THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE
AND MAY BE CHANGED.
Subject to Completion. Dated July 9, 1999.
Prospectus Supplement to Prospectus dated December 17, 1998.
Normal Units
(Southern Co. Logo)
% Adjustable Conversion-rate Equity Security Units
(Stated Amount $50 per Unit)
---------------------
Each Normal Unit will consist of (a) a stock purchase contract under which
you will purchase common stock from Southern on , 2002 for $50 and
(b) United States Treasury % Notes due , 2002 having a principal
amount equal to $50. These treasury securities will be pledged to secure your
obligations under the stock purchase contract.
As a result of holding a Normal Unit:
- - You will receive cash payments at the rate of % of the $50 stated amount
per year, payable on each and , beginning
on , 1999 and ending on , 2002. Southern
can defer a portion of these payments but any deferred payments will bear
additional payments at that same rate.
- - On , 2002, if you haven't already settled your underlying stock
purchase contract for cash, the $50 principal paid on your underlying
treasury securities will automatically be applied to purchase Southern common
stock at a price of between $ and $ per share (depending on
the value of the common stock during a specified averaging period), subject
to adjustment.
Prior to this offering, there has been no public market for Normal Units.
Southern intends to list the Normal Units on the NYSE under the symbol " ."
Southern's common stock is listed on the NYSE under the symbol "SO." The last
reported sale price of the common stock on July 8, 1999 was $26.00 per share.
See "Risk Factors" beginning on page S-6 to read about factors you should
consider before buying Units.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
Per
Normal
Unit Total
------ -----
Initial public offering price of Normal Units............... $ $
Purchase price of treasury securities underlying Normal
Units..................................................... $ $
Initial payment from (to) underwriters to induce execution
of stock purchase contracts............................... $ $
Underwriting commission..................................... $ $
Proceeds (or deficit), before expenses, to Southern......... $ $
To the extent that the underwriters sell more than Normal Units, the
underwriters have the option to acquire up to an additional Normal Units.
---------------------
The underwriters expect to deliver the Normal Units in New York, New York on
, 1999.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
---------------------
PROSPECTUS SUPPLEMENT DATED , 1999.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial information contained or incorporated by
reference in this prospectus supplement and the attached prospectus.
SOUTHERN
The Southern Company ("SOUTHERN") was incorporated under the laws of
Delaware on November 9, 1945. Southern is domesticated under the laws of Georgia
and is qualified to do business as a foreign corporation under the laws of
Alabama. The principal executive offices of Southern are located at 270
Peachtree Street, N.W., Atlanta, Georgia 30303, and the telephone number is
(770) 393-0650.
THE OFFERING
THE NORMAL UNITS
TOTAL STATED AMOUNT. $
STATED AMOUNT PER UNIT. $50.
CASH PAYMENTS. For so long as you hold Normal Units, you will receive cash
payments at the rate of % of their stated amount per year. These payments
will accrue from the date you acquire your Normal Units in this offering and
will be payable on each and , beginning on , 1999
and ending on , 2002.
- - These payments will consist of payments on the treasury securities
underlying your Normal Units plus the contract fees described below.
- - Southern can defer contract fee payments but any deferred payments will bear
additional contract fees at that same rate.
STOCK PURCHASE; SETTLEMENT PRICE. On , 2002, if you haven't
already settled the stock purchase contracts underlying your Units for cash, the
principal paid on the treasury securities underlying your Units will
automatically be applied to purchase Southern common stock at a settlement price
of between $ and $ per share, subject to adjustment.
- - The exact settlement price per share will equal the average closing price of
the common stock during the 20 consecutive trading day period ending on and
including the last trading day before , 2002, except that (a) if
the average closing price is below the Initial Stock Price referred to
below, the settlement price per share will equal the Initial Stock Price,
and (b) if the average closing price is above the Threshold Appreciation
Price referred to below, the settlement price per share will equal the
Threshold Appreciation Price.
- - "INITIAL STOCK PRICE" means $ . This amount is equal to the last
reported sale price of the common stock on the NYSE on the date of this
prospectus supplement.
- - "THRESHOLD APPRECIATION PRICE" means $ . This amount is
approximately % higher than the Initial Stock Price.
- - The Initial Stock Price and Threshold Appreciation Price may be changed to
reflect various dilutive transactions, as specified under "Description of
Units -- Description of the Stock Purchase Contracts -- Anti-Dilution
Adjustments" below.
- - The number of shares of common stock that you will receive per Unit on
, 2002 will equal the $50 stated amount divided by the settlement
price per share. Since the settlement price per share will be between the
Initial Stock Price and the Threshold Appreciation Price described
S-1
above, the number of shares that you will receive per Unit will be between
shares and shares if the Initial Stock Price
and Threshold Appreciation Price have not been changed.
The following table illustrates the settlement price per share that you
will pay, and the number and value of shares that you will receive per Unit, at
certain assumed average closing prices per share of common stock:
---------------------------------------------------------------------------------
ASSUMED NUMBER OF VALUE OF
AVERAGE SETTLEMENT SHARES TO BE SHARES TO BE
CLOSING PRICE PRICE RECEIVED RECEIVED
PER SHARE PER SHARE PER UNIT PER UNIT*
$ $ $
(i.e., 150% of (i.e., the (i.e., % of
the Initial Threshold the Stated
Stock Price) Appreciation Amount)
Price)
$ $ $
(i.e., the (i.e., the (i.e., the
Threshold average Stated
Appreciation closing price) Amount)
Price)
$ $ $
(i.e., 1/2 way (i.e., the (i.e., the
between the average Stated
Initial Stock closing price) Amount)
Price and the
Threshold
Appreciation
Price)
$ $ $
(i.e., the Initial (i.e., the (i.e., the
Stock Price) average Stated
closing price) Amount)
$ $ $
(i.e., 50% of (i.e., the (i.e., 50% of
the Initial Initial Stock the Stated
Stock Price) Price) Amount)
- ---------------
* Based on assumed average closing price. The actual market value on
, 2002 may be more or less than this amount.
The actual average closing price we will use to calculate the settlement
price may turn out to be below or above the range of values assumed in the
foregoing table.
RELATIONSHIP OF NORMAL UNITS TO COMMON STOCK. For so long as you hold
Normal Units, you will receive cash payments at a rate per year that is greater
than today's dividend yield on the common stock. However, since the number of
shares of common stock that you will receive on , 2002 may decline by
up to % as the relevant average closing price increases, the opportunity
for equity appreciation provided by an investment in the Normal Units is less
than that provided by a direct investment in common stock.
COMPONENTS OF NORMAL UNITS. Each Normal Unit will consist of:
- - a stock purchase contract having the terms summarized below; and
- - United States Treasury % Notes due , 2002 having a principal
amount equal to $50. These treasury securities will be pledged to secure
your obligations under the stock purchase contract.
Except as described in this prospectus supplement, you will have no right to
separate any Units into their constituent components.
It is possible that investment grade debt obligations of a third party
other than the United States will underlie the Normal Units instead of Treasury
Notes due 2002. If that is the case, certain terms of the Normal Units will
differ from those described in this prospectus supplement. In that event, the
particular terms of the Normal Units and the underlying debt obligations will be
described in a final prospectus supplement.
THE STOCK PURCHASE CONTRACTS
STOCK PURCHASE. Each stock purchase contract underlying your Units will
require you to purchase from Southern on , 2002, for cash in an amount
equal to $50, common stock of Southern at a price per share equal to the
settlement price described above. If you haven't already settled that underlying
stock purchase contract by , 2002, the principal paid on the treasury
securities underlying your Units will automatically be applied to fund that
purchase.
CONTRACT FEES. Each stock purchase contract underlying your Units will
require Southern to pay you contract fees at the rate of % of the $50
stated amount per year, payable on each and ,
beginning on , 1999 and ending on , 2002. The first payment will be
reduced as necessary so that holders of Normal Units will receive a total
payment, after giving effect to contract fees and interest
S-2
paid on the underlying treasury securities, equivalent to % of the stated
amount per year, accruing from the date you acquire your Normal Units in this
offering.
Southern's obligation to pay contract fees will be unsecured and junior in
right of payment to all of Southern's indebtedness for borrowed money. Southern
will be entitled to defer the payment of contract fees, but Southern may not
defer the payment of contract fees beyond , 2002 and any deferred
payments will bear additional contract fees.
EARLY SETTLEMENT. You may settle your stock purchase contracts before
, 2002 in the manner described herein upon the occurrence of
specified reorganization events, but only in integral multiples of 20 Units. On
early settlement:
- - You will purchase common stock for an amount in cash equal to $50 per Unit
minus any deferred contract fees payable thereon. The settlement price per
share will be calculated as described above but will assume that the
relevant average closing price is the average closing price of the common
stock during the 20 consecutive trading day period ending on and including
the last trading day before the date of consummation of the relevant
reorganization event.
- - You will receive the treasury securities underlying those Units free and
clear of Southern's security interest.
- - Your right to receive additional contract fees will terminate and, except as
specified above with respect to deferred contract fees, Southern will make
no payment or adjustment on account of accrued contract fees.
TERMINATION. The stock purchase contracts will automatically terminate
if Southern becomes subject to certain events of bankruptcy, insolvency or
reorganization. If the stock purchase contracts are terminated, you will lose
all rights to receive contract fees, including deferred contract fees, and the
treasury securities underlying your Units will be distributed to you.
RIGHT TO STRIP OR RE-CREATE NORMAL UNITS
For so long as you hold Normal Units, you will have the right, by following
the requirements described later in this prospectus supplement, to substitute
United States Treasury STRIPS due , 2002 for the treasury
notes underlying your Normal Units and convert those Normal Units into Stripped
Units that
S-3
will no longer generate cash payments (other than contract fees payable by
Southern). Stripped Units will not be fungible with Normal Units.
If you hold any Stripped Units, you will have the right, by following the
requirements described later in this prospectus supplement, to substitute United
States Treasury % Notes due , 2002 for the treasury strips
underlying your Stripped Units and convert those Stripped Units into Normal
Units that will once again generate the full cash payments contemplated on the
cover page of this prospectus supplement.
GENERAL
LISTING. Southern intends to list the Normal Units on the NYSE. If
Stripped Units are traded to a sufficient extent to meet the listing
requirements of the NYSE, Southern will use reasonable efforts to list such
securities on the NYSE.
FEDERAL INCOME TAX CONSEQUENCES. You will include interest on the treasury
notes underlying your Normal Units in income when received or accrued, in
accordance with your method of accounting. Southern intends to report the
contract fees as income to you, but you should consult your tax advisor
concerning the possibility that you may treat contract fees as a reduction in
your basis in the Units rather than including those fees in income on a current
basis. You may realize additional income, gain or loss on maturity of the
treasury notes to the extent that the treasury notes are purchased at a premium
or discount, and you should consider certain elections in this regard. See
"Certain Federal Income Tax Consequences."
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information contained elsewhere in this
prospectus supplement or the attached prospectus or incorporated herein by
reference.
TWELVE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ 1999(1)
1994(1) 1995(1) 1996(1) 1997(1) 1998(1) (UNAUDITED)
------- ------- ------- ------- ------- -----------
(MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
Operating Revenues..................... $8,297 $9,180 $10,358 $12,611 $11,403 $11,350
Income Before Interest Charges......... $1,756 $1,900 $ 1,944 $ 2,037 $ 2,184 $ 2,166
Consolidated Net Income................ $ 989 $1,103 $ 1,127 $ 972 $ 977 $ 959
Earnings per Share of Common Stock..... $ 1.52 $ 1.66 $ 1.68 $ 1.42 $ 1.40 $ 1.37
Dividends Paid per Share of Common
Stock................................ $ 1.18 $ 1.22 $ 1.26 $ 1.30 $ 1.34 $ 1.34
Ratio of Earnings to Fixed Charges(2).. 3.63 3.75 3.68 2.87 2.46 2.45
Ratio of Earnings to Fixed Charges Plus
Preferred Dividend Requirements
(Pre-Income Tax Basis)(3)............ 3.01 3.13 3.12 2.67 2.38 2.38
S-4
CAPITALIZATION AS OF
MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED(4)
------- ----------------
(MILLIONS, EXCEPT
PERCENTAGES)
Common Stock Equity......................................... $ 9,704 $ %
Preferred Stock of Subsidiaries............................. 369
Company or Subsidiary Obligated Mandatorily Redeemable
Capital and Preferred Securities.......................... 2,427
Long-Term Debt.............................................. 9,953
------- ------- ------
Total, excluding amounts due within one year of
$1.136 billion................................... $22,453 $ 100.0%
======= ======= ======
- ---------------
(1) "Income Before Interest Charges" and "Consolidated Net Income" for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998 and the twelve months
ended March 31, 1999 reflect charges of approximately $61,000,000,
$17,000,000, $53,000,000, $31,000,000, $20,000,000 and $17,000,000,
respectively, after taxes relating to benefits provided pursuant to work
force reduction programs. In addition, "Income Before Interest Charges" and
"Consolidated Net Income" for the year ended December 31, 1997 reflect a
charge of $111,000,000, after taxes, resulting from a windfall profits tax
assessed against Southern's South Western Electricity plc subsidiary in the
United Kingdom. "Income Before Interest Charges" and "Consolidated Net
Income" for the year ended December 31, 1998 and the twelve months ended
March 31, 1999 include the effect of asset write-downs of $221,000,000,
after taxes, in December 1998.
(2) This ratio is computed as follows: (i) "Earnings" have been calculated by
adding to "Income Before Interest Charges" all income taxes deducted
therefrom and the debt portion of allowance for funds used during
construction; and (ii) "Fixed Charges" consist of "Net Interest Charges"
plus the debt portion of allowance for funds used during construction.
(3) In computing this ratio, "Preferred Dividend Requirements" represent the
before-tax earnings necessary to pay such dividends, computed at the
effective tax rates for the applicable periods.
(4) Reflects (i) the issuance in May 1999 by Alabama Power Company ("ALABAMA")
of $200,000,000 principal amount of its Series J 6.75% Senior Notes due June
30, 2039; (ii) the issuance in May 1999 by The Development Authority of
Burke County (Georgia) of $53,000,000 aggregate principal amount of 5.45%
Pollution Control Revenue Bonds (Georgia Power Company Plant Vogtle
Project), Third Series 1999 for the benefit of Georgia Power Company
("GEORGIA"); (iii) the redemption in June 1999 of obligations incurred by
ALABAMA with respect to the outstanding $800,000 aggregate principal amount
of The Industrial Board of the Town of Columbia (Alabama) 7 1/4%
Environmental Improvement Revenue Bonds, Series A (Alabama Power Company
Plant Farley Project), due May 1, 2003; (iv) the redemption in June 1999 of
obligations incurred by GEORGIA with respect to the outstanding $50,000,000
aggregate principal amount of the Development Authority of Burke County
(Georgia)6.35% Pollution Control Revenue Bonds (Georgia Power Company Plant
Vogtle Project), First Series 1989; (v) the repurchase from April 26, 1999
through June 30, 1999 (settlement dates) of 9,123,400 shares ($251,000,000)
of Southern common stock; and (vi) the estimated present value of Contract
Fees.
S-5
RISK FACTORS
Before buying any Units, you should consider, in addition to the other
information with respect to Southern and its business contained or incorporated
by reference in this prospectus supplement and the attached prospectus, the
following risk factors.
INVESTMENT IN UNITS WILL BECOME INVESTMENT
IN COMMON STOCK; YOU MAY LOSE MONEY
On , 2002, if you haven't already settled the stock purchase
contracts underlying your Units for cash, the principal paid on the treasury
securities underlying your Units will automatically be applied to purchase
Southern common stock at a settlement price of between $ and $ per
share, subject to adjustment. The market value of that common stock may be
materially different from the price you are required to pay for that common
stock. If the value of the common stock on , 2002 is less than the
Initial Stock Price of $ (subject to adjustment), you will be purchasing that
common stock at a loss, and that loss could be substantial.
YOUR UPSIDE POTENTIAL IS LESS THAN IT WOULD
BE IF YOU WERE INVESTING IN COMMON STOCK
The number of shares of common stock that you will receive from your Units
on , 2002 may decline by up to % as the value of the common stock
increases. Therefore, your opportunity for equity appreciation from the Units is
less than it would be if you were making a direct investment in common stock.
The value of the common stock must exceed the Threshold Appreciation Price of
$ (subject to adjustment) before you will realize any equity
appreciation on your Units.
TREASURY SECURITIES ENCUMBERED
Although you will be a beneficial owner of the treasury securities
underlying your Units, those securities will be pledged to secure your
obligations under the stock purchase contracts and will not be released from
that pledge arrangement except in the limited circumstances described in this
prospectus supplement.
SOUTHERN'S OBLIGATION TO PAY YOU CONTRACT
FEES WILL BE UNSECURED AND SUBORDINATED
Southern's obligation to pay you contract fees will be unsecured and
junior in right of payment to all of Southern's indebtedness for borrowed
money. None of the agreements relating to the Units places any limitation on
the amount of additional secured or unsecured debt that may be incurred by
Southern or any of its subsidiaries.
SOUTHERN MAY DEFER CONTRACT FEES
Southern will be entitled to defer the payment of contract fees, but
Southern may not defer the payment of contract fees beyond , 2002 and
any deferred payments will bear additional contract fees.
If Southern defers the payment of contract fees, the market price of your
Units is likely to decrease. If you dispose of Units during a deferral period,
you may not receive the same return on your investment as a holder that
continues to hold its Units. In addition, the mere existence of Southern's right
to defer such payments may cause the market price of the Units to be more
volatile than the market prices of other securities that are not subject to such
deferrals.
YOUR RIGHT TO RECEIVE CONTRACT FEES MAY
TERMINATE
You will have no right to receive contract fees, including deferred
contract fees, if Southern becomes subject to certain events of bankruptcy,
insolvency or reorganization.
THE MARKET VALUE OF YOUR UNITS WILL FLUCTUATE
The market value of your Units will fluctuate from day to day based on the
market value of Southern common stock, prevailing interest rates and other
factors.
S-6
SECONDARY MARKET FOR UNITS MAY NOT BE
LIQUID
There is currently no secondary market for the Units. We don't know how the
Normal Units or Stripped Units will trade in the secondary market or whether the
market for the Normal Units or Stripped Units will be liquid or illiquid. We
intend to list the Normal Units on the NYSE. The underwriters have advised us
that they intend to make a market for the Normal Units and thus facilitate
trading in the Normal Units. However, the underwriters are not obligated to make
a market and may discontinue market-making at any time.
USE OF PROCEEDS
The underwriters will use all or substantially all of the proceeds from the
offering of Normal Units (supplemented, if necessary, by their own funds) to
purchase the treasury securities underlying the Normal Units on behalf of the
initial holders. Southern will likely not receive any proceeds from the offering
of Normal Units and will be required to pay to the underwriters an amount equal
to the per Normal Unit deficit (if any) set forth on the cover page of this
prospectus supplement times the number of Normal Units the underwriters sell.
Southern plans to use the proceeds from the settlement of the stock purchase
contracts on , 2002 in connection with its ongoing construction
program, to pay scheduled maturities and/or refundings of its securities, to
repay short-term indebtedness to the extent outstanding and for other general
corporate purposes.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of Southern currently consists of
1,000,000,000 shares of common stock, par value $5 per share. As of May 31,
1999, there were 700,617,076 shares of common stock issued and 693,615,861
shares of common stock outstanding.
All shares of common stock of Southern participate equally with respect to
dividends and rank equally upon liquidation. Each holder is entitled to one vote
for each share held and to cumulative voting at elections of directors. The vote
of two-thirds of the outstanding common stock is required to authorize or create
preferred stock or to effect certain changes in charter provisions affecting the
common stock. No stockholder is entitled to preemptive rights.
The shares of common stock issued upon settlement of the Stock Purchase
Contracts will be fully paid and nonassessable by Southern.
The income of Southern is derived mainly from equity in earnings of its
operating affiliates. At March 31, 1999, $2,007,857,000 of consolidated retained
earnings, of a total of $3,868,744,000 at that date, was restricted against the
payment by the operating affiliates of cash dividends on common stock under
terms of bond indentures or charters. Southern's investment in subsidiary
companies is maintained on the equity method of accounting; however, under the
applicable accounting requirements of the SEC, cash dividends are limited to
Southern's retained earnings computed on the cost method of accounting
($513,499,000 at March 31, 1999). The equity in undistributed earnings of
subsidiary companies, except for the $2,007,857,000 restricted under the terms
of bond indentures or charters, will become available for payment of cash
dividends by Southern as such amounts are paid to Southern by the subsidiary
companies.
Certain business combination transactions, including mergers, sales of
assets or securities having a fair market value of $100,000,000 or more,
liquidations, dissolutions, reclassifications or recapitalizations, between
Southern or any of its subsidiaries and any beneficial owner of more than 5% of
the outstanding voting stock of Southern or any affiliate of such owner must be
approved by the holders of 75% of
S-7
the outstanding voting stock and a majority of the outstanding voting stock held
by persons other than such beneficial owner, unless approved by a majority of
the "Disinterested Directors" (generally directors not affiliated with such
beneficial owner) or certain minimum price and procedural requirements are met.
These provisions may have the effect of delaying, deferring or preventing a
change in control of Southern.
The transfer agent and registrar for the common stock is Southern Company
Services, Inc., Atlanta, Georgia.
DIVIDENDS AND PRICE RANGE
The table below sets forth, for the periods indicated, the high and low
sales prices of Southern's common stock as reported by The Wall Street Journal
as NYSE-Composite Transactions.
YEAR HIGH LOW BY QUARTERS HIGH LOW
- ---- ---- --- ----------- ---- ---
1994........................... 22 17 1997
1995........................... 25 19 3/8 First Quarter........... 23 3/8 20 3/4
1996........................... 25 7/8 21 1/8 Second Quarter.......... 22 1/4 19 7/8
1997........................... 26 1/4 19 7/8 Third Quarter........... 23 20 13/16
1998........................... 31 9/16 23 15/16 Fourth Quarter.......... 26 1/4 22
1998
First Quarter........... 28 11/16 23 15/16
Second Quarter.......... 29 25 1/16
Third Quarter........... 29 13/16 25 1/4
Fourth Quarter.......... 31 9/16 27 3/16
1999
First Quarter........... 29 5/8 23 1/4
Second Quarter.......... 29 3/16 22 3/4
Third Quarter........... 27 1/16 25 15/16
(through July 8, 1999)
The last sale price of the common stock on July 8, 1999, as reported by The
Wall Street Journal, was $26.00 per share. The consolidated book value per share
of Southern's common stock at March 31, 1999 was $13.89.
Dividends have been paid on the common stock without interruption since
1949 when Southern was organized. The following table sets forth the dividends
paid during the period 1994-1998 and the first two quarters of 1999. Future
dividends will depend on future earnings, the financial condition of Southern
and the operating affiliates and other factors.
COMMON DIVIDENDS COMMON DIVIDENDS
PERIOD PER SHARE PERIOD PER SHARE
- ------ ---------------- ------ ----------------
1994....................... $1.18 1996 (first quarter)............ $.315
(second quarter)........... .315
1995....................... 1.22 (third quarter)............ .315
(fourth quarter)........... .315
1996....................... 1.26 1997 (first quarter)............ .325
(second quarter)........... .325
1997....................... 1.30 (third quarter)............ .325
(fourth quarter)........... .325
1998....................... 1.34 1998 (first quarter)............ .335
(second quarter)........... .335
1999....................... 0.67 (third quarter)............ .335
(through June 30, 1999) (fourth quarter)........... .335
1999 (first quarter)............ .335
(second quarter)........... .335
S-8
DESCRIPTION OF UNITS
The following description of the specific terms of the Units, including
underlying agreements, supplements and, to the extent inconsistent, replaces the
description of the general terms of the Units and their components set forth in
the attached prospectus. This description is not necessarily complete. The
agreements described below are on file with the SEC, and we refer you to those
agreements for a more complete description of the terms of the Units. Wherever
particular sections of, or terms defined in, such agreements are referred to in
this prospectus supplement, such sections or defined terms are incorporated by
reference in this prospectus supplement. Capitalized terms not defined in this
prospectus supplement have the meanings set forth in such agreements.
GENERAL
Each Unit will have a Stated Amount of $50.
Each Normal Unit will consist of:
- - a stock purchase contract ("STOCK PURCHASE CONTRACT") having the terms
described below; and
- - United States Treasury % Notes due , 2002 ("TREASURY NOTES
DUE 2002") having a principal amount equal to $50.
The Treasury Notes due 2002 underlying the Normal Units will be pledged to
The Chase Manhattan Bank, as collateral agent for Southern (together with any
successor thereto in such capacity, the "COLLATERAL AGENT"), to secure the
holders' obligations under the Stock Purchase Contracts. If any treasury
securities are delivered to the Collateral Agent upon conversion of Normal Units
into Stripped Units or recreation of Normal Units as described below, those
securities will automatically be substituted as pledged securities under the
pledge arrangement. Any securities pledged to the Collateral Agent to secure the
obligations of the holders of any Units are herein referred to as "PLEDGED
SECURITIES."
Except as described in this prospectus supplement, holders of Units will
have no right to separate any Units into their constituent components.
It is possible that investment grade debt obligations of a third party
other than the United States will underlie the Normal Units instead of Treasury
Notes due 2002. If that is the case, certain terms of the Normal Units will
differ from those described in this prospectus supplement. In that event, the
particular terms of the Normal Units and the underlying debt obligations will be
described in a final prospectus supplement.
Each holder of Normal Units will be entitled to receive cash payments at
the rate of % of their aggregate Stated Amount per year, accruing from the
date the Normal Units are issued in this offering and payable in arrears on each
and , beginning on , 1999 and ending on
, 2002 (each such date, a "SEMIANNUAL PAYMENT DATE"). These
payments will consist of payments on the Treasury Notes due 2002 underlying the
Normal Units plus contract fees payable by Southern pursuant to the underlying
Stock Purchase Contracts (such contract fees being herein referred to as
"CONTRACT FEES"). Southern will be entitled to defer the payment of contract
fees, but Southern may not defer the payment of contract fees beyond
, 2002 (the "FINAL SETTLEMENT DATE") and any deferred
payments will bear additional contract fees. See "-- Description of the Stock
Purchase Contracts -- Contract Fees."
On the Final Settlement Date, if a holder of Units hasn't already settled
the Stock Purchase Contracts underlying those Units for cash, the principal paid
on the Pledged Securities underlying those Units will automatically be applied
to purchase Southern common stock at a Settlement Price of between $
and $ per share (subject to adjustment), as further described under
"-- Description of the Stock Purchase Contracts -- General" below.
Each holder, by accepting Units, will, under the terms of the Master Unit
S-9
Agreement and Pledge Agreement referred to below (collectively, the "PRINCIPAL
AGREEMENTS") as well as the Stock Purchase Contracts underlying such Units, be
deemed to have (a) irrevocably agreed to be bound by the terms of the Principal
Agreements and such Stock Purchase Contracts for so long as such holder remains
a holder of such Units and (b) duly appointed the Unit Agent acting under such
Master Unit Agreement as such holder's agent and attorney-in-fact to enter into
and perform such Stock Purchase Contracts on behalf of and in the name of such
holder.
INITIAL FORMATION OF NORMAL UNITS AND
STRIPPED UNITS; RIGHT TO STRIP OR RE-CREATE
NORMAL UNITS; EXECUTION OF PRINCIPAL
AGREEMENTS
Prior to the closing of the Normal Units offering, the underwriters for the
offering will acquire from third parties Treasury Notes due 2002 with an
aggregate principal amount equal to the aggregate Stated Amount of the Normal
Units. At closing, the underwriters will (a) enter into the Stock Purchase
Contracts underlying the Normal Units with Southern and (b) pledge those
Treasury Notes due 2002 to the Collateral Agent to secure the obligations owed
to Southern under those Stock Purchase Contracts. (The right to purchase common
stock and receive Contract Fees under a Stock Purchase Contract, together with
the Treasury Notes due 2002 securing the holder's obligation to purchase common
stock under that Stock Purchase Contract, subject to such obligation and the
pledge arrangements securing it, are collectively referred to in this prospectus
supplement as a "NORMAL UNIT.")
Each holder of Normal Units will have the right, on or prior to the second
Business Day before the Final Settlement Date, to substitute United States
Treasury STRIPS due , 2002 ("TREASURY STRIPS DUE 2002") for the
Treasury Notes due 2002 underlying those Normal Units and convert those Normal
Units into Stripped Units that will no longer generate cash payments (other than
Contract Fees). In order to exercise this right, the holder must (a) surrender
the certificate or certificates evidencing such Normal Units, together with a
properly completed and executed "Request to Create Stripped Units" in
substantially the form set forth on the reverse side of the certificate, to the
Unit Agent, (b) deliver to the Collateral Agent, as substitute collateral for
the holder's obligations pursuant to the Stock Purchase Contracts underlying
such Normal Units, Treasury STRIPS due 2002 that will generate payments on the
Final Settlement Date equal to the aggregate Stated Amount of those Normal Units
and (c) follow the other requirements described herein. (The right to purchase
common stock and receive Contract Fees under a Stock Purchase Contract, together
with the Treasury STRIPS due 2002 securing the holder's obligation to purchase
common stock under that Stock Purchase Contract, subject to such obligation and
the pledge arrangements securing it, are collectively referred to in this
prospectus supplement as a "STRIPPED UNIT.")
A holder may exercise this right only with respect to a number of Normal
Units that is an integral multiple of 20.
Stripped Units will not be fungible with Normal Units. If Stripped Units
are traded to a sufficient extent to meet the listing requirements of the NYSE,
Southern will use reasonable efforts to list them on the NYSE.
If a holder exercises the right to convert Normal Units into Stripped
Units, (a) the Treasury Notes due 2002 underlying those Normal Units will be
released from the pledge arrangement and delivered to the holder, free and clear
of Southern's security interest therein, and (b) the holder will be issued a
number of Stripped Units equal to the number of Normal Units surrendered.
Each holder of Stripped Units will have the right, on or prior to the
second Business Day before the Final Settlement Date, to substitute Treasury
Notes due 2002 for the Treasury STRIPS due 2002 underlying those Stripped Units
and convert those Stripped Units into Normal Units that will once again generate
the full cash payments contemplated under "-- General" above. In order to
exercise this right, the holder must (a) surrender the certificate or
certificates evidencing such Stripped Units, together with
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a properly completed and executed "Request to Recreate Normal Units" in
substantially the form set forth on the reverse side of the certificate, to the
Unit Agent, (b) deliver to the Collateral Agent, as substitute collateral for
the holder's obligations pursuant to the Stock Purchase Contracts underlying
such Stripped Units, Treasury Notes due 2002 with an aggregate principal amount
equal to the aggregate Stated Amount of those Stripped Units and (c) follow the
other requirements described herein.
A holder may exercise this right only with respect to a number of Stripped
Units that is an integral multiple of 20.
If a holder recreates Normal Units from Stripped Units in this manner, (a)
the U.S. Treasury STRIPS due 2002 underlying those Stripped Units will be
released from the pledge arrangement and delivered to the holder and (b) the
holder will be issued a number of Normal Units equal to the number of Stripped
Units surrendered.
When we use the term "UNIT" in this prospectus supplement, we mean a Normal
Unit or a Stripped Unit.
Southern will enter into (a) an agreement (the "MASTER UNIT AGREEMENT")
with The First National Bank of Chicago, as unit agent (together with any
successor thereto in such capacity, the "UNIT AGENT"), governing the appointment
of the Unit Agent as the agent and attorney-in-fact for the holders of the
Units, the Stock Purchase Contracts, the transfer, exchange or replacement of
certificates representing the Units and certain other matters relating to the
Units and (b) an agreement (the "PLEDGE AGREEMENT") between Southern and the
Collateral Agent creating a pledge and security interest for the benefit of
Southern to secure the obligations of holders of Units under the Stock Purchase
Contracts.
DESCRIPTION OF THE STOCK PURCHASE CONTRACTS
GENERAL
The Stock Purchase Contracts will be governed by the Master Unit Agreement.
Each Stock Purchase Contract underlying a Unit will require the holder of
such Unit to purchase, and Southern to sell, on the Final Settlement Date, for
cash in an amount equal to $50, common stock of Southern at a per share price
equal to the Settlement Price. If a Stock Purchase Contract is not settled or
terminated before the Final Settlement Date, the principal paid on the Pledged
Securities securing that contract will automatically be applied to fund that
purchase.
The "SETTLEMENT PRICE" will equal the Applicable Market Value referred to
below, except that (a) if the Applicable Market Value is below the Initial Stock
Price referred to below, the Settlement Price will equal the Initial Stock
Price, and (b) if the Applicable Market Value is above the Threshold
Appreciation Price referred to below, the Settlement Price will equal the
Threshold Appreciation Price.
"APPLICABLE MARKET VALUE" means the average of the Closing Prices of the
common stock during the 20 consecutive Trading Day period ending on and
including the last Trading Day before the Final Settlement Date.
"INITIAL STOCK PRICE" means $ . This amount is equal to the last
reported sale price of the common stock on the NYSE on the date of this
prospectus supplement, and is subject to adjustment in certain circumstances as
summarized under "-- Anti-Dilution Adjustments" below.
"THRESHOLD APPRECIATION PRICE" means $ . This amount is
approximately % higher than the Initial Stock Price, and is subject to
adjustment in certain circumstances as summarized under "-- Anti-Dilution
Adjustments" below.
The number of shares of common stock that a holder will purchase per Unit
on the Final Settlement Date will equal the Stated Amount ($50) divided by the
Settlement Price. Since the Settlement Price will be between the Initial Stock
Price and the Threshold Appreciation Price described above, the number of shares
that a holder will purchase per Unit will be between shares and
shares if the Initial Stock Price and Threshold Appreciation Price have not been
changed.
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Southern will not issue any fractional shares of common stock pursuant to
the Stock Purchase Contracts. In lieu of a fraction of a share otherwise
issuable in respect of Stock Purchase Contracts being settled by a holder of
Units, the holder will be entitled to receive an amount of cash equal to such
fraction times the Closing Price of the common stock on the Trading Day
preceding the date of settlement.
Prior to the purchase of common stock pursuant to a Stock Purchase
Contract, the common stock to be received on settlement of such Stock Purchase
Contract will not be deemed to be outstanding for any purpose and no holder of
Units will have any voting rights, rights to dividends or other distributions or
other rights or privileges of a stockholder of Southern by virtue of holding
such Units.
SETTLEMENT ON FINAL SETTLEMENT DATE
On the Final Settlement Date, if a holder of Units hasn't already settled
the Stock Purchase Contracts underlying those Units for cash, the principal paid
on the Pledged Securities underlying those Units will automatically be
transferred to Southern to satisfy in full such holder's obligation to purchase
common stock under the related Stock Purchase Contracts. The common stock
purchased on settlement of such Stock Purchase Contracts will then be issued and
delivered to such holder or such holder's designee, upon presentation and
surrender of the certificate evidencing such Units at the offices of the Unit
Agent and payment by the holder of any transfer or similar taxes payable in
connection with the issuance of common stock to any person other than such
holder.
SPECIAL RIGHT TO SETTLE EARLY AFTER REORGANIZATION EVENT
If Southern engages in a merger or similar transaction prior to the Final
Settlement Date in which Southern's common stock is converted into other
securities, cash or other property (a "REORGANIZATION EVENT"), each holder of
Units will have the right to settle the underlying Stock Purchase Contracts
early on the terms summarized in this paragraph. Southern will, within five
Business Days following completion of a Reorganization Event, mail notice
thereof to each holder of Units. The notice will specify a date, which must be a
Business Day not less than 10 Business Days and not more than 20 Business Days
after the date on which the notice is mailed, on which any early settlement
pursuant to this right will occur (the "DATE OF EARLY SETTLEMENT AFTER
REORGANIZATION EVENT"). The notice will also set forth the amount of securities,
cash or other property receivable on early settlement of a Stock Purchase
Contract pursuant to this right (determined as described under "-- Anti-Dilution
Adjustments" below).
To exercise this right with respect to the Stock Purchase Contracts
underlying any Units, a holder must, by no later than 10:00 a.m., New York City
time, on the Date of Early Settlement After Reorganization Event, settle those
Stock Purchase Contracts by presenting and surrendering the certificate
evidencing such Units at the offices of the Unit Agent with the form of
"Election to Exercise Early" on the reverse side of the certificate completed
and executed as indicated, accompanied by payment (in the form of a certified or
cashiers check payable to the order of Southern in immediately available funds)
of an amount equal to (a) the aggregate Stated Amount of such Units less (b) the
aggregate amount of any deferred Contract Fees payable thereon, together with
payment of any transfer or similar taxes payable in connection with the issuance
or transfer of securities to any person other than the holder of the Units. The
securities, cash or other property receivable on settlement of such Stock
Purchase Contracts will then be issued and delivered to such holder or such
holder's designee and the Pledged Securities securing such Stock Purchase
Contracts will then be released from the pledge under the Pledge Agreement and
delivered to such holder or such holder's designee, within three Business Days
following the settlement date. So long as Units are evidenced by global
certificates with the Depositary (as contemplated under "-- Book-Entry System"
below), procedures for early settlement will also be governed by standing
arrangements between the Depositary and the Unit Agent.
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Upon early settlement of Stock Purchase Contracts underlying any Units, the
holder's right to receive additional Contract Fees will terminate and, except as
contemplated by the first sentence of the preceding paragraph with respect to
deferred Contract Fees, no payment or adjustment will be made to or for the
holder on account of accrued Contract Fees.
If the Unit Agent receives a certificate evidencing the Units, accompanied
by the completed Election to Exercise Early and requisite check, from a holder
by 5:00 p.m., New York City time, on a Business Day, that day will be considered
the settlement date. If the Unit Agent receives the foregoing after 5:00 p.m.,
New York City time, on a Business Day or on a day that is not a Business Day,
the next succeeding Business Day will be considered the settlement date.
Holders may settle Stock Purchase Contracts early only in integral
multiples of 20.
CONTRACT FEES
Each Stock Purchase Contract underlying a Unit will require Southern to pay
to the holder Contract Fees at the rate of % of the $50 Stated Amount per
year, payable on each Semiannual Payment Date. The first payment will be
adjusted as necessary so that holders of Normal Units will receive a total
payment, after giving effect to Contract Fees and interest paid on the
underlying Treasury Notes due 2002, equivalent to % of the Stated Amount
per year, accruing from the date the Normal Units are issued in this offering.
Southern's obligation to pay Contract Fees to the holders of Units will be
unsecured and junior in right of payment to all of Southern's indebtedness for
borrowed money.
So long as no default in Southern's obligations under the Principal
Agreements has occurred and is continuing, Southern will be entitled to defer
the payment of Contract Fees at any time or from time to time for a period not
extending beyond the Final Settlement Date. To exercise such right, Southern
must give the holders and the Unit Agent notice at least five Business Days
before the earliest of (a) the date such payment would otherwise have been
payable, (b) the date Southern is required to give notice to any securities
exchange or to holders of Units of the record date or the date such payment is
payable and (c) such record date. During any such deferral period, Southern may
not declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Southern's
capital stock (other than (a) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, common stock
of Southern, (b) any declaration of a dividend in connection with the
implementation of a stockholder's rights plan, or the issuance of rights or
stock under any such plan in the future, or the redemption or repurchase of any
such rights pursuant thereto, (c) as a result of a reclassification of
Southern's capital stock solely into shares of one or more classes or series of
Southern's capital stock or the exchange or conversion of one class or series of
Southern's capital stock for another class or series of Southern's capital
stock, (d) the purchase of fractional interests in shares of Southern's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (e) purchases of common stock in
connection with the satisfaction by Southern of its obligations under any
employment contract, incentive plan, benefit plan or similar arrangement of
Southern or any of its subsidiaries or in connection with a dividend
reinvestment or stock purchase plan).
Any deferred Contract Fees will bear additional Contract Fees at the rate
of % per year (compounding on each succeeding Semiannual Payment Date)
until paid.
Contract Fees payable for any period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Contract Fees will accrue from
and including the date of issuance of the Normal Units to but excluding the
Final Settlement Date and will be payable in arrears on the Semiannual Payment
Dates (unless deferred as described
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above). If the Stock Purchase Contracts are terminated, the right of holders of
Normal Units to receive Contract Fees (including any deferred Contract Fees)
will also terminate.
ANTI-DILUTION ADJUSTMENTS
The Initial Stock Price and Threshold Appreciation Price (which serve as
the minimum and maximum possible Settlement Price) may be adjusted if certain
events occur, including: (a) dividends or other distributions on common stock
payable in common stock; (b) the issuance to all holders of common stock of
rights or warrants entitling them, for a period of up to 45 days, to subscribe
for or purchase common stock at less than the Current Market Price; (c)
subdivisions or combinations of common stock; (d) distributions to all holders
of common stock of evidences of indebtedness of Southern, securities, cash or
other assets (excluding any dividend or distribution covered by clause (a) or
(b) above and any dividend or distribution paid exclusively in cash); (e) a
distribution consisting exclusively of cash to all holders of common stock in an
aggregate amount that, when combined with other all-cash distributions made
within the preceding 12 months, exceeds 10% of Southern's Aggregate Market
Capitalization on the date fixed for the determination of stockholders entitled
to receive such distribution; and (f) the successful completion of a tender or
exchange offer made by Southern or any subsidiary for Southern's common stock.
The "CURRENT MARKET PRICE" per share of common stock on any day means the
average
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of the daily Closing Prices for the five consecutive Trading Days selected by
Southern commencing not more than 20 Trading Days before, and ending not later
than, the earlier of 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, shall mean the first date on which the common stock trades on the
relevant exchange or in the relevant market without the right to receive such
issuance or distribution.
"AGGREGATE MARKET CAPITALIZATION" on any day means the Current Market Price
on that day times the number of shares of common stock then outstanding.
If, as a result of the occurrence of a Reorganization Event, the common
stock is converted into the right to receive other securities, cash or property,
then each Stock Purchase Contract will, without the consent of the holders of
Units, become a contract to purchase, on the Final Settlement Date (or, at the
option of the holder of the related Unit as described herein, an earlier date),
only the kind and amount of securities, cash or property that the holder would
have been entitled to receive if the holder had settled such Stock Purchase
Contract immediately prior to such Reorganization Event. For this purpose,
however, the Applicable Market Value used to determine the Settlement Price and
the resulting number of shares of common stock that would have been purchasable
upon settlement of such Stock Purchase Contract immediately prior to such
Reorganization Event will be deemed to be (a) in the case of a settlement on the
Date of Early Settlement After Reorganization Event, the average of the Closing
Prices of the common stock during the 20 consecutive Trading Day period ending
on and including the last Trading Day before the date of consummation of the
Reorganization Event, (b) in the case of a settlement on the Final Settlement
Date, the then current Package Value and (c) in the case of a settlement on any
other day, the then current Threshold Appreciation Price.
"PACKAGE VALUE" means (a) the amount of any cash and the fair market value
at the Final Settlement Date (as reasonably determined in good faith by the
Board of Directors of Southern) of any non-cash consideration (other than
Marketable Securities) received per share of common stock in the Reorganization
Event plus (b) the average of the Closing Prices of each type of Marketable
Securities (if any) received in the Reorganization Event during the 20
consecutive Trading Day period ending on and including the last Trading Day
before the Final Settlement Date times the number of securities of such type
received per share of common stock in the Reorganization Event. If holders of
common stock receive any securities in the Reorganization Event, the kind and
amount of securities, cash or property purchasable upon settlement of each Stock
Purchase Contract will be subject to further adjustment if events analogous to
the dilution events described above occur with respect to such securities.
"MARKETABLE SECURITIES" means any securities (whether voting or non-voting)
listed on a U.S. national securities exchange or reported by the NASDAQ National
Market.
If at any time Southern makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (that is, distributions of evidences
of indebtedness or assets of Southern, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the adjustment provisions
of the Master Unit Agreement, the Initial Stock Price and the Threshold
Appreciation Price are decreased, such decrease may be deemed to be the receipt
of taxable income to holders of Units. See "Certain Federal Income Tax
Consequences -- Adjustment of Initial Stock Price and Threshold Appreciation
Price."
In addition, Southern may decrease the Initial Stock Price and Threshold
Appreciation Price if the Board of Directors of Southern deems it advisable to
avoid or diminish any income tax to holders of shares of common stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as a
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dividend or distribution for income tax purposes or for any other reasons.
Adjustments to the Initial Stock Price and Threshold Appreciation Price
will be calculated to the nearest $0.001. No adjustment in the Initial Stock
Price and Threshold Appreciation Price will be required unless such adjustment
would require an increase or decrease of at least one percent in either the
Initial Stock Price or the Threshold Appreciation Price. If any adjustments are
not required to be made because they would not change the Initial Stock Price or
the Threshold Appreciation Price by at least one percent, then the adjustment
will be carried forward and taken into account in any subsequent adjustment.
Southern will be required, as soon as practicable following the occurrence
of an event that requires or permits an adjustment in the Initial Stock Price
and Threshold Appreciation Price, to provide written notice to the holders of
Units of the occurrence of such event. Southern will also be required to deliver
a statement in reasonable detail setting forth the method by which the
adjustment was determined and setting forth the revised Initial Stock Price and
Threshold Appreciation Price.
TERMINATION
The Stock Purchase Contracts, and the rights and obligations of Southern
and of the holders of the Units under the Stock Purchase Contracts (including
the right to receive and obligation to pay Contract Fees or deferred Contract
Fees and the right to purchase and obligation to sell common stock) will
automatically terminate if Southern becomes subject to certain events of
bankruptcy, insolvency or reorganization. If the Stock Purchase Contracts are
terminated, the Pledged Securities will be distributed in the manner described
under "-- Pledged Securities and Pledge Agreement -- Termination of Stock
Purchase Contracts."
PLEDGED SECURITIES AND PLEDGE AGREEMENT
GENERAL
Under the Pledge Agreement, the Pledged Securities will be pledged to the
Collateral Agent, for the benefit of Southern, to secure the obligations of
holders of Units to purchase common stock under the Stock Purchase Contracts.
The Pledged Securities will initially consist of the Treasury Notes due 2002. If
any securities are delivered to the Collateral Agent upon conversion of the
Normal Units into Stripped Units or upon recreation of Normal Units, those
securities will automatically be substituted as Pledged Securities under the
pledge arrangement.
The rights of the holders of the Units to the underlying Pledged Securities
will be subject to the pledge and security interest created by the Pledge
Agreement. No holder of Units will be permitted to withdraw the Pledged
Securities underlying such Units from the pledge arrangement except as described
under " -- Initial Formation of Normal Units and Stripped Units; Right to Strip
or Re-create Normal Units; Execution of Principal Agreements" above. Subject to
such pledge and security interest, however, each holder of Units will have full
beneficial ownership of the underlying Pledged Securities and will be entitled
(directly or through the Collateral Agent) to all of the rights provided by such
Pledged Securities, and Southern will have no rights in the Pledged Securities
other than its security interest.
INTEREST PAYMENTS ON PLEDGED SECURITIES
The Collateral Agent, upon receipt of any payments of interest on the
Pledged Securities, will transfer those payments to the Unit Agent, which will,
in turn, distribute those payments, together with the Contract Fees then due
from Southern to the holders of Normal Units, to the holders of Units on the
Record Date. As long as the Units remain in book-entry only form, the Record
Date for any payment will be one Business Day before such payment date.
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SUBSTITUTION OF PLEDGED SECURITIES
For a description of the right of a holder of Units to substitute Treasury
STRIPS due 2002 or Treasury Notes due 2002 for Pledged Securities, see
" -- Initial Formation of Normal Units and Stripped Units; Right to Strip or
Recreate Normal Units; Execution of Principal Agreements" above.
SETTLEMENT OF STOCK PURCHASE CONTRACTS
On the Final Settlement Date, if a holder of Units hasn't already settled
the Stock Purchase Contracts underlying those Units for cash, the principal paid
on the Pledged Securities underlying any holder's Units will automatically be
transferred to Southern to satisfy in full such holder's obligation to purchase
common stock under the related Stock Purchase Contracts.
For a description of the manner in which Pledged Securities will be
released and distributed upon early settlement of Stock Purchase Contracts, see
"-- Description of the Stock Purchase Contracts -- Special Right to Settle Early
after Reorganization Event."
TERMINATION OF STOCK PURCHASE CONTRACTS
Upon termination of the Stock Purchase Contracts (see " -- Description of
the Stock Purchase Contracts -- Termination"), the Collateral Agent will release
the Pledged Securities underlying the Units to the Unit Agent for distribution
to the holders of such Units, upon presentation and surrender of the
certificates evidencing such Units. If upon such termination any holder would
otherwise be entitled to receive a principal amount of Treasury Notes due 2002
or Treasury STRIPS due 2002 that is not an integral multiple of $1,000, the Unit
Agent will distribute to such holder Treasury Notes due 2002 or Treasury STRIPS
due 2002, as the case may be, in a principal amount equal to the next lower
integral multiple of $1,000. The Unit Agent will sell the Treasury Notes due
2002 or Treasury STRIPS due 2002 not otherwise distributed to such holder
(together with the Treasury Notes due 2002 or Treasury STRIPS due 2002, as the
case may be, not otherwise distributed to other holders) and will distribute the
net proceeds to all such holders (in accordance with their respective interests
therein).
BOOK-ENTRY SYSTEM
The Depository Trust Company (the "DEPOSITARY") 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. or another nominee of the
Depositary. Fully-registered global security certificates ("GLOBAL SECURITY
CERTIFICATES"), representing the total aggregate number of Units, will be
issued, will be deposited with the Depositary and will bear a legend regarding
restrictions on their exchanges and registration of transfer as described below.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Units so long as
such Units are represented by Global Security Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The Depositary holds
securities that its participants ("PARTICIPANTS") deposit with it. The
Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("DIRECT PARTICIPANTS").
The Depositary is owned by a number of its Direct Participants and by the NYSE,
the American Stock Exchange, Inc. and the National Association
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of Securities Dealers, Inc. Access to the Depositary system is also available to
others, such as securities brokers and dealers, banks and trust companies that
clear transactions through or maintain direct or indirect custodial
relationships with Direct Participants either directly or indirectly ("INDIRECT
PARTICIPANTS"). The rules applicable to the Depositary and its Participants are
on file with the SEC.
Generally, Units represented by Global Security Certificates may not be
exchanged in whole or in part for Units registered. No transfer of Global
Security Certificates in whole or in part may be registered in the name of any
person other than the Depositary or a nominee of the Depositary unless the
Depositary has notified Southern that it is unwilling or unable to continue as
depositary for such Global Security Certificates or has ceased to be qualified
to act as Depositary under the Master Unit Agreement or if there occurs and
continues a default by Southern under one or more Principal Agreements. All
Units and portions of Units represented by Global Security Certificates will be
registered in such names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all Units represented thereby for all purposes under the Units,
Stock Purchase Contracts and Principal Agreements. Except in the limited
circumstances referred to in the paragraph above, owners of beneficial interests
in Global Security Certificates will not be entitled to have such Global
Security Certificates or the underlying Units registered in their names, will
not receive or be entitled to receive physical delivery of certificates and will
not be considered to be owners or holders of such Global Security Certificates
or any underlying Units for any purpose under the Units, Stock Purchase
Contracts and Principal Agreements. All payments on the Units represented by the
Global Security Certificates and all deliveries of Pledged Securities or common
stock to the holders thereof will be made to the Depositary or its nominee, as
the case may be, as the holder thereof.
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 the Depositary. 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 the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Stock Purchase
Contracts will be governed by arrangements among the Depositary, Participants
and persons that may hold beneficial interests through Participants designed to
permit such settlement without the physical movement of certificates. Payments,
transfers, deliveries, exchanges and other matters relating to beneficial
interests in Global Security Certificates may be subject to various policies and
procedures adopted by the Depositary from time to time. The Depositary has
advised Southern that it will not take any action permitted to be taken by a
holder of Units unless directed to do so by one or more Participants to whose
account the Depositary interests in the Global Security Certificates are
credited and only for the number of Units as to which such Participant or
Participants has or have given such direction. None of Southern, the Unit Agent,
the Collateral Agent nor any of their agents will have any responsibility or
liability for any aspect of the Depositary'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 the
Depositary's records or any Participant's records relating to such beneficial
ownership interests.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that Southern believes to be
reliable, but Southern does not take responsibility for its accuracy.
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CERTAIN PROVISIONS OF THE PRINCIPAL AGREEMENTS
GENERAL
Distributions on the Units will be payable, Stock Purchase Contracts (and
related documents) will be settled, transfers of the Units will be registrable,
Normal Units will be convertible into Stripped Units and Stripped Units will be
convertible into Normal Units at the office of the Unit Agent in the Borough of
Manhattan, The City of New York. In addition, in the event that the Units do not
remain in book-entry form, payment of distributions on the Units may be made, at
the option of Southern, by check mailed to the address of the persons shown on
the Unit Register.
In the event that any Semiannual Payment Date or the Final Settlement Date
is not a Business Day, then any payment required to be made on such date must be
made on the next Business Day (and so long as such payment is made on the next
Business Day, without any interest or other payment on account of any such
delay), with the same force and effect as if made on such payment date.
If a holder of Units fails to present and surrender the certificate
evidencing its Units to the Unit Agent on the Final Settlement Date, the common
stock issuable to such holder in settlement of the related Stock Purchase
Contracts will be registered in the name of the Unit Agent. These securities,
together with any distributions thereon, will be held by the Unit Agent as agent
for the benefit of such holder, until such certificate is presented and
surrendered or the holder provides satisfactory evidence that such certificate
has been destroyed, lost or stolen, together with any indemnity that may be
required by the Unit Agent and Southern.
If the Stock Purchase Contracts have terminated prior to the Final
Settlement Date, the related Pledged Securities have been transferred to the
Unit Agent for distribution to the holders and a holder of Units fails to
present and surrender the certificate evidencing its Units to the Unit Agent,
the Pledged Securities that would otherwise be delivered to such holder and any
related payments will be held by the Unit Agent as agent for the benefit of such
holder, until the holder presents and surrenders its certificate or provides the
evidence and indemnity described above.
The Unit Agent will not be required to invest or to pay interest on any
amounts held by it before 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 Principal Agreements will contain provisions permitting the relevant
parties to modify the terms of the Principal Agreements and the Stock Purchase
Contracts with the consent of the holders of a majority of the Units at the time
outstanding (or, in the case of modifications affecting only a specific type of
Units, the consent of the holders of a majority of the Units of such type).
However, no modification may, without the consent of the holder of each
outstanding Unit affected by the modification, (a) extend any payment date, (b)
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 Units to
receive distributions on the Pledged Securities underlying such Units or
otherwise adversely affect the holder's rights in or to Pledged Securities, (c)
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 Units or
decrease any other amounts receivable by holders in respect of Units, (d) impair
the right to institute suit for the enforcement of any Stock Purchase Contract,
(e) reduce the amount of common stock purchasable under any Stock Purchase
Contract, increase the price to purchase common stock on settlement of any Stock
Purchase Contract, change the Final Settlement Date or otherwise adversely
affect the holder's rights under any Stock Purchase Contract or (f) reduce the
percentage of outstanding Units the consent of whose holders is required for the
modification or amendment of the provisions of the Principal Agreements or the
Stock Purchase Contracts.
S-19
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Southern will agree in the Master Unit Agreement that it will not merge
with or into or consolidate with any other entity or sell, assign, transfer,
lease or convey all or substantially all of its properties and assets to any
person, firm or corporation unless (a) Southern is the continuing corporation or
the successor corporation is a corporation organized under the laws of the
United States of America or a state thereof; (b) such corporation expressly
assumes the obligations of Southern under the Principal Agreements and the Stock
Purchase Contracts; and (c) Southern or such successor corporation is not,
immediately after such merger, consolidation, sale, assignment, transfer, lease
or conveyance, in default in the performance of any of its obligations under the
Stock Purchase Contracts and the Principal Agreements.
TITLE
Southern, the Unit 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 Stock Purchase Contracts and for all
other purposes.
REPLACEMENT OF UNIT CERTIFICATES
In the event that physical certificates are issued, any mutilated
certificate will be replaced by Southern at the expense of the holder upon
surrender of such certificate to the Unit Agent. Certificates that become
destroyed, lost or stolen will be replaced by Southern at the expense of the
holder upon delivery to Southern and the Unit Agent of satisfactory evidence
that such certificate has been destroyed, lost or stolen, together with any
indemnity that may be required by the Unit Agent and Southern.
Southern, however, is not required to issue any certificates representing
Units on or after the Final Settlement Date or after the Stock Purchase
Contracts have terminated.
GOVERNING LAW
The Principal Agreements and the Stock Purchase Contracts will be governed
by, and construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE UNIT AGENT
The First National Bank of Chicago will initially act as Unit Agent. The
Unit Agent will act as the agent for the holders of Units from time to time. The
Master Unit Agreement will not obligate the Unit Agent to exercise any
discretionary actions in connection with a default under the terms of the
Principal Agreements, the Stock Purchase Contracts or the Pledged Securities.
The Master Unit Agreement will contain provisions limiting the liability of
the Unit Agent. The Master Unit Agreement will contain provisions under which
the Unit Agent may resign or be replaced. Resignation or replacement of the Unit
Agent will be effective upon appointment of a successor.
The Unit Agent is one of a number of banks with which Southern and its
subsidiaries maintain ordinary banking and trust relationships.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will initially act as Collateral Agent. The
Collateral Agent will act solely as the agent of Southern and will not assume
any obligation or relationship of agency or trust for or with any of the holders
of the 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. Such resignation or replacement will
be effective upon the appointment of a successor.
S-20
The Collateral Agent is one of a number of banks with which Southern and
its subsidiaries maintain ordinary banking and trust relationships. The
Collateral Agent currently has commitments under two credit facilities with
Southern for maximum aggregate amounts of $50,000,000 each.
S-21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal U.S. federal income tax
consequences of the purchase, ownership and disposition of Units to a holder
that purchases Normal Units in this offering. The summary represents the opinion
of Sullivan & Cromwell, special tax counsel to Southern and the underwriters for
this offering, insofar as it relates to matters of law and legal conclusions.
The summary deals only with Units held as capital assets by a purchaser who or
which is (i) a citizen or resident of the United States, (ii) a domestic
corporation, (iii) an estate the income of which is subject to United States
federal income tax without regard to its source or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. It does not deal
with Units held by specially treated classes of holders, such as dealers in
securities, life insurance companies, tax-exempt entities, traders in securities
that elect to mark to market, investors liable for alternative minimum tax and
investors that hold Units as part of a straddle or a hedging or conversion
transaction. PROSPECTIVE PURCHASERS OF NORMAL UNITS SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO UNIT HOLDERS IN
THEIR PARTICULAR SITUATIONS, AS WELL AS ANY CONSEQUENCES UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
GENERAL TREATMENT OF NORMAL UNITS ACQUIRED IN THIS OFFERING
A holder purchasing Normal Units in this offering will be treated as having
acquired two components, the underlying Treasury Notes due 2002 and the
underlying Stock Purchase Contracts. The holder's initial basis in the
underlying Treasury Notes due 2002 will equal the fair market value thereof on
the date the holder commits to purchase the Normal Units, and the holder's basis
in the underlying Stock Purchase Contracts will equal the holder's purchase
price for the Normal Units minus the holder's initial basis in the underlying
Treasury Notes due 2002. If the purchase price for a holder's Normal Units
equals the fair market value of the underlying Treasury Notes due 2002 on the
date the holder commits to purchase the Normal Units, the holder's basis in the
underlying Stock Purchase Contracts will be zero. As discussed below, such basis
in the Stock Purchase Contracts will in effect be reduced by the amount of any
Contract Fees received but not included in income and could in effect be
negative.
INCOME FROM NORMAL UNITS
A holder of Normal Units will include interest on the underlying Treasury
Notes due 2002 in income when received or accrued, in accordance with the
holder's method of accounting. If Treasury Notes due 2002 have accrued but
unpaid interest at the time the holder acquires them, a portion of the first
interest payment (equal to the amount of such accrued interest) will be a
tax-free return of principal which reduces the basis of the Treasury Notes due
2002, rather than taxable income.
There is no authority for the treatment of the Contract Fees under current
law, but Southern intends to file information returns on the basis that the
Contract Fees are income to holders. Holders should consult their own tax
advisors concerning the treatment of Contract Fees, including the possibility
that Contract Fees may be treated as a reduction in the holders' basis in the
Stock Purchase Contracts, rather than included in income upon receipt, by
analogy to the treatment of rebates or of option premiums. Southern does not
intend to deduct the Contract Fees for federal income tax purposes because it
views them as a cost of issuing the common stock. Contract Fees received by a
regulated investment company should be treated as income derived with respect to
the company's business of investing in stock and securities.
SALE OR DISPOSITION OF NORMAL UNITS
If a holder sells, exchanges or otherwise disposes of Normal Units before
the maturity
S-22
of the underlying Treasury Notes due 2002, the holder will generally recognize
capital gain or loss equal to the difference between (a) the amount realized
from the disposition of the Normal Units and (b) the holder's aggregate tax
basis in the underlying Treasury Notes due 2002 and Stock Purchase Contracts. If
a holder sells Normal Units between interest payment dates, a portion of the
proceeds of the sale will be treated as a receipt of interest accrued since the
last interest payment date, rather than as an amount realized from the sale of
the Normal Units, consistent with the general treatment of proceeds from the
sale of debt instruments such as the Treasury Notes due 2002.
RECEIPT OF TREASURY NOTES DUE 2002 ON EARLY SETTLEMENT
A holder of Normal Units that settles the underlying Stock Purchase
Contracts before the Final Settlement Date will not recognize gain or loss on
the receipt of the underlying Treasury Notes due 2002 and will retain the same
basis therein as such holder had before settlement.
GAIN OR LOSS ON MATURITY OF TREASURY NOTES DUE 2002; MARKET DISCOUNT AND
BOND PREMIUM
If a holder's tax basis in the Treasury Notes due 2002 underlying any
Normal Units is less than the amount payable at maturity of the Treasury Notes
due 2002, the holder will generally recognize gain equal to the difference upon
payment of the Treasury Notes due 2002 at maturity. This gain will be treated as
ordinary interest income (i.e., market discount) unless it is "de minimis", in
which case it will be treated as capital gain. The gain will be "de minimis" if
it is less than 1/4 of one percent of the amount payable at maturity of the
Treasury Notes due 2002 multiplied by the number of complete years remaining
from the date of purchase to maturity of the Treasury Notes due 2002. A holder
may instead elect to accrue market discount into income on a current basis over
the remaining life of the Treasury Notes due 2002. An election to accrue market
discount may apply to other debt instruments acquired at a discount by the
holder, and a holder should consult a tax advisor before making the election.
If such tax basis is greater than the amount payable at maturity of the
Treasury Notes due 2002, the excess will be "bond premium." A holder may either
recognize the bond premium as a capital loss upon payment of the Treasury Notes
due 2002 at maturity or make an election to amortize it over the term of the
Treasury Notes due 2002. If the election is made, the bond premium will
generally reduce the interest income on the Treasury Notes due 2002 on a
constant yield basis over the remaining term of the Treasury Notes due 2002 and
will reduce the basis of the Treasury Notes due 2002 by the amount of
amortization. An election to amortize bond premium may apply to other debt
instruments acquired at a premium by the holder, and a holder should consult a
tax advisor before making the election.
ACQUISITION OF COMMON STOCK UNDER STOCK PURCHASE CONTRACTS
A holder of Normal Units will not recognize gain or loss upon receipt of
common stock pursuant to the underlying Stock Purchase Contracts, and the
holder's basis in the common stock will equal the amount paid under the Stock
Purchase Contracts (i.e., $50 per Normal Unit) plus such holder's tax basis in
the Stock Purchase Contracts (which could in effect be negative). The holder's
holding period for the common stock acquired pursuant to the Stock Purchase
Contracts will begin on the day after the date the holder settles the Stock
Purchase Contracts. If the holder receives cash in respect of fractional shares
of common stock, the holder will be treated as having received and sold such
fractional shares for cash, with the result that (a) the holder will recognize
gain or loss equal to the difference between the amount of such cash and the
portion of the basis in the common stock that is properly allocable to such
fractional shares and (b) the holder's basis in the remaining common stock will
be correspondingly reduced.
S-23
CREATING STRIPPED UNITS AND RECREATING NORMAL UNITS
A holder of Normal Units that delivers Treasury STRIPS Due 2002 to the
Collateral Agent in substitution for Treasury Notes due 2002 to create Stripped
Units, or that delivers Treasury Notes due 2002 to the Collateral Agent in
substitution for Treasury STRIPS due 2002 to recreate Normal Units, will
generally not recognize gain or loss by doing so. Such holder will continue to
take into account items of income or deduction otherwise includible or
deductible, respectively, by such holder with respect to such securities, and
such holder's adjusted tax bases in such securities and the Stock Purchase
Contracts will not be affected by such delivery and release. Thus, a holder who
substitutes Treasury STRIPS due 2002 for Treasury Notes due 2002 will continue
to include original issue discount from such Treasury STRIPS due 2002 in income,
along with any income from Contract Fees.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER A STOCK PURCHASE CONTRACT
Assuming that Southern has current or accumulated earnings and profits at
least equal to the amount of the dividends, a holder will include a dividend on
the common stock in income when paid, and the dividend will be eligible for the
dividends received deduction if received by an otherwise qualifying corporate
holder which meets the holding period and other requirements for the dividends
received deduction.
Upon the sale, exchange or other disposition of common stock, the holder
will recognize gain or loss equal to the difference between the holder's tax
basis in the common stock and the amount realized on the disposition. The gain
or loss will be capital gain or loss, and will be long-term capital gain or loss
if the holder has held the stock for more than one year at the time of
disposition.
ADJUSTMENT OF INITIAL STOCK PRICE AND THRESHOLD APPRECIATION PRICE
Holders of Units might be treated as receiving a constructive distribution
from Southern if (i) the Initial Stock Price and Threshold Appreciation Price
are adjusted and as a result of such adjustment, the proportionate interest of
holders of Units in the assets or earnings and profits of Southern is increased,
and (ii) the adjustment is not made pursuant to a bona fide, reasonable
antidilution formula. An adjustment in the Initial Stock Price and Threshold
Appreciation Price would not be considered made pursuant to such a formula if
the adjustment were made to compensate for certain taxable distributions with
respect to common stock. Thus, under certain circumstances, a decrease in the
Initial Stock Price and Threshold Appreciation Price is likely to be taxable to
holders of Units as a dividend to the extent of the current or accumulated
earnings and profits of Southern. Holders of Units would be required to include
their allocable share of such constructive dividend in gross income but would
not receive any cash related thereto.
S-24
STATE AND OTHER TAX CONSIDERATIONS
Under federal law, interest on United States Treasury obligations is
generally exempt from state and local income taxes. Thus, interest on the
Pledged Securities underlying a holder's Units should qualify for this exemption
if the holder's state of residence (or other applicable state or local taxing
jurisdiction) characterizes the Units for income tax purposes in a manner
consistent with federal income tax characterization. There can be no assurance,
however, that the holder's state of residence (or other applicable state or
local taxing jurisdiction) would so characterize the Units, and, in any event,
the exemption would not extend to gain on sale or other disposition of Units. In
addition, a corporation or other entity holding Units may be required to include
the Units in calculating state or local franchise taxes or taxes levied in lieu
of franchise taxes. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE ACQUISITION
AND HOLDING OF UNITS.
S-25
UNDERWRITING
Southern and the underwriters for this offering named below have entered
into an underwriting agreement with respect to the Normal Units. Subject to
certain conditions, (a) Southern has agreed to (i) enter into Stock Purchase
Contracts with each underwriter underlying the number of Normal Units indicated
opposite its name below and (ii) pay to each underwriter an amount equal to the
per Normal Unit deficit (if any) to Southern listed on the cover page of this
prospectus supplement times such number of Normal Units, and (b) each
underwriter has severally agreed to (i) enter into Stock Purchase Contracts with
Southern underlying the number of Normal Units indicated opposite its name
below, (ii) pay to Southern an amount equal to the per Normal Unit premium (if
any) to Southern listed on the cover page of this prospectus supplement times
such number of Normal Units and (iii) pledge Treasury Notes due 2002 with a
principal amount equal to the aggregate Stated Amount of such Normal Units to
secure the Stock Purchase Contracts underlying such Normal Units. Goldman, Sachs
& Co. are representatives of the underwriters.
NUMBER OF
UNDERWRITERS NORMAL UNITS
- ------------ ------------
Goldman, Sachs & Co.......................................
Lehman Brothers Inc.......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................
Morgan Stanley & Co. Incorporated.........................
Salomon Smith Barney Inc..................................
--------
Total...........................................
========
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If the underwriters sell more Normal Units than the total number set forth
in the table above, the underwriters have an option to acquire up to an
additional Normal Units to cover such sales. They may exercise that
option for 30 days. If any Normal Units are acquired pursuant to this option,
the underwriters will severally acquire Normal Units in approximately the same
proportion as set forth in the table above.
The following table shows the per Normal Unit and total underwriting
commissions to be paid to the underwriters by Southern and the proceeds
(deficit) to Southern from the transaction. Such amounts are shown assuming both
no exercise and full exercise of the underwriters' option to acquire additional
Normal Units.
PROCEEDS PROCEEDS
UNDERWRITERS' UNDERWRITERS' (OR DEFICIT), (OR DEFICIT),
COMMISSION COMMISSION BEFORE BEFORE
PAID PAID EXPENSES, TO EXPENSES, TO
BY SOUTHERN BY SOUTHERN SOUTHERN SOUTHERN
ASSUMING ASSUMING ASSUMING ASSUMING
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
--------------- --------------- -------------------- --------------------
Per Normal Unit.............. $ $ $ $
Total........................ $ $ $ $
Normal Units sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus supplement. Any Normal Units sold by the underwriters to securities
dealers may be sold at a discount of up to
S-26
$ per Normal Unit from the initial public offering price. Any such
securities dealers may resell any Normal Units purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per Normal
Unit from the initial public offering price. If all the Normal Units are not
sold at the initial public offering price, the representatives may change the
offering price and the other selling terms.
The offer and sale by the underwriters of the Normal Units is subject to
the underwriters having entered into the underlying Stock Purchase Contracts. In
addition, the underwriters may, in their sole discretion, reject all or any part
of an order for Normal Units which is received by them.
Southern has agreed with the underwriters not to dispose of or hedge any
Units, any securities which are substantially similar to Units, any Southern
common stock or any securities convertible into or exchangeable for any such
Units, securities or stock (other than the Normal Units offered in this
offering), during the period from the date of this prospectus supplement
continuing through the date days after the date of this prospectus
supplement, except with the prior written consent of the representatives of the
underwriters. This agreement does not apply to any existing employee benefit
plans or dividend reinvestment plans.
The Normal Units will be a new issue of securities with no established
trading market. Southern intends to list the Normal Units on the NYSE. The
underwriters have advised Southern that they intend to make a market for the
Normal Units, but they are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Units.
In connection with the offering, the underwriters may purchase and sell the
Normal Units or common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of Normal Units than they are required to acquire in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Normal
Units or the common stock while the offering pursuant to this prospectus
supplement is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
commission received by it because the representatives of the underwriters have
repurchased Normal Units sold by or for the account of such underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Normal Units or the common stock. As a result,
the price of the Normal Units or the common stock may be higher than the price
that otherwise might exist in the open market. If these activities are
commenced, they may be discontinued by the underwriters at any time. These
transactions may be effected on the NYSE, in the over-the-counter market or
otherwise.
Southern estimates that its share of the total expenses of the offering,
excluding any premium (or deficit) to Southern referred to on the cover page of
this prospectus supplement, will be approximately $ .
Southern has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Certain of the underwriters in the past have performed investment banking
services for Southern and it affiliates and have received compensation for these
services.
S-27
VALIDITY OF UNITS
The validity of the Stock Purchase Contracts and the common stock
purchasable on settlement of the Stock Purchase Contracts will be passed upon
for Southern by Troutman Sanders LLP and for the underwriters by Dewey
Ballantine LLP. Troutman Sanders LLP will rely on Dewey Ballantine LLP with
respect to all matters of New York law. In addition, Sullivan & Cromwell has
acted as special tax counsel for Southern and the underwriters, and special
counsel for the underwriters with respect to certain structuring and corporate
law matters, in connection with this offering.
EXPERTS
The financial statements and schedules of Southern included in Southern's
Annual Report on Form 10-K for the year ended December 31, 1998, incorporated by
reference in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
S-28
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the securities it describes, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
Page
----
Prospectus Summary........................ S-1
Selected Consolidated Financial
Information............................. S-4
Risk Factors.............................. S-6
Use of Proceeds........................... S-7
Description of Common Stock............... S-7
Description of Units...................... S-9
Certain Federal Income Tax Consequences... S-22
State and Other Tax Considerations........ S-25
Underwriting.............................. S-26
Validity of Units......................... S-28
Experts................................... S-28
Prospectus
Page
----
Available Information..................... 2
Incorporation of Certain Documents by
Reference............................... 2
The Southern Company...................... 4
Southern Company Capital Funding, Inc..... 4
The Trusts................................ 4
Accounting Treatment of Trusts............ 5
Certain Ratios............................ 5
Use of Proceeds........................... 5
Description of the Common Stock........... 5
Description of the Senior Notes........... 7
Description of the Senior Notes
Guarantees.............................. 10
Description of the Junior Subordinated
Notes................................... 11
Description of the Junior Subordinated
Notes Guarantees........................ 16
Description of the Preferred Securities... 16
Description of the Preferred Securities
Guarantees.............................. 17
Relationship Among the Preferred
Securities, the Junior Subordinated
Notes, the Preferred Securities
Guarantees and the Junior Subordinated
Notes Guarantees........................ 19
Description of Stock Purchase
Contracts and Stock Purchase Units...... 21
Description of Stock Purchase
Guarantees.............................. 21
Plan of Distribution...................... 21
Legal Matters............................. 22
Experts................................... 22
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Normal Units
THE SOUTHERN COMPANY
% Adjustable
Conversion-rate
Equity Security Units
(Stated Amount $50 per Unit)
------------------
(SOUTHERN CO. LOGO)
------------------
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
Representatives of the Underwriters
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