<PAGE>
Filed Pursuant To Rule 424(b)(5)
Registration No. 333-69279
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this preliminary prospectus is not complete and may be +
+ changed. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated September 15, 1999.
Prospectus Supplement to Prospectus dated May 25, 1999.
$160,000,000
NiSource Capital Markets, Inc.
% Puttable Reset Securities PURS/SM/ due 2010
-----------
Entitled to the Benefit of a Support Agreement
Providing for the Payment of Principal and Interest by
NiSource Inc.
-----------
NiSource Capital Markets, Inc. will pay interest on the PURS semi-annually on
March and September in each year. The first payment of interest will be
made on March , 2000. Until September , 2000, the annual interest rate on
the PURS will be %.
On September , 2000, one of two things will happen. Either (1) Goldman,
Sachs & Co., on behalf of itself and Barclays Bank PLC, will exercise the
option to purchase all of the outstanding PURS from the holders, or (2)
NiSource Capital Markets, Inc. will repurchase all of the outstanding PURS,
except for PURS held by holders who have elected to continue to hold their PURS
by giving proper notice to the Trustee (provided that the holders of at least
10% of the outstanding PURS have so elected). If either Goldman, Sachs & Co.,
on behalf of itself and Barclays Bank PLC, has exercised the option to purchase
the PURS or holders of at least 10% of the outstanding PURS have elected to
continue to hold their PURS, then the interest rate will be reset by the
calculation agent. The new rate will be fixed on the basis of certain bids the
calculation agent will request from various dealers as described in this
prospectus supplement.
The PURS will be issued only in denominations of $1,000 and integral
multiples of $1,000. The PURS will be entitled to the benefits of a support
agreement between NiSource Capital Markets, Inc. and its parent, NiSource Inc.,
providing for the payment of principal and interest in the event of a default
by NiSource Capital Markets, Inc.
Investing in the PURS involves risks. See "Risk Factor" on page S-3.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
PURS Total
------- ------------
<S> <C> <C>
Initial public offering price............................ % $
Underwriting discount.................................... % $
Proceeds, before expenses, to NiSource Capital Markets,
Inc..................................................... % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the PURS will accrue from , 1999 and
must be paid by the purchaser if the PURS are delivered after , 1999.
The proceeds to NiSource Capital Markets, Inc. set forth above include a
payment by each of Goldman, Sachs & Co. and Barclays Bank PLC for the call
option they will have with respect to the PURS.
-----------
The underwriters expect to deliver the PURS in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on , 1999.
- -----
*PURS is a service mark of Goldman, Sachs & Co.
Goldman, Sachs & Co. Barclays Capital
-----------
Prospectus Supplement dated , 1999.
<PAGE>
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the prospectus that
accompanies it. You should rely only on the information provided or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. The information in this prospectus supplement and the accompanying
prospectus is accurate as of the dates on these documents, and you should not
assume that it is accurate as of any other date.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this prospectus supplement and in the documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus contain forward-looking statements within the meaning of the
securities laws. Forward-looking statements include terms such as "may,"
"will," "expect," "believe," "plan" and other similar terms. We caution that,
while we believe those statements to be based on reasonable assumptions and
make them in good faith, actual results may differ materially from those
assumptions, and the expectations set forth in the forward-looking statements
that we derived from those assumptions may not be realized. You should be aware
of important factors that could have a material impact on future results. These
factors include:
. the weather
. the federal and state regulatory environment
. year 2000 issues
. the economic climate
. regional, commercial, industrial and residential growth in our utility
businesses' service territories
. customers' usage patterns and preferences
. the speed and degree to which competition enters the utility industry
. changing conditions in the capital and equity markets
. whether, when and on what terms the proposed acquisition of Columbia
Energy Group by NiSource Inc. ("NiSource") may be consummated
and other uncertainties, all of which are difficult to predict, and many of
which are beyond our control. These and other factors are discussed in more
detail in NiSource's Form 10-K, Forms 10-Q and other reports, which NiSource
files with the Securities and Exchange Commission.
THE COMPANIES
NiSource
NiSource is an energy and utility-based holding company that provides
electric energy, natural gas and water to the public through ten wholly-owned
regulated subsidiaries. Through these and other subsidiaries, NiSource also
provides utility-related services such as installing, repairing and maintaining
underground pipelines, and locating and marking utility lines. In addition,
NiSource has a number of wholly-owned non-regulated subsidiaries that provide
energy and utility services, such as energy marketing and trading, power
generation, and gas transmission, supply and storage. NiSource was incorporated
under the laws of Indiana in 1987 under the name "NIPSCO Industries, Inc." On
April 14, 1999, the company's name was changed to "NiSource Inc."
S-2
<PAGE>
Capital Markets
NiSource Capital Markets, Inc. ("Capital Markets") is a wholly-owned
subsidiary of NiSource that engages in financing activities to generate funds
for NiSource and for certain of its subsidiaries. Capital Markets was
incorporated under the laws of Indiana in 1989 under the name "NIPSCO Capital
Markets, Inc." On April 21, 1999, the company's name was changed to "NiSource
Capital Markets, Inc."
RECENT DEVELOPMENT
On June 7, 1999, NiSource announced that it had offered to acquire Columbia
Energy Group for approximately $5.7 billion, or $68 per share, in cash.
Columbia Energy Group rejected the offer, and on June 25, 1999, NiSource
commenced a tender offer for all outstanding shares of common stock of Columbia
Energy Group at $68 per share in cash. The terms and conditions of NiSource's
tender offer are set forth in its offer to purchase dated June 25, 1999, as
amended, and the related letter of transmittal. You may read and copy the offer
to purchase, letter of transmittal and related information at the SEC's Public
Reference Room and its World Wide Web site described under "Available
Information" in the accompanying prospectus. Columbia Energy Group's board of
directors has recommended that Columbia Energy Group's shareholders reject
NiSource's tender offer and not tender their shares. NiSource's tender offer
currently expires on October 15, 1999, but NiSource may extend the expiration
date. NiSource has stated its willingness to increase the offer price for a
negotiated transaction. As of the date of this prospectus supplement, Columbia
Energy Group has refused to negotiate with NiSource with respect to an
acquisition transaction. NiSource's tender offer is subject to a number of
uncertainties, and no assurance can be given as to whether, when or on what
terms NiSource will acquire Columbia Energy Group.
Columbia Energy Group is subject to the information and reporting
requirements of the Securities Exchange Act and is required to file reports,
proxy statements and other information with the SEC relating to its business,
financial condition and other matters. You may read and copy reports, proxy
statements and other information filed by Columbia Energy Group at the SEC's
Public Reference Room and its World Wide Web site described under "Available
Information" in the accompanying prospectus.
RISK FACTOR
This prospectus supplement does not describe all of the risks of an
investment in the PURS. You should consult your own financial and legal
advisors about the risks entailed by an investment in the PURS and the
suitability of your investment in the PURS in light of your particular
circumstances. You should also consider carefully, among other factors, the
following risk:
Issuance of substantial amounts of additional debt upon completion of
NiSource's proposed acquisition of Columbia Energy Group could adversely affect
our credit ratings.
NiSource has accepted a commitment letter under which Credit Suisse First
Boston Corporation and Barclays Bank PLC have agreed, subject to specified
conditions, to provide $6.0 billion to finance NiSource's proposed acquisition
of Columbia Energy Group. Although no assurance can be given as to whether,
when or on what terms NiSource will acquire Columbia Energy Group, if NiSource
does acquire Columbia Energy Group, we expect that initially Capital Markets
will borrow the funds needed to finance the acquisition. Moreover, if NiSource
acquires Columbia Energy Group for more than the currently proposed $68 per
share, we might need to obtain more than $6.0 billion of financing. Debt rating
agencies are likely to lower their ratings of our debt in response to our
incurrence of additional debt to acquire Columbia Energy Group. As a result of
lower debt ratings, the interest rate which we pay on our debt may increase,
and our ability to issue public debt may be hampered.
S-3
<PAGE>
USE OF PROCEEDS
Capital Markets expects the net proceeds from the sale of the PURS and the
sale to Goldman, Sachs & Co. and Barclays Bank PLC of a call option with
respect to the PURS to be approximately $ million. Capital Markets intends
to use these net proceeds to refinance short-term indebtedness incurred in
connection with NiSource's acquisition of Bay State Gas Company in February
1999. At August 31, 1999, this short-term indebtedness had a weighted average
interest rate of 5.58% per annum. Pending application of the net proceeds to
refinance indebtedness, NiSource may invest those proceeds in short-term or
marketable securities.
SELECTED FINANCIAL DATA
The following table presents the selected consolidated financial data of
NiSource for the five years ended December 31, 1998 and for the twelve months
ended June 30, 1999. The selected consolidated financial data are derived from
our consolidated audited financial statements for the periods presented and
should be read in conjunction with the financial statements and their related
notes incorporated by reference in the accompanying prospectus.
On February 12, 1999, NiSource acquired Bay State Gas Company and its
subsidiaries, and on April 1, 1999, NiSource acquired TPC Corporation. The
selected consolidated financial data for the twelve months ended June 30, 1999
include operating results of Bay State Gas Company and TPC Corporation from
their respective dates of acquisition. These newly acquired gas businesses
record the bulk of their revenues during the winter heating season. This
seasonality will result in a shift of earnings from the second and third
quarters to the first and fourth quarters when compared to NiSource's
historical financial results, assuming normal weather patterns. This
anticipated earnings shift has resulted in a reduction in net income and
earnings per share for the period July 1, 1999 to the date of this prospectus
supplement as compared to the corresponding period in the prior year.
<TABLE>
<CAPTION>
Twelve
Months
Year Ended December 31, Ended
----------------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999(1)
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues
Gas.................... $ 741,856 $ 697,734 $ 915,759 $ 1,184,621 $ 1,209,775 $ 1,440,044
Electric............... 994,492 1,030,923 1,022,231 1,184,590 1,426,600 1,299,818
Water.................. -- -- -- 60,743 83,979 90,313
Products and
Services.............. 31,681 40,651 49,958 156,587 212,424 243,089
----------- ----------- ----------- ----------- ----------- -----------
Total Operating
Revenues............ $ 1,768,029 $ 1,769,308 $ 1,987,948 $ 2,586,541 $ 2,932,778 $ 3,073,264
Operating Margin....... 1,014,566 1,074,820 1,115,965 1,210,927 1,240,411 1,379,187
Operating Income....... 353,452 381,877 386,308 410,553 421,506 462,883
Net Income............. 163,987 175,465 176,734 190,849 193,886 203,222
Weighted Average
Common Shares
Outstanding........... 129,640,078 126,562,354 122,381,500 123,849,126 120,778,077 121,166,275
Basic Earnings per
Weighted Average
Common Share.......... $ 1.24 $ 1.36 $ 1.44 $ 1.54 $ 1.60 $ 1.67
Diluted Earnings per
Weighted Average
Common Share.......... 1.23 1.35 1.43 1.53 1.59 1.66
Dividends Declared per
Share.................. 0.74 0.80 0.86 0.92 0.98 1.01
</TABLE>
- --------
(1) Assuming NiSource acquired Bay State Gas Company on July 1, 1998, on a pro
forma basis (unaudited), NiSource's consolidated results of operations for
the twelve months ended June 30, 1999, including Bay State Gas Company,
would have been as follows (in thousands): operating revenues: $3,304,150,
operating income: $463,621 and net income: $189,844.
S-4
<PAGE>
<TABLE>
<CAPTION>
As of
June 30,
1999
----------
<S> <C>
Balance Sheet Data:
Total assets........................................................ $6,401,891
Short term borrowings (including current portion of long-term
debt).............................................................. 657,419
Common shareholders' equity......................................... 1,369,127
Cumulative Preferred Stocks, excluding amounts due within one year
Series without mandatory redemption provisions..................... 85,612
Series with mandatory redemption provisions........................ 55,185
Company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Company debentures................. 345,000
Long Term debt (excluding amounts due within one year).............. 1,844,372
----------
Total capitalization............................................. $3,699,296
==========
</TABLE>
<TABLE>
<CAPTION>
Twelve
Months
Year Ended December 31, Ended
-------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Utility construction
expenditures (including
allowance for funds
used during
construction).......... $202,545 $192,966 $207,881 $218,931 $245,825 $262,116
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth historical ratios of earnings to fixed charges
for the periods indicated.
<TABLE>
<CAPTION>
Twelve
Months
Year Ended December 31, Ended
------------------------ June 30,
1994 1995 1996 1997 1998 1999(1)
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........... 3.14 3.28 3.21 3.10 2.87 2.59
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before income taxes
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of debt expense, the portion of rental expenses on operating
leases deemed to be representative of the interest factor and preferred stock
dividend requirements of consolidated subsidiaries.
- --------
(1) Results for the twelve months ended June 30, 1999 are not necessarily
indicative of results for the fiscal year ending December 31, 1999.
S-5
<PAGE>
DESCRIPTION OF PURS
The PURS will be a separate series of the Debentures described in the
accompanying prospectus and will be issued under the Indenture described in the
accompanying prospectus. Investors should read the accompanying prospectus for
a detailed summary of additional provisions of the PURS and of the Indenture.
The following summary of the particular terms of the PURS supplements the
description of the Debentures in the accompanying prospectus. To the extent the
descriptions are inconsistent, this prospectus supplement controls.
General
The PURS will be limited to $160,000,000 aggregate principal amount. The PURS
will be unsecured obligations of Capital Markets and will rank equally with all
other unsecured and unsubordinated debt of Capital Markets. The PURS will be
entitled to the benefits of a support agreement between Capital Markets and
NiSource providing for the payment of principal and interest on the PURS by
NiSource in the event of a default by Capital Markets. For a description of the
support agreement, see "Description of the Support Agreement" in the
accompanying prospectus.
The PURS may be transferred or exchanged without any service charge at the
corporate trust office of the Trustee in New York City, or at any other office
or agency maintained by Capital Markets for that purpose. If any interest,
principal or other payment to be made in respect of the PURS (including any
payment pursuant to the call option or any put option described below) would
otherwise be due on a day that is not a business day, payments may be made on
the next succeeding day that is a business day, with the same effect as if
payment were made on the due date.
The PURS will mature on September , 2010 and are subject to earlier
repurchase by Capital Markets as described under "--Put Option on the PURS"
below. The PURS are not otherwise subject to redemption by Capital Markets and
are not entitled to the benefit of any sinking fund. The PURS are, however,
subject to purchase by Goldman, Sachs & Co. and Barclays Bank PLC upon exercise
of the call option described below. Barclays Capital Inc. is the U.S.
registered broker-dealer affiliate of Barclays Bank PLC. Barclays Capital Inc.
will offer and sell the PURS as one of the underwriters and Barclays Bank PLC
will be one of the holders of the call option.
Interest will accrue on the principal amount of each PURS at the applicable
rates described below, from and including September , 1999 to but excluding
the date on which the principal amount is paid in full. Interest accrued on the
PURS will be payable in arrears on March and September of each year,
commencing on March , 2000, in each case to the holder of record on the March
or September next preceding the interest payment date. The interest
payment record date will differ from the record date for the exercise of the
call option and put option described below.
From and including September , 1999 to but excluding September , 2000
(the "Reset Date"), interest will accrue on the PURS at an annual rate of %.
On the Reset Date, the interest rate on the PURS will be reset to a new fixed
rate determined as described under "--Reset of Interest Rate on the PURS"
below. Notwithstanding the foregoing, the interest rate on a particular PURS
will not be reset if Capital Markets is obligated to repurchase that PURS on
the Reset Date, and a reset scheduled to occur on the Reset Date may not occur
because of a Market Disruption Event or a Failed Remarketing. See "--Reset of
Interest Rate on the PURS" below.
Capital Markets has agreed with Goldman, Sachs & Co. and Barclays Bank PLC,
as holders of the call option, that Capital Markets will not cause or permit
the terms or provisions of the PURS (or the Indenture, as it relates to the
PURS) to be modified in any way without the prior written consent of Goldman,
Sachs & Co. on behalf of the holders of the call option. Additionally, Capital
Markets has
S-6
<PAGE>
agreed not to make open market or other purchases of the PURS prior to the
Reset Date (except pursuant to the put option or in certain limited
circumstances) without the prior written consent of Goldman, Sachs & Co. on
behalf of the holders of the call option (which consent will be given after
consultation with Barclays Bank PLC).
Call Option on the PURS
Under the call option, Goldman, Sachs & Co. and Barclays Bank PLC (or any
successor firms) (each, a "Call Option Holder") have the right to purchase all
of the outstanding PURS, in whole and not in part, from the holders on the
Reset Date at a price equal to 100% of the principal amount of PURS purchased,
subject to Goldman, Sachs & Co., on behalf of the Call Option Holders, giving
notice of their intention to purchase the outstanding PURS as described below.
Whether or not the call option is exercised, Capital Markets will remain
obligated to pay all accrued and unpaid interest on the PURS. Interest that
becomes payable on the Reset Date will be payable to the holders of record on
the corresponding interest payment record date, as provided in the PURS and the
Indenture.
To exercise the call option, Goldman, Sachs & Co. must give the holders
notice of the Call Option Holders' intention to purchase the PURS in the manner
described under "--Certain Notices" no later than the tenth "market day" prior
to the Reset Date. A "market day" is a business day in the City of New York
other than a day on which dealings in the U.S. Treasury bond market are
generally not conducted. Goldman, Sachs & Co. has the sole authority to
exercise the call option on behalf of both Call Option Holders, and Barclays
Bank PLC may not exercise the call option independently of Goldman, Sachs & Co.
In the event the call option is exercised, each holder will be obligated to
sell to the Call Option Holders, and the Call Option Holders will be obligated
to purchase from each holder, all the PURS held of record by the holder on the
Reset Date at 100% of their principal amount. The sale and purchase of the PURS
will be effected through the facilities of The Depository Trust Company. Each
holder will be deemed to have automatically tendered its PURS for sale to
Goldman, Sachs & Co. on behalf of the Call Option Holders on the Reset Date in
accordance with applicable DTC procedures, subject to the holder's receipt of
payment of the purchase price from the Call Option Holders on the Reset Date.
Notwithstanding the exercise of the call option, a holder of record of PURS on
the Reset Date will continue to be the record holder until the PURS are
purchased by the Call Option Holders or paid by Capital Markets.
If the call option is exercised, all PURS outstanding on the Reset Date will
be subject to purchase by the Call Option Holders. This will be the case for
every holder (and every beneficial owner) of PURS outstanding on the Reset
Date, including those who acquire an interest in the PURS after Goldman, Sachs
& Co. gives notice of the exercise of the call option or who are otherwise
unaware that the call option has been exercised.
If, on or before the Reset Date, an event of default under the Indenture
occurs, or if Capital Markets modifies the terms or provisions of the PURS
without the prior written consent of Goldman, Sachs & Co. on behalf of the Call
Option Holders, Goldman, Sachs & Co. will be entitled to demand settlement of
the call option, on behalf of the Call Option Holders and payment of an amount
reflecting the fair market value of the call option, as determined pursuant to
an agreement among Capital Markets, Goldman, Sachs & Co. and Barclays Bank PLC.
If the call option is settled, the holders will be deemed to have exercised
their put option as described below on the Reset Date. Capital Markets will
also be obligated to make certain payments to the Call Option Holders in the
event that the call option is not exercised as a result of a Market Disruption
Event or a Failed Remarketing, and the Treasury Rate Difference is positive.
See "--Reset of Interest Rate on the PURS" below.
S-7
<PAGE>
Put Option on the PURS
If Goldman, Sachs & Co. does not exercise the call option on behalf of the
Call Option Holders, each holder of outstanding PURS will have the right to
require Capital Markets to repurchase all, but not less than all, of that
holder's PURS on the Reset Date at a price equal to 100% of the principal
amount of the PURS repurchased. This right is referred to as a holder's "put
option." Whether or not a holder's put option is exercised, Capital Markets
will remain obligated to pay all accrued and unpaid interest on the PURS.
Interest that becomes payable on the Reset Date will be payable to the holders
of record on the corresponding interest payment record date, as provided in the
PURS and the Indenture. If for any reason payment of the repurchase price is
not made on the Reset Date, interest will continue to accrue on the PURS from
the Reset Date to the date payment is made by Capital Markets at the initial
rate of %.
On the Reset Date, each holder will be deemed to have exercised its put
option automatically in respect of all of the PURS held of record by such
holder unless either (1) Goldman, Sachs & Co., on behalf of the Call Option
Holders, has exercised the call option, or (2) such holder validly elects not
to sell any PURS to Capital Markets. To make an election not to sell any PURS,
(1) no later than 10:00 A.M. (New York City time) on the seventh market day
prior to the Reset Date, the holder must give notice to the Trustee, as
provided under "--Certain Notices" below, that the holder elects not to sell
any of its PURS to Capital Markets on the Reset Date and (2) the notice must be
effective under the 10% requirement described in the next paragraph.
Consequently, with respect to each holder, if the holder is deemed to have
exercised its put option, on the Reset Date Capital Markets will be obligated
to repurchase from the holder, and the holder will be obligated to sell to
Capital Markets, the PURS held of record by the holder on the Reset Date at
100% of their principal amount. The sale and purchase of the PURS pursuant to
the put option will be effected through the facilities of DTC, with each holder
who has not given an effective notice of its election not to sell its PURS to
Capital Markets being deemed to have automatically tendered its PURS for sale
to Capital Markets on the Reset Date in accordance with applicable DTC
procedures. If Capital Markets is obligated to purchase any PURS pursuant to
the put option, the PURS subject to repurchase will remain outstanding until
100% of the principal amount of the repurchased PURS (and accrued interest) has
been paid.
Notwithstanding the foregoing, a holder's notice of election not to sell any
of its PURS to Capital Markets will not be effective unless such notices are
duly given by the holders of record of at least 10% of the aggregate principal
amount of the PURS outstanding on the tenth market day before the Reset Date.
If any holder gives such a notice to the Trustee when this 10% requirement has
not been satisfied, the Trustee will give written notice of that fact to the
holder and Capital Markets no later than the close of business on the seventh
market day before the Reset Date, in the manner described under "--Certain
Notices" below.
Reset of Interest Rate on the PURS
The interest rate on an outstanding PURS will be reset on the Reset Date if
either of the following occurs: (1) Goldman, Sachs & Co., on behalf of the Call
Option Holders, exercises the call option or (2) Goldman, Sachs & Co., on
behalf of the Call Option Holders, does not exercise the call option and the
holders of at least 10% of the outstanding PURS give notice to the Trustee
electing not to sell their PURS to Capital Markets pursuant to the put option.
Notwithstanding the foregoing, reset of the interest rate is subject to the
occurrence of a Market Disruption Event or a Failed Remarketing as described
below.
Capital Markets has initially appointed Goldman, Sachs & Co. as its
calculation agent for the purpose of resetting the interest rate. If the
interest rate is to be reset on the Reset Date, the calculation agent will
effect the reset as follows.
S-8
<PAGE>
Between the tenth market day prior to the Reset Date and 11:00 A.M., New York
City time, on the sixth market day prior to the Reset Date (such sixth market
day being the "Calculation Date"), the calculation agent will select three
leading financial institutions (which may include Goldman, Sachs & Co. and
Barclays Bank PLC if they so request) that deal actively in Capital Markets'
debt securities and have agreed to participate as reference dealers in
accordance with the procedures described below and pursuant to participation
agreements satisfactory to Goldman, Sachs & Co. If Goldman, Sachs & Co. has
exercised the call option on behalf of the Call Option Holders, each reference
dealer must agree that, if it is selected as the Final Dealer (as defined
below), it will purchase from Goldman, Sachs & Co. on behalf of the Call Option
Holders on the Calculation Date for settlement on the Reset Date and at the
Final Offer Price (as defined below), all the PURS that the Call Option Holders
purchase pursuant to the call option and tender for resale to the Final Dealer
on the Reset Date.
On the Calculation Date, the calculation agent will undertake the following
actions to calculate a fixed rate at which interest will accrue on the PURS
from and including the Reset Date to but excluding September , 2010. The
times set forth below are guidelines for action, and the calculation agent will
use reasonable efforts to adhere to these times.
At 12:00 P.M., New York City time, the calculation agent will:
(1) Determine (or obtain from Goldman, Sachs & Co., if Goldman, Sachs &
Co. has exercised the call option on behalf of the Call Option
Holders) the approximate 10-year U.S. Treasury bond yield at or
about such time, which will be expressed as a percentage (the
"Designated Treasury Yield") and will be based on the "offered
side" quotations of the then-current, 10-year U.S. Treasury bond.
(2) Calculate and provide to the reference dealers, on a preliminary
basis, a hypothetical "offer price" at which the PURS might be
offered for sale to a reference dealer on the Reset Date. The offer
price will be expressed as a percentage of the principal amount of
the PURS and will equal 100% plus the Margin (as defined below), if
the Treasury Rate Difference (as defined below) is positive, or
100% minus the Margin, if the Treasury Rate Difference is negative.
The "Margin," which will also be expressed as a percentage of the
principal amount of the PURS, will be equal to the present value of
the absolute value of the Treasury Rate Difference applied to 20
semiannual periods (i.e., 10 years), discounted at the Designated
Treasury Yield divided by two. The "Treasury Rate Difference" means
the percentage (which may be positive or negative) equal to %
minus the Designated Treasury Yield.
(3) Request that each reference dealer provide to the calculation
agent, when notified of the Final Offer Price as described below, a
firm bid, expressed as a percentage representing an interest rate
spread over the Designated Treasury Yield, at which such reference
dealer would be willing to purchase on the Calculation Date for
settlement on the Reset Date, at the Final Offer Price, all of the
PURS then outstanding. Each such firm bid is to be given on an
"all-in" basis and is to remain open for at least 30 minutes after
it is given.
At 12:30 P.M., New York City time, the calculation agent will determine (or
obtain from Goldman, Sachs & Co., if Goldman, Sachs & Co. has exercised the
call option on behalf of the Call Option Holders) the Designated Treasury Yield
on a final basis, will calculate and provide to the reference dealers the Offer
Price on a final basis (the "Final Offer Price") and will request each
reference dealer to submit its bid immediately as described in clause (3)
above. If the calculation agent receives at least two bids, the following will
occur:
(1) the reference dealer providing the bid representing the lowest all-
in spread over the Designated Treasury Yield will be the "Final
Dealer."
S-9
<PAGE>
(2) If Goldman, Sachs & Co. has exercised the call option on behalf of
the Call Option Holders, the Final Dealer will be obligated to
purchase from the Call Option Holders at the Final Offer Price, for
settlement on the Reset Date, all the PURS that the Call Option
Holders purchase pursuant to the call option and tender for resale
to the Final Dealer on the Reset Date (assuming that the interest
rate on the PURS will be reset so as to be equal to the Adjusted
Rate (as defined below) from and including the Reset Date to but
excluding September , 2010). As described below, the Final Dealer
will not be obligated to purchase any PURS if Goldman, Sachs & Co.
has not exercised the call option on behalf of the Call Option
Holders.
(3) The calculation agent will calculate and provide to Capital Markets
the "Adjusted Rate," which will be the semiannual, bond-equivalent,
fixed interest rate on the PURS required to produce, from and
including the Reset Date to but excluding September , 2010, a
semiannual, bond-equivalent yield on the PURS that equals the sum
of the lowest all-in spread over the Designated Treasury Yield plus
the final Designated Treasury Yield, assuming that the PURS are
purchased on the Reset Date at the Final Offer Price.
(4) The interest rate on the PURS will be adjusted to equal the
Adjusted Rate, effective from and including the Reset Date to but
excluding September , 2010. If Goldman, Sachs & Co. has not
exercised the call option on behalf of the Call Option Holders and
the holders of at least 10% of the outstanding PURS have given
effective notices to the Trustee that they elect not to sell their
PURS to Capital Markets, Capital Markets will promptly give written
notice of the Adjusted Rate to those holders.
As indicated above, all determinations regarding the Designated Treasury
Yield and the 10-year U.S. Treasury bond on which it is based will be made by
Goldman, Sachs & Co., unless Goldman, Sachs & Co., on behalf of the Call Option
Holders, has elected not to exercise the call option.
If the calculation agent determines that, on the Calculation Date (1) a
Market Disruption Event (as defined below) has occurred and is continuing or
(2) fewer than two reference dealers have provided firm bids in a timely manner
pursuant to participation agreements satisfactory to Goldman, Sachs & Co. (a
"Failed Remarketing"), the steps described above, including the determination
of the Designated Treasury Yield, the Treasury Rate Difference and the Margin,
will be taken on the next market day on which the calculation agent determines
that no Market Disruption Event has occurred and is continuing and at least two
reference dealers have provided bids pursuant to participation agreements
satisfactory to Goldman, Sachs & Co. If the calculation agent determines that a
Market Disruption Event or a Failed Remarketing has occurred and is continuing
for at least four consecutive market days starting on the Calculation Date,
then Goldman, Sachs & Co. will be deemed not to have exercised the call option
on behalf of the Call Option Holders, all holders will be deemed to have
exercised their put options, and Capital Markets will repurchase all the PURS
from the holders on the Reset Date at 100% of the principal amount of the PURS
being repurchased. In addition, if Goldman, Sachs & Co. is deemed not to have
exercised the call option on behalf of the Call Option Holders because either a
Failed Remarketing or Market Disruption Event has occurred and the Treasury
Rate Difference is positive, Capital Markets will pay to the Call Option
Holders an amount equal to the product of the Margin and the aggregate
principal amount of the outstanding PURS. For the purpose of this payment,
Goldman, Sachs & Co. will redetermine the Designated Treasury Yield, the
Treasury Rate Difference and the Margin as of 3:00 P.M., New York City time, on
such fourth market day. In these circumstances, the holders of PURS will not
have the right to elect to continue to hold their PURS to Capital Markets. The
calculation agent will notify Capital Markets of such determination promptly
after the close of business on such fourth market day. Capital Markets will
give notice to the holders that the PURS will be repurchased by Capital Markets
from the holders on the Reset Date, at 100% of the principal amount of the
PURS, no later than the second market day prior to the Reset Date in the manner
described under "--Certain Notices" below. If at any time
S-10
<PAGE>
Goldman, Sachs & Co. is not acting as calculation agent, then the
determinations and notice to Capital Markets described in this paragraph will
be made and given by Goldman, Sachs & Co., unless Goldman, Sachs & Co. has
elected not to exercise the call option on behalf of the Call Option Holders.
"Market Disruption Event" means any of the following: (1) a suspension or
material limitation in trading in securities generally on the New York Stock
Exchange or the establishment of minimum prices on such exchange; (2) a general
moratorium on commercial banking activities declared by either federal or New
York State authorities; (3) any material adverse change in the existing
financial, political or economic conditions in the United States of America;
(4) an outbreak or escalation of hostilities involving the United States of
America or the declaration of a national emergency or war by the United States
of America; or (5) any material disruption of the U.S. government securities
market, U.S. corporate bond market and/or U.S. federal wire system.
There is no assurance that the calculation agent will receive at least two
qualifying bids from reference dealers in connection with the reset of the
interest rate on the Reset Date. All determinations regarding Market Disruption
Events and Failed Remarketings, including whether or not any event has occurred
or is continuing, will be made by Goldman, Sachs & Co. after consultation with
Barclays Bank PLC.
If Goldman, Sachs & Co. has not exercised the call option on behalf of the
Call Option Holders, the Final Dealer will not be obligated to purchase PURS
from any holder, and no holder will be obligated to sell PURS to the Final
Dealer. Consequently, in deciding whether to notify the Trustee of its election
not to sell any PURS to Capital Markets, a holder should not assume that any
dealer will be prepared to purchase its PURS at the Final Offer Price or
otherwise.
All determinations made by the calculation agent (or Goldman, Sachs & Co.)
regarding the matters described above will, absent manifest error, be final,
conclusive and binding on all concerned and will not give rise to any liability
on the part of the calculation agent, Goldman, Sachs & Co., Barclays Capital,
Barclays Bank PLC, the Trustee, Capital Markets or NiSource.
Settlement on Exercise of the Call Option and the Put Option
If the call option is exercised, then, on the Reset Date, all beneficial
interests in the PURS will be transferred to the DTC account designated by
Goldman, Sachs & Co. on behalf of the Call Option Holders. The transfers will
be made automatically, without any action on the part of any beneficial owner,
by book entry through DTC. Each Call Option Holder will be obligated to pay
100% of the principal amount of the PURS purchased by it to DTC or its nominee,
for credit to the accounts of the DTC participants through which beneficial
interests in the PURS are held, by the close of business on the Reset Date.
Each transfer will be made against the corresponding payment, and each payment
will be made against the corresponding transfer, in accordance with applicable
DTC procedures. If the Call Option Holders fail to pay 100% of the principal
amount of the PURS on the applicable Reset Date, the call option will be deemed
not to have been exercised and the put option will be deemed to have been
exercised with respect to all of the outstanding PURS. In these circumstances,
the holders of the PURS may not continue to hold the PURS by giving notice of
their intention not to sell any PURS to Capital Markets, and Capital Markets
will be obligated to pay, not later than two business days following the Reset
Date, 100% of the principal amount of the PURS (plus accrued interest from and
including the Reset Date to but excluding the date payment is made), with
settlement occurring as described in the next paragraph. In any event, Capital
Markets will remain obligated to make payment of accrued and unpaid interest
due on the PURS on the Reset Date to the holders of record on the corresponding
interest payment record date, as provided in the PURS and in the Indenture.
S-11
<PAGE>
If the put option is exercised, then, on the Reset Date, all beneficial
interests in the PURS to be purchased will be transferred to a DTC account
designated by Capital Markets. The transfers will be made automatically,
without any action on the part of any beneficial owner, by book entry through
DTC. Capital Markets will be obligated to make payment of 100% of the principal
amount of the PURS being repurchased to DTC or its nominee, for credit to the
accounts of the DTC participants through which beneficial interests in these
PURS are held, by the close of business on the Reset Date (or, if the put
option is deemed to have been exercised as a result of the Call Option Holders'
failure to make payment under the call option, by the close of business on the
second business day after the Reset Date). Each transfer will be made against
the corresponding payment, and each payment will be made against the
corresponding transfer, in accordance with applicable DTC procedures. If
Capital Markets fails to pay 100% of the principal amount of the PURS being
repurchased on the Reset Date, interest will continue to accrue from and
including the Reset Date to but excluding the date the payment is made at the
initial rate of %. Capital Markets' failure to pay the repurchase price of
the PURS upon exercise of the put option will constitute an event of default
under the Indenture. With respect to all the PURS, whether or not repurchased
pursuant to the put option, Capital Markets will remain obligated to make
payment of accrued and unpaid interest due on the PURS on the Reset Date to the
holders of record on the corresponding interest payment record date, as
provided in the PURS and in the Indenture.
The transactions described above will be executed through DTC in accordance
with the procedures of DTC, and the accounts of the respective DTC participants
will be debited and credited and beneficial interests in the PURS delivered by
book entry as necessary to effect the purchases and sales described above. The
transactions will settle in immediately available funds through DTC's Same-Day
Funds Settlement System.
The settlement procedures described above, including those for payment for
and delivery of PURS purchased by the Call Option Holders or Capital Markets on
the Reset Date, may be modified, notwithstanding any contrary terms of the
Indenture, to the extent required by DTC or, if the book-entry system is no
longer available for the PURS at the relevant time, to the extent required to
facilitate these transactions in PURS in certificated form. In addition,
Goldman, Sachs & Co., on behalf of the Call Option Holders, and Capital Markets
may, notwithstanding any contrary terms of the Indenture, modify the settlement
procedures described above in order to facilitate the settlement process.
Under the terms of the PURS, Capital Markets has agreed that, notwithstanding
any provision to the contrary set forth in the Indenture, at all times prior to
the Reset Date (1) it will use its best efforts to maintain the PURS in book-
entry form with DTC or any successor thereto and to appoint a successor
depositary to the extent necessary to maintain the PURS in the book-entry form
and (2) it will waive any discretionary right it otherwise may have under the
Indenture to cause the PURS to be issued in certificated form.
Global Securities
When originally issued, the PURS will be represented by one or more global
securities. The depositary for the PURS will be DTC. The PURS will be issued in
the form of one or more fully registered securities registered in the name of
Cede & Co., the nominee of DTC. For information about DTC and a description of
the procedures under which the PURS will be issued, see "Book-Entry Issuance"
in the accompanying prospectus.
Certain Notices
With respect to any PURS represented by a global security, any notices to be
given to the holders of the PURS will be deemed to have been duly given to the
holders when given to DTC or its
S-12
<PAGE>
nominee in accordance with DTC's policies and procedures. Capital Markets
believes that DTC's practice is to inform its participants of any such notice
it receives, in accordance with its policies and procedures. Persons who hold
beneficial interests in PURS through DTC or its direct or indirect participants
may wish to consult with them about the manner in which notices and other
communications relating to the PURS may be given and received through the
facilities of DTC. Neither Capital Markets, NiSource, the calculation agent,
Goldman, Sachs & Co., Barclays Capital Inc., Barclays Bank PLC nor the Trustee
will have any responsibility with respect to those policies and procedures or
for any notices or other communications among DTC, its direct and indirect
participants and the beneficial owners of the PURS in global form.
With respect to any PURS not represented by a global security, any notices to
be given to the holders of the PURS will be deemed to have been duly given to
the holders upon the mailing of such notices to the holders at their respective
addresses as they appear on the relevant securities register maintained by
Capital Markets or its agent as of the close of business on the day before the
day that notice is given.
Neither the failure to give any notice nor any defect in any notice given to
a particular holder will affect the sufficiency of any notice given to another
holder.
Notice of a holder's election not to sell any of its PURS pursuant to the put
option may be given by a holder of a PURS to the Trustee only by facsimile
transmission or by mail and must actually be received by the Trustee at the
following address no later than 10:00 A.M., New York City time, on the seventh
market day prior to the Reset Date:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Capital Markets Fiduciary Services
Facsimile no.: (212) 946-8158
Notice of a holder's election not to sell any of its PURS pursuant to the put
option may be given with respect to a PURS only by the registered holder of the
PURS. Therefore, in the case of any beneficial interest in a PURS represented
by a global security, such a notice must be given by DTC or its agent, and any
owner of a beneficial interest that wants such a notice to be given with
respect to the interest will need to make arrangements with DTC or the
applicable direct or indirect participants for the notice to be given in a
timely manner.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary discusses certain material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of PURS by
U.S. holders who purchase PURS in the initial public offering at their original
issue price, which we assume will be equal to their principal amount. This
summary is based on current provisions of the Internal Revenue Code of 1986,
existing and proposed Treasury regulations, current administrative
pronouncements of the Internal Revenue Service and judicial decisions that are
now in effect, all of which could change at any time, possibly with retroactive
effect. This summary addresses the U.S. federal income tax consequences only
for U.S. holders that hold their PURS as "capital assets" within the meaning of
Section 1221 of the Internal Revenue Code, and only for the period until the
Reset Date, and it does not address the tax consequences to a holder that
elects to hold its PURS after the Reset Date rather than sell the PURS to
Capital Markets pursuant to the put option. This summary also does not deal
with investors in special tax situations, such as financial institutions,
dealers in securities, non-U.S. persons, persons holding PURS as part of
broader hedged transactions, or persons whose functional currency is not the
U.S. dollar.
S-13
<PAGE>
For purposes of this discussion, a "U.S. holder" is a beneficial owner of a
PURS that is, for U.S. federal income tax purposes, (1) a citizen or resident
of the United States, (2) a corporation or partnership created or organized in
or under the laws of the United States or of any political subdivision thereof,
(3) an estate whose income is subject to U.S. federal income tax regardless of
its source, or (4) a trust if (A) a U.S. court can exercise primary supervision
over the administration of such trust and (B) one or more U.S. persons has the
authority to control all of the substantial decisions of the trust. However, a
trust in existence on August 20, 1996, and treated as a U.S. person prior to
such date, may elect to continue to be treated as a U.S. person provided that
it satisfies certain conditions.
Tax Treatment of the PURS
General
There is no specific authority concerning the U.S. federal income tax
treatment of PURS. Capital Markets will not seek a ruling on any of the issues
discussed below from the IRS nor will it receive an opinion of counsel with
respect to the U.S. federal income tax treatment of an investment in the PURS.
Due to the absence of authorities that directly address instruments similar to
the PURS, significant aspects of the U.S. federal income tax consequences of an
investment in the PURS are uncertain, and no assurance can be given that the
IRS or the courts will agree with the treatment described below. Therefore
prospective purchasers should consult their tax advisors regarding the U.S.
federal income tax consequences of an investment in the PURS (including
alternative characterizations of the PURS), in addition to the state, local or
foreign income tax consequences of an investment in the PURS.
Interest
Capital Markets intends to account for the interest payable on the PURS
generally at the fixed rate set forth on the cover page that will be in effect
until the Reset Date. It would be reasonable for a U.S. holder to account for
income from a PURS as if the U.S. holder had purchased, for the amount paid for
the PURS, a bond that pays interest at the same fixed rate set forth on the
cover page that will be in effect until the Reset Date. Thus, interest on the
PURS will be taxable as ordinary income for U.S. federal income tax purposes
and will be includible in the income of a U.S. holder in accordance with its
usual method of accounting, assuming that the income from the PURS is not
treated as original issue discount.
However, a U.S. holder might be required to include interest in income from a
PURS as original issue discount. The practical consequences of this would be
that a U.S. holder who otherwise accounts for the receipt of interest income on
a cash basis would be required to account for interest from the PURS on an
accrual basis. This would mean that in the case of an interest period
straddling a year-end, a U.S. holder would be required to include interest in
income in the year in which the interest accrued, rather than the year in which
interest was received. In addition, the U.S. holder would not be entitled to
rely on the original issue discount "de minimis" rule to ignore a de minimis
excess of principal amount over the original issue price.
Sale, Exchange or Repurchase
Assuming that interest income with respect to a PURS is accounted for based
on the fixed rate set forth on the cover page, when a PURS is sold or
repurchased, the U.S. holder will recognize gain or loss equal to the
difference between the amount realized on the sale or repurchase (excluding any
amount attributable to accrued interest not previously included in income,
which will be taxed as described above under "--Interest") and its adjusted
basis in the PURS. The adjusted basis of the PURS generally would equal the
U.S. holder's cost. Gain or loss on sale or repurchase of a PURS
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<PAGE>
would generally be capital gain or loss. A U.S. holder will not recognize gain
or loss on the sale or repurchase of the PURS pursuant to the call option or
put option.
Capital gains of individuals on capital assets held for more than one year
are eligible for a reduced rate of taxation. The deductibility of capital
losses is subject to certain limitations.
Alternative Characterizations
The IRS could seek to treat the issue price of the PURS as including the
value of the call option. For example, a U.S. holder might be treated as having
(1) purchased a PURS for an amount equal to its fair market value on the
original issue date, and (2) effectively sold the call option to the Call
Option Holders for a premium equal to the excess of such fair market value over
the principal amount of the PURS. This characterization would not change the
tax consequences as to a U.S. holder that purchased a PURS for an amount equal
to its principal amount and disposed of the PURS pursuant to the exercise of
the put option or call option, assuming that the U.S. holder had not made an
election to amortize bonds purchased at a premium. But this characterization
would cause a U.S. holder that disposed of its PURS before the exercise of the
put option or call option to include as short-term capital gain, with a
corresponding capital loss (due to the decrease in consideration allocated to
the PURS), an amount equal to the positive difference (if any) between the fair
market value of the call option upon issuance of the PURS and its value as of
the time of disposition.
If the U.S. holder had made an election to amortize bonds purchased at a
premium, the U.S. holder might effectively be able to reduce interest income
accrued over the life of the PURS by an amount not in excess of the premium
received for the call option. However, amortization of this amount would reduce
the U.S. holders' basis in the PURS, so the U.S. holder would recognize an
offsetting capital gain equal to the amount of such amortization when the U.S.
holder disposed of the PURS pursuant to the put option or the call option.
The PURS might also be subject to certain rules governing the treatment of
debt instruments with contingent payments contained in the Treasury regulations
relating to contingent payment debt obligations. If this treatment applies, the
timing and character of income on the PURS may be significantly affected. Among
other things, U.S. holders, regardless of their usual method of tax accounting,
would be required to accrue income annually as original issue discount, subject
to the adjustments described below, at a "comparable yield" on the adjusted
issue price, which could be higher than the actual cash payments received on a
PURS in a taxable year. For this purpose, the contingent payment debt
regulations require that a projected payment schedule be determined, and that
adjustments to income accruals be made to account for differences between
actual payments and projected payments. Furthermore, any gain realized with
respect to a PURS would generally be treated as ordinary income, and any loss
realized would generally be treated as ordinary loss to the extent of the U.S.
holder's previous ordinary income inclusions with respect to the PURS. Any
remaining loss generally would be treated as capital loss. Gain from the sale
of PURS might also be treated, in whole or in part, as ordinary income under
certain rules relating to conversion transactions, or as short-term capital
gain by operations of certain rules relating to straddles.
A U.S. holder might be able to avoid the treatments described in the three
preceding paragraphs by electing to treat the PURS and the call option as a
single instrument for U.S. tax purposes under the "integration" rules of
Treasury regulation section 1.1275-6, if these rules can be applied to the PURS
and the call option. In addition, if the integration rules apply, a U.S. holder
would, as set forth above, be able to accrue the interest with respect to the
PURS based on the fixed rate of interest set forth on the cover page as if the
interest were original issue discount. This may not be advantageous to a cash-
basis U.S. holder, and it is inconsistent with Capital Markets' intent to treat
the PURS as issued without original issue discount. U.S. holders should consult
their tax advisors concerning
S-15
<PAGE>
whether the integration rules can be applied to the PURS and the call option
and the satisfaction of the identification requirements for making this
election. These identification requirements must be satisfied on or before the
date on which the U.S. holder acquires the PURS.
Information Reporting and Backup Withholding
In general, interest and the proceeds of a sale, repurchase or other
disposition of the PURS paid to a U.S. holder (other than a corporate or other
exempt recipient) will be subject to information reporting requirements. A U.S.
holder may be subject to backup withholding at the rate of 31% of the interest
and other reportable payments (including, under certain circumstances,
principal payments and sales proceeds) paid with respect to the PURS if the
holder fails to comply with certification procedures and is not an exempt
recipient under applicable provisions of the Internal Revenue Code. Any amounts
withheld under the backup withholding rules from a payment to a beneficial
owner would be allowed as a refund or a credit against such beneficial owner's
United States federal income tax provided that the required information is
furnished to the IRS.
On October 6, 1997, the Treasury Department issued new regulations which make
modifications to the backup withholding and information reporting rules
described above. These new regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Prospective
investors should consult their own tax advisors regarding these new
regulations.
S-16
<PAGE>
UNDERWRITING
Capital Markets, NiSource and the underwriters named below have entered into
an underwriting agreement and a pricing agreement with respect to the PURS.
Subject to certain conditions, each underwriter has severally agreed to
purchase the principal amount of the PURS set forth in the following table.
<TABLE>
<CAPTION>
Principal Amount
Underwriters of PURS
------------ ----------------
<S> <C>
Goldman, Sachs & Co...................................... $
Barclays Capital Inc.....................................
------------
Total................................................ $160,000,000
============
</TABLE>
PURS sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus
supplement. Any PURS sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to % of the
principal amount of the PURS. If all the PURS are not sold at the initial
offering price, the underwriters may change the offering price and the other
selling terms.
In consideration of the call option that Goldman, Sachs & Co. and Barclays
Bank PLC will receive with respect to the PURS as described herein, each of
Goldman, Sachs & Co. and Barclays Bank PLC will pay the Company an amount equal
to % of the principal amount of the PURS.
The PURS are a new issue of securities with no established trading market.
Capital Markets and NiSource have been advised by the underwriters that the
underwriters intend to make a market in the PURS but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the PURS.
In connection with the offering, the underwriters may purchase and sell PURS
in the open market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number of PURS than
they are required to purchase in the offering. Stabilizing transactions consist
of certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the PURS while the offering is in process.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the underwriters have repurchased the PURS sold by or
for the account of such underwriter in stabilizing or covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the PURS. As a result, the price of the PURS may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
Capital Markets and NiSource have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
Capital Markets estimates that its expenses of the offering of the PURS,
excluding underwriting discounts and commissions, will be approximately
$175,000.
S-17
<PAGE>
The underwriters and certain of their affiliates from time to time provide
various banking, commercial banking and other services to the Capital Markets
and NiSource. In particular, NiSource has accepted a commitment letter under
which Credit Suisse First Boston Corporation and Barclays Bank PLC have agreed,
subject to specified conditions, to provide $6.0 billion to finance NiSource's
proposed acquisition of Columbia Energy Group. Barclays Capital Inc. is the
U.S. registered broker-dealer affiliate of Barclays Bank PLC.
VALIDITY OF THE PURS
The validity of the PURS offered hereby will be passed upon for Capital
Markets by Schiff Hardin & Waite, Chicago, Illinois. Sonnenschein Nath &
Rosenthal, Chicago, Illinois, has acted as counsel to the underwriters in
connection with certain legal matters relating to the PURS offered by this
prospectus supplement.
EXPERTS
The consolidated financial statements and schedules of NiSource and its
subsidiaries incorporated by reference in the accompanying prospectus from
NiSource's 1998 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1999 and June 30, 1999, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference in the
accompanying prospectus in reliance upon the authority of such firm as experts
in giving such reports.
The consolidated financial statements of Bay State and its subsidiaries
incorporated by reference in the accompanying prospectus from Bay State's 1998
Annual Report on Form 10-K have been audited by KPMG LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in the accompanying prospectus in reliance upon such
reports and upon the authority of such firm as experts in accounting and
auditing. The report of KPMG LLP covering the September 30, 1998 financial
statements contains an explanatory paragraph that states that Bay State changed
its method of recognizing actuarial gains and losses for postretirement benefit
plans during the year ended September 30, 1998.
S-18
<PAGE>
PROSPECTUS
$850,000,000
NiSource Capital Markets, Inc.
Debentures
Medium-Term Notes
----------------
NIPSCO Capital Trust I
Preferred Securities
Guaranteed as set forth herein by
NiSource Capital Markets, Inc.
----------------
NiSource Inc.
Common Shares
Stock Purchase Contracts
Stock Purchase Units
Obligations Pursuant to Support Agreement
----------------
NiSource Capital Markets, Inc. may offer debentures and medium-term notes.
NIPSCO Capital Trust I may offer preferred securities that will be guaranteed
by NiSource Capital Markets, Inc. to the extent described in this Prospectus.
NiSource Inc. may offer stock purchase contracts, stock purchase units and
its Common Shares. In addition, any securities issued by NiSource Capital
Markets, Inc. will be entitled to the benefit of the Support Agreement of
NiSource Inc. described in this Prospectus.
These securities may be offered from time to time, in amounts, on terms and
at prices that will be determined at the time they are offered for sale. These
terms and prices will be described in more detail in one or more supplements to
this Prospectus, which will be distributed at the time the securities are
offered.
----------------
This Prospectus may not be used to sell any of the securities unless it is
accompanied by a Prospectus Supplement.
----------------
The Common Shares are listed on the New York Stock Exchange, the Chicago
Stock Exchange and the Pacific Exchange under the trading symbol "NI." Each
Prospectus Supplement offering any other securities will state whether those
securities are listed or will be listed on any national securities exchange.
----------------
The securities may be sold to or through underwriters, through dealers or
agents, directly to purchasers or through a combination of these methods. If an
offering of securities involves any underwriters, dealers or agents, then the
applicable Prospectus Supplement will name the underwriters, dealers or agents
and will provide information regarding any fee, commission or discount
arrangements made with those underwriters, dealers or agents.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May 25, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 3
Available Information..................................................... 6
Incorporation of Certain Documents by Reference........................... 6
Forward-Looking Information............................................... 7
NiSource.................................................................. 7
Capital Markets........................................................... 9
The Trust................................................................. 9
Ratio of Earnings to Fixed Charges........................................ 10
Use of Proceeds........................................................... 11
Description of the Debentures............................................. 11
Description of the Preferred Securities................................... 21
Description of the Guarantee.............................................. 31
Relationship Among the Preferred Securities, the Debentures and the
Guarantee................................................................ 34
Description of the Common Shares.......................................... 36
Description of the Stock Purchase Contracts and the Stock Purchase Units.. 40
Description of Medium-Term Notes.......................................... 40
Description of the Support Agreement...................................... 65
Book-Entry Issuance....................................................... 67
Plan of Distribution...................................................... 69
Legal Matters............................................................. 71
Experts................................................................... 71
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
Three related companies will be offering the securities described in this
Prospectus. These companies are NiSource Inc. and two of its wholly-owned
subsidiaries, NiSource Capital Markets, Inc. and NIPSCO Capital Trust I. The
following table lists the securities to be offered by each company:
<TABLE>
<C> <S>
NiSource Capital Markets, Inc. ("Capital Markets").. Debentures
Medium-Term Notes
NIPSCO Capital Trust I (the "Trust")................ Preferred Securities
(guaranteed as set forth
herein by Capital
Markets)
NiSource Inc. ("NiSource").......................... Stock Purchase Contracts
Stock Purchase Units
Common Shares
Obligations under the
Support Agreement
</TABLE>
The Companies
NiSource
NiSource Inc. is an energy and utility-based holding company that provides
electric energy, natural gas and water to the public through ten wholly-owned
regulated subsidiaries. NiSource also provides utility-related services through
these and other subsidiaries, such as installing, repairing and maintaining
underground pipelines, and locating and marking utility lines. In addition,
NiSource has a number of wholly-owned non-regulated subsidiaries that provide
energy and utility services, such as energy marketing and trading, power
generation, and gas transmission, supply and storage. NiSource was incorporated
under the laws of Indiana in 1987 under the name "NIPSCO Industries, Inc." On
April 14, 1999, the company's name was changed from "NIPSCO Industries, Inc."
to "NiSource Inc." Its principal executive offices are located at 801 East 86th
Avenue, Merrillville, Indiana 46410, and its telephone number is (219) 853-
5200.
Capital Markets
NiSource Capital Markets, Inc. is a wholly-owned subsidiary of NiSource that
engages in financing activities to generate funds for NiSource and for certain
of its subsidiaries. Capital Markets was incorporated under the laws of Indiana
in 1989 under the name "NIPSCO Capital Markets, Inc." On April 21, 1999, the
company's name was changed from "NIPSCO Capital Markets, Inc." to "NiSource
Capital Markets, Inc." Its offices are located at 801 East 86th Avenue,
Merrillville, Indiana 46410. Its telephone number is (219) 853-5200.
The Trust
NIPSCO Capital Trust I is a business trust that was created in December 1998
under the laws of the State of Delaware. Capital Markets is the sponsor of the
Trust and owns all of the common securities of the Trust. The Trust is managed
by five trustees. Capital Markets may dissolve the Trust at any time. The
Trust's address is in care of Capital Markets, 801 East 86th Avenue,
Merrillville, Indiana 46410. Its telephone number is (219) 853-5200.
The Securities
The securities that may be sold pursuant to this Prospectus are: NiSource's
Common Shares and Stock Purchase Contracts relating to NiSource's Common
Shares; the Trust's Preferred
3
<PAGE>
Securities (which will be guaranteed by Capital Markets); Stock Purchase Units
(consisting of Stock Purchase Contracts and Preferred Securities); and Capital
Markets' Debentures and Medium-Term Notes, each of which is described briefly
below. In addition, any securities issued by Capital Markets will be entitled
to the benefit of a Support Agreement with NiSource. The aggregate initial
offering price of all of the securities to be sold will not exceed $850
million. At the time any of these securities are offered, a Prospectus
Supplement will be distributed that will describe in more detail the specific
terms and price of the securities being sold and whether those securities will
be sold to or through underwriters or by another means of distribution.
Stock Purchase Contracts and Common Shares
NiSource may offer stock purchase contracts ("Stock Purchase Contracts") for
the purchase of its common shares, without par value (the "Common Shares"). The
Common Shares are listed on the New York Stock Exchange (the "NYSE"), the
Chicago Stock Exchange (the "CSE") and the Pacific Exchange (the "PE") under
the ticker symbol "NI." The price and terms of the Stock Purchase Contracts
will be determined at the time or times of offering. If NiSource offers its
Stock Purchase Contracts, a Prospectus Supplement will provide information
about the terms of the offering, including the number of Common Shares to be
sold, the purchase price of the Common Shares, the date or dates on which the
Common Shares will be purchased and any amounts that NiSource may be required
to pay to the holders of the Stock Purchase Contracts.
Preferred Securities
The Trust may offer its preferred securities (the "Preferred Securities"),
each of which will represent an undivided beneficial ownership interest in the
assets of the Trust. The price and terms of the Preferred Securities will be
determined at the time of offering. If the Trust offers its Preferred
Securities, a Prospectus Supplement will provide information about the terms of
the offering, including the specific title of the Preferred Securities, the
aggregate number of Preferred Securities to be sold, the stated liquidation
amount and information regarding the rights of holders of Preferred Securities
to receive cumulative cash distributions. This will include information
regarding the rate of payment, whether distributions can be extended or
deferred, and whether the Preferred Securities can be redeemed. Payments with
respect to the Preferred Securities will be fully and unconditionally
guaranteed by Capital Markets to the extent described in the Prospectus
Supplement.
In connection with any sale of the Preferred Securities, the Trust will sell
common securities (the "Common Securities") to Capital Markets, each of which
will represent an undivided beneficial ownership interest in the assets of the
Trust. The Trust expects to use the proceeds from the sale of any Preferred
Securities and Common Securities (collectively, the "Trust Securities") to
purchase Debentures from Capital Markets. The Debentures may give Capital
Markets the right to defer payments of interest on the Debentures. If Capital
Markets decides to defer interest payments on the Debentures, then any
distributions on the Preferred Securities would be similarly deferred. At any
time interest payments are being deferred, neither Capital Markets nor NiSource
would be able to declare or pay any cash distributions with respect to their
respective capital stock or any debt securities ranking junior to the
Debentures. Holders of Preferred Securities would not lose their cash
distributions; rather, interest would continue to accrue on the Debentures,
and, as a result, distributions would continue to accumulate on the Preferred
Securities until paid. The Prospectus Supplement will provide more detailed
information about Capital Markets' right to defer interest payments on the
Debentures and the impact of deferral upon the holders of Preferred Securities.
4
<PAGE>
Stock Purchase Units
NiSource may offer stock purchase units ("Stock Purchase Units"), each of
which will consist of (i) a Stock Purchase Contract and (ii) a Preferred
Security or a U.S. Treasury security. The Preferred Security or the U.S.
Treasury security will be pledged as collateral to secure the holder's
obligation to purchase Common Shares under the Stock Purchase Contract. If
NiSource offers Stock Purchase Units, a Prospectus Supplement will provide
information about the terms of the offering, including the specific terms of
the Stock Purchase Contracts and information about the security or obligation
that will secure the holder's obligation to purchase Common Shares.
Debentures
Capital Markets may offer one or more series of debentures (the
"Debentures"). If Capital Markets offers Debentures, a Prospectus Supplement
will provide specific information about the Debentures, including their
specific designation, aggregate principal amount, denominations, date of
maturity, interest rate (which may be fixed or variable), the dates upon which
interest will be paid and whether payments of interest may be deferred. The
Prospectus Supplement also will indicate whether the Debentures are redeemable
or convertible or exchangeable into other securities, and whether the
Debentures contain any sinking fund provisions or any other special terms.
As described above under "Preferred Securities," the Debentures may give
Capital Markets the right to defer payments of interest on the Debentures. If
so, the Prospectus Supplement will provide more detailed information about this
right.
Debentures may be offered to the public or to the Trust. If Debentures are
sold to the Trust, the Trust will purchase the Debentures with the proceeds
from the sale of its Preferred Securities to the public and the sale of its
Common Securities to Capital Markets, and the Debentures will be the sole
assets of the Trust.
Medium-Term Notes
Capital Markets may offer any series of medium-term notes (the "Medium-Term
Notes" or "Notes") that will be due nine months or more from the date of
issuance. The Medium-Term Notes may bear interest at fixed rates or floating
rates based upon the CD Rate, the CMT Rate, the Commercial Paper Rate, the
Eleventh District Cost of Funds Rate, the Federal Funds Rate, the Kenny Rate,
LIBOR, the Prime Rate, the Treasury Rate or any formula using these rates. If
Capital Markets offers Medium-Term Notes, a Prospectus Supplement will provide
specific information about the Medium-Term Notes, such as their maturity date
and interest rate, including whether the notes will be regular floating rate
notes, floating rate/fixed rate notes or inverse floating rate notes, and which
market rate will serve as the reference for determining the interest rate.
5
<PAGE>
AVAILABLE INFORMATION
NiSource files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). You may read and copy
any of these reports, proxy statements and other information at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0030. The Commission also maintains a
site on the World Wide Web that contains reports, proxy statements and other
information regarding NiSource. The address of the Commission's Web site is
http://www.sec.gov. Information about NiSource is also available at
http://www.nisource.com; that information, however, is not a part of this
Prospectus except to the extent it is specifically incorporated by reference in
this Prospectus.
NiSource, Capital Markets and the Trust together have filed with the
Commission a Registration Statement on Form S-3 (including any amendments
thereto, the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement. For
further information about NiSource, Capital Markets, the Trust and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be inspected at the Commission's Public
Reference Room or through the Commission's Web site.
In a letter dated September 25, 1992, the staff of the Commission informed
NiSource and Capital Markets that it would not recommend enforcement action to
the Commission if Capital Markets did not file periodic reports pursuant to
Sections 13 and 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), subject to NiSource's compliance with the conditions set forth in the
letter. In reliance upon that letter, Capital Markets has not filed, and does
not intend to file, any documents under the Exchange Act. Furthermore, Capital
Markets does not intend to issue any periodic or other reports to holders of
any securities to be issued by Capital Markets. The Commission's staff also has
advised Capital Markets that Capital Markets does not need to include its
financial information in any registration statement on Form S-3 filed by
Capital Markets and NiSource with respect to debt securities subject to the
Support Agreement.
This Prospectus does not include any separate financial statements of the
Trust. Capital Markets and the Trust do not consider that those financial
statements would be material to the holders of the Preferred Securities because
the Trust is a special purpose entity, with no operating history or independent
operations, that is not engaged in and does not propose to engage in any
activity other than holding, as trust assets, the Debentures of Capital Markets
and issuing its Trust Securities as described below. Furthermore, taken
together, Capital Markets' obligations under the Debentures, the related
Indenture, the Trust's Amended and Restated Declaration of Trust and the
related Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payment with respect to the Trust Securities. For
this reason, Capital Markets does not expect that the Trust will file reports
with the Commission pursuant to the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by NiSource and Bay State Gas Company ("Bay
State") with the Commission pursuant to the Exchange Act are incorporated by
reference and made a part of this Prospectus:
(a) NiSource's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as amended;
(b) NiSource's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999;
6
<PAGE>
(c) NiSource's Current Reports on Form 8-K filed on February 9, 1999,
February 12, 1999, February 16, 1999 and April 21, 1999;
(d) The description of NiSource's Common Shares and associated preferred
share purchase rights, contained in NiSource's registration statement
on Form 8-B filed pursuant to Section 12 of the Exchange Act and any
amendments and reports filed for the purpose of updating that
description;
(e) Bay State's Annual Report on Form 10-K for the year ended September 30,
1998;
(f) Bay State's Current Report on Form 8-K dated November 25, 1998; and
(g) All documents filed by NiSource with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the offering made by
this Prospectus.
Any statement contained in this Prospectus, or in a document filed after the
date of this Prospectus that becomes incorporated by reference in this
Prospectus, that modifies or supersedes any statement contained in a document
that is presently incorporated by reference in this Prospectus, will be
considered, for the purposes of this Prospectus, to be so modified or
superseded. Any statement that is considered to be modified or superseded only
will be considered to be a part of this Prospectus in its modified or
superseded form.
Each person who receives a copy of this Prospectus has the right to receive a
copy of any or all of the information that has been incorporated by reference
in this Prospectus but not delivered with this Prospectus. NiSource will
provide any copies without charge. If you would like any copies, please call or
write to Nina M. Rausch, Secretary, NiSource Inc., 5265 Hohman Avenue, Hammond,
Indiana 46320, (219) 853-5200.
FORWARD-LOOKING INFORMATION
Certain of the matters discussed in this Prospectus or in any accompanying
Prospectus Supplement and in the documents incorporated by reference herein or
therein contain forward-looking statements within the meaning of the securities
laws. Forward-looking statements include terms such as "may," "will," "expect,"
"believe," "plan" and other similar terms. NiSource, Capital Markets and the
Trust each cautions that, while each of them believes those statements to be
based on reasonable assumptions and makes those statements in good faith, there
can be no assurance that the actual results will not differ materially from
such assumptions or that the expectations set forth in the forward-looking
statements derived from such assumptions will be realized. Investors should be
aware of important factors that could have a material impact on future results.
These factors include, but are not limited to: the weather; the federal and
state regulatory environment; year 2000 issues; the economic climate; regional,
commercial, industrial and residential growth in the service territories served
by NiSource's subsidiaries; customers' usage patterns and preferences; the
speed and degree to which competition enters the utility industry; changing
conditions in the capital and equity markets; and other uncertainties, all of
which are difficult to predict, and many of which are beyond the control of
NiSource, Capital Markets and the Trust.
NISOURCE
NiSource Inc. is an energy and utility-based holding company that provides
electric energy, natural gas and water for residential, commercial and
industrial uses in Indiana, Ohio, Massachusetts, New Hampshire and Maine
through its ten wholly-owned regulated subsidiaries. These subsidiaries are Bay
State, Crossroads Pipeline Company, Granite State Gas Transmission Inc.,
Harbour Water Corporation, Indianapolis Water Company, Kokomo Gas and Fuel
Company,
7
<PAGE>
Liberty Water Company, Northern Indiana Fuel and Light Company, Inc., Northern
Indiana Public Service Company and Northern Utilities, Inc. In addition,
Industries owns a number of non-utility subsidiaries, including IWC Resources
Corporation, Capital Markets, NiSource Development Company, Inc., NI Energy
Services, Inc. and Primary Energy, Inc.
Northern Indiana Public Service Company ("Northern Indiana"), NiSource's
largest and dominant subsidiary, is a public utility operating company that
supplies electricity and natural gas to the public. Northern Indiana operates
in 30 counties in northern Indiana, serving an area of about 12,000 square
miles with a population of approximately 2.2 million. At December 31, 1998,
Northern Indiana was supplying natural gas to approximately 671,200 customers
and electricity to approximately 420,900 customers. Kokomo Gas and Fuel Company
("Kokomo Gas") and Northern Indiana Fuel and Light Company, Inc. ("NIFL") are
public utility operating companies that supply natural gas to the public.
Kokomo Gas operates in the City of Kokomo, Indiana and the surrounding six
counties, while NIFL operates in five counties in the northeast corner of
Indiana. At December 31, 1998, Kokomo Gas was serving approximately 33,800
customers in its service territory, and NIFL was serving approximately 34,380
customers in its service territory. Both of the Kokomo Gas and NIFL service
territories are contiguous to Northern Indiana's service territory. Crossroads
Pipeline Company is an interstate natural gas pipeline. Capital Markets handles
financing for ventures of NiSource and its subsidiaries (excluding Northern
Indiana). NiSource Development Company makes various investments, including
real estate and venture capital investments. NI Energy Services, Inc.
coordinates the energy-related diversification ventures of NiSource. Primary
Energy, Inc. arranges energy-related projects with large industrial customers.
Bay State is one of the largest natural gas utilities in New England. Bay
State provides natural gas distribution services to more than 300,000 customers
in Massachusetts, New Hampshire and Maine. On February 12, 1999, NiSource
acquired Bay State and its subsidiaries, which include Northern Utilities, Inc.
and Granite State Gas Transmission Inc. The combined company is the tenth
largest local natural gas distribution company in the nation.
IWC Resources Corporation ("IWCR") is a holding company that owns and
operates eight subsidiaries, including three regulated water utility companies,
Indianapolis Water Company, Harbour Water Corporation and Liberty Water
Company. These water companies supply water for residential, commercial and
industrial uses, and fire protection service in Indianapolis, Indiana and the
surrounding areas. Together, these water companies serve a territory covering
over 300 square miles in central Indiana. At December 31, 1998, these companies
were providing service to approximately 253,700 customers.
In addition to its water utility companies, IWCR has five other wholly-owned
subsidiaries. These subsidiaries are SM&P Utility Resources, Inc., Miller
Pipeline Corporation, Waterway Holdings, Inc., Utility Data Corporation and IWC
Services, Inc. SM&P Utility Resources, Inc. performs underground utility
locating and marking services in Indiana and other states. Miller Pipeline
Corporation ("MPC") installs underground pipelines for natural gas utilities.
In addition, MPC sells products and services related to infrastructure
preservation and replacement. IWCR, principally through Waterway Holdings,
Inc., owns real estate that it expects to sell or develop in the future.
Utility Data Corporation provides customer relations, customer billing and
other data processing services for IWCR's water companies and for other water
and sewer utilities. IWC Services, Inc. provides laboratory water testing
services, principally for water utilities. Through IWC Services, Inc., IWCR is
the majority (52%) partner in the White River Environmental Partnership, which
entered into a 10-year contract, effective January 1998, to operate and
maintain two advanced wastewater treatment facilities, as well as a collection
system, for the city of Indianapolis, Indiana. White River Environmental
Partnership actively is seeking new markets and opportunities for contract
management services pursuant to expanded governmental privatization efforts.
8
<PAGE>
On April 1, 1999, NiSource acquired TPC Corporation, a Houston-based natural
gas marketing and storage company, for approximately $150 million. TPC owns a
66% equity interest in Market Hub Partners, L.P., which operates salt cavern
storage facilities for natural gas. As a result of its acquisition of TPC,
NiSource owns an approximately 78% equity interest in Market Hub Partners.
NiSource was incorporated in 1987 under the laws of the State of Indiana.
NiSource's principal executive offices are located at 801 East 86th Avenue,
Merrillville, Indiana 46410. Its telephone number is (219) 853-5200.
CAPITAL MARKETS
NiSource Capital Markets, Inc. is a wholly-owned subsidiary of NiSource that
engages in financing activities to generate funds for the business operations
of NiSource and its wholly-owned subsidiaries (excluding Northern Indiana).
On April 4, 1989, Capital Markets and NiSource entered into a Support
Agreement, which subsequently was amended as of May 15, 1989, December 10,
1990, and February 14, 1991 (as so amended, the "Support Agreement"). Under the
Support Agreement, NiSource has agreed, among other things, to ensure the
timely payment of principal and interest owed on any debt securities issued by
Capital Markets, including any premium payments, with the limitation that no
holder of such debt securities will have recourse to or against the stock or
assets of Northern Indiana, or against any interest of NiSource or Capital
Markets therein. See "Description of the Support Agreement."
On March 27, 1991, the Commission issued an order pursuant to Section 6(c) of
the Investment Company Act of 1940 (the "Investment Company Act") granting an
exemption to Capital Markets from all of the provisions of the Investment
Company Act, subject to Capital Markets' compliance with the conditions set
forth therein.
Capital Markets was incorporated in 1989 under the laws of the State of
Indiana. Capital Markets' principal executive offices are located at 801 East
86th Avenue, Merrillville, Indiana 46410. Its telephone number is (219) 853-
5200.
THE TRUST
NIPSCO Capital Trust I is a statutory business trust that was created in
December 1998 under the Delaware Business Trust Act (the "Trust Act"). The
Trust currently is governed by (i) a declaration of trust dated as of December
17, 1998, that was executed by Capital Markets, as sponsor of the Trust, and by
certain trustees of the Trust and (ii) a certificate of trust dated as of
December 17, 1998 filed with the Secretary of State of the State of Delaware.
Prior to the issuance of the Preferred Securities, the declaration of trust
will be amended and restated in its entirety (as so restated, the
"Declaration"), substantially in the form filed as an exhibit to the
Registration Statement.
At such time as the Trust issues and sells the Preferred Securities, Capital
Markets will purchase the Common Securities in an aggregate liquidation amount
equal to at least three percent of the total capital of the Trust. The Common
Securities will constitute all of the common securities of the Trust. Upon the
sale and issuance of the Trust Securities, the Trust will use all of the
proceeds to purchase Debentures. The Trust exists for the exclusive purposes of
(i) selling and issuing the Trust Securities, which represent undivided
beneficial ownership interests in the assets of the Trust, (ii) using the
proceeds from such sale and issuance to purchase Debentures and (iii) except as
otherwise limited in the Declaration, engaging in only those other activities
necessary or incidental thereto. The Trust has a term of approximately seven
years but may be dissolved earlier as provided in the Declaration.
9
<PAGE>
The Trust's business and affairs will be conducted initially by five trustees
(the "Trustees") appointed by Capital Markets, as sole holder of the Common
Securities. Three of the Trustees (the "Regular Trustees") are employees,
officers or persons affiliated with Capital Markets. Pursuant to the
Declaration, the fourth Trustee is The Chase Manhattan Bank, a financial
institution that is unaffiliated with Capital Markets, which serves as
institutional trustee under the Declaration (the "Property Trustee") and as
indenture trustee for the purposes of complying with the provisions of the
Trust Indenture Act of 1939 (the "Trust Indenture Act"). The fifth Trustee is
Chase Manhattan Bank Delaware, who will serve as trustee in the State of
Delaware (the "Delaware Trustee") for the purpose of complying with the
provisions of Trust Act. The Chase Manhattan Bank also will act as trustee (the
"Guarantee Trustee") under the Capital Markets' guarantee of the Trust
Securities for the purposes of complying with the Trust Indenture Act. See
"Description of the Guarantee" and "Description of the Preferred Securities--
Voting Rights; Amendment of Declaration."
The Property Trustee will own and hold legal title to the Debentures for the
benefit of the Trust and the holders of the Trust Securities. The Property
Trustee will have the legal power to exercise all of the rights, powers and
privileges of a holder of Debentures under the Indenture. In addition, the
Property Trustee will establish and maintain exclusive control of a segregated
non-interest bearing trust account (the "Property Account") to hold all
payments made in respect of the Debentures for the benefit of the holders of
the Trust Securities. The Property Trustee will use funds from the Property
Account to make distribution payments and any payments on liquidation,
redemption or otherwise to the holders of the Trust Securities.
Capital Markets, as holder of all of the Trust's outstanding Common
Securities, will have the right to appoint, remove or replace any Trustee and
to increase or decrease the number of Trustees, provided that the Trust always
will have at least three Trustees. Furthermore, Capital Markets, as issuer of
the Debentures, will pay all fees and expenses related to the Trust's ongoing
affairs and operations (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes)),
including the offering of the Trust Securities. Capital Markets, as issuer of
the Debentures, also will be responsible for all of the Trust's obligations
(other than with respect to the Trust Securities). See "Description of the
Debentures--Payment of Fees and Expenses."
The rights of the holders of the Preferred Securities, including any economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Trust Act and the Trust Indenture Act. See "Description of the
Preferred Securities."
The Delaware Trustee's offices are located at 1201 Market Street, Wilmington,
Delaware 19801. The Trust's principal place of business is in care of Capital
Markets, 801 East 86th Avenue, Merrillville, Indiana 46410. Its telephone
number is (219) 853-5200.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
NiSource for the fiscal years ended December 31, 1994, 1995, 1996, 1997 and
1998, and for the twelve months ended March 31, 1999. For the purpose of
calculating this ratio, "earnings" consist of income from continuing operations
before income taxes plus fixed charges, and "fixed charges" consist of interest
on all indebtedness, amortization of debt expense, the portion of rental
expenses on operating leases deemed to be representative of the interest
factor, and preferred stock dividend requirements of consolidated subsidiaries.
<TABLE>
<CAPTION>
Year Ended December 31, Twelve Months
------------------------ Ended
1994 1995 1996 1997 1998 March 31, 1999(1)
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges.......... 3.14 3.28 3.21 3.10 2.87 2.87
</TABLE>
10
<PAGE>
- --------
(1) Results for the twelve months ended March 31, 1999 are not necessarily
indicative of results for the fiscal year ending December 31, 1999.
USE OF PROCEEDS
Except as may be set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of any securities offered by Capital Markets will be
advanced to NiSource and, together with the net proceeds from the sale of any
securities offered by NiSource, will be used by NiSource (i) to pay the cash
portion of the consideration payable in NiSource's February 1999 acquisition of
Bay State and (ii) to repay short-term indebtedness incurred to purchase Common
Shares in anticipation of the acquisition of Bay State. Pending application of
such net proceeds for specific purposes, such proceeds may be invested in
short-term or marketable securities. Information about any short-term
indebtedness to be repaid, or any specific allocations of proceeds to a
particular purpose that have been made at the date of any Prospectus
Supplement, will be described in the Prospectus Supplement.
The Trust will use all of the proceeds received from the sale of its Trust
Securities to purchase Debentures from Capital Markets. Unless otherwise set
forth in the applicable Prospectus Supplement, the net proceeds to Capital
Markets from the sale of the Debentures will be advanced to NiSource and used
by NiSource for the purposes described in the preceding paragraph.
DESCRIPTION OF THE DEBENTURES
The following description sets forth certain general terms and provisions of
the Debentures to which any Prospectus Supplement may relate. The particular
terms and provisions of the Debentures offered by a Prospectus Supplement and
the application of these general terms and provisions thereto will be described
in the applicable Prospectus Supplement.
The Debentures will be issued under an indenture dated as of February 14,
1997 (the "Indenture"), among Capital Markets, NiSource and The Chase Manhattan
Bank, as trustee (the "Indenture Trustee"), which acts as indenture trustee for
the purposes of the Trust Indenture Act. The following summaries of certain
terms and provisions of the Debentures and the Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the Indenture and the form of Debenture that are or will be filed as exhibits
to the Registration Statement, and to the Trust Indenture Act. Capitalized
terms used in this section not otherwise defined in this Prospectus have the
meanings set forth in the Indenture. Certain material United States federal
income tax consequences applicable to the offering of the Debentures will be
described in the applicable Prospectus Supplement.
General
The Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of Capital Markets, whether under the Indenture or any other
indenture that Capital Markets may enter into in the future or otherwise.
The applicable Prospectus Supplement will describe the following terms of the
series of Debentures being offered:
(i) the title of the Debentures;
(ii) any limit upon the aggregate principal amount of the Debentures;
(iii) the date or dates on which the principal of the Debentures is
payable, or the method of determination thereof;
11
<PAGE>
(iv) the rate or rates, if any, at which the Debentures will bear
interest (including any reset rates and the method by which any such rates
will be determined), the date or dates on which any such interest will be
payable and any right of Capital Markets to defer any interest payment;
(v) the place or places where, subject to the terms of the Indenture as
described below, the principal and any premium or interest on the
Debentures will be payable ("Place of Payment"), and where, subject to the
terms of the Indenture as described below under "--Denominations,
Registration and Transfer," Capital Markets will maintain an office or
agency where Debentures may be presented for registration of transfer or
exchange, and where notices and demands to or upon Capital Markets in
respect of the Debentures and the Indenture may be made;
(vi) any period or periods within, or date or dates on which, the price
or prices at which and the terms and conditions upon which Debentures may
be redeemed, in whole or in part, at the option of Capital Markets pursuant
to any sinking fund or otherwise;
(vii) any obligation of Capital Markets to redeem or purchase the
Debentures pursuant to any sinking fund or analogous provision or at the
option of a holder, and the period or periods within which, the price or
prices at which, the currency or currencies (including currency unit or
units) in which and the other terms and conditions upon which the
Debentures will be redeemed or purchased, in whole or in part, pursuant to
such obligation;
(viii) the denominations in which the Debentures will be issuable;
(ix) if other than in U.S. Dollars, the currency or currencies (including
currency unit or units) in which the principal of or any premium or
interest on the Debentures will be payable, or in which the Debentures will
be denominated;
(x) if other than the principal amount thereof, the portion of the
principal amount of the Debentures that will be payable upon declaration of
acceleration of the maturity thereof;
(xi) any additional events of default or covenants of Capital Markets or
NiSource pertaining to the Debentures;
(xii) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Debentures and the manner in which
such amounts will be determined;
(xiii) subject to the terms described below under "--Global Debentures,"
whether the Debentures will be issued in whole or in part in global form
and, in such case, the depositary for such global Debentures;
(xiv) the appointment of any trustee, registrar, paying agent or agents;
(xv) the terms and conditions of any obligation or right of Capital
Markets or any holder to convert or exchange Debentures into other
securities; and
(xvi) any other terms of the Debentures not inconsistent with the
provisions of the Indenture.
Denominations, Registration and Transfer
Unless otherwise specified in the applicable Prospectus Supplement, the
Debentures will be issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof.
When the Debentures have been issued, Capital Markets will keep at one of its
offices or agencies a register in which, subject to such reasonable regulations
as it may prescribe, Capital Markets will provide for the registration and
transfer of the Debentures. That office or agency will be appointed the
security registrar for the purpose of registering and transferring the
Debentures. Capital Markets will appoint the Indenture Trustee as securities
registrar under the Indenture.
The holder of any registered Debenture may exchange the Debenture, at its
option, for registered Debentures of the same series having the same stated
maturity date and original issue
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date, in any authorized denominations, in like tenor and in the same aggregate
principal amount. Such holder may exchange such Debentures by surrendering them
at the office or agency of Capital Markets that has been appointed as security
registrar for the Debentures. The Debentures may be presented for exchange or
for registration of transfer (with the form of transfer endorsed thereon or a
satisfactory and duly executed written instrument of transfer), at the office
of the securities registrar, without service charge and upon payment of any
taxes and other governmental charges as described in the Indenture.
When a holder of a registered Debenture surrenders such Debenture to be
registered for transfer, Capital Markets will execute, and the Indenture
Trustee will authenticate and deliver to such holder, in the name of the
designated transferee or transferees, one or more new registered Debentures of
the same series having the same stated maturity date and original issue date,
in any authorized denominations and of like tenor and aggregate principal
amount.
If any Debentures of any series are redeemed, Capital Markets will not be
required to issue, register the transfer of or exchange any such Debentures
during the 15 business days immediately preceding the date upon which notice of
such redemption is given (which notice will identify the serial numbers of the
Debentures being redeemed). Furthermore, if any registered Debentures are
selected to be either partially or fully redeemed, then Capital Markets will
not be required to issue, register or exchange any such Debentures (except for
the unredeemed portion of any Debenture being redeemed in part).
Global Debentures
Unless otherwise specified in the applicable Prospectus Supplement, the
Debentures may be issued in whole or in part in global form ("Global
Debentures") that will be deposited with, or on behalf of, a depositary
identified in the applicable Prospectus Supplement. Global Debentures may be
issued only in fully registered form and in either temporary or permanent form.
A Global Debenture will be exchangeable for Debentures registered in the names
of persons other than the depositary or its nominee only if (i) the depositary
notifies Capital Markets that it is unwilling or unable to continue as a
depositary for such Global Debenture and no successor depositary will have been
appointed, (ii) the depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to
be so registered to act as such depositary and no successor depositary will
have been appointed, (iii) Capital Markets, in its sole discretion, determines
that such Global Debenture will be so exchangeable or (iv) there will have
occurred an event of default with respect to the Debentures (an "Indenture
Event of Default") with respect to such Debentures. Any Global Debenture that
is exchangeable pursuant to the preceding sentence will be exchangeable for
Debentures registered in such names as the depositary will direct. It is
expected that such instructions will be based upon directions received by the
depositary from its Participants with respect to ownership of beneficial
interests in such Global Debenture.
Unless and until a Global Debenture is exchanged in whole or in part for the
individual Debentures represented thereby, the depositary holding such Global
Debenture may transfer such Global Debenture only to its nominee or successor
depositary (or vice versa) and only as a whole. Unless otherwise indicated in
the applicable Prospectus Supplement for the Debentures, the depositary for the
Global Debentures will be The Depository Trust Company. See "Book-Entry
Issuance." The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
limits and laws may impair the ability to transfer beneficial interests in
Global Debentures.
The specific terms of the depositary arrangement for the Debentures will be
described in the applicable Prospectus Supplement. Capital Markets anticipates
that the description of the depositary set forth below under "Book-Entry
Issuance" generally will apply to any depositary arrangements.
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Capital Markets expects that the applicable depositary or its nominee, upon
receipt of any payment of principal, premium or interest in respect of a
permanent Global Debenture, immediately will credit the accounts of its
participants ("Participants") with payments in amounts proportionate to their
respective beneficial interests in the aggregate principal amount of such
Global Debenture as shown on the records of the depositary or its nominee.
Capital Markets also expects that payments by Participants to owners of
beneficial interests in a Global Debenture held through such Participants
("Beneficial Owners") will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if at any
time the applicable depositary is unwilling, unable or ineligible to continue
as depositary for the Debentures, Capital Markets will appoint a successor
depositary with respect to the Debentures. If a successor depositary is not
appointed by Capital Markets within 90 days after Capital Markets receives such
notice or becomes aware of such ineligibility, Capital Markets will issue
individual Debentures of such series in exchange for the Global Debenture
representing such individual Debentures. In addition, unless otherwise
specified in the applicable Prospectus Supplement, Capital Markets may
determine at any time and in its sole discretion, subject to any limitations
described in the applicable Prospectus Supplement, to have the Debentures no
longer represented by one or more Global Debentures. In such event, Capital
Markets will issue individual Debentures of such series in exchange for such
Global Debenture or Global Debentures. Furthermore, if Capital Markets so
specifies with respect to the Debentures, a Beneficial Owner may receive, on
terms acceptable to Capital Markets, the Indenture Trustee and the depositary,
individual Debentures in exchange for such beneficial interests, subject to any
limitations described in the applicable Prospectus Supplement. In any such
instance, a Beneficial Owner will be entitled to physical delivery of
individual Debentures equal in principal amount to such beneficial interest and
to have such Debentures registered in such owner's name. Individual Debentures
so issued will be issued in denominations of $25 and integral multiples thereof
unless otherwise indicated in the applicable Prospectus Supplement or otherwise
specified by Capital Markets.
Payment and Paying Agents
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and any premium or interest on the Debentures will be made at
the office of the Indenture Trustee or at the office of such paying agent or
paying agents as Capital Markets may designate from time to time in the
applicable Prospectus Supplement. Capital Markets may at any time designate
additional paying agents or rescind the designation of any paying agent.
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of any interest on a Debenture will be made to the person or entity in whose
name such Debenture is registered at the close of business on the Regular
Record Date for such interest, except in the case of interest which is payable,
but is not punctually paid or duly provided for, on any Interest Payment Date
("Defaulted Interest"). At its election, Capital Markets may make payment of
Defaulted Interest (i) to the persons in whose names the Debentures are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which will be fixed as provided in the Indenture or
(ii) in any other lawful manner not inconsistent with the requirements of any
securities exchange on which such Debentures may be listed, and upon such
notice as may be required by such exchange, if, after Capital Markets notifies
the Indenture Trustee of the proposed payment, the Indenture Trustee deems such
manner of payment to be practicable.
Option to Defer Interest Payments
If so provided in the applicable Prospectus Supplement, so long as an
Indenture Event of Default has not occurred and is not continuing, Capital
Markets will have the right, at any time and
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from time to time during the term of the Debentures, to defer the payment of
interest for such number of consecutive interest payment periods as may be
specified in the applicable Prospectus Supplement (each, an "Extension
Period"), subject to the terms, conditions and covenants, if any, specified in
such Prospectus Supplement. At the end of such Extension Period, Capital
Markets will pay all interest accrued and unpaid, together with interest
thereon compounded quarterly at the rate specified for the Debentures, to the
extent permitted by applicable law. During any Extension Period, Capital
Markets and NiSource may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to
any of Capital Markets' or NiSource's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of Capital Markets or NiSource that rank on a parity with or
junior in interest to the Debentures or make any guarantee payments with
respect to any guarantee by Capital Markets or NiSource of the debt securities
of any subsidiary of Capital Markets or NiSource if such guarantee ranks on a
parity with or junior in interest to the Debentures (other than (a) purchases
or acquisitions of capital stock of Capital Markets or NiSource in connection
with the satisfaction by Capital Markets or NiSource of its obligations under
any employee benefit plans or pursuant to any contract or security outstanding
on the date of such event requiring Capital Markets or NiSource to purchase
capital stock of Capital Markets or NiSource, (b) as a result of a
reclassification of Capital Markets' or NiSource's capital stock for another
class or series of Capital Markets' or NiSource's capital stock, (c) the
purchase of fractional interests in shares of Capital Markets' or NiSource's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) dividends or
distributions in capital stock of Capital Markets or NiSource, (e) redemptions
or repurchases of any rights pursuant to a rights agreement and (f) payments
under the Guarantee).
Prior to the termination of any Extension Period, Capital Markets may further
defer payments of interest by extending the Extension Period; provided that the
total duration of any Extension Period may not exceed 20 consecutive quarters
or extend beyond the stated maturity of the Debentures. Upon the termination of
any Extension Period and the payment of all amounts then due, Capital Markets
may commence a new Extension Period, subject to the terms set forth in this
section. No interest will be due and payable during an Extension Period. If the
Property Trustee is the sole holder of the Debentures, Capital Markets will
give the Regular Trustees and the Property Trustee notice of its selection of
such Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice, if applicable, to the NYSE (or
other applicable self-regulatory organization) or to holders of the Preferred
Securities of the record or payment date of such distribution. The Regular
Trustees will give notice of Capital Markets' selection of such Extension
Period to the holders of the Preferred Securities. If the Property Trustee is
not the sole holder of the Debentures, Capital Markets will give the holders of
the Debentures notice of its selection of such Extension Period ten Business
Days prior to the earlier of (i) the Interest Payment Date or (ii) the date
upon which Capital Markets is required to give notice, if applicable, to the
NYSE (or other applicable self-regulatory organization) or to holders of the
Debentures as of the record or payment date of such related interest payment.
Modification of Indenture
From time to time, Capital Markets, NiSource and the Indenture Trustee may
modify the Indenture without the consent of any holders of Debentures with
respect to certain matters, including:
(i) to evidence the succession of another corporation to Capital Markets
or NiSource and the assumption by any such successor of the covenants of
Capital Markets or NiSource in the Indenture and the Debentures;
(ii) to add to the covenants of Capital Markets and NiSource for the
benefit of the holders of the Debentures, or to surrender any right or
power therein conferred upon Capital Markets or NiSource;
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(iii) to cure any ambiguity or correct or supplement any provision that
may be defective or inconsistent with any other provision of the Indenture,
provided that such action will not adversely affect the interests of the
holders of the Debentures in any material respect;
(iv) to conform the Indenture to any amendment of the Trust Indenture
Act;
(v) to add any additional events of default;
(vi) to change or eliminate any provisions of the Indenture, provided
that any such change or elimination will become effective only when there
is no security outstanding of any series prior to the execution of such
modification that is entitled to the benefit of such provision;
(vii) to secure the Debentures;
(viii) to establish the form or terms of securities of any series and any
related coupons as permitted by the Indenture;
(ix) to effect the assumption by NiSource or one of its subsidiaries of
the obligations of Capital Markets under the Indenture; or
(x) to evidence or provide for the acceptance of appointment of a
successor trustee with respect to the securities of one or more series, to
contain such provisions necessary to confirm that all the rights, powers,
trusts and duties that the predecessor trustee is not retiring will
continue to be vested in the predecessor trustee, and to add to or change
any Indenture provisions necessary to provide for or facilitate the
administration of the trusts by more than one trustee.
In addition, Capital Markets, NiSource and the Indenture Trustee may modify
certain rights, covenants and obligations of Capital Markets and the rights of
holders of the Debentures under the Indenture with the written consent of the
holders of at least a majority in aggregate principal amount of Debentures.
However, unless each affected holder of Debentures consents, Capital Markets,
NiSource and the Indenture Trustee may not extend the maturity of the
Debentures, reduce the interest rate or extend the time for payment of
interest, change the optional redemption or repurchase provisions in a manner
adverse to any holder of Debentures, otherwise modify the terms of payment of
the principal of, or interest on, the Debentures or reduce the percentage
required for modification.
Indenture Events of Default
Any one or more of the following events that has occurred and is continuing
constitutes an Indenture Event of Default with respect to any series of
Debentures (whatever the reason for such Indenture Event of Default and whether
it is voluntary or involuntary or 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) failure to pay any interest on any Debenture of that series for a
period of 30 days after such interest becomes due and payable (subject to a
valid deferral of interest payments during an Extension Period);
(ii) failure to pay the principal of (or premium, if any, on) Debentures
of that series for a period of three Business Days after such principal (or
premium) becomes due, whether at maturity, upon redemption, by declaration
or otherwise;
(iii) failure to deposit any sinking fund payment applicable to the
Debentures of that series for a period of three Business Days after such
deposit becomes due;
(iv) failure to observe or perform any other covenant or warranty under
the Indenture or the Support Agreement (other than a covenant or warranty
included in or pursuant to the Indenture solely for the benefit of one or
more series of debt securities other than that series of
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Debentures) for a period of 60 days after written notice has been given, by
registered or certified mail, to Capital Markets and NiSource by the
Indenture Trustee, or to Capital Markets, NiSource and the Indenture
Trustee by the holders of at least 25% in principal amount of that series
of Debentures;
(v) failure to pay in excess of $5 million of the principal or interest
of indebtedness under any bond, debenture, note or other evidence of
indebtedness for money borrowed by Capital Markets (including a default
with respect to debt securities of any series other than that series of
Debentures) or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by Capital Markets, whether such
indebtedness now exists or shall hereafter be created, when due and payable
after the expiration of any applicable grace period with respect thereto or
shall have resulted in such indebtedness in an amount in excess of $5
million becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled within a period of 90 days after there shall have
been given, by registered or certified mail, to Capital Markets by the
Indenture Trustee or to Capital Markets and the Indenture Trustee by the
holders of at least 25% in principal amount of that series of Debentures;
(vi) certain events in bankruptcy, insolvency or reorganization of
Capital Markets, NiSource or Northern Indiana; and
(vii) any other Indenture Event of Default with respect to the
Debentures.
The holders of not less than a majority in outstanding principal amount of
any series of Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee.
The Indenture Trustee or the holders of not less than 33% in aggregate
outstanding principal amount of any series of Debentures may declare the
principal due and payable immediately upon an Indenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of that series
of Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of Debentures that has become due
solely by such acceleration) has been cured and there has been deposited with
the Indenture Trustee a sum sufficient to pay all overdue interest and all
installments of principal due otherwise than by acceleration, interest upon
overdue interest at the rates prescribed in that series of Debentures (to the
extent lawful), and all sums paid or advanced by the Indenture Trustee.
The holders of not less than a majority in outstanding principal amount of
any series of Debentures affected thereby may waive, on behalf of the holders
of all of the Debentures of that series, any past default under the Indenture
except for a default (i) in the payment of the principal of or interest on any
Debenture (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Indenture Trustee) or (ii) in respect
of a covenant or provision that cannot be modified or amended without the
consent of the holder of each outstanding Debenture affected thereby.
In the event an Indenture Event of Default occurs and is continuing as to any
Debentures held by the Trust, the Property Trustee will have the right to
declare the principal of and the interest on such Debentures, and any other
amounts payable under the Indenture, to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Debentures. The
holders of the Preferred Securities in certain circumstances have the right to
direct the Property Trustee to exercise its rights as the holder of the
Debentures. See "Description of the Preferred Securities--Voting Rights;
Amendment of Declaration." If the Property Trustee fails to enforce its rights
under the Debentures after a holder of Preferred Securities has made a written
request, the holder of Preferred Securities may, to the fullest extent
permitted by law, institute a legal proceeding directly against Capital Markets
to enforce the Property Trustee's rights under the Indenture without first
instituting any legal proceeding against the Property Trustee or any other
person or entity.
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Notwithstanding the foregoing, if an Indenture Event of Default has occurred
and is continuing and such event is attributable to the failure of Capital
Markets to pay interest or principal on the Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, the
redemption date), then a holder of Preferred Securities may institute a
proceeding directly against Capital Markets (a "Direct Action") to enforce
payment to such holder of the principal or interest on the Debentures having an
aggregate principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder.
Certain Indenture Covenants
Although the Indenture contains certain covenants, described below, with
respect to limitations on liens and merger or consolidation, these covenants do
not focus on the debt incurred in many types of transactions and do not
otherwise afford protection to holders of Debentures in the event of a highly
leveraged transaction that is not in violation of the covenants. Capital
Markets does not currently intend to include any covenants or other provisions
affording such protection in the Debentures. If Capital Markets determines in
the future that it is desirable to include covenants or other provisions of
this type in any series of securities, they will be described in the applicable
Prospectus Supplement for that series.
Limitation on Liens
Neither Capital Markets nor NiSource will, nor will NiSource permit any
subsidiary other than a utility, to issue, assume or guarantee any debt for
money borrowed (for purposes of this paragraph, "Debt"), secured by any
mortgage, security interest, pledge, lien or other encumbrance (herein referred
to as "mortgage") upon any property of Capital Markets, NiSource or any such
subsidiary (other than a utility), except indebtedness issued by any such
subsidiary and owned by NiSource or any other such subsidiary (whether such
property or indebtedness is owned at the date of the Indenture or thereafter
acquired), without effectively securing the Debentures equally and ratably with
(or prior to) such Debt. The foregoing restrictions do not apply to:
(i) mortgages on any property, acquired, constructed or improved by
NiSource or any of the subsidiaries other than the utilities after the date
of the Indenture which are created or assumed contemporaneously with, or
within 120 days after, such acquisition or completion of such construction
or improvement, or within six months thereafter pursuant to a firm
commitment for financing arranged with a lender or investor within such
120-day period, to secure or provide for the payment of all or any part of
the purchase price of such property or the cost of such construction or
improvement incurred after the date of the Indenture, or, in addition to
mortgages contemplated by clauses (ii) and (iii) below, mortgages on any
property existing at the time of acquisition thereof, provided that the
mortgages shall not apply to any property theretofore owned by NiSource or
any such subsidiary other than, in the case of any such construction or
improvement, any theretofore unimproved real property on which the property
so constructed or the improvement is located;
(ii) existing mortgages on any property or indebtedness of a corporation
which is merged with or into or consolidated with NiSource or a subsidiary;
(iii) mortgages on property or indebtedness of a corporation existing at
the time such corporation becomes a subsidiary;
(iv) mortgages to secure Debt of a subsidiary to NiSource or to another
subsidiary other than a utility;
(v) mortgages 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
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price or the cost of constructing or improving the property subject to such
mortgages, including, without limitation, mortgages to secure Debt of the
pollution control or industrial revenue bond type;
(vi) mortgages to secure loans to NiSource or any subsidiary other than a
utility maturing within 12 months from the creation thereof and made in the
ordinary course of business;
(vii) mortgages on any property (including any natural gas, oil or other
mineral property) to secure all or part of the cost of exploration,
drilling or development thereof or to secure Debt incurred to provide funds
for any such purpose;
(viii) mortgages existing on the date of the Indenture; and
(ix) mortgages for the sole purposes of extending, renewing or replacing
in whole or in part Debt secured by any mortgage referred to in the
foregoing clauses (i) to (viii), inclusive, or this clause (ix); provided,
however, that the principal amount of Debt secured thereby shall not exceed
the principal amount of Debt so secured at the time of such extension,
renewal or replacement, and that such extension, renewal or replacement
shall be limited to all or a part of the property or indebtedness which
secured the mortgage so extended, renewed or replaced (plus improvements on
such property). Furthermore, such restrictions do not apply to the
issuance, assumption or guarantee by NiSource or any subsidiary of Debt
secured by a mortgage which would otherwise be subject to the foregoing
restriction up to an aggregate amount which, together with all other
secured Debt (not including secured Debt permitted under the foregoing
exceptions), does not exceed 5 percent of consolidated net tangible assets
of NiSource and the subsidiaries (other than the utilities), determined in
accordance with generally accepted accounting principles and as of a date
not more than 90 days prior to the happening of the event for which such
determination is being made. For purposes of the foregoing, "consolidated
net tangible assets" means the total amount of assets appearing on a
consolidated balance sheet of NiSource and the subsidiaries (other than the
utilities), less, without duplication, (i) all current liabilities
(excluding any thereof which are by their terms extendable or renewable at
the sole option of the obligor thereon without requiring the consent of the
obligee to a date more than 12 months after the date on which the
determination of consolidated net tangible assets is made), (ii) all
reserves for depreciation and other asset valuation reserves but excluding
any reserves for deferred Federal income taxes arising from accelerated
amortization or otherwise, (iii) all intangible assets such as goodwill,
trademarks, trade names, patents and unamortized debt discount and expenses
carried as an asset on said balance sheet, and (iv) all appropriate
adjustments on account of minority interests of other persons holding
common shares or stock in any subsidiary.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that neither Capital Markets nor NiSource may
consolidate with or merge into any other person or entity or convey, transfer
or lease its properties and assets substantially as an entirety to any person
unless (i) the corporation formed by any such consolidation or continuing in
such merger, or the person that acquires by conveyance or transfer, or that
leases, its properties and assets substantially as an entirety will be a
corporation organized and existing under the laws of any domestic jurisdiction
and will expressly assume, in the case of Capital Markets, its obligations
under the Debentures and the Indenture and, in the case of NiSource, its
obligations under the Indenture and the Support Agreement, (ii) immediately
after giving effect to such transaction, no Indenture Event of Default, and no
event that, after notice or lapse of time, would become an Indenture Event of
Default, will have happened and be continuing and (iii) Capital Markets or
NiSource will have delivered to the Indenture Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer or lease complies with the Indenture and that all
conditions precedent therein provided for relating to such transaction have
been complied with.
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Capital Markets covenants and agrees that if, upon any consolidation or
merger of Capital Markets with or into any other corporation, or upon any
consolidation or merger of any other corporation with or into Capital Markets,
or upon any sale or conveyance of all or substantially all of the property and
assets of Capital Markets to any other corporation, any property of Capital
Markets or any subsidiary or any indebtedness issued by any subsidiary owned by
Capital Markets or by any subsidiary immediately prior thereto would thereupon
become subject to any mortgage, security interest, pledge, lien or other
encumbrance not permitted by the Indenture, Capital Markets, prior to or
concurrently with such consolidation, merger, sale or conveyance, will by
indenture supplemental hereto effectively secure the securities then
outstanding (equally and ratably with (or prior to) any other indebtedness of
or guaranteed by Capital Markets or such subsidiary then entitled thereto) by a
direct lien on such property of Capital Markets or any subsidiary or such
indebtedness issued by a subsidiary, prior to all liens other than any
theretofore existing thereon.
Satisfaction and Discharge
The Indenture provides that when all Debentures of any series not previously
delivered to the Indenture Trustee for cancellation (i) have become due and
payable, (ii) will become due and payable at their stated maturity within one
year or (iii) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense of, Capital
Markets, and Capital Markets deposits or causes to be deposited with the
Indenture Trustee, as trust funds in trust dedicated solely for such purpose,
an amount in the currency or currencies in which such Debentures are payable
sufficient to pay and discharge the entire indebtedness on the Debentures of
that series not previously delivered to the Indenture Trustee for cancellation,
for the principal (and premium, if any) and interest to the date of the deposit
or to the stated maturity, as the case may be, then the Indenture will cease to
be of further effect with respect to that series (except as to Capital Markets'
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and
Capital Markets will be deemed to have satisfied and discharged the Indenture
with respect to that series. At the expense of Capital Markets, the Indenture
Trustee will execute proper instruments acknowledging such satisfaction and
discharge.
Redemption
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debentures will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, Capital
Markets may redeem, at its option, the Debentures in whole at any time or in
part from time to time, at the redemption price set forth in the applicable
Prospectus Supplement plus accrued and unpaid interest to the date fixed for
redemption. If the Debentures are so redeemable only on or after a specified
date or upon the satisfaction of additional conditions, then the applicable
Prospectus Supplement will specify such date or describe such conditions.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of Debentures to be redeemed at
such holder's registered address. Unless Capital Markets defaults in the
payment of the redemption price, interest will cease to accrue on such
Debentures or portions thereof called for redemption on and after the
redemption date.
Governing Law
The Indenture and the Debentures will be governed by and construed in
accordance with the laws of the State of New York.
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Information Concerning the Indenture Trustee
The Indenture Trustee will have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee has no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any holder of a Debenture, unless the Indenture Trustee
is offered reasonable security or indemnity by such holder against the costs,
expenses and liabilities that might be incurred thereby. The Indenture Trustee
is not required to expend or risk its own funds or otherwise incur any personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if the Indenture Trustee reasonably believes
that repayment of funds or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF THE PREFERRED SECURITIES
The following description sets forth certain general terms and provisions of
the Preferred Securities to which any Prospectus Supplement may relate. The
particular terms and provisions of the Preferred Securities offered by a
Prospectus Supplement and the application of these general terms and provisions
thereto will be described in the applicable Prospectus Supplement.
The Regular Trustees, on behalf of the Trust and pursuant to the Declaration,
will issue one class of Preferred Securities and one class of Common
Securities. The Trust Securities will represent undivided beneficial ownership
interests in the assets of the Trust. The following summaries of certain terms
of the Preferred Securities and certain provisions of the Declaration do not
purport to be complete, and reference is hereby made to the Trust Indenture Act
and the copy of the Declaration, including definitions of certain terms used
therein, that is filed as an exhibit to the Registration Statement. Capitalized
terms used in this section not otherwise defined in this Prospectus have the
meanings set forth in the Declaration, and references to "Debentures" are to
the series of Debentures purchased by the Trust with the proceeds from the sale
of the Trust Securities. Certain material United States federal income tax
consequences applicable to the offering of the Preferred Securities will be
described in the applicable Prospectus Supplement.
General
Except as described below under "--Subordination of Common Securities," the
Preferred Securities will rank on a parity, and payments will be made thereon
proportionately, with the Common Securities. The Property Trustee will hold
legal title to the Debentures in trust for the benefit of the holders of the
Trust Securities. The Guarantee Agreement executed by Capital Markets for the
benefit of the holders of the Preferred Securities (the "Guarantee") will be a
guarantee with respect to the Preferred Securities but will not guarantee the
payment of Distributions or any amounts payable on redemption or liquidation of
the Preferred Securities when the Trust does not have funds on hand available
to make such payments. See "Description of the Guarantee." Certain material
U.S. federal income tax consequences and special considerations applicable to
the Preferred Securities will be described in the applicable Prospectus
Supplement.
Distributions
Distributions on each Preferred Security will accumulate and be payable at a
rate specified in the applicable Prospectus Supplement. The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed per 30-day
month unless otherwise specified in the applicable Prospectus Supplement.
Distributions that are in arrears will accumulate additional distributions at
the rate per annum if and as specified in the applicable Prospectus Supplement
("Additional Amounts"). The term
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"Distributions" means cumulative cash distributions that accumulate at the per
annum rate specified in the applicable Prospectus Supplement, together with any
Additional Amounts unless otherwise stated.
Distributions on the Preferred Securities will be cumulative, will accumulate
from the date of original issuance and will be payable on such dates as are
specified in the applicable Prospectus Supplement. If the date on which any
Distributions on the Trust Securities are payable (each, a "payment date") is
not a Business Day (as defined below), then payment of such Distributions will
be made on the next Business Day (without any interest or other payment in
respect of any such delay), provided that if such next Business Day falls in
the next calendar year, then payment of such Distributions will be made on the
Business Day preceding the payment date. Each date on which Distributions are
payable is hereinafter referred to as a "Distribution Date." A "Business Day"
means any day other than a Saturday or Sunday or a day on which banking
institutions in New York City are authorized or required by law or executive
order to remain closed, or a day on which the Indenture Trustee, or the
principal office of the Property Trustee, is closed for business.
If provided in the applicable Prospectus Supplement, Capital Markets will
have the right under the Indenture to defer payments of interest on the
Debentures from time to time by extending the applicable interest payment
period for a period or periods that will be specified in the applicable
Prospectus Supplement (each, an "Extension Period"). If Capital Markets
exercises its right to defer interest payments on the Debentures, then any
payments of Distributions on the Preferred Securities also would be deferred.
During an Extension Period, interest will continue to accrue on the Debentures
(compounded quarterly), and, as a result, Distributions would continue to
accumulate at the rate per annum if and as specified in the applicable
Prospectus Supplement. During any Extension Period, Capital Markets and
NiSource may not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of Capital Markets' or NiSource's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of Capital Markets or NiSource that rank on a parity with or
junior in interest to the Debentures or make any guarantee payments with
respect to any guarantee by Capital Markets or NiSource of the debt securities
of any subsidiary of Capital Markets or NiSource if such guarantee ranks on a
parity with or junior in interest to the Debentures (other than (a) purchases
or acquisitions of capital stock of Capital Markets or NiSource in connection
with the satisfaction by Capital Markets or NiSource of its obligations under
any employee benefit plans or pursuant to any contract or security outstanding
on the date of such event requiring Capital Markets or NiSource to purchase
capital stock of Capital Markets or NiSource, (b) as a result of a
reclassification of Capital Markets' or NiSource's capital stock or the
exchange or conversion of one class or series of Capital Markets' or NiSource's
capital stock for another class or series of Capital Markets' or NiSource's
capital stock, (c) the purchase of fractional interests in shares of Capital
Markets' or NiSource's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) dividends or distributions in capital stock of Capital Markets or NiSource,
(e) redemptions or repurchases of any rights pursuant to a rights agreement and
(f) payments under the Guarantee). Prior to the termination of any Extension
Period, Capital Markets may further extend the Extension Period, but the total
duration of any such Extension Period may not exceed 20 consecutive quarters or
extend beyond the stated maturity of the Debentures. Once any Extension Period
terminates and Capital Markets has paid all amounts then due, Capital Markets
may commence a new Extension Period, provided that such Extension Period
together with all extensions thereof may not exceed 20 quarters or extend
beyond the stated maturity of the Debentures. See "Description of the
Debentures--Option to Defer Interest Payments." Once an Extension Period has
terminated, any deferred Distributions, including accumulated Additional
Amounts, will be paid to those holders of record of the Trust Securities
appearing on the books and records of the Trust on the first record date
following the termination of such Extension Period.
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It is expected that any revenue available for the payment of Distributions to
holders of the Preferred Securities will be limited to payments made to the
Trust by Capital Markets under the Debentures. If Capital Markets does not make
interest payments on the Debentures, then the Property Trustee will not have
any funds available to pay Distributions on the Preferred Securities. The
payment of Distributions (if and to the extent the Trust has funds legally
available for the payment of such Distributions and cash sufficient to make
such payments) is guaranteed by Capital Markets as set forth under the
Guarantee. See "Description of the Guarantee."
The Property Trustee will pay Distributions to the holders of the Preferred
Securities as such holders appear on the Trust's securities register on the
relevant record dates. As long as the Preferred Securities are represented by
one or more Global Securities, the relevant record dates will be the close of
business on the Business Day next preceding each Distribution Date, unless a
different regular record date is established or provided for the corresponding
interest payment date on the Debentures. Subject to any applicable laws and
regulations and the provisions of the Declaration, unless otherwise specified
in the applicable Prospectus Supplement, each such payment will be made as
described under "Book-Entry Issuance." If any Preferred Securities are not
represented by Global Securities, then the relevant record date for such
Preferred Securities will be the fifteenth Business Day prior to the relevant
Distribution Date, that is specified in the applicable Prospectus Supplement.
Redemption or Exchange
Mandatory Redemption. Unless otherwise specified in the applicable Prospectus
Supplement, if the Debentures held by the Trust are repaid or redeemed in whole
or in part, either upon their maturity date or earlier, then the Property
Trustee will use the proceeds from such repayment or redemption to redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Debentures being repaid or redeemed. The redemption
price per Trust Security will be equal to the aggregate stated amount of the
Trust Securities being redeemed plus any accumulated and unpaid Distributions
thereon to the date of redemption plus the related amount of the premium, if
any, paid by Capital Markets upon the concurrent redemption of the Debentures
(the "Redemption Price"). In the event of a partial redemption, the Trust
Securities will be redeemed among all of the holders of Trust Securities on a
pro rata basis. Holders of the Trust Securities will receive at least 30 days
but not more than 60 days notice of such redemption.
Tax Event Redemption. If a Tax Event occurs and is continuing, Capital
Markets will have the right to redeem the Debentures in whole (but not in part)
and thereby cause a mandatory redemption of the Trust Securities in whole (but
not in part) at the Redemption Price within 90 days following the occurrence of
such Tax Event. In the event a Tax Event has occurred and is continuing and
Capital Markets does not elect to redeem the Debentures (thereby causing a
mandatory redemption of such Preferred Securities) or to liquidate the Trust
(causing the Debentures to be distributed to holders of the Trust Securities in
exchange therefor upon liquidation of the Trust as described above), the
Preferred Securities will remain outstanding.
"Tax Event" means the receipt by Capital Markets and the Trust of an opinion
of counsel, rendered by a law firm having a recognized national tax practice,
to the effect that, as a result of any amendment to, change in or announced
proposed change in the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative decision, pronouncement, judicial
decision or action interpreting or applying such laws or regulations, which
amendment or change is effective or such proposed change, pronouncement, action
or decision is announced on or after the date on which the Preferred Securities
are issued and sold, there is more than an insubstantial risk that (i) the
Trust is, or within 90 days of the date of such opinion will be, subject to the
United States federal income tax with respect to income received or accrued on
the Debentures, (ii) interest payable by Capital Markets on
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the Debentures is not, or within 90 days of the date of such opinion, will not
be, deductible by Capital Markets, in whole or in part, for United States
federal income tax purposes, or (iii) the Trust is, or within 90 days of the
date of such opinion will be, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
Distribution of Debentures. Unless otherwise specified in the applicable
Prospectus Supplement, Capital Markets will have the right to dissolve the
Trust at any time and, after satisfaction of any liabilities to creditors of
the Trust as provided by applicable law, to cause the Debentures to be
distributed pro rata to the holders of the Trust Securities in liquidation of
the Trust.
After the date fixed for any distribution of Debentures, (i) the Preferred
Securities will no longer be deemed to be outstanding and (ii) any certificates
representing the Preferred Securities will be deemed to represent Debentures in
a principal amount equal to the stated liquidation amount of the Preferred
Securities, bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Preferred Securities, until such
certificates are presented to the Regular Trustees or their agent for transfer
or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or for the Debentures that may be distributed in exchange for
Preferred Securities upon dissolution or liquidation of the Trust. Accordingly,
the Preferred Securities that an investor may purchase, or the Debentures that
such investor may receive upon dissolution or liquidation of the Trust, may
trade at a discount to the price that such investor paid to purchase the
Preferred Securities offered hereby.
Redemption Procedures
Any Preferred Securities being redeemed will be redeemed by the Trust at the
applicable Redemption Price with the proceeds received by the Trust from the
contemporaneous redemption of the Debentures by Capital Markets. Redemptions of
Preferred Securities will be made and the applicable Redemption Price will be
payable only to the extent that the Trust has funds on hand available for the
payment of such Redemption Price.
If the Trust notifies the holders of the Preferred Securities of a redemption
and if the Preferred Securities to be redeemed are issued in global form, then
on the applicable redemption date, the Property Trustee will deposit
irrevocably with the depositary for the Preferred Securities funds sufficient
to pay the applicable redemption price, to the extent funds are available. In
addition, the Property Trustee will give the depositary irrevocable
instructions and authority to pay the redemption price to the beneficial owners
of the Preferred Securities. If the Preferred Securities are not issued in
global form, then the Property Trustee will pay the applicable Redemption Price
to the holders of the Preferred Securities by check mailed to their respective
addresses appearing on the register of the Trust on the redemption date. In
addition, the Property Trustee will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities upon surrender of their certificates evidencing the
Preferred Securities. Notwithstanding the foregoing, Distributions payable on
or prior to a redemption date for the Preferred Securities will be payable to
the holders of the Preferred Securities on the relevant record dates for the
related Distribution Dates. If a notice of redemption has been given and funds
have been deposited as required, then upon the date of such deposit, all of the
rights of the holders of the Preferred Securities to be redeemed will cease,
except for the right of such holders to receive the Redemption Price (without
interest thereon), and the Preferred Securities will cease to be outstanding.
If the redemption date is not a Business Day, then payment of the applicable
Redemption Price will be made on the next Business Day (and without any
interest or other payment in respect of any such delay). If, however, the next
Business Day falls in the next calendar year, then payment of the Redemption
Price will be made on the Business Day preceding the redemption date.
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If any payments for the redemption of any Preferred Securities are improperly
withheld or refused and not paid either by the Trust or by Capital Markets
pursuant to the Guarantee, then Distributions on the Preferred Securities will
continue to accumulate at the then applicable rate, from the redemption date
originally established by the Trust until the date upon which such redemption
payments actually are paid, in which case the actual payment date will be the
date fixed for redemption for purposes of calculating the applicable redemption
price.
Subject to the Declaration and applicable law (including, without limitation,
U.S. federal securities laws), Capital Markets or its subsidiaries may purchase
at any time and from time to time outstanding Preferred Securities by tender,
in the open market or by private agreement.
Any notice of the redemption of Trust Securities or the distribution of
Debentures in exchange for Trust Securities will be mailed to each holder of
Preferred Securities being so redeemed at least 30 days but not more than 60
days before the applicable redemption date, at such holder's registered
address. Unless Capital Markets defaults in the payment of the redemption price
on the Debentures, interest will cease to accrue on the Debentures or portions
thereof (and Distributions will cease to accumulate on the Preferred Securities
or portions thereof) called for redemption on and after the redemption date.
Subordination of Common Securities
The payment of Distributions on, and any payment upon redemption of, the
Preferred Securities and Common Securities, as applicable, will be made pro
rata based on their respective liquidation amounts. If, however, an Indenture
Event of Default (which constitutes a "Trust Enforcement Event" under the
Declaration) has occurred and continues on any Distribution Date or redemption
date, then the amounts payable on such date will not be made on any of the
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of any Common Securities will be made until
all accumulated and unpaid Distributions or redemption payments, as the case
may be, on all of the outstanding Preferred Securities for which Distributions
are to be paid or that have been called for redemption, as the case may be, are
fully paid. See "Description of Debentures--Indenture Events of Default." All
funds available to the Property Trustee first will be applied to the payment in
full in cash of all Distributions on, or the redemption price of, the Preferred
Securities then due and payable. The Trust will not issue any securities or
other interests in the assets of the Trust other than the Preferred Securities
and the Common Securities.
In the event that a Trust Enforcement Event has occurred and is continuing
with respect to the Preferred Securities, then Capital Markets, as sole holder
of the Common Securities, will be deemed to have waived any right to act with
respect to any such Trust Enforcement Event until the effect of such Trust
Enforcement Event with respect to the Preferred Securities has been cured,
waived or otherwise eliminated. Until such Trust Enforcement Event has been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Preferred Securities and not on behalf of Capital
Markets, as holder of the Common Securities, and only the holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf. See "--Trust Enforcement Events; Notice."
Dissolution of the Trust and Distributions upon Dissolution
Unless otherwise specified in the applicable Prospectus Supplement pursuant
to the Declaration, the Trust will automatically dissolve upon the expiration
of its term or, if earlier, shall dissolve on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of Capital Markets or
NiSource; (ii) the written direction to the Property Trustee from Capital
Markets at any time to dissolve the Trust and to distribute the Debentures in
exchange for the Trust Securities; (iii) redemption of all of the Preferred
Securities as described under "--Redemption or Exchange--
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Mandatory Redemption"; and (iv) the entry of an order for the dissolution of
the Trust by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, the Trust will be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Trust Securities in exchange therefor Debentures, unless such
distribution is determined by the Property Trustee not to be practical, in
which event the holders of the Trust Securities will be entitled to receive out
of the assets of the Trust distributions in cash or other immediately available
funds to the extent such funds are available for distribution after
satisfaction of the Trust's liabilities to any creditors (the "Liquidation
Distributions"). The amount of each Liquidation Distribution will be equal to
the aggregate of the stated liquidation amount plus accumulated and unpaid
Distributions thereon to the date of payment. If, however, Debentures are to be
distributed in connection with such Liquidation, then the holders of the Trust
Securities will receive Debentures in an aggregate principal amount equal to
the aggregate stated liquidation amount of the Trust Securities, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accumulated and unpaid Distributions on, such Trust
Securities.
If the Liquidation Distribution can be paid only in part because the Trust
has insufficient assets available to pay the aggregate Liquidation Distribution
in full, then the amounts payable directly by the Trust on the Trust Securities
will be paid on a pro rata basis. Capital Markets, as sole holder of the Common
Securities, will be entitled to receive Liquidation Distributions on a pro rata
basis with the Holders of the Preferred Securities, except that if an Indenture
Event of Default has occurred and is continuing, then the Preferred Securities
will have a preference over the Common Securities with regard to such
Liquidation Distributions.
Trust Enforcement Events; Notice
Under the Declaration, holders of Trust Securities have certain rights in the
event that any Indenture Event of Default has occurred and continues with
respect to the Trust Securities issued thereunder. See "Description of
Debentures--Indenture Events of Default." If a Trust Enforcement Event has
occurred and is continuing, the Preferred Securities will have a preference
over the Common Securities upon dissolution of the Trust, as described above.
The Property Trustee will transmit by mail, first class postage prepaid,
notice of such Trust Enforcement Event to the holders of the Trust Securities
within 90 days of the occurrence of the Trust Enforcement Event unless such
Trust Enforcement Event has been cured before the giving of such notice.
Capital Markets and the Regular Trustees are required to file annually with the
Property Trustee a certificate as to whether or not they are in compliance with
all the conditions and covenants applicable to them under the Declaration as
well as any reports that may be required to be filed by them under the Trust
Indenture Act.
Removal of Trustees
Any Trustee may be removed with or without cause at any time by the holder of
the Common Securities. The removal of a Property Trustee or a Delaware Trustee,
however, will not be effective until a successor Trustee possessing the
qualifications to act as a Property Trustee or Delaware Trustee, as the case
may be, has accepted its appointment in accordance with the provisions of the
Declaration. If an Indenture Event of Default has occurred and continues, the
Property Trustee and the Delaware Trustee may be removed by a majority of the
stated liquidation amount of the Preferred Securities.
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Merger or Consolidation of Trustees
Any entity into which the Property Trustee, the Delaware Trustee or any
Regular Trustee that is not a natural person may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee may be a party, or any entity
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Declaration, provided
that such entity is otherwise qualified and eligible.
Mergers, Consolidations or Amalgamations
The Trust may not consolidate with, convert into, amalgamate or merge with or
into, be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below. At the request of Capital Markets and with the consent of a
majority of the Regular Trustees, and without the consent of the holders of the
Preferred Securities, the Delaware Trustee or the Property Trustee, the Trust
may consolidate with, convert into, amalgamate or merge with or into, be
replaced by or convey, transfer or lease its properties substantially as an
entirety to a trust organized as such under the laws of any state. Such
consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease will be subject, however, to the following limitations:
(i) if the Trust is not the successor entity, then the successor entity
either must (a) expressly assume all of the Trust"s obligations with
respect to the Trust Securities or (b) substitute for the Trust Securities
other securities having substantially the same terms as the Trust
Securities (the "Successor Securities"), so long as such Successor
Securities rank the same as the Trust Securities with respect to
distributions and payments upon liquidation, redemption and otherwise;
(ii) Capital Markets must expressly appoint a trustee of a successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities must be
listed, or upon notification of issuance will be listed, on any national
securities exchange or with any other organization on which the Preferred
Securities are then listed or quoted;
(iv) such consolidation, conversion, amalgamation, merger, replacement,
conveyance, transfer or lease must not cause the Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization;
(v) such consolidation, conversion, amalgamation, merger, replacement,
conveyance, transfer or lease must not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities
(including any Successor Securities) in any material respect;
(vi) such successor entity must have a purpose substantially identical to
that of the Trust;
(vii) prior to such consolidation, conversion, amalgamation, merger,
replacement, conveyance, transfer or lease, Capital Markets must have
received an opinion of independent counsel to the Trust experienced in such
matters to the effect that (a) such consolidation, conversion,
amalgamation, merger, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect; (b) following such consolidation, conversion, amalgamation,
merger, replacement, conveyance, transfer or lease, neither the Trust nor
such successor entity will be required to register as an investment company
under the Investment Company Act and (c) following such consolidation,
conversion, amalgamation, merger, replacement, conveyance, transfer or
lease, the Trust (or the successor entity) will continue to be classified
as a grantor trust for U.S. federal income tax purposes;
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(viii) Capital Markets or any permitted successor or assignee must own
all of the Common Securities and must guarantee the obligations of such
successor entity under the Successor Securities, at least to the extent
provided by the Guarantee; and
(ix) such successor entity must expressly assume all of the obligations
of the Trust.
Notwithstanding the foregoing, unless holders of 100% in aggregate liquidation
amount of the Trust Securities give their consent, the Trust will not
consolidate with, convert into, amalgamate or merge with or into, be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to, any other entity or permit any other entity to consolidate with,
convert into, amalgamate or merge with or into, or replace it, if such
consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the Trust or the successor entity to be
classified as other than a grantor trust for U.S. federal income tax purposes
or would cause each holder of Trust Securities not to be treated as owning an
undivided beneficial ownership interest in the Debentures.
Voting Rights; Amendment of Declaration
Except as provided below and under "Description of the Guarantee--Amendments;
Assignment" and as otherwise required by the Declaration, the Business Trust
Act, the Trust Indenture Act and other applicable law, the holders of the Trust
Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion in
certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities, voting separately as a class, 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 Declaration. This includes the right to
direct the Property Trustee, as holder of the Debentures, to (i) exercise the
remedies available to it under the Indenture, (ii) consent to any amendment or
modification of the Indenture or the Debentures where such consent will be
required or (iii) waive any past default and its consequences that are waivable
under the Indenture; provided that if an Indenture Event of Default has
occurred and is continuing, then the holders of 25% of the aggregate stated
liquidation amount of the Preferred Securities may direct the Property Trustee
to declare the principal of and interest on the Debentures due and payable; and
provided further that where a consent or action under the Indenture would
require the consent or act of the holders of more than a majority of the
aggregate principal amount of Debentures affected thereby, the Property Trustee
only may give such consent or take such action at the direction of the holders
of at least the same proportion in aggregate stated liquidation amount of the
Preferred Securities. The Property Trustee will notify all holders of the
Preferred Securities of any notice of any Indenture Event of Default that it
has received from Capital Markets. Such notice will state that such Indenture
Event of Default also constitutes an Trust Enforcement Event. Except with
respect to directing the time, method and place of conducting a proceeding for
a remedy, the Property Trustee will have no obligation to take any of the
actions described in clause (i) or (ii) above unless it first has obtained an
opinion of independent tax counsel experienced in such matters to the effect
that, as a result of such action, the Trust will not fail to be classified as a
grantor trust for U.S. federal income tax purposes and that each holder of
Trust Securities will be treated as owning an undivided beneficial ownership
interest in the Debentures.
If the consent of the Property Trustee, as the holder of the Debentures, is
required under the Indenture with respect to any amendment or modification of
the Indenture, the Property Trustee will request the direction of the holders
of the Trust Securities with respect to such amendment or modification and will
vote with respect to such amendment or modification as directed by the holders
of a majority in stated liquidation amount of the Trust Securities voting
together as a single class;
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provided that where a consent under the Indenture would require the consent of
the holders of more than a majority of the aggregate principal amount of the
Debentures, the Property Trustee only may give such consent at the direction of
the holders of at least the same proportion in aggregate stated liquidation
amount of the Trust Securities. The Property Trustee will not take any such
action in accordance with the directions of the holders of the Trust Securities
unless the Property Trustee has obtained an opinion of independent tax counsel
to the effect that the Trust will not be classified as other than a grantor
trust for United States federal income tax purposes as a result of such action,
and that each holder of Trust Securities will be treated as owning an undivided
beneficial ownership interest in the Debentures.
A waiver of an Indenture Event of Default with respect to the Debentures will
constitute a waiver of the corresponding Trust Enforcement Event.
Any required approval or direction of the holders of the Preferred Securities
may be given at a separate meeting of holders of the Preferred Securities
convened for such purpose, at a meeting of all of the holders of the Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which the holders of the Preferred Securities are
entitled to vote to be mailed to each holder of record of Preferred Securities.
Each such notice will include a statement setting forth (i) the date of such
meeting, (ii) a description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote and (iii) instructions for
the delivery of proxies.
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel the Preferred Securities or distribute the
Debentures in accordance with the Declaration and the terms of the Trust
Securities.
Notwithstanding that holders of the Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by Capital Markets, the Trustees or any
entity directly or indirectly controlled by, or under direct or indirect common
control with, Capital Markets or any Trustee will not be entitled to vote or
consent and will, for purposes of such vote or consent, be treated as if such
Preferred Securities were not outstanding.
Except during the continuance of an Indenture Event of Default, the holders
of the Preferred Securities will have no rights to appoint or remove the
Trustees, who may be appointed, removed or replaced solely by Capital Markets
as the holder of all of the Common Securities. If an Indenture Event of Default
has occurred and is continuing, the Property Trustee and the Delaware Trustee
may be removed and replaced by the holders of a majority in liquidation amount
of the Preferred Securities.
Generally, the Declaration may be amended without the consent of the holders
of the Trust Securities, if such amendment does not have a material adverse
effect on certain rights, preferences or privileges of the holders of the Trust
Securities. Any amendment, however, that affects the powers, preferences or
special rights of the Trust Securities, or results in the dissolution, winding-
up or termination of the Trust (other than pursuant to the Declaration), will
not be effective unless the holders of at least 66 2/3% of the stated
liquidation amount of the Trust Securities have approved such amendment.
However, if an amendment affects only the powers, preferences or special rights
of Preferred Securities or the Common Securities, then such approval is
required only from the holders of the affected class. Further, any amendment
that changes the amount or timing of any Distribution or otherwise adversely
affects the amount of any Distribution required to be made in respect of the
Trust Securities, or any amendment that restricts the rights of a holder of
Trust Securities to institute a suit for the enforcement of payment of
Distributions, will not be effective unless each holder of Trust Securities has
approved such amendment.
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Global Preferred Securities
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Securities may be issued in whole or in part in global form ("Global
Preferred Securities") that will be deposited with, or on behalf of, a
depositary identified in the applicable Prospectus Supplement. Global Preferred
Securities may be issued only in fully registered form and in either temporary
or permanent form. Unless and until a Global Preferred Security is exchanged in
whole or in part for the individual Preferred Securities represented thereby,
the depositary holding such Global Preferred Security may transfer such Global
Preferred Security only to its nominee or successor depositary (or vice versa)
and only as a whole. Unless otherwise indicated in the applicable Prospectus
Supplement for the Preferred Securities, the depositary for the Global
Preferred Securities will be The Depository Trust Company. See "Book-Entry
Issuance." The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
limits and laws may impair the ability to transfer beneficial interests in
Global Preferred Securities.
The specific terms of the depositary arrangement for the Preferred Securities
will be described in the applicable Prospectus Supplement. Capital Markets
anticipates that the description of the depositary set forth below under "Book-
Entry Issuance" generally will apply to any depositary arrangements. Capital
Markets expects that the applicable depositary or its nominee, upon receipt of
any payment of liquidation amount, premium or Distributions in respect of a
permanent Global Preferred Security representing any of the Preferred
Securities, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the aggregate
principal amount of such Global Preferred Security as shown on the records of
the depositary or its nominee. Capital Markets also expects that payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name." Such payments will
be the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if at any
time the depositary is unwilling, unable or ineligible to continue as a
depositary for the Preferred Securities, the Trust will appoint a successor
depositary with respect to the Preferred Securities. If a successor depositary
is not appointed by the Trust within 90 days after the Trust receives such
notice or becomes aware of such ineligibility, the Trust's election that the
Preferred Securities be represented by one or more Global Securities will no
longer be effective, and a Regular Trustee on behalf of the Trust will execute,
and the Property Trustee will authenticate and deliver, Preferred Securities in
definitive registered form, in any authorized denominations, in an aggregate
stated liquidation amount equal to the principal amount of the Global Preferred
Securities representing the Preferred Securities in exchange for such Global
Preferred Securities. In addition, the Trust may at any time and in its sole
discretion, subject to any limitations described in the applicable Prospectus
Supplement, determine not to have any Preferred Securities represented by one
or more Global Preferred Securities, and, in such event, a Regular Trustee on
behalf of the Trust will execute and the Property Trustee will authenticate and
deliver Preferred Securities in definitive registered form, in an aggregate
stated liquidation amount equal to the principal amount of the Global Preferred
Securities representing such Preferred Securities, in exchange for such Global
Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to the
applicable depositary, which will credit the relevant Participants' accounts on
the applicable Distribution dates or, if the Preferred Securities are not held
by a depositary, such payments will be made by check mailed to the address of
the holder entitled thereto as such address will appear on the Trust's security
register. Unless otherwise specified in the applicable Prospectus Supplement,
the paying agent for the Preferred Securities initially will be the Property
Trustee. The paying agent will be permitted to resign as paying agent upon 30
days' written notice to the Property Trustee and Capital Markets.
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Registrar and Transfer Agent
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Preferred
Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but the Trust may require payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange of Preferred Securities.
Payment of Fees and Expenses
Capital Markets will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Debentures, (ii) the organization, maintenance and
dissolution of the Trust, (iii) the retention of the Regular Trustees and (iv)
the enforcement by the Property Trustee of the rights of the holders of the
Preferred Securities.
Information Concerning the Property Trustee
The Property Trustee will not be liable for any action taken, suffered or
omitted to be taken by it without negligence, in good faith and reasonably
believed by it to be authorized or within the discretion, rights or powers
conferred upon it by the Declaration. The Property Trustee will be under no
obligation to exercise any rights or powers vested in it by the Declaration at
the request or direction of any holder of Trust Securities, unless such holder
provides the Property Trustee security and indemnity, reasonably satisfactory
to the Property Trustee, against the costs and expenses and liabilities that
might be incurred by it in complying with such request or direction.
Governing Law
The Declaration and the Preferred Securities will be governed by, construed
and interpreted in accordance with the laws of the State of Delaware.
DESCRIPTION OF THE GUARANTEE
The following description sets forth certain general terms and provisions of
the Guarantee to which any Prospectus Supplement may relate. The particular
terms and provisions of the Guarantee and the application of these general
terms and provisions thereto will be described in the applicable Prospectus
Supplement.
Pursuant to and for the purposes of compliance with the Trust Indenture Act,
the Guarantee will qualify as an indenture, and The Chase Manhattan Bank will
act as trustee under the Guarantee (the "Guarantee Trustee") and hold the
Guarantee for the benefit of the holders of the Trust Securities. The following
summaries of certain terms and provisions of the Guarantee do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the form of Guarantee (including the definitions therein of certain terms) that
is filed as an exhibit to the Registration Statement, and to the Trust
Indenture Act. Capitalized terms used in this section not otherwise defined in
this Prospectus have the meanings set forth in the Guarantee.
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General
To the extent set forth in the Guarantee and except to the extent paid by the
Trust, Capital Markets will irrevocably and unconditionally agree to pay the
holders of the Trust Securities the Guarantee Payments (as defined below), in
full, as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The payments subject to the
Guarantee (the "Guarantee Payments") include:
(i) any accumulated and unpaid Distributions that are required to be paid
on the Trust Securities, to the extent the Trust has funds available
therefor;
(ii) the redemption price, including all accumulated and unpaid
Distributions to the date of redemption, with respect to the Trust
Securities upon the redemption of the Debentures held by the Trust if a Tax
Event occurs or upon maturity of the Debentures, to the extent the Trust
has funds available therefor;
(iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Debentures held by the Trust to the holders in exchange for the Trust
Securities, as provided in the Declaration), the lesser of (a) the
aggregate of the stated liquidation amount and all accumulated and unpaid
Distributions on the Trust Securities to the date of payment, to the extent
the Trust has funds available therefor, and (b) the amount of assets of the
Trust remaining available for distribution to holders of the Trust
Securities in liquidation of the Trust.
Capital Markets' obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by Capital Markets to the holders of
Preferred Securities or by causing the Trust to pay such amounts to such
holders.
If a Trust Enforcement Event has occurred and is continuing, the rights of
holders of the Common Securities to receive Guarantee Payments will be
subordinated to the rights of holders of Preferred Securities to receive
Guarantee Payments. See "Description of the Preferred Securities--Subordination
of Common Securities."
The Guarantee will apply only to the extent the Trust has funds available to
make payments with respect to the Trust Securities. If Capital Markets does not
make interest payments on the Debentures owned by the Trust, the Trust will not
have funds available to pay Distributions on the Preferred Securities.
Through the Guarantee, the Debentures and the Indenture, taken together,
Capital Markets has fully and unconditionally guaranteed all of the Trust's
obligations under the Trust Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of the documents that has the
effect of providing a full and unconditional guarantee of the Trust's
obligations under the Declaration. See "Relationship Among the Preferred
Securities, the Debentures and the Guarantee."
Status of the Guarantee
The Guarantee will constitute a guarantee of payment and not of collection.
The beneficiaries of the Guarantee may institute a legal proceeding directly
against Capital Markets to enforce its rights under the Guarantee without
instituting a legal proceeding against any other person or entity.
Certain Covenants of Capital Markets
Capital Markets will covenant that, so long as any Trust Securities remain
outstanding, if an Event of Default occurs under the Guarantee or a Trust
Enforcement Event occurs under the
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Declaration and written notice of such event has been given to Capital Markets,
then Capital Markets and NiSource may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to any of Capital Markets' or NiSource's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of Capital Markets or NiSource that
rank on a parity with or junior in interest to the Debentures or make any
guarantee payments with respect to any guarantee by Capital Markets or NiSource
of the debt securities of any subsidiary of Capital Markets or NiSource if such
guarantee ranks on a parity with or junior in interest to the Debentures (other
than (a) purchases or acquisitions of capital stock of Capital Markets or
NiSource in connection with the satisfaction by Capital Markets or NiSource of
its obligations under any employee benefit plans or the satisfaction by Capital
Markets or NiSource of its obligations pursuant to any contract or security
outstanding on the date of such event requiring Capital Markets or NiSource to
purchase capital stock of Capital Markets or NiSource, (b) as a result of a
reclassification of Capital Markets' or NiSource's capital stock for another
class or series of Capital Markets' or NiSource's capital stock, (c) the
purchase of fractional interests in shares of Capital Markets' or NiSource's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) dividends or
distributions in capital stock of Capital Markets or NiSource, (e) redemptions
or repurchases of any rights pursuant to a rights agreement and (f) payments
under the Guarantee).
Amendments; Assignment
Except with respect to any changes that do not adversely affect the rights of
holders of the Trust Securities in any material respect (that do not require
the consent of holders), the Guarantee may be amended only with the prior
approval of the holders of at least a majority in liquidation amount (including
the stated amount that would be paid on redemption, liquidation or otherwise,
plus accrued and unpaid Distributions to the date upon which the voting
percentages are determined) of all the outstanding Trust Securities. All
guarantees and agreements contained in the Guarantee will bind the successors,
assigns, receivers, trustees and representatives of Capital Markets and will
inure to the benefit of the holders of the Trust Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
Capital Markets to perform any of its payment or other obligations thereunder.
The holders of a majority in stated liquidation amount of the Trust
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to
enforce the Guarantee, any holder of Trust Securities may institute a legal
proceeding directly against Capital Markets to enforce its rights under the
Guarantee, without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person. Notwithstanding the foregoing, if
Capital Markets has failed to make a Guarantee Payment, a holder of Trust
Securities may directly institute a proceeding against Capital Markets for
enforcement of the Guarantee for such payment.
Capital Markets, as guarantor, is required to file annually with the
Guarantee Trustee a certificate indicating whether or not Capital Markets is in
compliance with all of the conditions and obligations applicable to it under
the Guarantee.
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Termination
The Guarantee will terminate (i) if a Tax Event occurs or upon maturity of
the Debentures held by the Trust, upon full payment of the redemption price of
all of the Trust Securities, (ii) upon distribution of the Debentures held by
the Trust to the holders of the Trust Securities or (iii) upon full payment of
the amounts payable in accordance with the Declaration upon liquidation of the
Trust. The Guarantee will continue to be effective or will be reinstated, as
the case may be, if at any time any holder of the Trust Securities must return
payment of any sums paid under the Trust Securities or the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, will undertake to perform only those duties specifically set
forth in the Guarantee and, after a default that has not been cured or waived,
will 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 will be under no obligation to exercise any of the rights or
powers vested in it by the Guarantee at the request or direction of any holder
of the Trust Securities, unless such holder provides the Guarantee Trustee
security and indemnity, reasonably satisfactory to the Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses and the
expenses of the Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred thereby. The foregoing will not relieve the
Guarantee Trustee, upon the occurrence of an event of default under the
Guarantee, of its obligation to exercise the rights and powers vested in it by
the Guarantee.
Governing Law
The Guarantee will be governed by, construed and interpreted in accordance
with the laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE DEBENTURESAND THE GUARANTEE
To the extent set forth in the Guarantee and to the extent funds are
available, Capital Markets will irrevocably guarantee the payment of
Distributions and other amounts due on the Trust Securities. See "Description
of the Guarantee." If and to the extent Capital Markets does not make payments
on the Debentures held by the Trust, the Trust will not have sufficient funds
to pay Distributions or other amounts due on the Trust Securities. The
Guarantee does not cover any payment of Distributions or other amounts due on
the Trust Securities unless the Trust has sufficient funds for the payment of
such Distributions or other amounts. In such event, a holder of Trust
Securities may institute a legal proceeding directly against Capital Markets to
enforce payment of such Distributions or other amounts to such holder after the
respective due dates. Taken together, Capital Markets' obligations under the
Debentures, the Indenture and the Guarantee provide a full and unconditional
guarantee of payments of Distributions and other amounts due on the Trust
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that provides a full and
unconditional guarantee of the Trust's obligations under the Trust Securities.
Sufficiency of Payments
As long as payments of interest and other amounts are made when due on the
Debentures held by the Trust, such payments will be sufficient to cover
Distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of the Debentures will
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be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Debentures will match the distribution rate and distribution and other
payment dates for the Trust Securities; (iii) Capital Markets, as issuer of the
Debentures, will pay, and the Trust will not be obligated to pay, directly or
indirectly, all costs, expenses, debts and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further
provides that the Trust will not engage in any activity that is not consistent
with the limited purposes of the Trust.
Notwithstanding anything to the contrary in the Indenture, Capital Markets
has the right to set-off any payment it is otherwise required to make
thereunder against and to the extent it has already made, or is concurrently on
the date of such payment making, a related payment under the Guarantee.
Enforcement Rights of Holders of Preferred Securities
The Declaration provides that if Capital Markets fails to make interest or
other payments on the Debentures held by the Trust when due (taking account of
any Extension Period), the holders of the Preferred Securities may direct the
Property Trustee to enforce its rights under the Indenture. See "Description of
Preferred Securities--Voting Rights; Amendment of Declaration." If the Property
Trustee fails to enforce its rights under the Indenture in respect of an
Indenture Event of Default, any holder of record of Preferred Securities may,
to the fullest extent permitted by applicable law, institute a legal proceeding
against Capital Markets to enforce the Property Trustee's rights under the
Indenture without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if a
Trust Enforcement Event has occurred and is continuing and such event is
attributable to the failure of Capital Markets to pay interest or principal on
the Debentures on the date such interest or principal is otherwise payable,
then a holder of Preferred Securities may institute a Direct Action against
Capital Markets for payment.
If Capital Markets fails to make payments under the Guarantee, a holder of
Preferred Securities may institute a proceeding directly against Capital
Markets for enforcement of the Guarantee for such payments.
Limited Purpose of Trust
The Preferred Securities evidence undivided beneficial ownership interests in
the Trust, and the Trust exists for the sole purpose of issuing and selling the
Trust Securities and using the proceeds to purchase Debentures. A principal
difference between the rights of a holder of Preferred Securities and a holder
of Debentures is that a holder of Debentures is entitled to receive from
Capital Markets the principal amount of and interest accrued on Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions and other payments from the Trust (or from Capital Markets under
the Guarantee) only if and to the extent the Trust has funds available for the
payment of such Distributions and other payments.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Trust involving the redemption or repayment of the Debentures held by the
Trust, the holders of the Trust Securities will be entitled to receive, out of
assets held by the Trust, subject to the rights of creditors of the Trust, if
any, the Liquidation Distribution in cash. Because Capital Markets is the
guarantor under the Guarantee and, as issuer of the Debentures, has agreed to
pay for all costs, expenses and liabilities of the Trust (other than the
Trust's obligations to the holders of the Trust Securities), the positions of a
holder of Trust Securities and a holder of the Debentures relative to other
creditors and to shareholders of Capital Markets in the event of liquidation or
bankruptcy of Capital Markets would be substantially the same.
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DESCRIPTION OF THE COMMON SHARES
The following description sets forth certain general terms and provisions of
the Common Shares and certain provisions of the Indiana Business Corporations
Law (the "Indiana BCL"). The particular terms and provisions of the Common
Shares offered by a Prospectus Supplement and the application of these general
terms and provisions thereto will be described in the applicable Prospectus
Supplement.
The following summaries of certain terms and provisions of the Common Shares
do not purport to be complete and are subject to, and qualified in their
entirety by reference to, applicable Indiana law and to the provisions of
NiSource's Amended and Restated Articles of Incorporation (the "Restated
Articles") and its Amended and Restated By-Laws (the "Restated By-Laws"),
copies of which have been filed as exhibits to the Registration Statement.
General
The authorized capital stock of NiSource consists of 400,000,000 Common
Shares, of which 124,885,481 Common Shares were issued and outstanding as of
April 30, 1999, and 20,000,000 preferred shares, without par value, of which no
shares are issued and outstanding as of the date of this Prospectus. Two
million preferred shares have been designated Series A Junior Participating
Preferred Shares and reserved for issuance upon exercise of the preferred share
purchase rights issued pursuant to the Share Purchase Rights Plan described
below. Subject to the limitations described below and the prior rights of
holders of NiSource's preferred shares, holders of Common Shares are entitled
to receive dividends when and as declared by the Board of Directors of
NiSource. Holders of Common Shares are entitled to one vote per share on each
matter submitted to a vote at a meeting of shareholders. Holders of Common
Shares are not entitled, as a matter of right, to subscribe for, purchase or
receive any new or additional issue of NiSource's capital stock or securities
convertible into capital stock of NiSource. In the event of any voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding
up of NiSource, the holders of Common Shares will be entitled to receive the
remaining assets after payment to the holders of preferred shares of the
preferential amounts, if any, to which they are entitled.
The Common Shares are listed on the NYSE, the CSE and the PE. The transfer
agent and registrar for the Common Shares is Harris Trust and Savings Bank.
Limitation on Dividends
Holders of Common Shares will not receive any dividends on the Common Shares
until after NiSource has provided for the payment of all preferential dividends
on NiSource's preferred shares and complied with any requirements to set aside
amounts for any sinking fund provisions, redemption provisions or purchase
accounts with respect to NiSource's preferred shares.
If Capital Markets exercises its right, if any, to defer payments of interest
on the Debentures from time to time by extending the applicable interest
payment period and accordingly causes the deferral of payments of Distributions
on the Preferred Securities, NiSource may not declare, set aside or pay any
dividend or distribution on any shares of any class or series of its capital
stock, except for dividends or distributions in shares of its capital stock or
in rights to acquire shares of its capital stock. See "Description of the
Preferred Securities--Distributions."
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Certain Business Combinations and Share Purchases
Chapters 42 and 43 of the Indiana BCL regulate "control share acquisitions"
of securities of, and "business combinations" with, certain Indiana
corporations, including, in some instances, NiSource.
Under Chapter 42 of the Indiana BCL, a "control share acquisition" is deemed
to occur when a person accumulates beneficial ownership of shares of a
corporation subject to the statute that, when added to all other shares of such
corporation beneficially owned by the acquiring person, would entitle the
acquiring person, upon acquisition of such shares, to vote or direct the voting
of shares of the corporation having voting power in the election of directors
within any of the following ranges: (i) one-fifth or more but less than one-
third of all voting power; (ii) one-third or more but less than a majority of
all voting power; or (iii) a majority or more of all voting power. Shares
acquired in a control share acquisition have the same voting rights as all
other shares of the same class or series of the corporation only to the extent
authorized by the affirmative vote of the holders of a majority of all of the
shares entitled to vote generally in the election of directors, excluding
shares held by the acquiring person, any officer of such corporation or any
employee of such corporation who is also a director of the corporation. The
acquiring person may cause a special shareholder meeting to be held to consider
whether the acquiring person can vote its shares. If no such request for a
shareholders' meeting is made, consideration of the voting rights of the
acquiring person's shares must be taken up at the next special or annual
shareholders' meeting of the corporation. In the event the acquiring person
fails to file a statement requesting such a meeting or the remaining
shareholders vote not to accord voting rights to the acquiring person's shares,
the corporation may redeem all of the acquiring person's shares for fair value.
In Indiana such a redemption must be authorized in the corporation's articles
or bylaws before a control share acquisition has occurred. The Restated By-Laws
authorize such a redemption. If voting rights are accorded to the acquiring
person and the acquiring person acquires beneficial ownership of a majority of
the shares of the corporation entitled to vote on the election of directors,
each shareholder of record who has not voted in favor of according the
acquiring person such voting rights may demand payment and an appraisal for his
or her stock at fair value. Regardless of the foregoing, full voting rights
will be restored to the shares of an acquiring person upon the transfer of
beneficial ownership of such shares to another person, unless such transfer
itself constitutes a control share acquisition.
Chapter 43 of the Indiana BCL regulates "business combinations" involving
certain Indiana corporations having a class of voting shares registered
pursuant to the Exchange Act and an "interested shareholder." An "interested
shareholder" is deemed to be, subject to certain limitations: (i) a person who
is the beneficial owner of 10% or more of the voting power of the outstanding
voting shares of the corporation; or (ii) an affiliate or associate of the
corporation who at any time within the five-year period immediately preceding
the date of the business combination was the beneficial owner of 10% or more of
the voting power of the then outstanding shares of the corporation. A "business
combination" includes: a merger, sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 10% or more of the assets, outstanding stock
or earning power of the corporation, to or with an interested shareholder; any
transaction resulting in the issuance or transfer to an interested shareholder
of any stock of the corporation or its subsidiaries having 5% or more of the
aggregate market value of all outstanding shares (except pursuant to the
exercise of certain warrants or rights to purchase shares, or pro rata
dividends or distributions); any proposal for liquidation or dissolution by the
interested shareholder; any transaction involving the corporation or its
subsidiaries that would result in increasing the proportionate share of the
stock of the corporation or its subsidiaries owned by an interested
shareholder; and any receipt by an interested shareholder of the benefit
(except proportionately as a shareholder) of loans, guarantees or other
financial benefits. The corporation may not engage in any business combination
with an interested shareholder for a period of five years following the date
such shareholder became an interested shareholder, unless prior to that date
the board of directors approved either the business combination or the
transaction that resulted in the shareholder becoming an interested
shareholder. Subsequent to the expiration of
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the five year prohibition, a combination will be allowed only if (i) prior to
the interested shareholder's share acquisition date, the board of directors
approved either the business combination or the transaction that resulted in
the shareholder becoming an interested shareholder, (ii) the combination is
approved by disinterested shareholders or (iii) shareholders, other than the
interested shareholder, receive certain amounts and types of consideration in
the event a business combination with the interested shareholder that has not
been approved takes place after the expiration of the five-year period.
A corporation may elect not to be governed by the business combination
provisions by amendment to its articles of incorporation. NiSource has not
adopted such an amendment. The Restated Articles contain provisions similar to
those of Chapter 43 of the Indiana BCL. Under the Restated Articles, any
business combination that is proposed by an interested shareholder must be
approved by 80% of the outstanding voting shares, unless certain fair price and
procedural requirements are met, the business combination is approved by
NiSource's Board before the interested shareholder becomes an interested
shareholder, or the business combination is approved by the affirmative vote of
the holders of the majority of the outstanding voting shares that are not
beneficially owned by the interested shareholder no earlier than five years
after such person becomes an interested shareholder.
The provisions in Chapter 43, the Indiana BCL and the Restated Articles, in
effect, encourage a party seeking to control NiSource, in advance of the party
becoming an interested shareholder, to negotiate and reach an agreement with
NiSource's Board as to the terms of its proposed business combination. Without
such a prior agreement with NiSource's Board, it could take over five years for
a party who is an interested shareholder to obtain approval of its proposed
business combination unless such proposed business combination is approved by
the requisite 80% or two-thirds vote or satisfies the fair price and procedural
requirements. As a result of these restrictions on business combinations with
interested shareholders, takeovers that might be favored by a majority of
NiSource's shareholders may be impeded or prevented. On the other hand, the
negotiation of terms of a takeover transaction in advance is likely to result
in more favorable terms for all of the shareholders of NiSource than are likely
to be offered in takeovers initiated without advance negotiations.
Board of Directors
The Restated Articles provide that NiSource's Board shall consist of ten
persons and be divided into three classes serving staggered three-year terms.
As a result, approximately one-third of NiSource's Board is elected each year.
The Restated Articles provide that a director of NiSource may only be removed
for cause by the directors or shareholders and that vacancies shall be filled
by a majority vote of the remaining directors.
The existence of NiSource's staggered Board requires a substantial
shareholder to negotiate with the existing Board before attempting a takeover
of NiSource because, without the cooperation of the existing Board, it could
take such a shareholder up to two years to acquire control of the Board. This
provision enables NiSource's Board, and ultimately its shareholders, to
negotiate with potential acquirors from a strong position and protects
NiSource's shareholders against unfair or unequal treatment that could arise
from an unsolicited attempt to acquire the respective companies. On the other
hand, the additional time required to obtain control of NiSource's Board may
discourage takeover bids that a majority of NiSource's shareholders might deem
desirable.
Shareholder Meetings; Action by Written Consent; Shareholder Proposals
The Restated By-Laws provide that the Chairman, President or NiSource's Board
may call a special meeting of shareholders and that the Chairman must call a
special meeting of shareholders upon the written request of a majority of
NiSource's Board or the holders of at least 25% of the outstanding voting
stock.
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Under the Indiana BCL, any action required to be taken at a meeting of
shareholders may be taken without a meeting if all shareholders entitled to
vote on the matter consent to the action in writing and the written consents
are filed with the records of the meetings of shareholders.
The Restated By-Laws provide that nominations for election to NiSource's
Board and the proposal of business to be considered by the shareholders at an
annual meeting of shareholders may be made by any shareholder of record who
gives notice to NiSource prior to the date set forth for such notice in
NiSource's proxy statement for the preceding annual meeting of shareholders.
The notice must contain, for director nominees, the information required
pursuant to Regulation 14A of the Exchange Act in regard to such nominees, or
for business proposed to be brought before the meeting, a brief description of
the business and, in either case, certain information regarding the shareholder
making the proposal.
Amendment of Restated Articles
The Restated Articles provide that the provisions relating to directors,
business combinations, indemnification and amendment of the Restated Articles
may not be amended, altered, changed or repealed unless such amendment,
alteration, change or repeal is approved by the affirmative vote of the holders
of not less than 75% of the outstanding shares entitled to vote thereon. This
requirement of a 75% vote is greater than the general voting requirement under
the Indiana BCL and, in effect, could give certain minority shareholders of
NiSource, including the members of NiSource's Board in their capacity as
shareholders, a veto power over subsequent changes to provisions relating to
directors, business combinations, indemnification and amendment of the Restated
Articles, ultimately making it more difficult to amend such provisions, even if
a majority of the holders of Common Shares favors such changes.
Amendment of By-Laws
The Restated By-Laws provide that they may be altered, amended or repealed by
an affirmative vote of a majority of a quorum of NiSource's Board at any
meeting of the Board.
Share Purchase Rights Plan
In February 1990, NiSource adopted a Share Purchase Rights Plan and issued,
as a dividend, one preferred share purchase right (a "Right") for each
outstanding Common Share. Each Common Share issued since the date of that
dividend also includes one Right (including shares to be issued in connection
with any offering of Common Shares pursuant to this Prospectus, except in the
unlikely event that the Rights are redeemed or separately certificated prior to
the closing of any such offering).
Each Right entitles its holder to purchase one-two-hundredth ( 1/200) of a
Series A Junior Participating Preferred Share of NiSource at a price of $30 per
one-two-hundredth of a share, subject to adjustment. Currently, the Rights are
not exercisable. The Rights will become exercisable if a person or group
acquires 20% or more of the voting power of NiSource or announces a tender or
exchange offer following which such person or group would hold 25% or more of
NiSource's voting power. If such an acquisition were consummated, or if
NiSource were acquired by such person or group in a merger or other business
combination, then each Right would be exercisable for that number of NiSource's
Common Shares or the acquiring company's shares of common stock having a market
value of two times the exercise price of the Right. NiSource may redeem the
Rights at a price of $.005 per NiSource Right prior to the occurrence of an
event that causes the Rights to be exercisable for Common Shares. The Rights
will expire on March 12, 2000.
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DESCRIPTION OF THE STOCK PURCHASE CONTRACTS AND THE STOCK PURCHASE UNITS
NiSource may issue Stock Purchase Contracts, including contracts obligating
holders to purchase from NiSource, and NiSource to sell to the holders, a
specified number of Common Shares at a future date or dates. The consideration
per Common Share may be fixed at the time the Stock Purchase Contracts are
issued or may be determined by reference to a specific formula set forth in the
Stock Purchase Contracts. NiSource may issue the Stock Purchase Contracts
separately or as Stock Purchase Units consisting of (i) a Stock Purchase
Contract and (ii) Preferred Securities or debt obligations of third parties,
including U.S. Treasury securities. Such Preferred Securities or debt
obligations will serve as collateral to secure the holders' obligations to
purchase the Common Shares under the Stock Purchase Contracts. The Stock
Purchase Contracts may require NiSource to make periodic payments to the
holders of the Stock Purchase Contracts. Such payments may be unsecured or
prefunded on some basis. The Stock Purchase Contracts may require holders to
secure their obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units, including, if applicable,
collateral arrangements and depositary arrangements relating to such Stock
Purchase Contracts or Stock Purchase Units. That Prospectus Supplement also
will describe certain United States federal income tax consequences and special
considerations applicable to the offering of the Stock Purchase Contracts or
Stock Purchase Units.
The Stock Purchase Contracts and Stock Purchase Units will be governed by and
construed in accordance with the laws of the State of New York.
DESCRIPTION OF MEDIUM-TERM NOTES
The following description sets forth certain general terms and provisions of
the Medium-Term Notes to which any Prospectus Supplement or Pricing Supplement
may relate. The particular terms and provisions of the Medium-Term Notes and
the application of these general terms and provisions thereto will be described
in the applicable Prospectus Supplement or Pricing Supplement.
The Medium-Term Notes will be issued as a series of Debt Securities under the
Indenture, which is subject to and governed by the Trust Indenture Act. The
following summaries of certain terms and provisions of the Medium-Term Notes
and the Indenture do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the forms of Medium-Term Notes and
the Indenture that are filed as exhibits to this Registration Statement, and to
the Trust Indenture Act. Capitalized terms used in this section not otherwise
defined in this Prospectus have the meanings set forth in the Medium-Term Notes
or the Indenture, as the case may be. Certain material United States federal
income tax consequences applicable to the offering of the Medium-Term Notes
will be described in the applicable Prospectus Supplement or Pricing
Supplement.
The term "Debt Securities," as used in this Prospectus, refers to all debt
securities, including the Debentures described above and the Medium-Term Notes,
issued and issuable from time to time under the Indenture. The following
description of the Medium-Term Notes will apply to each series of Medium-Term
Notes offered hereby unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement.
General
All Debt Securities, including the Medium-Term Notes, issued and to be issued
under the Indenture will be unsecured general obligations of Capital Markets
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of Capital Markets from time to time outstanding.
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The Indenture does not limit the aggregate principal amount of Debt Securities
that may be issued thereunder, and Capital Markets may issue Debt Securities
thereunder from time to time in one or more series up to the aggregate
principal amount authorized by Capital Markets for each series. From time to
time, Capital Markets may provide for the issuance of Medium-Term Notes or
other Debt Securities under the Indenture, without the consent of holders of
Debt Securities already outstanding, in addition to the Medium-Term Notes
offered hereby.
The Medium-Term Notes offered hereby currently are limited to up to an
aggregate principal amount of $160 million, or the equivalent thereof in one or
more foreign or composite currencies. Each Medium-Term Note will mature on any
day nine months or more from its date of issue (the "Stated Maturity Date"), as
specified in the applicable Prospectus Supplement or Pricing Supplement, unless
the principal thereof (or any installment of principal thereof) becomes due and
payable prior to the Stated Maturity Date, whether by the declaration of
acceleration of maturity, notice of redemption at Capital Markets' option,
notice of the holder's option to elect repayment or otherwise (the Stated
Maturity Date or such prior date, as the case may be, is herein referred to as
the "Maturity Date" with respect to the principal of such Note repayable on
such date). Unless otherwise specified in the applicable Prospectus Supplement
or Pricing Supplement, interest-bearing Medium-Term Notes will either be Fixed
Rate or Floating Rate, as specified in the applicable Prospectus Supplement or
Pricing Supplement. Capital Markets also may issue Discount, Indexed and
Amortizing (as such terms are hereinafter defined).
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the Medium-Term Notes will be denominated in, and payments of
principal and any premium and/or interest in respect thereof will be made in
United States dollars. The Medium-Term Notes also may be denominated in, and
payments of principal and any premium or interest in respect thereof may be
made in, one or more foreign or composite currencies. See "Special Provisions
Relating to Foreign Currency--Payment of Principal and Any Premium or
Interest." The currency or composite currency in which a particular Medium-Term
Note is denominated (or, if such currency or composite currency is no longer
legal tender for the payment of public and private debts, such other currency
or composite currency of the relevant country that then is legal tender for the
payment of such debts) is herein referred to as the "Specified Currency" with
respect to such Medium-Term Note. References herein to "United States dollars,"
"U.S. dollars" or "$" are to the lawful currency of the United States of
America (the "United States").
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, purchasers are required to pay for the Medium-Term Notes in the
applicable Specified Currencies. At the present time, there are limited
facilities in the United States for the conversion of United States dollars
into foreign or composite currencies and vice versa, and commercial banks do
not generally offer non-United States dollar checking or savings account
facilities in the United States. Capital Markets believes that, with respect to
Medium-Term Notes offered through agents, and unless otherwise specified in the
applicable Prospectus Supplement or Pricing Supplement, the agent from or
through which a Foreign Currency Note is purchased may be prepared to arrange
for the conversion of United States dollars into the Specified Currency in
order to enable the purchaser to pay for such Foreign Currency Note, provided
that a request is made to such agent on or prior to the fifth Business Day (as
hereinafter defined) preceding the date of delivery of such Foreign Currency
Note, or by such other day as determined by such agent. Each such conversion
will be made by such agent subject to such terms and conditions, limitations
and charges as such agent may from time to time establish in accordance with
its regular foreign exchange practices. All costs of exchange will be borne by
the purchaser of each such Foreign Currency Note. See "Special Provisions
Relating to Foreign Currency Notes."
Interest rates offered by Capital Markets with respect to the Medium-Term
Notes may differ depending upon, among other factors, the aggregate principal
amount of Medium-Term Notes
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purchased in any single transaction. Medium-Term Notes with different variable
terms other than interest rates also may be offered concurrently to different
investors. Capital Markets may change the interest rates or formulas and other
terms of the Medium-Term Notes from time to time, but no such change will
affect any Medium-Term Note previously issued or as to which an offer to
purchase already has been accepted by Capital Markets.
Each Medium-Term Note will be issued as a Book-Entry Note represented by one
or more fully registered Global Securities or as a fully registered
Certificated Note. Unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement, the minimum denominations of each Medium-Term
Note (other than a Foreign Currency Note) will be $1,000 and integral multiples
thereof. The minimum denominations of each Foreign Currency Note will be
specified in the applicable Prospectus Supplement or Pricing Supplement.
Capital Markets will make payments of principal of and any premium or
interest on Book-Entry Notes through the Indenture Trustee to the depositary.
See "--Book-Entry Notes." In the case of Certificated Notes, Capital Markets
will pay principal of and any premium due on the Maturity Date in immediately
available funds upon presentation and surrender of the Certificated Note (and,
in the case of any repayment on an Optional Repayment Date, upon submission of
a duly completed election form in accordance with the provisions described
below) at the office or agency maintained by Capital Markets for such purpose
in the Borough of Manhattan, The City of New York, which currently is the
corporate trust office of the Indenture Trustee. Capital Markets will make any
payment of interest due on the Maturity Date of a Certificated Note to the
person to whom payment of the principal thereof and premium, if any, thereon is
made. Capital Markets will make any payment of interest due on a Certificated
Note on any Interest Payment Date (as hereinafter defined) other than the
Maturity Date by check mailed to the address of its holder entitled thereto as
such address will appear in the Security Register of Capital Markets.
Notwithstanding the foregoing, a holder of $10 million (or, if the Specified
Currency is other than United States dollars, the equivalent thereof in such
Specified Currency) or more in aggregate principal amount of Certificated Notes
(whether having identical or different terms and provisions) will be entitled
to receive any interest payments on any Interest Payment Date other than the
Maturity Date by wire transfer of immediately available funds, if appropriate
wire transfer instructions have been received in writing by the Indenture
Trustee not less than 15 days prior to such Interest Payment Date. Such wire
transfer instructions will remain in effect until revoked by such holder. For
special payment terms applicable to Foreign Currency Notes, see "--Special
Provisions Relating to Foreign Currency Notes--Payment of Principal and Any
Premium or Interest."
As used in this "Description of Medium-Term Notes," "Business Day" means any
day, other than a Saturday or Sunday, that is neither a legal holiday nor a day
on which banking institutions are authorized or required by law, regulation or
executive order to close in The City of New York. With respect to Foreign
Currency Notes, "Business Day" is also not a day on which banking institutions
are authorized or required by law, regulation or executive order to close in
the Principal Financial Center (as hereinafter defined) of the country issuing
the Specified Currency (or, if the Specified Currency is Euro, such day is also
a day on which the Trans-European Automated Real-Time Gross Settlement Express
Transfer (TARGET) System is open); provided, further, that, with respect to
Medium-Term Notes as to which LIBOR is an applicable Interest Rate Basis, such
day is also a London Business Day. "London Business Day" means a day on which
dealings in the Designated LIBOR Currency (as hereinafter defined) are
transacted in the London interbank market.
"Principal Financial Center" means (i) the capital city of the country
issuing the Specified Currency or (ii) the capital city of the country to which
the Designated LIBOR Currency, if applicable, relates. However, with respect to
United States dollars, Australian dollars, Canadian dollars, German marks,
Dutch guilders, Italian lire, Swiss francs and Euro, the "Principal Financial
Center" will be
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New York City, Sydney, Toronto, Frankfurt, Amsterdam, Milan (solely in the case
of clause (i) above), Zurich and London, respectively, unless otherwise
specified in the applicable Prospectus Supplement or Pricing Supplement.
Book-Entry Notes may be transferred or exchanged only through the depositary.
See "--Book-Entry Notes." Registration of transfer or exchange of Certificated
Notes will be made at the office or agency maintained by Capital Markets for
such purpose in the Borough of Manhattan, The City of New York, which currently
is the corporate trust office of the Indenture Trustee. Neither Capital Markets
nor the Indenture Trustee will charge a service fee for any such registration
of transfer or exchange of the Medium-Term Notes, but Capital Markets may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith (other than exchanges
pursuant to the Indenture not involving any transfer).
The Indenture does not contain provisions to afford the holders of Medium-
Term Notes protection in the event of a highly leveraged transaction or a
takeover attempt nor do they contain provisions requiring the repurchase of any
Medium-Term Notes upon a change in control of Capital Markets. In addition, the
Indenture does not contain any provisions that would limit the ability of
Capital Markets and its subsidiaries to incur unsecured indebtedness.
The Medium-Term Notes may be issued under the Indenture as Original Issue
Discount Notes to be offered and sold at a discount below their principal
amount. United States federal income tax, accounting and other special
considerations applicable to any such Original Issue Discount Note will be
described in any Prospectus Supplement relating thereto. "Original Issue
Discount Note" means any Medium-Term Note that provides for an amount less than
the principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof as a result of the occurrence of an
Indenture Event of Default and the continuation thereof. In addition, the
Medium-Term Notes may, for United States Federal income tax purposes, be deemed
to have been issued with "original issue discount" ("OID") even if such Medium-
Term Notes are offered and sold at an amount equal to their stated principal
amount. The United States Federal income tax consequences of Medium-Term Notes
deemed to be issued with OID will be described in any Prospectus Supplement
relating thereto.
Redemption at the Option of Capital Markets
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the Medium-Term Notes will not be subject to any sinking fund.
Capital Markets may redeem the Medium-Term Notes at its option prior to the
Stated Maturity Date if an Initial Redemption Date is specified in the
applicable Prospectus Supplement or Pricing Supplement. If so specified,
Capital Markets may redeem the Medium-Term Notes at its option on any date on
or after the applicable Initial Redemption Date in whole, or from time to time
thereafter in part in increments of $1,000 or such other minimum denomination
specified in such Prospectus Supplement or Pricing Supplement (provided that
any remaining principal amount thereof will be at least $1,000 or such minimum
denomination). Such redemption will be at the applicable Redemption Price (as
hereinafter defined), together with unpaid interest accrued thereon to the date
of redemption; provided that Capital Markets gives holders of Medium-Term Notes
written notice not more than 60 nor less than 30 calendar days prior to the
date of redemption in accordance with the provisions of the Indenture. With
respect to a Medium-Term Note, "Redemption Price" means an amount equal to the
Initial Redemption Percentage specified in the applicable Prospectus Supplement
or Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) multiplied by the unpaid principal amount to be
redeemed. The Initial Redemption Percentage, if any, applicable to a Medium-
Term Note will decline upon each anniversary of the Initial Redemption Date by
an amount equal to the applicable Annual Redemption Percentage Reduction, if
any, until the Redemption Price is equal
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to 100% of the unpaid principal amount to be redeemed. For a discussion of the
redemption of Discount Notes, see "--Discount Medium-Term Notes."
In the event of any redemption of Medium-Term Notes of any series, Capital
Markets shall not be required to issue, to register the transfer of, or to
exchange Medium-Term Notes of any series during a period of 15 Business Days
immediately preceding the date notice is given identifying the serial numbers
of the Medium-Term Notes of that series called for redemption.
Repayment at the Option of the Holder
If the applicable Prospectus Supplement or Pricing Supplement specifies one
or more Optional Repayment Dates, then the Medium-Term Notes will be repayable
by Capital Markets at the option of the holders thereof prior to the Stated
Maturity Date. If so specified, the Medium-Term Notes will be subject to
repayment at the option of the holders thereof on any Optional Repayment Date
in whole or in part. Such repayment will be in increments of $1,000 or such
other minimum denomination specified in the applicable Prospectus Supplement or
Pricing Supplement (provided that any remaining principal amount thereof will
be at least $1,000 or such other minimum denomination) at a repayment price
equal to 100% of the unpaid principal amount to be repaid, together with unpaid
interest accrued thereon to the date of repayment. For any Note to be repaid,
the Indenture Trustee must receive the Medium-Term Note with the duly completed
form entitled "Option to Elect Repayment" at its office not more than 60 nor
less than 30 calendar days prior to the date of repayment. Exercise of such
repayment option by the holder will be irrevocable. For a discussion of the
repayment of Discount Notes, see "--Discount Medium-Term Notes."
Only the depositary may exercise the repayment option with respect to Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any
portion of the Book-Entry Notes represented by such Global Securities repaid
must instruct the Participant through which they own their interests to direct
the depositary to exercise the repayment option on their behalf by delivering
the related Global Security and duly completed election form to the Indenture
Trustee as described above. In order to ensure that such Global Security and
election form are received by the Indenture Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest before such Participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should
consult the Participants through which they own their interests for the
respective deadlines for such Participants. All instructions given to
Participants from Beneficial Owners of Global Securities relating to the
exercise of such repayment option will be irrevocable. In addition, at the time
such instructions are given, each such Beneficial Owner will cause the
Participant through which it owns its interest to transfer such Beneficial
Owner's interest in the Global Security or Securities representing the related
Book-Entry Notes, on the depositary's records, to the Indenture Trustee. See
"--Book-Entry Notes."
If applicable, Capital Markets will comply with the requirements of Section
14(e) of the Exchange Act and the rules promulgated thereunder, and any other
securities laws or regulations in connection with any such repayment.
Capital Markets may purchase at any time Medium-Term Notes at any price or
prices in the open market or otherwise. In its discretion, Capital Markets may
hold such Medium-Term Notes, resell them or surrender them to the Indenture
Trustee for cancellation.
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Certain Indenture Covenants
Although the Indenture contains certain covenants, described below, with
respect to limitations on liens and merger or consolidation, these covenants do
not focus on the debt incurred in many types of transactions and do not
otherwise afford protection to holders of Medium-Term Notes in the event of a
highly leveraged transaction that is not in violation of the covenants. Capital
Markets does not currently intend to include any covenants or other provisions
affording such protection in the Medium-Term Notes. If Capital Markets
determines in the future that it is desirable to include covenants or other
provisions of this type in any series of securities, they will be described in
the applicable Prospectus Supplement or Pricing Supplement for that series.
Limitation on Liens
Neither Capital Markets nor NiSource will, nor will NiSource permit any
subsidiary other than a utility, to issue, assume or guarantee any debt for
money borrowed (for purposes of this paragraph, "Debt"), secured by any
mortgage, security interest, pledge, lien or other encumbrance (herein referred
to as "mortgage") upon any property of Capital Markets, NiSource or any such
subsidiary (other than a utility), except indebtedness issued by any such
subsidiary and owned by NiSource or any other such subsidiary (whether such
property or indebtedness is owned at the date of the Indenture or thereafter
acquired), without effectively securing the Medium-Term Notes equally and
ratably with (or prior to) such Debt. The foregoing restrictions do not apply
to:
(i) mortgages on any property, acquired, constructed or improved by
NiSource or any of the subsidiaries other than the utilities after the date
of the Indenture which are created or assumed contemporaneously with, or
within 120 days after, such acquisition or completion of such construction
or improvement, or within six months thereafter pursuant to a firm
commitment for financing arranged with a lender or investor within such
120-day period, to secure or provide for the payment of all or any part of
the purchase price of such property or the cost of such construction or
improvement incurred after the date of the Indenture, or, in addition to
mortgages contemplated by clauses (ii) and (iii) below, mortgages on any
property existing at the time of acquisition thereof, provided that the
mortgages shall not apply to any property theretofore owned by NiSource or
any such subsidiary other than, in the case of any such construction or
improvement, any theretofore unimproved real property on which the property
so constructed or the improvement is located;
(ii) existing mortgages on any property or indebtedness of a corporation
which is merged with or into or consolidated with NiSource or a subsidiary;
(iii) mortgages on property or indebtedness of a corporation existing at
the time such corporation becomes a subsidiary;
(iv) mortgages to secure Debt of a subsidiary to NiSource or to another
subsidiary other than a utility;
(v) mortgages 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 Debt of the pollution control or industrial revenue bond type;
(vi) mortgages to secure loans to NiSource or any subsidiary other than a
utility maturing within 12 months from the creation thereof and made in the
ordinary course of business;
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(vii) mortgages on any property (including any natural gas, oil or other
mineral property) to secure all or part of the cost of exploration,
drilling or development thereof or to secure Debt incurred to provide funds
for any such purpose;
(viii) mortgages existing on the date of the Indenture; and
(ix) mortgages for the sole purposes of extending, renewing or replacing
in whole or in part Debt secured by any mortgage referred to in the
foregoing clauses (i) to (viii), inclusive, or this clause (ix); provided,
however, that the principal amount of Debt secured thereby shall not exceed
the principal amount of Debt so secured at the time of such extension,
renewal or replacement, and that such extension, renewal or replacement
shall be limited to all or a part of the property or indebtedness which
secured the mortgage so extended, renewed or replaced (plus improvements on
such property). Furthermore, such restrictions do not apply to the
issuance, assumption or guarantee by NiSource or any subsidiary of Debt
secured by a mortgage which would otherwise be subject to the foregoing
restriction up to an aggregate amount which, together with all other
secured Debt (not including secured Debt permitted under the foregoing
exceptions), does not exceed 5 percent of consolidated net tangible assets
of NiSource and the subsidiaries (other than the utilities), determined in
accordance with generally accepted accounting principles and as of a date
not more than 90 days prior to the happening of the event for which such
determination is being made. For purposes of the foregoing, "consolidated
net tangible assets" means the total amount of assets appearing on a
consolidated balance sheet of NiSource and the subsidiaries (other than the
utilities), less, without duplication, (i) all current liabilities
(excluding any thereof which are by their terms extendable or renewable at
the sole option of the obligor thereon without requiring the consent of the
obligee to a date more than 12 months after the date on which the
determination of consolidated net tangible assets is made), (ii) all
reserves for depreciation and other asset valuation reserves but excluding
any reserves for deferred Federal income taxes arising from accelerated
amortization or otherwise, (iii) all intangible assets such as goodwill,
trademarks, trade names, patents and unamortized debt discount and expenses
carried as an asset on said balance sheet, and (iv) all appropriate
adjustments on account of minority interests of other persons holding
common shares or stock in any subsidiary.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that neither Capital Markets nor NiSource may
consolidate with or merge into any other person or entity or convey, transfer
or lease its properties and assets substantially as an entirety to any person
unless: (i) the corporation formed by any such consolidation or continuing in
such merger, or the person that acquires by conveyance or transfer, or that
leases, its properties and assets substantially as an entirety will be a
corporation organized and existing under the laws of any domestic jurisdiction
and will expressly assume, in the case of Capital Markets, its obligations
under the Medium-Term Notes and the Indenture and, in the case of NiSource, its
obligations under the Indenture and the Support Agreement, (ii) immediately
after giving effect to such transaction, no Indenture Event of Default, and no
event that, after notice or lapse of time, would become an Indenture Event of
Default, will have occurred and be continuing and (iii) Capital Markets or
NiSource will have delivered to the Indenture Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer or lease complies with the Indenture and that all
conditions precedent therein provided for relating to such transaction have
been complied with.
Capital Markets covenants and agrees that if, upon any consolidation or
merger of Capital Markets with or into any other corporation, or upon any
consolidation or merger of any other corporation with or into Capital Markets,
or upon any sale or conveyance of all or substantially all of the property and
assets of Capital Markets to any other corporation, any property of Capital
Markets or any subsidiary or any indebtedness issued by any subsidiary owned by
Capital Markets or by any
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subsidiary immediately prior thereto would thereupon become subject to any
mortgage, security interest, pledge, lien or other encumbrance not permitted by
the Indenture, Capital Markets, prior to or concurrently with such
consolidation, merger, sale or conveyance, will by indenture supplemental
hereto effectively secure the securities then outstanding (equally and ratably
with (or prior to) any other indebtedness of or guaranteed by Capital Markets
or such subsidiary then entitled thereto) by a direct lien on such property of
Capital Markets or any subsidiary or such indebtedness issued by a subsidiary,
prior to all liens other than any theretofore existing thereon.
Indenture Events of Default; Acceleration of Maturity
Any one or more of the following events that has occurred and is continuing
constitutes an Indenture Event of Default with respect to the Medium-Term Notes
(whatever the reason for such Indenture Event of Default and whether it is
voluntary or involuntary or 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) failure of Capital Markets to pay any interest on any Medium-Term
Notes for a period of 30 days after such interest becomes due and payable;
(ii) failure of Capital Markets to pay the principal of (or premium, if
any, on) the Medium-Term Notes for a period of three Business Days after
such principal (or premium) becomes due, whether at maturity, upon
redemption, by declaration or otherwise;
(iii) failure of Capital Markets to deposit any sinking fund payment for
a period of three Business Days after such deposit becomes due (if
applicable to the Medium-Term Notes);
(iv) failure of Capital Markets or NiSource to observe or perform any
covenant or warranty of Capital Markets or NiSource under the Indenture or
the Support Agreement (other than a covenant or warranty referred to above
or included in or pursuant to the Indenture solely for the benefit of one
or more series of Debt Securities other than the Medium-Term Notes) for a
period of 60 days after written notice has been given, by registered or
certified mail, to Capital Markets and NiSource by the Indenture Trustee,
or to Capital Markets, NiSource and the Indenture Trustee by the holders of
at least 25% in principal amount of the Medium-Term Notes;
(v) failure to pay in excess of $5 million of the principal or interest
of indebtedness under any bond, debenture, note or other evidence of
indebtedness for money borrowed by Capital Markets (including a default
with respect to Debt Securities of any series other than the Medium-Term
Notes) or under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness
for money borrowed by Capital Markets (including the Indenture), whether
such indebtedness now exists or shall hereafter be created, when due and
payable after the expiration of any applicable grace period with respect
thereto or shall have resulted in such indebtedness in an amount in excess
of $5 million becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled within a period of 90 days after there shall have
been given, by registered or certified mail, to Capital Markets by the
Indenture Trustee or to Capital Markets and the Indenture Trustee by the
holders of at least 25% in principal amount of the Medium-Term Notes;
(vi) certain events in bankruptcy, insolvency or reorganization of
Capital Markets, NiSource or Northern Indiana; and
(vii) any other Indenture Event of Default with respect to the Medium-
Term Notes.
Each of Capital Markets and NiSource will be required to furnish annually to
the Indenture Trustee a statement as to the performance by it of certain of its
obligations under the Indenture and as to any default in such performance.
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At any time after a declaration of acceleration with respect to the Medium-
Term Notes has been made and before a judgment or decree for payment of the
money due has been obtained by the Indenture Trustee, the Indenture Trustee or
the holders of not less than 33% in aggregate outstanding principal amount of
the Medium-Term Notes may declare the principal due and payable immediately
upon an Indenture Event of Default. The holders of a majority in aggregate
outstanding principal amount of the Medium-Term Notes may annul such
declaration and waive the default if the default has been cured (other than the
non-payment of the principal of Medium-Term Notes that has become due solely by
such acceleration) and a sum sufficient to pay: (a) all matured installments of
interest, (b) principal due otherwise than by acceleration, (c) to the extent
lawful, interest on overdue interest at the rate or rates prescribed therefor
in such Medium-Term Notes, and (d) all sums paid or advanced by such Indenture
Trustee and the reasonable compensation, expenses, disbursements and advances
of such Indenture Trustee, its agents and counsel, and any other amounts due
the Indenture Trustee under the Indenture has been deposited with the Indenture
Trustee.
Subject to the provisions in the Indenture relating to the duties of the
Indenture Trustee thereunder, if an Indenture Event of Default with respect to
Medium-Term Notes of a particular series occurs and is continuing, such
Indenture Trustee shall be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders of
Medium-Term Notes of such series, unless such holders shall have offered to
such Indenture Trustee reasonable indemnity or security against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction. Subject to such provisions for the indemnification of the
Indenture Trustee, the Holders of a majority in principal amount of the
outstanding Medium-Term Notes of such series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee under the Indenture, or exercising any trust or power
conferred on the Indenture Trustee with respect to the Medium-Term Notes of
that series; provided, that such direction shall not be in conflict with any
rule of law or the Indenture, expose the Indenture Trustee to personal
liability or be unduly prejudicial to holders not joining therein, and the
Indenture Trustee may take any other action deemed proper by the Indenture
Trustee which is not inconsistent with such direction.
The holders of not less than a majority in outstanding principal amount of
the Medium-Term Notes affected thereby may waive, on behalf of the holders of
all of the Medium-Term Notes, any past default under the Indenture except for a
default (i) in the payment of the principal of or interest on any Medium-Term
Note (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Indenture Trustee) or (ii) in respect
of a covenant or provision that cannot be modified or amended without the
consent of the holder of each outstanding Medium-Term Note affected thereby.
Interest
General
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, each interest-bearing Medium-Term Note will bear interest from its
date of issue at the rate per annum, in the case of a Fixed Rate Note, or
pursuant to the interest rate formula, in the case of a Floating Rate Note, in
each case as specified in the applicable Prospectus Supplement or Pricing
Supplement, until the principal thereof is paid or duly made available for
payment. Unless otherwise specified in the applicable Prospectus Supplement or
Pricing Supplement, interest payments in respect of Fixed Rate Notes and
Floating Rate Notes will be made in an amount equal to the interest accrued
from and including the immediately preceding Interest Payment Date in respect
of which interest has been paid or duly made available for payment (or from and
including the date of issue, if no interest has been paid or duly made
available for payment) to but excluding the applicable Interest Payment Date or
the Maturity Date, as the case may be (each, an "Interest Period").
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Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless
otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the first interest payment on any such Note originally issued
between a Record Date (as hereinafter defined) and the related Interest Payment
Date will be made on the Interest Payment Date immediately following the next
Record Date to the holder on such next Record Date. Unless otherwise specified
in the applicable Prospectus Supplement or Pricing Supplement, a "Record Date"
will be the fifteenth calendar day (whether or not a Business Day) immediately
preceding the related Interest Payment Date.
Fixed Rate Notes
Interest on Fixed Rate Notes will be payable on March 15 and September 15 of
each year or on such other date(s) specified in the applicable Prospectus
Supplement or Pricing Supplement (each, an "Interest Payment Date" with respect
to Fixed Rate Notes) and on the Maturity Date. Unless otherwise specified in
the applicable Prospectus Supplement or Pricing Supplement, interest on Fixed
Rate Notes will be computed on the basis of a 360-day year of twelve 30-day
months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls
on a day that is not a Business Day, then the required payment of principal and
any premium or interest will be made on the next Business Day as if made on the
date such payment was due, and no interest will accrue on such payment for the
period from and after such Interest Payment Date or the Maturity Date, as the
case may be, to the date of such payment on the next Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may include, as
described below, (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds
Rate, (vi) the Kenny Rate, (vii) LIBOR, (viii) the Prime Rate, (ix) the
Treasury Rate or (x) such other Interest Rate Basis or interest rate formula as
may be specified in the applicable Prospectus Supplement or Pricing Supplement.
The applicable Prospectus Supplement or Pricing Supplement will specify certain
terms with respect to which each Floating Rate Note is being delivered,
including (i) whether such Floating Rate Note is a "Regular Floating Rate
Note," a "Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate Note,"
(ii) the Fixed Rate Commencement Date, if applicable, (iii) the Fixed Interest
Rate, if applicable, (iv) the Interest Rate Basis or Bases, (v) the Initial
Interest Rate, if any, the Initial Interest Reset Date, Interest Reset Dates,
Interest Payment Dates, Index Maturity, Maximum Interest Rate and/or Minimum
Interest Rate, if any, and (vi) the Spread and/or Spread Multiplier, if any, as
such terms are defined below. If one or more of the applicable Interest Rate
Bases is LIBOR or the CMT Rate, then the applicable Prospectus Supplement or
Pricing Supplement also will specify the Designated LIBOR Currency and
Designated LIBOR Page or the Designated CMT Maturity Index and Designated CMT
Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," or as having an
addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate Note
will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Prospectus Supplement or Pricing
Supplement, will bear interest at the rate determined by reference to the
applicable Interest Rate Basis or Bases (a) plus or minus the applicable
Spread, if any, and/or (b) multiplied by the applicable Spread Multiplier,
if any. Commencing on the Initial Interest Reset Date, the rate at which
interest on such Regular
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Floating Rate Note will be payable will be reset as of each Interest Reset
Date; provided that the interest rate in effect for the period, if any,
from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in the applicable Prospectus
Supplement or Pricing Supplement, such Floating Rate Note will bear
interest at the rate determined by reference to the applicable Interest
Rate Basis or Bases (a) plus or minus the applicable Spread, if any, and/or
(b) multiplied by the applicable Spread Multiplier, if any. Commencing on
the Initial Interest Reset Date, the rate at which interest on such
Floating Rate/Fixed Rate Note will be payable will be reset as of each
Interest Reset Date; provided that (y) the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate and (z) the interest rate in effect for
the period commencing on the Fixed Rate Commencement Date to the Maturity
Date will be the Fixed Interest Rate, if such rate is specified in the
applicable Prospectus Supplement or Pricing Supplement or, if no such Fixed
Interest Rate is specified, the interest rate in effect on the day
immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Prospectus
Supplement or Pricing Supplement, such Floating Rate Note will bear
interest at the Fixed Interest Rate minus the rate determined by reference
to the applicable Interest Rate Basis or Bases (a) plus or minus the
applicable Spread, if any, and/or (b) multiplied by the applicable Spread
Multiplier, if any; provided that, unless otherwise specified in the
applicable Prospectus Supplement or Pricing Supplement, the interest rate
thereon will not be less than zero. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Inverse Floating Rate Note
will be payable will be reset as of each Interest Reset Date; provided that
the interest rate in effect for the period, if any, from the date of issue
to the Initial Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate Note.
The "Spread Multiplier" is the percentage of the related Interest Rate Basis or
Bases applicable to such Floating Rate Note by which such Interest Rate Basis
or Bases will be multiplied to determine the applicable interest rate on such
Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the interest rate with respect to each Interest Rate Basis will be
determined in accordance with the applicable provisions below. Except as set
forth above or in the applicable Prospectus Supplement or Pricing Supplement,
the interest rate in effect on each day will be (i) if such day is an Interest
Reset Date, the interest rate determined as of the Interest Determination Date
(as hereinafter defined) immediately preceding such Interest Reset Date or (ii)
if such day is not an Interest Reset Date, the interest rate determined as of
the Interest Determination Date immediately preceding the most recent Interest
Reset Date.
The applicable Prospectus Supplement or Pricing Supplement will specify
whether the rate of interest on the related Floating Rate Note will be reset
daily, weekly, monthly, quarterly, semiannually or annually or on such other
specified basis (each, an "Interest Reset Period") and the dates on which such
rate of interest will be reset (each, an "Interest Reset Date"). Unless
otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the Interest Reset Dates for Floating Rate Notes will reset (i)
daily, each Business Day; (ii) weekly, the Wednesday of each week (with the
exception of weekly reset Floating Rate Notes as to which the Treasury Rate is
an applicable Interest Rate Basis, which will reset the Tuesday of each week,
except as described below); (iii) monthly, the third Wednesday of each month
(with the exception of monthly reset Floating Rate Notes as to which
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the Eleventh District Cost of Funds Rate is an applicable Interest Rate Basis,
which will reset on the first calendar day of the month); (iv) quarterly, the
third Wednesday of March, June, September and December of each year; (v)
semiannually, the third Wednesday of the two months specified in the applicable
Prospectus Supplement or Pricing Supplement; and (vi) annually, the third
Wednesday of the month specified in the applicable Prospectus Supplement or
Pricing Supplement; provided that, with respect to Floating Rate/Fixed Rate
Notes, the rate of interest thereon will not reset after the applicable Fixed
Rate Commencement Date. If any Interest Reset Date for any Floating Rate Note
otherwise would be a day that is not a Business Day, then such Interest Reset
Date will be postponed to the next Business Day, except that for a Floating
Rate Note as to which LIBOR is an applicable Interest Rate Basis and such
Business Day falls in the next calendar month, such Interest Reset Date will be
the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related Interest Reset Date will be the rate determined by the Calculation
Agent (as defined below) as of the applicable Interest Determination Date and
calculated on or prior to the Calculation Date (as hereinafter defined), except
with respect to LIBOR and the Eleventh District Cost of Funds Rate, which will
be calculated on such Interest Determination Date. The "Interest Determination
Date" with respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the
Federal Funds Rate, the Kenny Rate and the Prime Rate will be the second
Business Day immediately preceding the applicable Interest Reset Date. The
"Interest Determination Date" with respect to the Eleventh District Cost of
Funds Rate will be the last working day of the month immediately preceding the
applicable Interest Reset Date on which the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco") publishes the Index (as hereinafter
defined). The "Interest Determination Date" with respect to LIBOR will be the
second London Business Day immediately preceding the applicable Interest Reset
Date, unless the Designated LIBOR Currency is British pounds sterling, in which
case the "Interest Determination Date" will be the applicable Interest Reset
Date. With respect to the Treasury Rate, the "Interest Determination Date" will
be the day in the week in which the applicable Interest Reset Date falls on
which Treasury Bills (as hereinafter defined) are normally auctioned (Treasury
Bills are normally sold at an auction held on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday); provided that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the "Interest Determination Date"
will be such preceding Friday; provided, further, that if the Interest
Determination Date would otherwise fall on an Interest Reset Date, then such
Interest Reset Date will be postponed to the next Business Day. The "Interest
Determination Date" pertaining to a Floating Rate Note, the interest rate of
which is determined by reference to two or more Interest Rate Bases, will be
the most recent Business Day that is at least two Business Days prior to the
applicable Interest Reset Date for such Floating Rate Note on which each
Interest Rate Basis is determinable. Each Interest Rate Basis will be
determined as of such date, and the applicable interest rate will take effect
on the applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note also may have either or
both of the following: (i) a Maximum Interest Rate, or ceiling, that may accrue
during any Interest Period; and (ii) a Minimum Interest Rate, or floor, that
may accrue during any Interest Period. In addition to any Maximum Interest Rate
that may apply to any Floating Rate Note, in no event will the interest rate on
Floating Rate Notes be higher than the maximum rate permitted by New York law,
as the same may be modified by United States law of general application.
Except as provided below or in the applicable Prospectus Supplement or
Pricing Supplement, interest will be payable, in the case of Floating Rate
Notes which reset: (i) daily, weekly or monthly, on the third Wednesday of each
month or on the third Wednesday of March, June, September and December of each
year, as specified in the applicable Prospectus Supplement or Pricing
Supplement; (ii) quarterly, on the third Wednesday of March, June, September
and December of
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each year; (iii) semiannually, on the third Wednesday of the two months of each
year specified in the applicable Prospectus Supplement or Pricing Supplement;
and (iv) annually, on the third Wednesday of the month of each year specified
in the applicable Prospectus Supplement or Pricing Supplement (each, an
"Interest Payment Date" with respect to Floating Rate Notes) and, in each case,
on the Maturity Date. If any Interest Payment Date other than the Maturity Date
for any Floating Rate Note otherwise would be a day that is not a Business Day,
then such Interest Payment Date will be postponed to the next Business Day,
except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next calendar
month, such Interest Payment Date will be the immediately preceding Business
Day. If the Maturity Date of a Floating Rate Note falls on a day that is not a
Business Day, then the required payment of principal and any premium or
interest will be made on the next Business Day as if made on the date such
payment was due, and no interest will accrue on such payment for the period
from and after the Maturity Date to the date of such payment on the next
Business Day.
All percentages resulting from any calculation on Floating Rate Notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with five-
one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Prospectus Supplement or Pricing Supplement, the interest factor for
each such day will be computed by dividing the interest rate applicable to such
day by 360, in the case of Floating Rate Notes for which an applicable Interest
Rate Basis is the CD Rate, the Commercial Paper Rate, the Eleventh District
Cost of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, by the
actual number of days in the year, in the case of Floating Rate Notes for which
an applicable Interest Rate Basis is the CMT Rate or the Treasury Rate, or by
365, in the case of Floating Rate Notes for which an applicable Interest Rate
Basis is the Kenny Rate. Unless otherwise specified in the applicable
Prospectus Supplement or Pricing Supplement, the interest factor for Floating
Rate Notes for which the interest rate is calculated with reference to two or
more Interest Rate Bases will be calculated in each period in the same manner
as if only the applicable Interest Rate Basis specified in the applicable
Prospectus Supplement or Pricing Supplement applied.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, The Chase Manhattan Bank will be the "Calculation Agent." Upon
request of the holder of any Floating Rate Note, the Calculation Agent will
disclose the interest rate then in effect and, if determined, the interest rate
that will become effective as a result of a determination made for the next
Interest Reset Date with respect to such Floating Rate Note. Unless otherwise
specified in the applicable Prospectus Supplement or Pricing Supplement, the
"Calculation Date," if applicable, pertaining to any Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date or, if such day is not a Business Day, the next Business Day
or (ii) the Business Day immediately preceding the applicable Interest Payment
Date or the Maturity Date, as the case may be.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the Calculation Agent will determine each Interest Rate Basis in
accordance with the following provisions.
CD Rate. Unless otherwise specified in the applicable Prospectus Supplement
or Pricing Supplement, "CD Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the CD Rate (a "CD Rate
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Interest Determination Date"), the rate on such date for negotiable United
States dollar certificates of deposit having the Index Maturity specified in
the applicable Prospectus Supplement or Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Prospectus Supplement
or Pricing Supplement as published by the Federal Reserve System in its daily
update H.15(519) available on its Web site at
http://www.bog.frb.fed.us/releases/h15/update or any successor site or
publication ("H.15 Daily Update") or another recognized electronic source used
for the purpose of displaying such rate under the heading "CDs (Secondary
Market)." If such rate is not yet published in either H.15(519) or H.15 Daily
Update or another recognized electronic source by 3:00 P.M., New York City
time, on the related Calculation Date, then the CD Rate on such CD Rate
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean of the secondary market offered rates as of 10:00
A.M., New York City time, on such CD Rate Interest Determination Date, of three
leading nonbank dealers in negotiable United States dollar certificates of
deposit in New York City (which may include any agents through which the
Medium-Term Notes are offered, or their affiliates) selected by the Calculation
Agent for negotiable United States dollar certificates of deposit of major
United States money center banks for negotiable certificates of deposit with a
remaining maturity closest to the Index Maturity specified in the applicable
Prospectus Supplement or Pricing Supplement in a denomination of $5 million;
provided that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, then the CD Rate determined as of such
CD Rate Interest Determination Date will be the CD Rate in effect on such CD
Rate Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Prospectus Supplement
or Pricing Supplement, "CMT Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the CMT Rate (a "CMT Rate Interest
Determination Date"), the rate displayed on the Designated CMT Telerate Page
under the caption ". . .Treasury Constant Maturities . . .Federal Reserve Board
Release H.15 . . .Mondays Approximately 3:45 P.M.," under the column for the
Designated CMT Maturity Index for (i) if the Designated CMT Telerate Page is
7051, the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the weekly or monthly average, as
specified in the applicable Prospectus Supplement or Pricing Supplement, for
the week or the month, as applicable, ended immediately preceding the week or
the month, as applicable, in which the related CMT Rate Interest Determination
Date falls. If such rate is no longer displayed on the relevant page or is not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index as
published in H.15(519). If such rate is no longer published or is not published
by 3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate on such CMT Rate Interest Determination Date will be such treasury
constant maturity rate for the Designated CMT Maturity Index (or other United
States Treasury rate for the Designated CMT Maturity Index) for the CMT Rate
Interest Determination Date with respect to such Interest Reset Date as may
then be published by either the Board of Governors of the Federal Reserve
System or the U.S. Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated
CMT Telerate Page and published in H.15(519). If such information is not
provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate on the CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity, based on
the arithmetic mean of the secondary market offered rates as of approximately
3:30 P.M., New York City time, on such CMT Rate Interest Determination Date
reported, according to their written records, by three leading primary United
States government securities dealers in New York City (which may include any
agents through which the Medium-Term
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Notes are offered, or their affiliates) (each, a "Reference Dealer") selected
by the Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an original
maturity of approximately the Designated CMT Maturity Index and a remaining
term to maturity of not less than such Designated CMT Maturity Index minus one
year. If the Calculation Agent is unable to obtain three such Treasury Note
quotations, the CMT Rate on such CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offered rates as of approximately
3:30 P.M., New York City time, on such CMT Rate Interest Determination Date of
three Reference Dealers in New York City (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, then the
CMT Rate will be based on the arithmetic mean of the offered rates obtained and
neither the highest nor the lowest of such quotes will be eliminated; and if
fewer than three Reference Dealers so selected by the Calculation Agent are
quoting as mentioned herein, then the CMT Rate determined as of such CMT Rate
Interest Determination Date will be the CMT Rate in effect on such CMT Rate
Interest Determination Date. If two Treasury Notes with an original maturity as
described in the second preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, then the Calculation Agent
will obtain quotations for the Treasury Note with the shorter remaining term to
maturity.
"Designated CMT Telerate Page" means the display on the Bridge Telerate
Service (or any successor service) on the page specified in the applicable
Prospectus Supplement or Pricing Supplement (or any other page as may replace
such page on such service) for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519). If no such page is specified in the
applicable Prospectus Supplement or Pricing Supplement, then the Designated CMT
Telerate Page will be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Prospectus Supplement or Pricing Supplement with respect to
which the CMT Rate will be calculated or, if no such maturity is specified in
the applicable Prospectus Supplement or Pricing Supplement, two years.
Commercial Paper Rate. Unless otherwise specified in the applicable
Prospectus Supplement or Pricing Supplement, "Commercial Paper Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate
Note for which the interest rate is determined with reference to the Commercial
Paper Rate (a "Commercial Paper Rate Interest Determination Date"), the Money
Market Yield (as hereinafter defined) on such date of the rate for commercial
paper having the Index Maturity specified in the applicable Prospectus
Supplement or Pricing Supplement as published in H.15(519) under the heading
"Commercial Paper--Nonfinancial." In the event that such rate is not published
by 3:00 P.M., New York City time, on the related Calculation Date, then the
Commercial Paper Rate on such Commercial Paper Rate Interest Determination Date
will be the Money Market Yield of the rate for commercial paper having the
Index Maturity specified in the applicable Prospectus Supplement or Pricing
Supplement as published in H.15 Daily Update, or such other recognized
electronic source used for the purpose of displaying such rate under the
heading "Commercial Paper--Nonfinancial " (with an Index Maturity of one month
or three months being deemed to be equivalent to an Index Maturity of 30 days
or 90 days, respectively). If such rate is not yet published in either
H.15(519) or H.15 Daily Update, or such other recognized electronic source
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used for the purpose of displaying such rate by 3:00 P.M., New York City time,
on the related Calculation Date, then the Commercial Paper Rate on such
Commercial Paper Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the Money Market Yield of the arithmetic mean of
the offered rates at approximately 11:00 A.M., New York City time, on such
Commercial Paper Rate Interest Determination Date of three leading dealers of
commercial paper in New York City (which may include any agents through which
the Medium-Term Notes are offered, or their affiliates) selected by the
Calculation Agent for commercial paper having the Index Maturity specified in
the applicable Prospectus Supplement or Pricing Supplement placed for an
industrial issuer whose bond rating is "Aa" or the equivalent, from a
nationally recognized statistical rating organization; provided that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, then the Commercial Paper Rate determined as of such Commercial
Paper Rate Interest Determination Date will be the Commercial Paper Rate in
effect on such Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
DX360
X 100
360-(DXM)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable Interest Reset Period.
Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable Prospectus Supplement or Pricing Supplement, "Eleventh District Cost
of Funds Rate" means, with respect to any Interest Determination Date relating
to a Floating Rate Note for which the interest rate is determined with
reference to the Eleventh District Cost of Funds Rate (an "Eleventh District
Cost of Funds Rate Interest Determination Date"), the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which such Eleventh District Cost of Funds Rate Interest Determination
Date falls, as set forth under the caption "11th District" on Telerate Page
7058 as of 11:00 A.M., San Francisco time, on such Eleventh District Cost of
Funds Rate Interest Determination Date. If such rate does not appear on
Telerate Page 7058 on such Eleventh District Cost of Funds Rate Interest
Determination Date, then the Eleventh District Cost of Funds Rate on such
Eleventh District Cost of Funds Rate Interest Determination Date will be the
monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District that was most recently announced (the
"Index") by the FHLB of San Francisco as such cost of funds for the calendar
month immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date. If the FHLB of San Francisco fails to announce the Index on
or prior to such Eleventh District Cost of Funds Rate Interest Determination
Date for the calendar month immediately preceding such Eleventh District Cost
of Funds Rate Interest Determination Date, then the Eleventh District Cost of
Funds Rate determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in effect
on such Eleventh District Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement, "Federal Funds Rate" means, with respect to
any Interest Determination Date relating to a Floating Rate Note for which the
interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Interest Determination Date"), the rate on such date for
United States dollar federal funds as published in H.15(519) prior to 11:00
A.M. New York City time under the heading "Federal Funds (Effective)" or, if
not published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on such Federal Funds Rate Interest Determination Date as
published in H.15 Daily Update under the heading "Federal Funds (Effective)."
If such rate is not published in either H.15(519) or H.15 Daily Update by 3:00
P.M., New York City time, on the related
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Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean of the rates for the last transaction in overnight
United States dollar federal funds arranged by three leading brokers of federal
funds transactions in New York City (which may include any agents through which
the Medium-Term Notes are offered, or their affiliates) selected by the
Calculation Agent prior to 9:00 A.M., New York City time, on such Federal Funds
Rate Interest Determination Date; provided that if the brokers so selected by
the Calculation Agent are not quoting as mentioned in this sentence, then the
Federal Funds Rate determined as of such Federal Funds Rate Interest
Determination Date will be the Federal Funds Rate in effect on such Federal
Funds Rate Interest Determination Date.
Kenny Rate. Unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement, "Kenny Rate" means, with respect to any
Interest Determination Date relating to a Floating Rate Note for which the
interest rate is determined with reference to the Kenny Rate (a "Kenny Rate
Interest Determination Date"), a rate equal to the high grade weekly index on
such date as made available by Kenny Information Systems to the Calculation
Agent. The index is based upon 30-day yield evaluations at par of bonds, the
interest on which is exempt from federal income taxation under the Internal
Revenue Code of 1986, as amended (the "Code"), of at least five high grade
component issuers, including issuers of general obligation bonds, selected by
Kenny Information Systems. Kenny Information Systems may change the specific
issuers that it includes in the index from time to time in its discretion. The
index may not include any bonds on which the interest is subject to a minimum
tax or similar tax under the Code, unless all tax exempt bonds are subject to
that kind of tax.
If Kenny Information Systems stops providing a weekly index, then the Kenny
Rate will be equal to an index provided by a successor indexing agent selected
by the Calculation Agent, which index reflects the prevailing rate for bonds
rated in the highest short-term rating category by two nationally recognized
statistical rating organizations (as that term is defined by the Commission)
for issuers that most closely resemble the high grade component issuers that
Kenny Information Systems selected for its weekly index, the interest on which
is (i) variable on a weekly basis, (ii) exempt from federal income taxation
under the Code and (iii) not subject to a minimum tax or similar tax under the
Code, unless all tax-exempt bonds are subject to such tax. If a successor
indexing agent is not available, then the Kenny Rate will be 67% of the rate
determined as if the interest rate had originally been determined with
reference to the Treasury Rate.
LIBOR. Unless otherwise specified in the applicable Prospectus Supplement or
Pricing Supplement, "LIBOR" means the rate determined in accordance with the
following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Prospectus Supplement or
Pricing Supplement, the arithmetic mean of the offered rates (unless the
Designated LIBOR Page by its terms provides only for a single rate, in
which case such single rate will be used) for deposits in the Designated
LIBOR Currency having the Index Maturity specified in such Prospectus
Supplement or Pricing Supplement, commencing on the applicable Interest
Reset Date, that appear (or, if only a single rate is required as
aforesaid, appears) on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date or (b) if "LIBOR Telerate"
is specified in the applicable Prospectus Supplement or Pricing Supplement
or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable Prospectus Supplement or Pricing Supplement as the method for
calculating LIBOR, the rate for deposits in the Designated LIBOR Currency
having the Index Maturity specified in such Prospectus Supplement or
Pricing Supplement, commencing on the second London Business Day
immediately after such Interest Reset Date, that appears on the Designated
LIBOR Page as of 11:00 A.M., London time, on such LIBOR Interest
Determination
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Date. If fewer than two such offered rates so appear, or if no such rate so
appears, as applicable, then LIBOR on such LIBOR Interest Determination
Date will be determined in accordance with the provisions described in
clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent will request the principal London offices of each of four major
reference banks (which may include affiliates of any agents through which
the Medium-Term Notes are offered) in the London interbank market, as
selected by the Calculation Agent, to provide the Calculation Agent with
its offered rate quotation for deposits in the Designated LIBOR Currency
for the period of the Index Maturity specified in the applicable Prospectus
Supplement or Pricing Supplement, commencing on the applicable Interest
Reset Date, to prime banks in the London interbank market at approximately
11:00 A.M., London time, on such LIBOR Interest Determination Date and in a
principal amount of not less than $1 million or the equivalent in the
Designated LIBOR Currency that is representative for a single transaction
in such market at such time. If at least two such quotations are so
provided, then LIBOR on such LIBOR Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two such quotations are
so provided, then LIBOR on such LIBOR Interest Determination Date will be
the arithmetic mean of the rates quoted at approximately 11:00 A.M., New
York City time in the applicable Principal Financial Center, on such LIBOR
Interest Determination Date by three major banks (which may include
affiliates of the Agents) in such Principal Financial Center selected by
the Calculation Agent for loans in the Designated LIBOR Currency to leading
European banks, having the Index Maturity specified in the applicable
Prospectus Supplement or Pricing Supplement and in a principal amount of
not less than $1 million or the equivalent in the Designated LIBOR Currency
that is representative for a single transaction in such market at such
time; provided that if the banks so selected by the Calculation Agent are
not quoting as mentioned in this sentence, then LIBOR determined as of such
LIBOR Interest Determination Date will be LIBOR in effect on such LIBOR
Interest Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Prospectus Supplement or Pricing Supplement as
to which LIBOR will be calculated or, if no such currency or composite
currency is specified in the applicable Prospectus Supplement or Pricing
Supplement, United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Prospectus Supplement or Pricing Supplement, the display on the
Reuters Monitor Money Rates Service (or any successor service) on the page
specified in such Prospectus Supplement or Pricing Supplement (or any other
page as may replace such page on such service) for the purpose of
displaying the London interbank rates of major banks for the Designated
LIBOR Currency or (b) if "LIBOR Telerate" is specified in the applicable
Prospectus Supplement or Pricing Supplement or neither "LIBOR Reuters" nor
"LIBOR Telerate" is specified in the applicable Prospectus Supplement or
Pricing Supplement as the method for calculating LIBOR, the display on the
Bridge Telerate Service (or any successor service) on the page specified in
such Prospectus Supplement or Pricing Supplement (or any other page as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the Designated LIBOR Currency.
Prime Rate. Unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement, "Prime Rate" means, with respect to any
Interest Determination Date relating to a Floating Rate Note for which the
interest rate is determined with reference to the Prime Rate (a "Prime Rate
Interest Determination Date"), the rate on such date as such rate is published
in H.15(519) under the heading "Bank Prime Loan." If the rate is not published
in H.15(519) by 3:00 P.M., New York City time, on the related Calculation Date,
then the Prime Rate will be the rate as
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published on such Interest Determination Date in H.15 Daily Update or another
recognized electronic source under the caption "Bank Prime Loan." If such rate
is not published in either H.15(519), H.15 Daily Update or another recognized
electronic source prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Prime Rate will be the arithmetic mean of the rates
of interest publicly announced by each bank that appears on the Reuters Screen
USPRIME1 Page (as hereinafter defined) at such bank's prime rate or base
lending rate as in effect for such Prime Rate Interest Determination Date. If
fewer than four, but more than one, such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime
Rate will be the arithmetic mean of the prime rates or base lending rates
quoted on the basis of the actual number of days in the year divided by a 360-
day year as of the close of business on such Prime Rate Interest Determination
Date by four major money center banks (which may include affiliates of any
agents through which the Medium-Term Notes are offered,) in New York City
selected by the Calculation Agent. If fewer than two such quotations are so
provided, then the Prime Rate will be determined based on the rates furnished
in New York City by the appropriate number of substitute banks or trust
companies (which may include affiliates of the Agents) to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing business under the laws of the United States, or any State
thereof, each having total equity capital of at least $500 million and being
subject to supervision or examination by Federal or State authority, selected
by the Calculation Agent to provide such rate or rates; provided that if the
banks or trust companies so selected by the Calculation Agent are not quoting
as mentioned in this sentence, then the Prime Rate determined as of such Prime
Rate Interest Determination Date will be the Prime Rate in effect on such Prime
Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuters Monitor Money
Rates Service (or any successor service) on the "USPRIME1" page (or such other
page as may replace such page on such service) for the purpose of displaying
prime rates or base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement, "Treasury Rate" means, with respect to any
Interest Determination Date relating to a Floating Rate Note for which the
interest rate is determined by reference to the Treasury Rate (a "Treasury Rate
Interest Determination Date"), the rate from the auction held on such Treasury
Rate Interest Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity specified in the
applicable Prospectus Supplement or Pricing Supplement, as such rate is
published in H.15(519) under the heading "Treasury Bills-auction high" or, if
not published by 3:00 P.M., New York City time, on the related Calculation
Date, the auction average rate of such Treasury Bills (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) as otherwise announced by the U.S. Department of the
Treasury. In the event that the results of the Auction of Treasury Bills having
the Index Maturity specified in the applicable Prospectus Supplement or Pricing
Supplement are not reported as provided by 3:00 P.M., New York City time, on
the related Calculation Date, or if no such Auction is held, then the Treasury
Rate will be calculated by the Calculation Agent and will be a yield to
maturity (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of
the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Treasury Rate Interest Determination Date, of three leading
primary United States government securities dealers (which may include any
agents through which the Medium-Term Notes are offered, or their affiliates)
selected by the Calculation Agent, for the issue of Treasury Bills with a
remaining maturity closest to the Index Maturity specified in the applicable
Prospectus Supplement or Pricing Supplement; provided that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, then the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
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Other/Additional Provisions; Addendum
Any provisions with respect to the Medium-Term Notes, including the
specification and determination of one or more Interest Rate Bases, the
calculation of the interest rate applicable to a Floating Rate Note, the
Interest Payment Dates, the Stated Maturity Date, any redemption or repayment
provisions or any other term relating thereto, may be modified and/or
supplemented as specified under "Other/Additional Provisions" on the face
thereof or in an Addendum relating thereto, if so specified on the face thereof
and described in the applicable Prospectus Supplement or Pricing Supplement.
Discount Medium-Term Notes
Capital Markets may offer Notes ("Discount Notes") from time to time that
have an Issue Price (as specified in the applicable Prospectus Supplement or
Pricing Supplement) that is less than 100% of the principal amount thereof
(i.e., par) by more than a percentage equal to the product of 0.25% and the
number of full years to the Stated Maturity Date. Discount Notes may not bear
any interest currently or may bear interest at a rate that is below market
rates at the time of issuance. The difference between the Issue Price of a
Discount Note and par is referred to herein as the "Discount." In the event of
redemption, repayment or acceleration of maturity of a Discount Note, the
amount payable to the holder of such Discount Note will be equal to the sum of
(i) the Issue Price (increased by any accruals of Discount) multiplied by, in
the event of any redemption of such Discount Note (if applicable), the Initial
Redemption Percentage (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) and (ii) any unpaid interest accrued thereon to the
date of such redemption, repayment or acceleration of maturity, as the case may
be.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, for purposes of determining the amount of any Discount that has
accrued as of any date on which a redemption, repayment or acceleration of
maturity occurs for a Discount Note, such Discount will be accrued using a
constant yield method. The constant yield will be calculated using a 30-day
month, 360-day year convention, a compounding period that, except for the
Initial Period (as hereinafter defined), corresponds to the shortest period
between Interest Payment Dates for the applicable Discount Note (with ratable
accruals within a compounding period), a coupon rate equal to the initial
coupon rate applicable to such Discount Note and an assumption that the
maturity of such Discount Note will not be accelerated. If the period from the
date of issue to the initial Interest Payment Date for a Discount Note (the
"Initial Period") is shorter than the compounding period for such Discount
Note, a proportionate amount of the yield for an entire compounding period will
be accrued. If the Initial Period is longer than the compounding period, then
such period will be divided into a regular compounding period and a short
period with the short period being treated as provided in the preceding
sentence. The accrual of the applicable Discount may differ from the accrual of
original issue discount for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), certain Discount Notes may not be treated as having
original issue discount within the meaning of the Code, and Medium-Term Notes
other than Discount Notes may be treated as issued with original issue discount
for United States federal income tax purposes. Certain United States federal
income tax consequences and special considerations applicable to any such
Medium-Term Notes will be described in the applicable Prospectus Supplement or
Pricing Supplement.
Indexed Notes
Capital Markets may offer Medium-Term Notes ("Indexed Notes") from time to
time with the amount of principal and any premium or interest payable in
respect thereof to be determined with reference to an index related to the
price or prices of specified commodities or stocks on specified dates, to the
exchange rate of one or more designated currencies (including a composite
currency such as the Euro) relative to an indexed currency or to other items,
in each case as specified in the
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applicable Prospectus Supplement or Pricing Supplement. In certain cases,
holders of Indexed Notes may receive a principal payment on the Maturity Date
that is greater than or less than the principal amount of such Indexed Notes
depending upon the relative value on the Maturity Date of the specified indexed
item. Information as to the method for determining the amount of principal and
any premium or interest payable with respect to Indexed Notes, certain
historical information with respect to the specified indexed item and any
material tax considerations associated with an investment in Indexed Notes will
be specified in the applicable Prospectus Supplement or Pricing Supplement.
Amortizing Notes
Capital Markets may offer Medium-Term Notes ("Amortizing Notes") from time to
time with the amount of principal thereof and interest thereon payable in
installments over the term of such Medium-Term Notes. Unless otherwise
specified in the applicable Prospectus Supplement or Pricing Supplement,
interest on each Amortizing Note will be computed on the basis of a 360-day
year of twelve 30-day months. Payments with respect to Amortizing Notes will be
applied first to interest due and payable thereon and then to the reduction of
the unpaid principal amount thereof. Further information concerning additional
terms and provisions of Amortizing Notes, including a table setting forth
repayment information for such Amortizing Notes, and certain United States
federal income tax considerations associated with an investment in Amortizing
Notes will be specified in the applicable Prospectus Supplement or Pricing
Supplement.
Book-Entry Notes
Upon issuance, all Book-Entry Notes of like tenor and terms up to $200
million aggregate principal amount will be represented by a single Global
Security. Each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, a depositary and will be registered in the name of the
depositary or a nominee of the depositary. No Global Security may be
transferred except as a whole by a nominee of the depositary to the depositary
or to another nominee of the depositary, or by the depositary or such nominee
to a successor of the depositary or a nominee of such successor. Unless
otherwise indicated in the applicable Prospectus Supplement or Pricing
Supplement, the depositary for the Book-Entry Notes will be The Depository
Trust Company. See "Book-Entry Issuance."
So long as the depositary or its nominee is the registered owner of a Global
Security, the depositary or its nominee, as the case may be, will be the sole
holder of the Book-Entry Notes represented thereby for all purposes under the
Indenture. Except as otherwise provided below, the Beneficial Owners of the
Global Security or Securities representing Book-Entry Notes will not be enti-
tled to receive physical delivery of Certificated Notes and will not be consid-
ered the holders thereof for any purpose under the Indenture, and no Global Se-
curity representing Book-Entry Notes will be exchangeable or transferable. Ac-
cordingly, each Beneficial Owner must rely on the procedures of the depositary
and, if such Beneficial Owner is not a Participant, on the procedures of the
Participant through which such Beneficial Owner owns its interest in order to
exercise any rights of a holder under such Global Security or the Indenture.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in certificated form. Such limits and
laws may impair the ability to transfer beneficial interests in a Global Secu-
rity representing Book-Entry Notes.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, each Global Security representing Book-Entry Notes will be
exchangeable for Certificated Notes of like tenor and terms and of differing
authorized denominations in a like aggregate principal amount, only if (i) the
depositary notifies Capital Markets that it is unwilling or unable to continue
as depositary for the Global Securities or Capital Markets becomes aware that
the depositary has ceased to be a clearing agency registered under the Exchange
Act and, in any such case, Capital
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Markets will not have appointed a successor to the depositary within 90 days
thereafter, (ii) Capital Markets, in its sole discretion, determines that the
Global Securities will be exchangeable for Certificated Notes or (iii) an
Indenture Event of Default (or event that with the giving of notice or lapse of
time would constitute an Indenture Event of Default) has occurred and is
continuing with respect to the Medium-Term Notes under the Indenture. Upon any
such exchange, the Certificated Notes will be registered in the names of the
Beneficial Owners of the Global Security or Securities representing Book-Entry
Notes, which names will be provided by the depositary's relevant Participants
(as identified by the depositary) to the Indenture Trustee.
Special Provisions Relating to Foreign Currency Notes
General. Unless otherwise specified in the applicable Prospectus Supplement
or Pricing Supplement, Foreign Currency Notes will not be sold in, or to
residents of, the country issuing the applicable currency. The information set
forth in this Prospectus is directed to prospective purchasers who are United
States residents and, with respect to Foreign Currency Notes, is by necessity
incomplete. The applicable Prospectus Supplement or Pricing Supplement will
describe certain United Stated federal income tax considerations associated
with an investment in Foreign Currency Notes. Capital Markets and the agents
disclaim any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal and any
premium or interest on Foreign Currency Notes. Such persons should consult
their own financial and legal advisors with regard to such matters.
Payment of Principal and Any Premium or Interest.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, Capital Markets is obligated to make payments of principal and any
premium or interest on a Foreign Currency Note in the Specified Currency. Any
such amounts payable by Capital Markets in the Specified Currency will be
converted by the exchange rate agent named in the applicable Prospectus
Supplement or Pricing Supplement (the "Exchange Rate Agent") into United States
dollars for payment to holders unless otherwise specified in the applicable
Prospectus Supplement or Pricing Supplement or the holder of such Foreign
Currency Note elects to receive, in the manner hereinafter described, such
amounts in the Specified Currency.
Any United States dollar amount to be received by a holder of a Foreign
Currency Note will be based on the highest bid quotation in New York City
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of whom may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by Capital Markets for
the purchase by the quoting dealer of the Specified Currency for United States
dollars for settlement on such payment date in the aggregate amount of such
Specified Currency payable to all Holders of Foreign Currency Notes scheduled
to receive United States dollar payments and at which the applicable dealer
commits to execute a contract. All currency exchange costs will be borne by the
holders of such Foreign Currency Notes by deductions from such payments. If
three such bid quotations are not available, payments will be made in the
Specified Currency.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of any payment of principal and any premium or interest in the
Specified Currency by submitting a written request for such payment to the
Indenture Trustee at its corporate trust office in New York City on or prior to
the applicable Record Date or at least 15 calendar days prior to the Maturity
Date, as the case may be. Such written request may be mailed or hand delivered
or sent by cable, telex or other form of facsimile transmission. Holders of
Foreign Currency Notes may elect to receive all or a specified
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portion of all future payments in the Specified Currency and need not file a
separate election for each payment. Such election will remain in effect until
revoked by written notice to the Indenture Trustee, but written notice of any
such revocation must be received by the Indenture Trustee on or prior to the
applicable Record Date or at least 15 calendar days prior to the Maturity Date,
as the case may be. Holders of Foreign Currency Notes to be held in the name of
a broker or nominee should contact such broker or nominee to determine whether
and how an election to receive payments in the Specified Currency may be made.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, if the Specified Currency is other than United States dollars, a
Beneficial Owner of the related Global Security or Securities which elects to
receive payments of principal and any premium or interest in the Specified
Currency must notify the Participant through which it owns its interest on or
prior to the applicable Record Date or at least 15 calendar days prior to the
Maturity Date, as the case may be, of such Beneficial Owner's election. Such
Participant must notify the depositary of such election on or prior to the
third Business Day after such Record Date or at least 12 calendar days prior to
the Maturity Date, as the case may be, and the depositary will notify the
Indenture Trustee of such election on or prior to the fifth Business Day after
such Record Date or at least ten calendar days prior to the Maturity Date, as
the case may be. If complete instructions are received by the Participant from
the Beneficial Owner and forwarded by the Participant to the depositary, and by
the depositary to the Indenture Trustee, on or prior to such dates, then such
Beneficial Owner will receive payments in the Specified Currency.
Payments of the principal and any premium or interest on Foreign Currency
Notes that are to be made in United States dollars will be made in the manner
specified herein with respect to Medium-Term Notes denominated in United States
dollars. See "--General." Any payments of interest on Foreign Currency Notes
that are to be made in the Specified Currency on an Interest Payment Date other
than the Maturity Date will be made by check mailed to the address of the
holders of such Foreign Currency Notes as they appear in the Security Register,
subject to the right to receive such interest payments by wire transfer of
immediately available funds under the circumstances described under
"Description of Medium-Term Notes--General." Payments of principal and any
premium or interest on Foreign Currency Notes that are to be made in the
Specified Currency on the Maturity Date will be made by wire transfer of
immediately available funds to an account with a bank designated at least 15
calendar days prior to the Maturity Date by each holder thereof, provided that
such bank has appropriate facilities therefor and that the applicable Foreign
Currency Note is presented and surrendered at the office or agency maintained
by Capital Markets for such purpose in the Borough of Manhattan, New York City,
which currently is the corporate trust office of the Indenture Trustee, in time
for the Indenture Trustee to make such payments in such funds in accordance
with its normal procedures.
Availability of Specified Currency.
Except as set forth below, if the Specified Currency for a Foreign Currency
Note is not available for the required payment of principal and any premium or
interest in respect thereof due to the imposition of exchange controls or other
circumstances beyond the control of Capital Markets, Capital Markets will be
entitled to satisfy its obligations to the holder of such Foreign Currency Note
by making such payment in United States dollars on the basis of the Market
Exchange Rate, computed by the Exchange Rate Agent, on the second Business Day
prior to such payment or, if such Market Exchange Rate is not then available,
on the basis of the most recently available Market Exchange Rate, or as
otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement.
If the Specified Currency for a Foreign Currency Note is a composite currency
that is not available for the required payment of principal and any, premium or
interest in respect thereof due to
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the imposition of exchange controls or other circumstances beyond the control
of Capital Markets, Capital Markets will be entitled to satisfy its obligations
to the holder of such Foreign Currency Note by making such payment in United
States dollars on the basis of the equivalent of the composite currency in
United States dollars. The component currencies of the composite currency for
this purpose (the "Component Currencies") will be the currency amounts that
were components of the composite currency as of the last day on which the
composite currency was used. The equivalent of the composite currency in United
States dollars will be calculated by aggregating the United States dollar
equivalents of the Component Currencies. The United States dollar equivalent of
each of the Component Currencies will be determined by the Exchange Rate Agent
on the basis of the Market Exchange Rate on the second Business Day prior to
the required payment or, if such Market Exchange Rate is not then available, on
the basis of the most recently available Market Exchange Rate for each such
Component Currency, or as otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency will be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, then the amounts
of those currencies as Component Currencies will be replaced by an amount in
such single currency equal to the sum of the amounts of the consolidated
Component Currencies expressed in such single currency. If any Component
Currency is divided into two or more currencies, then the amount of the
original Component Currency will be replaced by the amounts of such two or more
currencies, the sum of which will be equal to the amount of the original
Component Currency.
The "Market Exchange Rate" for a Specified Currency other than United States
dollars means the noon dollar buying rate in New York City for cable transfers
for such Specified Currency as certified for customs purposes (or, if not so
certified, as otherwise determined) by the Federal Reserve Bank of New York.
Any payment made in United States dollars under such circumstances where the
required payment is in a Specified Currency other than United States dollars
will not constitute an Indenture Event of Default under the Indenture with
respect to the Medium-Term Notes.
All determinations referred to above made by the Exchange Rate Agent will be
at its sole discretion and will, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of the Foreign Currency
Notes.
Judgments.
Under current New York law, a state court in the State of New York rendering
a judgment in respect of a Foreign Currency Note would be required to render
such judgment in the Specified Currency, and such foreign currency judgment
would be converted into United States dollars at the exchange rate prevailing
on the date of entry of such judgment. Accordingly, the foreign currency
judgment would be subject to exchange rate fluctuations between the date of
entry of such foreign currency judgment and the time the amount of such foreign
currency judgment is paid to such holder in United States dollars and converted
by such holder into the Specified Currency. It is not certain, however, whether
a non-New York state court would follow the same rules and procedures with
respect to conversions of foreign currency judgments.
Capital Markets will indemnify the holder of any Note against any loss
incurred by such holder as a result of any judgment or order being given or
made for any amount due under such Note and such judgment or order requiring
payment in a currency or composite currency (the "Judgment Currency") other
than the Specified Currency, and as a result of any variation between (i) the
rate of exchange at which the Specified Currency amount is converted into the
Judgment Currency for the purpose of such judgment or order and (ii) the rate
of exchange at which the holder of such Note, on
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the date of payment of such judgment or order, is able to purchase the
Specified Currency with the amount of the Judgment Currency actually received
by such holder, as the case may be.
Modification of Indenture
From time to time, Capital Markets, NiSource and the Indenture Trustee may
modify the Indenture without the consent of any holders of Medium-Term Notes
with respect to certain matters, including:
(i) to evidence the succession of another corporation to Capital Markets
or NiSource and the assumption by any such successor of the covenants of
Capital Markets or NiSource in the Indenture and the Medium-Term Notes;
(ii) to add to the covenants of Capital Markets and NiSource for the
benefit of the holders of the Medium-Term Notes, or to surrender any right
or power therein conferred upon Capital Markets or NiSource;
(iii) to add any additional events of default;
(iv) to add or change any provisions of the Indenture to facilitate the
issuance of bearer securities;
(v) to change or eliminate any provisions of the Indenture, provided that
any such change or elimination will become effective only when there is no
security outstanding of any series prior to the execution of such
modification that is entitled to the benefit of such provision;
(vi) to establish the form or terms of securities of any series and any
related coupons as permitted by the Indenture;
(vii) to secure the Medium-Term Notes;
(viii) to evidence or provide for the acceptance of appointment of a
successor trustee with respect to the securities of one or more series, to
contain such provisions necessary or desirable to confirm that all the
rights, powers, trusts and duties that the predecessor trustee is not
retiring will continue to be vested in the predecessor trustee, and to add
to or change any Indenture provisions necessary to provide for or
facilitate the administration of the trusts by more than one trustee;
(ix) to cure any ambiguity or correct or supplement any provision that
may be defective or inconsistent with any other provision of the Indenture,
provided that such action will not adversely affect the interests of the
holders of the Medium-Term Notes in any material respect;
(x) to effect the assumption by NiSource or one of its subsidiaries of
the obligations of Capital Markets under the Indenture; or
(xi) to conform the Indenture to any amendment of the Trust Indenture
Act.
In addition, Capital Markets, NiSource and the Indenture Trustee may modify
certain rights, covenants and obligations of Capital Markets and the rights of
holders of the Medium-Term Notes under the Indenture with the written consent
of the holders of at least a majority in aggregate principal amount of Medium-
Term Notes. However, unless each affected holder of Medium-Term Notes consents,
Capital Markets, NiSource and the Indenture Trustee may not change the maturity
of the Medium-Term Notes, reduce the interest rate or extend the time for
payment of interest, change the optional redemption or repurchase provisions in
a manner adverse to any holder of Medium-Term Notes, otherwise modify the terms
of payment of the principal of, or interest on, the Medium-Term Notes or reduce
the percentage required for modification of the Indenture or to consent to any
waiver thereunder.
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Information Concerning the Indenture Trustee
Except during the continuance of an Indenture Event of Default with respect
to Medium-Term Notes of any series, the Indenture Trustee undertakes to
perform, with respect to Medium-Term Notes of such series, only such duties of
the Indenture Trustee as are specifically set forth in the Indenture, and no
implied covenants or obligations shall be read into the Indenture against the
Indenture Trustee, and in the absence of bad faith on its part, the Indenture
Trustee may, with respect to Medium-Term Notes of such series, conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Indenture
Trustee and conforming to the requirements of the Indenture; but in the case of
any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Indenture Trustee, the Indenture
Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of the Indenture. In case an Indenture Event
of Default with respect to Medium-Term Notes of any series has occurred and is
continuing, the Indenture Trustee shall exercise, with respect to Medium-Term
Notes of such series, such of the rights and powers vested in it by the
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
Governing Law
The Indenture and the Medium-Term Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
Miscellaneous
NiSource or a subsidiary may directly assume, by a supplemental indenture,
the performance of every covenant of the Indenture on the part of Capital
Markets to be performed or observed. Upon any such assumption, NiSource or such
subsidiary shall succeed to and be substituted for and may exercise every right
and power of Capital Markets under the Indenture with the same effect as if
NiSource or such subsidiary had been named as Capital Markets therein and
Capital Markets shall be released from its liability as obligor on the Medium-
Term Notes; provided that, in the case of such assumption by a subsidiary, the
Support Agreement is modified so that references to Capital Markets and its
Debt therein are changed to, or modified to include, references to such
subsidiary and its Debt (including the Medium-Term Notes). No such assumption
shall be permitted unless NiSource has delivered to the Indenture Trustee an
officers' certificate of NiSource and an opinion of counsel for NiSource, each
stating that such assumption and supplemental indenture comply with the
Indenture that all conditions precedent therein provided for relating to such
transaction have been complied with and, in the event of assumption by a
subsidiary, that NiSource's obligations under the Indenture and the Support
Agreement (modified as described above) remain in full force and effect.
DESCRIPTION OF THE SUPPORT AGREEMENT
The Support Agreement between Capital Markets and NiSource provides that,
during the term of the agreement, NiSource will own all of the voting stock of
Capital Markets and that NiSource will cause Capital Markets to have at all
times a positive net worth (net assets less intangible assets, if any), as
determined in accordance with generally accepted accounting principles.
Furthermore, if during the term of the Support Agreement Capital Markets is
unable to pay in a timely fashion any principal of or premium or interest on
any debt securities issued by Capital Markets or any other obligations of
Capital Markets, then NiSource will provide to Capital Markets, at the request
of Capital Markets or any person, firm or corporation to which Capital Markets
is indebted for money borrowed or otherwise (each, a "lender"), funds to make
such payments.
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The Support Agreement also provides that any lender to Capital Markets will
have the right to demand that Capital Markets enforce its rights against
NiSource under the Support Agreement. If Capital Markets fails or refuses to
act in a timely manner to enforce those rights, or if Capital Markets defaults
in the timely payment of principal of or premium or interest on any debt owed
to a lender, then that lender may proceed directly against NiSource to enforce
Capital Markets' rights under the Support Agreement or to obtain payment of
such defaulted principal, premium or interest. In no event, however, will a
lender have any recourse to or against the stock or assets of Northern Indiana,
or against any interest of Capital Markets or NiSource therein.
In enforcing the rights of Capital Markets or any of its lenders under the
Support Agreement, the assets of NiSource (other than the stock and assets of
Northern Indiana) are available as recourse to any lender or holder of Capital
Markets' debt. These assets include cash dividends paid to NiSource by any of
its subsidiaries (including dividends paid by Northern Indiana). The carrying
value of the assets of NiSource other than the assets of Northern Indiana
reflected in the consolidated financial statements of NiSource at March 31,
1999 was approximately $2.6 billion.
For purposes of the Support Agreement, each holder of a Debenture and each
holder of a Medium-Term Note would be considered a "lender." Funds to pay the
principal of and interest on the Debentures and on the Medium-Term Notes
pursuant to the Support Agreement would come from earnings in the form of
dividends paid to NiSource by Northern Indiana and the other subsidiaries of
NiSource and the proceeds of refinancing transactions. During the next few
years, it is expected that the majority of NiSource's earnings that ultimately
would be available to pay the principal of and interest on the Debentures and
the Medium-Term Notes will depend upon dividends paid to NiSource by Northern
Indiana. Under its indenture of mortgage, Northern Indiana may not declare or
pay any dividends on any class of capital stock (other than preferred or
preference stock) except out of Northern Indiana's earned surplus or net
profits. At March 31, 1999, Northern Indiana had approximately $158.5 million
of retained earnings (earned surplus) available for the payment of dividends.
Future dividends payable by Northern Indiana to NiSource will depend upon
adequate retained earnings, adequate future earnings and the absence of adverse
developments. In addition, since NiSource is a holding company, the right of
its creditors, including holders of the Debentures and the Medium-Term Notes,
to participate in any distribution of the assets of any subsidiary (other than
Capital Markets) upon that subsidiary's liquidation or reorganization or
otherwise necessarily will be subject to the prior claims of creditors of that
subsidiary, except to the extent that NiSource's claims as a creditor may be
recognized. Northern Indiana's indenture of mortgage does not limit the amount
of indebtedness that Capital Markets, NiSource or any of NiSource's other
subsidiaries may incur.
NiSource and Capital Markets may amend or terminate the Support Agreement at
any time by written amendment or agreement, provided that (i) any amendment
affecting the terms described above may be made only with the advance written
consent of all of Capital Markets' lenders, (ii) any amendment to any other
term of the Support Agreement that would adversely affect the rights of the
lenders may be made only with the advance written consent of all lenders
affected by such amendment and (iii) the Support Agreement may not be
terminated until all of Capital Markets' debt obligations, including its
obligations under the Debentures and the Medium-Term Notes, have been fully
paid and satisfied.
The Support Agreement is governed by, and will be construed and interpreted
in accordance with, the laws of the State of Indiana.
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BOOK-ENTRY ISSUANCE
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the securities, including the Debentures, the Preferred Securities,
the Stock Purchase Contracts, the Stock Purchase Units and the Medium-Term
Notes, may be issued in whole or in part in global form ("Global Securities").
Such Global Securities may be issued only in fully registered form and in
either temporary or permanent form. Specific terms for each security described
in this Prospectus will be set forth in the applicable Prospectus Supplement or
Pricing Supplement relating to that security.
Unless otherwise specified in the applicable Prospectus Supplement or Pricing
Supplement, the depositary for the Global Securities will be The Depository
Trust Company ("DTC").
The Global Securities will be issued as fully registered securities
registered in the name of Cede & Co. (DTC's partnership nominee). One or more
fully registered Global Securities will be issued for each issue of securities,
each in the aggregate principal or stated amount of such issue, 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 Exchange 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
of DTC ("Direct Participants") include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. DTC is
owned by a number of its Direct Participants and by the NYSE, the American
Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to DTC's 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 securities under DTC's system must be made by or through Direct
Participants, which will receive a credit for such securities on DTC's records.
The ownership interest of each actual purchaser of each security ("Beneficial
Owner") is in turn to be recorded on the records of Direct Participants and
Indirect Participants. 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 Participants or Indirect
Participants through which such Beneficial Owners entered into the
transactions. Transfers of ownership interests in the 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 securities, except in the event that use of the book-entry system for the
securities is discontinued.
To facilitate subsequent transfers, all Global Securities that are deposited
with, or on behalf of, DTC are registered in the name of DTC's nominee, Cede &
Co. The deposit of Global Securities with, or on behalf of, DTC and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the
securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such securities are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
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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.
Neither DTC nor Cede & Co. will consent or vote with respect to the Global
Securities. Under its usual procedures, DTC will mail an Omnibus Proxy to
NiSource (in the case of Stock Purchase Contracts or Stock Purchase Units),
Capital Markets (in the case of Debentures or Medium-Term Notes) or the Trust
(in the case of the Preferred Securities) as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the securities are
credited on the applicable record date (identified in a listing attached to the
Omnibus Proxy).
Redemption proceeds, distributions, principal payments and any premium,
interest or other payments on the Global Securities will be made to Cede & Co.,
as nominee of DTC. DTC's practice is to credit Direct Participants' accounts on
the applicable payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payment on such 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 accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, NiSource, the Trust, the applicable Trustee or the purchase contract
agent, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of redemption payments, principal and any premium,
interest or other payments to DTC is the responsibility of NiSource and the
purchase contract agent (in the case of payments under the Stock Purchase
Contracts), Capital Markets and the applicable paying agent (in the case of
Debentures or Medium-Term Notes) or the Trust and the applicable paying agent
(in the case of the Preferred Securities), disbursement of such payments to
Direct Participants will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of Direct
Participants and Indirect Participants.
If applicable, redemption notices will be sent to Cede & Co. If less than all
of the securities of like tenor and terms are being redeemed, DTC's practice is
to determine by lot the amount of the interest of each Direct Participant in
such issue to be redeemed. Any Preferred Securities to be redeemed will be
selected by DTC on a pro rata basis in accordance with DTC's customary
procedures.
A Beneficial Owner will give notice of any option to elect to have its
interest in a Global Security repaid by Capital Markets, through its
Participant, to the Indenture Trustee, and will effect delivery of such
interest by causing the Direct Participant to transfer the Participant's
interest in the Global Security or Securities on DTC's records, to the
Indenture Trustee. The requirement for physical delivery in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
Global Security or Securities are transferred by Direct Participants on DTC's
records.
DTC's management is aware that some computer applications, systems and the
like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community that it has developed and is implementing a program so that its
systems, as the same relate to the timely payment of distributions (including
principal and interest payments) to security holders, book-entry deliveries,
and settlement of trades within DTC, continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which
is complete. Additionally, DTC's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
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However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information of the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed its Participants and other members of the
financial community that it is contacting (and will continue to contact) third
party vendors from whom DTC acquires services to: (i) impress upon them the
importance of such services being Year 2000 compliant; and (ii) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of developing
such contingency plans as it deems appropriate.
The foregoing information with respect to DTC has been provided to its
Participants and other members of the financial community for information
purposes only and is not intended to serve as a representation, warranty, or
contract modification of any kind.
DTC may discontinue providing its services as securities depositary with
respect to the Global Securities at any time by giving reasonable notice to the
applicable issuer or the applicable trustee. Under such circumstances, in the
event that a successor securities depositary is not obtained, certificates for
the securities are required to be printed and delivered.
NiSource, Capital Markets or the Trust, as the case may be, may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor securities depository). In that event, certificates for the
securities will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that Capital Markets, the Trust and NiSource believe to
be reliable, but Capital Markets, the Trust and NiSource take no responsibility
for the accuracy thereof.
PLAN OF DISTRIBUTION
NiSource, Capital Markets or the Trust may sell securities through agents or
dealers, to or through underwriters and directly to investors. Furthermore, the
distribution of securities may be effected from time to time in one or more
transactions at a fixed price or prices, which may be changed, or from time to
time at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Each Prospectus Supplement or
Pricing Supplement will describe the method of distribution of the offered
securities.
Agents designated by Capital Markets may solicit offers to purchase Medium-
Term Notes from time to time. The applicable Prospectus Supplement or Pricing
Supplement will name any such agent involved in the offer or sale of the
Medium-Term Notes and set forth any commissions payable to such agent. Unless
otherwise indicated in such Prospectus Supplement or Pricing Supplement, any
such agent will act on a reasonable best efforts basis for the period of its
appointment. Any such agent may be deemed to be an underwriter (as that term is
defined in the Securities Act) of the Medium-Term Notes so offered and sold.
If securities are sold by means of an underwritten offering, NiSource,
Capital Markets and/or the Trust will execute an underwriting agreement with an
underwriter or underwriters once an agreement for such sale is reached. The
applicable Prospectus Supplement will set forth the names of the managing
underwriter or underwriters, as well as any other underwriters, the respective
amounts underwritten and the terms of the transaction, including commissions,
discounts and any other compensation payable to the underwriters and any
dealers. For any sale of securities involving underwriters, such 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 fixed public
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offering prices or at varying prices to be determined at the time of sale by
the underwriters and NiSource, Capital Markets or the Trust, as the case may
be. Securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by one or more
underwriters. Unless otherwise indicated in the applicable Prospectus
Supplement, the underwriting agreement will provide that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will be obligated to purchase all securities being sold if any are
purchased.
NiSource, Capital Markets or the Trust, as the case may be, may grant to the
underwriters options to purchase additional securities, to cover any over-
allotments, at the initial public offering price (with additional underwriting
commissions or discounts), as may be set forth in the applicable Prospectus
Supplement. Such Prospectus Supplement will set forth the terms of such over-
allotment option.
If securities are sold through a dealer, then NiSource, Capital Markets or
the Trust, as the case may be, will sell all of such securities to the dealer
as principal. The dealer then may resell those securities to the public at
varying prices to be determined by the dealer at the time of resale. Any such
dealer may be deemed to be an underwriter (as that term is defined in the
Securities Act) of the securities so offered and sold. The applicable
Prospectus Supplement will set forth the name of the dealer and the terms of
the transaction.
NiSource, Capital Markets or the Trust, as the case may be, may solicit
offers to purchase securities directly from investors, institutional or
otherwise. Such investors may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale of the securities so offered
and sold. In such event, the applicable Prospectus Supplement will set forth
the name of the investor and the terms of such transaction.
Securities also may be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals for
their own accounts or as agents for NiSource, Capital Markets or the Trust, as
applicable. The applicable Prospectus Supplement will identify any remarketing
firm and its compensation and will describe the terms of its agreement, if any,
with NiSource, Capital Markets or the Trust. Remarketing firms may be deemed to
be underwriters (as that term is defined in the Securities Act) in connection
with the securities remarketed.
If so indicated in the applicable Prospectus Supplement, NiSource, Capital
Markets or the Trust, as the case may be, may authorize agents and underwriters
to solicit from certain institutions offers to purchase the securities pursuant
to delayed delivery contracts providing for payment and delivery on the date or
dates stated in the applicable Prospectus Supplement. Each such delayed
delivery contract will be for an amount not less than, and the amount of
securities sold pursuant to such contract will be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Such delayed
delivery contracts will be subject only to those conditions set forth in the
applicable Prospectus Supplement. Such Prospectus Supplement will indicate any
commission payable to underwriters and agents soliciting offers to purchase
securities pursuant to delayed delivery contracts that are accepted by
NiSource, Capital Markets or the Trust, as the case may be.
Agents, underwriters, dealers and remarketing firms may be entitled to
indemnification by NiSource, Capital Markets or the Trust, as the case may be,
pursuant to agreements made with NiSource, Capital Markets or the Trust. Such
agreements may indemnify such agents, underwriters, dealers and remarketing
firms against certain liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments that such agents,
underwriters, dealers and remarketing firms may be required to make in respect
thereof.
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Each series of securities will be a new issue and will have no established
trading market, except for the Common Shares, which are listed on the NYSE, the
CSE and the PE. Capital Markets or the Trust may elect to list any series of
securities on an exchange, or NiSource may elect to list the Common Shares on
any additional exchange, but, unless otherwise specified in the applicable
Prospectus Supplement, none of NiSource, Capital Markets or the Trust will be
obligated to do so. No assurance can be given as to the liquidity of the
trading market for any of the securities.
Agents, underwriters, dealers and remarketing firms may be customers of,
engage in transactions with, or perform services for NiSource, Capital Markets
and NiSource's subsidiaries in the ordinary course of business.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for Capital
Markets, NiSource and the Trust by Schiff Hardin & Waite, Chicago, Illinois.
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Declaration and the creation of the Trust
will be passed upon by Richards, Layton & Finger, P.A.
EXPERTS
The consolidated financial statements and schedules of NiSource and its
subsidiaries incorporated by reference in this Prospectus from NiSource's 1998
Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in this Prospectus in reliance upon the authority of
such firm as experts in giving such reports.
The consolidated financial statements of Bay State and its subsidiaries
incorporated by reference in this Prospectus from Bay State's 1998 Annual
Report on Form 10-K have been audited by KPMG LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in this Prospectus in reliance upon such reports and
upon the authority of such firm as experts in accounting and auditing. The
report of KPMG LLP covering the September 30, 1998 financial statements
contains an explanatory paragraph that states that Bay State changed its method
of recognizing actuarial gains and losses for postretirement benefit plans
during the year ended September 30, 1998.
71
<PAGE>
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the PURS offered hereby, but only under circumstance and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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<TABLE>
<CAPTION>
Page
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TABLE OF CONTENTS
Prospectus Supplement
<S> <C>
About this Prospectus Supplement....................................... S-2
Forward-Looking Information............................................ S-2
The Companies.......................................................... S-2
Recent Development..................................................... S-3
Risk Factor............................................................ S-3
Use of Proceeds........................................................ S-4
Selected Financial Data................................................ S-4
Ratio of Earnings to Fixed Charges..................................... S-5
Description of PURS.................................................... S-6
Certain United States Federal Income Tax Considerations................ S-13
Underwriting........................................................... S-17
Validity of the PURS................................................... S-18
Experts................................................................ S-18
Prospectus
Prospectus Summary..................................................... 3
Available Information.................................................. 6
Incorporation of Certain Documents by Reference........................ 6
Forward-Looking Information............................................ 7
NiSource............................................................... 7
Capital Markets........................................................ 9
The Trust.............................................................. 9
Ratio of Earnings to Fixed Charges..................................... 10
Use of Proceeds........................................................ 11
Description of the Debentures.......................................... 11
Description of the Preferred Securities................................ 21
Description of the Guarantee........................................... 31
Relationship Among the Preferred Securities, the Debentures and the
Guarantee............................................................. 34
Description of the Common Shares....................................... 36
Description of the Stock Purchase Contracts and the Stock Purchase
Units................................................................. 40
Description of the Medium-Term Notes................................... 40
Description of the Support Agreement................................... 65
Book-Entry Issuance.................................................... 67
Plan of Distribution................................................... 69
Legal Matters.......................................................... 71
Experts................................................................ 71
</TABLE>
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$160,000,000
NiSource Capital
Markets, Inc.
% Puttable Reset Securities
PURS/SM/ due 2010
Entitled to the Benefit of a Support
Agreement Providing for the Payment
of Principal and Interest by
NiSource Inc.
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PROSPECTUS SUPPLEMENT
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Goldman, Sachs & Co.
Barclays Capital
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