions of its
certificate of incorporation. The foregoing may include rights of conversion or
exchange into common stock of Southern or Preferred Securities.
Stock Purchase Contracts and Stock Purchase Units
Southern proposes that the Financing Subsidiary may issue and sell from
time to time stock purchase contracts ("Stock Purchase Contracts"), including
contracts obligating holders to purchase from Southern, and Southern to sell to
the holders, a specified number of shares of common stock of Southern at a
future date or dates. The consideration per share of common stock may be fixed
at the time the Stock Purchase Contracts are issued or may be determined by
reference to a specific formula set forth in the Stock Purchase Contracts. The
Stock Purchase Contracts may be issued separately or as a part of units ("Stock
Purchase Units") consisting of a Stock Purchase Contract and Debt Securities,
Preferred Securities or other debt obligations of third parties, including U.S.
Treasury securities, securing holders' obligations to purchase the common stock
of Southern under the Stock Purchase Contracts. The Stock Purchase Contracts may
require Southern or the Financing Subsidiary to make periodic payments to the
holders of the Stock Purchase Units or vice versa, and such payments may be
unsecured or prefunded on some basis. The Stock Purchase Contracts may require
holders to secure their obligations thereunder in a specified manner.
Use of Proceeds
Southern proposes that the proceeds of the Preferred Securities, Debt
Securities, Preferred Stock, Stock Purchase Contracts and Stock Purchase Units
may be utilized to pay dividends to Southern to the extent permitted under
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applicable state law, to acquire the securities of associate companies in
transactions that are exempt from Section 9(a)(1) of the Act pursuant to Rule
52(d), to make capital contributions or open account advances to subsidiaries in
transactions that are exempt from Section 12(b) of the Act pursuant to Rule
45(b)(4), to acquire the securities of one or more "exempt wholesale generators"
("EWGs"), "foreign utility companies" ("FUCOs") or "exempt telecommunications
companies" in transactions that are exempt from the application requirements of
the Act pursuant to Section 32(g), Section 33(c) or Section 34(d) of the Act, as
applicable, and/or as authorized pursuant to orders of the Commission issued in
separate proceedings or as permitted under other rules of general applicability
(including general corporate purposes such as repayment of indebtedness).
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
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