Filed Pursuant to Rule 424(b)(5)
Registration No. 333-82412
PROSPECTUS SUPPLEMENT
(To Prospectus Dated February 27, 2002)
10,000,000 Equity Security Units
[EL PASO LOGO]
9.00% Equity Security Units
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We are offering 10,000,000 of our 9.00% equity security units.
Each equity security unit has a stated amount of $50 and will initially
consist of (a) a purchase contract which will obligate you to purchase from us,
at a purchase price of $50, shares of our common stock on August 16, 2005 and
(b) a senior note with a principal amount of $50 that is due on August 16, 2007.
The senior note will initially be pledged to us to secure your obligation to
purchase shares of our common stock under the purchase contract.
We will make quarterly contract adjustment payments to you under the
purchase contract at the annual rate of 2.86% of the stated amount of $50 per
purchase contract. In addition, you will receive quarterly interest payments on
the senior note at the initial annual rate of 6.14%. We have the right to defer
the contract adjustment payments on the purchase contracts until August 16,
2005, but not the interest payments on the senior notes, as described in this
prospectus supplement. The interest rate on the senior notes will be reset, and
the senior notes will be remarketed, as described in this prospectus supplement.
These quarterly payments will be made on February 16, May 16, August 16 and
November 16 of each year, beginning August 16, 2002.
Our common stock is listed on the New York Stock Exchange and the Pacific
Exchange under the symbol "EP." On June 20, 2002, the last reported sale price
of our common stock on the NYSE was $19.95 per share.
The equity security units have been approved for listing on the New York
Stock Exchange under the symbol "EP PrA."
The underwriters have an option to purchase a maximum of 1,500,000
additional equity security units from us to cover over-allotments of equity
security units.
Concurrently with this offering of equity security units, we are conducting
under a separate prospectus supplement a separate offering of up to 51,750,000
shares of our common stock. This offering of equity security units is not
conditioned on the completion of the concurrent offering of our common stock.
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INVESTING IN OUR EQUITY SECURITY UNITS INVOLVES RISKS. PLEASE READ "RISK
FACTORS" BEGINNING ON PAGE S-17.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS EL PASO
------------ ------------- ------------
Per Equity Security Unit............................. $ 50.00 $ 1.50 $ 48.50
Total................................................ $500,000,000 $ 15,000,000 $485,000,000
The public offering price set forth above does not include accumulated
contract adjustment payments and accrued interest, if any. Contract adjustment
payments on the purchase contracts and interest on the senior notes will accrue
from the date of original issuance of the equity security units, which is
expected to be June 26, 2002.
The underwriters expect to deliver the equity security units to purchasers
on or about June 26, 2002.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
Joint Book-Running Managers
CREDIT SUISSE FIRST BOSTON JPMORGAN
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BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS
MORGAN STANLEY
SALOMON SMITH BARNEY
The date of this prospectus supplement is June 20, 2002.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
ABOUT THIS PROSPECTUS SUPPLEMENT...... S-i
PROSPECTUS SUPPLEMENT SUMMARY......... S-1
RISK FACTORS.......................... S-17
ACCOUNTING TREATMENT.................. S-22
USE OF PROCEEDS....................... S-23
CAPITALIZATION........................ S-24
PRICE RANGE OF COMMON STOCK AND
DIVIDEND POLICY..................... S-25
DESCRIPTION OF THE EQUITY SECURITY
UNITS............................... S-26
PAGE
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DESCRIPTION OF THE SENIOR NOTES....... S-46
DESCRIPTION OF CAPITAL STOCK.......... S-52
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES........................ S-53
ERISA CONSIDERATIONS.................. S-63
UNDERWRITING.......................... S-65
NOTICE TO CANADIAN RESIDENTS.......... S-67
LEGAL MATTERS......................... S-68
PROSPECTUS
ABOUT THIS PROSPECTUS................. i
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS.......... 1
WHERE YOU CAN FIND MORE INFORMATION... 2
EL PASO CORPORATION................... 4
THE TRUSTS............................ 6
USE OF PROCEEDS....................... 7
RATIO OF EARNINGS TO FIXED CHARGES.... 7
DESCRIPTION OF THE DEBT SECURITIES.... 8
DESCRIPTION OF CAPITAL STOCK.......... 17
DESCRIPTION OF PURCHASE CONTRACTS..... 24
DESCRIPTION OF WARRANTS............... 25
DESCRIPTION OF UNITS.................. 26
DESCRIPTION OF THE TRUST PREFERRED
SECURITIES.......................... 26
DESCRIPTION OF THE TRUST PREFERRED
SECURITIES GUARANTEES............... 27
RELATIONSHIP AMONG THE TRUST PREFERRED
SECURITIES, THE SUBORDINATED DEBT
SECURITIES AND THE GUARANTEES....... 30
PLAN OF DISTRIBUTION.................. 32
LEGAL MATTERS......................... 33
EXPERTS............................... 33
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement is part of a registration statement that we have
filed with the Securities and Exchange Commission ("SEC") utilizing a "shelf"
registration process. Under this shelf process, we are offering to sell our
equity security units using this prospectus supplement and the accompanying
prospectus. The prospectus supplement describes our business and the specific
terms of the equity security units offering. The accompanying prospectus gives
more general information, some of which may not apply to this offering.
Generally, when we refer only to the "prospectus," we are referring to both
parts combined. You should read both this prospectus supplement together with
the accompanying prospectus before making a decision to invest in our equity
security units. If the description of the offering varies between the prospectus
supplement and the accompanying prospectus, you should rely on the information
in the prospectus supplement.
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PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights some basic information from this prospectus
supplement to help you understand us and the equity security units. It does not
contain all the information that may be important to you. You should carefully
read this prospectus supplement, the accompanying prospectus and the documents
incorporated by reference for more complete information regarding us and the
equity security units. You should pay special attention to the "Risk Factors"
section beginning on page S-17 of this prospectus supplement, as well as the
section entitled "Risk Factors and Cautionary Statement for Purposes of the
"Safe Harbor" Provisions of the Private Securities Litigation Reform Act of
1995" included in our Annual Report on Form 10-K for the year ended December 31,
2001, and the other documents incorporated by reference, to determine whether an
investment in the equity security units is appropriate for you.
For purposes of this prospectus supplement, except as set forth in the next
sentence and unless the context otherwise indicates, when we refer to "El Paso,"
"us," "we," "our" or "ours," we are describing El Paso Corporation, together
with its subsidiaries. With respect to any description of the terms of the
units, the purchase contracts or the senior notes, such references refer only to
El Paso Corporation, and not to its subsidiaries. Unless indicated otherwise,
all information in this prospectus supplement assumes that the underwriters do
not exercise their over-allotment option in either this offering or the
concurrent offering of our common stock.
OUR BUSINESS
We are an energy company originally founded in 1928 in El Paso, Texas. Our
principal operations include:
- natural gas transportation, gathering, processing and storage;
- natural gas and oil exploration, development and production;
- energy and energy-related commodities and product marketing;
- power generation;
- energy infrastructure facility development and operation;
- petroleum refining;
- chemicals production; and
- coal mining.
Our operations are segregated into four primary business segments:
Pipelines, Production, Merchant Energy and Field Services. These segments are
strategic business units that provide a variety of energy products and services.
We manage each segment separately, and each segment requires different
technology and marketing strategies.
Our Pipelines segment owns or has interests in approximately 60,000 miles
of interstate natural gas pipelines in the U.S. and internationally. In the
U.S., our systems connect the nation's principal natural gas supply regions to
the five largest consuming regions in the U.S.: the Gulf Coast, California, the
Northeast, the Midwest and the Southeast. These pipelines represent one of the
largest integrated coast-to-coast mainline natural gas transmission systems in
the U.S. Our U.S. pipeline systems also own or have interests in over 430
billion cubic feet (Bcf) of storage capacity used to provide a variety of
services to our customers and own and operate a liquefied natural gas (LNG)
terminal at Elba Island, Georgia that was reactivated in 2001. Our international
pipeline operations include access between our U.S. based systems and Canada and
Mexico, as well as interests in three major operating natural gas transmission
systems in Australia.
Our Production segment leases approximately 5 million net acres in 19
states, including Colorado, Louisiana, Oklahoma, Texas, Utah, West Virginia and
Wyoming, and in the Gulf of Mexico. We also have exploration and production
rights in Australia, Bolivia, Brazil, Canada, Hungary, Indonesia and Turkey.
During 2001, daily equivalent natural gas production exceeded 1.7 billion cubic
feet of gas equivalents per day (Bcfe/d), and our reserves at December 31, 2001
were approximately 6.7 trillion cubic feet of gas equivalents (Tcfe).
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Our Merchant Energy segment is involved in a broad range of energy-related
activities including asset ownership, customer origination, marketing and
trading and financial services. We buy, sell and trade natural gas, power, crude
oil, refined products, coal and other energy commodities in the U.S. and
internationally. We are also a significant owner of electric generating capacity
and own or have interests in 95 facilities in 20 countries. The three refineries
we operate have the capacity to process approximately 438 thousand barrels
(MBbls) of crude oil per day and produce a variety of petroleum products. We
also produce agricultural and industrial chemicals at five facilities in the
U.S. Our coal mining operations produce high-quality, bituminous coal with
reserves in Kentucky, Virginia and West Virginia. Our financial services
businesses manage investments in the North American energy industry. Most
recently, Merchant Energy has announced its expansion into the LNG business.
Our Field Services segment provides natural gas gathering, products
extraction, fractionation, dehydration, purification, compression and intrastate
transmission services. These services include gathering natural gas from more
than 15,000 natural gas wells with approximately 21,000 miles of natural gas
gathering and natural gas liquids pipelines, and approximately 30 natural gas
processing, treating and fractionation facilities located in some of the most
active production areas in the U.S., including the San Juan Basin, east and
south Texas, Louisiana, the Gulf of Mexico and the Rocky Mountains. We conduct
our intrastate transmission operations through interests in six intrastate
systems, which serve a majority of the metropolitan areas and industrial load
centers in Texas as well as markets in Louisiana. Our primary vehicle for growth
and development of midstream energy assets is El Paso Energy Partners, L.P., a
publicly traded master limited partnership of which our subsidiary serves as the
general partner. El Paso Energy Partners provides natural gas, natural gas
liquids and oil gathering and transportation, storage and other related
services.
Our principal executive offices are located in the El Paso Building,
located at 1001 Louisiana Street, Houston, Texas 77002, and our telephone number
at that address is (713) 420-2600.
RECENT DEVELOPMENTS
Since November of 2001, the wholesale energy industry has experienced
significant changes, including:
- The bankruptcy of Enron Corp.;
- The tightening of credit and the capital markets;
- Recent investigations of trading strategies used by several wholesale
market participants; and
- The focus by ratings agencies on a more conservative balance between the
business risk and the financial profile of wholesale energy market
participants.
In response to these industry changes, we announced in December 2001 a plan
to strengthen our capital structure and enhance our liquidity. More recently, on
May 29, 2002, we announced a strategic repositioning plan to limit our
investment in and exposure to energy trading and to increase our investment in
core natural gas businesses. The key elements of our strategic repositioning
plan include the following:
- Restructuring our Merchant Energy segment, including:
- Downsizing our trading and risk management activities;
- Reducing our trading personnel by approximately 50% and achieving $150
million of annualized cost savings. We expect to incur severance expense
of approximately $70 million after-tax over the second and third
quarters of 2002;
- Limiting our working capital investment in our trading activities to
$1.0 billion; and
- Realigning the activities in Merchant Energy under three areas: Power,
Petroleum and LNG and Energy Trading.
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- Further enhancing our credit beyond the plan announced in December 2001
by:
- Issuing $1.5 billion of equity securities;
- Selling our San Juan Basin natural gas gathering assets to El Paso
Energy Partners for an estimated $800 million;
- Reducing our company-wide annual operating expenses by at least $300
million (inclusive of the savings in Merchant Energy);
- Decreasing our net debt to total capitalization to approximately 49%,
including almost $2.0 billion of guarantees related to unconsolidated
debt in the Electron and Gemstone investments; and
- Reducing our non-cash earnings to approximately 5% of 2003 net income.
- Increasing our investment in core natural gas assets by:
- Increasing capital spending in our Production segment to $2.3 billion;
- Aggressively pursuing an LNG strategy; and
- Continuing an active infrastructure investment program.
A pro forma presentation of the impact on our historical financial
statements of our announced sale of the San Juan Basin gathering assets to El
Paso Energy Partners, as well as our sale of Texas and New Mexico midstream
assets to El Paso Energy Partners completed in April 2002, has been included in
a Form 8-K filed with the SEC on June 14, 2002, and incorporated by reference
into the accompanying prospectus.
Our strategy has been, and continues to be, the ownership and control of a
flexible portfolio of assets across the natural gas value chain. We will also
continue to use this flexible portfolio to reallocate capital to those business
segments which offer the best available returns. The ability to respond
comprehensively and expeditiously to changing market conditions demonstrates the
power of our vertically integrated natural gas franchise, the breadth of our
assets and the scope of our portfolio of investment opportunities. We believe
the successful implementation of our strategic repositioning plan will better
enable us to participate in the significant growth opportunities available in
our industry under existing market conditions.
S-3
THE OFFERING
WHAT ARE EQUITY SECURITY UNITS?
Each equity security unit, or normal unit, will be issued at the stated
amount of $50 and will initially consist of:
(1) a purchase contract under which:
- you will agree to purchase, and we will agree to sell, for $50,
shares of our common stock on August 16, 2005 (the "stock purchase
date"), the number of which we will determine based on the average
trading price of our common stock for a period preceding that
date, calculated in the manner described below under "What is the
settlement rate?"; and
- we will pay you quarterly contract adjustment payments at the
annual rate of 2.86% of the $50 stated amount as further described
below, subject to our right of deferral; and
(2) a senior note due August 16, 2007, with a principal amount of $50
on which we will pay interest quarterly at the initial annual rate of 6.14%
until the earlier of the date of settlement of a successful remarketing of
the senior notes (which is the third business day after such remarketing)
and the stock purchase date, after which we will pay interest at the reset
rate.
The senior note that is held as part of the normal unit will be owned by
you but will initially be pledged to us as collateral to secure your obligations
under the purchase contract. The collateral agent, which will be The Bank of New
York, will hold the pledged senior note until you pay the purchase price under
the purchase contract. If the senior notes are successfully remarketed as
described in this prospectus supplement, the applicable ownership interest in
the portfolio of treasury securities purchased with the proceeds of that
remarketing will be pledged to us as collateral to secure your obligations under
the purchase contracts, replacing the senior notes held as part of the normal
units.
WHAT ARE STRIPPED UNITS?
A holder of normal units may elect, at any time prior to a successful
remarketing or a tax event redemption (described under "Description of the
Senior Notes -- Tax Event Redemption"), subject to certain exceptions, to
withdraw the pledged senior notes underlying the normal units and create
"stripped units" by substituting, as pledged securities, specified zero-coupon
treasury securities that will pay $50 per stripped unit on the business day
immediately preceding the stock purchase date, which is the amount due on the
stock purchase date under the related purchase contract. The pledged senior
notes will then be released from the pledge agreement and delivered to the
holder.
A holder of stripped units may recreate normal units at any time prior to a
successful remarketing or a tax event redemption, subject to certain exceptions,
by substituting senior notes for the pledged zero-coupon treasury securities
held as part of the stripped units.
Because treasury securities are issued in whole multiples of $1,000,
holders of normal units and stripped units may only make collateral
substitutions to create stripped units or recreate normal units, as the case may
be, in whole multiples of 20 units.
WHAT ARE UNITS?
We refer to normal units together with stripped units as "units."
WHAT ARE PURCHASE CONTRACTS?
The purchase contract held as part of a unit obligates you to purchase, and
us to sell, for $50, on the stock purchase date, a number of newly issued shares
of our common stock equal to the settlement rate described below. We will base
the settlement rate on the applicable market value, which is the average
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closing price of our common stock for a period preceding that date, calculated
in the manner described below.
WHAT IS THE SETTLEMENT RATE?
The settlement rate is the number of newly issued shares of our common
stock that we are obligated to sell, and holders are obligated to buy, for $50,
upon settlement of a purchase contract on the stock purchase date.
The settlement rate for each purchase contract will be as follows, subject
to adjustment under specified circumstances as described in this prospectus
supplement:
- if the applicable market value, determined as described below, of our
common stock is equal to or greater than $23.94, the settlement rate will
be 2.0886 shares of our common stock;
- if the applicable market value of our common stock is less than $23.94
but greater than $19.95, the settlement rate will be equal to $50 divided
by the applicable market value of our common stock; and
- if the applicable market value of our common stock is less than or equal
to $19.95, the settlement rate will be 2.5063 shares of our common stock.
The "applicable market value" means the average of the closing price per
share of our common stock on each of the 20 consecutive trading days ending on
the third trading day immediately preceding the stock purchase date; provided,
that, in the case of a merger early settlement described below, the 20
consecutive trading days shall end on the date of completion of the cash merger.
CAN A HOLDER SETTLE ITS PURCHASE CONTRACTS EARLY?
Subject to certain exceptions, at any time not later than 11:00 a.m., New
York City time, on the eleventh business day immediately preceding the stock
purchase date, a holder may settle a purchase contract early by delivering a
cash payment of $50 to the purchase contract agent, as described under
"Description of the Equity Security Units -- Early Settlement." A holder that
settles a purchase contract early will receive 2.0886 shares of our common
stock, subject to adjustment under certain circumstances, and such holder's
pledged securities would be released as collateral and distributed to such
holder.
In addition, if we are involved in a merger prior to the stock purchase
date in which at least 30% of the consideration for our common stock consists of
cash or cash equivalents, a holder may settle a purchase contract early by
delivering a cash payment of $50 to the purchase contract agent, as described
under "Description of the Equity Security Units -- Early Settlement Upon Cash
Merger." A holder that settles a purchase contract early in connection with a
cash merger will receive the kind and amount of securities, cash or other
property that such holder would have been entitled to receive if such holder had
settled the purchase contract immediately before the cash merger at the
settlement rate in effect at such time, and such holder's pledged securities
would be released as collateral and distributed to such holder.
However, in either case, the option to settle early will not be available
unless at such time, if so required under the U.S. federal securities laws,
there is in effect a registration statement and a current prospectus is
available covering the common stock to be delivered in respect of the purchase
contracts being settled. In addition, in either case, a holder that settles a
purchase contract early will not receive any further contract adjustment
payments from us and will not receive any accumulated and unpaid contract
adjustment payments or deferred contract adjustment payments.
WHAT PAYMENTS WILL BE MADE TO A HOLDER OF NORMAL UNITS?
If you hold a normal unit, you will receive:
- quarterly contract adjustment payments on the purchase contract at the
annual rate of 2.86% of the $50 stated amount on all quarterly payment
dates on or before the stock purchase date, subject to our right of
deferral; and
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- quarterly interest payments on the pledged senior note at the annual rate
of 6.14% of the $50 principal amount for the quarterly interest payments
due on or before May 16, 2005. On August 16, 2005, if the senior notes
are successfully remarketed prior to the stock purchase date, you will
receive a quarterly payment on the pledged portfolio of treasury
securities that are substituted for the senior note at an annual rate of
6.14%; if the senior notes are not successfully remarketed prior to the
stock purchase date, you will continue to receive a quarterly interest
payment on the pledged senior note at the annual rate of 6.14%. That is,
on the stock purchase date, you will receive a quarterly payment at the
same annual rate as all previous quarterly interest payments, regardless
of whether or when the remarketing was successful.
WHAT PAYMENTS WILL BE MADE TO A HOLDER OF STRIPPED UNITS?
If you hold a stripped unit, you will receive only the quarterly contract
adjustment payments on the purchase contract at the annual rate of 2.86% of the
$50 stated amount on all quarterly payment dates on or before the stock purchase
date, subject to our right of deferral. In addition, original issue discount
will accrue on the pledged zero-coupon treasury securities that are held as part
of the stripped unit.
WHAT PAYMENTS WILL BE MADE TO A HOLDER OF SENIOR NOTES HELD SEPARATELY?
If you hold a senior note separately from a normal unit, you will receive
only the quarterly interest payments on that senior note. The senior notes will
pay interest at the initial annual rate of 6.14% of the $50 principal amount
until the earlier of the settlement date of a successful remarketing and the
stock purchase date. After that date, we will pay interest on the senior notes
at the reset rate from the settlement date of a successful remarketing (or if
not successfully remarketed, the stock purchase date) until their maturity on
August 16, 2007. If no such successful remarketing occurs before the stock
purchase date, the interest rate will be reset, as of the stock purchase date,
to a reset rate equal to the two-year benchmark rate plus a spread that will be
determined based on the credit rating of the senior notes at that time, as
described under "Description of the Senior Notes -- Interest".
WHAT ARE THE PAYMENT DATES?
Contract adjustment payments on the purchase contracts, subject to our
right of deferral, and interest payments on the senior notes will be paid
quarterly in arrears on each February 16, May 16, August 16 and November 16,
commencing August 16, 2002.
WHEN CAN WE DEFER PAYMENTS?
We may, at our option and upon prior written notice to the holders of the
units and the purchase contract agent, defer payment of all or part of the
contract adjustment payments on the purchase contracts until no later than the
stock purchase date. We will pay additional contract adjustment payments on any
deferred installments of contract adjustment payments at a rate of 6.14% per
year until paid, compounded quarterly. However, we will not pay any deferred
contract adjustment payments on purchase contracts that have been settled early
or terminated. We may elect to pay all contract adjustment payments that have
been deferred until the stock purchase date in shares of our common stock in
lieu of cash.
We are not entitled to defer payments of interest on the senior notes.
WHAT IS REMARKETING?
In order to provide holders of the normal units with the necessary funds to
settle their purchase contracts, the remarketing agent will seek to sell the
senior notes of holders of normal units in a remarketing. The remarketing agent
will use the proceeds from a remarketing of senior notes held as part of the
normal units in substantial part to purchase the specified portfolio of treasury
securities, as described below, which will then be pledged as collateral to
secure the obligations of the holders of the normal units under the related
purchase contracts. The cash paid upon the maturity of the pledged portfolio of
treasury securities then held as part of the normal units of such holders will
be used to satisfy in full such holders' obligations under the purchase
contracts to purchase shares of our common stock on the stock purchase date, and
to pay an amount to such holders on August 16, 2005 based on the initial annual
rate on the senior notes. This will
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be one way for holders of normal units to satisfy their obligations to purchase
shares of our common stock under the related purchase contracts.
The remarketing agent will remarket the senior notes that are held as part
of the normal units on one or more occasions starting on the initial remarketing
date, which will be the third business day immediately preceding May 16, 2005,
which is the last quarterly interest payment date before the interest payment
date falling on the stock purchase date.
We have entered into a remarketing agreement with Credit Suisse First
Boston Corporation, pursuant to which it has agreed to use its commercially
reasonable best efforts to:
- establish a reset rate on the remarketing date that will be sufficient to
cause the aggregate market value at the remarketing date of all the
senior notes being remarketed (which shall be all senior notes held as
part of the normal units and all senior notes held separately by holders
who have elected to have their senior notes participate in the
remarketing) to be equal to approximately, but not less than, 100.50% of
the remarketing value; and
- sell the senior notes participating in the remarketing at a price equal
to approximately, but not less than, 100.50% of the remarketing value.
The "remarketing value" will be equal to the sum of:
(1) the value at the remarketing date of such amount of treasury
securities that will pay, on the business day immediately preceding the
quarterly interest payment date falling on the stock purchase date, an
amount of cash equal to the aggregate interest payment that is scheduled to
be payable on that quarterly interest payment date on each senior note
participating in the remarketing, assuming for this purpose, even if not
true, that the interest rate on the senior notes remains at the initial
annual rate; and
(2) the value at the remarketing date of such amount of treasury
securities that will pay, on the business day immediately preceding the
stock purchase date, an amount of cash equal to $50 for each senior note
participating in the remarketing.
The remarketing agent will use the proceeds from the successful remarketing
of the senior notes held as part of the normal units to purchase, in the
discretion of the remarketing agent, in open market transactions or at treasury
auction, the amount of treasury securities described in (1) and (2) above, which
it will deliver through the purchase contract agent to the collateral agent to
secure the obligations under the related purchase contracts and to pay the
quarterly interest payment on the normal units due on August 16, 2005. The
remarketing agent will retain, as a remarketing fee, an amount not exceeding 25
basis points (0.25%) of the total proceeds from the remarketing of the senior
notes held as part of the normal units. The remarketing agent will remit the
remaining portion of the proceeds from the remarketing of the senior notes held
as part of the normal units, if any, to the holders of the normal units.
A holder of normal units that does not want to participate in the
remarketing and wants instead to retain the senior notes held as part of such
holder's normal units must create stripped units not later than 5:00 p.m., New
York City time, on the fourth business day immediately preceding the first
business day of the relevant remarketing period. The cash received upon maturity
of the specified zero-coupon treasury securities held as part of the stripped
units will be applied in substantial part to satisfy such holder's obligation
under the purchase contracts on the stock purchase date.
WHAT IS THE RESET RATE?
In order to facilitate a remarketing of the senior notes at the remarketing
price described above, the remarketing agent will seek to establish a reset rate
on the senior notes sufficient to cause the aggregate market value at the
remarketing date of all the senior notes being remarketed (which shall be all
senior notes held as a part of the normal units and all senior notes held
separately by holders who have elected to have their senior notes participate in
the remarketing) to be equal to approximately, but not less than, 100.50% of the
remarketing value described above under "What is remarketing?". Resetting the
interest rate on the senior notes at this rate should enable the remarketing
agent to sell the senior notes participating in the remarketing
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and use the proceeds from the remarketing of senior notes held as part of the
normal units in substantial part to purchase the specified portfolio of treasury
securities. Upon maturity of the specified portfolio of treasury securities, the
cash received therefrom will be applied on the stock purchase date to settle the
purchase contracts and to pay an amount to holders of normal units based on the
initial annual rate on the senior notes.
The remarketing agent will first seek to establish the reset rate on the
third business day prior to May 16, 2005, which is the last quarterly interest
payment date before the stock purchase date. If the remarketing agent cannot
establish a reset rate that results in a successful remarketing on that initial
remarketing date and, as a result, the senior notes cannot be sold as described
below, the interest rate will not be reset at that time and will continue to be
the initial interest rate on the senior notes. However, the remarketing agent
will thereafter attempt to establish a reset rate that results in a successful
remarketing, and the remarketing agent will attempt to remarket the senior notes
on the subsequent dates as described below.
If the senior notes are successfully remarketed, we will pay interest to
the holders of such senior notes after the remarketing at the reset rate from
the date of the settlement of the successful remarketing until the date of
maturity of the senior notes. If a reset rate cannot be established before the
stock purchase date in connection with a successful remarketing, the interest
rate on all outstanding senior notes will be reset, as of the stock purchase
date, to a reset rate equal to the two-year benchmark rate plus a spread that
will be determined based on the credit rating of the senior notes at that time,
as described under "Description of the Senior Notes -- Interest." The resetting
of the interest rate on the senior notes will not change the quarterly interest
payment due to holders of the normal units on August 16, 2005, which, as
described above, will be paid at the same annual rate as all previous quarterly
interest payments.
The interest rate on all outstanding senior notes will be reset to the
reset rate, regardless of whether holders of the senior notes elect to
participate in the remarketing.
WHAT HAPPENS IF THE REMARKETING AGENT DOES NOT SELL THE SENIOR NOTES ON THE
INITIAL REMARKETING DATE?
If, as described above, the remarketing agent cannot establish a reset rate
on the initial remarketing date that will be sufficient to cause the aggregate
market value at the remarketing date of all the senior notes being remarketed
(which shall be all senior notes held as part of the normal units and all senior
notes held separately by holders who have elected to have their senior notes
participate in the remarketing) to be equal to approximately, but not less than,
100.50% of the remarketing value, and thus cannot sell the senior notes
participating in the remarketing on that remarketing date, the remarketing agent
will attempt to establish a reset rate that results in a successful remarketing
on each of the two immediately following business days. If the remarketing agent
cannot establish a reset rate that results in a successful remarketing on either
of those days, it will attempt to establish such a reset rate on each of the
three business days immediately preceding July 1, 2005, which are June 28, 29
and 30, 2005.
If the remarketing agent cannot establish such a reset rate during the June
28-30, 2005 remarketing period, it will further attempt to establish a reset
rate on each of the seventh, sixth and fifth business days immediately preceding
the stock purchase date, which are August 5, 8 and 9, 2005.
We refer to each of these three three-business-day periods as "remarketing
periods" in this prospectus supplement.
If the remarketing agent fails to remarket the senior notes participating
in the remarketing on the fifth business day immediately preceding the stock
purchase date, each holder of a normal unit will be deemed to have directed us
to retain the senior note pledged as collateral in satisfaction of its
obligations under the purchase contract and we will retain such senior note in
full satisfaction of those obligations. Each holder of senior notes which are
not held as part of normal units will continue to own its senior notes, which,
as of the stock purchase date, will pay interest at the reset rate until the
maturity date of the senior notes.
MAY A HOLDER OF SENIOR NOTES THAT ARE NOT HELD AS A PART OF NORMAL UNITS STILL
PARTICIPATE IN A REMARKETING OF SUCH HOLDER'S SENIOR NOTES?
A holder of senior notes that are not held as part of normal units may
elect to have these separately held senior notes participate in the remarketing
in the manner described under "Description of the Senior Notes --
S-8
Optional Remarketing of Senior Notes Which Are Not Held as Part of Normal
Units." If the remarketing is successful, the remarketing agent will retain, as
a remarketing fee, an amount not exceeding 25 basis points (0.25%) of the total
proceeds from the remarketing of the senior notes held separately that were sold
in the remarketing and will promptly remit to the holders of those senior notes
the remaining portion of the proceeds from the remarketing of those senior
notes.
If a holder of senior notes held separately elects to have its senior notes
remarketed in a remarketing period but the remarketing fails during that
remarketing period, the senior notes will be promptly returned to the holder
following the conclusion of that remarketing period.
BESIDES PARTICIPATING IN A REMARKETING, HOW ELSE CAN A HOLDER'S OBLIGATIONS
UNDER THE PURCHASE CONTRACT BE SATISFIED?
Besides participating in the remarketing, a holder's obligations under the
purchase contract may also be satisfied:
- if such holder holds stripped units, by the application of the cash
received upon maturity of the pledged zero-coupon treasury securities;
- through a cash settlement of the purchase contract by the delivery of
cash not earlier than 9:00 a.m., New York City time, on the tenth
business day immediately preceding the stock purchase date and not later
than 11:00 a.m., New York City time, on the eighth business day
immediately preceding the stock purchase date upon advance notice, as
described under "Description of the Equity Security Units -- Notice to
Settle With Cash."
- through an early settlement of the purchase contract at any time, subject
to certain exceptions, not later than 11:00 a.m., New York City time, on
the eleventh business day immediately preceding the stock purchase date
by the early delivery of cash to the purchase contract agent, as
described under "Description of the Equity Security Units -- Early
Settlement;" or
- if we are involved in a merger, acquisition or consolidation prior to the
stock purchase date in which at least 30% of the consideration for our
common stock consists of cash or cash equivalents, through an early
settlement of the purchase contract by the early delivery of cash to the
purchase contract agent, as described under "Description of the Equity
Security Units -- Early Settlement upon Cash Merger."
CAN A HOLDER'S OBLIGATIONS UNDER THE PURCHASE CONTRACT BE TERMINATED?
A holder's obligation under the purchase contract, including its
obligations to purchase shares of our common stock, our obligation to sell
shares of our common stock under the purchase contract and the purchase contract
itself will automatically terminate upon the occurrence of particular events of
our bankruptcy, insolvency or reorganization. Upon such a termination of the
purchase contracts, the pledged senior notes (or the pledged portfolio of
treasury securities, if there has been a successful remarketing, or the pledged
tax event portfolio of treasury securities, if there has been a tax event
redemption) or pledged zero-coupon treasury securities, as applicable, will be
released and distributed to such holder and such holder will have no further
rights under the purchase contracts, including the right to receive any
accumulated and unpaid or deferred contract adjustment payments. If we become
the subject of a case under the federal bankruptcy code, a delay may occur as a
result of the automatic stay under the bankruptcy code and continue until the
automatic stay has been lifted. The automatic stay will not be lifted until such
time as the bankruptcy judge agrees to lift it and return your collateral to
you.
WHAT IS THE MATURITY OF THE SENIOR NOTES?
The senior notes will mature on August 16, 2007.
UNDER WHAT CIRCUMSTANCES MAY WE REDEEM THE SENIOR NOTES BEFORE THEY MATURE?
If the tax laws change or are interpreted in a way that adversely affects
our ability to deduct the interest payable or accruable by us on the senior
notes for United States federal income tax purposes, we may elect to redeem the
senior notes at the redemption price described under "Description of the Senior
Notes -- Tax Event Redemption."
S-9
WHAT IS THE RANK OF THE SENIOR NOTES AS COMPARED TO OUR OTHER INDEBTEDNESS?
The senior notes will rank equally with all of our existing and future
senior unsecured debt. Because we are a holding company and conduct
substantially all of our operations exclusively through our subsidiaries, the
senior notes will effectively have a position junior to the claims of creditors,
including trade creditors, of our subsidiaries and holders of the unsecured and
secured debt of our subsidiaries. As of March 31, 2002, we had approximately $6
billion of outstanding long-term senior indebtedness and our subsidiaries had
approximately $8 billion of outstanding long-term indebtedness.
WHAT ARE THE PRINCIPAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATED TO
THE NORMAL UNITS, STRIPPED UNITS AND SENIOR NOTES?
If you purchase normal units in this offering, under the purchase contract
agreement and the certificate evidencing the normal units, you will be deemed to
agree to treat the purchase of a normal unit as the purchase of a senior note
and a purchase contract. You must allocate the purchase price of the normal
units between those senior notes and purchase contracts in proportion to their
respective initial fair market values, which will establish your initial tax
basis. We expect to report the initial fair market value of each senior note as
$50 and the initial fair market value of each purchase contract as $0 and, by
purchasing normal units, you will be deemed to agree to such allocation.
Under the terms of the senior notes and the senior indenture, we and each
holder of the senior notes agree, for United States federal income tax purposes,
to treat the senior notes as indebtedness that is subject to the regulations
governing contingent payment debt obligations in the manner described under
"United States Federal Income Tax Consequences." As discussed more fully below,
the effect of these Treasury regulations will be:
- to require you, regardless of your usual method of tax accounting, to use
the accrual method with respect to the senior notes;
- to possibly result in the accrual of original issue discount by you in
excess of stated interest payments actually received by you; and
- generally to result in ordinary income rather than capital gain treatment
of any gain, and to some extent loss, on the sale, exchange or other
disposition of the senior note at any time up to six months after the
date on which the interest rate on the senior notes is reset.
If you own stripped units, you will be required to include in gross income
in each year your allocable share of any original issue discount or acquisition
discount on the zero-coupon treasury securities that accrues in such year.
We intend to report the contract adjustment payments as income to you, but
you may want to consult your tax advisor concerning alternative
characterizations.
Because there is no statutory, judicial or administrative authority
directly addressing the tax treatment of the units or instruments similar to the
units, we urge you to consult your own tax advisor concerning the tax
consequences of an investment in the units. For additional information, see
"United States Federal Income Tax Consequences."
WHAT VOTING RIGHTS DOES A HOLDER OF A UNIT HAVE?
A holder of a unit has limited voting rights. A holder of a unit may vote
only with respect to certain modifications of the purchase contract agreement
governing the purchase contracts and the pledge agreement governing the pledge
of the senior notes (or the specified portfolio of treasury securities, if a
successful remarketing has occurred, or the specified tax event portfolio of
treasury securities, if a tax event redemption has occurred) or the specified
zero-coupon treasury securities pledged to secure its obligations under the
purchase contracts. In addition, a holder of normal units and a holder of senior
notes held separately may vote with respect to certain modifications of the
senior indenture and the senior notes.
S-10
A holder of a unit will not have any voting or other rights (including
under our shareholder rights agreement, as described under "Description of
Capital Stock -- Shareholder Rights Agreement" in the accompanying prospectus)
with respect to our common stock until the related purchase contract is settled.
WILL THE UNITS OR SENIOR NOTES BE LISTED ON A STOCK EXCHANGE?
The normal units have been approved for listing on the New York Stock
Exchange under the symbol "EP PrA."
Neither the stripped units nor the senior notes will initially be listed.
However, if either of these securities is separately traded to a sufficient
extent that applicable exchange listing requirements are met, we may attempt,
but are not obligated, to cause those securities to be listed on the exchange on
which the normal units are then listed.
WHAT ARE THE EXPECTED USES OF PROCEEDS FROM THE OFFERING?
We estimate that the net proceeds from the sale of normal units in this
offering, after deducting underwriting discounts and commissions and the
estimated expenses of this offering payable by us, will be $485,000,000, or
$557,750,000 if the underwriters exercise their over-allotment option in full to
purchase additional normal units. We anticipate using the net proceeds from this
offering to reduce short-term borrowings and for general corporate purposes.
S-11
THE OFFERING -- EXPLANATORY DIAGRAMS
The following diagrams demonstrate some of the key features of the purchase
contracts, normal units, stripped units and the senior notes, and the
transformation of normal units into stripped units and senior notes.
PURCHASE CONTRACTS
- Normal units and stripped units both include a purchase contract under
which you agree to purchase, and we agree to sell, shares of our common
stock on the stock purchase date.
- The number of shares of common stock to be purchased under each purchase
contract will depend on the "applicable market value." The "applicable
market value" means the average of the closing price per share of our
common stock on each of the 20 consecutive trading days ending on the
third trading day immediately preceding the stock purchase date;
provided, that, in the case of a merger early settlement, the 20
consecutive trading days shall end on the date of completion of the cash
merger.
[GRAPHIC]
VALUE OF DELIVERED SHARES PERCENTAGE OF SHARES DELIVERED ON
ON STOCK PURCHASE DATE STOCK PURCHASE DATE(3)
V P
a e
l 100% 120% r
u c
e e
n Deliver Deliver Deliver
t 100% of Between 83.33% of
a Shares(4) 100% and Shares(6)
g 83.33% of
e Shares(5)
Reference Threshold Reference Threshold
Price(1) Appreciation Price(2) Price(1) Appreciation Price(1)
$19.95 $23.94 $19.95 $23.94
Common Stock Price Common Stock Price
---------------
(1) The "reference price" is $19.95.
(2) The "threshold appreciation price" is equal to $23.94, which is 120% of the
reference price.
(3) For each of the percentage categories shown, the percentage (expressed as a
decimal) of the shares of common stock to be delivered on the stock purchase
date to a holder of normal units or stripped units is determined by
dividing:
- the related number of shares of common stock to be delivered, as
indicated in the footnote for each such category, by
- an amount equal to $50, which is the stated amount of the normal units,
divided by the reference price.
(4) If the applicable market value of our common stock is less than or equal to
the reference price, the number of shares of our common stock to be
delivered will be calculated by dividing the stated amount of $50 by the
reference price.
(5) If the applicable market value of our common stock is between the reference
price and the threshold appreciation price, the number of shares of common
stock to be delivered will be calculated by dividing the stated amount of
$50 by the applicable market value.
(6) If the applicable market value of our common stock is greater than or equal
to the threshold appreciation price, the number of shares of common stock to
be delivered will be calculated by dividing the stated amount of $50 by the
threshold appreciation price.
S-12
NORMAL UNITS
- A normal unit will consist of two components as illustrated below:
[FLOW CHART]
PURCHASE CONTRACT SENIOR NOTE
(OWED TO HOLDER) (OWED TO HOLDER)
common stock and 6.14% per year payable
contract adjustment quarterly (reset for
payments (2.86% + quarterly payments
per year payable payable on or after
quarterly) August 16, 2005)
(OWED TO EL PASO) (OWNED TO HOLDER)
$50 at stock
purchase date $50 at maturity
(at August 16, 2005) (at August 16, 2007)
NORMAL UNIT
- After a successful remarketing or tax event redemption, the normal units
will include a specified portfolio of treasury securities or specified
tax event portfolio of treasury securities, as the case may be, instead
of the senior notes.
- If you hold a normal unit, you own the senior notes (or, after a
successful remarketing or tax event redemption, the specified portfolio
of treasury securities or specified tax event portfolio of treasury
securities, as the case may be), but you will pledge them to us as
collateral to secure your obligations under the related purchase
contract.
- If you hold a normal unit but do not want to participate in the
remarketing, you must create stripped units not later than 5:00 p.m., New
York City time, on the fourth business day immediately preceding the
first business day of the relevant remarketing period.
STRIPPED UNITS
- A stripped unit will consist of two components as illustrated below:
[FLOW CHART]
SUBSTITUTE
PURCHASE CONTRACT ZERO-COUPON
TREASURY SECURITIES
(OWED TO HOLDER)
common stock and
contract adjustment
payments (2.86% +
per year
payable quarterly)
(OWED TO EL PASO) (OWNED TO HOLDER)
$50 at stock
purchase date $50 at maturity
(at August 16, 2005) (at August 16, 2005)
STRIPPED UNITS
S-13
- If you hold a stripped unit, you own the specified zero-coupon treasury
securities but you will pledge them to us as collateral to secure your
obligations under the related purchase contract. The specified treasury
securities are zero-coupon U.S. treasury securities (CUSIP No. 912803 AG
8) that mature on August 15, 2005.
SENIOR NOTES
- The senior notes will have the terms illustrated below:
[FLOW CHART]
(OWED TO HOLDER)
6.14%
per year payable
quarterly
(reset for quarterly
payments payable
on or after August 16,
2005)
(OWED TO HOLDER)
$50 on maturity
(at August 16, 2007)
- If you hold a senior note that is held as part of a normal unit, you must
allow the senior note to be included in the remarketing. If the
remarketing is successful, the proceeds will be used to purchase the
specified portfolio of treasury securities. Upon maturity of these
treasury securities, the cash received therefrom will be applied on the
stock purchase date to settle the purchase contract and pay an amount to
holders of normal units based on the initial annual rate on the senior
notes.
- If you do not want the senior note to be remarketed, you must create
stripped units not later than 5:00 p.m., New York City time, on the
fourth business day immediately preceding the first business day of the
relevant remarketing period.
- If you hold a senior note that is separate and not held as part of a
normal unit, you have the option to:
-- continue to hold the senior note whose rate will be reset for the
quarterly interest payments payable on or after August 16, 2005; or
-- deliver the senior note to the remarketing agent to be included in the
remarketing.
TRANSFORMING NORMAL UNITS INTO STRIPPED UNITS AND SENIOR NOTES AND RECREATING
NORMAL UNITS
- To create a stripped unit, you may, prior to a successful remarketing of
the senior notes or a tax event redemption, subject to certain
exceptions, combine the purchase contract with the specified zero-coupon
U.S. treasury securities that mature on August 15, 2005.
- You will then own the specified zero-coupon U.S. treasury securities but
such securities will be pledged by you to us as collateral to secure your
obligations under the related purchase contract.
- The zero-coupon U.S. treasury securities together with the purchase
contract would then constitute a stripped unit. The senior note, which
was previously held as part of the normal unit, will be delivered to you
as a separate security.
S-14
[FLOW CHART]
ZERO-
COUPON
NORMAL UNITS TREASURY
SUBSTITUTION
Substitute
Zero-
Purchase Senior Note Coupon
Contract Treasury
Securities
(Owed To Holder) (Owed To Holder)
common stock and
contract adjustment
payments (2.86% + 6.14% per year payable
per year payable quarterly
quarterly)
(reset for quarterly
payments payable
on or after
August 16, 2005)
(Owed To El Paso) (Owed To Holder) (Owed to Holder)
$50 at stock
purchase date $50 at maturity $50 at maturity
(at August 16, 2005) (at August 16, 2007) (at August 15, 2005)
NORMAL UNITS
SEPARATELY HELD
STRIPPED UNITS SENIOR NOTE
Substitute
Purchase Zero-Coupon Senior Note
Contract Treasury Securities
(Owed To Holder) (Owed To Holder)
common stock and
contract adjustment
payments (2.86% + + 6.14% per year payable
per year payable quarterly
quarterly)
(reset for quarterly
payments payable
on or after
August 16, 2005)
(Owed To El Paso) (Owed To Holder) (Owed To Holder)
$50 at stock
purchase date $50 at maturity $50 at maturity
(at August 16, 2005) (at August 15, 2005) (at August 16, 2007)
STRIPPED UNITS
- You can also, prior to a successful remarketing of the senior notes or a
tax event redemption, subject to certain exceptions, transform stripped
units and senior notes into normal units. Following that transformation,
the specified zero-coupon U.S. treasury securities, which were previously
held as part of the stripped units, will be delivered to you as a
separate security.
- The transformation of normal units into stripped units and senior notes
and the transformation of stripped units and senior notes into normal
units requires certain minimum amounts of securities, as described under
"Description of the Equity Security Units -- Creating Stripped Units and
Recreating Normal Units."
S-15
CONCURRENT OFFERING OF COMMON STOCK
Concurrently with this offering of equity security units, we are conducting
a separate offering of up to 51,750,000 shares of our common stock. Neither this
offering of equity security units nor the concurrent offering of our common
stock is conditioned on the completion of the other offering.
SUMMARY FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with our consolidated financial statements and related notes thereto, which are
incorporated herein by reference. The operating results data for each of the
years in the three-year period ended December 31, 2001, and the financial
position data as of the end of each fiscal year during such period are derived
from our audited consolidated financial statements. The summary financial
information for the quarters ended March 31, 2002 and 2001, is derived from our
unaudited consolidated financial statements for the respective periods. This
historical information is not necessarily indicative of the results to be
expected in the future and does not give effect to our announced strategic
repositioning plan described under "Recent Developments" on page S-2.
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
2001 2000 1999 2002 2001
------- ------- ------- ------- -------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
Operating Results Data:(1)
Operating revenues(2).................................. $57,475 $48,915 $27,325 $13,188 $17,762
Merger-related costs and asset impairments(3).......... 1,843 125 557 342 1,161
Ceiling test charge(4)................................. 135 -- 352 33 --
Income (loss) from continuing operations before
preferred stock dividends............................ 67 1,236 257 229 (390)
Income (loss) from continuing operations available to
common stockholders.................................. 67 1,236 257 229 (390)
Basic earnings per common share from continuing
operations........................................... $ 0.13 $ 2.50 $ 0.52 $ 0.44 $ (0.78)
Diluted earnings per common share from continuing
operations........................................... $ 0.13 $ 2.43 $ 0.52 $ 0.43 $ (0.78)
Cash dividends declared per common share(5)............ $ 0.85 $ 0.82 $ 0.80 $ 0.22 $ 0.21
Basic average common shares outstanding................ 505 494.... 490 527 502
Diluted average common shares outstanding.............. 516 513 497 538 502
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------- ------------------
2001 2000 1999 2002 2001
------- ------- ------- ------- -------
(UNAUDITED)
($ IN MILLIONS)
Financial Position Data:(1)
Total assets(2)........................................ $48,171 $46,320 $32,090 $48,557 $48,034
Long-term debt and other financing obligations......... 12,816 11,603 10,021 14,372 11,857
Non-current notes payable to unconsolidated
affiliates........................................... 368 343 -- 326 346
Company-obligated preferred securities of consolidated
trusts............................................... 925 925 625 925 925
Minority interests..................................... 3,088 2,782 1,819 3,259 2,804
Stockholders' equity................................... 9,356 8,119 6,884 9,354 6,880
---------------
(1) Our operating results and financial position data reflect the acquisitions
of PG&E's Texas Midstream operations in December 2000. This acquisition was
accounted for as a purchase, and therefore operating results are included in
our results prospectively from the purchase date.
(2) Our operating revenues and total assets reflect the significant growth in
our Merchant Energy operations during 2001 and 2000 as well as the
consolidation of the U.S. operations of Coastal Merchant Energy in September
2000.
(3) Our 2001 costs relate primarily to our merger with The Coastal Corporation,
and our 1999 costs relate primarily to our merger with Sonat, Inc.
(4) Ceiling test charges are reductions in earnings that result when capitalized
costs of natural gas and oil properties exceed the upper limit, or ceiling,
on the value of these properties.
(5) Cash dividends declared per share of common stock represent the historical
dividends declared by El Paso for all periods presented.
S-16
RISK FACTORS
Investing in the units involves risks, including the risks described below
that are specific to the normal units and those that could affect us and our
business. You should not invest in the units unless you understand these
investment risks. Because a normal unit initially consists of a purchase
contract to acquire shares of our common stock and a senior note issued by us,
you are making an investment decision with regard to our common stock and senior
notes, as well as the normal units. Before you invest in the units, you should
consider the risks, uncertainties and factors that may adversely affect us that
are discussed under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors and Cautionary
Statement For Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995" in our Annual Report on Form 10-K for the year
ended December 31, 2001, which is incorporated by reference in the accompanying
prospectus, as well as the following additional risk factors.
ADDITIONAL RISKS RELATED TO THE COMPANY
WE MAY HAVE DIFFICULTY ACCESSING CAPITAL ON ATTRACTIVE TERMS OR AT ALL.
In response to the occurrence of several recent events, including the
September 11, 2001 terrorist attack on the United States, the ongoing war
against terrorism by the United States, and the bankruptcy of Enron Corp., one
of our major competitors, the financial markets have been disrupted in general,
and the availability and cost of capital for our business and that of our
competitors have been adversely affected. In addition, the bankruptcy of Enron
and other issues affecting the energy industry have caused the credit ratings
agencies to review the capital structure and earnings power of energy companies,
including ours. These reviews have constrained the capital available to our
industry and could adversely affect our access to funding for our operations.
Our business is capital intensive, and achievement of our growth targets is
dependent, at least in part, upon our ability to access capital at rates and on
terms we determine to be attractive. If our ability to access capital becomes
significantly constrained, our financial condition and future results of
operations could be significantly adversely affected.
FAILURE OF OUR ENERGY TRADING COUNTERPARTIES TO FULFILL THEIR COMMITMENTS COULD
SIGNIFICANTLY ADVERSELY AFFECT OUR ENERGY MARKETING AND TRADING BUSINESS.
Since the bankruptcy of Enron Corp., the energy marketing and trading
industry has come under heightened scrutiny by regulatory and rating agencies,
resulting in a reduction in the credit available to companies in the industry.
Consequently, a number of industry participants could have liquidity constraints
on their trading activities, could reduce the size of their trading businesses
or could discontinue their trading operations altogether. If the counterparties
in our energy marketing and trading business continue to face liquidity
constraints, or are otherwise unable or unwilling to continue their trading
activities, the financial results and liquidity of our energy marketing and
trading business could be significantly adversely affected.
WE MAY NOT ACHIEVE ALL OF THE OBJECTIVES SET FORTH IN OUR STRATEGIC
REPOSITIONING PLAN IN A TIMELY MANNER OR AT ALL.
Our ability to achieve the stated objectives of our strategic repositioning
plan, as well as the timing of their achievement, if at all, is subject to
factors beyond our control, including:
- our ability to issue equity securities, including the normal units
offered pursuant to this prospectus supplement and our common stock being
offered concurrently herewith, which is based on our stock price, credit
ratings and liquidity in the capital markets; and
- our ability to raise cash from asset sales, which may be impacted by our
ability to locate potential buyers in a timely fashion and obtain a
reasonable price or by competing asset sales programs by our competitors.
S-17
RISKS RELATED TO THIS OFFERING
YOU WILL BEAR THE ENTIRE RISK OF A DECLINE IN THE PRICE OF OUR COMMON STOCK.
The market value of the shares of our common stock you will receive on the
stock purchase date may be materially different from the effective price per
share paid by you on the stock purchase date. If the average trading price of
our common stock on the stock purchase date is less than $19.95 per share, you
will, on the stock purchase date, be required to purchase shares of common stock
at a loss. Accordingly, a holder of units assumes the entire risk that the
market value of our common stock may decline. Any such decline could be
substantial.
YOU WILL RECEIVE ONLY A PORTION OF ANY APPRECIATION IN OUR COMMON STOCK PRICE.
The aggregate market value of the shares of our common stock you will
receive on the stock purchase date generally will exceed the stated amount of
$50 only if the average closing price per share of our common stock over the
applicable 20-trading day period preceding settlement equals or exceeds $23.94,
which we refer to as the "threshold appreciation price." The threshold
appreciation price represents an appreciation of 20% over $19.95, the price of
our common stock on June 20, 2002. Therefore, during the period prior to the
stock purchase date, an investment in the units affords less opportunity for
equity appreciation than a direct investment in our common stock. If the average
closing price exceeds $19.95, which we refer to as the "reference price," but
falls below the threshold appreciation price, you will realize no equity
appreciation on the common stock for the period during which you own the
purchase contract. Furthermore, if the applicable market value exceeds the
threshold appreciation price, the value of the shares of common stock you will
receive under the purchase contract will be approximately 83.33% of the value of
the shares of common stock you could have purchased with $50 at the time of this
offering.
THE TRADING PRICE OF OUR COMMON STOCK AND THE GENERAL LEVEL OF INTEREST RATES
AND OUR CREDITWORTHINESS WILL DIRECTLY AFFECT THE TRADING PRICE FOR THE UNITS.
It is impossible to predict whether the price of our common stock or
interest rates will rise or fall. Our creditworthiness, operating results and
prospects and economic, financial and other factors will affect trading prices
of our common stock. In addition, market conditions can affect the capital
markets generally, in turn affecting the price of our common stock. These
conditions may include the level of, and fluctuations in, the trading prices of
stocks generally and sales of substantial amounts of our common stock in the
market after the offering of the normal units or the perception that those sales
could occur. Fluctuations in interest rates may affect the relative value of our
common stock underlying the purchase contracts and of the other components of
the units, which could, in turn, affect the trading prices of the units and our
common stock.
YOU MAY SUFFER DILUTION OF OUR COMMON STOCK ISSUABLE UPON SETTLEMENT OF YOUR
PURCHASE CONTRACT.
The number of shares of our common stock issuable upon settlement of your
purchase contract is subject to adjustment only for stock splits and
combinations, stock dividends and other specified transactions described in this
prospectus supplement. See "Description of the Equity Security
Units -- Anti-dilution Adjustments" for more information. The number of shares
of our common stock issuable upon settlement of each purchase contract is not
subject to adjustment for other events, such as employee stock option grants,
offerings of common stock for cash, or in connection with acquisitions or other
transactions, any of which may adversely affect the price of our common stock.
The terms of the units do not restrict our ability to offer common stock in the
future or to engage in other transactions that could dilute our common stock.
Moreover, we have no obligation to consider the interests of the holders of the
units in engaging in any such offering or transaction.
YOU WILL HAVE LITTLE PROTECTION UNDER THE TERMS OF THE UNITS OR SENIOR NOTES IN
THE EVENT OF A HIGHLY LEVERAGED TRANSACTION OR CHANGE OF CONTROL.
The purchase contracts provide for acceleration in case of a cash merger,
but acceleration may not protect you against a decline in the value of your
investment, and you will not be protected against other
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transactions that may adversely affect the value of the units. The units and
senior notes do not contain provisions that will afford you protection in the
event of a highly leveraged transaction or change in control, including a
takeover, other mergers, recapitalization or similar restructuring, a sale of
substantially all of our assets or similar transactions. These types of
transactions may adversely affect our financial and operating condition, our
creditworthiness and the investment quality of our securities. Even in the case
of a cash merger, while you will be able to accelerate the settlement date of
your purchase contracts, the merger transaction itself may adversely affect the
value of your investment in the senior notes which would remain outstanding.
Consequently, your investment in the units and senior notes may be materially
adversely affected.
YOU WILL HAVE NO RIGHTS AS A COMMON STOCKHOLDER.
Until you acquire shares of our common stock upon settlement of your
purchase contract, you will have no rights with respect to our common stock,
including voting rights, rights to respond to tender offers and rights to
receive any dividends or other distributions on our common stock. Upon
settlement of your purchase contract, you will be entitled to exercise the
rights of a holder of common stock only as to actions for which the record date
occurs after the stock purchase date. For more information on our common stock,
see "Description of Capital Stock" in this prospectus supplement and the
accompanying prospectus.
YOUR PLEDGED SECURITIES WILL BE ENCUMBERED.
Although holders of normal units and stripped units will be beneficial
owners of the underlying pledged senior notes (or the specified portfolio of
treasury securities, if a successful remarketing has occurred, or the specified
tax event portfolio of treasury securities, if a tax event redemption has
occurred) and the specified zero-coupon treasury securities, respectively, the
holders will pledge those securities with the collateral agent to secure their
obligations under the related purchase contracts. Therefore, for so long as the
purchase contracts remain in effect, holders will not be allowed to withdraw
their pledged senior notes (or the specified portfolio of treasury securities,
if a successful remarketing has occurred, or the specified tax event portfolio
of treasury securities, if a tax event redemption has occurred) or specified
zero-coupon treasury securities from this pledge arrangement, except upon
substitution of other securities as described in this prospectus supplement.
In addition, notwithstanding the automatic termination of the purchase
contracts, if we become the subject of a case under the U.S. bankruptcy code,
imposition of an automatic stay under Section 362 of the U.S. bankruptcy code
may delay the delivery to you of your securities being held as collateral under
the pledge arrangement, and such delay may continue until the automatic stay has
been lifted. The automatic stay will not be lifted until such time as the
bankruptcy judge agrees to lift it and return your collateral to you.
THE PURCHASE CONTRACT AGREEMENT WILL NOT BE QUALIFIED UNDER THE TRUST INDENTURE
ACT OF 1939; THE OBLIGATIONS OF THE PURCHASE CONTRACT AGENT WILL BE LIMITED.
The purchase contract agreement relating to the units will not be qualified
under the Trust Indenture Act of 1939. The purchase contract agent under the
purchase contract agreement, who will act as the agent and the attorney-in-fact
for the holders of the units, will not be qualified as a trustee under the Trust
Indenture Act of 1939. Accordingly, holders of the units will not have the
benefits of the protections of the Trust Indenture Act of 1939 other than to the
extent applicable to a senior note included in a normal unit. Under the terms of
the purchase contract agreement, the purchase contract agent will have only
limited obligations to the holders of the units.
THE SECONDARY MARKET FOR THE UNITS AND SENIOR NOTES MAY BE ILLIQUID.
We are unable to predict how the units will trade in the secondary market
or whether that market will be liquid or illiquid. There is currently no
secondary market for the units and senior notes. The normal units have been
approved for listing on the New York Stock Exchange under the symbol "EP PrA."
We will not initially list either the stripped units or the senior notes.
However, if either of these securities is separately
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traded to a sufficient extent that applicable exchange listing requirements are
met, we may attempt, but are not obligated, to cause those securities to be
listed on the exchange on which the normal units are then listed. We cannot
provide assurance that a listing application for stripped units or senior notes
will be accepted or, if accepted, that the normal units, stripped units or
senior notes will not be delisted from the New York Stock Exchange or that
trading in the normal units, stripped units or senior notes will not be
suspended as a result of elections to create stripped units or recreate normal
units through collateral substitution that cause the numbers of these securities
to fall below the applicable requirements for listing securities on the New York
Stock Exchange.
We have been advised by the underwriters that they presently intend to make
a market for the normal units; however, they are not obligated to do so and any
market making may be discontinued at any time. There can be no assurance as to
the liquidity of any market that may develop for the normal units, the stripped
units or the senior notes, your ability to sell such securities or whether a
trading market, if it develops, will continue. In addition, in the event that
sufficient numbers of normal units are converted to stripped units, the
liquidity of normal units could be adversely affected.
WE MAY REDEEM THE SENIOR NOTES UPON THE OCCURRENCE OF A TAX EVENT.
We have the option to redeem the senior notes in cash, on not less than 30
days' nor more than 60 days' prior written notice, in whole but not in part, at
any time if a tax event occurs under the circumstances described in this
prospectus supplement. If we exercise this option, we will redeem the senior
notes at the redemption price described in this prospectus supplement under
"Description of the Senior Notes -- Tax Event Redemption." There can be no
assurance as to the effect on the market prices of the normal units if we
substitute the specified tax event portfolio of treasury securities as
collateral in place of any senior notes so redeemed. A tax event redemption will
be a taxable event to the holders of normal units and senior notes held
separately.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE UNITS ARE UNCLEAR.
No statutory, judicial or administrative authority directly addresses the
treatment of the units or instruments similar to the units for United States
federal income tax purposes. As a result, the United States federal income tax
consequences of the purchase, ownership and disposition of the units are
unclear.
FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, INCOME AND LOSS ON THE SENIOR
NOTES WILL GENERALLY BE ORDINARY AND YOU WILL BE REQUIRED TO ACCRUE INTEREST
INCOME IN EXCESS OF THE STATED AMOUNTS OF INTEREST YOU RECEIVE.
Under the terms of the senior indenture and the senior notes, we and each
holder agree, for United States federal income tax purposes, to treat the senior
notes as indebtedness that is subject to the regulations governing contingent
payment debt instruments. As a result, you will be required to include original
issue discount in income during your ownership of the senior notes, subject to
some adjustments. Additionally, you will generally be required to recognize
ordinary income on the gain, if any, realized on a sale, exchange or other
disposition of the senior notes at any time up to six months after the date on
which the interest rate on the senior notes is reset. Thus, the ability to
offset such ordinary income with a loss, if any, on a purchase contract may be
limited. See "United States Federal Income Tax Consequences."
AS A HOLDING COMPANY, WE WILL DEPEND ON OUR SUBSIDIARIES FOR FUNDS TO MEET OUR
PAYMENT OBLIGATIONS UNDER THE PURCHASE CONTRACTS AND SENIOR NOTES.
The purchase contracts and senior notes will be exclusively our obligations
and not obligations of our subsidiaries. As a holding company, we conduct
substantially all of our operations exclusively through our subsidiaries and our
only significant assets are our investments in these subsidiaries. This means
that we are dependent on dividends, other distributions, loans or other payments
of funds from our subsidiaries to meet
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our debt service and other obligations, including our obligations relating to
the purchase contracts and senior notes.
Our subsidiaries are separate and distinct legal entities and have no
obligation to pay any amounts due under the purchase contracts and senior notes
or to provide us with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. In addition, any payment of dividends,
distributions, loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions. Payments to us by our subsidiaries will
also be contingent upon our subsidiaries' earnings and business considerations.
The senior indenture governing the senior notes, subject to certain
restrictions, permits us to incur additional secured indebtedness and permits
our subsidiaries to incur additional secured and unsecured indebtedness, all of
which would in effect be senior to the senior notes. The senior indenture also
permits certain of our subsidiaries to pledge assets in order to secure our
indebtedness and to agree with lenders under any secured indebtedness to
restrictions or repurchase of the senior notes and on the ability of those
subsidiaries to make distributions, loans, other payments or asset transfers to
us. The total long-term indebtedness of our subsidiaries as of March 31, 2002
was approximately $8 billion.
IF A LIQUIDATION OR REORGANIZATION OF OUR SUBSIDIARIES OCCURS, PAYMENTS UNDER
THE PURCHASE CONTRACTS AND SENIOR NOTES WILL BE EFFECTIVELY SUBORDINATED IN
RIGHT OF PAYMENT TO CERTAIN OBLIGATIONS OF OUR SUBSIDIARIES.
Because our subsidiaries are separate and distinct legal entities, our
right to receive any assets of any of our subsidiaries upon their liquidation or
reorganization, and therefore the right of the holders of the purchase contracts
and senior notes to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. In addition, even if we were a creditor of any of our subsidiaries,
our rights as a creditor would be subordinate to any security interest in the
assets of our subsidiaries and any indebtedness of our subsidiaries senior to
that held by us.
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ACCOUNTING TREATMENT
BALANCE SHEET
We will recognize the fair value of the senior notes as a liability. We
expect the fair value of each senior note to be $50. The purchase contracts are
forward transactions in our common stock. We expect the fair value of each
purchase contract to be $0. We will not recognize any subsequent changes in the
fair value of the purchase contract or the senior notes. When we settle the
purchase contracts we will issue our common stock and the amount we receive will
be added to equity and allocated between common stock and additional paid-in
capital. We will recognize the present value of the quarterly contract
adjustment payments as a liability with an offsetting reduction in equity.
INCOME STATEMENT
The quarterly interest payments on the senior notes will be recognized as
interest expense. The quarterly contract adjustment payments will be allocated
between the liability recognized at date of issuance and interest expense based
on a constant rate over the term of the purchase contract.
Fees and expenses incurred in connection with this offering will be
allocated between the senior notes and the purchase contracts. The amount
allocated to the senior notes will be deferred and recognized as interest
expense over the term of the senior notes. The amount allocated to the purchase
contracts will be charged to equity.
EARNINGS PER SHARE
Before the settlement of the purchase contracts, we will consider the
shares to be issued under the purchase contracts in our calculation of diluted
earnings per share using the treasury stock method. Under this method, we will
increase diluted shares outstanding by the number of shares we would be required
to issue to settle the purchase contracts and we will decrease diluted shares
outstanding by the number of shares that we could purchase using the proceeds
from the settlement of the purchase contracts. We anticipate that there will be
no dilution of our earnings per share except during the periods when the average
price of our common stock is above $23.94.
OTHER MATTERS
Both the Financial Accounting Standards Board and its Emerging Issues Task
Force continue to study the accounting for financial instruments and derivative
instruments. The Emerging Issues Task Force has been asked to address whether
financial instruments similar to the purchase contracts should be accounted for
as derivatives under the existing accounting guidance. It is possible that our
accounting for the purchase contracts and the senior notes could be affected by
any new accounting rules that might be issued by these groups.
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USE OF PROCEEDS
We will use the net proceeds we receive from the sale of our normal units,
approximately $485,000,000 (or approximately $557,750,000 if the underwriters
exercise their over-allotment option in full), and the net proceeds from the
concurrent sale of our common stock, approximately $870,750,000 (or
approximately $1,001,362,500 if the underwriters for our concurrent common stock
offering exercise their over-allotment option in full), to reduce short-term
borrowings and other financings having a weighted average annual interest rate
of 3.03% and for general corporate purposes. We may invest any funds we do not
require immediately for general corporate purposes in marketable securities and
short-term investments.
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CAPITALIZATION
The following table sets forth our historical unaudited consolidated
capitalization as of March 31, 2002, and our capitalization:
- as adjusted to give effect to (i) the sale on June 10, 2002 by us and two
consolidated subsidiaries of a total of $1.04 billion principal amount of
long-term debt and the use of the net proceeds of $1.03 billion to repay
commercial paper and other short-term indebtedness and (ii) the sale by
us of 10,000,000 normal units at a public offering price of $50.00 per
equity security unit and the application of the net proceeds of $485
million as described under "Use of Proceeds;" and
- as further adjusted to give effect to the sale by us of 45,000,000 shares
of common stock in our concurrent offering at a public offering price of
$19.95 per share and the application of the net proceeds of $871 million
as described under "Use of Proceeds."
Completion of the concurrent offering of our common stock is not a
condition to the completion of this offering of our normal units.
You should read this table in conjunction with our consolidated financial
statements and related notes contained in our 2001 Annual Report on Form 10-K,
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and our
Current Report on Form 8-K filed with the SEC on June 14, 2002, each of which is
incorporated herein by reference.
AS OF MARCH 31, 2002
-----------------------------------
AS
EL PASO AS FURTHER
HISTORICAL ADJUSTED ADJUSTED
----------- --------- ---------
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
Debt and other financing obligations:
Notes payable to unconsolidated affiliates................ $ 371 $ 371 $ 371
Short-term borrowings and other financing obligations..... 2,674 1,159 288
------- ------- -------
Total current debt and other financing obligations..... 3,045 1,530 659
Notes payable to unconsolidated affiliates................ 326 326 326
Long-term debt and other financing obligations(1)......... 14,372 15,909 15,909
------- ------- -------
Total debt and other financing obligations............. 17,743 17,765 16,894
------- ------- -------
Securities of subsidiaries:
El Paso-obligated preferred securities of consolidated
trusts................................................. 925 925 925
Minority interests........................................ 3,259 3,259 3,259
------- ------- -------
Total securities of subsidiaries....................... 4,184 4,184 4,184
------- ------- -------
Stockholders' equity:
Common stock, par value $3.00 per share; 750,000,000
shares authorized(2); 540,009,931 shares issued as of
March 31, 2002, actual; and 585,009,931 shares issued
as of March 31, 2002, as further adjusted(3)........... 1,620 1,620 1,755
Additional paid-in capital................................ 3,183 3,144(4) 3,880
Retained earnings......................................... 5,169 5,169 5,169
Treasury stock and other, net............................. (618) (618) (618)
------- ------- -------
Total stockholders' equity............................. 9,354 9,315 10,186
------- ------- -------
Total capitalization................................... $31,281 $31,264 $31,264
======= ======= =======
---------------
(1) Includes $1,037 million of principal amount, net of discounts, on long-term
debt issued by us and two consolidated subsidiaries and $500 million of the
senior notes held at issuance as part of the normal units.
(2) In May 2002, we increased our authorized shares of common stock to
1,500,000,000.
(3) The number of outstanding shares does not include the common stock issuable
upon settlement of the purchase contracts held as part of the units.
(4) Reflects an adjustment of $39 million representing the present value of the
contract adjustment payments payable in connection with the purchase
contracts held as part of the units.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
As of May 31, 2002, there were 532,733,753 shares of common stock
outstanding held by 53,814 registered holders. Our common stock is traded on the
New York Stock Exchange and the Pacific Exchange under the symbol "EP". The
following table sets forth the high and low sales price per share of the common
stock as reported on the NYSE and our dividends declared during the periods
shown:
HIGH LOW DIVIDENDS
-------- -------- ---------
2002
Second Quarter (through June 20, 2002).................... $46.8000 $19.3200 $0.2175
First Quarter............................................. 46.8900 31.7000 0.2175
2001
Fourth Quarter............................................ $54.0500 $36.0000 $0.2125
Third Quarter............................................. 54.4800 38.0000 0.2125
Second Quarter............................................ 71.1000 49.9000 0.2125
First Quarter............................................. 75.3000 57.2500 0.2125
2000
Fourth Quarter............................................ $74.2500 $57.1300 $0.2060
Third Quarter............................................. 67.5000 46.2500 0.2060
Second Quarter............................................ 52.5000 39.3750 0.2060
First Quarter............................................. 42.3125 30.3125 0.2060
Future dividends will be payable only when, as and if declared by our Board
of Directors and will be dependent upon business conditions, earnings, our cash
requirements and other relevant factors.
On June 20, 2002, the last reported sale price of our common stock on the
NYSE was $19.95 per share.
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DESCRIPTION OF THE EQUITY SECURITY UNITS
We summarize below the principal terms of the normal units and the purchase
contracts and senior notes which comprise the normal units. The following
description is only a summary. It supplements the description of purchase
contracts, common stock, debt securities and units in the accompanying
prospectus under the captions "Description of Purchase Contracts," "Description
of Capital Stock," "Description of the Debt Securities" and "Description of
Units" and, to the extent it is inconsistent with the descriptions contained in
the accompanying prospectus, replaces the description in the accompanying
prospectus. You should read these descriptions together with the purchase
contract agreement, the senior indenture, the pledge agreement and the
remarketing agreement, as well as the Trust Indenture Act, for a complete
understanding of the provisions that may be important to you. See "Where You Can
Find More Information" for more information about how to obtain a copy of those
documents, as well as a form of certificate evidencing the normal units, a form
of certificate evidencing the stripped units and a form of senior note, all of
which we will file with the SEC as exhibits to a Current Report on Form 8-K,
which will be incorporated by reference in the registration statement of which
the accompanying prospectus, which is supplemented by this prospectus
supplement, forms a part.
OVERVIEW
Each equity security unit, or normal unit, will be issued at the stated
amount of $50 and will initially consist of:
(1) a purchase contract under which:
- you will agree to purchase, and we will agree to sell, for $50,
shares of our common stock on the stock purchase date, the number
of which will be determined by the settlement rate described
below, based on the average trading price of our common stock for
a period preceding that date; and
- we will pay you quarterly contract adjustment payments at the
annual rate of 2.86% of the $50 stated amount as further described
below, subject to our right to deferral as described below; and
(2) a senior note due August 16, 2007 with a principal amount of $50,
on which we will pay interest quarterly at the initial annual rate of 6.14%
until the earlier of the date of settlement of a successful remarketing of
the senior notes (which is the third business day after such remarketing)
and the stock purchase date, after which we will pay interest at the reset
rate.
The senior notes that are held as part of the normal units will be owned by
you but will initially be pledged to us as collateral to secure your obligations
under the purchase contracts.
A holder of normal units may elect at any time prior to a successful
remarketing or a tax event redemption, subject to certain exceptions described
below under "-- Creating Stripped Units and Recreating Normal Units," to
withdraw the pledged senior notes held as part of the normal units and create
stripped units by substituting, as pledged securities, specified zero-coupon
treasury securities that will pay $50 per stripped unit on the business day
immediately preceding the stock purchase date, which is the amount due on the
stock purchase date under the related purchase contract. If a holder of normal
units elects to substitute the specified zero-coupon treasury securities as
pledged securities, the pledged senior notes will be released from the pledge
agreement and delivered to the holder. The normal units would then become
stripped units.
A holder of stripped units may at any time prior to a successful
remarketing or a tax event redemption, subject to certain exceptions described
below under "-- Creating Stripped Units and Recreating Normal Units," recreate
normal units by substituting the senior notes for the specified zero-coupon
treasury securities held as part of the stripped units.
Because treasury securities are issued in whole multiples of $1,000,
holders of normal units and stripped units may only make collateral
substitutions to create stripped units or recreate normal units, as the case may
be, in whole multiples of 20 units.
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As a beneficial owner of a unit, you will be deemed to have:
- irrevocably agreed to be bound by the terms of the purchase contract
agreement, pledge agreement and purchase contract for so long as you
remain a beneficial owner of such unit; and
- appointed the purchase contract agent under the purchase contract
agreement as your agent and attorney-in-fact to enter into and perform
the purchase contract on your behalf.
In addition, as a beneficial owner of a normal unit, you will be deemed by your
acceptance of the normal unit to have agreed to treat yourself as the owner of
the related senior notes (or after a successful remarketing, the specified
portfolio of treasury securities, or tax event redemption, the specified tax
event portfolio of treasury securities) and to treat the senior notes as our
indebtedness.
At the closing of the offering of the normal units, the underwriters will
purchase the normal units. The purchase price of each normal unit will be
allocated by us between the related purchase contract and the related senior
note. The senior notes will then be pledged to the collateral agent to secure
the holders' obligations owed to us under the purchase contracts.
We will enter into:
- a purchase contract agreement with JPMorgan Chase Bank, as purchase
contract agent, governing, among other things, the appointment of the
purchase contract agent as the agent and attorney-in-fact for the holders
of the units, the purchase contracts, the transfer, exchange or
replacement of certificates representing the units and certain other
matters relating to the units; and
- a pledge agreement with The Bank of New York, as collateral agent and
securities intermediary creating a pledge and security interest for our
benefit to secure the obligations of holders of units under the purchase
contracts. The pledge agreement will also provide for The Bank of New
York to act as custodial agent with respect to the senior notes that are
held separately and participating in a remarketing.
CREATING STRIPPED UNITS AND RECREATING NORMAL UNITS
Prior to a successful remarketing or a tax event redemption, subject to
certain exceptions described below, holders of normal units will have the
ability to "strip" those normal units, by depositing with the collateral agent
specified zero-coupon treasury securities, thereby creating "stripped units,"
and holders of stripped units will have the ability to recreate normal units
from their stripped units by depositing with the collateral agent senior notes,
as described in more detail below. Holders who elect to create stripped units or
recreate normal units will be responsible for any related fees or expenses.
CREATING STRIPPED UNITS
Each holder of normal units may create stripped units prior to a successful
remarketing or a tax event redemption, subject to the exception set forth in the
following sentence, and withdraw the pledged senior notes underlying such
holder's normal units by substituting, as pledged securities, specified
zero-coupon treasury securities described below that will pay $50 per stripped
unit on the business day immediately preceding the stock purchase date, which is
the amount due on the stock purchase date under the purchase contract. Holders
of normal units may create stripped units at any time prior to a successful
remarketing or a tax event redemption, except that they may not create stripped
units during the period that commences at 5:00 p.m., New York City time, on the
fourth business day immediately preceding any remarketing period and ends at
9:00 a.m., New York City time, on the fourth business day immediately succeeding
the third business day in such remarketing period.
In order to create stripped units, a holder of normal units must
substitute, as pledged securities, zero-coupon U.S. treasury securities (CUSIP
No. 912803 AG 8), which mature on August 15, 2005. Upon creation of the stripped
units, the zero-coupon treasury securities will be pledged with the collateral
agent to secure the holder's obligation to purchase shares of our common stock
under the purchase contract, and the pledged senior notes underlying the
holder's normal units will be released. Because treasury securities are issued
in
S-27
whole multiples of $1,000, holders of normal units may only make substitutions
to create stripped units in whole multiples of 20 normal units.
To create stripped units, you must:
- deposit with the collateral agent the zero-coupon treasury securities
described above, which will be substituted for the pledged senior notes
held as part of the normal units and pledged with the collateral agent to
secure your obligation to purchase shares of our common stock under the
purchase contract;
- instruct the purchase contract agent, on behalf of the securities
depositary, to decrease the number of normal units evidenced by the
normal units global security certificate (or if the normal units are held
in certificated form, transfer such normal units to the purchase contract
agent); and
- deliver a notice to the purchase contract agent stating that you have
deposited the specified zero-coupon treasury securities with the
collateral agent and are requesting that the purchase contract agent
instruct the collateral agent to release to you the pledged senior notes
held as part of such normal units.
Upon that deposit and the receipt of an instruction from the purchase
contract agent, the collateral agent will effect the release to the purchase
contract agent of the underlying pledged senior notes from the pledge under the
pledge agreement free and clear of our security interest. The purchase contract
agent will then:
- on behalf of the securities depositary, decrease the number of normal
units evidenced by the normal units global security certificate (or if
the normal units are held in certificated form, cancel the normal units);
- transfer to you the underlying pledged senior notes; and
- on behalf of the securities depositary, increase the number of stripped
units evidenced by the stripped units global security certificate (or if
the stripped units are held in certificated form, deliver to you the
stripped units).
Any senior notes released to you will be tradeable separately from the
resulting stripped units. Interest on the senior notes will continue to be
payable in accordance with their terms.
RECREATING NORMAL UNITS
Each holder of stripped units may recreate normal units prior to a
successful remarketing or a tax event redemption, subject to the exception set
forth in the following sentence, by substituting, as pledged securities, senior
notes for the pledged zero-coupon treasury securities underlying the stripped
units. Holders may recreate normal units at any time prior to a successful
remarketing or a tax event redemption, except that they may not recreate normal
units during the period that commences at 5:00 p.m., New York City time, on the
fourth business day immediately preceding any remarketing period and ends at
9:00 a.m., New York City time, on the fourth business day immediately succeeding
the third business day in such remarketing period.
Upon recreation of the normal units, the senior notes will be pledged with
the collateral agent to secure the holder's obligation to purchase shares of our
common stock under the purchase contract, and the pledged zero-coupon treasury
securities underlying the stripped units will be released. Because treasury
securities are issued in whole multiples of $1,000, holders of stripped units
may only make substitutions to recreate normal units in whole multiples of 20
stripped units.
To recreate normal units from stripped units, you must:
- deposit with the collateral agent senior notes having an aggregate
principal amount equal to the aggregate stated amount of your stripped
units to be substituted for normal units, which will be substituted for
the pledged zero-coupon treasury securities held as part of the stripped
units and pledged with the collateral agent to secure your obligation to
purchase shares of our common stock under the purchase contract;
S-28
- instruct the purchase contract agent, on behalf of the securities
depositary, to decrease the number of stripped units evidenced by the
stripped units global security certificate (or if the stripped units are
held in certificated form, transfer such stripped units to the purchase
contract agent); and
- deliver a notice to the purchase contract agent stating that you have
deposited the senior notes with the collateral agent and are requesting
that the purchase contract agent instruct the collateral agent to release
to you the pledged zero-coupon treasury securities held as part of such
stripped units.
Upon that deposit and the receipt of an instruction from the purchase
contract agent, the collateral agent will effect the release to the purchase
contract agent of the underlying pledged zero-coupon treasury securities from
the pledge under the pledge agreement free and clear of our security interest.
The purchase contract agent will then:
- on behalf of the securities depositary, decrease the number of stripped
units evidenced by the stripped units global security certificate (or if
the stripped units are held in certificated form, cancel the stripped
units);
- transfer to you the underlying pledged zero-coupon treasury securities;
and
- on behalf of the securities depositary, increase the number of normal
units evidenced by the normal units global security certificate (or if
the normal units are held in certificated form, deliver to you the normal
units).
QUARTERLY PAYMENTS
If you hold a normal unit, you will receive:
- quarterly contract adjustment payments on the purchase contract at the
annual rate of 2.86% of the $50 stated amount on all quarterly payment
dates on or before the stock purchase date, subject to our right of
deferral; and
- quarterly interest payments on the pledged senior note at the annual rate
of 6.14% of the $50 principal amount for the quarterly interest payments
due on or before May 16, 2005. On August 16, 2005, if the senior notes
are successfully remarketed prior to the stock purchase date, you will
receive a quarterly payment on the pledged portfolio of treasury
securities that are substituted for the senior note at an annual rate of
6.14%; if the senior notes are not successfully remarketed prior to the
stock purchase date, you will continue to receive a quarterly interest
payment on the pledged senior note at the annual rate of 6.14%. That is,
on the stock purchase date, you will receive a quarterly payment at the
same annual rate as all previous quarterly interest payments, regardless
of whether or when the remarketing was successful.
If you hold a stripped unit, you will only be entitled to receive quarterly
contract adjustment payments on the purchase contract at the annual rate of
2.86% of the $50 stated amount on all quarterly payment dates on or before the
stock purchase date, subject to our right of deferral. In addition, original
issue discount will accrue on the pledged zero-coupon treasury securities that
are part of the stripped unit.
If you hold a senior note separately from a normal unit, you will receive
only the quarterly interest payments on the senior note. The senior notes will
pay interest at the initial annual rate of 6.14% of the $50 principal amount for
the quarterly interest payments due on or before May 16, 2005. If the senior
notes are successfully remarketed on the third business day prior to May 16,
2005, which is the last quarterly interest payment date prior to the stock
purchase date, the senior notes will pay interest at the reset rate for the
quarterly interest payments due on and after August 16, 2005 until their
maturity on August 16, 2007. However, if the remarketing agent cannot establish
a reset rate that results in a successful remarketing on the initial remarketing
date, the interest rate will continue to be the initial annual rate of 6.14%
until the remarketing agent can, on a later remarketing date prior to the stock
purchase date, establish a reset rate that results in a successful remarketing.
In that event, the quarterly interest payment due on August 16, 2005 will be
calculated in part at the initial annual rate of 6.14% and in part at the reset
rate (commencing on the date of settlement of the successful remarketing).
Interest payable on the senior notes thereafter and until their
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maturity on August 16, 2007 will be at the reset rate. If a reset rate cannot be
established before the stock purchase date in connection with a successful
remarketing, the interest rate will be reset, as of the stock purchase date, to
a reset rate equal to the two-year benchmark rate plus a spread that will be
determined based on the credit rating of the senior notes at that time, as
described in the section entitled "Description of the Senior Notes -- Interest".
Our obligations with respect to the contract adjustment payments and the
senior notes will be unsecured and will rank equally with all our other existing
and future unsecured and unsubordinated indebtedness. For additional information
on the ranking of the senior notes, see "Description of the Senior
Notes -- Ranking."
Contract adjustment payments and interest payments on the senior notes
payable for any period will be computed:
- for any full quarterly period on the basis of a 360-day year of twelve
30-day months;
- for any period shorter than a full quarterly period, on the basis of a
30-day month; and
- for periods of less than a month, on the basis of the actual number of
days elapsed per 30-day month.
Contract adjustment payments will accumulate and interest on the senior notes
will accrue from June 26, 2002 and, subject to our right to defer contract
adjustment payments, will be payable quarterly in arrears on February 16, May
16, August 16 and November 16 of each year, commencing August 16, 2002. If the
purchase contracts are settled early (at your option) or terminated (upon the
occurrence of certain events of bankruptcy, insolvency or reorganization with
respect to us), you will have no right to receive any accumulated and unpaid
contract adjustment payments or deferred contract adjustment payments.
Contract adjustment payments and interest payments on the senior notes will
be payable, as applicable, to the holders of units as they are registered on the
books and records of the purchase contract agent on the relevant record dates.
So long as the units and senior notes remain in book-entry form only, the record
date will be the business day immediately preceding the relevant payment dates.
Contract adjustment payments will be paid through the purchase contract agent,
which will hold amounts received in respect of the contract adjustment payments
for the benefit of the holders of the purchase contracts that are held as part
of such normal units. Subject to any applicable laws and regulations, each
interest payment will be made as described under "Description of the Senior
Notes -- Book-Entry and Settlement" below. If the units and senior notes do not
remain in book-entry form only, the relevant record dates will be the 15th day
prior to the relevant payment dates. If any date on which these payments and
distributions are to be made is not a business day, then amounts payable on that
date will be made on the next day that is a business day without any interest or
other payment in respect of the delay, except that, if the business day is in
the next calendar year, payment will be made on the immediately preceding
business day, in each case with the same force and effect as if made on the
scheduled payment date.
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
We may, at our option and upon prior written notice to the holders of the
units and the purchase contract agent, defer the payment of contract adjustment
payments on the related purchase contracts until no later than the stock
purchase date. We will pay additional contract adjustment payments on any
deferred installments of contract adjustment payments at the rate of 6.14% per
year (compounded quarterly) until paid. However, if a purchase contract is
settled early or terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to us), the right to
receive accumulated and unpaid contract adjustment payments and deferred
contract adjustment payments will terminate.
If we elect to defer the payment of contract adjustment payments on the
purchase contracts until the stock purchase date, we may elect to pay each
holder of units on the stock purchase date in respect of the deferred contract
adjustment payments, in lieu of a cash payment, a number of shares of our common
stock equal to (a) the aggregate amount of deferred contract adjustment payments
payable to the holder divided by (b) the applicable market value (as defined
below under "-- Description of the Purchase Contracts"). If we
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elect to pay deferred contract adjustment payments on the stock purchase date in
common stock, we will not issue any fractional shares of our common stock. In
lieu of fractional shares otherwise issuable with respect to such payment of
deferred contract adjustment payments, the holder will be entitled to receive an
amount in cash equal to the fraction of a share times the applicable market
value.
If we exercise our option to defer the payment of contract adjustment
payments, then until the deferred contract adjustment payments have been paid,
we will not declare or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
class of our common stock other than:
- purchases, redemptions or acquisitions of shares of our common stock in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of employees, officers or directors
or a stock purchase or dividend reinvestment plan, or the satisfaction by
us of our obligations pursuant to any contract or security outstanding on
the date we exercise our right to defer the contract adjustment payments;
- as a result of a reclassification of our capital stock or the exchange or
conversion of one class or series of our capital stock for another class
or series of the capital stock;
- the purchase of fractional interests in shares of our common stock
pursuant to the conversion or exchange provisions of the security being
converted or exchanged;
- dividends or distributions in our common stock (or rights to acquire our
common stock), or repurchases, redemptions or acquisitions of our common
stock in connection with the issuance or exchange of common stock (or
securities convertible into or exchangeable for shares of our common
stock); or
- redemptions, exchanges or repurchases of any rights outstanding under a
shareholder rights plan or the declaration or payment thereunder of a
dividend or distribution of or with respect to rights in the future.
DESCRIPTION OF THE PURCHASE CONTRACTS
Each purchase contract underlying a unit, unless earlier settled or
terminated, will obligate you to purchase, and us to sell, for $50, on the stock
purchase date, a number of newly issued shares of our common stock equal to the
settlement rate.
The settlement rate, which is the number of newly issued shares of our
common stock issuable upon settlement of a purchase contract on the stock
purchase date, subject to adjustment under certain circumstances as described
under "-- Anti-dilution Adjustments" below, will be as follows:
- If the applicable market value of our common stock is equal to or greater
than the threshold appreciation price of $23.94, which is approximately
20% above the reference price of $19.95, the settlement rate, which is
equal to the stated amount of $50 divided by $23.94, will be 2.0886
shares of our common stock per purchase contract. Accordingly, if the
market price for our common stock increases to an amount that is greater
than $23.94 on the stock purchase date, the aggregate market value of the
shares of common stock issued upon settlement of each purchase contract,
assuming that this market value is the same as the applicable market
value of our common stock, will be greater than $50, and if the market
price equals $23.94, the aggregate market value of those shares, assuming
that this market value is the same as the applicable market value of our
common stock, will equal $50.
- If the applicable market value of our common stock is less than $23.94
but greater than $19.95, the settlement rate will be equal to the stated
amount of $50 divided by the applicable market value of our common stock
per purchase contract. Accordingly, if the market price for our common
stock increases, but that market price is less than $23.94 on the stock
purchase date, the aggregate market value of the shares of common stock
issued upon settlement of each purchase
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contract, assuming that this market value is the same as the applicable
market value of our common stock, will equal $50.
- If the applicable market value of our common stock is less than or equal
to $19.95, the settlement rate, which is equal to the stated amount of
$50 divided by $19.95, will be 2.5063 shares of our common stock per
purchase contract. Accordingly, if the market price for our common stock
decreases to an amount that is less than $19.95 on the stock purchase
date, the aggregate market value of the shares of our common stock issued
upon settlement of each purchase contract, assuming that the market value
is the same as the applicable market value of our common stock, will be
less than $50, and if the market price equals $19.95, the aggregate
market value of those shares, assuming that this market value is the same
as the applicable market value of our common stock, will equal $50.
The "applicable market value" of our common stock is the average of the
closing prices per share of our common stock on each of the 20 consecutive
trading days ending on the third trading day immediately preceding the stock
purchase date; provided, that, in the case of a merger early settlement, the 20
consecutive trading days shall end on the date of completion of the cash merger.
For purposes of determining the applicable market value for our common
stock, the closing price of our common stock on any date of determination means:
- the closing sale price or, if no closing price is reported, the last
reported sale price of our common stock on the New York Stock Exchange on
that date;
- if our common stock is not listed for trading on the New York Stock
Exchange on any date, the closing sale price as reported in the composite
transactions for the principal U.S. securities exchange on which our
common stock is so listed;
- if our common stock is not so listed on a United States national or
regional securities exchange, as reported by the Nasdaq stock market;
- if our common stock is not so reported, the last quoted bid price for our
common stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization; or
- if that bid price is not available, the market value of our common stock
on that date as determined by a nationally recognized independent
investment banking firm retained by us for this purpose.
A trading day is a day on which our common stock:
- is not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business; and
- has traded at least once on the national or regional securities exchange
or association or over-the-counter market that is the primary market for
the trading of our common stock.
SETTLEMENT
Settlement of the purchase contracts will occur on the stock purchase date,
unless:
- you have settled the purchase contract not later than 11:00 a.m., New
York City time, on the eleventh business day immediately preceding the
stock purchase date through the early delivery of cash to the purchase
contract agent, as described in "-- Early Settlement;"
- we are involved in a merger prior to the stock purchase date in which at
least 30% of the consideration for our common stock consists of cash or
cash equivalents, and you have settled the related purchase contract
through an early settlement, as described in "-- Early Settlement upon
Cash Merger;" or
- an event described under "-- Termination of Purchase Contracts" has
occurred.
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The settlement of the purchase contracts on the stock purchase date will
occur as follows:
- for normal units that, as a result of a successful remarketing or tax
event redemption, include the pledged specified portfolio of treasury
securities or pledged specified tax event portfolio of treasury
securities, the cash received upon the maturity of the treasury
securities will automatically be applied to satisfy in full your
obligation to purchase shares of our common stock under the purchase
contracts and to pay an amount to you based on the initial annual rate on
the senior notes;
- for stripped units, the cash received upon the maturity of the specified
zero-coupon treasury securities will automatically be applied to satisfy
in full your obligation to purchase shares of our common stock under the
purchase contracts;
- for normal units the holders of which have settled the purchase contracts
by cash settlement through the delivery of cash not earlier than 9:00
a.m., New York City time, on the tenth business day immediately preceding
the stock purchase date and not later than 11:00 a.m., New York City
time, on the eighth business day immediately preceding the stock purchase
date, the cash payments received will automatically be applied to satisfy
in full your obligation to purchase shares of our common stock under the
purchase contracts; and
- for normal units in which the senior notes are held as part of the normal
units because the senior notes have not been successfully remarketed, we
will exercise our rights as a secured party to retain or dispose of the
senior notes in accordance with applicable law in satisfaction of your
obligation to purchase shares of our common stock under the purchase
contracts.
Shares of our common stock will then be issued and delivered to you or your
designee, upon payment of the applicable consideration, presentation and
surrender of the certificate evidencing the normal units or stripped units, if
the normal units or stripped units are held in certificated form, and payment by
you of any transfer or similar taxes payable in connection with the issuance of
our common stock to any person other than you. Prior to the date on which shares
of our common stock are issued in settlement of purchase contracts, shares of
our common stock underlying the related purchase contracts will not be deemed to
be outstanding for any purpose and you will have no rights with respect to the
common stock, including voting rights, rights to respond to tender offers and
rights to receive any dividends or other distributions on the common stock, by
virtue of holding the purchase contracts.
No fractional shares of common stock will be issued by us pursuant to the
purchase contracts. In place of fractional shares otherwise issuable, you will
be entitled to receive an amount of cash equal to the fractional share,
calculated on an aggregate basis in respect of the purchase contracts you are
settling, times the applicable market value.
REMARKETING
The senior notes held as part of the normal units will be subject to a
remarketing on the initial remarketing date, which will be the third business
day immediately preceding May 16, 2005, which is the last quarterly payment date
before the interest payment date falling on the stock purchase date. The
proceeds of such remarketing will be used to purchase a specified portfolio of
treasury securities, which will be pledged as collateral to secure the
obligations of the holders of the normal units under the related purchase
contracts. The proceeds received on the business day immediately preceding the
stock purchase date when the pledged treasury securities then held as part of
the normal units mature will be used to satisfy the holders' obligation to
purchase shares of our common stock on the stock purchase date.
We have entered into a remarketing agreement with Credit Suisse First
Boston Corporation, pursuant to which that firm has agreed, as remarketing
agent, to use its commercially reasonable best efforts to:
- establish a reset rate on the remarketing date that will be sufficient to
cause the aggregate market value at the remarketing date of all the
senior notes being remarketed (which shall be all senior notes held as
part of the normal units and all senior notes held separately by holders
who have elected to
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have their senior notes participate in the remarketing) to be equal to
approximately, but not less than, 100.50% of the remarketing value; and
- sell the senior notes participating in the remarketing at a price equal
to approximately, but not less than, 100.50% of the remarketing value.
The "remarketing value" will be equal to the sum of:
(1) the value at the remarketing date of such amount of treasury
securities that will pay, on the business day immediately preceding the
quarterly interest payment date falling on the stock purchase date, an
amount of cash equal to the aggregate interest payment that is scheduled to
be payable on that quarterly payment date on each senior note participating
in the remarketing, assuming for this purpose, even if not true, that the
interest rate on the senior notes remains at the initial annual rate; and
(2) the value at the remarketing date of such amount of treasury
securities that will pay, on the business day immediately preceding the
stock purchase date, an amount of cash equal to $50 for each senior note
participating in the remarketing.
The reset rate will in no event exceed the maximum rate permitted by
applicable law.
For purposes of (1) and (2) above, the value on the remarketing date of the
treasury securities will assume that (a) the treasury securities are highly
liquid treasury securities maturing on or within 35 days prior to the stock
purchase date (as determined in good faith by the remarketing agent in a manner
intended to minimize the cash value of the treasury securities) and (b) those
treasury securities are valued based on the ask-side price of the treasury
securities at a time between 9:00 a.m. and 11:00 a.m., New York City time,
selected by the remarketing agent, on the remarketing date (as determined on a
third-day settlement basis by a reasonable and customary means selected in good
faith by the remarketing agent) plus accrued interest to that date.
The remarketing agent will use the proceeds from the successful remarketing
of the senior notes held as part of the normal units to purchase, in the
discretion of the remarketing agent in open market transactions or at treasury
auction, the amount of treasury securities described in (1) and (2) above, which
it will deliver through the purchase contract agent to the collateral agent to
secure the obligations under the related purchase contracts and to pay the
quarterly payment on the normal units due on August 16, 2005 in an amount based
on the initial annual rate on the senior notes. The remarketing agent will
retain, as a remarketing fee, an amount not exceeding 25 basis points (0.25%) of
the total proceeds from the remarketing of the senior notes held as part of the
normal units. The remarketing agent will remit the remaining portion of the
proceeds from the remarketing of the senior notes held as part of the normal
units, if any, to the holders of the normal units.
A holder of normal units that does not want to participate in the
remarketing and wants instead to retain the senior notes held as part of such
holder's normal units must create stripped units not later than 5:00 p.m., New
York City time, on the fourth business day immediately preceding the first
business day of the relevant remarketing period. The cash received upon maturity
of the zero-coupon treasury securities held as part of the stripped units will
be applied to satisfy such holder's obligation under the related purchase
contract on the stock purchase date. Nonetheless, the interest rate on such
holder's senior notes will be reset to the reset rate, regardless of whether the
holder participated in the remarketing and whether the remarketing is
successful.
If the remarketing agent cannot establish a reset rate on the initial
remarketing date that will be sufficient to cause the aggregate market value at
the remarketing date of all the senior notes being remarketed (which shall be
all senior notes held as part of the normal units and all senior notes held
separately by holders who have elected to have their senior notes participate in
the remarketing) to be equal to approximately, but not less than, 100.50% of the
remarketing value and thus cannot sell the senior notes participating in the
remarketing on that remarketing date, the remarketing agent will attempt to
establish a reset rate that results in a successful remarketing on each of the
two immediately following business days. If the remarketing agent cannot
establish a reset rate that results in a successful remarketing on either of
those days, it will attempt to establish such a reset rate on each of the three
business days immediately preceding July 1, 2005, which are June 28, 29 and 30,
2005.
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If the remarketing agent cannot establish such a reset rate during the June
28-30, 2005 remarketing period, it will further attempt to establish a reset
rate on each of the seventh, sixth and fifth business days immediately preceding
the stock purchase date, which are August 5, 8 and 9, 2005.
We refer to each of these three three-business-day periods as "remarketing
periods" in this prospectus supplement.
If the remarketing agent fails to remarket the senior notes participating
in the remarketing on the fifth business day immediately preceding the stock
purchase date, each holder of a normal unit will be deemed to have directed us
to retain the senior note pledged as collateral in satisfaction of its
obligations under the purchase contract and we will retain such senior note in
full satisfaction of those obligations. Each holder will receive the number of
shares of our common stock per purchase contract determined by the settlement
rate. Each holder of senior notes which are not held as part of normal units
will continue to own its senior notes, which, as of the stock purchase date,
will pay interest at the reset rate until the maturity date.
We will cause a notice of any failed remarketing period to be published on
the fourth business day immediately following such period, by publication in a
daily newspaper in the English language of general circulation in New York City,
which is expected to be The Wall Street Journal. We will also release this
information by means of Bloomberg and Reuters newswire.
In addition, we will request, not later than seven nor more than 15
calendar days prior to any remarketing period, that The Depository Trust Company
("DTC") notify its participants holding senior notes, normal units and stripped
units of the upcoming remarketing.
NOTICE TO SETTLE WITH CASH
If a remarketing has not been successful as of June 30, 2005 (the end of
the second remarketing period) and a tax event redemption has not occurred, a
holder of normal units may settle the related purchase contracts with separate
cash not later than 11:00 a.m., New York City time, on the eighth business day
immediately preceding the stock purchase date. A holder of normal units wishing
to settle the related purchase contracts with separate cash must deliver to the
purchase contract agent:
- the form of "Notice to Settle by Separate Cash," which is an exhibit to
the purchase contract agreement and available from the purchase contract
agent, properly completed and executed (or if such holder's normal units
are held in certificated form, the related normal units certificate with
the form of "Notice to Settle by Separate Cash" on the reverse side of
such certificate completed and executed) not earlier than 9:00 a.m., New
York City time, on the tenth business day immediately preceding the stock
purchase date and not later than 5:00 p.m., New York City time, on the
ninth business day immediately preceding the stock purchase date; and
- payment in immediately available funds in an amount equal to $50
multiplied by the number of purchase contracts being settled not later
than 11:00 a.m., New York City time, on the eighth business day
immediately preceding the stock purchase date.
If a holder delivers the proper documentation and payment in a timely manner,
the senior notes held as part of the normal units will be transferred to the
holder free and clear of our security interest.
If a holder of normal units who has given notice of its intention to settle
the related purchase contracts with separate cash fails to deliver the cash to
the collateral agent by 11:00 a.m., New York City time, on the eighth business
day immediately preceding the stock purchase date, the senior notes which are
held as part of such holder's normal units will be remarketed in the third
remarketing period and the proceeds of such remarketing, if successful, will be
used to satisfy in full the holder's obligation to purchase shares of our common
stock under the related purchase contracts. If the remarketing agent fails to
remarket the senior notes participating in the remarketing on the fifth business
day immediately preceding the stock purchase date, such holder will be deemed to
have directed us to retain such senior notes in satisfaction of its obligations
under the related purchase contracts and we will retain such senior notes in
full satisfaction of those obligations.
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So long as the normal units are evidenced by one or more global security
certificates deposited with the securities depositary, procedures for cash
settlement will also be governed by standing arrangements between the securities
depositary and the purchase contract agent.
EARLY SETTLEMENT
At any time (other than during the period starting at 5:00 p.m., New York
City time, on the fourth business day immediately preceding any remarketing
period and ending at 9:00 a.m., New York City time, on the fourth business day
immediately following the third business day in such remarketing period) not
later than 11:00 a.m., New York City time, on the eleventh business day
immediately preceding the stock purchase date, a holder of units may settle the
related purchase contracts by delivering to the purchase contract agent:
- the form of "Election to Settle Early," which is an exhibit to the
purchase contract agreement and available from the purchase contract
agent, properly completed and executed (or if such holder's units are
held in certificated form, the related units certificate with the form of
"Election to Settle Early" on the reverse side of such certificate
properly completed and executed); and
- payment in immediately available funds in an amount equal to $50
multiplied by the number of related purchase contracts being settled;
provided, that at that time, if so required under the United States federal
securities laws, there is in effect a registration statement and a current
prospectus is available covering the shares of common stock to be delivered in
respect of the purchase contracts being settled. If such holder delivers the
properly completed and executed form of "Election to Settle Early" (and the
related units certificate, if applicable) and payment with respect to any
purchase contract during the period from the close of business on any record
date next preceding any payment date to the opening of business on such payment
date, such holder must also deliver an amount equal to the quarterly contract
adjustment payment payable on the payment date with respect to the purchase
contract.
Holders of normal units that include senior notes and stripped units may
settle early only in units of 20 and whole multiples of 20. Holders of normal
units that include a portfolio of treasury securities, if a successful
remarketing has occurred, or a tax event portfolio of treasury securities, if a
tax event redemption has occurred, may settle early only in units of 400,000 and
whole multiples thereof.
No later than the third business day after an early settlement, we will
issue, and the holder will be entitled to receive, 2.0886 shares of our common
stock for each purchase contract being settled, regardless of the market price
of our common stock on the date of early settlement, subject to adjustment under
the circumstances described under "-- Anti-dilution Adjustments" below. At that
time, the holder's right to receive future contract adjustment payments will
terminate and such holder will not receive any accumulated and unpaid contract
adjustment payments or deferred contract adjustment payments. The senior notes
(or the portfolio of treasury securities, if a successful remarketing has
occurred, or the tax event portfolio of treasury securities, if a tax event
redemption has occurred) or zero-coupon treasury securities underlying those
units, as the case may be, will also be transferred to the holder free and clear
of our security interest.
So long as the units are evidenced by one or more global security
certificates deposited with the securities depositary, procedures for early
settlement will also be governed by standing arrangements between the securities
depositary and the purchase contract agent.
We have agreed that, if required under the United States federal securities
laws, we will use commercially reasonable efforts to (1) have in effect, subject
to some exceptions, a registration statement covering the shares of common stock
to be delivered in respect of the purchase contracts being settled and (2)
provide a prospectus in connection therewith, in each case in a form that may be
used in connection with the early settlement process.
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EARLY SETTLEMENT UPON CASH MERGER
Prior to the stock purchase date, if we are involved in a merger in which
at least 30% of the consideration for our common stock consists of cash or cash
equivalents ("cash merger"), each holder of units will have the right to
accelerate and settle the related purchase contracts on the merger early
settlement date at the settlement rate in effect immediately before the cash
merger. We refer to this right as the "merger early settlement right."
We will provide each holder with a notice of the completion of a cash
merger within five business days thereof. The notice will specify a date, which
shall not be less than 20 nor more than 30 days after the date of the notice, on
which the optional early settlement will occur and a date by which the merger
early settlement right must be exercised. The notice will set forth, among other
things, the applicable settlement rate and the amount of the cash, securities
and other consideration receivable by the holder upon settlement.
To exercise the merger early settlement right, you must deliver to the
purchase contract agent not later than 5:00 p.m., New York City time, on the
business day immediately preceding the merger early settlement date:
- the form of "Election to Settle Early," which is an exhibit to the
purchase contract agreement and available from the purchase contract
agent, properly completed and executed (or if such holder's units are
held in certificated form, the related units certificate with the form
"Election to Settle Early" on the reverse side of such certificate
properly completed and executed); and
- payment in immediately available funds in an amount equal to $50
multiplied by the number of purchase contracts being settled; provided,
that, to the extent the merger consideration consists of cash, we may
provide in the notice of cash merger that the $50 purchase price per
purchase contract will be offset against the amount of cash that will be
receivable by the holder upon settlement;
provided, that, at that time, if so required under the United States federal
securities laws, there is in effect a registration statement and a current
prospectus is available covering the shares of common stock to be delivered in
respect of the purchase contracts being settled. If such holder delivers the
properly completed and executed form of "Election to Settle Early" (and the
related units certificate, if applicable) and payment with respect to any
purchase contract during the period from the close of business on any record
date next preceding any payment date to the opening of business on such payment
date, such holder must also deliver an amount equal to the quarterly contract
adjustment payment payable on the payment date with respect to the purchase
contract.
Holders of normal units that include senior notes and stripped units may
settle early only in units of 20 and whole multiples of 20. Holders of normal
units that include a portfolio of treasury securities, if a successful
remarketing has occurred, or a tax event portfolio of treasury securities, if a
tax event redemption has occurred, may settle early only in units of 400,000 and
whole multiples thereof.
If you exercise the merger early settlement right, we will deliver to you
on the merger early settlement date the kind and amount of securities, cash or
other property that you would have been entitled to receive if you had settled
the purchase contract immediately before the cash merger at the settlement rate
in effect at such time. At that time, your right to receive future contract
adjustment payments will terminate and you will not receive any accumulated and
unpaid contract adjustment payments or deferred contract adjustment payments.
You will also receive the senior notes (or the portfolio of treasury securities,
if a successful remarketing has occurred, or the tax event portfolio of treasury
securities, if a tax event redemption has occurred) or zero-coupon treasury
securities underlying those units, as the case may be, free and clear of our
security interest.
If you do not elect to exercise your merger early settlement right, your
units will remain outstanding and subject to normal settlement on the stock
purchase date.
So long as the units are evidenced by one or more global security
certificates deposited with the securities depositary, procedures for cash
merger early settlement will also be governed by standing arrangements between
the securities depositary and the purchase contract agent.
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We have agreed that, if required under the United States federal securities
laws, we will use commercially reasonable efforts to (1) have in effect, subject
to some exceptions, a registration statement covering the shares of common stock
to be delivered in respect of the purchase contracts being settled and (2)
provide a prospectus in connection therewith, in each case in a form that may be
used in connection with the early settlement upon a cash merger.
ANTI-DILUTION ADJUSTMENTS
To maintain a holder's relative investment in our common stock upon the
occurrence of certain events, the formula for determining the settlement rate
may be adjusted if those events occur, including:
(1) the payment of dividends or other distributions of our common
stock on our common stock;
(2) the issuance to all holders of our common stock of rights,
warrants or options (other than any dividend reinvestment or share purchase
or similar plans) entitling them to subscribe for or purchase our common
stock at less than the current market price (as defined below) thereof;
(3) subdivisions, splits and combinations of our common stock;
(4) distributions to all holders of our common stock of evidences of
our indebtedness, shares of capital stock, securities, cash or other assets
(excluding any dividend or distribution covered by clause (1) or (2) above
and any dividend or distribution paid exclusively in cash);
(5) distributions consisting exclusively of cash to all holders of our
common stock in an aggregate amount that, when combined with:
(a) other all-cash distributions made within the preceding 12
months; and
(b) the cash and the fair market value, as of the date of
expiration of the tender or exchange offer referred to below, of the
consideration paid in respect of any tender or exchange offer by us or a
subsidiary of ours for our common stock concluded within the preceding
12 months;
exceeds 15% of our aggregate market capitalization (such aggregate
market capitalization being the product of the current market price of
our common stock multiplied by the number of shares of common stock then
outstanding) on the date fixed for the determination of shareholders
entitled to receive such distribution; and
(6) the successful completion of a tender or exchange offer made by us
or any subsidiary of ours for our common stock that involves an aggregate
consideration that, when combined with:
(a) any cash and the fair market value of other consideration
payable in respect of any other tender or exchange offer by us or a
subsidiary of ours for our common stock concluded within the preceding
12 months; and
(b) the aggregate amount of any all-cash distributions to all
holders of our common stock made within the preceding 12 months,
exceeds 15% of our aggregate market capitalization on the date of
expiration of such tender or exchange offer.
The "current market price" per share of our common stock on any day means
the average of the daily closing prices for the five consecutive trading days
preceding the earlier of the day preceding the day in question and the day
before the "ex date" with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "ex date," when used with
respect to any issuance or distribution means the first date on which our common
stock trades without the right to receive the issuance or distribution.
With respect to an adjustment pursuant to clause (4) where there has been a
payment of a dividend or other distribution on our common stock of shares of
capital stock of any class or series, or similar equity interests, of or
relating to a subsidiary or other business unit, which we refer to as a
"spin-off," the
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settlement rate in effect immediately before the close of business on the record
date fixed for determination of stockholders entitled to receive that
distribution will be increased by multiplying the settlement rate by a fraction:
- the numerator of which is the current market price of our common stock
plus the fair market value, determined as described below, of the portion
of those shares of capital stock or similar equity interests so
distributed applicable to one share of common stock; and
- the denominator of which is the current market price of our common stock.
The adjustment to the settlement rate with respect to a spin-off will occur at
the earlier of:
- the tenth trading day from, and including, the effective date of the
spin-off; and
- the date of pricing of the securities being offered in the initial public
offering of the spin-off, if that initial public offering is effected
simultaneously with the spin-off.
For purposes of this section, "initial public offering" means the first time
securities of the same class or type as the securities being distributed in the
spin-off are bona fide offered to the public for cash.
If a spin-off is not effected simultaneously with an initial public
offering of the securities being distributed in the spin-off, the fair market
value of the securities to be distributed to holders of our common stock means
the average of the sale prices of those securities over the first 10 trading
days after the effective date of the spin-off. Also, for purposes of such a
spin-off, the current market price of our common stock means the average of the
sales prices of our common stock over the first 10 trading days after the
effective date of the spin-off. If, however, an initial public offering of the
securities being distributed in the spin-off is to be effected simultaneously
with the spin-off, the fair market value of the securities being distributed in
the spin-off means the initial public offering price, while the current market
price of our common stock means the sale price of our common stock on the
trading day on which the initial public offering price of the securities being
distributed in the spin-off is determined.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other reorganization transactions pursuant to which our
common stock is converted into the right to receive other securities, cash or
property, each purchase contract then outstanding would, without the consent of
the holders of the related units, become a contract to purchase such other
securities, cash or property (instead of shares of our common stock). The
formula for determining the settlement rate will be adjusted accordingly at the
time of the reorganization event to reflect the other securities, cash or
property the holders of our common stock received in the reorganization event.
On the stock purchase date, the adjusted settlement rate will be applied to
determine what a holder of a unit will receive in settlement of the purchase
contract. Holders have the right to settle their obligations under the purchase
contracts early in the event of certain cash mergers, as described under
"-- Early Settlement upon Cash Merger."
If at any time we make a distribution of property to our stockholders which
would be taxable to stockholders as a dividend for U.S. federal income tax
purposes (for example, distributions of evidences of indebtedness or assets, but
generally not stock dividends or rights to subscribe for capital stock) and,
pursuant to the settlement rate adjustment provisions of the purchase contract
agreement, the settlement rate is increased, such increase may give rise to a
taxable dividend to holders of units. See "United States Federal Income Tax
Consequences -- Purchase Contracts -- Adjustment to Settlement Rate."
In addition, we may increase the settlement rate if our board of directors
deems it advisable, to avoid or diminish any income tax to holders of our common
stock resulting from any dividend or distribution of common stock (or rights to
acquire common stock) or from any event treated as a dividend or distribution
for income tax purposes, or for any other reasons.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate will be required
unless the adjustment would require an increase or decrease of at least 1% in
the settlement rate. If any adjustment is not required to be made because it
would not change the
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settlement rate by at least 1%, then the adjustment will be carried forward and
taken into account in any subsequent adjustment.
We will be required, within ten business days following an adjustment in
the settlement rate, to provide written notice to the purchase contract agent
and the holders of units of the adjustment. We will also be required to deliver
a statement setting forth in reasonable detail the method by which the
adjustment to the settlement rate was determined and setting forth the revised
settlement rate.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of shares of our common stock issuable upon early
settlement of a purchase contract.
If an adjustment is made to the settlement rate as a result of an event
described in clauses (1) through (6) above, an adjustment will also be made to
the applicable market value solely to determine which of the three clauses in
the definition of settlement rate will be applicable on the stock purchase date.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The senior notes (or specified portfolio of treasury securities, if a
successful remarketing has occurred, or specified tax event portfolio of
treasury securities, if a tax event redemption has occurred) or specified zero-
coupon treasury securities underlying the normal units or stripped units, as the
case may be, will be pledged to the collateral agent for our benefit. Under the
pledge agreement, the pledged securities will secure your obligations to
purchase shares of our common stock under the related purchase contracts. You
cannot separate or separately transfer the purchase contracts from the pledged
securities held as part of the units. Your rights to the pledged securities will
be subject to our security interest created by the pledge agreement. You will
not be permitted to withdraw the pledged securities related to the units from
the pledge arrangement except:
- to substitute specified zero-coupon treasury securities for the related
pledged senior notes upon creation of stripped units;
- to substitute senior notes for the related pledged zero-coupon treasury
securities upon the recreation of normal units;
- upon cash settlement of the purchase contracts;
- upon the early settlement (whether or not in connection with a cash
merger) of the purchase contracts; or
- upon termination of the purchase contracts.
Subject to our security interest and the terms of the purchase contract
agreement and the pledge agreement:
- each holder of normal units that include senior notes will retain
ownership of the senior notes and will be entitled through the purchase
contract agent and the collateral agent to all of the rights of a holder
of the senior notes, including interest payments, redemption and
repayment rights;
- each holder of normal units that include the specified portfolio of
treasury securities (if a successful remarketing has occurred) or the
specified tax event portfolio of treasury securities (if a tax event
redemption has occurred) will retain ownership of the specified portfolio
of treasury securities or the specified tax event portfolio of treasury
securities, as the case may be; and
- each holder of stripped units will retain ownership of the specified
zero-coupon treasury securities.
We will have no interest in the pledged securities other than our security
interest.
QUARTERLY INTEREST PAYMENTS ON PLEDGED SECURITIES
Except as described in "-- Description of the Purchase Contracts," the
collateral agent, upon receipt of quarterly interest payments on the pledged
securities underlying the normal units, will distribute those payments to the
purchase contract agent, which will, in turn, distribute that amount to persons
who were the
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holders of normal units on the record date for the payment. As long as the
normal units remain in book-entry only form, the record date for any payment
will be one business day before the payment date.
TERMINATION OF PURCHASE CONTRACTS
The purchase contracts, our related rights and obligations and those of the
holders of the units, including their rights to receive accumulated and unpaid
contract adjustment payments or deferred contract adjustment payments and
obligations to purchase shares of our common stock, will automatically terminate
upon the occurrence of particular events of our bankruptcy, insolvency or
reorganization.
Upon such a termination of the purchase contracts, the collateral agent
will release the securities held by it to the purchase contract agent for
distribution to the holders. If a holder would otherwise have been entitled to
receive less than $1,000 principal amount at maturity of any treasury security
upon termination of the purchase contract, the purchase contract agent will
dispose of the security for cash and pay the cash to the holder. Upon
termination, however, the release and distribution may be subject to a delay. If
we become the subject of a case under the U.S. Bankruptcy Code, a delay in the
release of the pledged senior notes or treasury securities may occur as a result
of the automatic stay under the U.S. Bankruptcy Code and continue until the
automatic stay has been lifted. The automatic stay will not be lifted until such
time as the bankruptcy judge agrees to lift it and return your collateral to
you.
THE PURCHASE CONTRACT AGREEMENT
Distributions on the units will be payable, purchase contracts will be
settled and transfers of the units will be registrable at the office of the
purchase contract agent in the Borough of Manhattan, the City of New York. In
addition, if the units do not remain in book-entry form, payment of
distributions on the units may be made, at our option, by check mailed to the
address of the persons shown on the units registers.
If any quarterly payment date or the stock purchase date is not a business
day, then any payment required to be made on that date must be made on the next
business day (and so long as the payment is made on the next business day,
without any interest or other payment on account of any such delay), except that
if the next business day is in the next calendar year, the payment or settlement
will be made on the prior business day with the same force and effect as if made
on the payment date. A "business day" means any day other than a Saturday or
Sunday or a day on which banking institutions and trust companies in the State
of New York are authorized or required by law, regulation or executive order to
be closed or a day on which the purchase contract agent, the collateral agent or
the trustee is closed for business.
If your units are held in certificated form and you fail to surrender the
certificate evidencing your units to the purchase contract agent on the stock
purchase date, the shares of our common stock issuable in settlement of the
related purchase contracts will be registered in the name of the purchase
contract agent. These shares, together with any distributions on them, will be
held by the purchase contract agent as agent for your benefit, until the
certificate is presented and surrendered or you provide satisfactory evidence
that the certificate has been destroyed, lost or stolen, together with any
indemnity that may be required by the purchase contract agent and us.
If your units are held in certificated form and:
- the purchase contracts have terminated prior to the stock purchase date;
- the related pledged securities have been transferred to the purchase
contract agent for distribution to the holders; and
- you fail to surrender the certificate evidencing your units to the
purchase contract agent,
the pledged securities that would otherwise be delivered to you and any related
payments will be held by the purchase contract agent as agent for your benefit,
until you present and surrender the certificate or provide the evidence and
indemnity described above.
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The purchase contract agent will not be required to invest or to pay
interest on any amounts held by it pending distribution.
No service charge will be made for any registration of transfer or exchange
of the units, except for any applicable tax or other governmental charge.
MODIFICATION
The purchase contract agreement, the pledge agreement and the purchase
contracts may be amended with the consent of the holders of a majority of the
units at the time outstanding. However, no modification may, without the consent
of the holder of each outstanding unit affected by the modification (in addition
to the consent of the holders of at least a majority of the units at the time
outstanding):
- change any payment date;
- change the amount or type of pledged securities required to be pledged to
secure obligations under the units, impair the right of the holder of any
pledged securities to receive distributions on the pledged securities
held as part of its units or otherwise adversely affect the holder's
rights in or to the pledged securities;
- change the place or currency of payment for any amounts payable in
respect of the units, increase any amounts payable by holders in respect
of the units or decrease any other amounts receivable by holders in
respect of the units;
- reduce any contract adjustment payment or change the place or currency of
that payment;
- impair the right to institute suit for the enforcement of any purchase
contract;
- reduce the number of shares of common stock purchasable under any
purchase contract, increase the price to purchase shares of common stock
on settlement of any purchase contract, change the stock purchase date or
otherwise adversely affect the holder's rights under any purchase
contract; or
- reduce the above stated percentage of outstanding units the consent of
whose holders is required for the modifications or amendment of the
provisions of the purchase contract agreement, the pledge agreement or
the units.
NO CONSENT TO ASSUMPTION
Each holder of units will be deemed under the terms of the purchase
contract agreement, by its acceptance of such units, to have expressly withheld
any consent to the assumption (that is, affirmance) of the related purchase
contracts by us or our trustee, receiver or liquidator if we become the subject
of a case under the U.S. Bankruptcy Code or other similar state or federal law
providing for reorganization or liquidation.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
We will agree in the purchase contract agreement that we will not (1) merge
with or into or consolidate with any other entity or (2) sell, assign, transfer,
lease or convey all or substantially all of our properties and assets to any
person, firm or corporation other than, with respect to clause (2), our direct
or indirect wholly-owned subsidiaries, unless:
- we are the continuing corporation or the successor corporation is a
corporation organized under the laws of the United States of America or
any state or the District of Columbia;
- the successor entity expressly assumes our obligations under the purchase
contract agreement, the pledge agreement, the units, the senior notes and
the remarketing agreement; and
- we or such corporation is not, immediately after such merger,
consolidation, sale, assignment, transfer, lease or conveyance, in
default in the performance of any of our or its obligations under the
purchase contract agreement, the pledge agreement, the units, the senior
notes or the remarketing agreement.
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TITLE
We, the purchase contract agent and the collateral agent may treat the
registered holder of any units as the absolute owner of those units for the
purpose of making payment and settling the related purchase contracts and for
all other purposes.
GOVERNING LAW
The units, the purchase contract agreement, the pledge agreement, the
remarketing agreement, the senior indenture and the senior notes will be
governed by, and construed in accordance with, the laws of the State of New
York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
JPMorgan Chase Bank will initially act as purchase contract agent. The
purchase contract agent will act as the agent and attorney-in-fact for the
holders of units from time to time. The purchase contract agreement will not
obligate the purchase contract agent to exercise any discretionary authority in
connection with a default under the terms of the purchase contract agreement,
the pledge agreement and the purchase contracts, or the pledged securities.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement will
contain provisions under which the purchase contract agent may resign or be
replaced. Resignation or replacement of the purchase contract agent would be
effective upon the appointment of a successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Bank of New York will initially act as collateral agent. The collateral
agent will act solely as our agent and will not assume any obligation or
relationship of agency or trust for or with any of the holders of units except
for the obligations owed by a pledgee of property to the owner thereof under the
pledge agreement and applicable law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement will contain provisions under which the
collateral agent may resign or be replaced. Resignation or replacement of the
collateral agent would be effective upon the appointment of a successor.
The pledge agreement will also provide for The Bank of New York to
initially act as custodial agent with respect to senior notes that are held
separately and participating in a remarketing.
COMMON STOCK TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
FEES AND EXPENSES
The purchase contract agreement will provide that we will pay all fees and
expenses related to:
- the offering of the normal units;
- the retention of the collateral agent and the purchase contract agent;
- the enforcement by the purchase contract agent of the rights of the
holders of units; and
- with certain exceptions, stock transfer and similar taxes attributable to
the initial issuance and delivery of our common stock upon settlement of
the purchase contracts.
If you elect to create stripped units or recreate normal units, you will be
responsible for any fees or expenses payable in connection with the substitution
of the applicable pledged securities, as well as any commissions, fees or other
expenses incurred in acquiring the pledged securities to be substituted and we
will not be responsible for any of those fees or expenses.
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BOOK-ENTRY SYSTEM
DTC will act as securities depositary for the units. The units will be
issued only as fully-registered securities registered in the name of Cede & Co.,
DTC's nominee. One or more fully-registered global security certificates,
representing the total aggregate number of normal units or stripped units, will
be issued and deposited with DTC and will bear a legend regarding the
restrictions on exchanges and registration of transfer referred to below.
The laws of some jurisdictions require that some purchasers of securities
take physical delivery of securities in definitive form. Those laws may impair
the ability to transfer beneficial interests in the units so long as the units
are represented by global security certificates.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934.
DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions,
including transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thus eliminating the
need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
direct participants and by the New York Stock Exchange, the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.,
collectively referred to as participants. Access to the DTC system is also
available to others, including securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a direct or indirect
custodial relationship with a direct participant either directly or indirectly,
collectively referred to as indirect participants. The rules applicable to DTC
and its participants are on file with the SEC.
No units represented by global security certificates may be exchanged in
whole or in part for certificated units registered, and no transfer of global
security certificates will be made in whole or in part for certificated units
registered, and no transfer of global security certificates in whole or part may
be registered, in the name of any person other than DTC or any nominee of DTC,
unless:
- DTC has notified us that it is unwilling or unable to continue as
depositary for the global security certificates and no successor
depository has been appointed within 90 days after this notice;
- DTC at any time ceases to be a clearing agency registered under the
Securities Exchange Act at which time DTC is required to be so registered
to act as depositary and no successor depositary has been appointed
within 90 days after we learn that DTC has ceased to be so registered;
- we determine in our sole discretion that we will no longer have units
represented by global securities or that we will permit a global security
to be exchangeable; or
- there is a continuing default by us in respect of our obligations under
one or more purchase contracts, the senior indenture, the purchase
contract agreement, the senior notes, the normal units, the stripped
units, the pledge agreement or any other principal agreements or
instruments executed in connection with this offering.
All units represented by one or more global security certificates or any portion
of them will be registered in those names as DTC may direct.
As long as DTC or its nominee is the registered owner of the global
security certificates, DTC or that nominee will be considered the sole owner and
holder of the global security certificates and all units represented by those
certificates for all purposes under the units and the purchase contract
agreement. Except in the limited circumstances referred to above, owners of
beneficial interests in global security certificates will not be entitled to
have the global security certificates or the units represented by those
certificates registered in their names, will not receive or be entitled to
receive physical delivery of units certificates in exchange and
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will not be considered to be owners or holders of the global security
certificates or any units represented by those certificates for any purpose
under the units or the purchase contract agreement. All payments on the units
represented by the global security certificates and all related transfers and
deliveries of senior notes, treasury securities and common stock will be made to
DTC or its nominee as their holder.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests through
institutions that have accounts with DTC or its nominee. Ownership of beneficial
interests in global security certificates will be shown only on, and the
transfer of those ownership interests will be effected only through, records
maintained by DTC or its nominee with respect to participants' interests or by
the participant with respect to interests of persons held by the participants on
their behalf.
Procedures for settlement of purchase contracts on the stock purchase date
or upon early settlement will be governed by arrangements among DTC,
participants and persons that may hold beneficial interests through participants
designed to permit the settlement without the physical movement of certificates.
Payments, transfers, deliveries, exchange and other matters relating to
beneficial interests in global security certificates may be subject to various
policies and procedures adopted by DTC from time to time.
Neither we nor any of our agents, nor the purchase contract agent or any of
its agents, will have any responsibility or liability for any aspect of DTC's or
any participant's records relating to, or for payments made on account of,
beneficial interests in global security certificates, or for maintaining,
supervising or reviewing any of DTC's records or any participant's records
relating to those beneficial ownership interests.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we do not
take responsibility for its accuracy.
REPLACEMENT OF CERTIFICATES
If physical certificates are issued, we will replace any mutilated
certificate at your expense upon surrender of that certificate to the purchase
contract agent. We will replace certificates that become destroyed, lost or
stolen at your expense upon delivery to us and the purchase contract agent of
satisfactory evidence that the certificate has been destroyed, lost or stolen,
together with any indemnity that may be required by the purchase contract agent
and us.
We, however, are not required to issue any certificates representing units
on or after the stock purchase date or after the purchase contracts have
terminated. In place of the delivery of a replacement certificate following the
stock purchase date, the purchase contract agent, upon delivery of the evidence
and indemnity described above, will deliver the shares of our common stock
issuable pursuant to the purchase contracts included in the units evidenced by
the certificate, or, if the purchase contracts have terminated prior to the
stock purchase date, transfer the pledged securities related to the units
evidenced by the certificate.
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DESCRIPTION OF THE SENIOR NOTES
We summarize below the principal terms of the senior notes. The following
description is only a summary. It supplements the description of debt securities
in the accompanying prospectus under the caption "Description of the Debt
Securities" and, to the extent it is inconsistent with the description contained
in the accompanying prospectus, replaces the description in the accompanying
prospectus. You should read these descriptions together with the senior
indenture, the remarketing agreement and the form of senior note, as well as the
Trust Indenture Act, for a complete understanding of the provisions that may be
important to you.
The senior notes will be issued under the senior indenture between El Paso
and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as trustee, dated
as of May 10, 1999, as supplemented through the date of issuance of the senior
notes. See "Where You Can Find More Information" for more information about how
to obtain a copy of the senior indenture, the remarketing agreement and form of
senior note, which we have filed or will file, as the case may be, with the SEC
as exhibits to a Current Report on Form 8-K, which will be incorporated by
reference in the registration statement of which the accompanying prospectus,
which is supplemented by this prospectus supplement, forms a part.
GENERAL
The senior notes will:
- mature on August 16, 2007;
- not be redeemable prior to their stated maturity except in the event of a
tax event as described under "-- Tax Event Redemption;"
- be issued in denominations of $50 and whole multiples of $50; and
- not have the benefit of a sinking fund.
RANKING
Payment of the principal of, premium, if any, and interest on the senior
notes will rank equally with all of our other existing and future senior
unsecured debt. As of March 31, 2002, there was approximately $6 billion of
other long-term indebtedness that will rank equally with the senior notes. The
senior indenture will not limit the amount of additional indebtedness that we or
any of our subsidiaries may incur.
Because substantially all our operations are conducted exclusively through
our subsidiaries, the cash flow and the consequent ability to service debt,
including our senior notes, are dependent upon the earnings of our subsidiaries
and the distribution of those earnings to, or upon other payments of funds by
those subsidiaries to, us. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
on the senior notes or to make funds available for such payments, whether by
dividends, other distributions, loans or other payments. In addition, the
payment of dividends or other distributions and the making of loans and advances
to us by our subsidiaries are subject to statutory regulations or contractual
restrictions, are contingent upon the earnings of those subsidiaries and are
subject to various business considerations. Any right we have to receive assets
of any of our subsidiaries upon their liquidation or reorganization and the
resulting right of the holders of the senior notes to participate in those
assets, will be effectively subordinated to the claims of that subsidiary's
creditors, including trade creditors, except to the extent that we are
recognized as a creditor of such subsidiary, in which case our claims would be
subordinated to any security interests in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by us. As of March 31, 2002,
our subsidiaries had approximately $8 billion of outstanding long-term
indebtedness.
INTEREST
The senior notes will pay interest at the initial annual rate of 6.14% on
each February 16, May 16, August 16 and November 16, commencing on August 16,
2002, for quarterly interest payments due on or
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before May 16, 2005. After that date, the interest rate on all outstanding
senior notes will be reset in the following manner.
- If the remarketing agent establishes a reset rate that results in a
successful remarketing of the senior notes on the third business day
immediately preceding May 16, 2005, the "initial remarketing date," we
will pay interest on the senior notes on and after August 16, 2005 until
their maturity on August 16, 2007 at the reset rate.
- If the remarketing agent cannot establish a reset rate that results in a
successful remarketing of the senior notes on the initial remarketing
date, the interest rate will continue to be the initial annual rate of
6.14% until the remarketing agent can establish a reset rate that results
in a successful remarketing of the senior notes on a subsequent
remarketing date prior to the stock purchase date. If the remarketing
agent establishes a reset rate that results in a successful remarketing
of the senior notes on a subsequent remarketing date, interest payable on
the senior notes on August 16, 2005 will be calculated in part at the
initial annual rate of 6.14% and in part at the reset rate, with the
reset rate commencing on the date of settlement of the successful
remarketing. We will pay interest on the senior notes after August 16,
2005 until their maturity on August 16, 2007 at the reset rate.
- If the remarketing fails (that is, the remarketing agent cannot establish
a reset rate in connection with a successful remarketing of the senior
notes prior to the stock purchase date), the interest rate will be reset,
as of the stock purchase date, to a rate equal to the sum of (1) the
two-year benchmark rate (as defined below) plus (2) the applicable spread
(as defined below). We will pay interest on the senior notes after August
16, 2005 until their maturity on August 16, 2007 at the reset rate.
- If no remarketing occurs prior to the stock purchase date, the interest
rate will be reset, as of the stock purchase date, to a rate equal to the
sum of (1) the two-year benchmark rate plus (2) the applicable spread. We
will pay interest on the senior notes after August 16, 2005 until their
maturity on August 16, 2007 at the reset rate.
The reset rate will in no event exceed the maximum rate permitted by
applicable law.
The term "two-year benchmark rate" means the bid side rate displayed at
10:00 a.m., New York City time, on the third business day preceding the stock
purchase date for direct obligations of the United States having a maturity
comparable to the remaining term to maturity of the senior notes, as agreed upon
by us and the remarketing agent. This rate will be as displayed in the Telerate
system or, if the Telerate system is no longer available or, in the judgment of
the remarketing agent, after consultation with us, no longer an appropriate
system from which to obtain such rate, such other nationally recognized
quotation system as, in the judgment of the remarketing agent, after
consultation with us, is appropriate. If this rate is not so displayed, the
two-year benchmark rate will be calculated by the remarketing agent as the yield
to maturity for direct obligations of the United States having a maturity
comparable to the remaining term to maturity of the senior notes, expressed as a
bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis, and computed by taking the arithmetic mean of the
secondary market bid rates, as of 10:30 a.m., New York City time, on the
business day preceding the stock purchase date of three leading United States
government securities dealers selected by the remarketing agent after
consultation with us. These dealers may include the remarketing agent or an
affiliate. However, if, in the judgment of the remarketing agent, after
consultation with us, direct obligations of the United States are no longer
appropriate benchmarks for the purpose of setting the reset rate if a failed
remarketing has occurred, we and the remarketing agent will agree upon another
two-year benchmark rate.
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The term "applicable spread" means the spread determined as set forth
below, based on the prevailing rating, as described below, of the senior notes
in effect at the close of business on the final remarketing date:
PREVAILING RATING
ON THE SENIOR NOTES SPREAD
------------------- ------
AA/"Aa2".................................................... 2.00%
A/"A2"...................................................... 3.00%
BBB/"Baa2".................................................. 4.00%
BBB-/"Baa3"................................................. 6.00%
Below BBB-/"Baa3"........................................... 7.00%
For purposes of determining the applicable spread, the "prevailing rating"
of the senior notes shall be:
(1) AA/"Aa2" if the senior notes have a credit rating of AA or better
by Standard & Poor's Ratings Services ("S&P") and "Aa2" or better by
Moody's Investors Service, Inc. ("Moody's") or the equivalent of such
ratings by such agencies or a substitute rating agency or agencies selected
by the remarketing agent, after consultation with us;
(2) if not under clause (1) above, then A/"A2" if the senior notes
have a credit rating of A or better by S&P and "A2" or better by Moody's or
the equivalent of such ratings by such agencies or a substitute rating
agency or agencies selected by the remarketing agent, after consultation
with us;
(3) if not under clause (1) or (2) above, then BBB/"Baa2" if the
senior notes have a credit rating of BBB or better by S&P and "Baa2" or
better by Moody's or the equivalent of such ratings by such agencies or a
substitute rating agency or agencies selected by the remarketing agent,
after consultation with us; or
(4) if not under clause (1), (2) or (3) above, then BBB-/"Baa3" if the
senior notes have a credit rating of BBB- or better by S&P and "Baa3" or
better by Moody's or the equivalent of such ratings by such agencies or a
substitute rating agency or agencies selected by the remarketing agent,
after consultation with us; or
(5) if not under clauses (1), (2), (3) or (4) above, then Below
BBB-/"Baa3."
Notwithstanding the foregoing, if:
- (1) the credit rating of the senior notes by S&P shall be on the "Credit
Watch" of S&P with a designation of "negative implications" or
"developing," or
(2) the credit rating of the senior notes by Moody's shall be on the
"Corporate Credit Watch List" of Moody's with a designation of
"downgrade" or "uncertain,"
or, in each case, on any successor list of S&P or Moody's with a
comparable designation, the prevailing rating of the senior notes shall
be deemed to be within a range one full level lower in the above table
than those actually assigned to the senior notes by S&P and Moody's; and
- the senior notes are not rated by both S&P and Moody's on or before the
third business day immediately preceding the stock purchase date, the
prevailing rating will at all times be determined by reference to the
rating of whichever of S&P and Moody's is rating the senior notes.
However, if neither S&P nor Moody's shall have in effect a rating of the senior
notes and the remarketing agent is unable to identify a substitute rating agency
or agencies, the prevailing rating shall be Below BBB-/"Baa3."
The amount of interest payable for any period will be computed:
- for any full quarterly period on the basis of a 360-day year of twelve
30-day months;
- for any period shorter than a full quarterly period, on the basis of a
30-day month; and
- for periods of less than a month, on the basis of the actual number of
days elapsed per 30-day month.
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If any date on which interest or principal is payable on the senior notes is not
a business day, the payment of the interest or principal payable on that date
will be made on the next day that is a business day, without any interest or
other payment in respect of the delay, except that, if the business day is in
the next calendar year, payment will be made on the immediately preceding
business day, in each case with the same force and effect as if made on the
scheduled payment date. Unless we default on a payment, no interest will accrue
for the period from and after the applicable maturity date or redemption date.
Interest on the senior notes will be payable on overdue interest to the extent
permitted by law at the same rate as interest is payable on principal.
REMARKETING
The senior notes will be remarketed as described under "Description of the
Equity Security Units -- Remarketing."
OPTIONAL REMARKETING OF SENIOR NOTES WHICH ARE NOT HELD AS PART OF NORMAL UNITS
On the seventh business day immediately preceding the first business day of
a remarketing period, we will give holders of senior notes not held as part of
normal units notice of the upcoming remarketing in a daily newspaper in the
English language of general circulation in New York City, which is expected to
be The Wall Street Journal. Prior to 11:00 a.m., New York City time, on the
fourth business day immediately preceding the first business day of a
remarketing period, holders of senior notes that are not held as part of normal
units may elect to have these separately held senior notes participate in the
remarketing by delivering these senior notes along with a notice of such
election to the collateral agent (in its capacity as custodial agent). The
collateral agent (in its capacity as custodial agent) will hold these senior
notes in an account separate from the collateral account in which the securities
pledged to secure the holders' obligations under the purchase contracts will be
held. Holders of senior notes that are not held as part of normal units electing
to have these separately held senior notes remarketed will also have the right
to withdraw that election prior to 11:00 a.m., New York City time, on the fourth
business day immediately preceding the first business day of the relevant
remarketing period.
On the third business day immediately preceding the first business day of
the relevant remarketing period, the collateral agent (in its capacity as
custodial agent) will deliver these separate senior notes to the remarketing
agent for remarketing. If the remarketing is successful, the remarketing agent
will retain, as a remarketing fee, an amount not exceeding 25 basis points
(0.25%) of the total proceeds from the remarketing of the senior notes held
separately that were sold in the remarketing and will promptly remit to the
holders of those senior notes the remaining portion of the proceeds from the
remarketing of those senior notes.
If, as described above, the remarketing agent cannot remarket the senior
notes during such remarketing period, the remarketing agent will promptly return
the senior notes that are not held as part of normal units to the collateral
agent (in its capacity as custodial agent) to release to the holders. Holders of
senior notes that are not held as part of normal units may elect to have these
separately held senior notes remarketed during any subsequent remarketing period
pursuant to the procedures described above.
TAX EVENT REDEMPTION
If a tax event occurs, we may, at our option, redeem the senior notes, in
whole but not in part, at any time at a redemption price equal to, for each
senior note, the redemption amount described below plus accrued and unpaid
interest to, but not including, the date of redemption. Installments of interest
on senior notes which are due and payable on or prior to a redemption date will
be payable to holders of the senior notes registered as such at the close of
business on the relevant record date.
The redemption price for senior notes held as part of normal units will be
distributed to the collateral agent, who in turn will purchase the tax event
portfolio of treasury securities on behalf of the holders of the normal units
and remit the remainder of the redemption price, if any, to the purchase
contract agent for payment to the holders. The tax event portfolio of treasury
securities will be substituted for the pledged senior notes and will be pledged
to the collateral agent to secure the normal unit holders' obligations under
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the purchase contracts. The redemption price for senior notes not held as part
of normal units will be distributed to the holders of those senior notes.
"Tax event" means the receipt by us of an opinion of nationally recognized
tax counsel experienced in such matters, which may be Locke Liddell & Sapp LLP,
to the effect that there is more than an insubstantial risk that interest
payable or accruable by us on the senior notes on the next interest payment date
would not be deductible, in whole or in part, by us for United States federal
income tax purposes as a result of:
- any amendment to, change in, or announced proposed change in, the laws,
or any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation; or
- any amendment to or change in an official interpretation or application
of any such law or regulations by any legislative body, court,
governmental agency or regulatory authority or any official
interpretation or pronouncement that provides for a position with respect
to any such laws or regulations that differs from the generally accepted
position on the date of this prospectus supplement,
which amendment, change or announced proposed change is effective or which
interpretation or pronouncement is announced on or after the date of this
prospectus supplement.
The term "redemption amount" means, for each senior note, the product of
the principal amount of that senior note and a fraction whose numerator is the
"purchase price of the tax event portfolio of treasury securities" and whose
denominator is the aggregate principal amount of the senior notes outstanding on
the tax event redemption date. Depending on the amount of the purchase price of
the tax event portfolio of treasury securities, the redemption amount could be
less than or greater than the principal amount of the senior notes.
The term "tax event portfolio of treasury securities" means a portfolio of
treasury securities consisting of principal or interest strips of treasury
securities that mature on:
- if the tax event redemption occurs prior to the earlier of the date of a
successful remarketing of the senior notes and the stock purchase date,
(1) the business day immediately preceding the stock purchase date in an
aggregate amount equal to the aggregate principal amount of the senior
notes outstanding on the tax event redemption date and (2) the business
day immediately preceding each interest payment date on the senior notes
scheduled to occur after the tax event redemption date and on or before
the stock purchase date in an aggregate amount equal to the aggregate
interest payment that would be due on the aggregate principal amount of
the senior notes outstanding on the tax event redemption date; and
- if the tax event redemption occurs on or after the date of a successful
remarketing of the senior notes or the stock purchase date, (1) the
business day immediately preceding the maturity date of the senior notes
in an aggregate amount equal to the aggregate principal amount of the
senior notes outstanding on the tax event redemption date and (2) the
business day immediately preceding each interest payment date on the
senior notes scheduled to occur after the tax event redemption date and
on or before the maturity date in an aggregate amount equal to the
aggregate interest payment that would be due on the aggregate principal
amount of the senior notes outstanding on the tax event redemption date
(and interest is calculated at the reset rate).
The term "purchase price of the tax event portfolio of treasury securities"
means the lowest aggregate price quoted by a primary U.S. government securities
dealer in New York City to the quotation agent on the third business day
immediately preceding the tax event redemption date for the purchase of the tax
event treasury portfolio of treasury securities for settlement on the tax event
redemption date.
"Quotation agent" means Credit Suisse First Boston Corporation or its
successor or any other primary U.S. government securities dealer in New York
City selected by us.
Notice of any tax event redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each registered holder of senior
notes to be redeemed at its registered address. Unless we
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default in payment of the redemption price, on and after the redemption date
interest shall cease to accrue on the senior notes. In the event any senior
notes are called for tax event redemption, neither we nor the trustee will be
required to register the transfer of or exchange the notes to be redeemed.
BOOK-ENTRY AND SETTLEMENT
Senior notes that are released from the pledge following collateral
substitution, early settlement, cash settlement or termination of the related
purchase contracts will be issued in the form of one or more global
certificates, which we refer to as global securities, registered in the name of
DTC or its nominee. Except as provided below, owners of beneficial interests in
such a global security will not be entitled to receive physical delivery of
notes in certificated form and will not be considered the legal holders thereof
for any purpose under the senior indenture, and no global security representing
notes shall be exchangeable, except for another global security of like
denomination and tenor to be registered in the name of DTC or its nominee or a
successor depositary or its nominee. Accordingly, each beneficial owner must
rely on the procedures of DTC or if such person is not a participant, on the
procedures of the participant through which such person owns its interest to
exercise any rights of a holder under the senior indenture or the senior notes.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of the securities in certificated form. These
laws may impair the ability to transfer beneficial interests in such a global
security.
In the event that:
- DTC notifies us that it is unwilling or unable to continue as a
depositary for the global security certificates and no successor
depositary has been appointed by us within 90 days after this notice;
- DTC at any time ceases to be a clearing agency registered under the
Securities Exchange Act at which time DTC is required to be so registered
to act as depositary and no successor depositary has been appointed
within 90 days after we learn that DTC has ceased to be so registered;
- we determine in our sole discretion that we will no longer have senior
debt securities represented by global securities or permit any of the
global security certificates to be exchangeable; or
- an event of default under the senior indenture has occurred and is
continuing;
certificates for the senior notes will be printed and delivered in exchange for
beneficial interests in the global security certificates. Any global note that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
note certificates registered in the names directed by DTC. We expect that these
instructions will be based upon directions received by DTC from its participants
with respect to ownership of beneficial interests in the global security
certificates.
GOVERNING LAW
The senior indenture is, and the senior notes will be, governed by, and
construed in accordance with, the laws of the State of New York.
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DESCRIPTION OF CAPITAL STOCK
We are currently authorized to issue up to 1,500,000,000 shares of common
stock and up to 50,000,000 shares of preferred stock. As of May 31, 2002, there
were 532,733,753 shares of common stock, 40,000 shares of Series B Mandatorily
Convertible Single Reset Preferred Stock and no shares of Series C Mandatorily
Convertible Single Reset Preferred Stock issued and outstanding. Except to the
extent modified hereby, the description of our capital stock set forth under the
caption "Description of Capital Stock" in the accompanying prospectus describes
the material features of our capital stock.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences, as of the date of this prospectus supplement, of the purchase,
ownership and disposition of normal units, stripped units, senior notes, and our
common stock acquired under the purchase contracts.
Except where otherwise stated, this summary deals only with normal units,
stripped units, senior notes, and our common stock held as a capital asset by a
holder who:
- is a United States person (as defined below); and
- purchases the units upon original issuance at their original issue price.
A "United States person" is a holder who is, for United States federal
income tax purposes, one of the following:
- a citizen or resident of the United States;
- a corporation or a partnership or other entity created or organized in or
under the laws of the United States or any political subdivision of the
United States that is treated as a corporation or partnership for United
States federal income tax purposes;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if it (1) is subject to the primary supervision of a court within
the United States and one or more United States persons have the
authority to control all substantial decisions of the trust, or (2) has a
valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
Your tax treatment may vary depending on your particular situation. This
summary does not address all of the tax consequences that may be relevant to
holders that are subject to special tax treatment, such as:
- dealers in securities or currencies;
- financial institutions;
- tax-exempt investors;
- traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
- persons liable for alternative minimum tax;
- insurance companies;
- real estate investment trusts;
- regulated investment companies;
- persons holding normal units, stripped units, senior notes, or our common
stock as part of a hedging, conversion, integrated or constructive sale
transaction or a straddle; or
- United States persons whose functional currency is not the United States
dollar.
In addition, if a partnership holds normal units, stripped units, senior
notes or our common stock, the tax treatment of a partner will generally depend
upon the status of the partner and the activities of the partnership. If you are
a partner of a partnership holding the above instruments, you should consult
your tax advisors.
This summary is based on the Internal Revenue Code of 1986, as amended
(which we refer to as the "Code"), the Treasury regulations promulgated under
the Code and administrative and judicial interpretations as of the date of this
prospectus supplement. These income tax laws, regulations and interpretations,
however, may change at any time. Any change could be retroactive to the issuance
date of the normal units.
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No statutory, administrative or judicial authority directly addresses the
treatment of units or instruments similar to units for United States federal
income tax purposes. As a result, we cannot assure you that the Internal Revenue
Service ("IRS") or the courts will agree with the tax consequences described
herein. A different treatment from that assumed below could adversely affect the
amount, timing and character of income, gain or loss in respect of an investment
in the units. You should consult your own tax advisor regarding the tax
consequences to you of the purchase, ownership and disposition of normal units,
stripped units, senior notes and our common stock, including the tax
consequences under state, local, foreign and other tax laws.
NORMAL UNITS
ALLOCATION OF PURCHASE PRICE
Your acquisition will be treated as an acquisition of the senior note and
the purchase contract constituting the normal units and, by purchasing normal
units, you will be deemed to have agreed to such treatment. The remainder of
this discussion assumes that the acquisition of normal units will be treated as
an acquisition of a senior note and purchase contract.
The purchase price of each normal unit will be allocated between the senior
note and the purchase contract in proportion to their respective fair market
values at the time of purchase. Such allocation will establish your initial tax
basis in the senior note and the purchase contract. We will report the initial
fair market value of each senior note as $50 and the initial fair market value
of each purchase contract as $0, and by purchasing normal units, you will be
deemed to agree to such allocation. The remainder of this discussion assumes
that this allocation of the purchase price will be respected.
SENIOR NOTES
CLASSIFICATION OF THE SENIOR NOTES
In connection with the issuance of the senior notes, our counsel, Locke
Liddell & Sapp LLP, has advised us that the senior notes will be classified as
indebtedness for United States federal income tax purposes. We, under the terms
of the senior indenture and the senior notes, and each holder of a normal unit
or a senior note not held as part of a normal unit, by accepting beneficial
interest in a senior note, agree to treat the senior note as our indebtedness.
ACCRUAL OF INTEREST
Because of the manner in which the interest rate on the senior notes is
reset, the senior notes will be classified as contingent payment debt
obligations under the Treasury regulations. Under the terms of the senior
indenture and the senior notes, we and each holder of a normal unit or a senior
note not held as part of a normal unit, by accepting beneficial interest in a
senior note agree, for United States federal income tax purposes, to treat the
senior note as indebtedness that is subject to the regulations governing
contingent payment debt obligations in the manner described below. As discussed
more fully below, the effect of these Treasury regulations will be to:
- require you, regardless of your usual method of tax accounting, to use
the accrual method with respect to the senior notes;
- possibly result in the accrual of original issue discount by you in
excess of stated interest payments actually received by you; and
- generally result in ordinary income rather than capital gain treatment of
any gain, and to some extent loss, on the sale, exchange, or other
disposition of the senior notes.
Under the contingent payment debt rules, you will be required to include
original issue discount in income each year, regardless of your usual method of
tax accounting, based on the comparable yield of the senior notes. Actual cash
payments of interest on the senior notes will not be reported separately as
taxable income. In order to determine your income, these rules require us to
determine, as of the issue date, the
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comparable yield for the senior notes. The comparable yield of the senior notes
will generally be the rate at which we would issue a fixed rate debt instrument
with terms and conditions similar to the senior notes.
We are required to provide the comparable yield to you and, solely for tax
purposes, are also required to provide a projected payment schedule that
includes the actual interest payments on the senior notes and estimates the
amount and timing of contingent payments on the senior notes. We have determined
that the comparable yield is an annual rate of 7.05%, compounded quarterly.
Based on the comparable yield, the projected payment schedule per senior note is
$0.43 for the period ending on August 16, 2002, $0.77 for each subsequent
quarter ending on or prior to the remarketing date and $1.06 for each quarter
ending after the remarketing date (which does not include the payment of
principal at maturity). By acceptance of a beneficial interest in the senior
notes you will be deemed to have agreed, for United States federal income tax
purposes, to be bound by our determination of the comparable yield and projected
payment schedule. For United States federal income tax purposes, you must use
the comparable yield determined by us and the projected payments set forth in
the projected payment schedule above in determining your interest accruals, and
the adjustments thereto, in respect of the senior notes.
The comparable yield and the projected schedule are not provided for any
purpose other than the determination of your interest accruals thereof in
respect of the senior notes and do not constitute a representation regarding the
actual amount of any payment on a senior note.
The amount of original issue discount on a senior note for each accrual
period is determined by multiplying the comparable yield of the senior note,
adjusted for the length of the accrual period, by the senior note's adjusted
issue price at the beginning of the accrual period, determined in accordance
with the rules set forth in the contingent payment debt regulations. The
adjusted issue price of each senior note at the beginning of each accrual period
will equal $50, increased by any original issue discount previously accrued on
the senior note and decreased by the amount of any fixed payments and projected
amount of any contingent payments previously made on the senior note during the
period you held the senior note. The amount of original issue discount so
determined is then allocated on a ratable basis to each day in the accrual
period. We are required to provide information returns stating the amount of
original issue discount accrued on senior notes held of record by persons other
than corporations and other exempt owners.
If after the remarketing date, the remaining amounts of interest payable on
the senior notes differ from the payments set forth on the foregoing projected
payment schedule, negative or positive adjustments reflecting such differences
should be taken into account by you as adjustments to interest income in a
reasonable manner over the period to which they relate.
STRIPPED UNITS
SUBSTITUTION OF TREASURY SECURITIES TO CREATE STRIPPED UNITS
If you deliver treasury securities to the collateral agent in substitution
for the senior note, you generally will not recognize gain or loss upon the
delivery of the treasury securities or the release of the senior note. You will
continue to take into account items of income or deduction otherwise includible
or deductible, respectively, with respect to the senior note and treasury
securities, and your tax basis in the senior note, treasury securities and the
purchase contract will not be affected by the delivery and release.
OWNERSHIP OF TREASURY SECURITIES
By acquiring stripped units, you agree to treat yourself as the owner of
the treasury securities that is a part of the stripped units beneficially owned
by you. We also agree to treat you as the owner of the treasury securities. Your
initial tax basis in the treasury securities that is a part of the stripped
units will be equal to the amount paid for the treasury securities. Your
adjusted tax basis in the treasury securities will be increased by the amount of
any original issue discount included in income with respect thereto.
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
A holder of stripped units will be required to treat its pro rata portion
of the treasury securities as a bond that was originally issued on the date
acquired by such holder and that has original issue discount equal to the
holder's pro rata portion of the excess of the amount payable on such treasury
securities over the value of the treasury securities at the time the holder
acquires it. A holder whether on the cash or accrual method of tax accounting
will be required to include original issue discount (other than original issue
discount on short-term United States treasury securities, as defined below) in
income for United States federal income tax purposes as it accrues on a constant
yield to maturity basis. Consequently, a portion of each scheduled payment to
holders will be treated as a return of such holder's investment in the treasury
securities and will not be considered current income for United States federal
income tax purposes.
In the case of any treasury securities with a maturity of one year or less
from the date of its issue (a "short-term United States treasury securities"),
in general only accrual basis taxpayers will be required to include original
issue discount in income as it accrues. Unless you are an accrual basis holder
who elects to accrue the original issue discount on short-term United States
treasury securities on a constant yield to maturity basis, you will accrue such
original issue discount on a straight-line basis.
SUBSTITUTION OF SENIOR NOTES TO RECREATE NORMAL UNITS
If you deliver senior notes to the collateral agent to recreate normal
units, you generally will not recognize gain or loss upon the delivery of the
senior notes or the release of the treasury securities. You will continue to
take into account items of income or deduction otherwise includible or
deductible, respectively, with respect to the treasury securities and the senior
notes, and your tax basis in the senior notes, the treasury securities and the
purchase contract will not be affected by the delivery and release.
PURCHASE CONTRACTS
CONTRACT ADJUSTMENT PAYMENTS
There is no direct authority addressing the treatment of the contract
adjustment payments under current law, and their treatment is unclear. Contract
adjustment payments may constitute taxable income to you when received or
accrued, in accordance with your method of tax accounting. To the extent we are
required to file information returns with respect to contract adjustment
payments, we intend to report such payments as taxable income to you. You should
consult your own tax advisor concerning the treatment of contract adjustment
payments. The treatment of contract adjustment payments could affect your tax
basis in a purchase contract or our common stock received under a purchase
contract or your amount realized upon the sale or disposition of a unit or the
termination of a purchase contract. See "-- Acquisition of Common Stock Under a
Purchase Contract," "-- Termination of Purchase Contract" and "-- Sale or
Disposition of Normal Units, Stripped Units or Senior Notes."
ACQUISITION OF COMMON STOCK UNDER A PURCHASE CONTRACT
You generally will not recognize gain or loss on the purchase of our common
stock under a purchase contract, except with respect to any cash paid in lieu of
a fractional share of common stock. Subject to the following discussion, your
aggregate initial tax basis in the common stock received under a purchase
contract generally should equal (a) the purchase price paid for such common
stock, plus (b) your tax basis in the purchase contract, if any, less (c) the
portion of such purchase price and tax basis allocable to the fractional share.
The holding period for common stock received under a purchase contract will
commence on the day the common stock is acquired.
EARLY SETTLEMENT OF PURCHASE CONTRACT
You will not recognize gain or loss on the receipt of your proportionate
share of the senior notes or treasury securities upon early settlement of a
purchase contract, and you will have the same tax basis in such senior notes or
treasury securities, as the case may be, as before such early settlement.
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TERMINATION OF PURCHASE CONTRACT
If a purchase contract terminates, you will recognize capital gain or loss
equal to the difference between your amount realized, if any, upon such
termination and your adjusted tax basis, if any, in the purchase contract at the
time of such termination. Contract adjustment payments, if any, received by you,
but not includible in income, should either reduce your basis in the purchase
contract or result in an amount realized on the termination of the purchase
contract. See "-- Contract Adjustment Payments." Capital gains of individuals
derived in respect of capital assets held for more than one year are subject to
tax at preferential rates. The deductibility of capital losses is subject to
limitations.
You will not recognize gain or loss on the receipt of your proportionate
share of the senior notes or treasury securities upon termination of the
purchase contract and you will have the same tax basis in such senior notes or
treasury securities, as the case may be, as before such termination. If the
termination of the purchase contract occurs when the purchase contract has a
negative value, see "-- Sale or Disposition of Normal Units, Stripped Units or
Senior Notes." You should consult your own tax advisor regarding the termination
of the purchase contract when the purchase contract has a negative value.
ADJUSTMENT TO SETTLEMENT RATE
You might be treated as receiving a constructive distribution from us if
(i) the settlement rate is adjusted and as a result of such adjustment your
proportionate interest in our assets or earnings and profits is increased and
(ii) the adjustment is not made pursuant to a bona fide, reasonable
anti-dilution formula. An adjustment in the settlement rate would not be
considered made pursuant to such a formula if the adjustment were made to
compensate you for certain taxable distributions with respect to our common
stock. Thus, under certain circumstances, an increase in the settlement rate
might give rise to a taxable dividend to you even though you would not receive
any cash related thereto. In addition, in certain situations, you might be
treated as receiving a constructive distribution if we fail to adjust the
settlement rate.
SALE OR DISPOSITION OF NORMAL UNITS, STRIPPED UNITS OR SENIOR NOTES
Upon a disposition of normal units or stripped units, you will be treated
as having sold, exchanged or disposed of the purchase contract and the senior
note or treasury securities, as the case may be, that constitute such normal
units or stripped units. You generally will have gain or loss equal to the
difference between the portion of your proceeds allocable to the purchase
contract and the senior note or treasury securities, as the case may be, and
your respective adjusted tax bases in the purchase contract and the senior note
or treasury securities. For purposes of determining gain or loss, your proceeds
will not include an amount equal to accrued and unpaid interest on the treasury
securities not previously included in income, which amount will be treated as
ordinary interest income. Further, to the extent you are treated as having
received an amount with respect to accrued contract adjustment payments, such
amounts may be treated as ordinary income to the extent not previously included
in income. Alternatively, contract adjustment payments that you did not
previously include in income could either reduce your tax basis in the purchase
contract or result in an increase of the amount realized on the disposition of
the purchase contract. See "-- Purchase Contracts -- Contract Adjustment
Payments."
In the case of the purchase contracts and the treasury securities, such
gain or loss generally will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year are
subject to tax at preferential rates. The deductibility of capital losses is
subject to limitations. If the disposition of normal units or stripped units
occurs when the purchase contract has a negative value, you should be considered
to have received additional consideration for the senior note or treasury
securities in an amount equal to such negative value, and to have paid such
amount to be released from your obligation under the purchase contract. You
should consult your tax advisor regarding a disposition of normal units or
stripped units at a time when the purchase contract has a negative value.
Gain or loss on the sale, exchange or other disposition of a senior note
prior to the date six months after the interest rate on the senior note is reset
generally will be treated as ordinary income or loss. Gain or loss on the sale,
exchange or other disposition of a senior note that occurs during the six month
period following
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the date the interest rate is reset will generally be treated as ordinary income
or loss unless no further payments are due during the remainder of the six month
period. Gain or loss recognized on the sale, exchange or other disposition of a
senior note starting from the earlier of the date that is six months after the
interest rate on the senior notes is reset or the date when no further payments
are due during the six month period after the interest rate on senior notes is
reset will generally be ordinary income or loss to the extent attributable to
the difference, if any, between the present value of the total remaining
principal and interest payments due on the senior note and the present value of
the total remaining payments set forth on the projected payment schedule for
such senior note. The amount of any ordinary loss may not exceed your prior net
interest inclusions (reduced by the total net negative adjustments previously
allowed as an ordinary loss). Any gain or loss recognized in excess of such
amount on such sale, exchange or other disposition generally will be treated as
capital gain or loss. Capital gains of individuals derived in respect of capital
assets held for more than one year are subject to tax at preferential rates. The
deductibility of capital losses is subject to limitations. Because gain or loss
on the disposition of a senior note may be treated as ordinary income or loss,
disposition of normal units consisting of a senior note and purchase contract
may give rise to capital gain or loss on the purchase contract and ordinary
income or loss on the senior note, which must be reported separately for United
States federal income tax purposes.
Special rules apply in determining the tax basis of a senior note. Your
basis in a senior note is generally increased by original issue discount you
previously accrued on the senior note, and reduced by the fixed payments you
receive and by the contingent payments projected to be made during the period
you held the senior note.
REMARKETING OR TAX EVENT REDEMPTION OF THE SENIOR NOTES
A remarketing or tax event redemption of the senior notes will be a taxable
event for holders of senior notes that will be subject to tax in the manner
described above under "-- Sale or Disposition of Normal Units, Stripped Units or
Senior Notes."
OWNERSHIP OF TREASURY SECURITIES
We and, by acquiring normal units, you agree to treat yourself as the owner
of the treasury securities constituting a part of the normal units owned by you.
Your initial tax basis in the treasury securities will equal your pro rata
portion of the amount paid by the remarketing agent or collateral agent, as the
case may be, for the treasury securities. Your adjusted tax basis in the
treasury securities will be increased by the amount of original issue discount
included in income with respect thereto and decreased by the amount of cash
received in respect of the treasury securities.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
The treasury securities will consist of stripped United States treasury
securities. Following a remarketing or tax event redemption of the senior notes,
a holder of normal units will be required to treat its pro rata portion of each
stripped United States treasury security as a bond that was originally issued on
the date the remarketing agent or collateral agent acquired the relevant
treasury securities and that has original issue discount equal to the holder's
pro rata portion of the excess of the amounts payable on such treasury
securities over the value of the treasury securities at the time the remarketing
agent or collateral agent acquires them on behalf of holders of normal units. A
holder whether on the cash or accrual method of tax accounting will be required
to include original issue discount (other than original issue discount on
short-term United States treasury securities, as defined below) in income for
United States federal income tax purposes as it accrues on a constant yield to
maturity basis. Consequently, a portion of each scheduled payment to holders
will be treated as a return of such holder's investment in the treasury
securities and will not be considered current income for United States federal
income tax purposes.
In the case of any short-term United States treasury securities, in general
only accrual basis taxpayers will be required to include original issue discount
in income as it accrues. Unless you are an accrual basis
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holder who elects to accrue the original issue discount on short-term United
States treasury securities on a constant yield to maturity basis, you will
accrue such original issue discount on a straight-line basis.
NON-UNITED STATES HOLDERS
The following discussion only applies to Non-United States Holders. You are
a "Non-United States Holder" if you are not a United States person. Special
rules may apply to you if you are a "controlled foreign corporation," "passive
foreign investment company," "foreign personal holding company," a corporation
that accumulates earnings to avoid United States federal income tax or, in
certain circumstances, a United States expatriate, and such Non-United States
Holders should consult their own tax advisors.
UNITED STATES FEDERAL WITHHOLDING TAX
The 30% United States federal withholding tax will not apply to any payment
of principal or interest (including original issue discount) on the senior notes
or treasury securities provided that:
- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the Treasury regulations;
- you are not a controlled foreign corporation that is related to us
through stock ownership;
- you are not a bank whose receipt of interest on the senior notes or
treasury securities is described in section 881(c)(3)(A) of the Code; and
- (a) you provide your name and address on an IRS Form W-8BEN (or other
applicable form), and certify, under penalties of perjury, that you are
not a United States person, or (b) if you hold your normal units,
stripped units, senior notes or treasury securities through certain
foreign intermediaries, you satisfy the certification requirements of
applicable United States Treasury regulations. Special certification
requirements apply to certain Non-United States Holders that are
pass-through entities rather than individuals.
If you cannot satisfy the requirements described above, payments of
interest (including original issue discount) made to you will be subject to the
30% United States federal withholding tax, unless you provide us with a properly
executed:
- IRS Form W-8BEN (or other applicable form) claiming an exemption from, or
reduction in the rate of, withholding under the benefit of an applicable
tax treaty; or
- IRS Form W-8ECI (or other applicable form) stating that interest paid on
the senior notes or treasury securities is not subject to withholding tax
because it is effectively connected with your conduct of a trade or
business in the United States.
The 30% United States federal withholding tax will not apply to any gain
that you realize on the sale, exchange, or other disposition of the normal
units, stripped units, treasury securities, senior notes and our common stock
acquired under the purchase contract. However, interest income including
original issue discount and any gain treated as ordinary income that you realize
on the sale, exchange or other disposition of a senior note will be subject to
withholding in certain circumstances unless the conditions described above are
satisfied.
We will generally withhold tax at a 30% rate on contract adjustment
payments and dividends paid on our common stock acquired under a purchase
contract or such lower rate as may be specified by an applicable income tax
treaty. However, contract adjustment payments or dividends that are effectively
connected with the conduct of a trade or business by the Non-United States
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-United States
Holder, are not subject to the withholding tax, provided the relevant
certification requirements are satisfied, but instead are subject to United
States federal income tax, as described below.
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A Non-United States Holder of our common stock or a purchase contract who
wishes to claim the benefit of an applicable treaty rate for dividends or
contract adjustment payments, will be required to satisfy certain certification
and disclosure requirements described in the fourth bullet point above.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax on payments pursuant to an income tax treaty may obtain a refund
of any excess amounts withheld by filing an appropriate claim for refund with
the IRS.
UNITED STATES FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
(including original issue discount) on the senior notes or treasury securities,
dividends on our common stock, or to the extent they constitute taxable income,
contract adjustment payments from the purchase contracts are effectively
connected with the conduct of that trade or business, you will be subject to
United States federal income tax on the interest, dividends or contract
adjustment payments on a net income basis (although exempt from the 30%
withholding tax), in the same manner as if you were a United States person.
Certain certification and disclosure requirements must be complied with in order
for effectively connected income to be exempt from withholding. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year, subject to adjustments, that are effectively connected with the
conduct by you of a trade or business in the United States. For this purpose,
interest on the senior notes or treasury securities, dividends on our common
stock and, to the extent they constitute taxable income, the contract adjustment
payments from the purchase contracts will be included in earnings and profits.
Any gain realized on the disposition of treasury securities, a senior note
(to the extent not treated as interest income under the contingent payment debt
rules), a purchase contract or a share of our common stock generally will not be
subject to United States federal income tax unless:
- that gain or income is effectively connected with the conduct of a trade
or business by you in the United States; or
- you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other
conditions are met; or
- in the case of a purchase contract or our common stock, we are or have
been a "United States real property holding corporation" for U.S. federal
income tax purposes (subject to the discussion below).
An individual Non-United States Holder described in the first bullet above
will be subject to tax on the net gain derived from the sale under regular
graduated United States federal income tax rates. An individual Non-United
States Holder described in the second bullet point above will be subject to a
flat 30% tax on the gain derived from the sale, which may be offset by United
States source capital losses (even though the individual is not considered a
resident of the United States). If a Non-United States Holder that is a foreign
corporation falls under the first bullet above, it will be subject to tax on its
gain under regular graduated United States federal income tax rates and, in
addition, may be subject to the branch profits tax equal to 30% of its
effectively connected earnings and profits or at such lower rate as may be
specified by an applicable income tax treaty.
We have not determined whether we are a "United States real property
holding corporation" for United States federal income tax purposes. If we are or
become a "United States real property holding corporation," so long as our
common stock continues to be regularly traded on an established securities
market:
- you will not be subject to United States federal income tax on the
disposition of our common stock if you hold and have held (at all times
during the shorter of the five-year period immediately preceding the date
of disposition or your holding period) not more than 5% of the total
outstanding shares of our common stock; and
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- you will not be subject to United States federal income tax on the
disposition of the purchase contracts if on the day you acquired the
purchase contracts, the purchase contracts you acquired had a fair market
value less than 5% of the fair market value of all of the purchase
contracts.
UNITED STATES FEDERAL ESTATE TAX
Your estate will not be subject to United States federal estate tax on the
senior notes or treasury securities beneficially owned by you at the time of
your death, provided that:
- you do not own 10% or more of the total combined voting power of all
classes of our voting stock, within the meaning of the Code and Treasury
regulations; and
- interest on those senior notes or treasury securities would not have
been, if received at the time of your death, effectively connected with
the conduct by you of a trade or business in the United States.
Our common stock acquired under a purchase contract and owned by you at the
time of your death will be subject to United States federal estate tax unless an
applicable estate tax treaty provides otherwise. Purchase contracts owned by you
at the time of your death may be subject to United States federal estate tax
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
UNITED STATES HOLDERS
In general, information reporting requirements may apply to payments on
normal units, stripped units, senior notes, treasury securities, and our common
stock made to you and to the proceeds of the sale or other disposition of such
instruments, unless you are an exempt recipient such as a corporation. Backup
withholding may apply if you fail to supply an accurate taxpayer identification
number or otherwise fail to comply with applicable United States information
reporting or certification requirements.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
NON-UNITED STATES HOLDERS
The amount of the interest, contract adjustment payments and dividends on
our common stock paid to you and the tax withheld with respect to such interest,
contract adjustment payments and dividends, regardless of whether withholding
was required, must be reported annually to the IRS and to you. Copies of the
information returns reporting the amount of such interest, contract adjustment
payments, dividends and withholding may also be made available to the tax
authorities in the country in which you reside under the provisions of an
applicable income tax treaty.
In general, no backup withholding will be required regarding payments on
the normal units, stripped units, senior notes, treasury securities, or our
common stock (except possibly with respect to contract adjustment payments) that
we make to you provided that we do not have actual knowledge or reason to know
that you are a United States person and you have delivered the statement
described above under "Non-United States Holders -- United States Federal
Withholding Tax."
In addition, no information reporting or backup withholding will be
required regarding the proceeds of the sale of normal units, stripped units,
senior notes, treasury securities, or our common stock made within the United
States or conducted through certain United States financial intermediaries if:
- the payor (1) receives the statement described above and (2) does not
have actual knowledge or reason to know that you are a United States
person; or
- you otherwise establish an exemption.
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Backup withholding may apply if you fail to comply with applicable United
States information reporting or certification requirements.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
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ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
acquisition, holding and disposition of normal units (and the component
securities of such normal units) by employee benefit plans that are subject to
Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended
("ERISA"), plans, individual retirement accounts and other arrangements that are
subject to Section 4975 of the Code or provisions under any federal, state,
local, non-U.S. or other laws or regulations that are similar to such provisions
of the Code or ERISA (collectively, "similar laws"), and entities whose
underlying assets are considered to include "plan assets" of such plans,
accounts and arrangements (each, a "plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of
a plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA plan")
and prohibit certain transactions involving the assets of an ERISA plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such a plan or the management or disposition of the assets of such plan, or who
renders investment advice for a fee or other compensation to such a plan, is
generally considered to be a fiduciary of the plan.
In considering an investment by a plan in the normal units (or any
component security of such normal units), the fiduciary of the plan should
determine whether the investment is in accordance with the documents and
instruments governing the plan and the applicable provisions of ERISA, the Code
or any similar law relating to a fiduciary's duties to the plan including,
without limitation, the prudence, diversification, delegation of control and
prohibited transaction provisions of ERISA, the Code and any other applicable
similar laws.
Any insurance company proposing to invest assets of its general account in
the normal units (or any component security of such normal units) should
consider the extent that such investment would be subject to the requirements of
ERISA in light of the U.S. Supreme Court's decision in John Hancock Mutual Life
Insurance Co. v. Harris Trust and Savings Bank and under any subsequent
legislation or other guidance that has or may become available relating to that
decision, including the enactment of Section 401(c) of ERISA by the Small
Business Job Protection Act of 1996 and the regulations promulgated thereunder.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA plans from
engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction with an ERISA plan may be subject
to excise taxes and other penalties and liabilities under ERISA and the Code. In
addition, the fiduciary of the ERISA plan that engages in such a non-exempt
prohibited transaction may be subject to penalties and liabilities under ERISA
and the Code.
If the normal units (or any component security of such normal units) are
acquired by an ERISA plan, the acquisition, holding and disposition of the
normal units (or any component security of such normal units) may constitute or
result in a direct or indirect prohibited transaction under Section 406 of ERISA
and/or Section 4975 of the Code if (i) we or our affiliates are a party in
interest or disqualified person with respect to such plan or (ii) the ERISA plan
sells or disposes of such normal units (or any component security of such normal
units) to a counterparty that is a party in interest or disqualified person with
respect to such plan, in each case, unless an exemption is available. In
addition, the disposition of the normal units (or any component security of such
normal units) to a plan may constitute or result in a direct or indirect
prohibited transaction under Section 406 of ERISA and/or Section 4975 of the
Code if the counterparty to the disposition is a party in interest or
disqualified person with respect to such plan, unless an exemption is available.
In this regard, the U.S. Department of Labor has issued prohibited transaction
class exemptions, or "PTCEs," that may apply to these transactions. These class
exemptions include, without limitation, PTCE 84-14 respecting transactions
determined by independent qualified professional asset managers,
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PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38
respecting bank collective investment funds, PTCE 95-60 respecting life
insurance company general accounts, PTCE 96-23 respecting transactions
determined by in-house asset managers, and PTCE 75-1 respecting principal
transactions by a broker-dealer, although there can be no assurance that all of
the conditions of any such exemptions will be satisfied. Governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA),
while not subject to the prohibited transaction provisions of ERISA and Section
4975 of the Code, may nevertheless be subject to similar laws. Fiduciaries of
any such plans should consult with their counsel before acquiring normal units
(or the securities held as part of the normal units).
Accordingly, each purchaser and subsequent transferee of the normal units
(or any component security of such normal units) will be deemed to have
represented and warranted on each day from and including the date of its
acquisition of the normal units (or any component security of such normal units)
through and including the date of the satisfaction of the obligation under the
purchase contract and/or the disposition of any such normal units (or any
component security of such normal units) either (i) no portion of the assets
used by such purchaser or subsequent transferee to acquire the normal units (or
any component security of such normal units) constitute the assets of any plan
or (ii) the acquisition, holding and the disposition of any normal units (or any
component security of such normal units) by such purchaser or subsequent
transferee does not and will not constitute a non-exempt prohibited transaction
under ERISA or Section 4975 of the Code or a violation of any similar laws.
Any plan or other entity whose assets include plan assets subject to ERISA,
Section 4975 of the Code or similar laws should consult their advisors and/or
counsel regarding the consequences of on investment in the normal units (and any
component security of such normal units).
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated June 20, 2002, each underwriter named below has agreed to purchase the
number of normal units set forth opposite the underwriter's name.
NUMBER OF
UNDERWRITER NORMAL UNITS
----------- ------------
Credit Suisse First Boston Corporation...................... 3,250,000
J.P. Morgan Securities Inc. ................................ 3,250,000
Banc of America Securities LLC.............................. 875,000
Lehman Brothers Inc. ....................................... 875,000
Morgan Stanley & Co. Incorporated........................... 875,000
Salomon Smith Barney Inc. .................................. 875,000
----------
Total....................................................... 10,000,000
==========
The underwriting agreement provides that if the underwriters take any of
these normal units, then they must take all of these normal units. The
underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
The underwriters are offering the normal units, subject to the prior sale
of normal units, and when, as and if such normal units are delivered to and
accepted by them. The underwriters will offer to sell the normal units to the
public at the offering price shown on the cover page of this prospectus
supplement. The underwriters may sell normal units to securities dealers at a
discount of up to $0.90 per normal unit from the public offering price. After
the offering, the underwriters may vary the public offering price and other
selling terms.
If the underwriters sell more normal units than the total number shown in
the table above, the underwriters have the option to buy up to an additional
1,500,000 normal units from us to cover such sales. They may purchase such
normal units within 13 days of the date of the original issuance of the normal
units.
The normal units have been approved for listing on the New York Stock
Exchange under the symbol "EP PrA." The underwriters will undertake to sell a
minimum of 1,000,000 normal units, with an aggregate market value of at least
$4,000,000 to not less than 400 holders of normal units to meet the New York
Stock Exchange initial distribution requirements. Our common stock is listed on
the New York Stock Exchange and Pacific Exchange under the symbol "EP."
The following table shows the per normal unit and total underwriting
discounts that we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional normal units.
UNDERWRITING DISCOUNTS
--------------------------------
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
EXERCISE EXERCISE
-------------- --------------
Per normal unit............................................. $ 1.50 $ 1.50
Total....................................................... $15,000,000 $17,250,000
The underwriters have advised us that, pursuant to Regulation M under the
Securities Exchange Act of 1934, as amended, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate covering
transactions and penalty bids, that may have the effect of stabilizing or
maintaining the market price of our normal units or our common stock at a level
above that which might otherwise prevail in the open market.
- Stabilizing transactions permit bids to purchase our normal units or our
common stock so long as the stabilizing bids do not exceed a specified
maximum.
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- Over-allotment involves sales by the underwriters of normal units in
excess of the number of normal units the underwriters are obligated to
purchase, which creates a syndicate short position. The short position
may be either a covered short position or a naked short position. In a
covered short position, the number of normal units over-allotted by the
underwriters is not greater than the number of normal units that they may
purchase in the over-allotment option. In a naked short position, the
number of normal units involved is greater than the number of normal
units in the over-allotment option. The underwriters may close out any
covered short position by either exercising their over-allotment option
and/or purchasing normal units in the open market.
- Syndicate covering transactions involve purchases of normal units in the
open market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of normal units to
close out the short position, the underwriters will consider, among other
things, the price of normal units available for purchase in the open
market as compared to the price at which they may purchase normal units
through the over-allotment option. If the underwriters sell more normal
units than could be covered by the over-allotment option, a naked short
position, the position can only be closed out by buying normal units in
the open market. A naked short position is more likely to be created if
the underwriters are concerned that there could be downward pressure on
the price of the normal units or our common stock in the open market
after pricing that could adversely affect investors who purchase in the
offering.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the normal units originally sold by the syndicate
member are purchased in a stabilizing or syndicate covering transaction
to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our normal
units and our common stock or preventing or retarding a decline in the market
price of our normal units and our common stock. As a result the price of our
normal units and our common stock may be higher than the price that might
otherwise exist in the open market. These transactions may be effected on the
New York Stock Exchange, the Pacific Exchange (with respect to our common stock)
or otherwise and, if commenced, may be discontinued at any time.
This prospectus supplement and the accompanying prospectus, as amended or
supplemented, may be used in connection with the early settlement of the
purchase contracts.
We estimate that the total expenses of this offering, excluding
underwriting discounts, will be approximately $150,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
We have agreed with the underwriters that, subject to limited exceptions,
including our concurrent offering of common stock, for a period of 90 days
following the date of this prospectus supplement, without the prior written
consent of both Credit Suisse First Boston Corporation and J.P. Morgan
Securities Inc., we will not dispose of, or file with the SEC a registration
statement relating to, or hedge any normal units, purchase contracts or any
shares of our common stock or any securities substantially similar to normal
units, purchase contracts or shares of our common stock or any securities
convertible into or exchangeable or exercisable for normal units, purchase
contracts or shares of our common stock (other than the exercise of outstanding
options and issuance of shares issuable under plans for employees or
shareholders in effect on the date of this prospectus supplement). Certain of
our directors and executive officers will agree with the underwriters that,
subject to limited exceptions, they will not dispose of or hedge any normal
units, purchase contracts or any shares of our common stock or any securities
substantially similar to normal units, purchase contracts or shares of our
common stock or any securities convertible into or exchangeable or exercisable
for normal units, purchase contracts or shares of our common stock (other than
the exercise of outstanding options and issuance of shares issuable under plans
for employees or shareholders in effect on the date of this prospectus
supplement) for a period of 45 days following the date of this prospectus
supplement, without the prior written consent of Credit Suisse First Boston
Corporation and J.P. Morgan Securities Inc. may, at any
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time without prior notice, release all or any portion of the securities subject
to these lock-up agreements from these restrictions.
It is expected that delivery of the normal units will be made to investors
on or about June 26, 2002.
From time to time in the ordinary course of their respective businesses,
the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the normal units in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of normal units are made. Any resale of the normal units in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the normal units.
REPRESENTATIONS OF PURCHASERS
By purchasing normal units in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the normal units without the benefit of a prospectus qualified
under those securities laws;
- where required by law, that the purchaser is purchasing as principal and
not as agent; and
- the purchaser has reviewed the text above under Resale Restrictions.
RIGHTS OF ACTION -- ONTARIO PURCHASERS ONLY
Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus supplement during the period of distribution will
have a statutory right of action for damages, or while still the owner of the
shares, for rescission against us in the event that this prospectus contains a
misrepresentation. A purchaser will be deemed to have relied on the
misrepresentation. The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first had knowledge of the
facts giving rise to the cause of action and three years from the date on which
payment is made for the shares. The right of action for rescission is
exercisable not later than 180 days from the date on which payment is made for
the normal units. If a purchaser elects to exercise the right of action for
rescission, the purchaser will have no right of action for damages against us.
In no case will the amount recoverable in any action exceed the price at which
the normal units were offered to the purchaser and if the purchaser is shown to
have purchased the normal units with knowledge of the misrepresentation, we will
have no liability. In the case of an action for damages, we will not be liable
for all or any portion of the damages that are proven to not represent the
depreciation in value of the normal units as a result of the misrepresentation
relied upon. These rights are in addition to, and without derogation from, any
other rights or remedies available at law to an Ontario purchaser. The foregoing
is a summary of the rights available to an Ontario purchaser. Ontario purchasers
should refer to the complete text of the relevant statutory provisions.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named herein or in
the accompanying prospectus may be located outside of Canada and, as a result,
it may not be possible for Canadian purchasers to effect service of process
within Canada upon us or those persons. All or a substantial portion of our
assets and the assets of those persons may be located outside of Canada and, as
a result, it may not be possible to satisfy a
S-67
judgment against us or those persons in Canada or to enforce a judgment obtained
in Canadian courts against us or those persons outside of Canada.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of normal units should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the normal
units in their particular circumstances and about the eligibility of the normal
units for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
Certain legal matters with respect to this offering of the normal units
will be passed on for us by Locke Liddell & Sapp LLP, Houston, Texas. Certain
legal matters with respect to this offering of the normal units will be passed
upon for the underwriters by Andrews & Kurth Mayor, Day, Caldwell & Keeton
L.L.P., Houston, Texas, and Simpson Thacher & Bartlett, New York, New York.
S-68
Filed pursuant to Rule 424(b)(3)
Registration No. 333-82412
PROSPECTUS
$3,000,000,000
EL PASO CORPORATION
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
PURCHASE CONTRACTS
WARRANTS
UNITS
---------------------
EL PASO CAPITAL TRUST II
EL PASO CAPITAL TRUST III
TRUST PREFERRED SECURITIES
(GUARANTEED BY EL PASO CORPORATION)
El Paso Corporation may offer and sell in one or more offerings:
- unsecured debt securities consisting of senior notes and debentures and
subordinated notes and debentures and/or other unsecured evidences of
indebtedness in one or more series;
- shares of preferred stock, in one or more series, which may be
convertible or exchangeable for common stock or debt securities;
- shares of common stock;
- purchase contracts for the purchase or sale of our common stock,
preferred stock, debt securities, warrants or units, or for the purchase
or sale of securities of a third party, currencies or commodities;
- warrants to purchase our common stock, preferred stock, debt securities,
purchase contracts or units, or to purchase or sell securities of a third
party, currencies or commodities; and
- units consisting of any combination of our common stock, preferred stock,
debt securities, purchase contracts or warrants.
El Paso Capital Trust II and El Paso Capital Trust III, each a wholly owned
subsidiary of El Paso Corporation, may offer and sell in one or more offerings:
- trust preferred securities representing undivided beneficial interests in
the assets of each trust. As described in this document, we will provide
a limited guarantee of the payment by each trust of distributions on the
trust preferred securities and the payment upon liquidation and
redemption.
The aggregate initial offering price of the securities that we offer by
this prospectus will not exceed $3,000,000,000. We will offer the securities in
amounts, at prices and on terms to be determined by market conditions at the
time of our offerings.
We will provide the specific terms of the securities in supplements to this
prospectus. You should read this prospectus and the prospectus supplements
carefully before you invest in any of our securities. This prospectus may not be
used to consummate sales of our securities unless it is accompanied by a
prospectus supplement.
Our common stock is listed for trading on the New York Stock Exchange and
the Pacific Exchange under the symbol "EP."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 27, 2002
TABLE OF CONTENTS
PAGE
----
About this Prospectus....................................... i
Cautionary Statement Regarding Forward-Looking Statements... 1
Where You Can Find More Information......................... 2
El Paso Corporation......................................... 4
The Trusts.................................................. 6
Use of Proceeds............................................. 7
Ratio of Earnings to Fixed Charges.......................... 7
Description of the Debt Securities.......................... 8
Description of Capital Stock................................ 17
Description of Purchase Contracts........................... 24
Description of Warrants..................................... 25
Description of Units........................................ 26
Description of the Trust Preferred Securities............... 26
Description of the Trust Preferred Securities Guarantees.... 27
Relationship among the Trust Preferred Securities, the
Subordinated Debt Securities and the Guarantees........... 30
Plan of Distribution........................................ 32
Legal Matters............................................... 33
Experts..................................................... 33
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission (SEC) utilizing a "shelf" registration
process. Under this shelf process, we may sell different types of securities
described in this prospectus in one or more offerings up to a total offering
amount of $3,000,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering and the securities offered by us in that
offering. The prospectus supplement may also add, update or change information
in this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information."
In this prospectus, references to "El Paso," "we," "us" and "our" mean El
Paso Corporation, and references to an "El Paso Trust" or a "trust" mean El Paso
Capital Trust II and/or El Paso Capital Trust III.
i
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
We have made statements in this document and in documents that we have
incorporated by reference into this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations of El Paso. These statements may relate to, but are
not limited to, information or assumptions about earnings per share, capital and
other expenditures, dividends, financing plans, capital structure, cash flow,
pending legal proceedings and claims, including environmental matters, future
economic performance, operating income, management's plans, goals and objectives
for future operations and growth and markets for the stock of El Paso. These
forward-looking statements generally are accompanied by words such as "intend,"
"anticipate," "believe," "estimate," "expect," "should" or similar expressions.
You should understand that these forward-looking statements are estimates
reflecting the best judgment of senior management of El Paso, not guarantees of
future performance. They are subject to a number of assumptions, risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements. Important factors that
could cause actual results to differ materially from estimates or projections
contained in forward-looking statements include, among others, the following:
- the risk that earnings may be adversely affected by fluctuating energy
prices;
- the risk that rates charged to customers may be reduced by governmental
authorities;
- the highly competitive nature of the natural gas transportation,
gathering, processing and storage businesses, the oil and gas exploration
and production business, the energy marketing and power generation
industries, the crude oil refining and chemical production businesses and
the coal mining business;
- the risk of favorable customer contracts expiring or being renewed on
less attractive terms;
- the risk that we may have difficulty accessing capital on attractive
terms in the wake of recent events that have disrupted financial markets
and the availability and cost of capital;
- risks associated with possible judgments or sanctions in connection with
the energy crisis in California;
- the timing and success of our exploration and development drilling
programs, which would affect production levels and reserves;
- changes to our estimates of oil, gas and coal reserves;
- the risk of financial losses arising out of derivative transactions;
- risks incident to the drilling and operation of oil and gas wells;
- risks incident to operating crude oil refineries, chemical plants and
coal mines;
- future drilling, production and development costs, including drilling rig
rates;
- the costs of environmental liabilities, regulations and litigation;
- the impact of operational hazards;
- the risk that required regulatory approvals for proposed pipeline,
storage and power generation projects may be delayed or may only be
granted on terms that are unacceptable or significantly less favorable
than anticipated;
- the risks associated with future weather conditions;
1
- the impact of the loss of key employees; and
- the risk that other firms will further expand into markets in which we
operate.
These factors are more fully described in our Current Report on Form 8-K/A
filed May 17, 2001 under the heading "Risk Factors and Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation
Reform Act of 1995" and are incorporated herein by reference. Other factors that
could cause actual results to differ materially from estimates and projections
contained in forward-looking statements are described in the other documents
that we incorporated by reference into this document. In addition, we can give
you no assurance that:
- we have correctly identified and assessed all of the factors affecting
our businesses;
- the publicly available and other information with respect to these
factors on which we have based our analysis is complete or correct;
- our analysis is correct; or
- our strategies, which are based in part on this analysis, will be
successful.
Accordingly, you should not place undue reliance on forward-looking
statements, which speak only as of the date of this prospectus, or, in the case
of documents incorporated by reference, the date of those documents.
All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this prospectus or to reflect the occurrence of unanticipated events.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities
Act of 1933 that registers the securities offered by this prospectus. The
registration statement, including the attached exhibits, contains additional
relevant information about us. The rules and regulations of the SEC allow us to
omit some information included in the registration statement from this
prospectus.
In addition, we file reports and other information with the SEC under the
Securities Exchange Act of 1934. You may read and copy this information at the
SEC's public reference room, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549.
You may also obtain copies of this information by mail at prescribed rates
from the SEC's public reference room, at the address above. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room. The SEC
also maintains an Internet world wide web site that contains reports, proxy
statements and other information about issuers, including El Paso, that file
electronically with the SEC. The address of that site is http://www.sec.gov. You
can also inspect reports, proxy statements and other information about us at the
offices of The New York Stock Exchange, Inc., located at 20 Broad Street, New
York, New York 10005 and at the offices of the Pacific Exchange at 115 Sansome
Street, San Francisco, California 94104.
The SEC allows us to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this document, except for
any information that is superseded by information that is included directly in
this document.
2
We incorporate by reference the documents listed below that we have
previously filed with the SEC. They contain important information about us and
our financial condition. Some of these filings have been amended by later
filings, which are also listed.
- Annual Report on Form 10-K, for the year ended December 31, 2000;
- Audited combined financial statements as filed on Current Report on Form
8-K/A dated May 17, 2001;
- Current Reports on Form 10-Q for the quarters ended March 31, 2001, June
30, 2001 and September 30, 2001;
- Current Reports on Form 8-K filed January 3, 2001, January 29, 2001,
February 2 2001, February 5, 2001, February 6, 2001, February 15, 2001,
February 21, 2001, February 23, 2001, March 2, 2001, March 23, 2001,
March 26, 2001, March 29, 2001, May 14, 2001, July 26, 2001, July 30,
2001, December 14, 2001, December 26, 2001, January 4, 2002, and January
11, 2002 and Current Reports on Form 8-K/A filed May 17, 2001, July 31,
2001 and January 8, 2002;
- Proxy Statement for the Annual Meeting of Shareholders held on May 21,
2001, filed March 27, 2001; and
- The description of our capital stock contained in our registration
statement on Form 8-A, dated April 5, 2001 and the description of our
preferred stock purchase rights contained in our registration statement
on Form 8-A/A, dated January 29, 1999.
We also incorporate by reference additional documents that we may file with
the SEC until all of the securities offered by this prospectus have been sold.
These documents include periodic reports, including Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
document through us or from the SEC through the SEC's website at the
http://www.sec.gov. Documents incorporated by reference are available from us
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this document. You can
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from us at the following address:
El Paso Corporation
Office of Investor Relations
El Paso Building
1001 Louisiana Street
Houston, Texas 77002
Telephone No.: (713) 420-2600
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION IN THIS DOCUMENT
OR IN OUR DOCUMENTS THAT ARE PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE
DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT THESE
ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF ITS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
3
EL PASO CORPORATION
BUSINESS
We are a global energy company with operations that extend from energy
production and extraction to power generation.
Our principal operations include:
- natural gas transportation, gathering, processing, and storage;
- energy-related commodities and products marketing;
- power generation;
- petroleum refining;
- chemicals production;
- energy infrastructure facility development and operation;
- natural gas and oil exploration and production; and
- coal mining.
Our Pipeline segment owns or has interests in approximately 60,000 miles of
interstate natural gas pipelines in the United States and internationally. In
the United States, our systems connect the nation's principal natural gas supply
regions to the five largest consuming regions in the United States: the Gulf
Coast, California, the Northeast, the Midwest, and the Southeast. These
operations represent one of the largest, and only, integrated coast-to-coast
mainline natural gas transmission system in the United States. Our U.S. pipeline
systems also own or have interests in over 425 billion cubic feet of storage
capacity used to provide a variety of services to our customers. Our
international pipeline operations include access from our U.S. based systems
into Canada and Mexico as well as interests in three major operating natural gas
transmission systems in Australia.
Our Merchant Energy segment is involved in a broad range of activities in
the energy marketplace including asset ownership, trading and risk management
and financial services. We are one of North America's largest wholesale energy
commodity marketers and traders, and buy, sell, and trade natural gas, power,
crude oil, refined products, coal, and other energy commodities in the United
States and internationally. We are also a significant non-utility owner of
electric generating capacity. Our refineries have the capacity to process
450,000 barrels of crude oil per day and produce a variety of gasolines and
other products. We also produce agricultural and industrial chemicals and
petrochemicals at seven facilities in the United States and Canada. Our coal
operations produce high-quality, bituminous coal with reserves in Kentucky,
Virginia, and West Virginia. Most recently, we have announced our expansion into
the liquefied natural gas business. The financial services businesses of
Merchant Energy invest in emerging businesses to facilitate growth in the U.S.
and Canadian energy markets.
Our Field Services segment provides natural gas gathering, products
extraction, fractionation, dehydration, purification, compression and intrastate
transmission services. These services include gathering of natural gas from more
than 15,000 natural gas wells with approximately 24,000 miles of natural gas
gathering and natural gas liquids pipelines, and 35 natural gas processing,
treating, and fractionation facilities located in some of the most prolific and
active production areas in the U.S., including the San Juan Basin, east and
south Texas, Louisiana, the Gulf of Mexico, and the Rocky Mountains. We conduct
our intrastate transmission operations through interests in six intrastate
systems, which serve a majority of the metropolitan areas and industrial load
centers in Texas as well as markets in Louisiana. We serve as the general
partner of El Paso Energy Partners, L.P., a publicly traded master limited
partnership. El Paso Energy Partners, L.P. provides natural gas and oil
gathering, transportation, storage, processing and other related services.
4
Our Production segment leases approximately 5 million net acres in 16
states, including Colorado, Kansas, Louisiana, New Mexico, Texas, Oklahoma,
Utah, Wyoming, and Arkansas, as well as the Gulf of Mexico. We also have
exploration and production rights in Australia, Brazil, Canada, Hungary,
Indonesia, and Turkey. During 2000, daily equivalent natural gas production
exceeded 1.6 billion cubic feet per day, and our reserves at December 31, 2000,
were approximately 6.4 trillion cubic feet of natural gas equivalents.
Our principal executive offices are located in the El Paso Building,
located at 1001 Louisiana Street, Houston, Texas 77002, and our telephone number
at that address is (713) 420-2600.
5
THE TRUSTS
El Paso Capital Trust II and El Paso Capital Trust III are statutory
business trusts created under Delaware law by filing a certificate of trust with
the Delaware Secretary of State. Each trust's business is defined in a
declaration of trust which we have executed, as sponsor for each of the trusts.
Officers of El Paso are the administrative trustees, as defined below, for each
of the trusts. Each declaration will be amended and restated before any trust
preferred securities are sold by that trust. Each declaration will also be
qualified as an indenture under the Trust Indenture Act of 1939, as amended.
Each trust exists for the exclusive purposes of:
- issuing and selling the trust preferred securities and the trust common
securities;
- investing the gross proceeds from the sale of the trust preferred
securities in subordinated debt securities issued by us; and
- engaging in only those other activities necessary or incidental to these
purposes.
We will, directly or indirectly, purchase trust common securities in an
aggregate liquidation amount equal to 3% of the total capital of an El Paso
Trust in connection with an offering of trust preferred securities by the trust.
Each trust's business and affairs will be conducted by its trustees. A
majority of the trustees of each trust will be administrative trustees and will
be persons who are employees or officers of or affiliated with us. One trustee
of each trust will be a financial institution that will be unaffiliated with us
and that will act as property trustee and as indenture trustee for purposes of
the Trust Indenture Act, as described in the applicable prospectus supplement.
In addition, unless the property trustees maintain a principal place of business
in the State of Delaware, and otherwise meet the requirements of applicable law,
one trustee of each trust, the Delaware trustee, will have its principal place
of business or reside in the State of Delaware. The administrative trustees and
the property trustees, together with the Delaware trustee, are referred to in
this document as the "trustees." Each trust's business and affairs will be
conducted by the administrative trustees appointed by us, as the direct or
indirect holder of all the trust common securities. Except in limited
circumstances, we, as the holder of the trust common securities, will be
entitled to appoint, remove or replace any of, or increase or reduce the number
of, the trustees of a trust. The declaration of each trust will govern the
duties and obligations of the trustees. We will pay and guarantee all fees and
expenses related to the trusts and the offering of trust securities.
The office of the Delaware Trustee for each El Paso Trust in the State of
Delaware is 1201 Market Street, Wilmington, Delaware 19801. The principal place
of business of each El Paso Trust will be c/o El Paso Corporation, El Paso
Building, 1001 Louisiana Street, Houston, Texas 77002, and its telephone number
is (713) 420-2600.
6
USE OF PROCEEDS
We will use the net proceeds we receive from the sale of the securities
offered by this prospectus for general corporate purposes unless we specify
otherwise in an applicable prospectus supplement. We may invest any funds we do
not require immediately for general corporate purposes in marketable securities
and short-term investments. The trusts will use all proceeds received from the
sale of the trust preferred securities to purchase subordinated debt securities
issued by us.
RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -------------
1996 1997 1998 1999 2000 2000 2001
----- ----- ---- ----- ----- ----- ----
Ratio of Earnings to Fixed
Charges(1)........................ 2.63x 2.40x --(2) 1.16x 2.20x 2.11x --(2)
---------------
(1) During 1998, 1999 and 2001, we incurred charges related to our natural gas
and oil producing activities. We also completed several significant mergers,
including those with Sonat Inc. in 1999 and The Coastal Corporation in 2001.
Following these mergers, we incurred significant merger-related charges. For
a further discussion of these charges and their impact on our earnings in
these years, please see our filings with the Securities and Exchange
Commission incorporated by reference into this prospectus.
(2) Earnings were inadequate to cover fixed charges by $1 million in 1998 and
$432 million for the nine months ended September 30, 2001.
For purposes of computing these ratios, earnings means income (loss) from
continuing operations before:
- income taxes;
- minority interest in majority-owned subsidiaries;
- interest expense, not including interest on rate refunds;
- amortization of debt costs;
- that portion of rental expense that we believe to represent an interest
factor; and
- adjustment to equity earnings to reflect actual distributions from equity
investments.
Fixed charges means the sum of the following:
- interest cost, excluding interest on rate refunds;
- amortization of debt costs;
- that portion of rental expense that we believe to represent an interest
factor;
- the pre-tax preferred stock dividend requirements of majority-owned
subsidiaries; and
- minority interest in majority-owned subsidiaries.
7
DESCRIPTION OF THE DEBT SECURITIES
Any debt securities we offer will be our direct, unsecured general
obligations. The debt securities will be either senior debt securities or
subordinated debt securities and will be issued under one or more separate
indentures between us and JPMorgan Chase Bank (formerly known as The Chase
Manhattan Bank), as indenture trustee. Senior debt securities will be issued
under a "senior indenture" and subordinated debt securities will be issued under
a "subordinated indenture." Together the senior indenture and the subordinated
indenture are called "indentures."
We have summarized selected provisions of the indentures below. The
following description is a summary of the material provisions of the indentures.
It does not restate those agreements in their entirety. We urge you to read each
of the indentures because each one, and not this description, defines your
rights as holders of the debt securities. A senior indenture and a subordinated
indenture between us and JPMorgan Chase Bank, as trustee, have been filed as
exhibits to the registration statement.
GENERAL
The debt securities will be our direct, unsecured obligations. The senior
debt securities will rank equally with all of our other senior and
unsubordinated debt. The subordinated debt securities will have a junior
position to all of our senior debt securities.
If El Paso Capital Trust II or El Paso Capital Trust III issues trust
preferred securities, we will also issue subordinated debt securities to the
trust or a trustee of either trust. If the trusts are subsequently dissolved
upon the occurrence of the events described in the prospectus supplement
relating to the trust preferred securities, the trusts or trustees may
distribute these subordinated debt securities ratably to the holders of trust
preferred securities.
A prospectus supplement and a supplemental indenture relating to any series
of debt securities being offered will include specific terms relating to the
offered debt securities. These terms will include some or all of the following:
- the title and type of the debt securities;
- the total principal amount of the debt securities and the currency, if
other than U.S. dollars, in which such notes are denominated;
- the percentage of the principal amount at which the debt securities will
be issued and any payments due if the maturity of the debt securities is
accelerated;
- the dates on which the principal of the debt securities will be payable
and the terms on which any such maturity date may be extended;
- the interest rate which the debt securities will bear and the interest
payment dates for the debt securities;
- the form of the subordinated debt securities we will issue to the trusts
or a trustee if the trusts issue trust preferred securities;
- in the case of subordinated debt securities issued to the trusts or
trustees, the right to extend payment periods and the duration of that
extension;
- any provisions relating to the convertibility of exchangability of the
debt securities for other debt securities or equity securities;
- any optional redemption periods;
- any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem some or all of the debt securities;
- any changes to or additional events of defaults or covenants;
- any special tax implications of the debt securities, including provisions
for original issue discount securities, if offered;
8
- restrictions on the declaration of dividends or requiring the maintenance
of any asset ratio or the creation or maintenance of reserves; and
- any other terms of the debt securities.
Neither of the indentures limits the amount of debt securities that may be
issued. Each indenture allows debt securities to be issued up to the principal
amount that we may authorize and may be in any currency or currency unit we
designate.
Debt securities of a series may be issued in registered, bearer, coupon or
global form.
DENOMINATIONS
The prospectus supplement for each issuance of debt securities will state
whether the securities will be issued in registered form of $1,000 each or
multiples of $1,000 or bearer form of $5,000 each.
SUBORDINATION
Under the subordinated indenture, payment of the principal, interest and
any premium on the subordinated debt securities will generally be subordinated
and junior in right of payment to the prior payment in full of all senior debt
securities. The subordinated indenture states that no payment of principal,
interest and any premium on the subordinated debt securities may be made in the
event:
- of any insolvency, bankruptcy or similar proceeding involving us or our
property, or
- we fail to pay the principal, interest, any premium or any other amounts
on any senior debt when due.
The subordinated indenture will not limit the amount of senior debt that we
may incur.
Senior debt includes all notes or other unsecured evidences of
indebtedness, including guarantees given by us, for money borrowed by us, not
expressly subordinate or junior in right of payment to any of our other
indebtedness.
CONSOLIDATION, MERGER OR SALE
Each indenture generally permits a consolidation or merger between us and
another corporation. They also permit us to sell all or substantially all of our
property and assets. If this occurs, the remaining or acquiring corporation will
assume all of our responsibilities and liabilities under the indentures,
including the payment of all amounts due on the debt securities and performance
of the covenants in the indentures. However, we will consolidate or merge with
or into any other corporation or sell all or substantially all of our assets
only according to the terms and conditions of the indentures. The remaining or
acquiring corporation will be substituted for us in the indentures with the same
effect as if it had been an original party to the indentures. After that the
successor corporation may exercise our rights and powers under any indenture, in
our name or in its own name. Any act or proceeding required or permitted to be
done by our board or any of our officers may be done by the board or officers of
the successor corporation. If we sell all or substantially all of our assets, we
will be released from all our liabilities and obligations under any indenture
and under the debt securities.
MODIFICATION OF INDENTURES
Under each indenture our rights and obligations and the rights of the
holders may be modified with the consent of the holders of a majority in
aggregate principal amount of the outstanding debt securities of each series
affected by the modification. No modification of the principal or interest
payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent.
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EVENTS OF DEFAULT
"Event of default" when used in an indenture, will mean any of the
following:
- failure to pay the principal of or any premium on any debt security when
due;
- failure to pay interest on any debt security for 30 days;
- failure to perform any other covenant in the indenture that continues for
60 days after being given written notice;
- certain events in our bankruptcy, insolvency or reorganization; or
- any other event of default included in any indenture or supplemental
indenture.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture. The trustee may withhold notice to the
holders of debt securities of any default, except in the payment of principal or
interest, if it considers such withholding of notice to be in the best interests
of the holders.
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% in aggregate principal
amount of the debt securities of the series may declare the entire principal of
all the debt securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can void the
declaration.
Other than its duties in case of a default, a trustee is not obligated to
exercise any of its rights or powers under any indenture at the request, order
or direction of any holders, unless the holders offer the trustee reasonable
indemnity. If they provide this reasonable indemnification, the holders of a
majority in principal amount of any series of debt securities may direct the
time, method and place of conducting any proceeding or any remedy available to
the trustee, or exercising any power conferred upon the trustee, for any series
of debt securities.
COVENANTS
General
Under the indentures, we will:
- pay the principal of, and interest and any premium on, the debt
securities when due;
- maintain a place of payment;
- deliver a report to the trustee at the end of each fiscal year reviewing
our obligations under the indentures; and
- deposit sufficient funds with any paying agent on or before the due date
for any principal, interest or premium.
The senior indenture provides that we will not, nor will we permit any
restricted subsidiary to, create, assume, incur or suffer to exist any lien upon
any principal property, whether owned or leased on the date of the senior
indenture or thereafter acquired, to secure any of our debt or any other person
(other than the senior debt securities issued under the senior indenture),
without causing all of the senior debt securities outstanding under the senior
indenture to be secured equally and ratably with, or prior to, the new debt so
long the new debt is so secured. This restriction does not prohibit us from
creating the following:
(i) any lien upon any of our property or assets or any restricted
subsidiary in existence on the date of the senior indenture or created
pursuant to an "after-acquired property" clause or similar term
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in existence on the date of the senior indenture or any mortgage, pledge
agreement, security agreement or other similar instrument in existence on
the date of the senior indenture;
(ii) any lien upon any property or assets created at the time of
acquisition of such property or assets by or any of our restricted
subsidiaries or within one year after such time to secure all or a portion
of the purchase price for such property or assets or debt incurred to
finance such purchase price, whether such debt was incurred prior to, at
the time of or within one year of such acquisition;
(iii) any lien upon any property or assets existing on the property at
the time of the acquisition of the property by us or any of our restricted
subsidiaries (whether or not the obligations secured are assumed by us or
any of our restricted subsidiaries);
(iv) any lien upon any property or assets of a person existing on the
property at the time that person becomes a restricted subsidiary by
acquisition, merger or otherwise;
(v) the assumption by us or any of our restricted subsidiaries of
obligations secured by any lien existing at the time of the acquisition by
us or any of our restricted subsidiaries of the property or assets subject
to such lien or at the time of the acquisition of the person which owns
that property or assets;
(vi) any lien on property to secure all or part of the cost of
construction or improvements on the property or to secure debt incurred
prior to, at the time of, or within one year after completion of such
construction or making of such improvements, to provide funds for any such
purpose;
(vii) any lien on any oil, gas, mineral and processing and other plant
properties to secure the payment of costs, expenses or liabilities incurred
under any lease or grant or operating or other similar agreement in
connection with or incident to the exploration, development, maintenance or
operation of such properties;
(viii) any lien arising from or in connection with a conveyance by us
or any of our restricted subsidiaries of any production payment with
respect to oil, gas, natural gas, carbon dioxide, sulphur, helium, coal,
metals, minerals, steam, timber or other natural resources;
(ix) any lien in favor of us or any of our restricted subsidiaries;
(x) any lien created or assumed by us or any of our restricted
subsidiaries in connection with the issuance of debt the interest on which
is excludable from gross income of the holder of such debt pursuant to the
Internal Revenue Code of 1986, as amended, or any successor statute, for
the purpose of financing, in whole or in part, the acquisition or
construction of property or assets to be used by us or any of our
subsidiaries;
(xi) any lien upon property or assets of any foreign restricted
subsidiary to secure debt of that foreign restricted subsidiary;
(xii) permitted liens (as defined below);
(xiii) any lien upon any additions, improvements, replacements,
repairs, fixtures, appurtenances or component parts thereof attaching to or
required to be attached to property or assets pursuant to the terms of any
mortgage, pledge agreement, security agreement or other similar instrument,
creating a lien upon such property or assets permitted by clauses (i)
through (xii), inclusive, above; or
(xiv) any extension, renewal, refinancing, refunding or replacement
(or successive extensions, renewals, refinancing, refundings or
replacements) of any lien, in whole or in part, that is referred to in
clauses (i) through (xiii), inclusive, above, or of any debt secured
thereby; provided, however, that the principal amount of debt secured shall
not exceed the greater of the principal amount of debt so secured at the
time of such extension, renewal, refinancing, refunding or replacement and
the original principal amount of debt so secured (plus in each case the
aggregate amount of premiums, other payments, costs and expenses required
to be paid or incurred in connection with such extension, renewal,
refinancing, refunding or replacement); provided further, however, that
such extension,
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renewal, refinancing, refunding or replacement shall be limited to all or a
part of the property (including improvements, alterations and repairs on
such property) subject to the encumbrance so extended, renewed, refinanced,
refunded or replaced (plus improvements, alterations and repairs on such
property).
Notwithstanding the foregoing, under the senior indenture, we may, and may
permit any restricted subsidiary to, create, assume, incur, or suffer to exist
any lien upon any principal property to secure our debt or any person (other
than the senior debt securities) that is not excepted by clauses (i) through
(xiv) above without securing the senior debt securities issued under the senior
indenture, provided that the aggregate principal amount of all debt then
outstanding secured by such lien and all similar liens, together with all net
sale proceeds from sale-leaseback transactions (excluding sale-leaseback
transactions permitted by clauses (i) through (iv), inclusive, of the first
paragraph of the restriction on sale-leasebacks covenant described below) does
not exceed 15% of consolidated net tangible assets.
The senior indenture also provides that we will not, nor will we permit any
restricted subsidiary to, engage in a sale-leaseback transaction, unless: (i)
such sale-leaseback transaction occurs within one year from the date of
acquisition of the principal property subject thereto or the date of the
completion of construction or commencement of full operations on such principal
property, whichever is later; (ii) the sale-leaseback transaction involves a
lease for a period, including renewals, of not more than three years; (iii) we
or any of our restricted subsidiaries would be entitled to incur debt secured by
a lien on the principal property subject thereto in a principal amount equal to
or exceeding the net sale proceeds from such sale-leaseback transaction without
securing the senior debt securities; or (iv) we or any of our restricted
subsidiaries, within a one-year period after such sale-leaseback transaction,
applies or causes to be applied an amount not less than the net sale proceeds
from such sale-leaseback transaction to (A) the repayment, redemption or
retirement of funded debt of us or any such restricted subsidiary, or (B)
investment in another principal property.
Notwithstanding the foregoing, under the senior indenture we may, and may
permit any restricted subsidiary to, effect any sale-leaseback transaction that
is not excepted by clauses (i) through (iv), inclusive, of the above paragraph,
provided that the net sale proceeds from such sale-leaseback transaction,
together with the aggregate principal amount of outstanding debt (other than the
senior debt securities) secured by liens upon principal properties not excepted
by clauses (i) through (xiv), inclusive, of the first paragraph of the
limitation on liens covenant described above, do not exceed 15% of the
consolidated net tangible assets.
Subordinated Indenture Covenants
If we issue subordinated debt securities to an El Paso Trust in connection
with the issuance of trust securities by the El Paso Trust and
- an event of default under the subordinated indenture has occurred,
- we are in default of our payment obligations under the related trust
guarantee or the guarantee of the trust common securities, or
- we have elected to defer payments of interest on the subordinated debt
securities by extending the interest payment period as provided in the
subordinated indenture, and the interest payment period, or any extension
of it, is continuing, then
we will be subject to restrictions regarding the declaration or payment of
dividends on, and the making of guarantee payments with respect to, any of our
capital stock, and the making of any payment of interest, principal or premium,
if any, on, or the repayment, repurchase or redemption of, any debt securities
(including guarantees) issued by us which rank the same as or junior to the
subordinated debt securities. These restrictions will be more fully described in
the prospectus supplement applicable to the particular series of subordinated
debt securities issued to a trust.
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If we issue subordinated debt securities to an El Paso Trust in connection
with the El Paso Trust's issuance of trust securities, for so long as such trust
securities remain outstanding, we will covenant in the declaration, the
guarantees or the supplemental indenture to the subordinated indenture with
respect to such El Paso Trust:
- to directly or indirectly maintain 100% ownership of the common
securities of the El Paso Trust; however, any permitted successor to us
under the subordinated indenture may succeed to our ownership of the
trust common securities and
- not to voluntarily terminate, wind-up or liquidate the El Paso Trust,
except in connection with
(i) the distribution of subordinated debt securities to the holders of
trust securities in liquidation of the trust,
(ii) the redemption of all of the trust securities of the trust, or
(iii) certain mergers, consolidations or amalgamations, each as
permitted by the declaration of the trust.
We will also covenant to use our commercially reasonable efforts, consistent
with the terms and provisions of the declaration of the El Paso Trust, to cause
the trust to remain classified as a grantor trust and not taxable as a
corporation for United States federal income tax purposes.
Definitions
The following are definitions of some terms used in the above covenant
descriptions:
"Consolidated net tangible assets" means, at any date of
determination, the total amount of assets after deducting (i) all current
liabilities (excluding (A) any current liabilities that by their terms are
extendable or renewable at the option of the obligor thereon to a time more
than 12 months after the time as of which the amount thereof is being
computed, and (B) current maturities of long-term debt), and (ii) the value
(net of any applicable reserves) of all goodwill, trade names, trademarks,
patents and other like intangible assets, all as set forth on our
consolidated balance sheet and our consolidated subsidiaries for our most
recently completed fiscal quarter, prepared in accordance with generally
accepted accounting principles.
"Debt" means any obligation created or assumed by any person to repay
money borrowed and any purchase money obligation created or assumed by such
person.
"Funded debt" means all debt maturing one year or more from the date
of the creation thereof, all debt directly or indirectly renewable or
extendible, at the option of the debtor, by its terms or by the terms of
any instrument or agreement relating thereto, to a date one year or more
from the date of the creation thereof, and all debt under a revolving
credit or similar agreement obligating the lender or lenders to extend
credit over a period of one year or more.
"Lien" means any mortgage, pledge, security interest, charge, lien or
other encumbrance of any kind, whether or not filed, recorded or perfected
under applicable law.
"Permitted liens" means (i) liens upon rights-of-way for pipeline
purposes; (ii) any governmental lien, mechanics', materialmen's, carriers'
or similar lien incurred in the ordinary course of business which is not
yet due or which is being contested in good faith by appropriate
proceedings and any undetermined lien which is incidental to construction;
(iii) the right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or by any provision of law, to purchase or recapture or to designate
a purchaser of, any property; (iv) liens of taxes and assessments which are
(a) for the then current year, (b) not at the time delinquent, or (c)
delinquent but the validity of which is being contested at the time by us
or any subsidiary in good faith; (v) liens of, or to secure performance of,
leases; (vi) any lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining
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indemnity or stay of judicial proceedings; (vii) any lien upon property or
assets acquired or sold by us or any restricted subsidiary resulting from
the exercise of any rights arising out of defaults on receivables; (viii)
any lien incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance, temporary disability,
social security, retiree health or similar laws or regulations or to secure
obligations imposed by statute or governmental regulations; (ix) any lien
upon any property or assets in accordance with customary banking practice
to secure any debt incurred by us or any restricted subsidiary in
connection with the exporting of goods to, or between, or the marketing of
goods in, or the importing of goods from, foreign countries; or (x) any
lien in favor of the U.S. or any state thereof, or any other country, or
any political subdivision of any of the foregoing, to secure partial,
progress, advance, or other payments pursuant to any contract or statute,
or any lien securing industrial development, pollution control, or similar
revenue bonds.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, other entity, unincorporated organization, or government or any
agency or political subdivision thereof.
"Principal property" means (a) any pipeline assets owned by us or by
any of our subsidiaries, including any related facilities employed in the
transportation, distribution or marketing of natural gas, that are located
in the U.S. or Canada, and (b) any processing or manufacturing plant owned
or leased by us or any of our subsidiaries that is located within the U.S.
or Canada, except, in the case of either clause (a) or (b), any such assets
or plant which, in the opinion our board of directors, is not material in
relation to our activities and our subsidiaries as a whole.
"Restricted subsidiary" means any of our subsidiaries owning or
leasing any principal property.
"Sale-leaseback transaction" means the sale or transfer by us or any
of our restricted subsidiaries of any principal property to a person (other
than us or a subsidiary) and the taking back by us or any of our restricted
subsidiaries, as the case may be, of a lease of such principal property.
PAYMENT AND TRANSFER
Unless we specify otherwise in a prospectus supplement, we will pay
principal, interest and any premium on the debt securities, and they may be
surrendered for payment or transferred, at the offices of the trustee. We will
make payment on registered securities by check mailed to the persons in whose
names the debt securities are registered or by transfer to an account maintained
by the registered holder on days specified in the indentures or any prospectus
supplement. If we make debt securities payments in other forms, we will specify
the form and place in a prospectus supplement.
We will maintain a corporate trust office of the trustee or another office
or agency for the purpose of transferring or exchanging fully registered
securities, without the payment of any service charge except for any tax or
governmental charge.
GLOBAL SECURITIES
We may issue one or more series of the debt securities as permanent global
debt securities deposited with a depositary. Unless otherwise indicated in the
prospectus supplement, the following is a summary of the depository arrangements
applicable to debt securities issued in permanent global form and for which The
Depositary Trust Company (DTC) acts as depositary.
Each global debt security will be deposited with, or on behalf of, DTC, as
depositary, and registered in the name of Cede & Co., as DTC's nominee, or such
other name as may be requested by an authorized representative of DTC. Except
under the limited circumstances described below, global debt securities are not
exchangeable for definitive certificated debt securities.
Ownership of beneficial interests in a global debt security is limited to
participants that have accounts with DTC, or persons that may hold interests
through those participants. In addition, ownership of beneficial interests by
participants in a global debt security will be evidenced only by, and the
transfer of
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that ownership interest will be effected only through, records maintained by DTC
for a global debt security. Ownership of beneficial interests in a global debt
security by persons that hold through participants will be evidenced only by,
and the transfer of that ownership interest within that participant will be
effected only through, records maintained by that participant. DTC has no
knowledge of the actual beneficial owners of the debt securities. Beneficial
owners will not receive written confirmation from DTC of their purchase, but
beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the participants through which the beneficial owners entered the
transaction. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in a global debt
security.
We will make payment of principal of, and interest on, debt securities
represented by a global debt security registered in the name of or held by DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner and holder of the global debt security representing those debt
securities. DTC has advised us that upon receipt of any payment of principal of,
or interest on, a global debt security, DTC will immediately credit
participants' accounts in amounts proportionate to their respective beneficial
interests in the principal amount of that global debt security as shown in the
records of DTC. Payments by participants to owners of beneficial interests in a
global debt security held through those participants will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the sole responsibility of those participants, subject to any
statutory or regulatory requirements that may be in effect from time to time.
Neither we, any trustee nor any of our respective agents, will be
responsible for any aspect of the records of DTC, any nominee or any participant
relating to, or payments made on account of, beneficial interests in a permanent
global debt security or for maintaining, supervising or reviewing any of the
records of DTC, any nominee or any participant relating to such beneficial
interests.
A global debt security is exchangeable for definitive debt securities
registered in the name of, and a transfer of a global debt security may be
registered to, any person other than DTC or its nominee, only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for that global debt security or at any time DTC ceases to be registered
under the Exchange Act;
- we determine in our discretion that the global debt security shall be
exchangeable for definitive debt securities in registered form; or
- there shall have occurred and be continuing an event of default or an
event which, with notice or the lapse of time or both, would constitute
an event of default under the debt securities.
Any global debt security that is exchangeable pursuant to the preceding
sentence will be exchangeable in whole for definitive debt securities in
registered form, of like tenor and of an equal aggregate principal amount as the
global debt security, in denominations specified in the applicable prospectus
supplement, if other than $1,000 and integral multiples of $1,000. The
definitive debt securities will be registered by the registrar in the name or
names instructed by DTC. We expect that these instructions may be based upon
directions received by DTC from its participants with respect to ownership of
beneficial interests in the global debt security.
Except as provided above, owners of the beneficial interests in a global
debt security will not be entitled to receive physical delivery of debt
securities in definitive form and will not be considered the holders of debt
securities for any purpose under the indentures. No global debt security shall
be exchangeable except for another global debt security of like denomination and
tenor to be registered in the name of DTC or its nominee. Accordingly, each
person owning a beneficial interest in a global debt security must rely on the
procedures of DTC and, if that person is not a participant, on the procedures of
the participant through which that person owns its interest, to exercise any
rights of a holder under the global debt security or the indentures.
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We understand that, under DTC's usual procedures, in the event that we
request any action of holders, or an owner of a beneficial interest in a global
debt security desires to give or take any action that a holder is entitled to
give or take under the debt securities or the indentures, DTC would authorize
the participants holding the relevant beneficial interests to give or take that
action, and those participants would authorize beneficial owners owning through
those participants to give or take that action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised us that DTC is a limited-purpose trust company organized
under the laws of the State of New York, 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 under the Exchange Act. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement of securities transactions among its participants in those securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its participants and by the New York Stock Exchange, Inc., the American Stock
Exchange LLC and the National Association of Securities Dealers, Inc. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
DTC may discontinue providing its services as securities depositary at any
time by giving reasonable notice to us or the Trustee, as agent. Under such
circumstances, we would attempt to obtain a successor securities depositary. If
we were unable to obtain a successor depositary, we would issue debt securities
in definitive form.
The information in this section concerning DTC and DTC's book entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy of such information.
DEFEASANCE
We will be discharged from our obligations on the debt securities of any
series at any time if we deposit with the trustee sufficient cash or government
securities to pay the principal, interest, any premium and any other sums due to
the stated maturity date or a redemption date of the debt securities of the
series. If this happens, the holders of the debt securities of the series will
not be entitled to the benefits of the indenture except for registration of
transfer and exchange of debt securities and replacement of lost, stolen or
mutilated debt securities.
Under U.S. federal income tax laws as of the date of this prospectus, a
discharge may be treated as an exchange of the related debt securities. Each
holder might be required to recognize gain or loss equal to the difference
between the holder's cost or other tax basis for the debt securities and the
value of the holder's interest in the trust. Holders might be required to
include as income a different amount than would be includable without the
discharge. Prospective investors should seek tax advice to determine their
particular consequences of a discharge, including the applicability and effect
of tax laws other than the U.S. federal income tax laws.
GOVERNING LAW
Each indenture and the debt securities will be governed by and construed in
accordance with the laws of the State of New York.
NOTICES
Notices to holders of debt securities will be given by mail to the
addresses of such holders as they appear in the security register.
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DESCRIPTION OF CAPITAL STOCK
The statements under this caption are brief summaries and are subject to,
and are qualified in their entirety by reference to, the more complete
descriptions contained in (1) our Restated Certificate of Incorporation, as
amended (the "charter"), and the Amended and Restated Shareholder Rights
Agreement, dated as of January 20, 1999, between us and EquiServe Trust Company,
N.A., as rights agent (the "shareholder rights agreement"), copies of which are
available upon request to El Paso, and (2) the certificate of designation
relating to each series of preferred stock, which will be filed with the SEC at,
or prior to, the time of the offering of such series of preferred stock.
GENERAL
We are currently authorized by our charter to issue up to 750,000,000
shares of common stock and up to 50,000,000 shares of preferred stock. As of
January 31, 2002, there were 531,957,912 shares of common stock, 200,000 shares
of Series B Mandatorily Convertible Single Reset Preferred Stock and 190,000
shares of Series C Mandatorily Convertible Single Reset Preferred Stock issued
and outstanding.
COMMON STOCK
We are currently authorized by our charter to issue up to 750,000,000
shares of common stock. The holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders.
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of common stock are entitled to receive ratably dividends which
are declared by our board of directors out of funds legally available for such a
purpose. In the event of our liquidation, dissolution, or winding up, holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preference of any outstanding preferred stock.
Holders of common stock have no preemptive rights and have no rights to convert
their common stock into any other securities. The common stock is not
redeemable. All of the outstanding shares of common stock are, and the common
stock offered by this offering circular will be, fully paid and nonassessable
upon issuance against full payment of the purchase price.
EquiServe Trust Company, N.A. is the transfer agent and registrar for our
common stock.
PREFERRED STOCK
Our board of directors, without any further action by our stockholders, is
authorized to issue up to 50,000,000 shares of preferred stock and to divide the
preferred stock into one or more series. The Board may fix by resolution or
resolutions any of the designations, powers, preferences and rights, and the
qualifications, limitations, or restrictions of the shares of each such series,
including, but not limited to, dividend rates, conversion rights, voting rights,
terms of redemption and liquidation preferences, and the number of shares
constituting each such series. The issuance of preferred stock may have the
effect of delaying, deterring or preventing a change in control of El Paso.
Preferred stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular series of preferred stock will be described in the certificate of
designation relating to that series. The description of preferred stock set
forth below does not purport to be complete and is qualified in its entirety by
reference to the certificate of designation relating to the particular series of
preferred stock.
The designations, powers, preferences and rights, and the qualifications,
limitations, or restrictions of preferred stock of each series will be fixed by
the certificate of designation relating to such series. The certificate of
designation relating to each series will specify the terms of the preferred
stock as follows:
- The number of shares to constitute each series and the distinctive
designation of the shares;
- The annual dividend rate, if any, on shares of each series, whether such
rate is fixed or variable or both, the date or dates from which dividends
will begin to accrue or accumulate and whether dividends will be
cumulative;
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- The purchase price and terms and conditions of the shares of each series,
including the time during which shares of each series may be redeemed and
any accumulated dividends that the holders of shares of each series shall
be entitled to receive upon the redemption of the shares;
- The liquidation preference, if any, and any accumulated dividends
thereon, that the holders of shares of each series shall be entitled to
receive upon the liquidation, dissolution or winding up of the affairs of
El Paso;
- Whether or not the shares of each series will be subject to operation of
a retirement or sinking fund, and, if so, the extent and manner in which
any such fund shall be applied to the purchase or redemption of the
shares of such series for retirement or for other corporate purposes and
the terms and provisions relating to the operation of such fund;
- The terms and conditions, if any, on which the shares of each series
shall be convertible into, or exchangeable for, debt securities, shares
of any other class or classes of our capital stock, or any series of any
other class or classes, or of any other series of the same class,
including the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same;
- The voting rights, if any, on the shares of each series; and
- Any or all other preferences and relative, participating, operational, or
other special rights, qualifications, limitations, or restrictions on
each series.
As of the date of this prospectus, 200,000 shares of Series B Mandatorily
Convertible Single Reset Preferred Stock and 190,000 shares of Series C
Mandatorily Convertible Single Reset Preferred Stock are outstanding. Pursuant
to the shareholder rights agreement, our board of directors has designated
7,500,000 shares of Series A preferred stock. A summary description of each of
the shareholder rights agreement and the Series A preferred stock, the Series B
Mandatorily Convertible Single Reset Preferred Stock and the Series C
Mandatorily Convertible Single Reset Preferred Stock is set forth below. You
should refer to the full text of the shareholder rights agreement and the
certificate of designation for each series of preferred stock for more complete
descriptions.
SHAREHOLDER RIGHTS AGREEMENT
In July 1992, the board of directors of El Paso Natural Gas Company, our
predecessor ("EPG"), declared a dividend distribution of one preferred stock
purchase right (an "EPG right") for each share of EPG's common stock par value
$3.00 per share, then outstanding. In July 1997, EPG's board amended EPG's
shareholder rights agreement pursuant to which the EPG rights were issued. All
shares of EPG common stock issued subsequent to July 1992 also included these
EPG rights. In connection with the holding company reorganization effected as of
August 1, 1998, each one-half EPG right then associated with each outstanding
share of EPG common stock was converted into one preferred stock purchase right
(a "right") associated with each share of our common stock. All shares of our
common stock issued after August 1, 1998 will also include a right. Under
conditions specified in the shareholder rights agreement, each right may be
exercised to purchase from us one two-hundredths of a share of a series of our
preferred stock, designated as Series A junior participating preferred stock,
par value $.01 per share (the "Series A preferred stock"), at a price of $75 per
one two-hundredths of a share, subject to adjustment. In January 1999, the
shareholder rights agreement was amended and restated.
Our charter provides that the holders of a whole share of Series A
preferred stock are entitled to 200 votes per share on all matters submitted to
a vote of our stockholders subject to adjustment. In addition, during any period
that dividends on the Series A preferred stock are in arrears in an amount equal
to six quarterly dividend payments, the holders of Series A preferred stock will
have the right to vote together as a class to elect two of our directors.
The rights will separate from the common stock and will become exercisable
on the earlier of (1) the first date of the public announcement that a person or
group has acquired or obtained the right to acquire beneficial ownership of 15%
or more of the voting power of all of our outstanding voting securities and
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(2) 10 business days (or such later date as the board may determine) after the
commencement of, or announcement of an intention to commence, a tender or
exchange offer, that would result in a person or group beneficially owning 15%
or more of our voting securities. If, after the rights become exercisable, we
are involved in a merger or other business combination transaction in which our
common stock is exchanged or changed, or it sells 50% or more of its assets or
earning power, each holder of a right will have the right to purchase at the
right's then-current exercise price, common stock of the acquiring company which
at the time of such transaction will have a market value of two times the
exercise price of the right. If a person becomes the beneficial owner of
securities having 15% or more of the voting power of all of our then-outstanding
voting securities (except pursuant to a "permitted offer"), or if, during any
period of such ownership, there shall be any reclassification of securities or
recapitalization of us, or any merger or consolidation of us with any of our
subsidiaries or any other transaction or series of transactions which has the
effect, directly or indirectly, of increasing by more than 1% the proportionate
share of the outstanding shares of any class of our equity securities or any of
our subsidiaries which is directly or indirectly owned by such person, then for
the next 60 days each right not owned by such person will entitle the holder of
the right to purchase, at the right's then-current exercise price, shares of
common stock or, in the discretion of the board, the number of one
two-hundredths of a shares of series A preferred stock (or in circumstances
specified in the shareholder rights agreement, other of our equity securities
with at least the same economic value as the common stock) having a market value
of twice the right's then-current exercise price. The rights, which have no
voting rights, expire no later than 5:00 p.m., New York time on July 7, 2002. A
"permitted offer" is a tender or exchange offer for all outstanding shares of
common stock which is at a price and on terms determined, prior to the purchase
of shares in such offer, by a majority of the disinterested directors to be
adequate and otherwise in the best interests of us and our stockholders (other
than the person and its affiliates making the offer), taking into account all
factors that such disinterested directors deem relevant. "Disinterested
directors" are directors who are neither our officers nor the officers an
acquiring company or affiliate, associate or representative of such a company,
or a person directly or indirectly proposed or nominated as director by a
transaction person (as defined in the shareholder rights agreement). We may
redeem the rights under circumstances specified in the shareholder rights
agreement, prior to their expiration date at a purchase price of $.01 per right.
It is possible that the existence of the rights may have the effect of delaying,
deterring or preventing our takeover.
Each share of our common stock issued upon conversion of the debentures
will include a right issued under the shareholder rights agreement.
EL PASO SERIES B MANDATORILY CONVERTIBLE SINGLE RESET PREFERRED STOCK
In March 2000, we issued 200,000 shares of El Paso Series B Mandatorily
Convertible Single Reset Preferred Stock having an initial aggregate liquidation
preference of $1,000,000,000 in connection with the issuance by Limestone
Electron Trust and Limestone Electron, Inc. of $1,000,000,000 aggregate
principal amount of notes (the "Limestone Notes"). The shares of the El Paso
Series B Mandatorily Convertible Single Reset Preferred Stock were deposited
into a trust established for the benefit of the holders of the Limestone Notes.
We are the beneficial owner of the trust. The preferred shares are to be sold by
the trust only if:
- the Limestone Notes are accelerated as a result of an event of default,
including, in addition to various defaults under the documentation
relating to the transactions pursuant to which the Limestone Notes were
issued, payment defaults by El Paso under debt obligations specified in
the documentation relating to the transactions;
- the funds necessary to pay the Limestone Notes upon maturity are not
timely deposited; or
- our credit ratings fall below investment grade and our common stock price
for ten consecutive trading days falls below $27.07, subject to certain
adjustments.
The date that the preferred shares are sold by the trust, or under certain
circumstances the date of a failed remarketing of the preferred shares, is the
"Rate Reset Date," and the market price of El Paso
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common stock on the day such sale is priced or the date of such failed
remarketing is the "Reset Price," which price is subject to certain antidilution
adjustments. If the Limestone Notes, which mature on March 15, 2003, are timely
repaid in full, we expect the El Paso Series B Mandatorily Convertible Single
Reset Preferred Stock will be retired and canceled.
No dividends are payable on the El Paso Series B Mandatorily Convertible
Single Reset Preferred Stock prior to the Rate Reset Date. After the Rate Reset
Date, dividends are payable at a rate equal to 7% per annum plus an amount which
is intended to approximate the dividend yield on the El Paso common stock as of
the Rate Reset Date. Such dividends are payable quarterly in arrears and are
cumulative. The amount payable on shares of El Paso Series B Mandatorily
Convertible Single Reset Preferred Stock in the event of a liquidation,
dissolution or winding up of the affairs of El Paso is $5,000 per share,
together with accrued dividends to the date of payment. These dividend and
liquidation rights are senior to the dividend and liquidation rights of the El
Paso common stock and the El Paso Series A Participating Junior Preferred Stock
and pari passu with the dividend and liquidation rights of the El Paso Series C
Mandatorily Convertible Single Reset Preferred Stock. The El Paso Series B
Mandatorily Convertible Single Reset Preferred Stock is not redeemable after the
Rate Reset Date.
After the Rate Reset Date and prior to the date on which the El Paso Series
B Mandatorily Convertible Single Reset Preferred Stock automatically convert
into shares of El Paso common stock, the holders of the El Paso Series B
Mandatorily Convertible Single Reset Preferred Stock will be entitled to convert
the preferred shares into El Paso common stock based on a conversion price of
110% of the Reset Price. The El Paso Series B Mandatorily Convertible Single
Reset Preferred Stock will be converted automatically into El Paso common stock
on the later to occur of the third anniversary of the Rate Reset Date and March
15, 2006, and holders will also be entitled to receive cash equal to all accrued
dividends. The number of shares of El Paso common stock issuable per share of El
Paso Series B Mandatorily Convertible Single Reset Preferred Stock upon
automatic conversion will equal the quotient of $5,000 divided by a conversion
price which will be between 100% to 110% of the Reset Price, depending on the
market price of El Paso common stock at the time of automatic conversion.
The holders of El Paso Series B Mandatorily Convertible Single Reset
Preferred Stock generally have no voting rights except as may be required by
statute, but are entitled to certain class voting rights, including the
requirement for approval by the holders of at least a majority thereof to
effect:
- an amendment to El Paso's certificate of incorporation that would
adversely affect the powers, rights or preferences of the holders of the
El Paso Series B Mandatorily Convertible Single Reset Preferred Stock;
- the authorization or issuance of capital stock ranking senior to the El
Paso Series B Mandatorily Convertible Single Reset Preferred Stock; or
- the merger or consolidation of El Paso in which holders of the El Paso
Series B Mandatorily Convertible Single Reset Preferred Stock do not
receive or continue to hold a similar interest in the surviving entity,
subject to certain exceptions.
If full cumulative dividends on the El Paso Series B Mandatorily
Convertible Single Reset Preferred Stock are not paid for six consecutive
quarters, the holders of the El Paso Series B Mandatorily Convertible Single
Reset Preferred Stock (together with the holders of any other series of capital
stock, including the Series A preferred stock and the El Paso Series C
Mandatorily Convertible Single Reset Preferred Stock, that are entitled to elect
directors as a result of dividend arrearages) will have the right to elect two
directors to El Paso's Board of Directors until all dividend arrearages have
been paid. If we fail to pay dividends when due on El Paso Series B Mandatorily
Convertible Single Reset Preferred Stock, subject to certain limited exceptions,
we are prohibited from paying dividends on junior stock, including El Paso
common stock and Series A preferred stock, and are limited in our ability to pay
dividends on parity stock, including El Paso Series C Mandatorily Convertible
Single Reset Preferred Stock, and we and our subsidiaries are prohibited from
redeeming or acquiring junior stock, including El Paso common
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stock and Series A preferred stock or parity stock, including El Paso Series C
Mandatorily Convertible Single Reset Preferred Stock.
EL PASO SERIES C MANDATORILY CONVERTIBLE SINGLE RESET PREFERRED STOCK
In November 2001, we issued 190,000 shares of El Paso Series C Mandatorily
Convertible Single Reset Preferred Stock having an initial aggregate liquidation
preference of $950,000,000 in connection with the issuance by Gemstone Investor
Limited and Gemstone Investor, Inc. of $950,000,000 aggregate principal amount
of notes (the "Gemstone Notes"). The shares of El Paso Series C Mandatorily
Convertible Single Reset Preferred Stock were deposited into a trust established
for the benefit of the holders of the Gemstone Notes. We are the beneficial
owner of the trust. The preferred shares are to be sold by the trust only if:
- The Gemstone Notes are accelerated as a result of an event of default,
including, in addition to various defaults under the documentation
relating to the transactions pursuant to which the Gemstone Notes were
issued, payment defaults by El Paso under debt obligations specified in
the documentation relating to the transactions;
- The funds necessary to pay the Gemstone Notes upon maturity are not
timely deposited; or
- Our credit ratings fall below investment grade and our common stock price
for ten consecutive trading days falls below $36.16, subject to certain
adjustments.
The date that the preferred shares are sold by the trust, or under certain
circumstances the date of a failed remarketing of the preferred shares, is the
"Series C Rate Reset Date," and the market price of El Paso common stock on the
day such sale is priced or the date of such failed remarketing is the "Series C
Reset Price," which price is subject to certain antidilution adjustments. If the
Gemstone Notes, which mature on October 31, 2004, are timely repaid in full, we
expect the El Paso Series C Mandatorily Convertible Single Reset Preferred Stock
will be retired and canceled.
No dividends are payable on the El Paso Series C Mandatorily Convertible
Single Reset Preferred Stock prior to the Series C Rate Reset Date. After the
Series C Rate Reset Date, dividends are payable at a rate equal to 7% per annum
plus an amount which is intended to approximate the dividend yield on the El
Paso common stock as of the Series C Rate Reset Date. Such dividends are payable
quarterly in arrears and are cumulative. The amount payable on shares of El Paso
Series C Mandatorily Convertible Single Reset Preferred Stock in the event of a
liquidation, dissolution or winding up of the affairs of El Paso is $5,000 per
share, together with accrued dividends to the date of payment. These dividend
and liquidation rights are senior to the dividend and liquidation rights of the
El Paso common stock and the El Paso Series A Participating Junior Preferred
Stock and pari passu with the dividend and liquidation rights of the El Paso
Series B Mandatorily Convertible Single Reset Preferred Stock. The El Paso
Series C Mandatorily Convertible Single Reset Preferred Stock is not redeemable
after the Series C Rate Reset Date.
After the Series C Rate Reset Date and prior to the date on which the El
Paso Series C Mandatorily Convertible Single Reset Preferred Stock automatically
convert into shares of El Paso common stock, the holders of the El Paso Series C
Mandatorily Convertible Single Reset Preferred Stock will be entitled to convert
the preferred shares into El Paso common stock based on a conversion price of
110% of the Series C Reset Price. At any time prior to the Series C Rate Reset
Date, provided that a condition described above allowing the trust to sell the
El Paso Series C Mandatorily Convertible Single Reset Preferred Stock has
occurred and is continuing and El Paso is prohibited from remarketing the El
Paso Series C Mandatorily Convertible Single Reset Preferred Stock (to allow for
the remarketing of the El Paso Series B Mandatorily Convertible Single Reset
Preferred Stock), the holders of the El Paso Series C Mandatorily Convertible
Single Reset Preferred Stock will have the option to convert their preferred
shares into 199.573 shares of El Paso common stock, subject to certain
anti-dilution adjustments. The El Paso Series C Mandatorily Convertible Single
Reset Preferred Stock will be converted automatically into El Paso common stock
on the later to occur of the third anniversary of the Series C
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Rate Reset Date and November 1, 2007, and holders will also be entitled to
receive cash equal to all accrued dividends. The number of shares of El Paso
common stock issuable per share of El Paso Series C Mandatorily Convertible
Single Reset Preferred Stock upon automatic conversion will equal the quotient
of $5,000 divided by a conversion price which will be between 100% to 110% of
the Series C Reset Price, depending on the market price of El Paso common stock
at the time of automatic conversion.
The holders of El Paso Series C Mandatorily Convertible Single Reset
Preferred Stock generally have no voting rights except as may be required by
statute, but are entitled to certain class voting rights, including the
requirement for approval by the holders of at least a majority thereof to
effect:
- an amendment to El Paso's certificate of incorporation that would
adversely affect the powers, rights or preferences of the holders of the
El Paso Series C Mandatorily Convertible Single Reset Preferred Stock;
- the authorization or issuance of capital stock ranking senior to the El
Paso Series C Mandatorily Convertible Single Reset Preferred Stock; or
- the merger or consolidation of El Paso in which holders of the El Paso
Series C Mandatorily Convertible Single Reset Preferred Stock do not
receive or continue to hold a similar interest in the surviving entity,
subject to certain exceptions.
If full cumulative dividends on the El Paso Series C Mandatorily
Convertible Single Reset Preferred Stock are not paid for six consecutive
quarters, the holders of the El Paso Series C Mandatorily Convertible Single
Reset Preferred Stock (together with the holders of any other series of capital
stock, including the Series A preferred stock and the El Paso Series B
Mandatorily Convertible Single Reset Preferred Stock, that are entitled to elect
directors as a result of dividend arrearages) will have the right to elect two
directors to El Paso's Board of Directors until all dividend arrearages have
been paid. If we fail to pay dividends when due on El Paso Series C Mandatorily
Convertible Single Reset Preferred Stock, subject to certain limited exceptions,
we are prohibited from paying dividends on junior stock, including El Paso
common stock and Series A preferred stock and limited in our ability to pay
dividends on parity stock, including El Paso Series B Mandatorily Convertible
Single Reset Preferred Stock, and we and our subsidiaries are prohibited from
redeeming or acquiring junior stock, including El Paso common stock or Series A
preferred stock or parity stock, including El Paso Series B Mandatorily
Convertible Single Reset Preferred Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law. Generally, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (1)
prior to such date, either the business combination or such transaction which
resulted in the stockholder becoming an interested stockholder is approved by
the board of directors of the corporation, (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (3) on or after such date, the business combination is approved
by the board of directors of the corporation and by the affirmative vote at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. A "business combination" includes merger, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns, or, within three years, did own, 15% or more of
the corporation's outstanding voting stock.
EL PASO'S RESTATED CERTIFICATE OF INCORPORATION
Our charter contains provisions applicable to a merger, consolidation,
asset sale, liquidation, recapitalization, or other business transactions,
including the issuance of our stock ("business combinations"). Our charter
requires the affirmative vote of 51% or more of our voting stock, excluding any
voting
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stock held by an interested stockholder (defined in our charter as any person
who owns 10% or more of the voting stock and specifically defined affiliates),
with respect to all business combinations involving the interested stockholder,
unless directors who served as such prior to the time the interested stockholder
became an interested stockholder determine by a two-thirds vote that (1) the
proposed consideration meets specified minimum price criteria, or (2)(A) the
interested stockholder holds 80% or more of the voting stock and (B) the
interested stockholder has not received (other than proportionately as a
stockholder) the benefit of any financial assistance from us, whether in
anticipation of or in connection with such business combination. To meet the
minimum price criteria, all stockholders must receive consideration or retain
value per share after the transaction which is not less than the price per share
paid by the interested stockholder. Our charter also requires the dissemination
to stockholders of a proxy or information statement describing the business
combination.
Our charter also prohibits the taking of any action by written stockholder
consent in lieu of a meeting and the subsequent amendment of our charter to
repeal or alter the above provisions without the affirmative vote of 51% of our
voting stock, excluding voting stock held by any interested stockholder.
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DESCRIPTION OF PURCHASE CONTRACTS
We may issue purchase contracts for the purchase or sale of:
- debt or equity securities issued by us or securities of third parties, a
basket of such securities, an index or indices of such securities or any
combination of the above as specified in the applicable prospectus
supplement;
- currencies; or
- commodities.
Each purchase contract will entitle the holder thereof to purchase or sell,
and obligate us to sell or purchase, on specified dates, such securities,
currencies or commodities at a specified purchase price, which may be based on a
formula, all as set forth in the applicable prospectus supplement. We may,
however, satisfy our obligations, if any, with respect to any purchase contract
by delivering the cash value of such purchase contract or the cash value of the
property otherwise deliverable or, in the case of purchase contracts on
underlying currencies, by delivering the underlying currencies, as set forth in
the applicable prospectus supplement. The applicable prospectus supplement will
also specify the methods by which the holders may purchase or sell such
securities, currencies or commodities and any acceleration, cancellation or
termination provisions or other provisions relating to the settlement of a
purchase contract.
The purchase contracts may require us to make periodic payments to the
holders thereof or vice versa, which payments may be deferred to the extent set
forth in the applicable prospectus supplement, and those payments may be
unsecured or prefunded on some basis. The purchase contracts may require the
holders thereof to secure their obligations in a specified manner to be
described in the applicable prospectus supplement. Alternatively, purchase
contracts may require holders to satisfy their obligations thereunder when the
purchase contracts are issued. Our obligation to settle such pre-paid purchase
contracts on the relevant settlement date may constitute indebtedness.
Accordingly, pre-paid purchase contracts will be issued under either the senior
indenture or the subordinated indenture.
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DESCRIPTION OF WARRANTS
We may issue warrants to purchase debt or equity securities or securities
of third parties or other rights, including rights to receive payment in cash or
securities based on the value, rate or price of one or more specified
commodities, currencies, securities or indices, or any combination of the
foregoing. Warrants may be issued independently or together with any other
securities and may be attached to, or separate from, such securities. Each
series of warrants will be issued under a separate warrant agreement to be
entered into between us and a warrant agent. The terms of any warrants to be
issued and a description of the material provisions of the applicable warrant
agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the following terms of
any warrants in respect of which this prospectus is being delivered:
- the title of such warrants;
- the aggregate number of such warrants;
- the price or prices at which such warrants will be issued;
- the currency or currencies, in which the price of such warrants will be
payable;
- the securities or other rights, including rights to receive payment in
cash or securities based on the value, rate or price of one or more
specified commodities, currencies, securities or indices, or any
combination of the foregoing, purchasable upon exercise of such warrants;
- the price at which and the currency or currencies in which the securities
or other rights purchasable upon exercise of such warrants may be
purchased;
- the date on which the right to exercise such warrants shall commence and
the date on which such right shall expire;
- if applicable, the minimum or maximum amount of such warrants which may
be exercised at any one time;
- if applicable, the designation and terms of the securities with which
such warrants are issued and the number of such warrants issued with each
such security;
- if applicable, the date on and after which such warrants and the related
securities will be separately transferable;
- information with respect to book-entry procedures, if any;
- if applicable, a discussion of any material United States Federal income
tax considerations; and
- any other terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such warrants.
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DESCRIPTION OF UNITS
As specified in the applicable prospectus supplement, we may issue units
consisting of one or more purchase contracts, warrants, debt securities, shares
of preferred stock, shares of common stock or any combination of such
securities. The applicable prospectus supplement will describe:
- the terms of the units and of any of the purchase contracts, warrants,
debt securities, preferred stock and common stock comprising the units,
including whether and under what circumstances the securities comprising
the units may be traded separately;
- a description of the terms of any unit agreement governing the units; and
- a description of the provisions for the payment, settlement, transfer or
exchange of the units.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
Each trust may issue in one or more offerings only one series of trust
preferred securities having terms described in the applicable prospectus
supplement. The declaration of each trust authorizes the trust to issue one
series of trust preferred securities. The declaration of each trust, as amended
in connection with the trust's sale of trust preferred securities, will be
qualified as an indenture under the Trust Indenture Act.
The trust preferred securities will have such terms, including
distributions, redemption, voting, conversion, exchange, liquidation rights and
such other preferred, deferred or other special rights or such restrictions as
are set forth in the declaration, as amended in connection with the trust's sale
of trust preferred securities or made part of the declaration by the Trust
Indenture Act. You should refer to the prospectus supplement relating to the
trust preferred securities of the trust for specific terms, including:
- the distinctive designation of the trust preferred securities;
- the number of trust preferred securities issued by each trust;
- the annual distribution rate (or method of determining such rate) for
trust preferred securities issued by the trust and the date or dates upon
which the distributions are payable;
- the date or dates or method of determining the date or dates from which
distributions on trust preferred securities will be cumulative;
- the amount or amounts that will be paid out of the assets of the trust to
the holders of trust preferred securities upon voluntary or involuntary
dissolution, winding-up or termination of the trust;
- the obligation, if any, of the trust to purchase or redeem the trust
preferred securities and the price or prices at which, the period or
periods within which, and the terms and conditions upon which, trust
preferred securities will be purchased or redeemed, in whole or in part,
pursuant to that obligation;
- the voting rights, if any, of trust preferred securities in addition to
those required by law, including the number of votes per trust preferred
security and any requirement for the approval by the holders of trust
preferred securities, as a condition to specified action or amendments to
the declaration of the trust;
- the terms and conditions, if any, upon which the assets of the trust may
be distributed to holders of trust preferred securities;
- provisions regarding convertibility or exchangeability of the trust
preferred securities for our capital stock or debt securities;
- if applicable, any securities exchange upon which the trust preferred
securities will be listed; and
- any other relevant rights, preferences, privileges, limitations or
restrictions of trust preferred securities not inconsistent with the
declaration of the trust or with applicable law.
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We will guarantee all trust preferred securities offered to the limited
extent set forth below under "Description of the Trust Preferred Securities
Guarantees."
Any U.S. federal income tax considerations applicable to any offering of
trust preferred securities will be described in the applicable prospectus
supplement.
In connection with the issuance of trust preferred securities, each trust
will issue one series of trust common securities. The declaration of each trust
authorizes the administrative trustees of the trust to issue on behalf of the
trust one series of trust common securities. The amended and restated
declaration of the trust will set forth the terms of the trust common
securities, including terms regarding distributions, redemption, voting,
liquidation rights and any restrictions. The terms of the trust common
securities issued by each trust will be substantially identical to the terms of
the trust preferred securities issued by the trust. The trust common securities
will rank equally, and payments will be made on the trust common securities pro
rata, with the trust preferred securities. However, upon an event of default
under the declaration, the rights of the holders of the trust common securities
to payment in respect of distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the trust
preferred securities. Except in the limited circumstances to be described in the
amended and restated declaration, the trust common securities will also carry
the right to vote to appoint, remove or replace any of the trustees of a trust.
All of the trust common securities of each trust will be directly or indirectly
owned by us.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES GUARANTEES
A summary of information concerning the trust guarantees which we will
execute and deliver from time to time for the benefit of the holders of the
trust preferred securities is set forth below. Each trust guarantee will be
qualified as an indenture under the Trust Indenture Act. JPMorgan Chase Bank
will act as the trust guarantee trustee, or indenture trustee, under each trust
guarantee. The terms of each trust guarantee will be those set forth in that
trust guarantee and those made part of that trust guarantee by the Trust
Indenture Act. The following is a summary of the material terms and provisions
of the trust preferred securities guarantees. You should refer to the provisions
of the form of trust guarantee and the Trust Indenture Act for a more complete
discussion. We have filed the form of trust guarantee as an exhibit to the
registration statement of which this prospectus is a part. Each trust guarantee
will be held by the trust guarantee trustee for the benefit of the holders of
the trust preferred securities of the applicable trust.
GENERAL
Under each trust guarantee, we will irrevocably and unconditionally agree,
to the extent set forth in each applicable trust guarantee, to pay the trust
guarantee payments described below in full to the holders of the trust preferred
securities issued by a trust, in the event they are not paid by or on behalf of
the applicable trust when due, regardless of any defense, right of set-off or
counterclaim which the trust may have or assert.
The following payments (the trust guarantee payments) with respect to trust
preferred securities of any trust not paid by the trust when due, will be
subject to the related trust guarantee:
- any accrued and unpaid distributions required to be paid on the trust
preferred securities, to the extent that trust will have funds legally
and immediately available for payment;
- the redemption price of any trust preferred securities called for
redemption by that trust, including all accrued and unpaid distributions
to the date of redemption, to the extent that trust has funds available
for payment; and
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- upon dissolution, winding-up or termination of that trust (other than in
connection with the distribution of the assets of the trust to the
holders of trust preferred securities or the redemption of all of the
trust preferred securities), the lesser of:
(a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the trust preferred securities to the date of payment, to
the extent that trust has funds available for payment; and
(b) the amount of assets of the trust remaining available for
distribution to holders of its trust preferred securities in liquidation of
the trust.
Our obligation to make a trust guarantee payment will be satisfied by our
direct payment of the required amounts to the holders of the applicable trust
preferred securities or by causing the applicable trust to pay the required
amounts to the holders.
Each trust guarantee will be a full and unconditional guarantee with
respect to the applicable trust preferred securities, but will not apply to any
payment of distributions when the applicable trust does not have funds "legally
and immediately" available for payment. If we do not make interest payments on
the subordinated debt securities purchased by a trust, that trust will not pay
distributions on the trust preferred securities issued by it and will not have
funds "legally and immediately" available for such payment. See "Description of
the Debt Securities -- Covenants" included in this prospectus.
We have also agreed separately to irrevocably and unconditionally guarantee
the obligations of the trusts with respect to the trust common securities (the
trust common securities guarantees) to the same extent as the trust guarantees,
except that upon an event of default under the subordinated indenture relating
to the subordinated debt securities purchased by that trust, holders of trust
preferred securities will have priority over holders of trust common securities
with respect to distributions and payments on liquidation, redemption or
otherwise.
COVENANTS
In each trust guarantee, we will covenant that, so long as any trust
preferred securities remain outstanding, if any event that would constitute an
event of default under the trust guarantee or the declaration of the applicable
trust occurs, then we will not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make any liquidation
payment with respect to, any of our capital stock, with the following
exceptions:
- purchases or acquisitions of shares of our common stock in connection
with our obligations under our employee benefit plans,
- purchases or acquisitions of shares of our common stock in connection
with our obligations under any contract or security requiring us to
purchase shares of our common stock or,
- the purchase of fractional interests in shares of our capital stock as a
result of a reclassification of our capital stock or the exchange or
conversion of one class or series of our capital stock for another class
or series of our capital stock, or make any guarantee payments with
respect to the foregoing.
Additionally, we will not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities,
including guarantees, issued by us which rank equally with or junior to the
subordinated debt securities.
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of trust preferred securities, in which case no vote will be
required, each trust guarantee may be amended only with the prior approval of
the holders of not less than a majority in liquidation amount of the outstanding
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trust preferred securities of the applicable trust. The manner of obtaining this
approval of holders of the trust preferred securities will be described in an
accompanying prospectus supplement. All guarantees and agreements contained in a
trust guarantee will bind our successors, assigns, receivers, trustees and
representatives and will inure to the benefit of the holders of the trust
preferred securities of the applicable trust then outstanding.
TERMINATION
Each trust guarantee will terminate as to the trust preferred securities of
the applicable trust upon the first to occur of:
- full payment of the redemption price of all trust preferred securities of
the applicable trust;
- distribution of the assets of the trust to the holders of the trust
preferred securities of the applicable trust; and
- full payment of the amounts payable upon liquidation of the trust in
accordance with the declaration of the trust.
Each trust guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of trust preferred securities
issued by the applicable trust must restore payment of any sums paid under the
trust preferred securities or the trust guarantee.
EVENTS OF DEFAULT
An event of default under a trust guarantee will occur upon our failure to
perform any of our payment or other obligations under that trust guarantee.
The holders of a majority in liquidation amount of the trust preferred
securities to which the trust guarantee relates have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trust guarantee trustee in respect of the trust guarantee or to direct the
exercise of any trust or power conferred upon the trust guarantee trustee under
the trust preferred securities guarantee. If the trust guarantee trustee fails
to enforce the trust guarantee, any holder of trust preferred securities
relating to the trust guarantee may institute a legal proceeding directly
against us to enforce the trust guarantee trustee's rights under the trust
guarantee, without first instituting a legal proceeding against the relevant
trust, the trust guarantee trustee or any other person or entity. However, if we
have failed to make a guarantee payment, a holder of trust preferred securities
may directly institute a proceeding against us for enforcement of the trust
guarantee for such payment. We waive any right or remedy to require that any
action be brought first against the trust or any other person or entity before
proceeding directly against us.
STATUS OF THE TRUST GUARANTEES
The trust guarantees will constitute our unsecured obligations and will
rank:
- subordinate and junior in right of payment to all of our other
liabilities, except those obligations or liabilities made equal in
priority or subordinate by their terms;
- equally with the most senior preferred or preference stock that we may
issue and with any guarantee that we may enter into in respect of any
preferred or preference stock of any our affiliates; and
- senior to our common stock.
The terms of the trust preferred securities provide that each holder of
trust preferred securities of the applicable trust, by acceptance of the
securities, agrees to the subordination provisions and other terms of the trust
guarantee relating to the applicable trust preferred securities.
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The trust guarantees will constitute a guarantee of payment and not of
collection. Accordingly, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the trust guarantee
without instituting a legal proceeding against any other person or entity.
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
Prior to the occurrence of a default with respect to a trust guarantee and
after the curing or waiving of all events of default with respect to that trust
guarantee, the trust guarantee trustee undertakes to perform only those duties
as are specifically set forth in that trust guarantee. In case an event of
default has occurred and has not been cured or waived, the guarantee trustee
will exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to these provisions, the trust
guarantee trustee is under no obligation to exercise any of the powers vested in
it by a trust guarantee at the request of any holder of trust preferred
securities, unless offered reasonable indemnity against the costs, expenses and
liabilities which might be incurred through the exercise of those powers.
We and our affiliates may, from time to time, maintain a banking
relationship with the trust guarantee trustee.
GOVERNING LAW
The trust guarantees will be governed by, and construed in accordance with,
the laws of the State of New York.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE SUBORDINATED DEBT SECURITIES AND THE GUARANTEES
As long as we make payments of interest and other payments when due on the
subordinated debt securities, those payments will be sufficient to cover
distributions and other payments due on the trust preferred securities,
primarily because:
- the aggregate principal amount of the subordinated debt securities will
be equal to the sum of the aggregate stated liquidation preference of the
trust securities;
- the interest rate and interest and other payment dates of the
subordinated debt securities will match the distribution rate and
distribution and other payment dates for the trust preferred securities;
- we will pay any and all costs, expenses and liabilities of the trusts,
except the trusts' obligations to holders of its trust preferred
securities under the terms of such trust preferred securities; and
- the declaration of each trust prohibits the trust from engaging in any
activity that is not consistent with the limited purposes of the trust.
We irrevocably guarantee payments of distributions and other amounts due on
the trust preferred securities of a trust, to the extent the trust has funds
available for the payment of such distributions as described in "Description of
the Trust Preferred Securities Guarantees" in this prospectus. Taken together,
our obligations under the subordinated debt securities, the subordinated
indenture, the declarations of the trusts and the trust guarantees provide a
full, irrevocable and unconditional guarantee of payments of distributions and
other amounts due on the trust preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such a guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of each of the trust's obligations under its trust preferred
securities. If we do not make payments on the subordinated debt securities, the
trusts will not pay distributions or other amounts due on the trust preferred
securities. The trust guarantees do not cover payment of distributions when the
applicable trust does not have sufficient funds to pay the distributions. In
this event, the remedies of a holder of the trust preferred securities of the
trust are described in this prospectus under "Description of
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the Trust Preferred Securities Guarantees -- Events of Default." Our obligations
under the trust guarantees are unsecured and are subordinate and junior in right
of payment to all of our other liabilities.
Notwithstanding anything to the contrary in the subordinated indenture and
to the extent set forth in the subordinated indenture, we have the right to
set-off any payment we are otherwise required to make under the subordinated
indenture with and to the extent we have made, or are concurrently on the date
of such payment making, a payment under a trust guarantee.
A holder of trust preferred securities of a trust may institute a legal
proceeding directly against us to enforce its rights under the trust guarantee
without first instituting a legal proceeding against the trust guarantee
trustee, the trust or any other person or entity.
The trust preferred securities of a trust evidence a beneficial interest in
the trust. The trusts exist for the sole purpose of issuing the trust securities
and investing the proceeds in subordinated debt securities. A principal
difference between the rights of a holder of trust preferred securities and a
holder of subordinated debt securities is that a holder of subordinated debt
securities is entitled to receive from us the principal amount of and interest
accrued on subordinated debt securities held, while a holder of trust preferred
securities is entitled to receive distributions from a trust, or from us under
the trust guarantee, if and to the extent the trust has funds available for the
payment of such distributions.
Upon any voluntary or involuntary termination, winding-up or liquidation of
a trust involving the liquidation of the subordinated debt securities, the
holders of the trust preferred securities of the trust will be entitled to
receive, out of assets held by the trust and after satisfaction of liabilities
to creditors of the trust as provided by applicable law, the liquidation
distribution in cash. Upon any voluntary or involuntary liquidation or
bankruptcy of us, the property trustees of a trust, as holder of the
subordinated debt securities of the trust, would be a subordinated creditor of
us, subordinated in right of payment to all of our senior debt, but entitled to
receive payment in full of principal and interest, before any of our common
stockholders receive payments or distributions. Since we are the guarantor under
the trust guarantees and we have agreed to pay for all costs, expenses and
liabilities of the trusts other than the trusts' obligations to the holders of
the trust preferred securities, the positions of a holder of trust preferred
securities and a holder of subordinated debt securities relative to other
creditors and to our shareholders in the event of our liquidation or bankruptcy
would be substantially the same.
A default or event of default under any of our senior debt will not
constitute a default or event of default under the subordinated indenture.
However, in the event of payment defaults under, or acceleration of, our senior
debt, the subordination provisions of the subordinated indenture provide that no
payments may be made on the subordinated debt securities until our senior debt
has been paid in full or any payment default under our senior debt has been
cured or waived. Our failure to make required payments on a series of
subordinated debt securities would constitute an event of default under the
subordinated indenture.
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PLAN OF DISTRIBUTION
We may sell our securities through agents, underwriters or dealers, or
directly to purchasers.
We may designate agents to solicit offers to purchase our securities.
- We will name any agent involved in offering or selling our securities,
and any commissions that we will pay to the agent, in our prospectus
supplement.
- Unless we indicate otherwise in our prospectus supplement, our agents
will act on a best efforts basis for the period of their appointment.
- Our agents may be deemed to be underwriters under the Securities Act of
1933 of any of our securities that they offer or sell.
We may use one or more underwriters in the offer or sale of our securities.
- If we use an underwriter, we will execute an underwriting agreement with
the underwriter(s) at the time that we reach an agreement for the sale of
our securities.
- We will include the names of the managing underwriter(s), as well as any
other underwriters, and the terms of the transaction, including the
compensation the underwriters and dealers will receive, in our prospectus
supplement.
- The underwriters will use our prospectus supplement to sell our
securities.
We may use a dealer to sell our securities.
- If we use a dealer, we, as principal, will sell our securities to the
dealer.
- The dealer will then sell our securities to the public at varying prices
that the dealer will determine at the time it sells our securities.
- We will include the name of the dealer and the terms of our transactions
with the dealer in our prospectus supplement.
We may directly solicit offers to purchase our securities, and we may
directly sell our securities to institutional or other investors. We will
describe the terms of our direct sales in our prospectus supplement.
We may indemnify agents, underwriters, and dealers against certain
liabilities, including liabilities under the Securities Act of 1933. Our agents,
underwriters, and dealers, or their affiliates, may be customers of, engage in
transactions with or perform services for us, in the ordinary course of
business.
We may authorize our agents and underwriters to solicit offers by certain
institutions to purchase our securities at the public offering price under
delayed delivery contracts.
- If we use delayed delivery contracts, we will disclose that we are using
them in the prospectus supplement and will tell you when we will demand
payment and delivery of the securities under the delayed delivery
contracts.
- These delayed delivery contracts will be subject only to the conditions
that we set forth in the prospectus supplement.
- We will indicate in our prospectus supplement the commission that
underwriters and agents soliciting purchases of our securities under
delayed delivery contracts will be entitled to receive.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, El Paso in the ordinary course of
business.
Other than common stock, all securities offered will be a new issue of
securities with no established trading market. Any underwriter to whom
securities are sold by us or any El Paso Trust for public offering
32
and sale may make a market in such securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. The securities may or may not be listed on a national securities
exchange or a foreign securities exchange, except for the common stock which is
currently listed and traded on the NYSE and PCX. Any common stock sold by this
prospectus will be listed for trading on the NYSE subject to official notice of
issuance. We cannot give you any assurance as to the liquidity of or the trading
markets for any securities.
LEGAL MATTERS
The validity of the common stock, preferred stock, senior debt securities,
subordinated debt securities, trust guarantees, purchase contracts, warrants and
units will be passed upon for El Paso by Andrews & Kurth Mayor, Day, Caldwell &
Keeton L.L.P., Houston, Texas. The validity of the trust preferred securities
under Delaware Law will be passed upon for the El Paso Trusts by Potter Anderson
& Corroon LLP. If the securities are being distributed in an underwritten
offering, the validity of the securities will be passed upon for the
underwriters by counsel identified in the related prospectus supplement.
EXPERTS
The audited combined financial statements incorporated by reference in this
prospectus from the Current Report on Form 8-K/A dated May 17, 2001, except as
they relate to El Paso CGP Company (formerly The Coastal Corporation), have been
audited by PricewaterhouseCoopers LLP, independent accountants, and, insofar as
they relate to El Paso CGP Company (formerly The Coastal Corporation), by other
accountants, whose report thereon appears therein. Such financial statements
have been so included in reliance on the reports of such independent accountants
given on the authority of such firms as experts in auditing and accounting.
The consolidated financial statements and related financial statement
schedule of El Paso CGP Company (formerly The Coastal Corporation) incorporated
in this prospectus by reference from El Paso's Current Report on Form 8-K/A
dated May 17, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
Information related to the estimated proved reserves attributable to
certain oil and gas properties of subsidiaries of El Paso CGP Company as of
December 31, 2000 and estimates of future net cash flows and present value of
the reserves have been incorporated by reference in El Paso's Current Report on
Form 8-K/A dated May 17, 2001, which is incorporated herein by reference, in
reliance on the reserve report, dated January 29, 2001, prepared by Huddleston &
Co., Inc., independent petroleum engineers.
33
10,000,000 Equity Security Units
(EL PASO LOGO)
9.00% Equity Security Units
PROSPECTUS SUPPLEMENT
Joint Book-Running Managers
CREDIT SUISSE FIRST BOSTON JPMORGAN
------------------
BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS
MORGAN STANLEY
SALOMON SMITH BARNEY
June 20, 2002
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus supplement and the accompanying prospectus. We are offering
to sell, and seeking offers to buy, equity security units only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus supplement and the accompanying prospectus is accurate only as of the
date of this prospectus supplement and the date of the prospectus, regardless of
the time of delivery of this prospectus supplement and the accompanying
prospectus or of any sale of our equity security units.
No action is being taken in any jurisdiction outside the United States to permit
a public offering of the equity security units or possession or distribution of
this prospectus supplement and the accompanying prospectus in that jurisdiction.
Persons who come into possession of this prospectus supplement and the
accompanying prospectus in jurisdictions outside the United States are required
to inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus supplement and the accompanying
prospectus applicable to that jurisdiction.