<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 333-49077-02
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY 13, 1998
14,000,000 PREFERRED SECURITIES
DUKE CAPITAL FINANCING TRUST II
7 3/8% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES (QUIPSSM)*
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS SET FORTH HEREIN, BY
DUKE CAPITAL CORPORATION
A SUBSIDIARY OF DUKE ENERGY CORPORATION
---------------
The 7 3/8% Cumulative Quarterly Income Preferred Securities (the "Preferred
Securities") offered hereby will evidence preferred undivided beneficial
interests, representing 97% undivided beneficial interests in the assets of
Duke Capital Financing Trust II, a statutory business trust created under the
laws of the State of Delaware (the "Trust"). Duke Capital Corporation, a
Delaware corporation (the "Corporation"), will own all the common securities
(the "Common Securities" and, together with the Preferred Securities, the
"Trust Securities") representing the remaining 3% undivided beneficial
interests in the assets of the Trust. The Trust exists for the sole purpose of
issuing the Preferred Securities and the Common Securities and investing the
proceeds thereof in an equivalent amount of the Corporation's junior
subordinated deferrable interest notes, designated as Series B 7 3/8% Junior
Subordinated Notes due June 30, 2038 (the "Series B Junior Subordinated
Notes").
(continued on page S-2)
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
Application has been made to list the Preferred Securities on the New York
Stock Exchange, Inc. If so approved, trading of the Preferred Securities on
the New York Stock Exchange, Inc. is expected to commence within a 30-day
period after the initial delivery of the Preferred Securities. See
"Underwriting".
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) TRUST(2) (3)
-------------- ------------ ------------
<S> <C> <C> <C>
Per Preferred Security................. $25.00 (2) $25.00
Total.................................. $350,000,000 (2) $350,000,000
</TABLE>
- -------
(1) The Corporation and the Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Series B Junior Subordinated
Notes, the Underwriting Agreement provides that the Corporation will pay
to the Underwriters, as compensation ("Underwriters' Compensation") for
their arranging the investment therein of such proceeds, $0.7875 per
Preferred Security; provided, that such compensation will be $0.50 per
Preferred Security sold to certain institutions. Accordingly, the maximum
aggregate amount of Underwriters' Compensation will be $11,025,000 but the
actual amount of Underwriters' Compensation will be less than such amount
to the extent that Preferred Securities are sold to such institutions. See
"Underwriting".
(3) Expenses of the offering to be paid by the Corporation are estimated to be
approximately $450,000.
---------------
The Preferred Securities are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the Preferred Securities will be made in book-entry only form
through the facilities of The Depository Trust Company on or about September
15, 1998 (the "Issue Date") against payment therefor in immediately available
funds.
- -------
* QUIPS is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
---------------
The date of this Prospectus Supplement is September 10, 1998.
<PAGE>
(continued from cover page)
The Series B Junior Subordinated Notes will be unsecured obligations of the
Corporation and will be subordinate and junior in right of payment to Senior
Indebtedness of the Corporation, as described herein. See "Description of the
Junior Subordinated Notes--Subordination" in the accompanying Prospectus.
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions at the rate of 7 3/8% per annum (the "Securities Rate"),
accruing from the date of original issuance and payable, unless deferred,
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, a "Distribution Date"), commencing on December 31, 1998. The
Securities Rate and the Distribution Dates for the Preferred Securities will
correspond to the interest rate and interest payment dates on the Series B
Junior Subordinated Notes, which will constitute substantially all the assets
of the Trust. As a result, if principal or interest is not paid on the Series
B Junior Subordinated Notes, no amounts will be paid on the Preferred
Securities. THE CORPORATION HAS THE RIGHT TO DEFER PAYMENTS OF INTEREST ON THE
SERIES B JUNIOR SUBORDINATED NOTES BY EXTENDING THE INTEREST PAYMENT PERIOD ON
THE SERIES B JUNIOR SUBORDINATED NOTES, AT ANY TIME AND FROM TIME TO TIME, FOR
UP TO 20 CONSECUTIVE QUARTERS (EACH, AN "EXTENSION PERIOD"). If interest
payments are so deferred, distributions on the Preferred Securities also will
be deferred and the Corporation will not be permitted, subject to certain
exceptions described herein, to declare or pay any dividend or distribution
on, or redeem or otherwise purchase, any of its capital stock or make any
guarantee payments with respect to the foregoing, or make any payment on, or
redeem or otherwise purchase, any debt securities issued by the Corporation
which rank pari passu (equal in priority) with or junior to the Series B
Junior Subordinated Notes. During any Extension Period, holders of Preferred
Securities will be required to include income in the form of original issue
discount in their gross income for United States federal income tax purposes
in advance of the receipt of the cash payments attributable to such deferred
interest. See "Description of the Series B Junior Subordinated Notes--Option
to Extend Interest Payment Period," "Risk Factors--Option to Extend Interest
Payment Period" and "Material Federal Income Tax Considerations--Original
Issue Discount." Deferred installments of interest on the Series B Junior
Subordinated Notes will bear interest at a rate per annum equal to the
Securities Rate, compounded quarterly, to the date of payment to the extent
permitted by applicable law. The payment of such deferred interest, together
with interest thereon, will be distributed to the holders of the Preferred
Securities at the end of any Extension Period as received on the Series B
Junior Subordinated Notes.
The Trust Securities will be subject to mandatory redemption upon repayment
of the Series B Junior Subordinated Notes at maturity or their earlier
redemption. The Series B Junior Subordinated Notes will be redeemable at the
option of the Corporation, in whole or in part, from time to time, on or after
September 30, 2003, or at any time, in whole, within 90 days following the
occurrence of a Tax Event or Investment Company Act Event (either, a "Special
Event"). The Corporation will have the right at any time to terminate the
Trust and cause the Series B Junior Subordinated Notes to be distributed to
the holders of the Trust Securities in liquidation of the Trust. See
"Description of the Preferred Securities--Special Event Redemption or
Distribution" and "--Distribution of Series B Junior Subordinated Notes upon
Termination of Trust." The Series B Junior Subordinated Notes will be
subordinate and junior in right of payment to all Senior Indebtedness (as
defined herein) of the Corporation. See "Description of the Junior
Subordinated Notes--Subordination" in the accompanying Prospectus. As of June
30, 1998, Senior Indebtedness of the Corporation aggregated approximately
$948,522,000. If the Series B Junior Subordinated Notes are distributed to the
holders of the Trust Securities, the Corporation will use its best efforts to
have the Series B Junior Subordinated Notes listed on the New York Stock
Exchange, Inc. ("NYSE") or on such other exchange as the Preferred Securities
are then listed. See "Description of the Preferred Securities--Distribution of
Series B Junior Subordinated Notes upon Termination of Trust."
The payment of distributions on the Preferred Securities will be guaranteed
by the Corporation, but only to the extent that the Trust has funds legally
and immediately available to make such distributions (the "Guarantee").
Accordingly, if the Corporation fails to make required payments on
S-2
<PAGE>
the Series B Junior Subordinated Notes, the Trust will not have sufficient
funds to make the related distributions, and the Guarantee does not apply to
the payment of distributions when the Trust does not have sufficient funds
legally and immediately available therefor. In such event, to the extent
permitted by applicable law, the remedy of a holder of Preferred Securities is
to enforce the Property Trustee's rights under the Series B Junior
Subordinated Notes. See "Description of the Preferred Securities--Events of
Default" and "Relationship Among the Preferred Securities, the Series B Junior
Subordinated Notes and the Guarantee." The Corporation's obligations under the
Guarantee are subordinate and junior in right of payment to all of its other
liabilities (other than similar guarantees) and will rank pari passu with the
most senior preferred stock that may be issued by the Corporation and such
similar guarantees. See "Description of the Guarantees" in the accompanying
Prospectus. The Corporation has, through the Guarantee, the Subordinated Note
Indenture, the Series B Junior Subordinated Notes, the Trust Agreement and the
Agreement as to Expenses and Liabilities, fully and unconditionally
guaranteed, subject to certain subordination provisions, all the Trust's
obligations with respect to the Preferred Securities.
In the event of the redemption of the Series B Junior Subordinated Notes or
the voluntary or involuntary dissolution, winding-up or termination of the
Trust, the holders of the Preferred Securities will be entitled to receive,
for each Preferred Security, after satisfaction of liabilities of creditors of
the Trust (in the case of dissolution, winding-up or termination of the
Trust), a liquidation amount of $25 plus accrued and unpaid distributions
thereon to the date of payment (the "Redemption Price"), unless in connection
with such dissolution, winding-up or termination, the Series B Junior
Subordinated Notes are distributed to the holders of the Preferred Securities.
See "Description of the Preferred Securities--Liquidation Distribution Upon
Dissolution."
The Preferred Securities initially will be represented by a global
certificate or certificates registered in the name of The Depository Trust
Company ("DTC") or its nominee. Beneficial interests in the Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by Participants (as defined herein) in DTC. Except
as described herein, Preferred Securities in certificated form will not be
issued in exchange for the global certificate or certificates. See
"Description of the Preferred Securities--Book-Entry Only Issuance--The
Depository Trust Company."
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-3
<PAGE>
SUMMARY OF OFFERING
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms not otherwise defined shall have
the meanings assigned in the Glossary.
The Corporation............. Duke Capital Corporation (the "Corporation"), a
wholly-owned subsidiary of Duke Energy
Corporation, serves as the parent company to a
number of affiliates of Duke Energy Corporation
which are primarily engaged in the interstate
transportation and storage of natural gas, in
the gathering, processing, marketing and
intrastate transportation and storage of natural
gas, natural gas liquids and crude oil, in
natural gas and electric power marketing, in the
acquisition, development and operation of
independent power production facilities, in
risk-management services and in engineering
consulting, construction and other related
energy services.
The Trust................... Duke Capital Financing Trust II (the "Trust") is
a statutory business trust created under
Delaware law solely for the purpose of holding
the Corporation's Series B Junior Subordinated
Notes and issuing Preferred Securities and
Common Securities evidencing the entire
beneficial interest therein (and engaging in
activities necessary, appropriate, convenient or
incidental thereto).
The Trustees................ The Chase Manhattan Bank will act as property
trustee (the "Property Trustee") of the Trust.
Two officers of the Corporation also will act as
trustees (the "Administrative Trustees") of the
Trust. Chase Manhattan Bank Delaware will be an
additional trustee (the "Delaware Trustee") of
the Trust. The Chase Manhattan Bank will act as
trustee (the "Subordinated Indenture Trustee")
under the Subordinated Note Indenture pursuant
to which the Series B Junior Subordinated Notes
will be issued and will act as trustee under the
Guarantee (the "Guarantee Trustee").
The Property Trustee, Delaware Trustee and
Administrative Trustees are sometimes
collectively referred to as the "Securities
Trustees."
Preferred Securities The Trust will offer 14,000,000 Preferred
Offered..................... Securities evidencing preferred undivided
beneficial interests in the assets of the Trust.
Holders of the Preferred Securities are entitled
to receive cumulative cash distributions at the
Securities Rate, accruing from the date of
original issuance and payable quarterly in
arrears on March 31, June 30, September 30 and
December 31 of each year (each, a "Distribution
Date"), commencing on December 31, 1998. The
Securities Rate and the Distribution Dates for
the Preferred Securities will correspond to the
interest rate and
S-4
<PAGE>
interest payment dates on the Series B Junior
Subordinated Notes, which will constitute
substantially all the assets of the Trust. As a
result, if principal or interest is not paid on
the Series B Junior Subordinated Notes, no
amounts will be paid on the Preferred
Securities. See "Description of the Preferred
Securities" herein.
Record Date................. The record date for each Distribution Date will
be the close of business on the 15th calendar
day prior to such Distribution Date.
Series B Junior
Subordinated Notes..........
The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of Series B 7
3/8% Junior Subordinated Notes due June 30,
2038. The Series B Junior Subordinated Notes
will be subordinate and junior in right of
payment to all indebtedness for borrowed money
and other obligations of the Corporation
included in the definition of Senior
Indebtedness. See "Description of the Junior
Subordinated Notes--Subordination" in the
accompanying Prospectus.
Guarantee................... The payment of distributions on the Preferred
Securities is guaranteed by the Corporation
under the Guarantee, but only to the extent the
Trust has funds legally and immediately
available to make such distributions.
Accordingly, if the Corporation does not make
required payments on the Series B Junior
Subordinated Notes, the Trust will not have
sufficient funds to make distributions on the
Preferred Securities, and the Guarantee will not
apply to such distributions until the Trust has
sufficient funds legally and immediately
available therefor. The obligations of the
Corporation under the Guarantee will be
subordinate and junior in right of payment to
all other liabilities of the Corporation (other
than similar guarantees) and will rank pari
passu with the most senior preferred stock that
may be issued by the Corporation and such
similar guarantees. See "Risk Factors--Ranking
of and Rights under the Guarantee" herein and
"Description of the Guarantees" in the
accompanying Prospectus. The Corporation has,
through the Guarantee, the Subordinated Note
Indenture, the Series B Junior Subordinated
Notes, the Trust Agreement and the Agreement as
to Expenses and Liabilities, fully and
unconditionally guaranteed, subject to certain
subordination provisions, all the Trust's
obligations with respect to the Preferred
Securities.
Interest Deferral........... The Corporation has the right to defer payments
of interest on the Series B Junior Subordinated
Notes by extending the interest payment period
on the Series B Junior Subordinated Notes, at
any time and from time to time, for up to 20
consecutive quarters (each, an "Extension
Period"), but not beyond the stated maturity of
the Series
S-5
<PAGE>
B Junior Subordinated Notes. The only
restrictions on the Corporation's ability to
defer payments of interest are that during the
Extension Period the Corporation may not, with
certain exceptions, (i) pay dividends on, or
redeem or otherwise purchase, any of its capital
stock or (ii) pay principal or interest on, or
redeem or otherwise purchase, any debt
securities ranking pari passu with or
subordinate to the Series B Junior Subordinated
Notes. There could be multiple Extension Periods
of varying lengths throughout the term of the
Series B Junior Subordinated Notes.
If interest payments on the Series B Junior
Subordinated Notes are deferred, distributions
on the Preferred Securities will also be
deferred. During an Extension Period, holders of
Preferred Securities will be required to include
income in the form of original issue discount
("OID") in their gross income for federal income
tax purposes in advance of the receipt of the
cash payments attributable to such deferred
interest. See "Description of the Series B
Junior Subordinated Notes--Option to Extend
Interest Payment Period" and "Material Federal
Income Tax Considerations--Original Issue
Discount." Deferred installments of interest
will bear interest at a rate per annum equal to
the Securities Rate, compounded quarterly, to
the date of payment to the extent permitted by
applicable law.
Redemption; Distribution.... The Preferred Securities are subject to mandatory
redemption upon repayment of the Series B Junior
Subordinated Notes at maturity or their earlier
redemption. The Series B Junior Subordinated
Notes are redeemable by the Corporation, in
whole or in part, from time to time on or after
September 30, 2003, or at any time, in whole,
within 90 days following the occurrence of a
Special Event. If a partial redemption of the
Series B Junior Subordinated Notes would result
in the delisting of the Preferred Securities,
the Corporation may redeem the Series B Junior
Subordinated Notes only in whole. Any partial
redemption of the Series B Junior Subordinated
Notes will be effected by the redemption of an
equivalent liquidation amount of Trust
Securities, to be allocated approximately 97% to
the Preferred Securities and 3% to the Common
Securities. See "Description of the Preferred
Securities--Redemption" and "--Special Event
Redemption or Distribution."
The Corporation will have the right at any time
to terminate the Trust and cause the Series B
Junior Subordinated Notes to be distributed to
the holders of the Preferred Securities in
liquidation of the Trust. This right is optional
and wholly within the discretion of the
Corporation. Circumstances under which the
Corporation may
S-6
<PAGE>
determine to exercise such right could include
the occurrence of an Investment Company Act
Event or a Tax Event, adverse tax consequences
to the Corporation or the Trust that are not
within the definition of a Tax Event because
they do not result from an amendment or change
described in such definition, and changes in the
accounting requirements applicable to the
Preferred Securities as described under
"Accounting Treatment" in the accompanying
Prospectus. See "Description of the Preferred
Securities--Distribution of Series B Junior
Subordinated Notes upon Termination of Trust."
Special Event............... A "Special Event" means a Tax Event or an
Investment Company Act Event. A "Tax Event"
means that the Administrative Trustees and the
Corporation shall have received an opinion of
counsel experienced in such matters (which may
be counsel to the Corporation) to the effect
that, as a result of (a) any amendment to, or
change (including any announced prospective
change) in, the laws (or any regulations
thereunder) of the United States or any
political subdivision or taxing authority
thereof or therein or (b) any amendment to, or
change in, an interpretation or application of
such laws or regulations, there is more than an
insubstantial risk that (i) the Trust would be
subject to United States federal income tax with
respect to income accrued or received on the
Series B Junior Subordinated Notes, (ii)
interest payable on the Series B Junior
Subordinated Notes would not be deductible by
the Corporation for United States federal income
tax purposes, or (iii) the Trust would be
subject to more than a de minimis amount of
other taxes, duties or other governmental
charges, which change or amendment becomes
effective on or after the Issue Date. An
"Investment Company Act Event" means that the
Administrative Trustees and the Corporation
shall have received an opinion of counsel
experienced in such matters (which may be
counsel to the Corporation) to the effect that,
as a result of the occurrence of a change in law
or regulation or a written change in
interpretation or application of law or
regulation by any legislative body, court,
governmental agency or regulatory authority on
or after the Issue Date, there is more than an
insubstantial risk that the Trust is or will be
considered an "investment company" under the
Investment Company Act of 1940, as amended (the
"1940 Act"). See "Risk Factors--Special Event
Redemption or Distribution."
Redemption Price............ In the event of the redemption of the Trust
Securities or other termination of the Trust
without distribution of the Series B Junior
Subordinated Notes, each holder of a Preferred
Security shall be entitled to receive a
liquidation amount of $25 plus accrued and
unpaid distributions thereon (including any
interest thereon) to the date of payment.
S-7
<PAGE>
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should consider particularly the following
matters:
RANKING OF AND RIGHTS UNDER THE SERIES B JUNIOR SUBORDINATED NOTES
No amounts will be available to make payments on the Preferred Securities
except from payments made on the Series B Junior Subordinated Notes. The
obligations of the Corporation under the Series B Junior Subordinated Notes
are subordinate and junior in right of payment to all present and future
Senior Indebtedness of the Corporation. As of June 30, 1998, Senior
Indebtedness of the Corporation aggregated approximately $948,522,000. There
are no terms in the Preferred Securities, the Series B Junior Subordinated
Notes or the Guarantee that limit the Corporation's ability to incur
additional indebtedness, including Senior Indebtedness. See "Description of
the Guarantees" and "Description of the Junior Subordinated Notes--
Subordination" in the accompanying Prospectus.
The Corporation conducts its business through subsidiaries. Accordingly, the
ability of the Corporation to meet its obligations under the Series B Junior
Subordinated Notes will be dependent on the earnings and cash flows of its
subsidiaries and the ability of its subsidiaries to pay dividends or to
advance or repay funds to the Corporation. In addition, the rights of the
Corporation and its creditors to participate in the assets of any subsidiary
upon the latter's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors.
RANKING OF AND RIGHTS UNDER THE GUARANTEE
The Corporation's obligations under the Guarantee are subordinate and junior
in right of payment to all liabilities of the Corporation (other than similar
guarantees) and will be pari passu with the most senior preferred stock that
may be issued by the Corporation and such similar guarantees. If the
Corporation were to default in its obligation to make payments on the Series B
Junior Subordinated Notes, the Trust would lack available funds for payment of
distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and in such event holders of the Preferred Securities would not be
able to rely upon the Guarantee for payment of such amounts.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Corporation has the right under the Subordinated Note Indenture, at any
time, and from time to time, to defer payments of interest on the Series B
Junior Subordinated Notes for a period of up to 20 consecutive quarters (each,
an "Extension Period"), but not beyond the stated maturity of the Series B
Junior Subordinated Notes. Prior to the termination of any Extension Period,
the Corporation may further defer payments of interest; provided that such
Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters. During an Extension Period,
the Corporation will have the right to make partial payments of interest on
any Interest Payment Date. Upon the termination of any Extension Period and
the payment of all amounts then due, the Corporation may select a new
Extension Period, subject to the above requirements. There could be multiple
Extension Periods of varying lengths throughout the term of the Series B
Junior Subordinated Notes. Deferred installments of interest on the Series B
Junior Subordinated Notes will bear interest at a rate per annum equal to the
Securities Rate, compounded quarterly, to the date of payment to the extent
permitted by applicable law. The payment of such deferred interest, together
with any interest thereon, will be passed through to the holders of the
Preferred Securities as received at the end of any Extension Period.
S-8
<PAGE>
The only restrictions on the Corporation's ability to defer payments of
interest are that during any Extension Period the Corporation may not, with
certain exceptions, (i) pay dividends on, or redeem or otherwise purchase, any
of its capital stock or (ii) pay principal or interest on, or redeem or
otherwise purchase, any debt securities ranking pari passu with or subordinate
to the Series B Junior Subordinated Notes. See "Description of the Preferred
Securities--Distributions" and "Description of the Series B Junior
Subordinated Notes--Option to Extend Interest Payment Period" and "--Certain
Covenants."
Should the Corporation exercise its right to defer payments of interest,
each holder of Preferred Securities will be required to include income in the
form of OID in its gross income for United States federal income tax purposes
in respect of the deferred interest allocable to its Preferred Securities. As
a result, holders of Preferred Securities will recognize income for United
States federal income tax purposes in advance of the receipt of cash and will
not receive the cash from the Trust related to such income if such holders
dispose of their Preferred Securities prior to the record date for the date on
which distributions of such amounts are made. See "Material Federal Income Tax
Considerations--Original Issue Discount" and "--Sale of Preferred Securities."
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE PREFERRED SECURITIES.
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series B
Junior Subordinated Notes. However, should the Corporation determine to
exercise such right in the future, the market price of the Preferred
Securities is likely to be affected. A holder that disposes of its Preferred
Securities during an Extension Period, therefore, might receive a different
return on its investment than a holder that continues to hold its Preferred
Securities. In addition, as a result of the existence of the Corporation's
right to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Series B Junior
Subordinated Notes) may be more volatile than other similar securities that do
not have such rights.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event, the Corporation will have the
option, within 90 days following the occurrence thereof, to redeem the Series
B Junior Subordinated Notes in cash (with the result that the Preferred
Securities will be redeemed). In addition, the Corporation will have the right
at any time to terminate the Trust and cause the Series B Junior Subordinated
Notes to be distributed to the holders of the Preferred Securities in
liquidation of the Trust. See "Description of the Preferred Securities--
Special Event Redemption or Distribution" and "--Distribution of Series B
Junior Subordinated Notes upon Termination of Trust."
There can be no assurance as to the market price for the Series B Junior
Subordinated Notes that may be distributed in exchange for Preferred
Securities if a termination or liquidation of the Trust were to occur.
Accordingly, the Series B Junior Subordinated Notes that the investor may
receive on termination and liquidation of the Trust may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. See "Description of the Preferred Securities--Distribution of Series B
Junior Subordinated Notes upon Termination of Trust."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and, except
for the rights of holders of Preferred Securities to appoint a substitute
Property Trustee or Delaware Trustee under certain circumstances, will not be
entitled to vote to appoint, remove or replace any of the Securities Trustees,
which voting rights are vested exclusively in the holder of the Common
Securities. See "Description of the Preferred Securities--Voting Rights" and
"--Events of Default."
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<PAGE>
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities are expected to be listed on the NYSE, subject to
official notice of issuance. The Preferred Securities are expected to trade at
a price that takes into account the value, if any, of accrued but unpaid
distributions; thus, purchasers will not pay and sellers will not receive
accrued and unpaid interest with respect to the Preferred Securities that is
not included in the trading price thereof. If a Preferred Security is disposed
of prior to the occurrence of an Extension Period, any portion of the amount
received that is attributable to accrued interest will be treated as interest
income to a U.S. holder for tax purposes and will not be treated as part of
the amount realized for purposes of determining gain or loss on the
disposition of the Preferred Security. If an Extension Period occurs, interest
on the Series B Junior Subordinated Notes will be included in the gross income
of U.S. holders of Preferred Securities as it accrues rather than when it is
paid. Should an Extension Period occur, a holder who disposes of his Preferred
Securities between record dates for payments of distributions thereon would be
required to include accrued but unpaid interest on the Series B Junior
Subordinated Notes through the date of disposition in income as OID, and to
add such amount to his adjusted tax basis in his pro rata share of the related
Series B Junior Subordinated Notes deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis, a holder generally
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes. See "Material Federal Income Tax Considerations--Original
Issue Discount" and "--Sale of Preferred Securities."
The trading price of the Preferred Securities is likely to be sensitive to
the level of interest rates generally. If interest rates rise in general, the
trading price of the Preferred Securities may decline to reflect the
additional yield requirements of the purchasers. Conversely, a decline in
interest rates may increase the trading price of the Preferred Securities,
although any increase will be moderated by the Corporation's ability to redeem
the Series B Junior Subordinated Notes, in whole or in part, at any time on or
after September 30, 2003 at a redemption price equal to 100% of the principal
amount to be redeemed plus accrued but unpaid interest. In addition, because
holders of Preferred Securities will be paid only from payments on the Series
B Junior Subordinated Notes and may receive Series B Junior Subordinated Notes
upon the termination of the Trust, prospective purchasers of Preferred
Securities are making an investment decision with regard to the Series B
Junior Subordinated Notes and should carefully review all the information
regarding the Series B Junior Subordinated Notes contained herein. See
"Description of the Preferred Securities--Distribution of Series B Junior
Subordinated Notes upon Termination of Trust" and "Description of the Series B
Junior Subordinated Notes."
Prior to this offering, there has been no public market for the Preferred
Securities, and there can be no assurance that an active public market for the
Preferred Securities will develop or, if one does develop, that it will be
sustained after this offering. See "Plan of Distribution" in the accompanying
Prospectus.
In connection with this offering and in compliance with applicable law and
industry practice, the Underwriters may over-allot or effect transactions
which stabilize, maintain or otherwise affect the market price of the
Preferred Securities at a level above that which might otherwise prevail in
the open market, including by entering stabilizing bids. A stabilizing bid
means the placing of any bid, or the effecting of any purchase, for the
purpose of pegging, fixing or maintaining the price of a security. In general,
purchases of a security for the purpose of stabilization could cause the price
of the security to be higher than it might be in the absence of such
purchases. See "Underwriting."
INVESTMENT IN TRUST INVOLVES RISKS PARALLEL TO THOSE OF INVESTMENT IN
CORPORATION
As with an investment in the Corporation, an investment in the Trust
involves risks associated with operating conditions, competitive factors,
economic conditions, industry conditions and equity market conditions.
S-10
<PAGE>
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Subordinated Note Indenture does not contain provisions that afford
holders of the Series B Junior Subordinated Notes protection in the event of a
highly leveraged transaction involving the Corporation.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The quarterly reports on Form 10-Q of the Corporation for the quarters ended
March 31, 1998 and June 30, 1998 are incorporated herein by reference.
S-11
<PAGE>
RECENT FINANCIAL DATA
The following financial data is qualified in its entirety by the financial
statements included in the documents incorporated by reference in this
Prospectus Supplement. See "Incorporation of Certain Documents by Reference."
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997(1)
--------- ---------
<S> <C> <C>
INCOME STATEMENT DATA
Operating Revenues......................................... $ 5,987.5 $ 4,863.1
Operating Expenses......................................... 5,521.5 4,418.9
--------- ---------
Operating Income.......................................... 466.0 444.2
Other Income, Net.......................................... 55.9 33.6
--------- ---------
Earnings Before Interest and Taxes......................... 521.9 477.8
Interest Expense........................................... 112.8 102.9
Income Before Extraordinary Item........................... 254.6 213.1
Net Income................................................. 246.6 213.1
- --------
(1) Data reflects accounting for the combination of the Corporation and
PanEnergy on June 30, 1997 similar to a pooling of interests. As a result,
the data gives effect to the combination as if it had occurred as of
January 1, 1997.
BALANCE SHEET DATA
Property, Plant and Equipment, Net ........................ $ 6,267.2 $ 5,861.3
Total Assets............................................... 12,448.5 9,538.6
Short-term Debt ........................................... 57.4 629.7
Long-term Debt, including current portion.................. 2,729.4 2,147.6
FINANCIAL RATIOS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997(1)
--------- ---------
<S> <C> <C>
Ratio of Earnings to Fixed Charges......................... 4.2 4.2
</TABLE>
For purposes of this ratio (i) earnings consist of income from continuing
operations before income taxes and fixed charges and (ii) fixed charges
consist of all interest deductions and the interest component of rentals.
- --------
(1) Data reflects accounting for the combination of the Corporation and
PanEnergy on June 30, 1997 similar to a pooling of interests. As a result,
the data gives effect to the combination as if it had occurred as of
January 1, 1997.
S-12
<PAGE>
DUKE CAPITAL FINANCING TRUST II
The Trust is a statutory business trust created under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State
on January 29, 1998. The Trust's business is defined in a trust agreement,
executed by the Corporation, as Depositor, and the Delaware Trustee
thereunder. This trust agreement will be amended and restated in its entirety
on the Issue Date substantially in the form filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part (the "Trust Agreement"). The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "1939 Act"). The Trust exists for the exclusive purposes
of (i) issuing and selling the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Series B Junior Subordinated Notes,
and (iii) engaging in only those other activities necessary, appropriate,
convenient or incidental thereto. The Trust has a term of approximately 45
years from its creation, but may terminate earlier as provided in the Trust
Agreement.
Upon issuance of the Preferred Securities, the purchasers thereof will own
all of the Preferred Securities. The Corporation will acquire all of the
Common Securities, which will have an aggregate liquidation amount equal to
approximately 3% of the total capital of the Trust. The Common Securities will
rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities, except that upon the occurrence and continuance of a
Subordinated Note Indenture Event of Default, the rights of the holders of
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities.
The Trust's business and affairs will be conducted by the Securities
Trustees, which shall be appointed by the Corporation as the holder of the
Common Securities. Two officers of the Corporation initially will serve as
Administrative Trustees. The Chase Manhattan Bank will serve as Property
Trustee and will hold legal title to the Series B Junior Subordinated Notes
issued by the Corporation on behalf of the Trust and the holders of the Trust
Securities. Chase Manhattan Bank Delaware will serve as Delaware Trustee. In
certain circumstances, the holders of a majority in liquidation amount of the
Preferred Securities will be entitled to appoint a substitute Property Trustee
or Delaware Trustee. See "Description of the Preferred Securities--Events of
Default."
The Property Trustee will hold legal title to the Series B Junior
Subordinated Notes for the benefit of the Trust and the holders of the Trust
Securities and will have the power, with certain exceptions, to exercise all
rights, powers and privileges under the Subordinated Note Indenture as the
holder of the Series B Junior Subordinated Notes. To the extent payments in
respect of the Series B Junior Subordinated Notes are made to the Property
Trustee, the Property Trustee will make payments of distributions and payments
on liquidation, redemption and otherwise to the holders of the Trust
Securities. Subject to the right of the holders of the Preferred Securities to
appoint a substitute Property Trustee or Delaware Trustee under certain
circumstances, the Corporation, as the holder of all the Common Securities,
will have the right to appoint, remove or replace any of the Securities
Trustees.
The Series B Junior Subordinated Notes will constitute substantially all of
the assets of the Trust. Other assets that may constitute "Trust Property" (as
that term is defined in the Trust Agreement) include any cash on deposit in,
or owing to, the payment account as established under the Trust Agreement, as
well as any other property or assets held by the Property Trustee pursuant to
the Trust Agreement. In addition, the Trust may, from time to time, receive
cash from the Corporation pursuant to the Agreement as to Expenses and
Liabilities.
S-13
<PAGE>
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the Trust
Agreement, the Delaware Business Trust Act, and the 1939 Act. See "Description
of the Preferred Securities."
The Trust's office in the State of Delaware is c/o Chase Manhattan Bank
Delaware, 1201 Market Street, Wilmington, Delaware 19801. The principal place
of business of the Trust shall be c/o the Corporation, 422 South Church
Street, Charlotte, North Carolina 28202, telephone (704) 594-6200.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the
1939 Act. The Property Trustee will act as the indenture trustee with respect
to the Trust Agreement, as well as the Guarantee, for purposes of compliance
with the provisions of the 1939 Act. The terms of the Preferred Securities
will include those stated in the Trust Agreement, the Delaware Business Trust
Act, and those made part of the Trust Agreement by the 1939 Act. The following
summary of the principal terms and provisions of the Preferred Securities does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Trust Agreement, the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus are a part, as well as the 1939 Act.
GENERAL
The Trust Agreement authorizes the Administrative Trustees, on behalf of the
Trust, to issue the Preferred Securities, which represent preferred undivided
beneficial interests in the assets of the Trust, and the Common Securities,
which represent common undivided beneficial interests in the assets of the
Trust. All of the Common Securities will be owned by the Corporation. The
Common Securities rank pari passu, and payments will be made thereon on a pro
rata basis, with the Preferred Securities, except that upon the occurrence of
a Subordinated Note Indenture Event of Default, the rights of the holders of
the Common Securities to receive payment of periodic distributions and
payments upon liquidation, redemption and otherwise will be subordinated to
the rights of the holders of the Preferred Securities. The Trust Agreement
does not permit the issuance by the Trust of any securities other than the
Trust Securities or the incurrence of any indebtedness for borrowed money by
the Trust. Pursuant to the Trust Agreement, the Property Trustee will own and
hold the Series B Junior Subordinated Notes for the benefit of the Trust and
the holders of the Trust Securities. The payment of distributions out of money
held by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust, are guaranteed by the Corporation on a subordinated
basis as and to the extent described under "Description of the Guarantees" in
the accompanying Prospectus. The Guarantee does not cover payment of
distributions or amounts payable on redemption of the Preferred Securities or
otherwise in respect of the Preferred Securities when the Trust does not have
legally and immediately available funds sufficient to make such distributions
or payments. In such event, the holders of a majority in aggregate liquidation
amount of the Preferred Securities may direct the Property Trustee to enforce
its rights under the Series B Junior Subordinated Notes. In addition, a holder
of Preferred Securities may institute a legal proceeding directly against the
Corporation, without first instituting a legal proceeding against the Property
Trustee or any other person or entity, for enforcement of payment to such
holder of principal of or interest on the Series B Junior Subordinated Notes
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder on or after the due dates specified or
provided for in the Series B Junior Subordinated Notes. The above mechanisms
and obligations, together with the Corporation's obligations under the
Agreement as to Expenses and Liabilities, provide a full and unconditional
guarantee, subject to certain subordination provisions, by the Corporation of
the payments due on the Preferred Securities.
S-14
<PAGE>
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at the Securities
Rate and will accrue from the Issue Date and, except in the event of an
Extension Period, will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing on December 31, 1998. In
the event that any date on which distributions are to be made on the Preferred
Securities is not a Business Day, then payment of the distributions payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date the payment was
originally payable. A "Business Day" shall mean any day other than a Saturday
or Sunday, a day on which banks in New York City are authorized or obligated
by law or executive order to remain closed or a day on which the principal
corporate trust office of the Property Trustee or the Subordinated Indenture
Trustee is closed for business.
Distributions payable on any Distribution Date will be payable to the
holders of record on the Record Date for such Distribution Date, which is the
close of business on the fifteenth calendar day preceding such Distribution
Date. Subject to any applicable laws and regulations and the provisions of the
Trust Agreement, each such payment will be made as described under "--Book-
Entry Only Issuance--The Depository Trust Company" below. The amount of
distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months.
The Corporation has the right under the Subordinated Note Indenture to defer
payments of interest on the Series B Junior Subordinated Notes by extending
the interest payment period from time to time on the Series B Junior
Subordinated Notes (each, an "Extension Period") which, if exercised, would
defer quarterly distributions on the Preferred Securities during any such
extended interest payment period. Deferred installments of interest on the
Series B Junior Subordinated Notes will bear interest at a rate per annum
equal to the Securities Rate, compounded quarterly, to the date of payment to
the extent permitted by applicable law. During an Extension Period, the
Corporation will have the right to make partial payments of interest on any
Interest Payment Date. If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid, if funds are legally
available therefor, to holders of record of the Preferred Securities as they
appear on the books and records of the Trust on the Record Date next following
the termination of such Extension Period. See "Description of the Series B
Junior Subordinated Notes--Interest" and "--Option to Extend Interest Payment
Period."
Distributions on the Preferred Securities must be paid on the Distribution
Dates to the extent that the Trust has funds legally and immediately available
for the payment of such distributions. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Series B Junior Subordinated Notes. See
"Description of the Series B Junior Subordinated Notes."
REDEMPTION
The Preferred Securities are subject to mandatory redemption upon repayment
of the Series B Junior Subordinated Notes at maturity or their earlier
redemption. The Series B Junior Subordinated Notes will mature on June 30,
2038 and may be redeemed, in whole or in part, at the option of the
Corporation, at any time on or after September 30, 2003 or at any time in
whole within 90 days following the occurrence of a Special Event, in each case
at a Redemption Price equal to 100% of the principal amount to be redeemed
plus accrued but unpaid interest (including any Additional Interest) to the
Redemption Date. Upon the repayment of the Series B Junior Subordinated Notes,
whether at maturity or upon redemption, the proceeds from such repayment or
payment shall simultaneously be applied to redeem a like liquidation amount of
Trust Securities upon not less than
S-15
<PAGE>
30 nor more than 60 days' notice, at the Redemption Price. See "Description of
the Series B Junior Subordinated Notes--Optional Redemption." If a partial
redemption of the Series B Junior Subordinated Notes would result in the
delisting of the Preferred Securities, the Corporation may redeem the Series B
Junior Subordinated Notes only in whole. In the event that fewer than all of
the outstanding Preferred Securities are to be redeemed, the Preferred
Securities to be redeemed will be selected as described under "--Book-Entry
Only Issuance--The Depository Trust Company" below. If the Preferred
Securities are no longer in book-entry only form, the Preferred Securities to
be redeemed will be selected by such method as the Property Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions (equal to $25 or integral multiples thereof) of the aggregate
liquidation amount of Preferred Securities of a denomination larger than $25;
provided, however, that before undertaking the redemption of the Preferred
Securities on other than a pro rata basis, the Property Trustee shall have
received an opinion of counsel that the status of the Trust as a grantor trust
for United States federal income tax purposes would not be adversely affected.
The Redemption Price for each Preferred Security shall equal the liquidation
amount of $25 plus accrued and unpaid distributions thereon to the date of
payment.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event at any time, the Corporation will
have the option to redeem, within 90 days following the occurrence thereof,
the Series B Junior Subordinated Notes in whole (and thus cause the redemption
of the Preferred Securities in whole). A Special Event is either a Tax Event
or an Investment Company Act Event.
A "Tax Event" means that the Administrative Trustees and the Corporation
shall have received an opinion of counsel experienced in such matters (which
may be counsel to the Corporation) to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations, there
is more than an insubstantial risk that (i) the Trust would be subject to
United States federal income tax with respect to income accrued or received on
the Series B Junior Subordinated Notes, (ii) interest payable on the Series B
Junior Subordinated Notes would not be deductible by the Corporation for
United States federal income tax purposes, or (iii) the Trust would be subject
to more than a de minimis amount of other taxes, duties or other governmental
charges, which change or amendment becomes effective on or after the Issue
Date.
An "Investment Company Act Event" means that the Administrative Trustees and
the Corporation shall have received an opinion of counsel experienced in such
matters (which may be counsel to the Corporation) to the effect that, as a
result of the occurrence of a change in law or regulation or a written change
in interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority on or after the Issue Date,
there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" under the 1940 Act, which change becomes
effective on or after the Issue Date.
DISTRIBUTION OF SERIES B JUNIOR SUBORDINATED NOTES UPON TERMINATION OF TRUST
The Corporation will have the right at any time to terminate the Trust and,
after satisfaction of liabilities to creditors of the Trust, cause the Series
B Junior Subordinated Notes to be distributed to the holders of the Preferred
Securities in liquidation of the Trust. See "--Liquidation Distribution Upon
Dissolution" below. This right is optional and wholly within the discretion of
the Corporation. Circumstances under which the Corporation may determine to
exercise such right could include the occurrence of an Investment Company Act
Event or a Tax Event, adverse tax consequences to the
S-16
<PAGE>
Corporation or the Trust that are not within the definition of a Tax Event
because they do not result from an amendment or change described in such
definition, and changes in the accounting requirements applicable to the
Preferred Securities as described under "Accounting Treatment" in the
accompanying Prospectus.
If Series B Junior Subordinated Notes are distributed to the holders of the
Preferred Securities, the Corporation will use its best efforts to have the
Series B Junior Subordinated Notes listed on the NYSE or on such other
exchange as the Preferred Securities are then listed. After the date for any
distribution of Series B Junior Subordinated Notes upon termination of the
Trust, (i) the Preferred Securities and the Guarantee will no longer be deemed
to be outstanding, (ii) the depositary or its nominee, as the record holder of
the Preferred Securities, will receive a registered global certificate or
certificates representing the Series B Junior Subordinated Notes to be
delivered upon such distribution and (iii) any certificates representing
Preferred Securities not held by the depositary or its nominee will be deemed
to represent Series B Junior Subordinated Notes having an aggregate principal
amount equal to the aggregate liquidation amount of, with an interest rate
identical to the Securities Rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, such Preferred Securities, until such
certificates are presented to the Corporation or its agent for transfer or
reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Series B Junior Subordinated Notes that may be distributed
in exchange for the Preferred Securities if a termination and liquidation of
the Trust were to occur. Accordingly, the Preferred Securities that an
investor may purchase, or the Series B Junior Subordinated Notes that the
investor may receive on termination and liquidation of the Trust, may trade at
a discount to the price that the investor paid to purchase the Preferred
Securities.
REDEMPTION PROCEDURES
In the event that fewer than all of the Trust Securities are to be redeemed,
then the aggregate liquidation amount of the Trust Securities to be redeemed
shall be allocated 97% to the Preferred Securities and 3% to the Common
Securities.
The Preferred Securities redeemed on each redemption date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption
of the Series B Junior Subordinated Notes. The Redemption Price of Preferred
Securities shall be deemed payable on each redemption date only to the extent
that the Trust has funds legally and immediately available for payment of such
Redemption Price.
If the Property Trustee gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 2:00 P.M., New York
City time, on the redemption date, subject to the immediately preceding
paragraph, the Property Trustee will irrevocably deposit with the securities
depositary, so long as the Preferred Securities are in book-entry only form,
sufficient funds to pay the applicable Redemption Price. See "--Book-Entry
Only Issuance--The Depository Trust Company" below. If the Preferred
Securities are not in book-entry only form, the Property Trustee, subject to
the immediately preceding paragraph, will irrevocably deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and will give
the Paying Agent irrevocable instructions to pay the Redemption Price to the
holders thereof upon surrender of their Preferred Securities certificates. If
notice of redemption shall have been given and funds deposited as required,
then immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of such Preferred
Securities so called for redemption will cease, except the right of the
holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed
for redemption of Preferred Securities is not a Business Day, then payment of
the Redemption Price payable on such
S-17
<PAGE>
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will
be made on the immediately preceding Business Day. In the event that payment
of the Redemption Price in respect of Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Corporation
pursuant to the Guarantee, distributions on such Preferred Securities will
continue to accrue at the then applicable rate, from such redemption date
originally established by the Trust for such Preferred Securities to the date
such Redemption Price is actually paid. See "--Events of Default" below,
"Relationship Among the Preferred Securities, the Series B Junior Subordinated
Notes and the Guarantee" herein and "Description of the Guarantees--Events of
Default" in the accompanying Prospectus.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), the Corporation or any of
its affiliates may, at any time and from time to time, purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as the initial securities
depositary for the Preferred Securities. The Preferred Securities will be
issued only as fully registered securities registered in the name of Cede &
Co., DTC's nominee. One or more fully registered global Preferred Securities
certificates will be issued, representing in the aggregate the total number of
Preferred Securities, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the 1934 Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Preferred Securities. Transfers of ownership interests in the Preferred
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Preferred Securities,
except in the event that use of the book-entry system for the Preferred
Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities. DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are
S-18
<PAGE>
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Preferred
Securities are being redeemed, DTC will reduce the amount of the interest of
each Direct Participant in the Preferred Securities in accordance with its
procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached
to the Omnibus Proxy).
Distributions, redemption proceeds and other payments in respect of the
Preferred Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the account
of customers registered in "street name," and will be the responsibility of
such Participant and not of DTC, the Trust, any trustee or the Corporation,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions, redemption proceeds and other amounts
to DTC is the responsibility of the Trust, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
will not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of securities in definitive form. Such laws may impair the ability to
transfer beneficial interests in a global Preferred Security.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained within 90 days, Preferred Securities certificates
will be printed and delivered to the holders of record. Additionally, the
Corporation may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depositary) with respect to the
Preferred Securities. In that event, certificates for the Preferred Securities
will be printed and delivered to the holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Corporation and the Trust believe to
be reliable, but the Corporation and the Trust take no responsibility for the
accuracy thereof. The Trust has no responsibility for the performance by DTC
or its Participants of their respective obligations as described herein or
under the rules and procedures governing their respective operations.
S-19
<PAGE>
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Trust shall terminate on June 30, 2043,
or earlier upon (i) the occurrence of a Bankruptcy Event (as defined in the
Trust Agreement) in respect of the Corporation, dissolution or liquidation of
the Corporation, or dissolution of the Trust pursuant to a judicial decree;
(ii) the delivery of written direction to the Property Trustee by the
Corporation, as Depositor, at any time (which direction is optional and wholly
within the discretion of the Corporation, as Depositor) to terminate the Trust
and distribute the Series B Junior Subordinated Notes to the holders of the
Preferred Securities and the Common Securities in liquidation of the Trust; or
(iii) the payment at maturity or redemption of all of the Series B Junior
Subordinated Notes, and the consequent payment of the Trust Securities.
If an early termination occurs as described in clause (i) or (ii) above, the
Trust shall be liquidated, and the Property Trustee shall distribute to each
holder of Preferred Securities and Common Securities, after the satisfaction
of liabilities to creditors of the Trust, a like principal amount of Series B
Junior Subordinated Notes, unless in the case of an event described in clause
(i) such distribution is determined by the Administrative Trustees not to be
practical, in which event such holders will be entitled to receive, out of the
assets of the Trust available for distribution to holders, after satisfaction
of liabilities to creditors, an amount equal to the aggregate of the
liquidation amount of $25 per Trust Security plus accrued and unpaid
distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be
paid on a pro rata basis. The holder of the Common Securities will be entitled
to receive payments upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Subordinated Note Indenture Event of
Default has occurred and is continuing, the Preferred Securities shall have a
preference over the Common Securities.
EVENTS OF DEFAULT
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement ("Trust Agreement Event of Default") with respect to the Trust
Securities issued thereunder (whatever the reason for such Trust Agreement
Event of Default, and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of an "Event of Default," as defined in Section 501 of
the Subordinated Note Indenture, with respect to the Series B Junior
Subordinated Notes ("Subordinated Note Indenture Event of Default") (see
"Description of the Junior Subordinated Notes--Events of Default" in the
accompanying Prospectus); or
(ii) default by the Trust in the payment of any distribution when it
becomes due and payable, and the continuation of such default for a period
of 30 days; or
(iii) default by the Trust in the payment of any Redemption Price of any
Preferred Security or Common Security when it becomes due and payable; or
(iv) default in the performance, or breach, of any covenant or warranty of
the Securities Trustees in the Trust Agreement (other than a covenant or
warranty a default in the performance of which or the breach of which is
dealt with in clause (ii) or (iii) above), and continuation of such default
or breach for a period of 60 days after there has been given, by registered
or certified mail, to the Securities Trustees by the holders of at least
25% in liquidation amount of the outstanding Preferred Securities a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under the Trust
Agreement, unless holders in liquidation amount of outstanding Preferred
Securities not less than the
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liquidation amount of outstanding Preferred Securities the holders of which
gave such notice, agree in writing to an extension of such period prior to
its expiration; provided, however, that the holders of such liquidation
amount of outstanding Preferred Securities shall be deemed to have agreed
to an extension of such period if corrective action is initiated by the
Securities Trustees within such period and is being diligently pursued; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Trust.
Within 90 days after the occurrence of any default under the Trust
Agreement, the Property Trustee shall transmit notice of any such default
known to the Property Trustee to the holders of Trust Securities, the
Administrative Trustees and the Corporation, unless such default shall have
been cured or waived. For such purpose, the term "default" means any event
which is, or after notice or lapse of time or both would become, a Trust
Agreement Event of Default.
If a Subordinated Note Indenture Event of Default occurs and is continuing,
then, pursuant to the Trust Agreement, (i) the holders of Preferred Securities
will rely on the enforcement by the Property Trustee of its rights against the
Corporation as the holder of the Series B Junior Subordinated Notes and (ii)
the holders of a majority in aggregate liquidation amount of the Preferred
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or
to direct the exercise of any trust or power conferred upon the Property
Trustee under the Trust Agreement, including the right to direct the Property
Trustee to exercise the remedies available to it as a holder of the Series B
Junior Subordinated Notes. If the Property Trustee fails to enforce its rights
under the Series B Junior Subordinated Notes, a holder of Preferred Securities
may, to the extent permitted by applicable law and as provided in the Trust
Agreement, institute a legal proceeding against the Corporation to enforce its
rights under the Trust Agreement without first instituting any legal
proceeding against the Property Trustee or any other person or entity,
including the Trust. Notwithstanding the foregoing, a holder of Preferred
Securities may institute a legal proceeding directly against the Corporation,
without first instituting a legal proceeding against the Property Trustee or
any other person or entity, for enforcement of payment to such holder of
principal of or interest on the Series B Junior Subordinated Notes having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the due dates specified in the Series B
Junior Subordinated Notes. See "Relationship Among the Preferred Securities,
the Series B Junior Subordinated Notes and the Guarantee" herein and
"Description of the Guarantees--Events of Default" in the accompanying
Prospectus.
Unless a Subordinated Note Indenture Event of Default shall have occurred
and be continuing, the Securities Trustees may be removed at any time by act
of the holder of the Common Securities. If a Subordinated Note Indenture Event
of Default has occurred and is continuing, the Property Trustee and the
Delaware Trustee may be removed at such time by act of the holders of a
majority in liquidation amount of the Preferred Securities, delivered to the
appropriate Securities Trustee (in its individual capacity and on behalf of
the Trust). No resignation or removal of any Securities Trustee and no
appointment of a successor shall be effective until the acceptance of
appointment by the successor Trustee in accordance with the requirements of
the Trust Agreement.
If a Subordinated Note Indenture Event of Default has occurred and is
continuing, the holders of Preferred Securities shall have a preference over
the holders of Common Securities upon dissolution of the Trust as described
above. See "--Liquidation Distribution Upon Dissolution."
VOTING RIGHTS
Except as described in "--Amendment of the Trust Agreement" herein, in
"Description of the Guarantees--Amendments and Assignment" in the accompanying
Prospectus and in the immediately succeeding paragraphs and except as
otherwise required by law and the Trust Agreement, the holders of the
Preferred Securities will have no voting rights.
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So long as any Series B Junior Subordinated Notes are held by the Property
Trustee, the Securities Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the
Subordinated Indenture Trustee (as defined herein), or executing any trust or
power conferred on the Subordinated Indenture Trustee with respect to the
Series B Junior Subordinated Notes, (ii) consent to waive any past default
which is waivable under Section 513 of the Subordinated Note Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Series B Junior Subordinated Notes shall be due and payable, or (iv)
consent to any amendment, modification or termination of the Subordinated Note
Indenture or the Series B Junior Subordinated Notes, where such consent shall
be required, or to any other action, as the holder of the Series B Junior
Subordinated Notes, under the Subordinated Note Indenture, without, in each
case, obtaining the prior approval of the holders of at least 66 2/3% in
liquidation amount of the outstanding Preferred Securities; provided, however,
that where a consent under the Subordinated Note Indenture would require the
consent of each holder of Series B Junior Subordinated Notes affected thereby,
no such consent shall be given by the Securities Trustees without the prior
consent of each holder of Preferred Securities. The Securities Trustees shall
not revoke any action previously authorized or approved by a vote of the
holders of the Preferred Securities, except pursuant to a subsequent vote of
such holders. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Subordinated Indenture
Trustee with respect to the Series B Junior Subordinated Notes.
If any proposed amendment to the Trust Agreement provides for, or the
Securities Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Preferred
Securities, whether by way of amendment to the Trust Agreement or otherwise,
or (ii) the dissolution, winding-up or termination of the Trust, other than
pursuant to the Trust Agreement, then the holders of outstanding Preferred
Securities will be entitled to vote as a class on such amendment or proposal,
and such amendment or proposal shall not be effective except with the approval
of the holders of at least 66 2/3% in liquidation amount of the outstanding
Preferred Securities.
Any required approval of holders of Preferred Securities may be given at a
separate meeting of holders of Preferred Securities convened for such purpose
or pursuant to written consent. The Administrative Trustees will cause a
notice of any meeting at which holders of Preferred Securities are entitled to
vote to be given to each holder of record of Preferred Securities in the
manner set forth in the Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned (whether of record or beneficially) by the
Corporation, the Administrative Trustees or any affiliate of the Corporation
or any Administrative Trustee shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE
At any time or times, for the purpose of meeting the legal requirements of
the 1939 Act or of any jurisdiction in which any part of the Trust Property
(as defined in the Trust Agreement) may at the time be located, the holder of
the Common Securities and the Property Trustee shall have power to appoint,
and upon the written request of the Property Trustee, the Corporation, as
Depositor, shall for such purpose join with the Property Trustee in the
execution, delivery and performance of all instruments and agreements
necessary or proper to appoint, one or more persons approved by the Property
Trustee either to act as co-property trustee, jointly with the Property
Trustee, of all or any part of such Trust Property, or to act as separate
trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or
persons in such capacity, any property, title, right or power deemed necessary
or desirable, subject to the provisions of the Trust Agreement. If the
Corporation, as Depositor, does not join in such
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appointment within 15 days after the receipt by it of a request so to do, or
in case a Subordinated Note Indenture Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make such
appointment.
AMENDMENT OF THE TRUST AGREEMENT
The Trust Agreement may be amended from time to time by the Corporation and
the Securities Trustees without the consent of the holders of the Trust
Securities (i) to cure any ambiguity, correct or supplement any provision
therein which may be inconsistent with any other provision therein, or to make
any other provisions with respect to matters or questions arising under the
Trust Agreement, which shall not be inconsistent with the other provisions of
the Trust Agreement; provided that the amendment does not adversely affect in
any material respect the interests of any holder of Trust Securities, or (ii)
to modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes.
Except as provided in the succeeding paragraph, other amendments to the Trust
Agreement may be made (i) upon approval of the holders of not less than 66
2/3% in aggregate liquidation amount of the Trust Securities then outstanding
and (ii) upon receipt by the Securities Trustees of an opinion of counsel to
the effect that such amendment will not affect the Trust's status as a grantor
trust or the Trust's exemption from the 1940 Act.
Notwithstanding the foregoing, without the consent of each affected holder
of Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any distribution (or any payment upon redemption) on the
Trust Securities or otherwise adversely affect the amount of any distribution
(or any payment upon redemption) required to be made in respect of the Trust
Securities as of a specified date, (ii) restrict the right of a holder of
Trust Securities to institute suit for the enforcement of any such payment on
or after such date, (iii) change the purpose of the Trust, (iv) authorize the
issuance of any additional beneficial interests in the Trust, or (v) change
the consent required to amend the Trust Agreement.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except as
described below. The Trust may, at the request of the Corporation, with the
consent of the Administrative Trustees and without the consent of the holders
of the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any state; provided
that (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust with respect to the Trust Securities or (y)
substitutes for the Preferred Securities other securities having substantially
the same terms as the Trust Securities (the "Successor Securities") so long as
the Successor Securities rank the same as the Trust Securities rank in
priority with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) the Corporation expressly appoints a trustee of
such successor entity possessing the same powers and duties as the Property
Trustee as the holder of the Series B Junior Subordinated Notes, (iii) the
Preferred Securities or any Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities
are then listed, (iv) such consolidation, amalgamation, merger or replacement
does not cause the Preferred Securities (including any Successor Securities)
to be downgraded by any nationally recognized statistical rating organization,
(v) such consolidation, amalgamation, merger or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose substantially identical to that of the
Trust, (vii) prior to such consolidation, amalgamation, merger or replacement,
the Corporation and the Property Trustee have received an opinion of counsel
to the effect that (A) such consolidation, amalgamation, merger or replacement
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does not adversely affect the rights, preferences and privileges of the
holders of the Trust Securities (including any Successor Securities) in any
material respect, and (B) following such consolidation, amalgamation, merger
or replacement, neither the Trust nor such successor entity will be required
to register as an "investment company" under the 1940 Act, and (viii) the
Corporation owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding
the foregoing, the Trust shall not, except with the consent of holders of 100%
in liquidation amount of the Trust Securities, consolidate, amalgamate, merge
with or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger or replacement would cause the Trust or
the successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
Any corporation or other entity into which any of the Property Trustee, the
Delaware Trustee or any Administrative Trustee that is not a natural person
may be merged or converted or with which it may be consolidated, or any
corporation or other entity resulting from any merger, conversion or
consolidation to which any such Securities Trustee shall be a party, or any
corporation or other entity succeeding to all or substantially all the
corporate trust business of any such Securities Trustee, shall be the
successor of such Securities Trustee under the Trust Agreement; provided that
such corporation or other entity is otherwise qualified and eligible.
PAYMENT AND PAYING AGENT
So long as DTC is acting as securities depositary for the Preferred
Securities, payments in respect of the Preferred Securities shall be made to
DTC, which is to credit the relevant accounts at DTC on the applicable
Distribution Dates. If the Preferred Securities are not held by DTC, such
payments shall be made by check mailed to the address of the holder entitled
thereto as such address shall appear in the Security Register (as such term is
defined in the Trust Agreement). The Paying Agent shall initially be the
Property Trustee. The Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Administrative Trustees and the
Corporation. In such event, the Administrative Trustees shall appoint a
successor to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
It is anticipated that the Property Trustee, or one of its affiliates, will
act as registrar and transfer agent (the "Security Registrar") for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment in respect of any tax or
other governmental charges which may be imposed in relation to it.
The Security Registrar will not be required to register or cause to be
registered any transfer of Preferred Securities that have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a Trust Agreement Event of
Default with respect to the Trust Securities, undertakes to perform only such
duties as are specifically set forth in the Trust Agreement and, after
default, shall exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provisions,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any holder of Preferred
Securities, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby.
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The Chase Manhattan Bank, the Property Trustee, also serves as Subordinated
Indenture Trustee and Guarantee Trustee and serves as Trustee under the Senior
Indenture of the Corporation pursuant to which Senior Notes of the Corporation
are issuable. The Corporation and certain of its affiliates maintain deposit
accounts and banking relationships with The Chase Manhattan Bank.
GOVERNING LAW
The Trust Agreement and the Trust Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware;
provided that the immunities and standard of care of the Property Trustee
shall be governed by New York law.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the Trust
so that the Trust will not be deemed to be an "investment company" required to
be registered under the 1940 Act or taxed as other than a grantor trust for
United States federal income tax purposes and so that the Series B Junior
Subordinated Notes will be treated as indebtedness of the Corporation for
United States federal income tax purposes. In this connection, the
Administrative Trustees and the Corporation are authorized to take any action,
not inconsistent with applicable law, the Trust's certificate of trust or the
Trust Agreement, that the Administrative Trustees and the Corporation
determine in their discretion to be necessary or desirable for such purposes,
as long as such action does not materially and adversely affect the interests
of the holders of the Preferred Securities.
DESCRIPTION OF THE SERIES B JUNIOR SUBORDINATED NOTES
Set forth below is a description of the terms of the Series B Junior
Subordinated Notes. This description supplements, and should be read together
with, the description of the general terms and provisions of the Junior
Subordinated Notes set forth in the accompanying Prospectus under the caption
"Description of the Junior Subordinated Notes." The following description does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the description in the accompanying Prospectus and the
Subordinated Note Indenture (as defined therein). Certain capitalized terms
used herein are defined in the Subordinated Note Indenture.
GENERAL
The Series B Junior Subordinated Notes will be issued as a series of Junior
Subordinated Notes under the Subordinated Note Indenture. The Series B Junior
Subordinated Notes will be limited in aggregate principal amount to
$360,824,750, such amount being the aggregate liquidation amount of the Trust
Securities.
The entire principal amount of the Series B Junior Subordinated Notes will
mature and become due and payable, together with any accrued and unpaid
interest thereon (including any Additional Interest (as defined below)), on
June 30, 2038. The Series B Junior Subordinated Notes are not subject to any
sinking fund provision.
The interest rate and interest and other payment dates of the Series B
Junior Subordinated Notes will correspond to those of the Preferred
Securities, as described herein.
The Series B Junior Subordinated Notes will rank pari passu with the other
series of Junior Subordinated Notes issued under the Subordinated Note
Indenture.
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OPTIONAL REDEMPTION
The Corporation will have the right to redeem the Series B Junior
Subordinated Notes, in whole or in part, without premium, from time to time,
on or after September 30, 2003, or at any time in whole within 90 days
following the occurrence of a Special Event as described under "Description of
the Preferred Securities--Special Event Redemption or Distribution," upon not
less than 30 nor more than 60 days' notice, at a Redemption Price equal to
100% of the principal amount to be redeemed plus any accrued and unpaid
interest (including any Additional Interest) to the Redemption Date. If a
partial redemption of the Series B Junior Subordinated Notes would result in
the delisting of the Preferred Securities, the Corporation may redeem the
Series B Junior Subordinated Notes only in whole.
INTEREST
Each Series B Junior Subordinated Note will bear interest at the Securities
Rate from the Issue Date, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing on December 31, 1998, to
the person in whose name such Series B Junior Subordinated Note is registered
at the close of business on the fifteenth calendar day prior to such payment
date; provided that interest payable at the stated maturity of principal of
the Series B Junior Subordinated Notes or on a Redemption Date will be paid to
the person to whom such principal is payable. The amount of interest payable
will be computed on the basis of a 360-day year of twelve 30-day months. In
the event that any date on which interest is payable on the Series B Junior
Subordinated Notes is not a Business Day, then payment of the interest payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date the payment was
originally payable.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Corporation will have the right at any time, and from time to time, to
defer payments of interest on the Series B Junior Subordinated Notes by
extending the interest payment period for up to 20 consecutive quarters, but
not beyond the stated maturity date. Upon the termination of an Extension
Period, the Corporation shall pay all interest then accrued and unpaid
(including any Additional Interest) on the next succeeding Interest Payment
Date. Prior to the termination of any Extension Period, the Corporation may
further defer payments of interest by extending the interest payment period;
provided that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive quarters. During an
Extension Period, the Corporation will have the right to make partial payments
of interest on any Interest Payment Date. Upon the termination of any
Extension Period and the payment of all amounts then due, the Corporation may
select a new Extension Period, subject to the above requirements. The
Corporation has no present intention of exercising its right to defer payments
of interest by extending the interest payment period on the Series B Junior
Subordinated Notes.
The Corporation shall give the holder or holders of the Series B Junior
Subordinated Notes and the Subordinated Indenture Trustee notice of its
selection or extension of an Extension Period at least one Business Day prior
to the earlier of (i) the record date relating to the Interest Payment Date on
which the Extension Period is to commence or relating to the Interest Payment
Date on which an Extension Period that is being extended would otherwise
terminate or (ii) the date the Corporation or the Trust is required to give
notice to the NYSE or other applicable self-regulatory organization of the
record date or the date such distributions are payable.
ADDITIONAL INTEREST
"Additional Interest" with respect to the Series B Junior Subordinated Notes
is defined in the Subordinated Note Indenture as (i) such additional amounts
as may be required so that the net
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amounts received and retained by a holder of Series B Junior Subordinated
Notes (if the holder is the Trust) after paying taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States or any other taxing authority will not be less than the
amounts the holder would have received had no such taxes, duties, assessments,
or other governmental charges been imposed; and (ii) such interest as shall
accrue on interest due and not paid on an Interest Payment Date, accruing at
the Securities Rate from the applicable Interest Payment Date to the date of
payment, compounded quarterly, on each Interest Payment Date, to the extent
permitted by applicable law.
CERTAIN COVENANTS
The Corporation covenants in the Subordinated Note Indenture, for the
benefit of the holders of Series B Junior Subordinated Notes and the holders
of the Preferred Securities, that, (i) if at such time the Corporation shall
have given notice of its election to extend an interest payment period for the
Series B Junior Subordinated Notes and such extension shall be continuing or
(ii) if at such time a Subordinated Note Indenture Event of Default shall have
occurred and be continuing, (a) the Corporation shall not declare or pay any
dividend or make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock, and (b) the Corporation shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees other than the Guarantee) issued by the
Corporation which rank pari passu with or junior to the Series B Junior
Subordinated Notes. None of the foregoing, however, shall restrict (i) any of
the actions described in the preceding sentence resulting from any
reclassification of the Corporation's capital stock or the exchange or
conversion of one class or series of the Corporation's capital stock for
another class or series of the Corporation's capital stock or (ii) dividends
or distributions in capital stock of the Corporation.
The Subordinated Note Indenture further provides that, for so long as the
Trust Securities remain outstanding, the Corporation covenants (i) directly or
indirectly to maintain 100% ownership of the Common Securities of the Trust;
provided, however, that any permitted successor of the Corporation under the
Subordinated Note Indenture may succeed to the Corporation's ownership of such
Common Securities, and (ii) to use its reasonable efforts to cause the Trust
(a) to remain a statutory business trust, except in connection with the
distribution of Series B Junior Subordinated Notes to the holders of Trust
Securities in liquidation of such Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement, and (b) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes.
BOOK-ENTRY AND ISSUANCE
If distributed to holders of Trust Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of the Trust,
the Series B Junior Subordinated Notes are expected to be issued in the form
of one or more global certificates registered in the name of the securities
depositary or its nominee. In such event, the procedures applicable to the
transfer and payment of the Series B Junior Subordinated Notes are expected to
be substantially similar to those described with respect to the Preferred
Securities in "Description of the Preferred Securities--Book-Entry Only
Issuance--The Depository Trust Company."
DENOMINATIONS
The Series B Junior Subordinated Notes will be issuable in registered form
without coupons in denominations of $25 or any integral multiples thereof.
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DEFEASANCE
The Corporation may cause itself to be discharged from its obligations (with
certain exceptions) with respect to any Series B Junior Subordinated Notes
("Defeasance") on and after the date certain conditions set forth in the
Subordinated Note Indenture are satisfied. See "Description of the Junior
Subordinated Notes--Defeasance and Covenant Defeasance" in the accompanying
Prospectus.
Under current United States federal income tax laws, Defeasance would be
treated as an exchange of the relevant Series B Junior Subordinated Notes in
which holders of such Series B Junior Subordinated Notes might recognize gain
or loss. In addition, thereafter, the amount, timing and character of amounts
that holders would be required to include in income might be different from
that which would be includible in the absence of such Defeasance. Prospective
investors are urged to consult their own tax advisors as to the specific
consequences of a Defeasance, including the applicability and effect of tax
laws other than the United States federal income tax laws.
The provisions of the Subordinated Note Indenture that provide for Covenant
Defeasance (as described in "Description of the Junior Subordinated Notes--
Defeasance and Covenant Defeasance" in the accompanying Prospectus) shall not
apply to the Series B Junior Subordinated Notes.
MISCELLANEOUS
The Corporation will have the right at all times to assign any of its rights
or obligations under the Subordinated Note Indenture with respect to the
Series B Junior Subordinated Notes to a direct or indirect wholly-owned
subsidiary of the Corporation; provided that, in the event of any such
assignment, the Corporation will remain primarily liable for the performance
of all such obligations.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SERIES B JUNIOR SUBORDINATED NOTES AND THE GUARANTEE
As long as payments of interest and other payments are made when due on the
Series B Junior Subordinated Notes, such payments will be sufficient to cover
distributions and payments due on the Trust Securities primarily because (i)
the aggregate principal amount of Series B Junior Subordinated Notes will be
equal to the sum of the aggregate liquidation amount of the Trust Securities;
(ii) the interest rate and interest and other payment dates on the Series B
Junior Subordinated Notes will correspond to the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii) the
Corporation will pay for all costs and expenses of the Trust pursuant to the
Agreement as to Expenses and Liabilities; and (iv) the Trust Agreement
provides that the Securities Trustees shall not cause or permit the Trust to,
among other things, engage in any activity that is not consistent with the
purposes of the Trust.
Payments of distributions (to the extent funds therefor are legally and
immediately available) and other payments due on the Preferred Securities (to
the extent funds therefor are legally and immediately available) are
guaranteed by the Corporation as and to the extent set forth under
"Description of the Guarantees" in the accompanying Prospectus. If the
Corporation does not make the required payments on the Series B Junior
Subordinated Notes, it is not expected that the Trust will have sufficient
funds to make the related distributions on the Preferred Securities. The
Guarantee is a guarantee from the time of its issuance, but does not apply to
any payment of distributions unless and until the Trust has sufficient funds
legally and immediately available for the payment of such distributions.
If a Subordinated Note Indenture Event of Default occurs and is continuing,
then (i) the holders of Preferred Securities will rely on the enforcement by
the Property Trustee of its rights against the Corporation as the holder of
the Series B Junior Subordinated Notes and (ii) the holders of a majority in
aggregate liquidation amount of the Preferred Securities will have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee or to direct the exercise of any
trust or power conferred upon the Property Trustee under the Trust Agreement,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the Series B Junior Subordinated Notes. If the
Property Trustee fails to enforce its rights under the Series B Junior
Subordinated Notes, a holder of Preferred Securities may, to the extent
permitted by applicable law and as provided in the Trust Agreement, institute
a legal proceeding against the Corporation to enforce its rights under the
Trust Agreement without first instituting any legal proceeding against the
Property Trustee or any other person or entity, including the Trust.
Notwithstanding the foregoing, a holder of Preferred Securities may institute
a legal proceeding directly against the Corporation, without first instituting
a legal proceeding against the Property Trustee or any other person or entity,
for enforcement of payment to such holder of principal of or interest on the
Series B Junior Subordinated Notes having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder on or
after the due dates specified in the Series B Junior Subordinated Notes. The
Trust Agreement also provides a mechanism whereby the holders of Preferred
Securities may appoint a substitute Property Trustee if a Subordinated Note
Indenture Event of Default occurs and is continuing.
If the Corporation fails to make payments under the Guarantee, the Guarantee
provides a mechanism whereby the holders of the Preferred Securities may
direct the Guarantee Trustee to enforce its rights thereunder. In addition,
any holder of Preferred Securities may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee or any
other person or entity.
The Guarantee, the Subordinated Note Indenture, the Series B Junior
Subordinated Notes, the Trust Agreement and the Agreement as to Expenses and
Liabilities, as described above, provide a
S-29
<PAGE>
full and unconditional guarantee, subject to certain subordination provisions,
by the Corporation of the payments due on the Preferred Securities.
Upon any voluntary or involuntary dissolution, winding-up or termination of
the Trust, unless the Series B Junior Subordinated Notes are distributed in
connection therewith, the holders of Preferred Securities will be entitled to
receive, out of assets legally available for distribution to holders, the
Liquidation Distribution in cash. See "Description of the Preferred
Securities--Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Corporation, the Property
Trustee, as holder of the Series B Junior Subordinated Notes, would be a
subordinated creditor of the Corporation, subordinated in right of payment to
all Senior Indebtedness, but entitled to receive payment in full of principal
and interest, before the shareholder of the Corporation receives payments or
distributions. Because the Corporation is guarantor under the Guarantee and
has agreed to pay for all costs, expenses and liabilities of the Trust (other
than the Trust's obligations to holders of the Preferred Securities) pursuant
to the Agreement as to Expenses and Liabilities, the positions of a holder of
Preferred Securities and a holder of Series B Junior Subordinated Notes
relative to other creditors and the shareholder of the Corporation in the
event of liquidation or bankruptcy of the Corporation would be substantially
the same.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Subordinated Note Indenture
with respect to the Series B Junior Subordinated Notes. However, in the event
of a default under, or acceleration of, Senior Indebtedness, the subordination
provisions of the Series B Junior Subordinated Notes provide that no payments
may be made in respect of the Series B Junior Subordinated Notes until such
Senior Indebtedness has been paid in full (in the case of any payment by, or
distribution of assets of, the Corporation to creditors upon any dissolution,
winding-up, liquidation or reorganization of the Corporation), or all amounts
due thereon have been paid (in the case of a payment default thereunder
(beyond any period of grace) or the acceleration of the maturity of such
Senior Indebtedness because of a default with respect to such Senior
Indebtedness). Failure to make required payments on the Series B Junior
Subordinated Notes would (with the lapse of time, in the case of defaults in
the payment of interest) constitute a Subordinated Note Indenture Event of
Default, except that failure to make interest payments on the Series B Junior
Subordinated Notes will not be a Subordinated Note Indenture Event of Default
during an Extension Period; provided, however, that any Extension Period may
not exceed 20 consecutive quarters or extend beyond the stated maturity of the
Series B Junior Subordinated Notes.
S-30
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is the opinion of Dewey Ballantine LLP, counsel to the
Corporation and the Trust, as to the material United States income tax
consequences of the purchase, ownership and disposition of the Preferred
Securities, insofar as it relates to matters of law and legal conclusions.
This discussion deals only with Preferred Securities held as capital assets
within the meaning of the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), by Holders (as defined herein) that acquire
Preferred Securities on their original issue at their original offering price.
Moreover, it does not include all of the tax consequences that may be
important to a Holder in light of the Holder's particular circumstances or to
Holders subject to special rules, such as certain financial institutions, real
estate investment trusts, regulated investment companies, insurance companies,
tax-exempt organizations, dealers in securities or currencies, individual
retirement and certain tax deferred accounts, and persons who engage in a
straddle or a hedge relating to a Preferred Security. Prospective investors
should consult their own tax advisors with regard to the application of the
tax considerations discussed below to their particular situations as well as
the application of any state, local or other tax laws. This discussion is
based on laws, existing and proposed regulations, and applicable judicial and
administrative determinations, all of which are subject to change at any time,
and any such changes may be retroactively applied in a manner that could
adversely affect Holders. As used herein, the term "Holder" means a beneficial
owner of a Preferred Security that for United States federal income tax
purposes is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source, and (iv) a trust if (a) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (b) one or more U.S. persons have the authority to control all
substantial decisions of the trust. The following discussion does not address
any tax consequences that apply specifically to nonresident aliens or foreign
entities.
TREATMENT OF THE TRUST AND PREFERRED SECURITIES FOR FEDERAL INCOME TAX
PURPOSES
The Trust will be treated as a "grantor trust" and not as an association
taxable as a corporation for federal income tax purposes. Thus, for federal
income tax purposes, each Holder will be treated as the beneficial owner of a
pro rata undivided interest in the Series B Junior Subordinated Notes and,
consequently, will be required to include in income the Holder's pro rata
share of the entire income from the Series B Junior Subordinated Notes. Each
Holder generally will determine its net income or loss with respect to the
Trust in accordance with its own method of accounting, although income arising
from OID, if any, must be taken into account under the accrual method of
accounting even if the Holder otherwise would use the cash receipts and
disbursements method.
ORIGINAL ISSUE DISCOUNT
Under applicable income tax regulations, the Corporation believes that the
Series B Junior Subordinated Notes will not be treated as issued with OID. It
should be noted that these regulations have not yet been addressed in any
rulings or other interpretations by the Internal Revenue Service (the "IRS").
Accordingly, it is possible that the IRS could take a position contrary to the
interpretations described herein. Should the Corporation exercise its option
to defer payments of interest, the Series B Junior Subordinated Notes would at
that time be treated as issued with OID and all the stated interest payments
on the Series B Junior Subordinated Notes would thereafter be treated as OID
for so long as they remained outstanding. As a result, all Holders would, in
effect, be required to accrue interest income even if such Holders are on a
cash method of accounting. Consequently, in the event that the payment of
interest is deferred, a Holder could be required to include OID in income on
an economic accrual basis, notwithstanding that the Corporation will not make
any interest payments during such period on the Series B Junior Subordinated
Notes.
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<PAGE>
Because income on the Preferred Securities will constitute interest or OID,
corporate Holders will not be entitled to a dividends-received deduction with
respect to any income recognized with respect to the Preferred Securities.
SALE OF PREFERRED SECURITIES
Upon the sale, retirement (including redemption) or other taxable
disposition of all or part of a Preferred Security, a Holder thereof will
recognize gain or loss equal to the difference between the amount realized on
such sale, retirement or other disposition and such Holder's adjusted tax
basis in the Preferred Security or part thereof. If the Holder disposes of a
Preferred Security prior to the occurrence of an Extension Period, any portion
of the amount received that is attributable to accrued interest will be
treated as interest income to the Holder and will not be treated as part of
the amount realized for purposes of determining gain or loss on the
disposition of the Preferred Security. Any recognized gain or loss will be
capital gain or loss, and such capital gain or loss will be long-term if the
holding period for the Preferred Security is more than one year at the time of
sale, retirement or other disposition. In the case of a Holder that is an
individual, estate or trust, "net capital gain," i.e., the excess of net long-
term capital gain over net short-term capital loss, is generally subject to a
reduced rate of federal income tax. A Holder's adjusted tax basis in a
Preferred Security acquired by purchase will generally equal the cost of such
Preferred Security to the Holder, increased by the amount of any related
accrued OID included in taxable income by the Holder and reduced by any prior
payments on the Series B Junior Subordinated Notes distributed with respect to
the Preferred Security. The redemption of only part of a Preferred Security
will require an allocation of the Holder's pro rata share of the adjusted
issue price of the related Series B Junior Subordinated Notes between the
portion of the Series B Junior Subordinated Notes redeemed and the portion
retained by the Holder in order to determine gain or loss.
RECEIPT OF SERIES B JUNIOR SUBORDINATED NOTES UPON LIQUIDATION OF THE TRUST
As described under "Description of the Preferred Securities--Distribution of
Series B Junior Subordinated Notes upon Termination of Trust," Series B Junior
Subordinated Notes may be distributed to Holders in exchange for the Preferred
Securities and in liquidation of the Trust. Such a distribution would be
treated as a non-taxable event to each Holder and each Holder would receive an
aggregate tax basis in the Holder's Series B Junior Subordinated Notes equal
to the Holder's aggregate tax basis in its Preferred Securities. A Holder's
holding period with respect to the Series B Junior Subordinated Notes so
received in liquidation of the Trust would include the period for which the
Preferred Securities were held by such Holder.
If, however, the Trust is characterized for United States federal income tax
purposes as an association taxable as a corporation at the time of its
dissolution, the distribution of the Series B Junior Subordinated Notes would
constitute a taxable event to Holders of Preferred Securities and a Holder's
holding period in Series B Junior Subordinated Notes would begin on the date
such Series B Junior Subordinated Notes were received.
INFORMATION REPORTING TO HOLDERS
Income on the Preferred Securities will be reported to Holders on Form 1099,
which form should be mailed to Holders of Preferred Securities by January 31
following each calendar year.
BACKUP WITHHOLDING
A Holder may be subject to "backup withholding" under certain circumstances.
Backup withholding applies to a Holder if the Holder, among other things, (i)
fails to furnish his social security number or other taxpayer identification
number ("TIN") to the payor responsible for backup
S-32
<PAGE>
withholding (for example, the Holder's securities broker), (ii) furnishes such
payor an incorrect TIN, (iii) fails to provide such payor with a certified
statement, signed under penalties of perjury, that the TIN provided to the
payor is correct and that the Holder is not subject to backup withholding, or
(iv) fails to report properly interest and dividends on his tax return. Backup
withholding, however, does not apply to payments made to certain exempt
recipients, such as corporations and tax-exempt organizations. The backup
withholding rate is 31% of "reportable payments," which generally will include
distributions of interest and principal payments on the Series B Junior
Subordinated Notes and payment of the proceeds from the disposition of
Preferred Securities. Any amount withheld from a Holder under the backup
withholding rules will be allowed as a refund or a credit against such
Holder's United States federal income tax liability, provided the required
information is furnished to the IRS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE APPLICABLE TO A
HOLDER, DEPENDING UPON A HOLDER'S PARTICULAR SITUATION, AND THEREFORE EACH
HOLDER SHOULD CONSULT HIS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAW.
S-33
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co., A.G. Edwards & Sons, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, PaineWebber Incorporated,
Prudential Securities Incorporated and Salomon Smith Barney Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase, the
number of Preferred Securities set forth opposite their respective names
below. In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Preferred
Securities offered hereby if any of the Preferred Securities are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
<S> <C>
Goldman, Sachs & Co. ................................... 1,480,000
A.G. Edwards & Sons, Inc. .............................. 1,420,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,420,000
Morgan Stanley & Co. Incorporated....................... 1,420,000
PaineWebber Incorporated................................ 1,420,000
Prudential Securities Incorporated...................... 1,420,000
Salomon Smith Barney Inc. .............................. 1,420,000
ABN AMRO Incorporated .................................. 160,000
BancAmerica Securities, Inc............................. 160,000
BNY Capital Markets, Inc. .............................. 160,000
BT Alex. Brown Incorporated............................. 160,000
CIBC Oppenheimer Corp. ................................. 160,000
Citicorp Securities, Inc. .............................. 160,000
EVEREN Securities, Inc. ................................ 160,000
First Chicago Capital Markets, Inc. .................... 160,000
Interstate/Johnson Lane Corporation..................... 160,000
Lehman Brothers Inc. ................................... 160,000
J.P. Morgan Securities Inc. ............................ 160,000
SG Cowen Securities Corporation......................... 160,000
Warburg Dillon Read LLC................................. 160,000
Advest, Inc. ........................................... 80,000
Robert W. Baird & Co. Incorporated...................... 80,000
Blaylock & Partners, L.P. .............................. 80,000
J.C. Bradford & Co. .................................... 80,000
Craigie Incorporated.................................... 80,000
Crowell, Weedon & Co. .................................. 80,000
Dain Rauscher Incorporated.............................. 80,000
Fahnestock & Co. Inc. .................................. 80,000
Fifth Third/The Ohio Company............................ 80,000
J.J.B. Hilliard, W.L. Lyons, Inc. ...................... 80,000
Janney Montgomery Scott Inc. ........................... 80,000
Legg Mason Wood Walker, Incorporated.................... 80,000
McDonald & Company Securities, Inc. .................... 80,000
McGinn, Smith & Co., Inc. .............................. 80,000
Morgan Keegan & Company, Inc. .......................... 80,000
Olde Discount Corporation............................... 80,000
Piper Jaffray Inc. ..................................... 80,000
Raymond James & Associates, Inc. ....................... 80,000
The Robinson-Humphrey Company, LLC...................... 80,000
Roney Capital Markets................................... 80,000
Sutro & Co. Incorporated................................ 80,000
Trilon International Inc. .............................. 80,000
Tucker Anthony Incorporated............................. 80,000
Wedbush Morgan Securities............................... 80,000
----------
Total.............................................. 14,000,000
==========
</TABLE>
S-34
<PAGE>
The Underwriters have advised the Corporation and the Trust that they
propose to offer the Preferred Securities in part directly to the public at
the initial public offering price, as set forth on the cover page of this
Prospectus Supplement, and in part to certain securities dealers at such price
less a concession not in excess of $0.50 per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.40 per Preferred Security to certain other dealers. After the
Preferred Securities are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the
Representatives.
The Preferred Securities are expected to be approved for listing on the
NYSE, subject to official notice of issuance. Trading of the Preferred
Securities on the NYSE is expected to commence within a 30-day period after
the initial delivery of the Preferred Securities. The Representatives have
advised the Corporation and the Trust that they intend to make a market in the
Preferred Securities prior to the commencement of trading on the NYSE. The
Representatives will have no obligation to make a market in the Preferred
Securities, however, and may cease market making activities, if commenced, at
any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the NYSE, the Underwriters will undertake to sell lots of 100 or
more Preferred Securities to a minimum of 400 beneficial holders.
In connection with the offering, the Underwriters may purchase and sell the
Preferred Securities in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in the market price of the Preferred Securities; and
syndicate short positions involve the sale by the Underwriters of a greater
number of Preferred Securities than they are required to purchase from the
Trust in the offering. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the securities sold in the offering for their account may be
reclaimed by the syndicate if such Preferred Securities are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Preferred
Securities, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at
any time. These transactions may be effected on the NYSE, in the over-the-
counter market or otherwise.
The Corporation and the Trust have agreed, during the period of 15 days from
the date of the Underwriting Agreement, not to sell, offer to sell, grant any
option for the sale of, or otherwise dispose of any Preferred Securities, any
security convertible into or exchangeable into or exercisable for Preferred
Securities or the Series B Junior Subordinated Notes or any debt securities
substantially similar to the Series B Junior Subordinated Notes or equity
securities substantially similar to the Preferred Securities (except for the
Series B Junior Subordinated Notes and the Preferred Securities issued
pursuant to the Underwriting Agreement), without the prior written consent of
the Representatives.
The Corporation and the Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the 1933 Act.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Corporation and its affiliates in the
ordinary course of business.
S-35
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Corporation and the Trust by
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware
counsel to the Corporation and the Trust. The validity of the Series B Junior
Subordinated Notes, the Guarantee and certain matters relating thereto, as
well as certain matters relating to United States federal income tax
considerations, will be passed upon on behalf of the Corporation by Dewey
Ballantine LLP, New York, New York. The validity of the Series B Junior
Subordinated Notes and the Guarantee will be passed upon for the Underwriters
by Sullivan & Cromwell, New York, New York.
S-36
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
<C> <S>
1933 Act................................... The Securities Act of 1933, as
amended.
1934 Act................................... The Securities Exchange Act of
1934, as amended.
1939 Act................................... The Trust Indenture Act of 1939,
as amended.
1940 Act................................... The Investment Company Act of
1940, as amended.
Additional Interest........................ Amounts payable by the
Corporation as defined under
"Description of the Series B
Junior Subordinated Notes--
Additional Interest."
Administrative Trustees.................... Robert T. Lucas III and S. L.
Love.
Agreement as to Expenses and Liabilities... The agreement between the
Corporation and the Trust
pursuant to which the Corporation
has agreed to pay all
indebtedness, expenses or
liabilities of the Trust, other
than the Trust's obligations to
pay to the holders of the
Preferred Securities the amounts
due such holders pursuant to the
terms thereof.
Code....................................... The Internal Revenue Code of
1986, as amended.
Common Securities.......................... The Trust Securities being sold
to the Corporation.
Corporation................................ Duke Capital Corporation.
Delaware Trustee........................... Chase Manhattan Bank Delaware.
DTC........................................ The Depository Trust Company, a
"clearing corporation" that
initially will hold (through its
agents) a global certificate or
certificates evidencing the
Preferred Securities.
Distribution Dates......................... March 31, June 30, September 30
and December 31 of each year.
Extension Period........................... Any period during which interest
is not paid on the Series B
Junior Subordinated Notes (and,
consequently, on the Preferred
Securities) at the election of
the Corporation to the extent
permitted under the terms of the
Series B Junior Subordinated
Notes.
Guarantee.................................. The guarantee by the Corporation
of the payments by the Trust on
the Preferred Securities from
funds legally and immediately
available in the Trust.
Guarantee Payments......................... Payments required to be made
pursuant to the Guarantee as
described in "Description of the
Guarantees--General" in the
accompanying Prospectus.
Guarantee Trustee.......................... The trustee under the Guarantee;
initially, The Chase Manhattan
Bank.
</TABLE>
S-37
<PAGE>
<TABLE>
<S> <C>
Issue Date................................. The date set forth on the cover page hereof
on which the Series B Junior Subordinated
Notes and Preferred Securities are
scheduled to be issued.
Investment Company Act Event............... An event of the type described in
"Description of the Preferred Securities--
Special Event Redemption or Distribution."
Junior Subordinated Notes.................. Unsecured junior subordinated debt
securities of the Corporation that may be
issued in one or more series pursuant to
the Subordinated Note Indenture.
NYSE....................................... New York Stock Exchange, Inc.
Preferred Securities....................... The Trust Securities being offered to
investors pursuant to this Prospectus
Supplement and the accompanying Prospectus.
Property Trustee........................... A trustee under the Trust Agreement
designated to hold the trust property;
initially, The Chase Manhattan Bank.
Record Date................................ The close of business on the 15th calendar
day prior to a Distribution Date.
Redemption Price........................... The liquidation amount of $25 per Preferred
Security, plus accrued and unpaid
distributions thereon (including any
interest thereon) to the date of payment.
Securities Rate............................ The per annum interest rate expressed as a
percentage of the liquidation amount of $25
per Preferred Security as set forth on the
cover page of this Prospectus Supplement.
Securities Trustees........................ The Property Trustee, Administrative
Trustees and Delaware Trustee.
Senior Indebtedness........................ Indebtedness of the Corporation described
under "Description of the Junior
Subordinated Notes--Subordination" in the
accompanying Prospectus.
Series B Junior Subordinated Notes......... The junior subordinated deferrable interest
notes of the Corporation designated as
Series B 7 3/8% Junior Subordinated Notes
due June 30, 2038.
Special Event.............................. A Tax Event or an Investment Company Act
Event.
Subordinated Indenture Trustee............. The trustee under the Subordinated Note
Indenture; initially, The Chase Manhattan
Bank.
Subordinated Note Indenture................ The indenture pursuant to which the
Corporation's Series B Junior Subordinated
Notes will be issued.
</TABLE>
S-38
<PAGE>
<TABLE>
<S> <C>
Subordinated Note Indenture
Event of Default.......................... As described, with respect to the Series B
Junior Subordinated Notes, under
"Description of the Junior Subordinated
Notes--Events of Default" in the
accompanying Prospectus.
Tax Event.................................. An event of the type described in
"Description of the Preferred Securities--
Special Event Redemption or Distribution."
Trust...................................... Duke Capital Financing Trust II, a Delaware
business trust that will issue the Trust
Securities.
Trust Agreement............................ The agreement pursuant to which the Trust
is organized, as it may be amended and
restated from time to time.
Trust Agreement Event of Default........... As described under "Description of the
Preferred Securities--Events of Default."
Trust Securities........................... The Preferred Securities and the Common
Securities.
</TABLE>
S-39
<PAGE>
PROSPECTUS
$1,000,000,000
DUKE CAPITAL CORPORATION
SENIOR NOTES
JUNIOR SUBORDINATED NOTES
---------------
DUKE CAPITAL FINANCING TRUST I
DUKE CAPITAL FINANCING TRUST II
DUKE CAPITAL FINANCING TRUST III
TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS SET FORTH HEREIN, BY
DUKE CAPITAL CORPORATION
A SUBSIDIARY OF DUKE ENERGY CORPORATION
---------------
Duke Capital Corporation, a Delaware corporation (the "Corporation"), may
offer, from time to time, (i) its senior notes (the "Senior Notes") in one or
more series or (ii) its junior subordinated notes (the "Junior Subordinated
Notes") in one or more series. The Senior Notes will be unsecured obligations
of the Corporation and will rank pari passu (equal in priority) with all other
unsecured and unsubordinated debt of the Corporation. The Junior Subordinated
Notes will be unsecured obligations of the Corporation and will be subordinate
and junior in right of payment to Senior Indebtedness (as defined herein) of
the Corporation.
Duke Capital Financing Trust I, Duke Capital Financing Trust II and Duke
Capital Financing Trust III, each a statutory business trust created under the
laws of the State of Delaware (individually, a "Trust" and collectively, the
"Trusts"), may offer, from time to time, trust preferred securities
(collectively, the "Preferred Securities") representing preferred undivided
beneficial interests in the assets of the respective Trusts. The Corporation
will own all the common securities (the "Common Securities" and, together with
the Preferred Securities, the "Trust Securities") representing common
undivided beneficial interests in the assets of the respective Trusts. The
payment of periodic cash distributions on the Preferred Securities of each
Trust and payments on liquidation or redemption with respect to such Preferred
Securities, in each case to the extent such Trust has funds legally and
immediately available therefor, will be guaranteed by the Corporation as
described herein (individually, a "Guarantee" and collectively, the
"Guarantees"). See "Description of the Guarantees." The Corporation's
obligations under each Guarantee will be subordinate and junior in right of
payment to all of its other liabilities and will rank pari passu with the most
senior preferred stock that may be issued by the Corporation. Concurrently
with the issuance by a Trust of its Preferred Securities, such Trust will
invest the proceeds thereof and of the Corporation's purchase of the Common
Securities of such Trust in a related series of Junior Subordinated Notes of
the Corporation with terms corresponding to the terms of such Trust's
Preferred Securities. Junior Subordinated Notes may subsequently be
distributed pro rata to holders of the Trust Securities of a Trust in
connection with the termination of such Trust upon the occurrence of certain
events as may be described in an accompanying Prospectus Supplement.
As described herein, the Corporation will, through each Guarantee, the
Subordinated Note Indenture, the Junior Subordinated Notes of the related
series, the related Trust Agreement and the related Agreement as to Expenses
and Liabilities, fully and unconditionally guarantee all of each Trust's
obligations with respect to its Preferred Securities.
Specific terms of the Senior Notes of any series, the Junior Subordinated
Notes of any series or the Preferred Securities of any Trust in respect of
which this Prospectus is being delivered will be set forth in an accompanying
Prospectus Supplement with respect to such securities, which will describe,
without limitation and where applicable, the following: (a) in the case of
Senior Notes or Junior Subordinated Notes, the specific designation, aggregate
principal amount, denominations, maturity, interest payment dates, interest
rate (or the method of determining such rate), any redemption, exchange or
sinking fund provisions, and any other specific terms of the offering, and (b)
in the case of Preferred Securities, the specific designation, number of
Preferred Securities, liquidation amount per security, distribution rate (or
the method of determining such rate), dates on which distributions will be
payable, voting rights, any redemption, exchange or sinking fund provisions,
and any other rights, preferences, privileges, limitations and restrictions.
The Senior Notes, Junior Subordinated Notes and Preferred Securities may be
offered in amounts, at prices and on terms to be determined at the time of
offering; provided, however, that the aggregate initial public offering price
of all Senior Notes, Junior Subordinated Notes and Preferred Securities shall
not exceed $1,000,000,000.
The Prospectus Supplement relating to any series of Senior Notes or Junior
Subordinated Notes or the Preferred Securities will contain information
concerning material United States federal income tax considerations, if
applicable to such Senior Notes, Junior Subordinated Notes or Preferred
Securities.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The Senior Notes, Junior Subordinated Notes and Preferred Securities may be
sold directly, through agents, underwriters or dealers as designated from time
to time, or through a combination of such methods. See "Plan of Distribution."
If agents or any underwriters or dealers are involved in the sale of Senior
Notes, Junior Subordinated Notes or Preferred Securities in respect of which
this Prospectus is being delivered, the names of such agents, underwriters or
dealers and any applicable commissions or discounts will be set forth in or
may be calculated from the Prospectus Supplement with respect to such Senior
Notes, Junior Subordinated Notes or Preferred Securities.
---------------
May 13, 1998
<PAGE>
AVAILABLE INFORMATION
The Corporation and the Trusts have filed with the Securities and Exchange
Commission (the "Commission") a combined registration statement on Form S-3
(the "Registration Statement," which term encompasses any amendments thereof
and exhibits thereto) under the Securities Act of 1933, as amended (the "1933
Act"). As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, to which reference is hereby
made.
The Corporation has filed with the Commission a registration statement on
Form 10 (the "Form 10") for the registration of its common stock, without par
value, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and, as a result, is subject to the informational
requirements of the 1934 Act, and in accordance therewith will file periodic
and current reports and other information with the Commission. The
Registration Statement, the Form 10 and such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, 500
West Madison Street, Suite 1400, Chicago, Ill. 60661, and Seven World Trade
Center, Suite 1300, New York, N.Y. 10048. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site (http://www.sec.gov) that contains
reports, information statements and other information regarding registrants,
such as the Corporation, that file electronically with the Commission.
No separate financial statements of any Trust are included herein. The
Corporation considers that such statements would not be material to holders of
the Preferred Securities because each Trust has no independent operations and
its sole purpose is investing the proceeds of the sale of its Trust Securities
in Junior Subordinated Notes. The Corporation does not expect that any of the
Trusts will be filing reports under the 1934 Act with the Commission.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Form 10 filed by the Corporation with the Commission is incorporated in
and made a part of this Prospectus by reference.
All documents filed by the Corporation with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of
this Prospectus and prior to the termination of the offering made by this
Prospectus shall be deemed to be incorporated herein by reference and made a
part of this Prospectus from the respective dates of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the accompanying Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or the accompanying Prospectus
Supplement.
THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT ARE DELIVERED, ON THE
WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL DOCUMENTS
INCORPORATED HEREIN BY REFERENCE (OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). SUCH
REQUESTS SHOULD BE DIRECTED TO THE INVESTOR RELATIONS DEPARTMENT, DUKE CAPITAL
CORPORATION, P.O. BOX 1005, CHARLOTTE, NORTH CAROLINA 28201, TELEPHONE (704)
382-3853 OR (800) 488-3853 (TOLL-FREE).
3
<PAGE>
DUKE CAPITAL CORPORATION
The Corporation is a wholly-owned subsidiary of Duke Energy Corporation
("Duke Energy") which, under the name of Duke Power Company, completed a
merger with PanEnergy Corp ("PanEnergy") on June 18, 1997 and changed its name
to its present form. As a result, PanEnergy became a wholly-owned subsidiary
of Duke Energy. Subsequent to the merger, Duke Energy contributed all of the
common stock of PanEnergy to the Corporation, which, under the name of Church
Street Capital Corp., served as the parent company of Duke Energy's non-
utility operations. The combination of the Corporation and PanEnergy was
accounted for similar to a pooling of interests and, accordingly, the
consolidated financial statements for periods prior to the combination were
restated to include the operations of PanEnergy. The Corporation provides
financing and credit enhancement services for its subsidiaries and conducts
its operating activities through its business segments as follows:
Energy Transmission
The Corporation is engaged in the interstate transportation and storage of
natural gas. Through its four major pipeline subsidiaries--Texas Eastern
Transmission Corporation, Algonquin Gas Transmission Company, Panhandle
Eastern Pipe Line Company and Trunkline Gas Company--the Corporation owns and
operates one of the nation's largest gas transmission networks, delivering
approximately 12% of the natural gas consumed in the United States. This fully
interconnected, 37,500-mile system can receive natural gas from most major
North American producing regions for delivery to markets throughout the Mid-
Atlantic, New England and Midwest states as shown below.
[MAP APPEARS HERE]
Energy Services
The Energy Services group offers a broad variety of worldwide services in
energy asset monetization, engineering, construction, liquids, gas and
electric marketing, risk management, natural gas liquids shipping, gas
processing and transport and "inside-the-fence" and merchant power generation.
The Field Services unit is engaged in the business of purchasing, gathering,
transporting and marketing natural gas, natural gas liquids and crude oil to
industrial end-users, local distribution companies, liquid petroleum gas
wholesalers and retailers and refiners. Through Duke Energy Trading
4
<PAGE>
and Marketing L.L.C., Duke Energy Marketing, L.P., and Duke/Louis Dreyfus
L.L.C., the Corporation markets natural gas and electric power and provides
risk management services to utilities, municipalities and other large energy
users.
Duke Engineering & Services, Inc., provides full-scope engineering,
technical and professional services to public and private sector clients
worldwide in all phases of nuclear, renewable and conventional power
generation, from conceptual design through construction and full life-cycle
operation. Specialized capabilities include engineering, design, project and
construction management, operations and maintenance, quality assurance,
environmental management, facility siting, petroleum services, power delivery
services and safety and health training. Duke/Fluor Daniel provides services
related to the engineering, procurement, construction and operation and
maintenance of fossil-fueled generating stations. The Global Asset Development
group develops, owns, manages and operates energy projects internationally,
electric generation facilities in the United States and Canada, and on-site,
"inside-the-fence" electric generation and energy conversion facilities for
industrial customers. DukeSolutions is the Corporation's retail energy
services provider, offering customers a "one-stop shop" solution for natural
gas and electric commodities, energy efficiency and productivity services and
asset monetization.
The scope of the activities of Energy Services is shown below.
[MAP APPEARS HERE]
[MAP APPEARS HERE]
5
<PAGE>
Other Operations
Crescent Resources, Inc. ("Crescent Resources") conducts real estate
management, forestry, and commercial and residential real estate development
operations. DukeNet Communications, Inc. ("DukeNet") develops and manages
communications systems, including fiber optic and wireless digital network
services.
The scope of the activities of Crescent Resources and DukeNet is shown
below.
[MAP APPEARS HERE]
The principal executive offices of the Corporation are located at 422 South
Church Street, Charlotte, North Carolina 28202, telephone (704) 594-6200.
6
<PAGE>
The following financial information is qualified in its entirety by the
financial statements included in the Form 10 incorporated by reference in this
Prospectus. See "Incorporation of Certain Documents by Reference."
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997(1) 1996(1) 1995(1)
--------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.................................. $11,914.8 $7,816.1 $5,187.7
Operating Expenses.................................. 11,079.0 6,946.8 4,393.9
--------- -------- --------
Operating Income................................... 835.8 869.3 793.8
Other Income, Net................................... 36.7 20.1 18.0
--------- -------- --------
Earnings Before Interest and Taxes.................. 872.5 889.4 811.8
Interest Expense.................................... 214.2 232.1 239.5
Income Before Extraordinary Item.................... 380.3 399.0 348.1
Net Income.......................................... 380.3 382.3 348.1
</TABLE>
- --------
(1) Data reflects accounting for the combination of the Corporation and
PanEnergy on June 30, 1997 similar to a pooling of interests. As a result,
the data gives effect to the combination as if it had occurred as of
January 1, 1995.
<TABLE>
<S> <C> <C> <C>
BALANCE SHEET DATA
Property, Plant and Equipment, net ................. $ 6,065.2 $5,800.7 $5,429.1
Total Assets........................................ 11,096.8 9,751.7 8,225.8
Short-term Debt .................................... 137.7 359.1 150.0
Long-term Debt, including current portion........... 2,941.3 2,203.3 2,401.9
</TABLE>
FINANCIAL RATIOS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (1)................. 3.7 3.6 3.2 2.7 2.1
</TABLE>
- --------
(1) For purposes of this ratio (i) earnings consist of income from continuing
operations before income taxes and fixed charges and (ii) fixed charges
consist of all interest deductions and the interest component of rentals.
7
<PAGE>
THE TRUSTS
Each Trust is a statutory business trust formed under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State
on January 29, 1998. Each Trust's business is defined in a trust agreement,
executed by the Corporation, as Depositor, and the Delaware Trustee
thereunder. The trust agreement of each Trust will be amended and restated in
its entirety substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part (the "Trust Agreement"). Each
Trust Agreement will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "1939 Act"). Each Trust exists for the exclusive
purposes of (i) issuing its Trust Securities representing undivided beneficial
interests in the assets of such Trust, (ii) investing the gross proceeds of
its Trust Securities in a related series of Junior Subordinated Notes, and
(iii) engaging in only those other activities necessary, appropriate,
convenient or incidental thereto.
Each Trust's business and affairs will be conducted by its trustees, which
shall be appointed by the Corporation as the holder of the Common Securities:
two officers of the Corporation as Administrative Trustees; The Chase
Manhattan Bank as Property Trustee; and Chase Manhattan Bank Delaware as
Delaware Trustee. The Property Trustee of each Trust will act as the indenture
trustee with respect to such Trust for purposes of compliance with the
provisions of the 1939 Act.
The principal place of business of each Trust shall be c/o the Corporation,
422 South Church Street, Charlotte, North Carolina 28202, telephone (704) 594-
6200.
Reference is made to the Prospectus Supplement relating to the Preferred
Securities of a Trust for further information concerning such Trust.
USE OF PROCEEDS
Each Trust will invest the proceeds received from the sale of the Preferred
Securities in Junior Subordinated Notes. Except as may be otherwise described
in an applicable Prospectus Supplement, the net proceeds received by the
Corporation from such investment and any proceeds received from the sale of
its Senior Notes or other sales of its Junior Subordinated Notes will be used
for general corporate purposes, including capital expenditures, working
capital, debt repayments and advances to affiliates.
8
<PAGE>
DESCRIPTION OF THE SENIOR NOTES
Set forth below is a description of the terms of the Senior Notes. The
following description does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Senior Indenture, dated as
of April 1, 1998, between the Corporation and The Chase Manhattan Bank, as
trustee (the "Senior Indenture Trustee"), as to be supplemented, with respect
to a series of Senior Notes, by a supplemental indenture (each, a
"Supplemental Indenture") thereto establishing such series of Senior Notes
(the Senior Indenture, as so supplemented and as such indenture may be further
supplemented from time to time, is hereinafter referred to as the "Senior Note
Indenture"), the form of which Senior Note Indenture and Supplemental
Indenture are filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The terms of each series of Senior Notes will include
those stated in the Senior Note Indenture with respect to such series and
those made a part of the Senior Note Indenture by reference to the 1939 Act.
Certain capitalized terms used herein are defined in the Senior Note
Indenture.
GENERAL
The Senior Notes will be issued as one or more series of unsecured senior
debt securities under the Senior Note Indenture and will rank pari passu with
all other unsecured and unsubordinated debt of the Corporation. The Senior
Note Indenture does not limit the aggregate principal amount of Senior Notes
that may be issued thereunder and provides that Senior Notes may be issued
from time to time in one or more series pursuant to supplemental indentures or
pursuant to resolutions of the Corporation's Board of Directors or a duly
authorized committee thereof. The Senior Notes of a series need not be issued
at the same time or bear interest at the same rate or mature on the same date.
The Corporation conducts its business through subsidiaries. Accordingly, the
ability of the Corporation to meet its obligations under the Senior Notes will
be dependent on the earnings and cash flows of its subsidiaries and the
ability of its subsidiaries to pay dividends or to advance or repay funds to
the Corporation. In addition, the rights of the Corporation and its creditors
to participate in the assets of any subsidiary upon the latter's liquidation
or recapitalization will be subject to the prior claims of such subsidiary's
creditors.
Reference is made to the applicable Prospectus Supplement (the "Prospectus
Supplement") for the following terms of any particular series of Senior Notes:
(i) the title of such series of Senior Notes; (ii) any limit on the aggregate
principal amount of such Senior Notes; (iii) the date or dates on which the
principal of any of such Senior Notes will be payable or the method by which
such date or dates will be determined, and the right, if any, of the
Corporation to shorten or extend the date on which the principal of any Senior
Notes of the series is payable; (iv) the rate or rates at which any of such
Senior Notes will bear interest, if any, or the method by which such rate or
rates will be determined, and the date or dates from which any such interest
will accrue; (v) the Interest Payment Dates on which any such interest will be
payable and the Regular Record Date, if any, for any such interest payable on
any Interest Payment Date; (vi) if applicable, whether the interest payment
periods may be extended by the Corporation and, if so, the terms of any such
extension; (vii) the place or places where the principal of and any premium
and interest on any of such Senior Notes will be payable, if other than the
principal corporate trust office of the Senior Indenture Trustee; (viii) the
obligation, if any, of the Corporation to redeem or purchase any of such
Senior Notes pursuant to any sinking fund, purchase fund or analogous
provision or at the option of the holder thereof and the terms and conditions
on which any of such Senior Notes may be redeemed or purchased pursuant to
such obligation; (ix) the terms and conditions, if any, on which any of such
Senior Notes may be redeemed at the option of the Corporation; (x) if
applicable, the fact that certain terms of the Senior Note Indenture which are
described below under the caption "Defeasance and Covenant Defeasance" will
not apply to any of such Senior Notes; (xi) the currency, currencies or
currency units in which the principal of and any premium and interest on any
of such Senior Notes will be payable, if other than
9
<PAGE>
U.S. dollars, and the manner of determining the equivalent thereof in U.S.
dollars for any purpose; (xii) if the principal of or any premium or interest
on any of such Senior Notes is to be payable, at the election of the
Corporation or the holder thereof, in one or more currencies or currency units
other than those in which such Senior Notes are stated to be payable, then the
currency, currencies or currency units in which such payments will be made,
the terms and conditions upon which such election is to be made and the amount
so payable (or the manner of determining any such amount); (xiii) the portion
of the principal amount of any of such Senior Notes which will be payable upon
declaration of acceleration of the maturity thereof, if other than the entire
principal amount thereof; (xiv) whether any of such Senior Notes will be
issuable in whole or in part in the form of one or more Global Securities,
and, if so, the identity of the depositary (the "Depositary") for any such
Global Security or Global Securities and any provisions regarding the
transfer, exchange or legending of any such Global Security, if different from
those described below under the caption "Global Securities"; (xv) any addition
to, change in or deletion from the Events of Default or covenants with respect
to any of such Senior Notes; (xvi) any index or formula used to determine the
amount of principal of or any premium or interest on any of such Senior Notes
and the manner of determining any such amounts; (xvii) if the principal amount
payable at the stated maturity of any of such Senior Notes will not be
determinable as of any one or more dates prior to the stated maturity, the
amount which will be deemed to be such principal amount as of any such date
for any purpose, including the principal amount thereof which will be due and
payable upon any maturity other than the stated maturity (or the manner of
determining any such deemed principal amount); and (xviii) any other terms of
such Senior Notes.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Senior Notes will be issued only in fully registered form, without
coupons, and no service charge will be made for any registration of transfer
or exchange of the Senior Notes, but the Corporation may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Senior Notes, including Original Issue Discount Senior Notes, may be offered
and sold at a substantial discount below their principal amount. Special
United States federal income tax and other considerations, if any, applicable
thereto will be described in the applicable Prospectus Supplement. In
addition, certain special United States federal income tax or other
considerations, if any, applicable to any Senior Notes which are denominated
in a currency or currency unit other than U.S. dollars may be described in the
applicable Prospectus Supplement.
The Senior Note Indenture does not contain provisions that afford any
holders of Senior Notes protection in the event of a highly leveraged
transaction involving the Corporation.
GLOBAL SECURITIES
Some or all of the Senior Notes of a series of Senior Notes may be
represented in whole or in part by one or more Global Securities that will be
deposited with or on behalf of one or more Depositaries.
The specific terms of the depositary arrangement with respect to any Senior
Notes of a series will be described in the Prospectus Supplement relating
thereto. The Corporation anticipates that the following provisions will apply
to all depositary arrangements.
Unless otherwise specified in the Prospectus Supplement relating thereto,
Senior Notes which are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such Depositary or its nominee. Upon the issuance of
a Global Security in registered form, the Depositary for such Global Security
will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Senior Notes represented by such Global
Security to the accounts of institutions that have accounts with
10
<PAGE>
such Depositary or its nominee ("participants"). The accounts to be credited
will be designated by the underwriters or agents of such Senior Notes or by
the Corporation, if such Senior Notes are offered and sold directly by the
Corporation. Ownership of beneficial interests in such Global Securities will
be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Securities will be shown on, and the transfer of any such ownership interest
will be effected only through, records maintained by the Depositary or its
nominee for such Global Security. Ownership of beneficial interests in Global
Securities by persons that hold through participants will be effected only
through records maintained by such participants. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Senior
Notes represented by such Global Security for all purposes under the Senior
Note Indenture. Except as set forth below, owners of beneficial interests in
the Global Security will not be entitled to have the Senior Notes represented
by such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of the Senior Notes in definitive form
and will not be considered the owners or holders thereof under the Senior Note
Indenture.
Payment of principal of and any premium and interest on Senior Notes
registered in the name of or held by a Depositary or its nominee will be made
in immediately available funds to the Depositary or its nominee, as the case
may be, as the registered owner or the holder of the Global Security
representing such Senior Notes. None of the Corporation, the Senior Indenture
Trustee, any Paying Agent or the Security Registrar for such Senior Notes will
have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in a Global
Security for such Senior Notes or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Corporation expects that a Depositary for Senior Notes of a series, upon
receipt of any payment of principal or any premium or interest in respect of a
Global Security, will credit immediately participants' accounts with payment
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records of such
Depositary. The Corporation also expects that payments by participants to
owners of beneficial interests in such Global Security held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
participants.
A Global Security may not be transferred in whole or in part except by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. If a Depositary for Senior Notes of
a series is at any time unwilling or unable to continue as Depositary and a
successor Depositary is not appointed by the Corporation within 90 days or if
at any time the Depositary ceases to be a clearing agency registered under the
Exchange Act when the Depositary is required to be registered to act as such
Depositary and no successor is appointed by the Corporation within 90 days,
then the Corporation will issue Senior Notes in definitive registered form in
exchange for the Global Security or Global Securities representing such Senior
Notes. In addition, the Corporation may at any time determine not to have any
Senior Notes represented by one or more Global Securities and, in such event,
will issue Senior Notes in definitive registered form in exchange for the
Global Securities representing such Senior Notes. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to
physical delivery in definitive form of the Senior Notes represented by such
11
<PAGE>
Global Security equal in principal amount to such beneficial interest and to
have such Senior Notes registered in its name.
EVENTS OF DEFAULT
The following will be Events of Default under the Senior Note Indenture with
respect to Senior Notes of any series issued thereunder (unless inapplicable
to the particular series or otherwise modified or deleted in a supplemental
indenture, as set forth in the applicable Prospectus Supplement): (a) failure
to pay principal of or any premium on any Senior Note of that series when due;
(b) failure to pay any interest on any Senior Note of that series when due,
continued for 60 days; provided, however, that the date on which such payment
is due and payable shall be the date on which the Corporation is required to
make payment following any deferral of payments of interest by the Corporation
pursuant to the terms of such Senior Notes; (c) failure to make any sinking
fund payment when and as due by the terms of any Senior Note of that series,
continued for 60 days; (d) failure to perform any covenant of the Corporation
in the Senior Note Indenture (other than a covenant which has expressly been
included in the Senior Note Indenture solely for the benefit of series of
Senior Notes other than that series), continued for 90 days after written
notice has been given by the Senior Indenture Trustee or the holders of at
least 33% in principal amount of the outstanding Senior Notes of that series
(unless such time period is extended by the Senior Indenture Trustee or by the
Senior Indenture Trustee and the holders of a principal amount of Senior Notes
of that series not less than the principal amount of Senior Notes the holders
of which had given such notice of default; provided, however, that the Senior
Indenture Trustee, or the Senior Indenture Trustee and such holders, as the
case may be, will be deemed to have agreed to such an extension if corrective
action is initiated, and is being diligently pursued, by the Corporation, as
further provided in the Senior Note Indenture); (e) certain events in
bankruptcy, insolvency or reorganization of the Corporation; and (f) any other
Event of Default provided with respect to Senior Notes of that series.
If an Event of Default with respect to Senior Notes of a series occurs and
is continuing, then the Senior Indenture Trustee or the holders of not less
than 33% in principal amount of the outstanding Senior Notes of that series
may, by notice to the Corporation (and to the Senior Indenture Trustee if
given by holders), declare to be immediately due and payable the principal
amount (or, if any Senior Notes of that series are Original Issue Discount
Senior Notes, such portion of the principal amount as may be specified in the
terms of the series) of all Senior Notes of that series. However, the Event of
Default giving rise to such declaration will, without further act, be deemed
waived, and such declaration deemed rescinded, at any time after such a
declaration of acceleration and before a judgment or decree for payment of the
money due has been obtained by the Senior Indenture Trustee, if (i) the
Corporation has paid or deposited with the Senior Indenture Trustee a sum
sufficient to pay all overdue interest on the Senior Notes of such series, the
principal of and any premium on the Senior Notes of such series which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in such Senior Notes,
interest on overdue interest at the rate or rates prescribed therefor in the
Senior Notes of such series (to the extent permitted by applicable law), and
all amounts due to the Senior Indenture Trustee under the Senior Note
Indenture and (ii) all Events of Default with respect to the Senior Notes of
such series (other than the nonpayment of the principal of the Senior Notes of
such series which became due solely by such declaration of acceleration) have
been cured or waived. Reference is made to the Prospectus Supplement relating
to any series of Senior Notes which are Original Issue Discount Senior Notes
for the particular provisions relating to acceleration of a portion of the
principal amount of such Original Issue Discount Senior Notes upon the
occurrence of an Event of Default and the continuation thereof.
Subject to the provisions of the Senior Note Indenture relating to the
duties of the Senior Indenture Trustee in case of a continuing Event of
Default under the Senior Note Indenture, the Senior
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<PAGE>
Note Indenture provides that the Senior Indenture Trustee will be under no
obligation to exercise any of its rights or powers under the Senior Note
Indenture at the request or direction of any of the holders unless such
holders shall have offered to the Senior Indenture Trustee reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby. Subject to such provisions for indemnification and certain other
rights of the Senior Indenture Trustee, the holders of a majority in principal
amount of the outstanding Senior Notes of any series have the right to direct
the time, method and place of conducting any proceedings for any remedy
available to the Senior Indenture Trustee or exercising any trust or power
conferred on the Senior Indenture Trustee with respect to the Senior Notes of
that series. The Senior Indenture Trustee may withhold notice to the holders
of Senior Notes of any series of any default (except in payment of principal
or interest) with respect to such series of Senior Notes, if it in good faith
considers it in the interest of holders to do so.
No holder of a Senior Note of any series will have any right to institute
any proceeding with respect to the Senior Note Indenture or for any remedy
thereunder unless such holder has previously given the Senior Indenture
Trustee written notice of a continuing Event of Default with respect to the
Senior Notes of that series and unless the holders of not less than a majority
in principal amount of the outstanding Senior Notes of that series have made
such written request, and offered reasonable indemnity, to the Senior
Indenture Trustee to institute such proceeding, and the Senior Indenture
Trustee has not received from the holders of a majority in principal amount of
the outstanding Senior Notes of that series a direction inconsistent with such
request and has failed to institute such proceeding within 60 days after
receipt of such notice and offer of indemnity. Notwithstanding the foregoing,
the holder of any Senior Note will have an absolute and unconditional right to
receive payment of the principal of and any premium and, subject to certain
limitations, interest on such Senior Note on the stated maturity thereof (or,
in the case of redemption, on the Redemption Date) and to institute suit for
the enforcement of any such payment.
The Corporation is required to furnish annually to the Senior Indenture
Trustee an officers' certificate to the effect that, to the best knowledge of
the officers providing such certificate, the Corporation is not in default in
the performance and observance of any terms, provisions or conditions of the
Senior Note Indenture or, if there has been a default, specifying such default
and its status.
REGISTRATION AND TRANSFER
If the Senior Notes of a series (or of a series and specified tenor) are to
be redeemed, the Corporation will not be required to (i) issue, register the
transfer of, or exchange any Senior Notes of that series (or of that series
and specified tenor, as the case may be) during a period of fifteen days
immediately preceding the date notice is mailed identifying the Senior Notes
of that series that are called for redemption or (ii) register the transfer of
or exchange any Senior Note so selected for redemption, in whole or in part,
except the unredeemed portion of any such Senior Note being redeemed in part.
DENOMINATIONS
Unless otherwise set forth in the applicable Prospectus Supplement, the
Senior Notes will be issuable in denominations of $1,000 or any integral
multiples thereof.
PAYMENT AND PAYING AGENT
Payment of principal of any Senior Notes will be made only against surrender
to the Paying Agent of such Senior Notes. Interest on Senior Notes will be
payable, subject to such surrender where applicable, at the office of the
Paying Agent or, at the option of the Corporation, (i) by wire transfer to
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such account at a banking institution in the United States as is designated in
writing to the Senior Indenture Trustee at least sixteen days prior to the
date of payment by the person entitled thereto or (ii) by check mailed to the
address of the person entitled thereto as such address shall appear in the
Security Register with respect to such Senior Notes.
Unless otherwise set forth in the applicable Prospectus Supplement, the
Senior Indenture Trustee will act as Paying Agent with respect to the Senior
Notes and the principal corporate trust office of the Senior Indenture Trustee
will serve as the office through which the Paying Agent acts. Notwithstanding
the foregoing, the Corporation may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change in
the office through which any Paying Agent acts.
All moneys paid by the Corporation to a Paying Agent for the payment of the
principal of or interest on the Senior Notes which remain unclaimed at the end
of two years after such principal or interest shall have become due and
payable will be repaid to the Corporation at the Corporation's request, and
the holder of such Senior Notes will thereafter look only to the Corporation
for payment thereof.
MODIFICATION; WAIVER
The Corporation and the Senior Indenture Trustee may amend or modify (with
certain exceptions) the Senior Note Indenture with the consent of the holders
of not less than a majority in aggregate principal amount of the outstanding
Senior Notes of all series of Senior Notes affected thereby (voting as one
class); provided, however, that no such modification or amendment may, without
the consent of the holder of each outstanding Senior Note affected thereby,
(a) change the stated maturity of the principal of, or any installment of
principal of or interest on, any Senior Note; (b) reduce the principal amount
of, or the rate of interest on, or any premium payable upon the redemption of,
any Senior Note or reduce the amount of principal of any Senior Note which
would be due and payable upon acceleration of the maturity thereof; (c) change
the currency of payment of principal of, or any premium or interest on, any
Senior Note; (d) impair the right to institute suit for the enforcement of any
such payment on any Senior Note on or after the stated maturity thereof (or
date of redemption); (e) reduce the percentage in principal amount of Senior
Notes of any series, the consent of whose holders is required to amend or
modify the Senior Note Indenture, to waive compliance with certain provisions
of the Senior Note Indenture or to waive certain defaults; or (f) with certain
exceptions, modify the above provisions or the sections of the Senior Note
Indenture governing waiver of certain covenants and past defaults. In
addition, the Corporation and the Senior Indenture Trustee may execute,
without the consent of any holders of the Senior Notes, supplemental
indentures for certain other purposes, including for the purpose of creating a
new series of Senior Notes.
The holders of not less than a majority in aggregate principal amount of the
outstanding Senior Notes of any series may waive, insofar as that series is
concerned, compliance by the Corporation with certain restrictive provisions
of the Senior Note Indenture. The holders of not less than a majority in
aggregate principal amount of the outstanding Senior Notes of all series under
the Senior Note Indenture with respect to which a default has occurred and is
continuing (voting as one class) may waive any past default under the Senior
Note Indenture with respect to all such series, except a default in the
payment of principal of, or any premium or interest on any Senior Note of such
series or in respect of a covenant or provision under the Senior Note
Indenture which cannot be amended or modified without the consent of the
holder of each outstanding Senior Note affected thereby.
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
The Senior Note Indenture provides that the Corporation may consolidate or
merge with or into another corporation or other entity of a sort specified in
the Senior Note Indenture, or convey or
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transfer its properties and assets as an entirety or substantially as an
entirety to any such entity; provided that the successor, if any, assumes by
supplemental indenture the Corporation's obligations under the Senior Note
Indenture and the Senior Notes issued thereunder and the Corporation delivers
an officers' certificate and an opinion of counsel to the Senior Indenture
Trustee stating that all conditions precedent in the Senior Note Indenture
relating to such consolidation, merger, conveyance or transfer have been
complied with. Upon the assumption by the successor of the Corporation's
obligations under the Senior Note Indenture and the Senior Notes issued
thereunder, and the satisfaction of any other conditions precedent provided
for in the Senior Note Indenture, the successor will succeed to and be
substituted for the Corporation under the Senior Note Indenture and the
Corporation will be relieved of its obligations under the Senior Note
Indenture and the Senior Notes.
NEGATIVE PLEDGE
The Senior Note Indenture provides that the Corporation will not, nor will
it permit any Principal Subsidiary of the Corporation to, while any of the
Senior Notes remain outstanding, create, or suffer to be created or to exist,
any mortgage, lien, pledge, security interest or other encumbrance of any kind
upon any Principal Property of the Corporation or any Principal Subsidiary of
the Corporation or upon any shares of stock of any Principal Subsidiary of the
Corporation, whether such Principal Property is, or shares of stock are, now
owned or hereafter acquired, to secure any indebtedness for borrowed money of
the Corporation, unless it makes effective provision whereby the Senior Notes
then outstanding will be secured by such mortgage, lien, pledge, security
interest or other encumbrance equally and ratably with any and all
indebtedness for borrowed money thereby secured so long as any such
indebtedness shall be so secured; provided, however, that neither the
Corporation nor any Principal Subsidiary of the Corporation will be precluded
from creating, or from suffering to be created or to exist, any mortgages,
liens, pledges, security interests or other encumbrances, or any agreements,
with respect to (i) purchase money mortgages, or other purchase money liens,
pledges, security interests or other encumbrances of any kind upon property
acquired after the date of the Senior Note Indenture by the Corporation or any
Principal Subsidiary of the Corporation, or mortgages, liens, pledges,
security interests or other encumbrances of any kind existing on any property
or any shares of stock at the time of the acquisition thereof (including
mortgages, liens, pledges, security interests or other encumbrances which
exist on any property or any shares of stock of a Person which is consolidated
with or merged with or into the Corporation or any Principal Subsidiary of the
Corporation or which transfers or leases all or substantially all of its
properties to the Corporation or any Principal Subsidiary of the Corporation),
or conditional sales agreements or other title retention agreements and leases
in the nature of title retention agreements with respect to any property
acquired after the date of the Senior Note Indenture; provided, however, that
no such mortgage, lien, pledge, security interest or other encumbrance will
extend to or cover any other property of the Corporation or such Principal
Subsidiary of the Corporation; (ii) mortgages, liens, pledges, security
interests or other encumbrances of any kind upon any property of the
Corporation or any Principal Subsidiary of the Corporation or any shares of
stock of any Principal Subsidiary of the Corporation existing as of the date
of the initial issuance of the Senior Notes or upon the property or any shares
of stock of any corporation, which mortgages, liens, pledges, security
interests or other encumbrances existed at the time such corporation became a
Principal Subsidiary of the Corporation; liens for taxes or assessments or
other governmental charges or levies; pledges or deposits to secure
obligations under workers' compensation laws, unemployment insurance and other
social security legislation, including liens of judgments thereunder which are
not currently dischargeable; pledges or deposits to secure performance in
connection with bids, tenders, contracts (other than contracts for the payment
of money) or leases to which the Corporation or any Principal Subsidiary of
the Corporation is a party; pledges or deposits to secure public or statutory
obligations of the Corporation or any Principal Subsidiary of the Corporation;
builders', materialmen's, mechanics', carriers', warehousemen's, workers',
repairmen's, operators', landlords' or other like
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liens in the ordinary course of business, or deposits to obtain the release of
such liens; pledges or deposits to secure, or in lieu of, surety, stay,
appeal, indemnity, customs, performance or return-of-money bonds; other
pledges or deposits for similar purposes in the ordinary course of business;
liens created by or resulting from any litigation or proceeding which at the
time is being contested in good faith by appropriate proceedings; liens
incurred in connection with the issuance of bankers' acceptances and lines of
credit, bankers' liens or rights of offset and any security given in the
ordinary course of business to banks or others to secure any indebtedness
payable on demand or maturing within 12 months of the date that such
indebtedness is originally incurred; liens incurred in connection with
repurchase, swap or other similar agreements (including, without limitation,
commodity price, currency exchange and interest rate protection agreements);
leases made, or existing on property acquired, in the ordinary course of
business; liens securing industrial revenue or pollution control bonds; liens,
pledges, security interests or other encumbrances on any property arising in
connection with any defeasance, covenant defeasance or in-substance defeasance
of indebtedness of the Corporation or any Principal Subsidiary of the
Corporation, including the Senior Notes; liens created in connection with, and
created to secure, a non-recourse obligation; zoning restrictions, easements,
licenses, rights-of-way, restrictions on the use of property or minor
irregularities in title thereto, which do not, in the opinion of the
Corporation, materially impair the use of such property in the operation of
the business of the Corporation or the value of such property for the purpose
of such business; (iii) mortgages, liens, pledges, security interests or other
encumbrances in favor of the United States of America, any State, any foreign
country or any department, agency or instrumentality or political subdivision
of any such jurisdiction, to secure partial, progress, advance or other
payments pursuant to any contract or statute or to secure any indebtedness
incurred for the purpose of financing all or any part of the purchase price or
the cost of constructing or improving the property subject to such mortgages,
including, without limitation, mortgages to secure indebtedness of the
pollution control or industrial revenue bond type; (iv) indebtedness which may
be issued by the Corporation or any Principal Subsidiary of the Corporation in
connection with a consolidation or merger of the Corporation or any Principal
Subsidiary of the Corporation with or into any other Person (which may be an
affiliate of the Corporation or any Principal Subsidiary of the Corporation)
in exchange for or otherwise in substitution for secured indebtedness of such
Person ("Third Party Debt") which by its terms (1) is secured by a mortgage on
all or a portion of the property of such Person, (2) prohibits secured
indebtedness from being incurred by such Person, unless the Third Party Debt
shall be secured equally and ratably with such secured indebtedness or (3)
prohibits secured indebtedness from being incurred by such Person; (v)
indebtedness of any Person which is required to be assumed by the Corporation
or any Principal Subsidiary of the Corporation in connection with a
consolidation or merger of such Person, with respect to which any property of
the Corporation or any Principal Subsidiary of the Corporation is subjected to
a mortgage, lien, pledge, security interest or other encumbrance; (vi)
mortgages, liens, security interests or other encumbrances on property held or
used by the Corporation or any Principal Subsidiary of the Corporation in
connection with the exploration for, or development, gathering, production,
storage or marketing of, natural gas, oil or other minerals (including
liquified gas and synthetic gas); (vii) mortgages, liens, pledges, security
interests or other encumbrances of any kind upon any property acquired,
constructed, developed or improved by the Corporation or any Principal
Subsidiary of the Corporation (whether alone or in association with others)
after the date of the Senior Note Indenture which are created prior to, at the
time of, or within 18 months after such acquisition (or in the case of
property constructed, developed or improved, after the completion of such
construction, development or improvement and commencement of full commercial
operation of such property, whichever is later) to secure or provide for the
payment of any part of the purchase price or cost thereof; provided that in
the case of such construction, development or improvement the mortgages,
liens, pledges, security interests or other encumbrances shall not apply to
any property theretofore owned by the Corporation or any Principal Subsidiary
of the Corporation other than theretofore unimproved real property; (viii)
mortgages, liens, pledges, security interests and other encumbrances in favor
of the Corporation, one or more Principal Subsidiaries of the Corporation, one
or more wholly-owned Subsidiaries of the Corporation or any of
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the foregoing in combination; (ix) the replacement, extension or renewal (or
successive replacements, extensions or renewals), as a whole or in part, of
any mortgage, lien, pledge, security interest or other encumbrance, or of any
agreement, referred to above in clauses (i) through (viii) inclusive, or the
replacement, extension or renewal (not exceeding the principal amount of
indebtedness secured thereby together with any premium, interest, fee or
expense payable in connection with any such replacement, extension or renewal)
of the indebtedness secured thereby; provided that such replacement, extension
or renewal is limited to all or a part of the same property that secured the
mortgage, lien, pledge, security interest or other encumbrance replaced,
extended or renewed (plus improvements thereon or additions or accessions
thereto); or (x) any other mortgage, lien, pledge, security interest or other
encumbrance not excepted by the foregoing clauses (i) through (ix); provided
that immediately after the creation or assumption of such mortgage, lien,
pledge, security interest or other encumbrance, the aggregate principal amount
of indebtedness for borrowed money of the Corporation secured by all
mortgages, liens, pledges, security interests and other encumbrances created
or assumed under the provisions of clause (x) will not exceed an amount equal
to 10% of common stockholder's equity of the Corporation, as shown on its
consolidated balance sheet for the accounting period occurring immediately
prior to the creation or assumption of such mortgage, lien, pledge, security
interest or other encumbrance.
For the purposes of the preceding paragraph, the following terms have the
meanings hereafter specified: "Principal Property" means any natural gas
pipeline, natural gas gathering system, natural gas storage facility, natural
gas processing plant or other plant or facility located in the United States
that in the opinion of the Board of Directors or management of the Corporation
is of material importance to the business conducted by the Corporation and its
consolidated subsidiaries taken as a whole; "Principal Subsidiary" means any
Subsidiary which owns a Principal Property; and "Subsidiary" means, as to any
Person, a corporation of which more than 50% of the outstanding shares of
stock having ordinary voting power (other than stock having such power only by
reason of contingency) is at the time owned, directly or indirectly through
one or more intermediaries, or both, by such Person.
DEFEASANCE AND COVENANT DEFEASANCE
The Senior Note Indenture provides that, unless the terms of a given series
of Senior Notes provide otherwise, the Corporation may cause itself to be (a)
discharged from its obligations (with certain exceptions) with respect to any
Senior Notes or series of Senior Notes ("Defeasance") and (b) released from
its obligations under certain covenants especially established in respect of
any Senior Notes or series of Senior Notes and from the obligations, if
applicable, described above under the caption "Negative Pledge" with respect
to any such Senior Notes ("Covenant Defeasance"), on and after the date
certain conditions set forth in the Senior Note Indenture are satisfied. Such
conditions include the irrevocable deposit with the Senior Indenture Trustee,
in trust for such purpose, of money and/or Government Obligations (as defined
in the Senior Note Indenture), which through the scheduled payment of
principal and interest thereon will provide moneys in an amount sufficient to
pay the principal of and any premium and interest on such Senior Notes on the
stated maturities of such payments or upon redemption.
Defeasance by the Corporation with respect to any Senior Notes of a series
is permitted under certain circumstances under the Senior Note Indenture
notwithstanding the Corporation's prior Covenant Defeasance with respect to
Senior Notes of that series. Following a Defeasance, payment of any of such
Senior Notes may not be accelerated because of an Event of Default (as defined
in the Senior Note Indenture). Following a Covenant Defeasance, payment of
Senior Notes may not be accelerated under the Senior Note Indenture by
reference to the covenants noted under clause (b) above. However, if such an
acceleration were to occur, the realizable value at the acceleration date of
the money and Government Obligations in the defeasance trust could be less
than the principal
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and interest then due on such Senior Notes, in that the required deposit in
the defeasance trust is based upon scheduled cash flows rather than market
value, which will vary depending upon interest rates and other factors.
Under current United States federal income tax law, the Defeasance
contemplated in the preceding paragraphs would be treated as an exchange of
the relevant Senior Notes in which holders of Senior Notes might recognize
gain or loss. In addition, thereafter, the amount, timing and character of
amounts that holders would be required to include in income might be different
from that which would be includible in the absence of such Defeasance.
Prospective investors are urged to consult their own tax advisors as to the
specific consequences of a Defeasance, including the applicability and effect
of tax laws other than the United States federal income tax laws.
Under current United States federal income tax law, unless accompanied by
other changes in the terms of the Senior Notes, Covenant Defeasance should not
be treated as a taxable exchange.
INFORMATION CONCERNING THE SENIOR INDENTURE TRUSTEE
The Chase Manhattan Bank, the Senior Indenture Trustee, will also serve as
the Subordinated Indenture Trustee and as Property Trustee and Guarantee
Trustee with respect to any Preferred Securities issued by the Trusts. The
Corporation and certain of its affiliates maintain deposit accounts and
banking relationships with The Chase Manhattan Bank.
GOVERNING LAW
The Senior Note Indenture and the Senior Notes will be governed by, and
construed in accordance with, the internal laws of the State of New York.
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DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES
Set forth below is a description of the terms of the Junior Subordinated
Notes. The following description does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Subordinated
Indenture, dated as of April 1, 1998, between the Corporation and The Chase
Manhattan Bank, as trustee (the "Subordinated Indenture Trustee"), as to be
supplemented, with respect to a series of Junior Subordinated Notes, by a
supplemental indenture (each, a "Supplemental Indenture") thereto establishing
such series of Junior Subordinated Notes (the Subordinated Indenture, as so
supplemented and as such Indenture may be further supplemented from time to
time, is hereinafter referred to as the "Subordinated Note Indenture"), the
forms of which Subordinated Note Indenture and Supplemental Indenture are
filed as exhibits to the Registration Statement of which this Prospectus forms
a part. The terms of each series of Junior Subordinated Notes will include
those stated in the Subordinated Note Indenture with respect to such series
and those made a part of the Subordinated Note Indenture by reference to the
1939 Act. Certain capitalized terms used herein are defined in the
Subordinated Note Indenture.
GENERAL
The Junior Subordinated Notes will be issued as one or more series of
unsecured subordinated debt securities (all such series of Junior Subordinated
Notes collectively, the "Junior Subordinated Notes" and all series of
Subordinated Notes collectively, the "Subordinated Notes") under the
Subordinated Note Indenture. The Subordinated Note Indenture does not limit
the aggregate principal amount of Subordinated Notes (including Junior
Subordinated Notes) that may be issued thereunder and provides that
Subordinated Notes (including Junior Subordinated Notes) may be issued from
time to time in one or more series pursuant to supplemental indentures or
pursuant to resolutions of the Corporation's Board of Directors or a duly
authorized committee thereof.
Reference is made to the applicable Prospectus Supplement for the following
terms of any particular series of Junior Subordinated Notes: (i) the title of
such series of Junior Subordinated Notes; (ii) any limit on the aggregate
principal amount of such Junior Subordinated Notes; (iii) the date or dates on
which the principal of such Junior Subordinated Notes will be payable or the
method by which such date or dates will be determined, and the right, if any,
of the Corporation to shorten or extend the date on which the principal of any
Junior Subordinated Notes of the series is payable; (iv) the rate or rates at
which such Junior Subordinated Notes will bear interest, if any, or the method
by which such rate or rates will be determined, and the date or dates from
which any such interest will accrue; (v) the Interest Payment Dates on which
any such interest will be payable and the Regular Record Date, if any, for any
such interest payable on any Interest Payment Date; (vi) if applicable,
whether the interest payment periods may be extended by the Corporation, and,
if so, the terms of any such extension; (vii) the place or places where the
principal of and any premium and interest on such Junior Subordinated Notes
will be payable, if other than the principal corporate trust office of the
Subordinated Indenture Trustee; (viii) the obligation, if any, of the
Corporation to redeem or purchase such Junior Subordinated Notes pursuant to
any sinking fund, purchase fund or analogous provision or at the option of the
holder thereof and the terms and conditions on which such Junior Subordinated
Notes may be redeemed or purchased pursuant to such obligation; (ix) the terms
and conditions, if any, on which such Junior Subordinated Notes may be
redeemed at the option of the Corporation; (x) if applicable, the fact that
certain terms of the Subordinated Note Indenture which are described below
under the caption "Defeasance and Covenant Defeasance" will not apply to such
Junior Subordinated Notes; (xi) the currency, currencies or currency units in
which the principal of and any premium and interest of such Junior
Subordinated Notes will be payable, if other than U.S. dollars, and the manner
of determining the equivalent thereof in U.S. dollars for any purpose; (xii)
if the principal of or any premium or interest on such Junior Subordinated
Notes is to be payable, at the election of the Corporation or the Holder
thereof, in one or more currencies or currency units other
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than those in which such Junior Subordinated Notes are stated to be payable,
then the currency, currencies or currency units in which such payments will be
made, the terms and conditions upon which such election is to be made and the
amount so payable (or the manner of determining any such amount); (xiii) the
portion of the principal amount of any such Junior Subordinated Notes which
will be payable upon declaration of acceleration of the Maturity thereof, if
other than the entire principal amount thereof; (xiv) whether such Junior
Subordinated Notes will be issuable in whole or in part in the form of one or
more Global Securities and, if so, the identity of the depositary (the
"Depositary") for any such Global Security or Global Securities and any
provisions regarding the transfer, exchange or legending of any such Global
Security if different from those described below under the caption "Global
Securities"; (xv) any addition to, change in or deletion from the Subordinated
Note Indenture Events of Default or the covenants of the Corporation with
respect to such Junior Subordinated Notes; (xvi) any index or formula used to
determine the amount of principal of or any premium or interest on such Junior
Subordinated Notes and the manner of determining any such amounts; (xvii) if
the principal amount payable at the stated maturity of such Junior
Subordinated Notes will not be determinable as of any one or more dates prior
to the stated maturity, the amount which will be deemed to be such principal
amount as of any such date for any purpose, including the principal amount
thereof which will be due and payable upon any maturity other than the stated
maturity (or the manner of determining any such deemed principal amount); and
(xviii) any other terms of such Junior Subordinated Notes.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Junior Subordinated Notes will be issued only in fully registered form,
without coupons, and no service charge will be made for any registration of
transfer or exchange of the Junior Subordinated Notes, but the Corporation may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The interest rate and interest and other payment dates of each series of
Junior Subordinated Notes issued to a Trust will correspond to those of the
related Preferred Securities of such Trust as described in the Prospectus
Supplement relating to such Preferred Securities.
The Subordinated Note Indenture does not contain provisions that afford
holders of Junior Subordinated Notes protection in the event of a highly
leveraged transaction involving the Corporation.
SUBORDINATION
Each series of Junior Subordinated Notes will be subordinate and junior in
right of payment, to the extent set forth in the Subordinated Note Indenture,
to all Senior Indebtedness (as defined below) of the Corporation. In the
event, subject to certain exceptions, (a) of any payment by, or distribution
of assets of, the Corporation to creditors upon any dissolution, winding-up,
liquidation or reorganization of the Corporation, whether in bankruptcy,
insolvency or other proceedings, or (b) that (i) a default (beyond any period
of grace) shall have occurred and be continuing with respect to the payment of
principal, interest or any other monetary amounts due and payable on any
Senior Indebtedness or (ii) the maturity of any Senior Indebtedness shall have
been accelerated because of a default with respect to such Senior
Indebtedness, then the holders of all Senior Indebtedness shall be entitled to
receive payment, in the case of (a) above, of all amounts due or to become due
upon all Senior Indebtedness, and, in the case of (b) above, of all amounts
due thereon, or provision shall be made for such payment, before the holders
of any series of Junior Subordinated Notes are entitled to receive payments of
principal or interest on such Junior Subordinated Notes.
The term "Senior Indebtedness" is defined in the Subordinated Note Indenture
to mean, with respect to any series of Subordinated Notes, the principal of,
and premium, if any, and interest on and any other payment in respect of
indebtedness due pursuant to any of the following, whether
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outstanding at the date of execution of the Subordinated Note Indenture or
thereafter incurred, created or assumed: (a) all indebtedness of the
Corporation evidenced by notes, debentures, bonds or other securities sold by
the Corporation for money or other obligations for money borrowed, (b) all
indebtedness of others of the kinds described in the preceding clause (a)
assumed by or guaranteed in any manner by the Corporation or in effect
guaranteed by the Corporation through an agreement to purchase, contingent or
otherwise, and (c) all renewals, extensions or refundings of indebtedness of
the kinds described in either of the preceding clauses (a) and (b), unless, in
the case of any particular indebtedness, renewal, extension or refunding, the
instrument creating or evidencing the same or the assumption or guarantee of
the same by its terms provides that such indebtedness, renewal, extension or
refunding is not superior in right of payment to or is pari passu with such
Subordinated Notes. Such Senior Indebtedness shall continue to be Senior
Indebtedness and be entitled to the benefits of the subordination provisions
contained in the Subordinated Note Indenture irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Corporation conducts its business through subsidiaries. Accordingly, the
ability of the Corporation to meet its obligations under the Junior
Subordinated Notes will be dependent on the earnings and cash flows of its
subsidiaries and the ability of its subsidiaries to pay dividends or to
advance or repay funds to the Corporation. In addition, the rights of the
Corporation and its creditors to participate in the assets of any subsidiary
upon the latter's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors.
Certain future series of Subordinated Notes, if any, may rank senior to, and
hence constitute Senior Indebtedness with respect to, series of Junior
Subordinated Notes.
The Subordinated Note Indenture does not limit the amount of Senior
Indebtedness that may be issued by the Corporation. As of December 31, 1997,
Senior Indebtedness of the Corporation aggregated approximately $933,788,680.
GLOBAL SECURITIES
Some or all of the Subordinated Notes of a series may be represented in
whole or in part by one or more Global Securities that will be deposited with
or on behalf of one or more Depositaries.
The specific terms of the depositary arrangement with respect to any
Subordinated Notes of a series will be described in the Prospectus Supplement
relating thereto. The Corporation anticipates that the following provisions
will apply to all depositary arrangements.
Unless otherwise specified in the Prospectus Supplement relating thereto,
Subordinated Notes which are to be represented by a Global Security to be
deposited with or on behalf of a Depositary will be represented by a Global
Security registered in the name of such Depositary or its nominee. Upon the
issuance of a Global Security in registered form, the Depositary for such
Global Security will credit, on its book-entry registration and transfer
system, the respective principal amount of the Subordinated Notes represented
by such Global Security to the accounts of institutions that have accounts
with such Depositary or its nominee ("participants"). The accounts to be
credited will be designated by the underwriters or agents of such Subordinated
Notes or by the Corporation, if such Subordinated Notes are offered and sold
directly by the Corporation. Ownership of beneficial interests in such Global
Securities will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in
such Global Securities will be shown on, and the transfer of any such
ownership interest will be effected only through, records maintained by the
Depositary or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will
be effected only through records maintained by such participants. The laws of
some jurisdictions require that certain purchasers of securities take
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physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the
Subordinated Notes represented by such Global Security for all purposes under
the Subordinated Note Indenture. Except as set forth below, owners of
beneficial interests in the Global Security will not be entitled to have the
Subordinated Notes represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of the
Subordinated Notes in definitive form and will not be considered the owners or
holders thereof under the Subordinated Note Indenture.
Payment of principal of and any premium and interest on Subordinated Notes
registered in the name of or held by a Depositary or its nominee will be made
in immediately available funds to the Depositary or its nominee, as the case
may be, as the registered owner or the holder of the Global Security
representing such Subordinated Notes. None of the Corporation, the
Subordinated Indenture Trustee, any Paying Agent or the Security Registrar for
such Subordinated Notes will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in a Global Security for such Subordinated Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Corporation expects that a Depositary for Subordinated Notes of a
series, upon receipt of any payment of principal or any premium or interest in
respect of a Global Security, will credit immediately participants' accounts
with payment in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of
such Depositary. The Corporation also expects that payments by participants to
owners of beneficial interests in such Global Security held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
participants.
A Global Security may not be transferred in whole or in part except by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. If a Depositary for Subordinated
Notes of a series is at any time unwilling or unable to continue as Depositary
and a successor Depositary is not appointed by the Corporation within 90 days
or if at any time the Depositary ceases to be a clearing agency registered
under the Exchange Act when the Depositary is required to be registered to act
as such Depositary and no successor is appointed by the Corporation within 90
days, then the Corporation will issue Subordinated Notes in definitive
registered form in exchange for the Global Security or Global Securities
representing such Subordinated Notes. In addition, the Corporation may at any
time determine not to have any Subordinated Notes represented by one or more
Global Securities and, in such event, will issue Subordinated Notes in
definitive registered form in exchange for the Global Securities representing
such Subordinated Notes. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in
definitive form of Subordinated Notes represented by such Global Security
equal in principal amount to such beneficial interest and to have such
Subordinated Notes registered in its name.
EVENTS OF DEFAULT
The following will be Subordinated Note Indenture Events of Default with
respect to each series of Junior Subordinated Notes (unless inapplicable to
the particular series or otherwise deleted or modified in a supplemental
indenture, as set forth in the applicable Prospectus Supplement); (a) failure
to pay principal of or any premium on any Junior Subordinated Note of such
series when due;
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(b) failure to pay any interest on any Junior Subordinated Note of such series
when due, continued for 60 days; provided, however, that the date on which
such payment is due and payable shall be the date on which the Corporation is
required to make payment following any deferral of payments of interest by the
Corporation pursuant to the terms of such Junior Subordinated Notes; (c)
failure to perform any covenant of the Corporation in the Subordinated Note
Indenture (other than a covenant which has expressly been included in the
Subordinated Note Indenture solely for the benefit of a series of Junior
Subordinated Notes other than that series), continued for 90 days after
written notice has been given by the Subordinated Indenture Trustee or the
holders of at least 33% in principal amount of the outstanding Junior
Subordinated Notes of such series (unless such time period is extended by the
Subordinated Indenture Trustee or by the Subordinated Indenture Trustee and
the holders of a principal amount of Junior Subordinated Notes of such series
not less than the principal amount of such Notes the holders of which had
given such notice of default; provided, however, that the Subordinated
Indenture Trustee, or the Subordinated Indenture Trustee and such holders, as
the case may be, will be deemed to have agreed to such an extension if
corrective action is initiated and is being diligently pursued by the
Corporation); and (d) certain events in bankruptcy, insolvency or
reorganization of the Corporation.
If a Subordinated Note Indenture Event of Default with respect to the Junior
Subordinated Notes of a series occurs and is continuing, then the Subordinated
Indenture Trustee or the holders of not less than 33% in principal amount of
the outstanding Junior Subordinated Notes of such series may, by notice to the
Corporation (and to the Subordinated Indenture Trustee if given by holders),
declare to be immediately due and payable the principal amount of all Junior
Subordinated Notes of such series. However, the Subordinated Note Indenture
Event of Default giving rise to such declaration will, without further act, be
deemed waived, and such declaration deemed rescinded, at any time after such a
declaration of acceleration and before a judgment or decree for payment of the
money due has been obtained by the Subordinated Indenture Trustee, if (i) the
Corporation has paid or deposited with the Subordinated Indenture Trustee a
sum sufficient to pay all overdue interest on the Junior Subordinated Notes of
such series, the principal of and any premium on the Junior Subordinated Notes
of such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed therefor in
such Junior Subordinated Notes, interest on overdue interest at the rate or
rates prescribed therefor in such Junior Subordinated Notes (to the extent
permitted by applicable law), and all amounts due to the Subordinated
Indenture Trustee under the Subordinated Note Indenture and (ii) all
Subordinated Note Indenture Events of Default with respect to the Junior
Subordinated Notes of such series (other than the nonpayment of the principal
which became due solely by such declaration of acceleration) have been cured
or waived.
A holder of Preferred Securities may institute a legal proceeding directly
against the Corporation, without first instituting a legal proceeding against
the Property Trustee or any other person or entity, for enforcement of payment
to such holder of principal of or interest on the Junior Subordinated Notes of
the related series having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
due dates specified in the Junior Subordinated Notes of such series.
Subject to the provisions of the Subordinated Note Indenture relating to the
duties of the Subordinated Indenture Trustee in case of a continuing
Subordinated Note Indenture Event of Default, the Subordinated Note Indenture
provides that the Subordinated Indenture Trustee will be under no obligation
to exercise any of its rights or powers under the Subordinated Note Indenture
at the request or direction of any of the holders unless such holders shall
have offered to the Subordinated Indenture Trustee reasonable indemnity
against the costs, expenses and liabilities which might be incurred thereby.
Subject to such provisions for indemnification and certain other rights of the
Subordinated Indenture Trustee, the holders of a majority in principal amount
of the outstanding Subordinated Notes of any series have the right to direct
the time, method and place of conducting
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any proceedings for any remedy available to the Subordinated Indenture Trustee
or exercising any trust or power conferred on the Subordinated Indenture
Trustee with respect to such Subordinated Notes. The Subordinated Indenture
Trustee may withhold notice to the holders of Subordinated Notes of any series
of any default (except in payment of principal or interest) with respect to
such series of Subordinated Notes, if it in good faith considers it in the
interest of holders to do so.
No holder of a Junior Subordinated Note of any series will have any right to
institute any proceeding with respect to the Subordinated Note Indenture or
for any remedy thereunder unless such holder has previously given the
Subordinated Indenture Trustee written notice of a continuing Subordinated
Note Indenture Event of Default with respect to the Junior Subordinated Notes
of such series and unless the holders of not less than a majority in principal
amount of the outstanding Junior Subordinated Notes of such series have made
such written request, and offered reasonable indemnity, to the Subordinated
Indenture Trustee to institute such proceeding, and the Subordinated Indenture
Trustee has not received from the holders of a majority in principal amount of
the outstanding Junior Subordinated Notes of such series a direction
inconsistent with such request and has failed to institute such proceeding
within 60 days after receipt of such notice and offer of indemnity.
Notwithstanding the foregoing, the holder of any Junior Subordinated Note will
have an absolute and unconditional right to receive payment of the principal
of and any premium and, subject to certain limitations, interest on such
Junior Subordinated Note on the stated maturities thereof (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement
of any such payment.
The Corporation is required to furnish annually to the Subordinated
Indenture Trustee an officers' certificate to the effect that, to the best
knowledge of the officers providing such certificate, the Corporation is not
in default in the performance and observance of any terms, provisions or
conditions of the Subordinated Note Indenture or, if there has been a default,
specifying such default and its status.
REGISTRATION AND TRANSFER
If the Junior Subordinated Notes of a series are to be redeemed, the
Corporation will not be required to (i) issue, register the transfer of, or
exchange any Junior Subordinated Notes of that series during a period of
fifteen days immediately preceding the date notice is mailed identifying the
Junior Subordinated Notes of such series that are called for redemption or
(ii) register the transfer of or exchange any Junior Subordinated Notes of
such series so selected for redemption, in whole or in part, except the
unredeemed portion of any Junior Subordinated Note of such series being
redeemed in part.
DENOMINATIONS
Unless otherwise set forth in the applicable Prospectus Supplement, Junior
Subordinated Notes will be issuable in denominations of $1,000 or any integral
multiples thereof.
PAYMENT AND PAYING AGENT
Payment of principal of any Junior Subordinated Notes will be made only
against surrender to the Paying Agent of such Junior Subordinated Notes.
Interest on Junior Subordinated Notes will be payable, subject to such
surrender where applicable, at the office of the Paying Agent or, at the
option of the Corporation, (i) by wire transfer to such account at a banking
institution in the United States as is designated in writing to the
Subordinated Indenture Trustee at least sixteen days prior to the date of
payment by the person entitled thereto or (ii) by check mailed to the address
of the person entitled thereto as such address shall appear in the Security
Register with respect to such Junior Subordinated Notes.
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Unless otherwise set forth in the applicable Prospectus Supplement, the
Subordinated Indenture Trustee will act as Paying Agent with respect to the
Junior Subordinated Notes and the principal corporate trust office of the
Subordinated Indenture Trustee will serve as the office through which the
Paying Agent acts. Notwithstanding the foregoing, the Corporation may at any
time designate additional Paying Agents or rescind the designation of any
Paying Agents or approve a change in the office through which any Paying Agent
acts.
All moneys paid by the Corporation to a Paying Agent for the payment of the
principal of or interest on the Junior Subordinated Notes which remain
unclaimed at the end of two years after such principal or interest shall have
become due and payable will be repaid to the Corporation at the Corporation's
request, and the holder of such Junior Subordinated Notes will thereafter look
only to the Corporation for payment thereof.
MODIFICATION; WAIVER
The Corporation and the Subordinated Indenture Trustee may amend or modify
(with certain exceptions) the Subordinated Note Indenture with the consent of
the holders of not less than a majority in aggregate principal amount of the
outstanding Subordinated Notes of all series of Subordinated Notes affected
thereby (voting as one class); provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding
Subordinated Note affected thereby, (a) change the stated maturity of the
principal of, or any installment of principal of or interest on, any
Subordinated Note; (b) reduce the principal amount of, or the rate of interest
on, or any premium payable upon the redemption of, any Subordinated Note or
reduce the amount of principal of any Subordinated Note which would be due and
payable upon acceleration of the maturity thereof; (c) change the currency of
payment of principal of, or any premium or interest on, any Subordinated Note;
(d) impair the right to institute suit for the enforcement of any such payment
on or after the stated maturity thereof (or date of redemption); (e) reduce
the percentage in principal amount of Subordinated Notes of any series, the
consent of whose holders is required to amend or modify the Subordinated Note
Indenture, to waive compliance with certain provisions of the Subordinated
Note Indenture or to waive certain defaults; or (f) with certain exceptions,
modify the above provisions or the sections of the Subordinated Note Indenture
governing waiver of certain covenants and past defaults. In addition, the
Corporation and the Subordinated Indenture Trustee may execute, without the
consent of any holders of Subordinated Notes, supplemental indentures for
certain other purposes, including for the purpose of creating a new series of
Subordinated Notes.
The holders of not less than a majority in aggregate principal amount of the
outstanding Subordinated Notes of any series may waive, insofar as that series
is concerned, compliance by the Corporation with certain restrictive
provisions of the Indenture under which such Subordinated Notes were issued.
The holders of not less than a majority in aggregate principal amount of the
outstanding Subordinated Notes of all series under the Subordinated Note
Indenture with respect to which a default has occurred and is continuing
(voting as one class) may waive any past default under the Subordinated Note
Indenture with respect to all such series, except a default in the payment of
principal of, or any premium or interest on, any Subordinated Note of such
series or in respect of a covenant or provision under the Subordinated Note
Indenture which cannot be amended or modified without the consent of the
holder of each outstanding Subordinated Note affected thereby.
The Subordinated Note Indenture may not be amended to alter the
subordination of any Junior Subordinated Notes or any other Subordinated Notes
without the written consent of each holder of Senior Indebtedness then
outstanding that would be adversely affected thereby.
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CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
The Subordinated Note Indenture provides that the Corporation may
consolidate or merge with or into another corporation or other entity of a
sort specified in the Subordinated Note Indenture, or convey or transfer its
properties and assets as an entirety or substantially as an entirety to any
such entity; provided that the successor, if any, assumes by supplemental
indenture the Corporation's obligations under the Subordinated Note Indenture
and the Subordinated Notes issued thereunder and the Corporation delivers to
the Subordinated Indenture Trustee an officers' certificate and an opinion of
counsel stating that all conditions precedent in the Subordinated Note
Indenture relating to such consolidation, merger, conveyance or transfer have
been complied with. Upon the assumption by the successor of the Corporation's
obligations under the Subordinated Note Indenture and the Subordinated Notes
issued thereunder, and the satisfaction of any other conditions precedent
provided for in the Subordinated Note Indenture, the successor will succeed to
and be substituted for the Corporation under such Indenture and the
Corporation will be relieved of its obligations under the Subordinated Note
Indenture and the Subordinated Notes.
DEFEASANCE AND COVENANT DEFEASANCE
The Subordinated Note Indenture provides that, unless the terms of a given
series of Subordinated Notes provide otherwise, the Corporation may cause
itself to be (a) discharged from its obligations (with certain exceptions)
with respect to any Subordinated Notes or series of Subordinated Notes
("Defeasance") and (b) released from its obligations under certain covenants
especially established in respect of such series ("Covenant Defeasance"), on
and after the date certain conditions set forth in the Subordinated Note
Indenture are satisfied. Such conditions include the irrevocable deposit with
the Subordinated Indenture Trustee, in trust for such purpose, of money and/or
Government Obligations (as defined in the Subordinated Note Indenture), which
through the scheduled payment of principal and interest thereon will provide
moneys in an amount sufficient to pay the principal of and any premium and
interest on such Subordinated Notes on the stated maturities of such payments
or upon redemption.
Defeasance by the Corporation with respect to any Subordinated Notes of a
series is permitted under certain circumstances under the Subordinated Note
Indenture notwithstanding the Corporation's prior Covenant Defeasance with
respect to Subordinated Notes of that series. Following a Defeasance, payment
of any of such Subordinated Notes may not be accelerated because of an Event
of Default (as defined in the Subordinated Note Indenture). Following a
Covenant Defeasance, payment of Subordinated Notes may not be accelerated
under the Subordinated Note Indenture by reference to the covenants noted
under clause (b) above. However, if such an acceleration were to occur, the
realizable value at the acceleration date of the money and Government
Obligations in the defeasance trust could be less than the principal and
interest then due on such Subordinated Notes, in that the required deposit in
the defeasance trust is based upon scheduled cash flows rather than market
value, which will vary depending upon interest rates and other factors.
Under current United States federal income tax law, the Defeasance
contemplated in the preceding paragraphs would be treated as an exchange of
the relevant Subordinated Notes in which holders of Subordinated Notes might
recognize gain or loss. In addition, thereafter, the amount, timing and
character of amounts that holders would be required to include in income might
be different from that which would be includible in the absence of such
Defeasance. Prospective investors are urged to consult their own tax advisors
as to the specific consequences of a Defeasance, including the applicability
and effect of tax laws other than the United States federal income tax laws.
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Under current United States federal income tax law, unless accompanied by
other changes in the terms of the Subordinated Notes, Covenant Defeasance
should not be treated as a taxable exchange.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Chase Manhattan Bank, the Subordinated Indenture Trustee, will also
serve as the Senior Indenture Trustee and as Property Trustee and Guarantee
Trustee. The Corporation and certain of its affiliates maintain deposit
accounts and banking relationships with The Chase Manhattan Bank.
GOVERNING LAW
The Subordinated Note Indenture and the Subordinated Notes (including the
Junior Subordinated Notes) will be governed by, and construed in accordance
with, the internal laws of the State of New York.
DESCRIPTION OF THE PREFERRED SECURITIES
Each Trust may issue only one series of Preferred Securities having terms
described in the Prospectus Supplement relating thereto. The Trust Agreement
of each Trust will authorize the Administrative Trustees, on behalf of the
Trust, to issue the Preferred Securities of such Trust. The Preferred
Securities of each Trust will have such terms, including distribution,
redemption, voting and liquidation rights, and such other preferred, deferral
or other special rights or such restrictions as shall be set forth in the
Trust Agreement of such Trust. Reference is made to the Prospectus Supplement
relating to the Preferred Securities of a Trust for specific terms, including
(i) the distinctive designation of such Preferred Securities; (ii) the number
of Preferred Securities issued by such Trust; (iii) the annual distribution
rate (or method of determining such rate) for Preferred Securities of such
Trust and the date or dates on which such distributions shall be payable; (iv)
the date or dates, or method of determining the date or dates, from which
distributions on the Preferred Securities shall be cumulative; (v) the amount
or amounts that shall be paid out of the assets of such Trust to the holders
of the Preferred Securities of such Trust upon voluntary or involuntary
dissolution, winding-up or termination of such Trust; (vi) the obligation, if
any, of such Trust to purchase or redeem such Preferred Securities and the
price or prices at which, the period or periods within which, and the terms
and conditions upon which such Preferred Securities shall be purchased or
redeemed, in whole or in part, pursuant to such obligation; (vii) the voting
rights, if any, of such Preferred Securities in addition to those required by
law, including any requirement for the approval by the holders of Preferred
Securities as a condition to specified action or amendments to the Trust
Agreement of such Trust; (viii) the right, if any, to defer distributions on
the Preferred Securities upon extension of the interest payment period on the
related Junior Subordinated Notes; and (ix) any other relative rights,
preferences, privileges, limitations or restrictions of such Preferred
Securities not inconsistent with the Trust Agreement of such Trust or
applicable law. All Preferred Securities offered hereby will be guaranteed by
the Corporation to the extent set forth under "Description of the Guarantees."
Any material United States federal income tax considerations applicable to an
offering of Preferred Securities will be described in the Prospectus
Supplement relating thereto.
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DESCRIPTION OF THE GUARANTEES
Set forth below is a summary of information concerning the Guarantees that
will be executed and delivered by the Corporation for the benefit of the
holders of Preferred Securities of the respective Trusts from time to time.
Each Guarantee will be qualified as an indenture under the 1939 Act. The Chase
Manhattan Bank will act as indenture trustee under each Guarantee (the
"Guarantee Trustee") for purposes of the 1939 Act. The terms of the respective
Guarantees will be those set forth therein and those made part thereof by the
1939 Act. The following summary does not purport to be complete and is subject
in all respects to the provisions of, and is qualified in its entirety by
reference to, the Guarantees, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the 1939
Act. Each Guarantee will be held by the Guarantee Trustee for the benefit of
the holders of the Preferred Securities to which it relates.
GENERAL
Pursuant to each Guarantee, the Corporation will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full, to the
holders of the related Preferred Securities, the Guarantee Payments (as
defined herein), to the extent not paid by, or on behalf of, the related
Trust, regardless of any defense, right of set-off or counterclaim that the
Corporation may have or assert against any person. The following payments or
distributions (without duplication) with respect to the Preferred Securities
of any Trust to the extent not paid or made by, or on behalf of, such Trust
will be subject to the Guarantee related thereto: (i) any accrued and unpaid
distributions required to be paid on the Preferred Securities of such Trust
but if and only if and to the extent that such Trust has funds legally and
immediately available therefor, (ii) the redemption price, including all
accrued and unpaid distributions to the date of redemption (the "Redemption
Price"), with respect to any Preferred Securities called for redemption by
such Trust, but if and only to the extent such Trust has funds legally and
immediately available therefor, and (iii) upon a dissolution, winding-up or
termination of such Trust (other than in connection with the distribution of
Junior Subordinated Notes to the holders of Trust Securities of such Trust or
the redemption of all of the Preferred Securities of such Trust), the lesser
of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities of such Trust to the date of
payment, to the extent such Trust has funds legally and immediately available
therefor, and (b) the amount of assets of such Trust remaining available for
distribution to holders of Preferred Securities of such Trust in liquidation
of such Trust (the "Guarantee Payments"). The Corporation's obligation to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by the Corporation to the holders of the related Preferred Securities or by
causing the related Trust to pay such amounts to such holders.
Each Guarantee will be a full and unconditional guarantee, subject to
certain subordination provisions, of the Guarantee Payments with respect to
the related Preferred Securities from the time of issuance of such Preferred
Securities, but will not apply to the payment of distributions and other
payments on such Preferred Securities when the related Trust does not have
sufficient funds legally and immediately available to make such distributions
or other payments. IF THE CORPORATION DOES NOT MAKE THE REQUIRED PAYMENTS ON
THE JUNIOR SUBORDINATED NOTES HELD BY THE PROPERTY TRUSTEE UNDER ANY TRUST,
SUCH TRUST WILL NOT MAKE THE RELATED PAYMENTS ON ITS PREFERRED SECURITIES.
SUBORDINATION
The Corporation's obligations under each Guarantee to make the Guarantee
Payments will constitute an unsecured obligation of the Corporation and will
rank (i) subordinate and junior in right of payment to all other liabilities
of the Corporation, including the Junior Subordinated Notes, except those
obligations or liabilities made pari passu or subordinate by their terms, (ii)
pari passu with the most senior preferred stock that may be issued by the
Corporation, and (iii) senior to all common
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stock of the Corporation. The terms of the Preferred Securities will provide
that each holder of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee related thereto.
Each Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the guarantor to enforce its rights under the guarantee without first
instituting a legal proceeding against any other person or entity).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially and adversely
affect the rights of holders of the related Preferred Securities (in which
case no consent will be required), each Guarantee may be amended only with the
prior approval of the holders of not less than 66 2/3% in liquidation amount
of such outstanding Preferred Securities. All guarantees and agreements
contained in each Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Corporation and shall inure to the benefit
of the holders of the related Preferred Securities then outstanding.
TERMINATION
Each Guarantee will terminate and be of no further force and effect as to
the related Preferred Securities upon full payment of the Redemption Price of
all such Preferred Securities, upon distribution of Junior Subordinated Notes
to the holders of such Preferred Securities, or upon full payment of the
amounts payable upon liquidation of the related Trust. Each Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the related Preferred Securities must restore payment of
any sums paid with respect to such Preferred Securities or under such
Guarantee.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure by the
Corporation to perform any of its payment obligations thereunder. The holders
of a majority in liquidation amount of the Preferred Securities to which any
Guarantee relates have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under such Guarantee. Any holder of the
related Preferred Securities may institute a legal proceeding directly against
the Corporation to enforce its rights under such Guarantee without first
instituting a legal proceeding against the Guarantee Trustee or any other
person or entity. The holders of a majority in liquidation amount of Preferred
Securities of any series may, by vote, on behalf of the holders of all the
Preferred Securities of such series, waive any past event of default and its
consequences.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of any event of default with
respect to any Guarantee and after the curing or waiving of all events of
default with respect to such Guarantee, undertakes to perform only such duties
as are specifically set forth in such Guarantee and, in case an event of
default has occurred and not been cured or waived, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by any Guarantee at the
request of any holder of the related Preferred Securities, unless offered
reasonable indemnity against the costs, expenses and liabilities which might
be incurred thereby.
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The Chase Manhattan Bank, the Guarantee Trustee, will also serve as Property
Trustee and Subordinated Indenture Trustee and as Senior Indenture Trustee.
The Corporation and certain of its affiliates maintain deposit accounts and
banking relationships with The Chase Manhattan Bank.
GOVERNING LAW
Each Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
AGREEMENTS AS TO EXPENSES AND LIABILITIES
Pursuant to each Agreement as to Expenses and Liabilities to be entered into
by the Corporation under each of the Trust Agreements, the Corporation will
irrevocably and unconditionally guarantee to each person or entity to whom the
related Trust becomes indebted or liable the full payment of any indebtedness,
expenses or liabilities of such Trust, other than obligations of such Trust to
pay to the holders of the related Preferred Securities or other similar
interests in such Trust the amounts due such holders pursuant to the terms of
such Preferred Securities or such other similar interests, as the case may be.
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ACCOUNTING TREATMENT
For financial reporting purposes, each Trust will be treated as a subsidiary
of the Corporation and, accordingly, the accounts of the Trusts will be
included in the consolidated financial statements of the Corporation. The
Preferred Securities will be presented as a separate line item in the
consolidated balance sheets of the Corporation entitled "Guaranteed Preferred
Beneficial Interests in Corporation's Subordinated Notes." For financial
reporting purposes, the Corporation will record distributions payable on the
Preferred Securities as an expense in the consolidated statement of income.
PLAN OF DISTRIBUTION
The Corporation may sell the Senior Notes and the Junior Subordinated Notes
and the Trusts may sell the Preferred Securities in one or more of the
following ways from time to time: (i) to underwriters for resale to the public
or to institutional investors; (ii) directly to institutional investors; or
(iii) through agents to the public or to institutional investors. The
Prospectus Supplement with respect to each series of Senior Notes, Junior
Subordinated Notes or Preferred Securities will set forth the terms of the
offering of such Senior Notes, Junior Subordinated Notes or Preferred
Securities, including the name or names of any underwriters or agents, the
purchase price of such Senior Notes, Junior Subordinated Notes or Preferred
Securities and the proceeds to the Corporation or the applicable Trust from
such sale, any underwriting discounts or agency fees and other items
constituting underwriters' or agents' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers and any securities exchange on which such Senior Notes, Junior
Subordinated Notes or Preferred Securities may be listed.
If underwriters participate in the sale, such Senior Notes, Junior
Subordinated Notes or Preferred Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
Unless otherwise set forth in the Prospectus Supplement, the obligations of
the underwriters to purchase any series of Senior Notes, Junior Subordinated
Notes or Preferred Securities will be subject to certain conditions precedent
and the underwriters will be obligated to purchase all of such series of
Senior Notes, Junior Subordinated Notes or Preferred Securities, if any are
purchased.
Underwriters and agents may be entitled under agreements entered into with
the Corporation and/or the applicable Trust to indemnification against certain
civil liabilities, including liabilities under the 1933 Act. Underwriters and
agents may engage in transactions with, or perform services for, the
Corporation in the ordinary course of business.
Each series of Senior Notes, Junior Subordinated Notes or Preferred
Securities will be a new issue of securities and will have no established
trading market. Any underwriters to whom Senior Notes, Junior Subordinated
Notes or Preferred Securities are sold for public offering and sale may make a
market in such Senior Notes, Junior Subordinated Notes or Preferred
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. The Senior Notes,
Junior Subordinated Notes or Preferred Securities may or may not be listed on
a national securities exchange.
31
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Corporation and the Trusts by
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware
counsel to the Corporation and the Trusts. The validity of the Senior Notes,
the Junior Subordinated Notes and the Guarantees and certain matters relating
thereto will be passed upon on behalf of the Corporation by Dewey Ballantine
LLP, New York, New York. The validity of the Senior Notes, the Junior
Subordinated Notes and the Guarantees will be passed upon for the underwriters
or agents by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements included in the Form 10 of the
Corporation, which are incorporated herein by reference, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which
is incorporated herein by reference, and have been so incorporated in reliance
upon such report given upon the authority of that firm as experts in
accounting and auditing. The consolidated financial statements included in
PanEnergy's annual report on Form 10-K for the year ended December 31, 1996
have been incorporated by reference herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
32
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION, DUKE CAPITAL FINANCING
TRUST II OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION OR DUKE CAPITAL FI-
NANCING TRUST II SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Offering....................................................... S-4
Risk Factors.............................................................. S-8
Incorporation of Certain Documents by Reference........................... S-11
Recent Financial Data..................................................... S-12
Duke Capital Financing Trust II........................................... S-13
Description of the Preferred Securities................................... S-14
Description of the Series B Junior Subordinated Notes..................... S-25
Relationship Among the Preferred Securities, the Series B Junior
Subordinated Notes and the Guarantee..................................... S-29
Material Federal Income Tax Considerations................................ S-31
Underwriting.............................................................. S-34
Legal Matters............................................................. S-36
Glossary.................................................................. S-37
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 3
Duke Capital Corporation.................................................. 4
The Trusts................................................................ 8
Use of Proceeds........................................................... 8
Description of the Senior Notes........................................... 9
Description of the Junior Subordinated Notes.............................. 19
Description of the Preferred Securities................................... 27
Description of the Guarantees............................................. 28
Accounting Treatment...................................................... 31
Plan of Distribution...................................................... 31
Legal Matters............................................................. 32
Experts................................................................... 32
</TABLE>
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14,000,000
PREFERRED SECURITIES
DUKE CAPITAL
FINANCING TRUST II
7 3/8% CUMULATIVE QUARTERLY
INCOME PREFERRED SECURITIES
(QUIPS/SM/)
(LIQUIDATION AMOUNT
$25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS SET FORTH HEREIN, BY
DUKE CAPITAL
CORPORATION
A SUBSIDIARY OF DUKE ENERGY CORPORATION
------------------
PROSPECTUS SUPPLEMENT
------------------
GOLDMAN, SACHS & CO.
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
REPRESENTATIVES OF THE UNDERWRITERS
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