1
Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-54504, 333-54504-01
and 333-54504-02
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 9, 2001)
20,000,000 Units
[PPL LOGO]
PPL Capital Funding Trust I
7 3/4% PEPSSM Units
(Premium Equity Participating Security Units--PEPSSM Units)
------------------------
EACH PEPS UNIT CONSISTS OF A PURCHASE CONTRACT ISSUED BY PPL CORPORATION AND A
TRUST PREFERRED SECURITY DUE 2006 ISSUED BY PPL CAPITAL FUNDING TRUST I.
-- THE PURCHASE CONTRACT WILL OBLIGATE YOU TO PURCHASE FROM US, NO LATER THAN
MAY 18, 2004, FOR A PRICE OF $25, THE FOLLOWING NUMBER OF SHARES OF PPL
CORPORATION COMMON STOCK, $.01 PAR VALUE:
-- IF THE AVERAGE CLOSING PRICE OF OUR COMMON STOCK OVER THE 20-TRADING
DAY PERIOD ENDING ON THE THIRD TRADING DAY PRIOR TO MAY 18, 2004
EQUALS OR EXCEEDS $65.03, .3845 SHARES;
-- IF THE AVERAGE CLOSING PRICE OF OUR COMMON STOCK OVER THE SAME PERIOD
IS LESS THAN $65.03 BUT GREATER THAN $53.30, A NUMBER OF SHARES HAVING
A VALUE, BASED ON THE 20-TRADING DAY AVERAGE CLOSING PRICE, EQUAL TO
$25; AND
-- IF THE AVERAGE CLOSING PRICE OF OUR COMMON STOCK OVER THE SAME PERIOD
IS LESS THAN OR EQUAL TO $53.30, .4690 SHARES.
-- WE WILL ALSO PAY TO YOU CONTRACT ADJUSTMENT PAYMENTS AT A RATE OF .46% PER
YEAR OF THE STATED AMOUNT OF $25 PER PEPS UNIT, OR $.1150 PER YEAR, AS
DESCRIBED IN THIS PROSPECTUS SUPPLEMENT.
-- EACH TRUST PREFERRED SECURITY WILL HAVE A STATED LIQUIDATION AMOUNT OF $25
AND WILL REPRESENT AN UNDIVIDED BENEFICIAL INTEREST IN THE ASSETS OF THE
TRUST. THE TRUST PREFERRED SECURITY WILL BE PLEDGED TO SECURE YOUR
OBLIGATION TO PURCHASE OUR COMMON STOCK UNDER THE RELATED PURCHASE
CONTRACT. YOU MAY USE THE PROCEEDS FROM THE REMARKETING OF YOUR TRUST
PREFERRED SECURITY TO SATISFY YOUR PAYMENT OBLIGATIONS UNDER THE PURCHASE
CONTRACT.
-- THE TRUST PREFERRED SECURITY WILL PAY A CASH DISTRIBUTION AT A RATE OF
7.29% PER YEAR OF THE STATED LIQUIDATION AMOUNT, OR $1.8225 PER YEAR,
PRIOR TO THE RATE BEING RESET, AND AT A RESET RATE THAT MAY BE EQUAL TO OR
GREATER THAN 7.29% PER YEAR AFTER THAT RESET DATE. THESE PAYMENTS WILL BE
MADE ON FEBRUARY 18, MAY 18, AUGUST 18 AND NOVEMBER 18 OF EACH YEAR,
BEGINNING AUGUST 18, 2001. PPL CORPORATION WILL GUARANTEE THE PAYMENTS OF
THE DISTRIBUTIONS ON THE TRUST PREFERRED SECURITIES TO THE EXTENT SET
FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
-- THE ASSETS OF THE TRUST WILL CONSIST SOLELY OF SUBORDINATED NOTES OF PPL
CAPITAL FUNDING MATURING ON MAY 18, 2006. PPL CORPORATION WILL
UNCONDITIONALLY GUARANTEE THE PAYMENT OF PRINCIPAL AND ANY INTEREST ON THE
SUBORDINATED NOTES OF PPL CAPITAL FUNDING.
------------------------
THE PEPS UNITS HAVE BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "PPL-PRE." ON MAY 3, 2001, THE LAST REPORTED SALE PRICE FOR OUR
COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $53.30 PER SHARE.
------------------------
INVESTING IN THE PEPS UNITS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-32 OF THIS PROSPECTUS SUPPLEMENT.
------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND NET
PUBLIC COMMISSIONS PROCEEDS
------------ ------------- ------------
Per PEPS Unit............................................... $ 25.00 See below $ 25.00
Total....................................................... $500,000,000 See below $500,000,000
The Trust will not pay any underwriting commissions. We will pay an underwriting
commission of $.75 per PEPS Unit sold ($15,000,000 for all PEPS Units and
$17,250,000 if the over-allotment option referred to below is executed in full).
Any accumulated distributions on the trust preferred securities that are a part
of the PEPS Units from May 9, 2001 will be added to the price to public.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
We and the Trust have granted the underwriters a 30-day option to purchase up to
3,000,000 additional PEPS Units on the same terms and conditions set forth above
solely to cover over-allotments, if any. Morgan Stanley & Co. Incorporated
expects to deliver the PEPS Units to purchasers on or about May 9, 2001.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
FIRST UNION SECURITIES, INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
UBS WARBURG
May 3, 2001
2
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT ----
Summary................................ S-7
Risk Factors........................... S-32
Use of Proceeds........................ S-43
Capitalization......................... S-44
Price Range of Common Stock and
Dividend Policy...................... S-45
Selected Financial Data................ S-46
Review of Financial Condition and
Results of Operations................ S-48
Management............................. S-56
Accounting Treatment................... S-57
Description of the PEPS Units.......... S-57
Description of the Purchase
Contracts............................ S-61
Certain Provisions of the Purchase
Contracts, the Purchase Contract
Agreement and the Pledge Agreement... S-71
Description of the Trust Preferred
Securities........................... S-73
Description of the PPL Capital Funding
Subordinated Notes................... S-78
Description of the Guarantee........... S-81
Book-Entry Systems..................... S-83
United States Federal Income Tax
Consequences......................... S-85
ERISA Considerations................... S-95
Underwriting........................... S-96
Validity of Securities................. S-98
Experts................................ S-98
Information We Incorporate by
Reference............................ S-99
PAGE
PROSPECTUS ----
About This Prospectus.................. 2
Where You Can Find More Information.... 3
PPL Corporation........................ 5
PPL Capital Funding.................... 7
PPL Capital Funding Trust I............ 7
Use of Proceeds........................ 7
Ratios of Earnings to Fixed Charges and
Earnings to Fixed Charges and
Preferred Dividends.................. 7
Description of PPL Corporation's
Capital Stock........................ 8
Description of Stock Purchase Contracts
and Stock Purchase Units............. 9
Description of the Debt Securities..... 10
Description of the Trust Securities.... 18
Description of the Preferred Securities
Guarantee............................ 25
Description of Subordinated Debt
Securities........................... 27
Information Concerning the Trustees.... 39
Experts................................ 39
Validity of the Securities and the
Securities Guarantees................ 39
Plan of Distribution................... 40
------------------------
You should rely only on the information contained in or incorporated by
reference into this document. We have not authorized anyone to provide you with
information that is different from that contained in this document. This
document is not an offer to sell the PEPS Units and is not soliciting an offer
to buy PEPS Units in any jurisdiction where the offer or sale is not permitted.
The information contained in this document is accurate only as of the date
hereof, regardless of the time of delivery of this document or of any sale of
the PEPS Units.
As used in this prospectus supplement, the terms "we," "our" or "us" may,
depending upon the context, refer to PPL Corporation, PPL Capital Funding, to
one or more of PPL Corporation's consolidated subsidiaries or to all of them
taken as a whole.
S-3
3
INDEX OF SELECTED TERMS FOR
THE PROSPECTUS SUPPLEMENT
TERM PAGE
---- ----
additional remarketing................ S-17
applicable benchmark treasury......... S-74
applicable market value............... S-62
applicable ownership interest......... S-58
applicable ownership interest of the
treasury portfolio.................. S-58
applicable principal amount........... S-80
applicable spread..................... S-76
beneficial owner...................... S-84
business day.......................... S-59
closing price......................... S-63
collateral agent...................... S-14
comparable yield...................... S-60
current market price.................. S-68
distribution.......................... S-74
distribution rate..................... S-14
early settlement...................... S-19
failed remarketing.................... S-22
failed final remarketing.............. S-76
failed initial remarketing............ S-65
final remarketing..................... S-18
guarantee payments.................... S-79
indenture trustee..................... S-34
initial remarketing................... S-64
interest payment date................. S-56
non-United States holder.............. S-91
original issue discount............... S-35
PEPS Units............................ S-13
pledge agreement...................... S-15
pledged securities.................... S-70
prevailing rating..................... S-76
primary treasury dealer............... S-80
TERM PAGE
---- ----
purchase contract..................... S-13
purchase contract agent............... S-13
purchase contract agreement........... S-13
purchase contract settlement date..... S-13
quotation agent....................... S-65
redemption amount..................... S-80
reference price....................... S-62
remarketing........................... S-13
remarketing agent..................... S-17
remarketing agreement................. S-64
remarketing date...................... S-65
reset agent........................... S-23
reset announcement date............... S-75
reset effective date.................. S-74
reset rate............................ S-22
securities intermediary............... S-16
settlement rate....................... S-62
short-term U.S. treasury security..... S-91
successful initial remarketing........ S-64
tax event............................. S-80
tax event redemption.................. S-19
tax event redemption date............. S-79
threshold appreciation price.......... S-62
trading day........................... S-63
Treasury PEPS Units................... S-13
treasury portfolio.................... S-14
treasury portfolio purchase price..... S-17
treasury security..................... S-15
trust preferred securities............ S-12
trust securities...................... S-23
two-year benchmark treasury rate...... S-76
United States person.................. S-85
S-4
4
FORWARD-LOOKING INFORMATION
Certain statements contained in this prospectus supplement, including
statements with respect to future earnings, dividends, energy supply and demand,
costs, subsidiary performance, growth, new technology, project development,
energy prices, strategic initiatives, and generating capacity and performance,
are "forward-looking statements" within the meaning of the federal securities
laws. Although we believe that the expectations and assumptions reflected in
these statements are reasonable, there can be no assurance that these
expectations will prove to have been correct. These forward-looking statements
involve a number of risks and uncertainties, and actual results may differ
materially from the results discussed in the forward-looking statements. In
addition to the specific factors discussed in the "Risk Factors" and "Review of
Financial Condition and Results of Operations" sections herein, the following
are among the important factors that could cause actual results to differ
materially from the forward-looking statements:
-- market demand and prices for energy, capacity and fuel;
-- weather variations affecting customer energy usage;
-- competition in retail and wholesale power markets;
-- the effect of any business or industry restructuring;
-- profitability and liquidity;
-- new accounting requirements or new interpretations or applications of
existing requirements;
-- operation of existing facilities and operating costs;
-- environmental conditions and requirements;
-- the development of new projects, markets and technologies;
-- the performance of new ventures;
-- political, regulatory or economic conditions in countries where we or
our subsidiaries conduct business;
-- receipt of necessary governmental approvals;
-- capital markets conditions;
-- our stock price performance;
-- our or any of our subsidiaries' securities ratings;
-- foreign exchange rates; and
-- commitments and liabilities.
Any such forward-looking statements should be considered in light of such
important factors and in conjunction with our other documents on file with the
Securities and Exchange Commission.
New factors that could cause actual results to differ materially from those
described in forward-looking statements emerge from time to time, and it is not
possible for us to predict all of such factors, or the extent to which any such
factor or combination of factors may cause actual results to differ from those
contained in any forward-looking statement. Any forward-looking statement speaks
only as of the date on which such statement is made, and we do not undertake any
obligation to update the information contained in such statement to reflect
subsequent developments or information.
S-5
5
We caution you that any one of these factors or other factors described
under the heading "Risk Factors," or a combination of these factors, could
materially affect our future results of operations and whether our
forward-looking statements ultimately prove to be accurate. These
forward-looking statements are not guarantees of our future performance, and our
actual results and future performance may differ materially from those suggested
in our forward-looking statements. When considering these forward-looking
statements, you should keep in mind the factors described under the heading
"Risk Factors" and other cautionary statements in this prospectus supplement,
the accompanying prospectus and the documents we have incorporated by reference.
S-6
6
SUMMARY
This summary contains basic information about us and our PEPS Units. It
does not contain all the information that is important to you. You should read
the following summary together with the more detailed information and financial
statements and notes to the financial statements contained elsewhere or
incorporated by reference into this prospectus supplement or the accompanying
prospectus. To fully understand this offering, you should read all of these
documents. As used in this prospectus supplement, the terms "we," "our" or "us"
may, depending upon the context, refer to PPL Corporation, PPL Capital Funding,
to one or more of PPL Corporation's consolidated subsidiaries or to all of them
taken as a whole.
PPL CORPORATION
OVERVIEW
We are a growth-oriented energy company engaged in power generation and
marketing primarily in the northeastern and western United States and in the
delivery of energy in the United States and abroad. Currently, we own
approximately 9,761 megawatts, or MW, of power generation capacity and we intend
to continue to acquire or develop new, low-cost and efficient power generation
facilities in key northeastern and western markets. Our target is to own or
control approximately 20,000 MW of power generation capacity by 2005. In
addition, in 2000, we marketed wholesale or retail energy in 42 states and
Canada, delivered electricity to 5.7 million customers in the United States, the
United Kingdom and Latin America and provided energy-related services to
businesses in the mid-Atlantic and northeastern United States.
We operate through two principal lines of business:
ENERGY SUPPLY
We are a leading supplier of competitively priced energy in the United
States through our subsidiaries, PPL Generation, PPL EnergyPlus and PPL Global.
-- PPL GENERATION currently owns and operates a portfolio of domestic
power generation assets with a total capacity of 9,761 MW. These
power plants are located in Pennsylvania (8,508 MW), Montana (1,157
MW) and Maine (96 MW) and use well-diversified fuel sources including
coal, nuclear, natural gas, oil and hydro.
-- PPL ENERGYPLUS markets electricity produced by PPL Generation, along
with purchased power and natural gas, in the wholesale and
deregulated retail markets, primarily in the northeastern and western
portions of the United States. In addition, PPL EnergyPlus sells
electricity, natural gas and energy services to retail customers and
serves as a supplier of choice in the competitive markets in
Pennsylvania, New Jersey, Maine, Montana and Delaware. PPL EnergyPlus
also provides energy-related products and services, such as
engineering and mechanical contracting, construction and maintenance
services, to commercial and industrial customers.
-- PPL GLOBAL acquires and develops U.S. generation projects for PPL
Generation. When the U.S. generation projects that PPL Global
develops become operational, PPL Global transfers these facilities to
PPL Generation so that PPL Generation can operate them as part of our
integrated portfolio. PPL Global also acquires, develops, owns and
operates international energy projects that are primarily focused on
the distribution of electricity. PPL Global currently owns and
operates energy delivery businesses primarily in the United Kingdom
and Latin America.
ENERGY DELIVERY
We provide high-quality energy delivery services in the mid-Atlantic
regions of the United States through our subsidiaries, PPL Electric Utilities
and PPL Gas Utilities.
-- PPL ELECTRIC UTILITIES is a regulated public utility providing
electricity delivery services to approximately 1.3 million customers
in eastern and central Pennsylvania.
-- PPL GAS UTILITIES is a regulated public utility providing natural gas
and propane delivery services to approximately 105,000 customers in
Pennsylvania and Maryland.
S-7
7
OUR STRATEGY
Our objective is to be a leading, asset-based provider of wholesale and
retail energy and energy-related products and services. We plan to achieve this
objective by generating and selling competitively priced energy in large,
high-growth markets in the northeastern and western United States. In addition,
we also plan to continue to operate high-quality energy delivery businesses in
selected regions around the world. The key elements of our strategy are as
follows:
DEVELOP AND ACQUIRE ADDITIONAL GENERATION FACILITIES IN OUR TARGET MARKETS
Our objective is to more than double our current domestic generation
capacity and own or control a portfolio of approximately 20,000 MW of generation
capacity by 2005 in our target markets in the northeastern and western United
States. We currently own generation capacity in Pennsylvania, Montana and Maine.
In addition, we are currently developing new power projects in Arizona,
Connecticut, Illinois, New York, Pennsylvania and Washington representing an
additional 4,605 MW of generation capacity. These facilities are expected to
commence operation between 2001 and 2005. We also will continue to actively
evaluate opportunities to acquire operating generation facilities or develop new
generation projects in our target markets. We believe that the northeastern and
western regions of the United States are particularly attractive markets,
because the existing and projected supply and demand dynamics for power in these
regions will require the construction of new generation facilities to meet
expected increased customer demand.
OPERATE A DIVERSE AND LOW-COST PORTFOLIO OF GENERATION ASSETS
We seek to operate an efficient and low-cost generation asset portfolio
that is diversified as to geography, fuel source, cost structure and operating
characteristics. Our current generation facilities, as well as our new
generation projects under development, are well-located in our target markets,
provide us with a geographically diverse presence in the northeastern and
western United States and help mitigate the risks resulting from regional price
differences. Our current portfolio of generation assets is also well-diversified
by fuel type with, as a percentage of our total generation capacity, 45% coal,
22% natural gas/oil, 21% nuclear, 8% hydro and 4% other as of December 31, 2000.
Our coal-fired capacity is located in the eastern and western United States and
benefits from the low fuel costs resulting from the proximity of our plants to
coal fields, our extensive experience in acquiring low-cost coal and our
highly-efficient coal-fired plant technology. With respect to cost structure and
operating characteristics, our current generation portfolio is weighted towards
base-load and/or low variable cost generation units which helps reduce the
variability of our revenues. Our new development projects involve new
intermediate and peaking facilities utilizing natural gas-fired, combined and
simple cycle technology-based generation units. These new units will allow us to
further diversify our fuel mix, enhance our ability to capture the potential
benefits of peak period pricing and provide us with additional operational
flexibility and ancillary service revenues.
PURSUE ADDITIONAL REVENUES THROUGH ASSET-BASED TRADING OPPORTUNITIES
We intend to grow and diversify our revenue base by capitalizing on energy
marketing and trading opportunities in the increasingly deregulated United
States electric market. We believe that our ability to market and trade around
our physical portfolio of generation assets through our integrated generation,
marketing and trading functions will provide us with highly attractive
opportunities to grow our revenues. In pursuing these opportunities, we limit
our financial exposure by following a comprehensive risk management program. In
particular, given our asset-based strategy, we seek to execute contractual
commitments for energy sales that do not exceed our ability to produce the
energy required. We employ sophisticated trading practices to capture regional
arbitrage opportunities and maximize the value of our generation capacity. In
addition, we seek to capture a diverse stream of revenues and avoid
over-reliance on any one market or type of customer. As a result of our
generation asset portfolio and conservative but effective approach to marketing
and trading, we believe we are well-positioned to grow our revenues while
limiting the potential impacts of energy price volatility.
S-8
8
CAPITALIZE ON SELECTED INTERNATIONAL TRANSMISSION AND DISTRIBUTION
OPPORTUNITIES
Our international strategy is focused on effectively managing our current
portfolio of energy transmission and distribution businesses in Latin America
(including Argentina, Bolivia, Brazil, Chile, El Salvador and Peru) and the
United Kingdom. We select the geographic regions in which we compete based on a
thorough due diligence process. We have concentrated our development activities
in Latin America, as we believe this is a region that encourages investment in
distribution assets and exhibits a potential for high growth in the demand for
electric distribution and related services. This is also a region where we
believe our knowledge and experience in operating efficient, low-cost energy
delivery businesses will provide the greatest benefit. In Latin America, we seek
to ensure operational excellence as well as pursue opportunities to improve the
profitability of our existing assets and develop new products and services that
leverage our existing assets.
RECENT DEVELOPMENTS
PLAN TO STRUCTURALLY SEPARATE PPL ELECTRIC UTILITIES' TRANSMISSION AND
DISTRIBUTION BUSINESS
In order to continue our transformation into a growth-oriented energy
company, on April 24, 2001, we announced a plan to effect the structural
separation of PPL Electric Utilities from PPL Corporation and PPL Corporation's
other affiliated companies, in a transaction that we call the "securitization"
of the electric transmission and distribution business of PPL Electric
Utilities. Upon completion of the securitization, we will effectively double the
amount of generation capacity we have to sell in wholesale electricity markets
while allowing us to retain valuable advantages related to operating both energy
supply and energy delivery businesses.
The securitization will be effected in a series of steps including:
-- the structural separation of PPL Electric Utilities from PPL
Corporation and PPL Corporation's other affiliated companies;
-- an increase in the leverage of PPL Electric Utilities through the
issuance of approximately $900 million in senior secured bonds
without any material impact on PPL Electric Utilities' investment-
grade credit rating; and
-- the solicitation by PPL Electric Utilities, in early June 2001, of
bids to contract with energy suppliers to meet all of the electricity
needs associated with the utility's obligation to serve customers
under capped rates from 2002 through the end of 2009.
PPL Electric Utilities currently has a full requirements supply agreement
with PPL EnergyPlus that expires at the end of 2001. Under the Pennsylvania
Electricity Generation Customer Choice and Competition Act, which we refer to as
the Pennsylvania Customer Choice Act, PPL Electric Utilities is required as a
provider of last resort, through 2009, to provide electricity at pre-set prices
to its delivery customers who do not select an alternate supplier. As part of
the securitization, PPL Electric Utilities will solicit bids to contract with
energy suppliers to meet its obligation to deliver energy to its customers. PPL
EnergyPlus intends to be one of the parties to bid on the supply contract at
market competitive prices. To the extent that PPL EnergyPlus is a successful
bidder, it will have an eight-year contract to sell a portion of its available
energy at market-competitive wholesale prices. To the extent that PPL EnergyPlus
is not a successful bidder, it will have additional energy that can be sold in
the wholesale market at market rates.
Several aspects of the securitization must be reviewed and approved by the
Pennsylvania Public Utility Commission. These approvals are expected in the
third quarter of 2001.
CHANGE TO OUR DIVIDEND POLICY
Concurrent with the announcement of our securitization plan on April 24,
2001, we announced that we will maintain our dividend at the current level of
$1.06 per common share for the foreseeable future. We believe this dividend
policy is consistent with, and an important element of, our continued
transformation into a growth-oriented energy company. Dividends on our common
stock are declared at the discretion of our Board of Directors. We will continue
to consider the appropriateness of our dividend level, taking into account
S-9
9
our financial position, our results of operations, conditions in the industry
and other factors which the Board of Directors deems relevant.
FIRST QUARTER EARNINGS
On April 24, 2001, we also announced first-quarter earnings of $1.52 per
diluted common share, a 54% increase over the same period a year ago. The major
contributors to our earnings growth for the first quarter were:
-- increased margins on wholesale energy transactions;
-- positive results from our regulated energy delivery business in
Pennsylvania and from our international operations; and
-- our success in continuing to control costs.
We also increased our earnings forecasts for 2001 and 2002 and now forecast
earnings in excess of $4.00 per common share for 2001 and $4.55 to $4.65 per
common share for 2002. Earnings per common share of $4.00 in 2001 would
represent an increase of about 22% over 2000's adjusted, diluted earnings of
$3.28 per common share. Earnings per common share of $4.55 to $4.65 in 2002
would represent an increase of about 15% over earnings now forecast for 2001.
Our increased earnings forecast is based on the following factors:
-- the securitization of our U.S. electricity delivery business
described above;
-- our earnings performance in the first quarter of 2001;
-- the increased margins on energy transactions;
-- our planned increased supply of electricity to sell in the
competitive wholesale markets, including a new natural gas-powered
plant in Illinois, described below;
-- strong growth in our electricity delivery business in Pennsylvania;
-- higher earnings from our international businesses; and
-- our success in continuing to reduce costs.
As of March 31, 2001, we had $12,546 million of consolidated assets, an
increase of $186 million as compared to $12,360 million of consolidated assets
as of December 31, 2000. Our long-term debt (less current portion) declined from
$4,467 million at December 31, 2000 to $4,196 million at March 31, 2001.
Set forth below is certain summary consolidated income statement
information and other data for the three months ended March 31, 2001, as
compared with the three months ended March 31, 2000.
S-10
10
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
Three Months Ended
March 31
----------------------
2001 2000(a)
--------- ---------
(millions of dollars)
OPERATING REVENUES:
Retail electric and gas................................... $ 956 $ 845
Wholesale energy marketing and trading.................... 469 462
Energy-related businesses................................. 141 106
-------- --------
1,566 1,413
OPERATING EXPENSES:
Fuel and purchased power.................................. 583 608
Other operation and maintenance........................... 238 218
Amortization of recoverable transition costs.............. 71 63
Depreciation.............................................. 63 68
Other..................................................... 155 136
-------- --------
1,110 1,093
-------- --------
OPERATING INCOME............................................ 456 320
Other income and (deductions)............................... 4 (1)
-------- --------
INCOME BEFORE INTEREST, INCOME TAXES AND MINORITY
INTEREST.................................................. 460 319
Interest expense............................................ 104 88
Income taxes................................................ 126 82
Minority interest........................................... 2 1
-------- --------
INCOME BEFORE DIVIDENDS ON PREFERRED STOCK.................. 228 148
Preferred stock dividend requirements....................... 6 6
-------- --------
NET INCOME.................................................. $ 222 $ 142
======== ========
EARNINGS PER SHARE OF COMMON STOCK--BASIC................... $ 1.53 $ 0.99
EARNINGS PER SHARE OF COMMON STOCK--DILUTED................. $ 1.52 $ 0.99
AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
(THOUSANDS)............................................... 145,317 143,697
------------
(a) Certain amounts have been reclassified to conform to the current year
presentation.
KEY INDICATORS
TWELVE TWELVE
MONTHS ENDED MONTHS ENDED
FINANCIAL MARCH 31, 2001 MARCH 31, 2000
--------- -------------- --------------
Dividends declared per common share....................... $ 1.060 $ 1.015
Book value per common share(a)............................ $ 13.71 $ 12.09
Market price per common share(a).......................... $43.960 $20.938
Dividend yield(a)......................................... 2.4% 4.8%
Dividend payout ratio--basic and diluted(b)............... 28% 40%
Price/earnings ratio--basic and diluted(a,b).............. 11.5 8.2
Return on average common equity(b)........................ 30.4% 20.3%
------------
(a) End of period.
(b) Excluding nonrecurring items.
S-11
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THREE MONTHS ENDED
------------------------------
MARCH 31,
----------------- PERCENT
OPERATING-- DOMESTIC ENERGY 2001 2000 CHANGE
--------------------------- ------ ----- -------
(MILLIONS OF KWH)
Retail:
Delivered(a).............................................. 9,881 9,481 4.2
Supplied.................................................. 10,552 9,864 7.0
Wholesale:
East................................................... 5,244 9,769 (46.3)
West:
Montana Power(b)..................................... 1,199 1,341 (10.6)
Other................................................ 1,026 907 13.1
------------
(a) Electricity delivered to retail customers represents the kwh delivered to
customers within PPL Electric Utilities' service territory.
(b) Energy sold to Montana Power for resale to retail customers under power sale
agreements that expire on or before June 30, 2002.
ADDITION OF 600 MW IN GENERATION CAPACITY
Consistent with our strategy to add electricity generation capacity in our
target markets, on April 23, 2001, we announced that we are developing a 540 MW
power plant near Chicago, Illinois and that we will increase the capacity of our
Susquehanna nuclear plant in Pennsylvania by 100 MW.
The Illinois facility will be a 540 MW, simple-cycle, natural gas-fired
electric generation facility. The facility is expected to be in service by the
summer of 2002 and is expected to cost about $305 million.
The planned 100 MW increase to the capacity of our Susquehanna nuclear
plant will be effected with the installation of more efficient steam turbines on
each of the two nuclear power units. The new turbines, which will replace units
that have been in operation since the early 1980s, will be installed in the
spring of 2003 and 2004 during refueling outages at the plant and are expected
to cost about $120 million.
LONG-TERM POWER SUPPLY ARRANGEMENT WITH MONTANA POWER COMPANY
Our existing obligation to provide Montana Power Company with low-cost
energy to meet its obligation to supply customers who do not purchase power on
their own expires on June 30, 2002. We have reached a 5-year power supply
arrangement with Montana Power Company under which we will sell Montana Power
Company 500 MW of power beginning July 1, 2002. We will sell this energy at $.04
a kilowatt-hour to the extent that the energy is produced by certain designated
units. Any agreement will be subject to certain regulatory approvals.
PPL CAPITAL FUNDING
PPL Capital Funding is a Delaware corporation and our wholly-owned
subsidiary. PPL Capital Funding's primary business is to provide us with
financing for our operations.
PPL CAPITAL FUNDING TRUST I
The Trust is a statutory business trust created under Delaware law. The
Trust exists only to issue and sell its trust preferred securities and common
securities, to acquire and hold subordinated notes of PPL Capital Funding as
trust assets and to engage in activities incidental to the foregoing. All of the
common securities will be owned by PPL Capital Funding and will represent at
least 3% of the total capital of the Trust. Payments will be made on the common
securities pro rata with the trust preferred securities, except that the common
securities' right to payment will be subordinated to the rights of the trust
preferred securities if there is a default under the trust agreement resulting
from an event of default under the subordinated indenture.
------------------------
The address of our principal executive offices is Two North Ninth Street,
Allentown, PA 18101 and our telephone number is (610) 774-5151.
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THE OFFERING
Unless we state otherwise, the information in this prospectus supplement
does not include 3,000,000 PEPS Units that may be issued to the underwriters
pursuant to their over-allotment option. If the underwriters exercise their
over-allotment option in full, the total number of PEPS Units offered will be
23,000,000.
Each PEPS Unit consists of a
purchase contract and a trust
preferred security............ We are offering 20,000,000 7 3/4% Premium
Equity Participating Security Units--PEPSSM
Units. The stated amount and issue price of
each PEPS Unit is $25.
Each PEPS Unit consists of two parts:
-- a purchase contract for shares of our
common stock, $.01 par value; and
-- a trust preferred security issued by PPL
Capital Funding
Trust I.
The trust preferred security will be pledged to
secure the PEPS Unit holder's obligation to PPL
Corporation under the purchase contract to
purchase shares of our common stock.
You will receive from each PEPS Unit:
-- cash distributions on the trust preferred
security at the rate of 7.29% of the
stated liquidation amount per year, or
$1.8225 per year, paid quarterly;
-- contract adjustment payments at the rate
of .46% of the stated amount of each PEPS
Unit per year, paid quarterly; and
-- on May 18, 2004, between .3845 and .4690
shares of our common stock, depending on
the average closing price of our common
stock over the 20-trading day period
ending on the third trading day prior to
May 18, 2004.
You will be required under the
purchase contract to purchase
our common stock on or prior
to May 18, 2004............... PPL Corporation will enter into a purchase
contract agreement with The Chase Manhattan
Bank, which will act as agent for all of the
holders of the PEPS Units (as well as the
holders of the Treasury PEPS Units discussed
below). For each PEPS Unit that you purchase, a
contract will be issued under the purchase
contract agreement which creates a contractual
arrangement between you and PPL Corporation for
the purchase of shares of our common stock. We
refer to this contract as a "purchase
contract." Under each purchase contract, you
will be obligated to purchase, at an aggregate
purchase price of $25 for each of your PEPS
Units, a variable number of shares of our
common stock. You will not be obligated to pay
the purchase price until May 18, 2004 -- which
has been set as the "purchase contract
settlement date" -- and you will not receive
shares of our common stock until you have
settled your purchase contract. Your purchase
contract will be settled by applying the
proceeds from the remarketing of the trust
preferred securities, as more fully described
later under "Description of the Purchase
Contracts" in this prospectus supplement.
Instead of participating in a remarketing, you
will have the option of settling your purchase
contract by settling early, by settling with
cash or by delivering cash in an amount equal
to the purchase price of the treasury portfolio
and any fees and expenses to the remarketing
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agent or its designated entity prior to the
remarketing to purchase the treasury portfolio.
The number of shares of our common stock that
you will be entitled to receive on the purchase
contract settlement date will depend on the
average closing price of a share of our common
stock over a 20-trading day period ending on
the third trading day prior to the purchase
contract settlement date. Until you actually
purchase the shares of our common stock, your
obligation to pay the $25 purchase price will
be secured by the trust preferred security that
is part of your PEPS Unit, which will be
pledged to our collateral agent as collateral.
In certain cases, the treasury portfolio, as
described below, may replace the trust
preferred securities as collateral. You may
substitute as collateral a U.S. treasury
security for the trust preferred security. See
"Description of the PEPS Units--Creating
Treasury PEPS Units by Substituting a Treasury
Security for Trust Preferred Securities" in
this prospectus supplement. Under the purchase
contract, you will also be entitled to receive
contract adjustment payments of $.0288 each
quarter (which is equal to .46% per year of the
$25 stated amount of each PEPS Unit).
The PEPS Units will include
trust preferred securities.... In addition to the purchase contract, each PEPS
Unit also will include a trust preferred
security that represents an undivided
beneficial interest in the assets of the Trust.
The Trust will pay you cash distributions of
$.4556 each quarter (which is equal to 7.29%
per year of the $25 stated liquidation amount)
on your trust preferred security, provided that
the first distribution will cover a period of
more than three months and will therefore be
proportionately more than the regular quarterly
distribution. The distribution rate may be
reset as a result of a successful initial
remarketing on or after February 18, 2004 and
will in any event be reset on May 18, 2004.
Distributions will accumulate from the date the
PEPS Units are issued and will continue until
May 18, 2006. If you continue to own your trust
preferred security after the purchase contract
settlement date, the Trust will pay you
distributions on your trust preferred security
from May 18, 2004 until May 18, 2006, at a
reset rate that is described in more detail
later in this prospectus supplement. The Trust
will pay distributions only when it has funds
available for payment. The Trust's sole source
of funds for distributions are the payments of
interest we make on the subordinated notes of
PPL Capital Funding that the Trust will hold.
PPL Corporation will unconditionally guarantee
the payment of principal of and any interest on
the subordinated notes of PPL Capital Funding.
The Guarantee................. PPL Corporation will guarantee the payment of
distributions on the trust preferred securities
and the payment of the redemption price of the
trust preferred securities, to the extent that
the Trust has funds available for payment.
Taken together with PPL Corporation's guarantee
of the subordinated notes under the related
indenture, this guarantee effectively provides
a full, irrevocable and unconditional guarantee
of the trust preferred
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securities. You can find more information about
this guarantee arrangement under the heading
"Description of the Guarantee" in this
prospectus supplement.
The trust preferred security
will be pledged as collateral
under the pledge
arrangement................... When you purchase a PEPS Unit, the trust
preferred security that is part of that PEPS
Unit will be pledged as collateral to secure
your obligation to purchase our common stock on
or prior to May 18, 2004 under the related
purchase contract. We will enter into a pledge
agreement under which The Bank of New York will
act as collateral agent and hold your trust
preferred security as collateral until the $25
purchase price under the purchase contract has
been paid. In the event of a successful initial
remarketing or a tax event redemption as
further described below, the applicable
ownership interest in the treasury portfolio
may replace your trust preferred security as
collateral. Even though your trust preferred
security will be pledged as collateral, you
will be the beneficial owner of it.
You can create Treasury PEPS
Units by substituting treasury
securities for trust preferred
securities.................... For every 40 PEPS Units you own, you may create
40 Treasury PEPS Units by substituting U.S.
treasury securities for the trust preferred
securities that are a part of the PEPS Units.
A Treasury PEPS Unit will consist of:
-- a purchase contract for shares of our
common stock that is identical to the
purchase contract that is a part of the
PEPS Unit; and
-- a 1/40 undivided beneficial ownership
interest in a related zero-coupon U.S.
treasury security (CUSIP No. 912820BJ5),
the "treasury security," that has a
principal amount at maturity of $1,000,
and matures on May 17, 2004, the business
day prior to the purchase contract
settlement date.
To create Treasury PEPS Units, you must:
-- for each group of 40 Treasury PEPS Units
you wish to create, transfer the treasury
security to The Bank of New York, which
is acting as the securities intermediary
under the pledge agreement. The treasury
security will become the collateral
supporting your obligation to purchase
shares of our common stock, and the
collateral agent will release the 40
trust preferred securities from the
pledge. Those trust preferred securities
then will be separately tradable and will
no longer be a part of a PEPS Unit or a
Treasury PEPS Unit; and
-- pay to the collateral agent any fees or
expenses incurred in connection with the
substitution.
You may substitute a treasury security for
trust preferred securities at any time prior to
or on the fifth business day preceding May 18,
2004, unless the treasury portfolio has
replaced the trust preferred securities as a
result of a successful initial remarketing or a
tax
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event redemption, as described below.
Distributions will continue to be made on the
trust preferred security. Because each treasury
security has a principal amount at maturity of
$1,000, you may substitute Treasury PEPS Units
for PEPS Units only in multiples of 40. For
each group of 40 PEPS Units you own, after
substitution of the U.S. treasury securities
for the trust preferred securities that are
part of the 40 PEPS Units, you will receive 40
Treasury PEPS Units.
A Treasury PEPS Unit holder
will be required to accrue
original issue discount on the
Treasury PEPS Unit and will
not receive any cash payments
other than contract adjustment
payments on the Treasury PEPS
Unit.......................... If you own Treasury PEPS Units, because the
treasury security included in the Treasury PEPS
Units is a zero-coupon security, you generally
will be required for U.S. federal income tax
purposes to include in gross income each year
your allocable share of original issue discount
or acquisition discount on the treasury
security that accrues in such year. You,
however, will not receive any payments on the
Treasury PEPS Units other than contract
adjustment payments. See "United States Federal
Income Tax Consequences" in this prospectus
supplement.
So long as you continue to own any trust
preferred securities, whether as part of a PEPS
Unit or as a separate security, you will
receive distributions on them, separately from
the Treasury PEPS Units.
You can recreate PEPS Units... If you own 40 Treasury PEPS Units, you may
recreate 40 PEPS Units at any time prior to or
on the seventh business day preceding May 18,
2004, unless the treasury portfolio has
replaced the treasury securities as a component
of the Treasury PEPS Units as a result of a
successful initial remarketing or a tax event
redemption, as described below. Because the
treasury security has a principal amount at
maturity of $1,000, you must recreate PEPS
Units from Treasury PEPS Units in multiples of
40. For each group of 40 Treasury PEPS Units
you submit, you will receive 40 PEPS Units.
To recreate PEPS Units, you must:
-- for each group of 40 PEPS Units you wish
to recreate, transfer 40 trust preferred
securities to the securities
intermediary. The securities intermediary
then will deposit the trust preferred
securities in the collateral account
maintained under the pledge arrangement.
The 40 trust preferred securities will
become the collateral supporting your
obligation to purchase the shares of our
common stock, and the collateral agent
will release the treasury security from
the pledge. That treasury security then
will be separately tradable and will not
be part of any PEPS Unit; and
-- pay to the collateral agent any fees or
expenses incurred in connection with the
substitution.
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The trust preferred securities
will first be remarketed on
the third business day
immediately preceding February
18, 2004...................... Unless you deliver cash in an amount equal to
the purchase price of the treasury portfolio
and any fees or expenses to the remarketing
agent or its designated entity prior to or on
the fifth business day preceding February 18,
2004 to purchase the treasury portfolio on your
behalf, your trust preferred security will
first be remarketed on the third business day
immediately preceding February 18, 2004. The
remarketing agent will use its reasonable
efforts to obtain a price of approximately
100.25% of the purchase price for the treasury
portfolio, which is described below. The
portion of the proceeds from the remarketing
equal to the treasury portfolio purchase price
will be applied to purchase the treasury
portfolio. The treasury portfolio will be
substituted for the trust preferred securities
and will be pledged to the collateral agent to
secure your obligation to purchase our common
stock under the purchase contracts. When paid
at maturity, the principal amount of the
treasury portfolio equal to the stated
liquidation amount of the trust preferred
securities will automatically be applied to
satisfy your obligation to purchase common
stock under your purchase contract. In
addition, the remarketing agent may deduct, as
a remarketing fee, an amount not exceeding 25
basis points (.25%) of the treasury portfolio
purchase price from any amount of the proceeds
in excess of the treasury portfolio purchase
price. The remarketing agent will then remit to
you any remaining portion of the proceeds for
your benefit.
If the first remarketing
fails, the remarketing agent
will use its reasonable
efforts to remarket the trust
preferred securities from time
to time thereafter prior to
the tenth business day
preceding May 18, 2004........ If the first remarketing of the trust preferred
securities on the third business day preceding
February 18, 2004 fails because the remarketing
agent cannot obtain a price of at least 100% of
the treasury portfolio purchase price or a
condition precedent to the remarketing has not
been satisfied, the trust preferred securities
will continue to be a component of PEPS Units,
and the remarketing agent in its discretion
will use its reasonable efforts to remarket all
of the trust preferred securities from time to
time thereafter prior to the tenth business day
preceding May 18, 2004. Instead of
participating in an additional remarketing, you
can deliver cash in an amount equal to the
purchase price of the treasury portfolio and
any fees or expenses to the remarketing agent
or its designated entity on the second business
day immediately preceding any additional
remarketing to purchase the treasury portfolio
on your behalf. We refer to any such additional
remarketing as an "additional remarketing,"
and, collectively with the first remarketing on
the third business day preceding February 18,
2004, as the "initial remarketing." In
addition, we refer to any initial remarketing
that is successful as the "successful initial
remarketing," and any such remarketing will
follow the
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procedures set forth above for the first
remarketing. In the event that all attempts for
an initial remarketing fail because the
remarketing agent cannot obtain a price of at
least 100% of the treasury portfolio purchase
price or a condition precedent to the
remarketing has not been satisfied, a final
remarketing will be attempted on the third
business day preceding May 18, 2004, as
described below.
If all attempts for an initial
remarketing have failed, there
will be a final remarketing on
the third business day
preceding May 18, 2004........ If all attempts for an initial remarketing have
failed, the trust preferred securities will be
remarketed on the third business day preceding
May 18, 2004, except for the trust preferred
securities of PEPS Unit holders who have
notified the purchase contract agent on or
prior to the fifth business day before May 18,
2004 of their intention to pay cash in order to
satisfy their obligations under the related
purchase contracts. We refer to this
remarketing as the "final remarketing." In this
final remarketing the remarketing agent will
use its reasonable efforts to obtain a price of
approximately 100.25% of the aggregate stated
liquidation amount of these trust preferred
securities. The portion of the proceeds from
the remarketing equal to the total stated
liquidation amount of the trust preferred
securities remarketed will automatically be
applied to satisfy in full the PEPS Unit
holders' obligations to purchase common stock
under the related purchase contracts. The
remarketing agent will deduct as a remarketing
fee an amount not exceeding 25 basis points
(.25%) of the aggregate stated liquidation
amount of the remarketed trust preferred
securities from any amount of the proceeds in
excess of the aggregate stated liquidation
amount of the remarketed trust preferred
securities. The remarketing agent will remit
any remaining portion of the proceeds for the
benefit of the holders.
If the final remarketing fails
and you are a PEPS Unit
holder, we may take possession
of your trust preferred
security...................... If the remarketing agent is unable to remarket
the trust preferred securities on the third
business day prior to May 18, 2004, because the
remarketing agent cannot obtain a price of at
least 100% of the total stated liquidation
amount of the trust preferred securities or a
condition precedent to the remarketing has not
been satisfied (a "failed final remarketing"),
we will exercise our rights as a secured party,
and we may take possession of your trust
preferred security. Your obligation to purchase
shares of our common stock would then be fully
satisfied, and you will receive the shares of
our common stock.
The "treasury portfolio" is a
portfolio of zero-coupon U.S.
Treasury securities........... The treasury portfolio is a portfolio of
zero-coupon U.S. Treasury securities consisting
of:
-- interest or principal strips of U.S.
Treasury securities that mature on or
prior to May 17, 2004 in an aggregate
amount
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equal to the stated liquidation amount of
the trust preferred securities included in
PEPS Units; and
-- with respect to the scheduled
distribution payment date on the trust
preferred securities that occurs on May
18, 2004, in the case of a successful
remarketing of the trust preferred
securities, or with respect to each
scheduled distribution payment date on
the trust preferred securities that
occurs after the tax event redemption
date and on or before May 18, 2004, in
the case of a tax event redemption,
interest or principal strips of U.S.
Treasury securities that mature on or
prior to that distribution payment date
in an aggregate amount equal to the
aggregate distribution payment that would
be due on that distribution payment date
on the stated liquidation amount of the
trust preferred securities included in
PEPS Units assuming no reset of the
distribution rate on the trust preferred
securities.
Substitution of treasury
portfolio upon tax event...... If the tax laws change or are interpreted in a
way that adversely affects the tax treatment of
the Trust or the PPL Capital Funding
subordinated notes, then PPL Capital Funding,
as issuer of the subordinated notes, may elect
to redeem the subordinated notes held by the
Trust. Following any redemption of the
subordinated notes, which we refer to as a "tax
event redemption," before May 18, 2004, the
money received from the redemption will be used
to purchase the treasury portfolio, and the
Trust will be dissolved. The treasury portfolio
will replace the trust preferred securities as
the collateral securing your obligations to
purchase our common stock under the purchase
contracts. If the subordinated notes are
redeemed, then each PEPS Unit will consist of a
purchase contract for our common stock and an
ownership interest in the treasury portfolio.
If you hold a trust preferred
security that is not part of a
PEPS Unit, you may choose to
have it remarketed............ If you hold a trust preferred security that is
not part of a PEPS Unit, you may choose to have
your trust preferred security remarketed in a
remarketing. PEPS Unit holders who have created
Treasury PEPS Units or who have settled their
purchase contracts early may make such an
election, as more fully described in this
prospectus supplement.
Instead of participating in a
remarketing, you may settle
your purchase contract by
paying cash for early
settlement, paying cash prior
to or on the business day
preceding May 18, 2004, or
upon termination.............. Instead of participating in a remarketing,
holders of PEPS Units or Treasury PEPS Units
may satisfy their obligations, or their
obligations will be terminated, under the
purchase contracts:
-- by delivering cash and any fees or
expenses to the remarketing agent or its
designated entity to purchase the
treasury portfolio on its behalf;
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-- through early settlement by the early
delivery of cash to the purchase contract
agent in the manner described in this
prospectus supplement;
-- in the case of holders of PEPS Units, by
settling the related purchase contracts
with cash prior to or on the fourth
business day preceding May 18, 2004
pursuant to prior notification to the
purchase contract agent; or
-- without any further action, upon the
termination of the purchase contracts as
a result of bankruptcy, insolvency or
reorganization of PPL Corporation.
If the holder of a PEPS Unit settles a purchase
contract early or if the holder's purchase
contract is terminated as a result of our
bankruptcy, insolvency or reorganization, that
holder will have no right to receive any
accrued contract adjustment payments.
You may settle the purchase
contract early by paying
cash.......................... You may satisfy your obligation to purchase
shares of our common stock under your purchase
contract at any time prior to 5:00 p.m., New
York City time, on the fifth business day
preceding the purchase contract settlement
date, unless the treasury portfolio has
replaced the trust preferred securities as a
component of the PEPS Units as a result of a
successful initial remarketing or a tax event
redemption.
If you choose to settle early:
-- you must deliver to the purchase contract
agent a notice indicating your election
to "settle early";
-- together with the notice, you must
deliver to the purchase contract agent a
cash payment of $25 for each purchase
contract being settled early at any time,
but in no event later than 5:00 p.m., New
York City time, on the fifth business day
preceding the purchase contract
settlement date;
-- you will receive, for each PEPS Unit or
Treasury PEPS Unit you surrender, both:
-- shares of our common stock, regardless
of the market price of the shares of
our common stock on the date of early
settlement and subject to
anti-dilution adjustments; and
-- your trust preferred security (if you
are settling a PEPS Unit) or a 1/40
undivided beneficial interest in a
treasury security (if you are settling
a Treasury PEPS Unit);
-- you will not receive any further contract
adjustment payments from us; and
-- you will retain the right to have your
trust preferred securities remarketed.
You may settle Treasury PEPS Units early only
in multiples of 40 Treasury PEPS Units. You may
not settle your PEPS Units early if the
treasury portfolio has replaced the trust
preferred securities as a
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component of the PEPS Units as a result of a
successful initial remarketing or a tax event
redemption.
You may settle the purchase
contract by paying cash prior
to or on the fourth business
day preceding May 18, 2004 but
you must notify us prior to or
on the fifth business day
preceding May 18, 2004........ Under the purchase contract that is part of
each PEPS Unit, you will be obligated to pay
$25 to purchase shares of our common stock. To
satisfy this obligation, you may notify the
purchase contract agent at any time prior to or
on the fifth business day preceding May 18,
2004 of your intention to make a cash payment
and make a payment prior to or on the fourth
business day preceding May 18, 2004. If you
make this election, you must make a cash
payment of $25 for every purchase contract you
wish to settle and you will receive shares of
our common stock on the purchase contract
settlement date at the applicable settlement
rate described below. Your trust preferred
security will then be released from the pledge
arrangement and delivered to you. If you are a
Treasury PEPS Unit holder you must settle your
purchase contracts with cash in groups of 40
purchase contracts.
You may settle the purchase
contracts of Treasury PEPS
Units by paying cash or having
the proceeds of the pledged
treasury security applied..... Unless you notify the purchase contract agent
that you will pay cash for the shares of our
common stock, upon settlement of the purchase
contracts related to the Treasury PEPS Units,
we will receive the proceeds of the treasury
securities being held as collateral under the
pledge arrangement. This will satisfy your
obligation to deliver the purchase price for
the shares of our common stock, and you will
receive the shares of our common stock.
The purchase contracts will
terminate upon certain
bankruptcy events............. The purchase contracts will terminate
automatically if certain bankruptcy, insolvency
or reorganization events occur with respect to
PPL Corporation. If the purchase contracts
terminate upon one of these events, then your
rights and obligations under your purchase
contract also will terminate, including your
obligation to pay for, and your right to
receive, shares of our common stock. Upon
termination, you will receive your trust
preferred security, your treasury security or
your ownership interest in the treasury
portfolio, as the case may be, free of our
security interest. You will not have the right
to receive any accrued contract adjustment
payments.
Upon settlement, you will
receive a number of shares of
our common stock equal to the
settlement rate............... Unless you elect to settle your purchase
contract early, the number of shares of our
common stock you will receive under your
purchase contract will depend on the average of
the closing price per share of our common stock
as reported on the New York Stock
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Exchange for the 20-trading day period ending
on the third trading day prior to the purchase
contract settlement date.
The number of shares of our common stock you
will receive for each purchase contract will be
determined as follows:
-- if the average closing price during the
20-trading day period equals or exceeds
$65.03, you will receive .3845 shares of
our common stock;
-- if the average closing price during the
20-trading day period is less than $65.03
but greater than $53.30, you will receive
a number of shares of our common stock
having a value, based on the average
closing price during that period, equal
to $25; and
-- if the average closing price during the
20-trading day period is less than or
equal to $53.30, you will receive .4690
shares of our common stock.
During the term of the PEPS Units, we will
adjust the settlement rate to reflect the
occurrence of certain stock dividends, stock
splits and other corporate events that could
affect the market price of our common stock.
See "Description of the Purchase
Contracts--Anti-Dilution Adjustments."
Contract adjustment payments
to holders of PEPS Units and
Treasury PEPS Units........... Holders of PEPS Units and Treasury PEPS Units
will be entitled to receive quarterly cash
distributions of contract adjustment payments
payable by us at the rate of .46% per year of
the stated amount of $25 per PEPS Unit on
February 18, May 18, August 18 and November 18,
commencing August 18, 2001. However, if such
day is not a business day, then payment will be
made on the succeeding day which is a business
day, unless this day is in the next succeeding
calendar year, in which case the payment will
be made on the immediately preceding business
day.
The distribution rate on the
trust preferred securities
will be reset in connection
with the initial remarketing
or, if it fails, the final
remarketing................... After the trust preferred securities have been
remarketed, the distribution rate on the trust
preferred securities will be the rate
determined by the remarketing agent in the
remarketing, which shall not be below the
initial rate and which we call the "reset
rate." Unless a tax event redemption has
occurred as described above under "Substitution
of treasury portfolio upon tax event," the
distribution rate on the trust preferred
securities, will be reset on the third business
day immediately preceding February 18, 2004,
and the reset rate will become effective on
February 18, 2004. However, if the remarketing
of the trust preferred securities on that day
results in a failed remarketing, then the
remarketing agent will use its reasonable
efforts in its discretion to remarket all of
the trust preferred securities from time to
time before the tenth business day preceding
May 18, 2004. The distribution rate will then
be reset on the date that is three business
days following any
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such successful initial remarketing. If the
initial remarketing fails, the distribution
rate will instead be reset in connection with
the final remarketing on the third business day
immediately preceding May 18, 2004, and that
reset rate will become effective on May 18,
2004. We refer to any date on which the reset
rate is reset in connection with an initial
remarketing or the final remarketing as the
"reset effective date." In the event of a
failed final remarketing, the reset rate will
be determined pursuant to a formula, as
described under "Description of the Trust
Preferred Securities--Failed Final Remarketing"
in this prospectus supplement, and this rate
will become effective on May 18, 2004.
The reset rate will be
determined by the reset
agent......................... In the case of a reset following the successful
initial remarketing on the third business day
immediately preceding February 18, 2004, or
such other date that is three business days
following the date of any subsequent successful
initial remarketing, the reset rate on the
trust preferred securities will be a rate not
below the initial rate and determined by the
reset agent as the rate the trust preferred
securities should bear in order for the trust
preferred securities included in the PEPS Units
to have an approximate aggregate market value
on the reset date of 100.25% of the treasury
portfolio purchase price. In the case of a
reset following a successful final remarketing
on the third business day immediately preceding
May 18, 2004, the reset rate will be a rate not
below the initial rate and determined by the
reset agent as the rate the trust preferred
securities should bear in order for each trust
preferred security to have an approximate
market value of 100.25% of the stated
liquidation amount of the trust preferred
security.
Interest payments on the PPL
Capital Funding subordinated
notes......................... The Trust will issue all the common securities
and the trust preferred securities to PPL
Capital Funding, collectively, the "trust
securities," in exchange for the PPL Capital
Funding subordinated notes. The PPL Capital
Funding subordinated notes will be the sole
assets of the Trust. Interest will be paid to
the Trust on the PPL Capital Funding
subordinated notes initially at a rate of 7.29%
per year on a quarterly basis to, but
excluding, the reset effective date. Following
a reset of the interest rate on the reset
effective date, the subordinated notes will
bear interest from the reset effective date at
the reset rate to, but excluding, May 18, 2006.
In the event of a failed final remarketing, the
reset rate will be determined pursuant to a
formula, as described under "Description of the
Trust Preferred Securities--Failed Final
Remarketing" in this prospectus supplement. The
reset rate will in no event be below the
initial rate. The Trust will use the interest
payments to pay distributions on the trust
preferred securities.
Distributions on the trust
preferred securities.......... As a pro rata interest in the subordinated
notes, the trust preferred securities will make
distributions payable initially at the rate of
7.29% per year of the stated liquidation amount
of $25 per trust preferred security to, but
excluding, the reset effective date.
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23
Following a reset of the distribution rate on
the trust preferred securities, the
distribution rate will equal the reset rate to,
but excluding, May 18, 2006. In the event of a
failed final remarketing, the reset rate will
be determined pursuant to a formula, as
described under "Description of the Trust
Preferred Securities--Failed Final Remarketing"
in this prospectus supplement. The reset rate
will in no event be below the initial rate. In
addition, because the trust preferred
securities are subject to the contingent
payment rules, original issue discount will
accrue on the trust preferred securities at the
"comparable yield." See "United States Federal
Income Tax Consequences" for a discussion of
the United States federal income tax
consequences related to owning a PEPS Unit.
Distribution of the PPL
Capital Funding subordinated
notes......................... We may dissolve the Trust at any time. If the
Trust is dissolved after the purchase contract
settlement date (other than as a result of the
redemption of the PPL Capital Funding
subordinated notes) and you continue to hold
trust preferred securities, you will receive
your pro rata share of the PPL Capital Funding
subordinated notes held by the Trust (after any
creditors of the Trust have been paid). If the
Trust is dissolved prior to the purchase
contract settlement date, then these
subordinated notes will be substituted for the
trust preferred securities and will be pledged
as collateral to secure your obligation to
purchase our common stock under your purchase
contracts.
Investing in the PEPS Units is
not the equivalent of
investing in PPL Corporation
common stock.................. The PEPS Units reflect an interest in two
securities, the purchase contract of PPL
Corporation and the trust preferred securities
issued by the Trust. In addition, because the
number of shares of our common stock that you
will receive upon settlement of the purchase
contracts may decline by approximately 18% as
the applicable market value increases, the PEPS
Units give you less opportunity for equity
appreciation than you would have if you
invested directly in our common stock.
The PEPS Units have been
approved for listing on the
New York Stock Exchange....... The PEPS Units have been approved for listing
on the New York Stock Exchange under the symbol
"PPL-PrE."
If Treasury PEPS Units are created and then
traded at a volume that satisfies applicable
exchange listing requirements, we will try to
list them on the national securities exchanges
or associations on which the PEPS Units are
then listed or quoted. We, however, have no
obligation to do so.
The symbol for our common
stock on the New York Stock
Exchange...................... PPL
United States federal income
tax consequences.............. Because a PEPS Unit will consist of a purchase
contract and a trust preferred security, the
purchase price of each PEPS Unit will
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be allocated between the purchase contract and
the related trust preferred security in
proportion to their relative fair market values
at the time of purchase. We expect that as of
the date of issuance of the PEPS Units, the
fair market value of each purchase contract
will be $0 and the fair market value of each
trust preferred security will be $25.
PPL Capital Funding Trust I will be a grantor
trust and if you own PEPS Units, you will be
treated as owning an undivided beneficial
ownership interest in the subordinated notes.
The subordinated notes will be subject to the
regulations concerning contingent payment debt
instruments. As such, you will be subject to
federal income tax on the accrual of original
issue discount in respect of the subordinated
notes.
If you own Treasury PEPS Units, you will be
required to include in gross income your
allocable share of original issue discount or
acquisition discount on the treasury securities
that accrues in such year.
PPL Corporation intends to report the contract
adjustment payments as income to you, but you
may want to consult your tax advisor concerning
alternative characterizations.
There is no statutory, judicial or
administrative authority directly addressing
the tax treatment of PEPS Units or instruments
similar to PEPS Units. Please consult your own
tax advisor concerning the tax consequences of
an investment in PEPS Units.
For additional information, see "United States
Federal Income Tax Consequences", starting on
page S-85.
Use of proceeds............... We estimate that PPL Capital Funding will
receive net proceeds from the sale of the trust
preferred securities to the public of $484.1
million, which PPL Capital Funding intends to
use for general corporate purposes, including
the repayment of short-term debt.
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ILLUSTRATION OF TERMS AND FEATURES OF PEPS UNITS
The following illustrates some of the key terms and features of the PEPS
Units.
Components of each PEPS Unit
at issue:..................... -- A contract to purchase shares of our
common stock on or prior to May 18, 2004;
and
-- a trust preferred security of the Trust
due May 18, 2006.
Issue price of each PEPS
Unit:......................... $25
Yield on each PEPS Unit:...... 7.75% per year, consisting of contract
adjustment payments at a rate of .46% per year
of the stated amount of each PEPS Unit and
distributions on the trust preferred security
at a rate of 7.29% per year of the stated
liquidation amount, each paid quarterly, until
May 18, 2004.
Reference price (or price of
common stock at time of
issuance of PEPS Units):...... $53.30
Threshold appreciation
price:........................ $65.03 (a 22% premium to the reference price)
A PEPS Unit consists of two components, a purchase contract and a trust
preferred security. The return to an investor on a PEPS Unit will depend upon
the return provided by each of these components. For an investor that holds the
PEPS Unit until the purchase contract settlement date, the return would be
comprised of the following:
Value of shares of our Distributions on the Contract adjustment
common stock delivered at trust preferred payments at a rate of
maturity of the purchase securities (or the .46% per year of the
contract on May 18, 2004 + treasury portfolio) at a + stated amount of each
rate of 7.29% per year of PEPS Unit until May 18,
the stated liquidation 2004
amount until May 18, 2004
PURCHASE CONTRACT
The purchase contract obligates you to purchase, and PPL Corporation to
sell, our common stock and entitles you to receive cash distributions of
contract adjustment payments. Besides participating in a remarketing, you can
satisfy your purchase contract obligation by settling early in cash or by
electing to pay cash before the fifth business day prior to May 18, 2004. If you
settle early you will receive for each PEPS Unit .3845 shares of our common
stock, regardless of the market price of our common stock on the date of early
settlement. Otherwise, the number of shares delivered to you will depend on the
average closing price of our common stock for the 20-trading day period ending
on the third trading day prior to May 18, 2004 as follows:
-- if the average closing price equals or exceeds $65.03, which is the
threshold appreciation price, you will receive .3845 shares. This is
calculated by dividing the PEPS Unit issue price by the threshold
appreciation price ($25/$65.03 = .3845);
-- if the average closing price for the period is greater than $53.30,
which is the reference price, but less than $65.03, which is the
threshold appreciation price, you will receive a number of shares
that produces a value of $25;
-- if the average closing price for the period is less than or equal to
$53.30, which is the reference price, you will receive .4690 shares.
This is calculated by dividing the PEPS Unit issue price by the
reference price ($25/$53.30 = .4690).
S-26
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The following graphs show the number of shares of our common stock that
will be delivered for each purchase contract on May 18, 2004 and the value of
the shares that will be delivered on May 18, 2004, depending upon our common
stock share price performance.
FRACTION OF A SHARE DELIVERABLE PER PURCHASE CONTRACT ON MAY 18, 2004
LOGO
S-27
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VALUE OF FRACTION OF A SHARE DELIVERABLE PER PURCHASE CONTRACT ON MAY 18, 2004
LOGO
TRUST PREFERRED SECURITY
The Trust will pay quarterly cash distributions on each trust preferred
security described above at a rate of 7.29% per year of its $25 stated
liquidation amount until the business day immediately preceding the reset
effective date following a successful remarketing. On the reset effective date,
the distribution rate may be reset in connection with the remarketing of the
trust preferred securities, or in the event of a failed final remarketing, the
distribution rate will be reset pursuant to a formula on May 18, 2004, as
described under "Description of the Trust Preferred Securities--Failed Final
Remarketing" in this prospectus supplement. The trust preferred securities will
mature on May 18, 2006.
The trust preferred security will serve as collateral for your purchase
contract obligation. If you do not substitute a treasury security for the trust
preferred security or elect to settle the purchase contract for cash or to
settle the purchase contract early, the trust preferred security will be
remarketed and the proceeds from the remarketing will be used to purchase the
treasury portfolio, the proceeds upon maturity of which will be used to settle
the purchase contract.
S-28
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COMPARISON OF INVESTMENT RETURNS FOR A PEPS UNIT AND OUR COMMON STOCK
The following table compares the return you would realize by investing on
the same day $25 in a PEPS Unit (the stated amount and purchase price of each
unit) compared to investing $25 in our common stock (or .4690 shares, based on a
common stock price of $53.30 per share). If you buy a PEPS Unit, your investment
would be substantially similar to the risks and rewards of an investment in our
common stock. However, you would not benefit from the first 22% appreciation in
the market value of the common stock underlying the PEPS Unit. In addition,
after the first 22% appreciation in the market value of our common stock, you
would receive only 82% of any additional appreciation in the market value of the
common stock underlying the PEPS Unit. Finally, until you settle your purchase
contract, you would not receive any dividends on our common stock. Instead, you
would receive payments on your PEPS Unit at a rate of 7.75% per year
(representing contract adjustment payments and distributions on the trust
preferred security or treasury portfolio included in your PEPS Unit) until May
18, 2004. You should note that this analysis also assumes that PPL Corporation
continues to pay quarterly dividends on its common stock totaling $1.06 per
share per year.
CHANGE IN PPL PPL MARKET VALUE OF VALUE OF PRETAX PRETAX
COMMON STOCK COMMON STOCK .4690 SHARES OF PPL COMMON STOCK ANNUALIZED RATE ANNUALIZED RATE
PRICE FROM PRICE (PER SHARE) AT PPL COMMON STOCK DELIVERED PER OF RETURN ON OF RETURN ON
REFERENCE PRICE SETTLEMENT DATE AT SETTLEMENT DATE PURCHASE CONTRACT PPL COMMON STOCK PEPS UNITS
--------------- -------------------- ------------------ ----------------- ---------------- ---------------
(40)% $31.98 $15.00 $15.00 (14.14)% (6.90)%
(30)% $37.31 $17.50 $17.50 (9.36)% (2.61)%
(20)% $42.64 $20.00 $20.00 (5.16)% 1.19%
(10)% $47.97 $22.50 $22.50 (1.41)% 4.62%
0% $53.30 $25.00 $25.00 1.99% 7.75%
10% $58.63 $27.50 $25.00 5.09% 7.75%
20% $63.96 $30.00 $25.00 7.96% 7.75%
30% $69.29 $32.50 $26.64 10.61% 9.66%
40% $74.62 $35.00 $28.69 13.09% 11.92%
The above diagrams and tables do not represent all potential outcomes from
an investment in PEPS Units. For example, at any time prior to or on the fifth
business day preceding May 18, 2004, an investor may substitute a treasury
security for the trust preferred security as collateral, unless the treasury
portfolio has replaced the trust preferred securities as a result of a
successful initial remarketing or a tax event redemption. By substituting a
zero-coupon treasury security for 40 trust preferred securities, an investor may
achieve higher or lower rates of return than shown above. The actual returns
will vary depending upon a number of factors, including:
-- the price of the zero-coupon treasury security;
-- the potential trading price of the trust preferred securities; and
-- the costs and expenses associated with creating a Treasury PEPS Unit.
An investor that creates a Treasury PEPS Unit, or an investor that settles
the purchase contract early or for cash, and continues to hold the trust
preferred security will continue to receive cash distributions on the trust
preferred security until May 18, 2006. The distribution rate on the trust
preferred securities will be reset on the reset effective date to a rate
determined by the remarketing agent in the remarketing of the trust preferred
securities or, in the event of a failed final remarketing, the reset rate will
be reset pursuant to a formula on May 18, 2004, as described under "Description
of the Trust Preferred Securities--Failed Final Remarketing" in this prospectus
supplement.
S-29
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SELECTED FINANCIAL DATA
The following table sets forth selected financial data for each of the
periods indicated. This information should be read in conjunction with the
consolidated financial statements and related notes for the years ended December
31, 2000, 1999 and 1998 and related notes incorporated by reference herein. The
selected consolidated financial data for the three years ended December 31, 2000
are derived from our consolidated financial statements, which have been audited
by PricewaterhouseCoopers LLP, independent public accountants. Some previously
reported amounts have been reclassified to conform with the current period
presentation.
YEAR ENDED DECEMBER 31,
--------------------------------
2000(A) 1999(A) 1998(A)
-------- -------- --------
FINANCIAL DATA:
INCOME ITEMS--$ MILLIONS:
Operating revenues......................................... $ 5,683 $ 4,590 $ 3,786
Operating income........................................... 1,202 872 827
Net income (loss).......................................... 498 432 (569)
Net income excluding nonrecurring items.................... 474 358 309
BALANCE SHEET ITEMS--$ MILLIONS(B):
Property, plant and equipment, net......................... 5,948 5,624 4,480
Recoverable transition costs............................... 2,425 2,647 2,819
Total assets............................................... 12,360 11,174 9,607
Long-term debt............................................. 4,784 4,157 2,984
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely company
debentures............................................... 250 250 250
Preferred stock
With sinking fund requirements........................... 47 47 47
Without sinking fund requirements........................ 50 50 50
Common equity.............................................. 2,012 1,613 1,790
Short-term debt............................................ 1,037 857 636
Total capital provided by investors........................ 8,180 6,974 5,757
FINANCIAL RATIOS:
Return on average common equity--%(e)...................... 27.14% 16.89% 10.98%
Embedded cost rates(b)
Long-term debt--%........................................ 6.98 6.95 7.40
Preferred stock--%....................................... 5.87 5.87 5.87
Preferred securities--%.................................. 8.44 8.44 8.44
Times interest earned before income taxes(e)............... 2.95x 3.14x 3.28x
Ratio of earnings to fixed charges--total enterprise
basis(c)(e).............................................. 2.66 2.80 3.10
Ratio of earnings to fixed charges and dividends on
preferred stock--total enterprise basis(c)(e)............ 2.55 2.64 2.77
OTHER DATA:
COMMON STOCK DATA:
Number of shares outstanding--thousands
Year-end................................................. 145,041 143,697 157,412
Average.................................................. 144,350 152,287 164,651
Number of record shareowners(b)............................ 91,777 91,553 100,458
Basic EPS (loss)--reported................................. $ 3.45 $ 2.84 $ (3.46)
Basic EPS--excluding nonrecurring items(e)................. 3.29 2.35 1.87
Diluted EPS (loss)--reported............................... 3.44 2.84 (3.46)
Diluted EPS--excluding nonrecurring items(e)............... 3.28 2.35 1.87
S-30
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YEAR ENDED DECEMBER 31,
--------------------------------
2000(A) 1999(A) 1998(A)
-------- -------- --------
Dividends declared per share............................... $ 1.06 $ 1.00 $ 1.335
Book value per share(b).................................... 13.87 11.23 11.37
Market price per share(b).................................. 45.188 22.875 27.875
Dividend payout rate--%(f)................................. 32% 43% 71%
Dividend yield--%(d)....................................... 2.35 4.37 4.79
Price earnings ratio(f).................................... 13.78x 9.73x 14.91x
SALES DATA--MILLIONS OF KILOWATT-HOURS:
Electric energy supplied--retail........................... 41,493 36,637 31,651
Electric energy supplied--wholesale........................ 40,884 32,045 36,708
Electric energy delivered--retail.......................... 37,642 35,987 32,144
------------
(a) The earnings for each year were affected by nonrecurring items. These
adjustments affected net income and certain items under Financial Ratios and
Common Stock Data. See "Earnings" in "Review of the Financial Condition and
Results of Operations" for a description of nonrecurring items in 2000, 1999
and 1998.
(b) At year-end.
(c) Computed using earnings and fixed charges of PPL and its subsidiaries. Fixed
charges consist of interest on short- and long-term debt, other interest
charges, interest on capital lease obligations and the estimated interest
component of other rentals.
(d) Based on year-end market prices.
(e) Based on earnings excluding nonrecurring items. See "Earnings" in "Review of
Financial Condition and Results of Operations" for a description of
nonrecurring items in 2000, 1999 and 1998.
(f) Based on diluted EPS--excluding nonrecurring items.
S-31
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RISK FACTORS
In considering whether to purchase our PEPS Units, you should carefully
consider all the information we have included or incorporated by reference in
this prospectus supplement and the accompanying prospectus. In particular, you
should carefully consider the risk factors described below. In addition, please
read "Forward-Looking Information" on page S-5 of this prospectus supplement,
where we describe additional uncertainties associated with our business and the
forward-looking statements in this prospectus supplement and the accompanying
prospectus.
Because a PEPS Unit consists of a purchase contract to acquire shares of
PPL Corporation common stock and a trust preferred security issued by the Trust,
you are making an investment decision with regard to our common stock and the
trust preferred securities, as well as the PEPS Units.
RISK FACTORS RELATING TO THE PEPS UNITS
YOU WILL BEAR THE ENTIRE RISK OF A DECLINE IN THE PRICE OF OUR COMMON
STOCK.
The value of the shares of our common stock that you will receive upon the
settlement of the purchase contract is not fixed, but rather will depend on the
market value of our common stock near the time of settlement. Because the price
of our common stock fluctuates, the aggregate market value of the shares of our
common stock receivable upon settlement of the purchase contract may be more or
less than the stated amount of $25 per PEPS Unit. If the market value of our
common stock near the time of settlement is less than $53.30, the aggregate
market value of the shares issuable upon settlement generally will be less than
the stated amount of the purchase contract, and your investment in a PEPS Unit
may result in a loss. Therefore, you will bear the full risk of a decline in the
market value of our common stock prior to settlement of the purchase contract.
YOU WILL RECEIVE ONLY A PORTION OF ANY APPRECIATION IN THE MARKET PRICE OF
OUR COMMON STOCK.
The aggregate market value of the shares of our common stock receivable
upon settlement of the purchase contract generally will exceed the stated amount
of $25 only if the average closing price of our common stock over the 20-trading
day period ending on the third trading day prior to May 18, 2004 equals or
exceeds the threshold appreciation price of $65.03 (which represents an
appreciation of 22% over the reference price of $53.30). Therefore, during the
period prior to settlement, an investment in a PEPS Unit affords less
opportunity for equity appreciation than a direct investment in shares of our
common stock. If the applicable average closing price exceeds the reference
price of $53.30 but is less than the threshold appreciation price of $65.03, you
will realize no equity appreciation on our common stock for the period during
which you own the purchase contract. Furthermore, if the applicable average
closing price equals or exceeds the threshold appreciation price, you will
realize only 82% of the equity appreciation on the common stock underlying the
PEPS Units for that period above the threshold appreciation price. See
"Description of the Purchase Contracts--General" in this prospectus supplement
for an illustration of the number of shares of our common stock that you would
receive at various average market prices.
THE MARKET PRICE OF OUR COMMON STOCK IS UNPREDICTABLE.
It is impossible to predict whether the market price of our common stock
will rise or fall. Many factors influence the trading price of our common stock,
including those described under "--Risks Related to Our Business Generally and
to Our Industry" and "Forward-Looking Information."
The market for our common stock likely will influence, and be influenced
by, any market that develops for the PEPS Units. For example, investors'
anticipation of the distribution into the market of the additional shares of our
common stock issuable upon settlement of the purchase contracts could depress
the price of our common stock and increase its volatility. If the underwriters'
over-allotment option is exercised in full, the largest number of shares of our
common stock issuable upon settlement of the purchase contracts would constitute
approximately 7% of our common stock outstanding as of March 31, 2001 after
giving effect to the common shares issuable upon settlement of the purchase
contracts. The price of our common stock also could
S-32
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be affected by possible sales of our common stock by investors who view the PEPS
Units as a more attractive means of equity participation in us and by hedging or
arbitrage trading activity that may develop involving the PEPS Units and our
common stock.
THE PEPS UNITS AND TREASURY PEPS UNITS PROVIDE LIMITED SETTLEMENT RATE
ADJUSTMENTS.
The number of shares of our common stock issuable upon settlement of each
purchase contract is subject to adjustment only for stock splits and
combinations, stock dividends and certain other specified transactions. The
number of shares of our common stock issuable upon settlement of each purchase
contract is not subject to adjustment for other events, such as employee stock
option grants, offerings of our common stock for cash or in connection with
certain acquisitions or other transactions, which may adversely affect the price
of our common stock. The terms of the PEPS Units do not restrict PPL
Corporation's ability to offer its common stock in the future or to engage in
other transactions that could dilute the value of our common stock. PPL
Corporation has no obligation to consider the interests of the holders of the
PEPS Units for any reason.
YOU HAVE NO SHAREHOLDER RIGHTS WITH RESPECT TO OUR COMMON STOCK.
Until you acquire shares of our common stock upon settlement of your
purchase contract, you will have no rights with respect to the shares of our
common stock, including voting rights, rights to respond to tender offers and
rights to receive any dividends or other distributions on our common stock. Upon
settlement of your purchase contract, you will be entitled to exercise the
rights of a holder of shares of our common stock only as to actions for which
the applicable record date occurs after the settlement date.
HOLDERS OF TRUST PREFERRED SECURITIES WILL HAVE LIMITED VOTING RIGHTS.
You will not be entitled to vote to appoint, remove, replace or change the
number of the trustees of the Trust, and generally will have no voting rights,
except in the limited circumstances described under "Description of the Trust
Preferred Securities--Voting Rights" in the accompanying prospectus.
WE MAY REDEEM THE PPL CAPITAL FUNDING SUBORDINATED NOTES UPON OCCURRENCE OF
A TAX EVENT.
We may redeem the subordinated notes of PPL Capital Funding (and thereby
cause the redemption of the trust preferred securities) in whole at any time
upon the occurrence and continuation of a tax event. See "Description of the PPL
Capital Funding Subordinated Notes--Tax Event Redemption" in this prospectus
supplement. A tax event redemption is likely to constitute a taxable event to
the beneficial owners of the trust preferred securities. If a tax event
redemption occurs prior to settlement under the purchase contracts, the Trust
will distribute the applicable redemption price to the securities intermediary,
in liquidation of the PEPS Unit holders' interests in the Trust. The securities
intermediary will use the redemption amount to purchase the treasury portfolio
as substitute collateral on behalf of the holders of the PEPS Units. It is
impossible to predict the impact that the substitution of the treasury portfolio
as collateral for the redeemed trust preferred securities will have on the
market price of the PEPS Units.
THE GUARANTEE ONLY COVERS PAYMENTS ON THE TRUST PREFERRED SECURITIES TO THE
EXTENT PPL CAPITAL FUNDING HAS MADE CORRESPONDING PAYMENTS ON THE PPL CAPITAL
FUNDING SUBORDINATED NOTES.
Under the guarantee to be executed by PPL Corporation for the benefit of
the holders of the trust preferred securities, PPL Capital Funding will
irrevocably guarantee the payment of various amounts payable with respect to the
trust preferred securities, including accumulated distributions, the redemption
price and amounts payable upon dissolution of the Trust, but only to the extent
that the Trust has funds available for those payments. The Trust depends on PPL
Capital Funding for its source of funds to make distributions on the trust
preferred securities when due. If PPL Capital Funding were to default on its
obligations to pay principal of or interest on its subordinated notes, the Trust
would not have sufficient funds to pay distributions or other amounts on the
trust preferred securities, and you would not be able to rely upon the guarantee
for payment of these amounts. Instead, you would have to (1) rely on the
property trustee enforcing its rights as the registered holder of the PPL
Capital Funding subordinated notes or (2) enforce the rights of the property
S-33
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trustee or assert your own right to bring an action directly against us to
enforce payments on the PPL Capital Funding subordinated notes. The declaration
of trust provides that, by acceptance of the trust preferred securities, you
agree to the provisions of the guarantee and the subordinated indenture under
which the PPL Capital Funding subordinated notes will be issued.
YOUR PLEDGED TRUST PREFERRED SECURITY WILL BE ENCUMBERED BY OUR SECURITY
INTEREST.
Although you will be the beneficial owner of the underlying pledged trust
preferred security, that pledged trust preferred security will be pledged with
the collateral agent to secure your obligation under the purchase contract.
Therefore, for so long as the purchase contract remains in effect, you will not
be allowed to withdraw your pledged trust preferred security from this pledge
arrangement, except to create Treasury PEPS Units or if you settle the purchase
contract early or settle the purchase contracts for cash on the purchase
contract settlement date as described in this prospectus supplement.
SECONDARY TRADING IN THE PEPS UNITS, TREASURY PEPS UNITS AND THE TRUST
PREFERRED SECURITIES MAY BE LIMITED.
It is impossible to predict how the PEPS Units, the Treasury PEPS Units and
the trust preferred securities will trade in the secondary market or whether the
market for any of these securities will be liquid or illiquid. There currently
is no secondary market for any of these securities, and we cannot assure you as
to the liquidity of any trading market that may develop, the ability of holders
to sell their securities in that market or whether any such market will
continue.
The PEPS Units have been approved for listing on the New York Stock
Exchange under the symbol "PPL-PrE." However, listing on the New York Stock
Exchange does not guarantee the depth or liquidity of the market for the PEPS
Units. If holders of the PEPS Units create Treasury PEPS Units, the liquidity of
the PEPS Units could be adversely affected. Moreover, if the number of PEPS
Units falls below the New York Stock Exchange's requirement for continued
listing (whether as a result of the creation of Treasury PEPS Units or
otherwise), the PEPS Units could be delisted from the New York Stock Exchange,
or trading in the PEPS Units could be suspended.
If Treasury PEPS Units are traded to a sufficient extent to meet applicable
exchange listing requirements, we will try to list those securities on the same
national securities exchanges or associations as the PEPS Units. However, we do
not presently plan to list the Treasury PEPS Units or the trust preferred
securities on any securities exchange and have no obligation to do so in the
future. The underwriters have advised us that they presently intend to make a
market for the PEPS Units, the Treasury PEPS Units and the trust preferred
securities. However, they are not obligated to do so and they may discontinue
any market making at any time.
THE PURCHASE CONTRACT AGREEMENT IS NOT QUALIFIED UNDER THE TRUST INDENTURE
ACT AND THEREFORE THE OBLIGATIONS OF THE PURCHASE CONTRACT AGENT ARE LIMITED.
The purchase contract agreement is not an indenture under the Trust
Indenture Act. Therefore, the purchase contract agent will not qualify as a
trustee under the Trust Indenture Act, and you will not benefit from the
protections of that law, such as disqualification of an indenture trustee for
"conflicting interests," provisions preventing an indenture trustee from
improving its own position at the expense of the security holders and the
requirement that an indenture trustee deliver reports at least annually with
respect to the indenture trustee and the securities. Under the terms of the
purchase contract agreement, the purchase contract agent will have only limited
obligations to you as a holder of the PEPS Unit.
THE DELIVERY OF SECURITIES IS SUBJECT TO POTENTIAL DELAY.
The purchase contracts will terminate automatically if certain bankruptcy,
insolvency or reorganization events occur with respect to PPL Corporation. If
the purchase contracts terminate upon one of these events, your rights and
obligations under your purchase contract also will terminate, including your
obligation to pay for, and your right to receive, shares of our common stock.
Upon termination, you will receive your trust preferred security, your treasury
security or your ownership interest in the treasury portfolio. Notwithstanding
the automatic termination of the purchase contracts, procedural delays may
affect the timing of the delivery to you of your securities being held as
collateral under the pledge arrangement.
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THE SUBORDINATED NOTES WILL BE CLASSIFIED AS CONTINGENT PAYMENT DEBT
INSTRUMENTS AND YOU WILL BE REQUIRED TO ACCRUE ORIGINAL ISSUE DISCOUNT.
For United States federal income tax purposes, the subordinated notes will
be classified as contingent payment debt instruments. As a result, they will be
considered to be issued with original issue discount, which you will be required
to include in income during your ownership of the subordinated notes, subject to
some adjustments. Additionally, you will generally be required to recognize
ordinary income on the gain, if any, realized on a sale, upon maturity, or other
disposition of the subordinated notes. See "United States Federal Income Tax
Consequences".
RISKS RELATED TO OUR BUSINESS GENERALLY AND TO OUR INDUSTRY
THE ENERGY INDUSTRY IS RAPIDLY CHANGING AND INTENSELY COMPETITIVE, WHICH
MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE PROFITABLY.
We face intense competition in our energy supply, distribution and
development businesses. A number of our competitors, including domestic and
international energy companies and other global power providers, have more
extensive operating experience, larger staffs and/or greater financial resources
than we do. In addition, many of the regions in which we operate have
implemented or are considering implementing regulatory initiatives designed to
increase competition. For example, regulations encouraging industry deregulation
and privatization continue to cause the disaggregation of vertically integrated
utilities into separate generation, transmission and distribution businesses in
the United States and abroad. Moreover, the Federal Energy Regulatory
Commission, or FERC, has implemented regulatory changes designed to increase
access to transmission grids by utility and non-utility purchasers and sellers
of electricity. As a result, a significant number of additional competitors
could become active in the generation segment of our industry. This competition
may negatively impact our ability to sell energy and related products, which
could adversely affect our results of operations and our ability to grow our
business.
In addition, while demand for electricity is generally increasing
throughout the United States, the rate of construction and development of new
electric assets may exceed the increase in demand in some regional markets. The
commencement of commercial operation of new facilities in the regional markets
where we own or control generation capacity will likely increase the
competitiveness of the wholesale power market in those regions, which could have
a material negative effect on our business and financial condition.
OUR BUSINESS OPERATES IN DEREGULATED SEGMENTS OF THE ELECTRIC POWER
INDUSTRY CREATED BY RESTRUCTURING INITIATIVES AT BOTH STATE AND FEDERAL LEVELS.
IF THE PRESENT TREND TOWARDS COMPETITIVE RESTRUCTURING OF THE ELECTRIC POWER
INDUSTRY IS REVERSED, DISCONTINUED OR DELAYED, OUR BUSINESS PROSPECTS AND
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
The regulatory environment applicable to the power generation industry has
recently been undergoing substantial changes, on both the federal and state
level. These changes have significantly affected the nature of the industry and
the manner in which its participants conduct their business.
Moreover, existing statutes and regulations may be revised or
reinterpreted, new laws and regulations may be adopted or become applicable to
us or our facilities, and future changes in laws and regulations may have an
effect on our business in ways that we cannot predict. Some restructured markets
have recently experienced supply problems and price volatility. These supply
problems and price volatility have been the subject of a significant amount of
press coverage, much of which has been critical of the restructuring
initiatives. In some of these markets, including California, government agencies
and other interested parties have made proposals to re-regulate areas of these
markets that have previously been deregulated, and, in California, legislation
has been passed placing a moratorium on the sale of generating plants by
regulated utilities. Other proposals to re-regulate in our industry may be made,
and legislative or other attention to the electric power restructuring process
may cause the process to be delayed, discontinued or reversed in the states in
which we currently, or may in the future, operate. If the current trend towards
competitive restructuring of the wholesale and retail power markets is delayed,
discontinued or reversed, our business prospects and financial condition could
be materially adversely affected.
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CHANGES IN COMMODITY PRICES MAY INCREASE THE COST OF PRODUCING POWER OR
DECREASE THE AMOUNT WE RECEIVE FROM SELLING POWER, WHICH COULD ADVERSELY AFFECT
OUR FINANCIAL PERFORMANCE.
Our generation and marketing businesses are subject to changes in power
prices and fuel costs, which may impact our financial results and financial
position by increasing the cost of producing power or decreasing the amount we
receive from the sale of power. The market prices for these commodities may
fluctuate substantially over relatively short periods of time. Among the factors
that could influence such prices are:
-- prevailing market prices for coal, natural gas, fuel oil and other
fuels used in our generation facilities, including associated
transportation costs and supplies of such commodities;
-- demand for energy and the extent of additional supplies of energy
available from current or new competitors;
-- capacity and transmission service into, or out of, our markets;
-- changes in the regulatory framework for wholesale power markets;
-- liquidity in the general wholesale electricity market; and
-- weather conditions impacting demand for electricity.
In the absence of or upon expiration of power sales agreements, we must
sell all or a portion of the energy, capacity and other products from our
facilities into the competitive wholesale power markets. Unlike most other
commodities, energy products cannot be stored and must be produced concurrently
with their use. As a result, the wholesale power markets are subject to
significant price fluctuations over relatively short periods of time and can be
unpredictable. In addition, the price we can obtain for power sales may not
change at the same rate as changes in fuel costs. Given the volatility and
potential for material differences between actual power prices and fuel costs,
if we are unable to secure long-term purchase agreements for our power
generation facilities, our revenues would be subject to increased volatility and
our financial results may be materially adversely affected.
OUR FACILITIES MAY NOT OPERATE AS PLANNED, WHICH MAY HAVE AN ADVERSE EFFECT
ON OUR FINANCIAL PERFORMANCE.
Our operation of power plants involves many risks, including the breakdown
or failure of generation equipment or other equipment or processes, accidents,
labor disputes, fuel interruption and operating performance below expected
levels. In addition, weather-related incidents and other natural disasters can
disrupt both generation and transmission delivery systems. Operation of our
power plants below expected capacity levels may result in lost revenues or
increased expenses, including higher maintenance costs and penalties or damages.
We purchase coal from a number of suppliers. Any disruption in the delivery
of coal, including disruptions as a result of weather, labor relations or
environmental regulations affecting our coal suppliers, could adversely affect
our ability to operate our coal-fired facilities and thus our results of
operations.
WE ARE SUBJECT TO THE RISKS OF NUCLEAR GENERATION.
Our Susquehanna plant is a 2,217 MW electric generation facility that
includes two nuclear power units. As a result, nuclear generation accounts for
about 21% of our generation capacity. We are, therefore, also subject to the
risks of nuclear generation, which include the following:
-- the potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the storage,
handling and disposal of radioactive materials;
-- limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with nuclear
operations; and
-- uncertainties with respect to the technological and financial aspects
of decommissioning nuclear plants at the end of their licensed lives.
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The Nuclear Regulatory Commission has broad authority under federal law to
impose licensing and safety-related requirements for the operation of nuclear
generation facilities. In the event of non-compliance, the Nuclear Regulatory
Commission has the authority to impose fines or shut down a unit, of both,
depending upon its assessment of the severity of the situation, until compliance
is achieved. Revised safety requirements promulgated by the Nuclear Regulatory
Commission could necessitate substantial capital expenditures at nuclear plants,
such as our Susquehanna plant. In addition, although we have no reason to
anticipate a serious nuclear incident at our Susquehanna plant, if an incident
did occur, it could have a material adverse effect on our results of operations
or financial condition.
MANY OF OUR FACILITIES HAVE A LIMITED HISTORY OPERATING IN A COMPETITIVE
ENVIRONMENT.
Many of our facilities have historically been operated within
vertically-integrated, regulated utilities that sold electricity to consumers at
prices based on predetermined rates set by state public utility commissions. We
are no longer guaranteed any rate of return on our capital investments through
predetermined rates, and our revenues and results of operations are likely to
depend, in large part, upon prevailing market prices for electricity in our
regional markets and other competitive markets, the volume of demand, capacity
and ancillary services. We have limited history operating these facilities in a
market-based competitive environment, and we may not be able to operate them
successfully in such an environment.
WE MAY NOT BE ABLE TO COMPLETE OUR PENDING TRANSACTIONS.
We have announced and may continue to announce a number of transactions -
such as our securitization plan - some of which are or may be significant to our
business. Because of the conditions required to be fulfilled before we can
complete these transactions, including regulatory approvals, we cannot assure
you that any of our announced transactions will be completed on the terms or
schedule we announce, or at all. Our pending transactions are generally
described in our Form 10-K and under "Summary--Recent Developments" above. We
urge you to read carefully the description of our pending transactions contained
therein, particularly the conditions required to be fulfilled in order to
complete such transactions.
WE MAY BE ADVERSELY AFFECTED BY LEGAL PROCEEDINGS ARISING OUT OF THE
ELECTRICITY SUPPLY SITUATION IN CALIFORNIA AND OTHER WESTERN STATES.
Litigation arising out of the California electricity supply situation has
been filed at the Federal Energy Regulatory Commission (FERC) and in California
courts against sellers of energy to the California Independent System Operator.
The plaintiffs and intervenors in these proceedings allege abuse of market
power, manipulation of market prices, unfair trade practices and violations of
state antitrust laws, among other things, and seek price caps on wholesale sales
in California and other western power markets, refunds of excess profits
allegedly earned on these sales, and other relief, including treble damages and
attorney's fees. Certain of our subsidiaries have intervened in the FERC
proceedings in order to protect their interests, but have not been named as a
defendant in any of the court actions. Attorneys general in several western
states, including California, have begun investigations related to the
electricity supply situation in California and other western states. We cannot
predict whether any of our subsidiaries will eventually be the target of any
governmental investigation or named in these lawsuits or other lawsuits, the
outcome of any such proceeding or whether the ultimate impact on us of the
electricity supply situation in California and other western states will be
material.
OUR BUSINESS DEVELOPMENT ACTIVITIES MAY NOT BE SUCCESSFUL AND OUR PROJECTS
UNDER CONSTRUCTION MAY NOT COMMENCE OPERATION AS SCHEDULED.
Our business involves numerous risks relating to the acquisition,
development and construction of power plants and facilities. Our success in
developing a particular project is contingent upon, among other things,
negotiation of satisfactory engineering, construction, fuel supply and power
sales contracts, receipt of required governmental permits and timely
implementation and satisfactory completion of construction. We may be
unsuccessful in accomplishing any of these matters or in doing so on a timely
basis. Although we may attempt to minimize the financial risks in the
development of a project by securing a favorable power sales agreement,
obtaining all required governmental permits and approvals and arranging adequate
financing prior to the
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commencement of construction, the development of a power project may require us
to expend significant sums for preliminary engineering, permitting and legal and
other expenses before we can determine whether a project is feasible,
economically attractive or capable of being financed.
Currently, we have 4,605 MW of raw generation capacity under development or
construction and we intend to pursue the expansion of existing plants and the
acquisition or development of new generation capacity. Our completion of these
facilities without delays or cost overruns is subject to substantial risks,
including:
-- changes in market prices;
-- issues related to obtaining permits and approvals and complying with
other regulatory matters;
-- unforeseen engineering problems;
-- shortages and inconsistent quality of equipment, material and labor;
-- availability and timely delivery of gas turbine generators;
-- work stoppages;
-- adverse weather conditions;
-- environmental and geological conditions; and
-- unanticipated cost increases,
any of which could give rise to delays, cost overruns or the termination of
expansion, construction or development.
If we were unable to complete the development of a facility, we would
generally not be able to recover our investment in the project. The process for
obtaining initial environmental, siting and other governmental permits and
approvals is complicated, expensive and lengthy, often taking more than one
year, and is subject to significant uncertainties. In addition, construction
delays and contractor performance shortfalls can result in the loss of revenues
and may, in turn, adversely affect our results of operations. The failure to
complete construction according to specifications can result in liabilities,
reduced plant efficiency, higher operating costs and reduced earnings. We cannot
assure you that we will be successful in the development or construction of
power generation facilities in the future. We also may not be able to obtain and
comply with all necessary licenses, permits and approvals for our existing
facilities as we seek to expand.
CHANGES IN TECHNOLOGY MAY SIGNIFICANTLY IMPACT OUR BUSINESS BY IMPAIRING
THE VALUE OF OUR POWER PLANTS.
A basic premise of our business is that generating power at central power
plants achieves economies of scale and produces electricity at a low price. We
call this central station electric production. There are other technologies that
can produce electricity, most notably fuel cells, microturbines, windmills and
photovoltaic (solar) cells. Research and development activities are ongoing to
seek improvements in these alternative technologies. It is possible that
advances will reduce the cost of alternative methods of electric production to a
level that is equal to or below that of most central station electric
production. If this were to happen, the value of our power plants may be
significantly impaired. Changes in technology could also alter the ways in which
retail electric customers buy electricity or meet their electricity needs,
thereby adversely affecting our financial results.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE RISKS ASSOCIATED WITH SELLING
AND MARKETING PRODUCTS IN THE WHOLESALE POWER MARKETS.
We purchase and sell power at the wholesale level under FERC market-based
tariffs throughout the United States and also enter into short-term agreements
to market available energy and capacity from our generation assets with the
expectation of profiting from market price fluctuations. If we are unable to
deliver firm capacity and energy under these agreements, then we could be
required to pay damages. These damages would be based on the difference between
the market price to acquire replacement capacity or energy and the
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contract price of the undelivered capacity or energy. Depending on price
volatility in the wholesale energy markets, such damages could be significant.
Extreme weather conditions, unplanned power plant outages, transmission
disruptions, non-performance by counterparties (or their counterparties) with
which we contract, and other factors could affect our ability to meet our
obligations, or cause significant increases in the market price of replacement
capacity and energy. Although we attempt to mitigate these risks, there can be
no assurance that we will be able to fully meet our obligations, that we will
not experience counterparty non-performance or that we will not be required to
pay damages for failure to perform.
OUR TRADING, MARKETING AND RISK MANAGEMENT POLICIES MAY NOT WORK AS
PLANNED.
We actively manage the commodity price risk inherent in our energy and
fuel, debt and foreign currency positions. Nonetheless, adverse changes in
energy prices, interest rates and foreign currency exchange rates may result in
economic losses in our earnings and cash flows and our balance sheet under
applicable accounting rules. We have established risk management policies and
programs, including credit policies to evaluate counterparty credit risk.
However, our trading, marketing and risk management procedures may not always be
followed or may not work as planned. As a result, we cannot predict with
precision the impact that our trading, marketing and risk management decisions
may have on our business, operating results or financial position. Although we
devote a considerable amount of management effort to these issues, their outcome
remains uncertain.
In addition, our trading, marketing and risk management activities are
exposed to the risk that counterparties that owe us money or energy will breach
their obligations. Should the counterparties to these arrangements fail to
perform, we may be forced to enter into alternative hedging arrangements or
honor the underlying commitment at then-current market prices. In that event,
our financial results are likely to be adversely affected and we might incur
additional losses.
OUR OPERATING RESULTS MAY FLUCTUATE ON A SEASONAL AND QUARTERLY BASIS.
Electrical power generation is frequently a seasonal business. In many
parts of the country, demand for electricity peaks during the hot summer months,
with market prices also peaking at that time. As a result, our overall operating
results in the future may fluctuate substantially on a seasonal basis. The
pattern of this fluctuation may change depending on the nature and location of
the facilities we acquire as well as the terms of any contract to sell
electricity that we may enter into.
WE DO NOT ALWAYS HEDGE AGAINST RISKS ASSOCIATED WITH COMMODITY ENERGY AND
FUEL PRICES.
We attempt to mitigate risks associated with open contract positions by
reserving generation capacity to deliver electricity to satisfy our net firm
sales contracts and, when necessary, by purchasing firm transmission service. We
also routinely enter into contracts, such as fuel and power purchase and sale
commitments, to hedge our exposure to weather conditions, fuel requirements and
other energy-related commodities. We may not, however, hedge the entire exposure
of our operations from commodity price volatility. To the extent we fail to
hedge against commodity price volatility, our results of operations and
financial position may be affected either favorably or unfavorably.
WE RELY ON SOME TRANSMISSION AND DISTRIBUTION ASSETS THAT WE DO NOT OWN OR
CONTROL TO DELIVER OUR WHOLESALE ELECTRICITY AND NATURAL GAS. IF TRANSMISSION IS
DISRUPTED, OR IF CAPACITY IS INADEQUATE, OUR ABILITY TO SELL AND DELIVER POWER
MAY BE HINDERED.
We depend on transmission and distribution facilities owned and operated by
utilities and other energy companies to deliver the electricity and natural gas
we sell to the wholesale market, as well as the natural gas we purchase to
supply some of our electric generation facilities. If transmission is disrupted,
or if capacity is inadequate, our ability to sell and deliver products may be
hindered.
The FERC has issued regulations that require wholesale electric
transmission services to be offered on an open-access, non-discriminatory basis.
Although these regulations are designed to encourage competition in wholesale
market transactions for electricity, there is the potential that fair and equal
access to transmission
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systems will not be available or that sufficient transmission capacity will not
be available to transmit electric power as we desire. We cannot predict the
timing of industry changes as a result of these initiatives or the adequacy of
transmission facilities in specific markets.
In addition, the independent system operators who oversee the transmission
systems in certain wholesale power markets have in the past been authorized to
impose, and may continue to impose, price limitations and other mechanisms to
address volatility in the power markets. These types of price limitations and
other mechanisms may adversely impact the profitability of our wholesale power
marketing and trading business. Given the extreme volatility and lack of
meaningful long-term price history in many of these markets and the imposition
of price limitations by regulators, independent system operators or other market
operators, we can offer no assurance that we will be able to operate profitably
in all wholesale power markets.
OUR INVESTMENTS AND PROJECTS LOCATED OUTSIDE OF THE UNITED STATES EXPOSE US
TO RISKS RELATED TO LAWS OF OTHER COUNTRIES, TAXES, ECONOMIC CONDITIONS,
FLUCTUATIONS IN CURRENCY RATES, POLITICAL CONDITIONS AND POLICIES OF FOREIGN
GOVERNMENTS. THESE RISKS MAY DELAY OR REDUCE OUR REALIZATION OF VALUE FROM OUR
INTERNATIONAL PROJECTS.
We have operations outside of the United States. In 2000, we derived
approximately 4% of our net income from our foreign operations excluding
non-recurring items. The acquisition, financing, development and operation of
projects outside the United States entail significant political and financial
risks, which vary by country, including:
-- changes in foreign laws or regulations relating to foreign
operations, including tax laws and regulations;
-- changes in United States laws related to foreign operations,
including tax laws and regulations;
-- compliance with United States foreign corrupt practices laws;
-- changes in government policies, personnel or approval requirements;
-- changes in general economic conditions affecting each country;
-- changes in labor relations in foreign operations;
-- limitations on foreign investment or ownership of projects and
returns or distributions to foreign investors;
-- limitations on the ability of foreign companies to borrow money from
foreign lenders and lack of local capital or loans;
-- fluctuations in currency exchange rates and difficulties in
converting our foreign funds to U.S. dollars or moving funds out of
the country in which the funds were earned;
-- limitations on the ability to import or export property and
equipment;
-- political instability and civil unrest; and
-- expropriation and confiscation of assets and facilities.
Despite contractual protections we have against many of these risks for our
international operations or potential investments in the future, our actual
results may be affected by the occurrence of any of these events. The occurrence
of any of these events could substantially delay or reduce the value of the
investment.
Risk from fluctuations in currency exchange rates can arise when our
foreign subsidiaries expend or borrow funds in one type of currency but receive
revenue in another. In such cases, an adverse change in exchange rates can
reduce our ability to meet expenses, including debt service obligations. Foreign
currency risk can also arise when the revenues received by our foreign
subsidiaries are not in U.S. dollars. In such cases, a strengthening of the U.S.
dollar could reduce the amount of cash and income we receive from these foreign
subsidiaries. While we believe we have hedges and contracts in place to mitigate
our most significant foreign currency exchange risks, we have some exposures
that are not hedged.
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Our international operations are subject to regulation by various foreign
governments and regulatory authorities. The laws and regulations of some
countries may limit our ability to hold a majority interest in some of the
projects that we may develop or acquire, thus limiting our ability to control
the development, construction and operation of those projects. In addition, the
legal environment in foreign countries in which we currently own assets or
projects or may develop projects in the future could make it more difficult for
us to enforce our rights under agreements relating to such projects. Our
international projects may also be subject to risks of being delayed, suspended
or terminated by the applicable foreign governments or may be subject to risks
of contract invalidation by commercial or governmental entities.
OUR BUSINESS IS SUBJECT TO EXTENSIVE REGULATION.
Our U.S. generation subsidiaries are exempt wholesale generators which sell
electricity into the wholesale market. Generally, our exempt wholesale
generators are subject to regulation by the FERC. The FERC has authorized us to
sell generation from our facilities at market-based prices. The FERC retains the
authority to modify or withdraw our market-based rate authority and to impose
"cost of service" rates if it determines that the market is not workably
competitive, that we possess market power or that we are not charging just and
reasonable rates. Any reduction by the FERC of the rate we may receive or any
unfavorable regulation of our business by state regulators could materially
adversely affect our results of operations.
The acquisition, ownership and operation of power generation facilities
require numerous permits, approvals and certificates from federal, state and
local governmental agencies. We may not be able to obtain or maintain all
required regulatory approvals. If there is a delay in obtaining any required
regulatory approvals or if we fail to obtain any required approval or comply
with any applicable law or regulation, the operation of our assets and our sales
of electricity could be prevented or become subject to additional costs.
OUR COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS ARE SIGNIFICANT AND THE
COSTS OF COMPLIANCE WITH NEW ENVIRONMENTAL LAWS COULD ADVERSELY AFFECT OUR
PROFITABILITY.
Our operations are subject to extensive federal, state, local and foreign
statutes, rules and regulations relating to environmental protection. To comply
with these legal requirements, we must spend significant sums on environmental
monitoring, pollution control equipment and emission fees. We may be exposed to
compliance risks from new projects, as well as from plants that we have
acquired. Our failure to comply with environmental laws may result in the
assessment of civil or criminal liability and fines against us by regulatory
authorities. With the trend toward stricter standards, greater regulation, more
extensive permitting requirements and an increase in the number and types of
assets operated by us subject to environmental regulation, we expect our
environmental expenditures to be substantial in the future.
New environmental laws and regulations affecting our operations may be
adopted, and new interpretations of existing laws and regulations could be
adopted or become applicable to us or our facilities. For example, the laws
governing air emissions from coal-burning plants are being re-interpreted by
federal and state authorities. These re-interpretations could result in the
imposition of substantially more stringent limitations on these emissions than
those currently in effect. Our compliance strategy, although reasonably based on
the information available to us today, may not successfully address the relevant
standards and interpretations of the future. In addition, the Environmental
Protection Agency, or EPA, is developing new policies concerning protection of
endangered species and sediment contamination, based on a new interpretation of
the Clean Water Act. The scope and extent of any resulting environmental
regulations, and their effect on our operations, are unclear.
As discussed in our Annual Report on Form 10-K, the EPA is also proposing
to revise its regulations in a way that will require power plants to meet "New
Source" performance standards and/or undergo "New Source" review for many
maintenance and repair activities that are currently exempted.
We may be responsible for any on-site liabilities associated with the
environmental condition of our power generation facilities and natural gas
assets which we have acquired or developed, regardless of when the liabilities
arose and whether they are known or unknown. In addition, in connection with
certain acquisitions and sales of assets, we may obtain, or be required to
provide, indemnification against certain environmental
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liabilities. The incurrence of a material liability, or the failure of the other
party to meet its indemnification obligations to us, could have a material
adverse effect on our operations and financial condition.
We may also not be able to obtain or maintain all required environmental
regulatory approvals. If there is a delay in obtaining any required
environmental regulatory approval or if we fail to obtain or comply with any
such approval, the affected facilities could be halted or subjected to
additional costs. Further, at some of our older facilities it may be
uneconomical for us to install the necessary equipment, which may cause us to
shut down those generating units.
Most of our contracts with customers do not permit us to recover capital
costs incurred by us to comply with new environmental regulations. As a result,
these costs could adversely affect our profitability.
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USE OF PROCEEDS
The net proceeds from the sale of 20,000,000 PEPS Units, after deducting
underwriting discounts and commissions and estimated fees and expenses, are
expected to be approximately $484.1 million ($556.8 million if the underwriters'
over-allotment option is exercised in full).
The Trust will exchange the trust securities for the subordinated notes
from PPL Capital Funding. PPL Capital Funding intends to use the full amount of
the net proceeds of the sale of the trust securities to repay short-term debt.
These borrowings include approximately $400 million of commercial paper that
had, as of April 30, 2001, a range of interest rates between 4.97% and 5.63% and
maturing on various dates not in excess of 45 days and borrowings of $100
million under a credit facility that has an annual interest rate of 5.86% as of
April 30, 2001 and matures on June 29, 2001. The lender under this credit
facility is Credit Suisse First Boston, New York branch, an affiliate of Credit
Suisse First Boston Corporation. The short-term debt being repaid was borrowed
for general corporate purposes, including making loans to PPL subsidiaries and
reducing their debt balances.
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CAPITALIZATION
The following table sets forth PPL Corporation's consolidated
capitalization as of December 31, 2000 (1) on an actual basis and (2) as
adjusted to give effect to this offering and the application of the net proceeds
from this offering to repay our commercial paper and amounts under one of our
credit facilities as described under "Use of Proceeds." This table should be
read in conjunction with the consolidated financial statements of PPL
Corporation and related notes incorporated by reference herein. See also "Recent
Developments" for a discussion of financing in connection with our
securitization plan.
AS OF
DECEMBER 31, 2000
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
Short-term debt, including current maturities(1)............ $1,219 $ 735
Note payable--affiliated company............................ 135 135
Long-term debt(2)........................................... 4,467 4,467
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely company
debentures................................................ 250 750
Preferred and preference stock, including current sinking
fund obligations.......................................... 97 97
Shareowners' common equity:
Common stock, par value $.01 per share, (390,000,000
shares authorized; 145,041,342 shares outstanding,
actual and as adjusted)................................ 2 2
Capital in excess of par value............................ 1,895 1,889(3)
Treasury stock............................................ (836) (836)
Earnings reinvested....................................... 999 999
Accumulated other comprehensive income.................... (36) (36)
Capital stock expense and other........................... (12) (12)
------ -------
Total shareowners' common equity....................... 2,012 2,006
------ -------
Total capitalization................................. $8,180 $ 8,190
====== =======
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(1) Includes $240 million of transition bonds.
(2) Includes $1,923 million of transition bonds.
(3) Reflects an adjustment of approximately $6 million representing the present
value of the contract adjustment payments payable in connection with the
PEPS Units.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock trades on the New York Stock Exchange under the symbol
"PPL." The reported last sale price of our common stock on May 3, 2001 on the
New York Stock Exchange was $53.30 per common share. As of April 20, 2001, there
were 145,796,342 shares of our common stock held by 90,013 holders of record.
The following table sets forth the quarterly high and low sales prices for our
common stock as reported by the New York Stock Exchange for the periods
indicated and the amount of per share dividends for the periods indicated.
STOCK PRICES
---------------- DIVIDENDS PER
HIGH LOW COMMON SHARE
------ ------ -------------
FISCAL YEAR 1999:
First Quarter.......................................... $28.50 $24.75 $.250
Second Quarter......................................... 31.88 24.13 .250
Third Quarter.......................................... 32.00 25.38 .250
Fourth Quarter......................................... 28.50 20.38 .250
FISCAL YEAR 2000:
First Quarter.......................................... 24.00 18.38 .265
Second Quarter......................................... 25.00 20.38 .265
Third Quarter.......................................... 44.44 21.94 .265
Fourth Quarter......................................... 46.13 37.56 .265
FISCAL YEAR 2001:
First Quarter.......................................... 46.75 33.88 .265
Second Quarter (through May 3, 2001)................... 56.40 44.03
PPL Corporation has paid quarterly cash dividends on its common stock in
every year since 1946. The dividends paid per share in 2000 were $1.06 and in
1999 were $1.00. Future dividends, declared at the discretion of the PPL
Corporation Board of Directors, will be dependent upon future earnings,
financial requirements and other factors. See "Summary--Recent
Developments --Change to our Dividend Policy" above for a discussion of our
decision to maintain our dividend at the current level of $1.06 per common share
for the foreseeable future. See "Summary--Recent Developments" above.
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SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data for
each of the periods indicated. This information should be read in conjunction
with the consolidated financial statements and related notes for the years ended
December 31, 2000, 1999 and 1998 and related notes incorporated by reference
herein. The selected consolidated financial data for the five years ended
December 31, 2000 are derived from our consolidated financial statements, which
have been audited by PricewaterhouseCoopers LLP, independent public accountants.
Some previously reported amounts have been reclassified to conform with the
current period presentation.
2000(a) 1999(a) 1998(a) 1997(a) 1996
-------- -------- -------- -------- --------
FINANCIAL DATA:
INCOME ITEMS--$ MILLIONS:
Operating revenues.......................... $ 5,683 $ 4,590 $ 3,786 $ 3,077 $ 2,926
Operating income(f)......................... 1,202 872 827 800 810
Net income (loss)........................... 498 432 (569) 296 329
Net income excluding nonrecurring items..... 474 358 309 328 329
BALANCE SHEET ITEMS--$ MILLIONS(B):
Property, plant and equipment, net.......... 5,948 5,624 4,480 6,820 6,960
Recoverable transition costs................ 2,425 2,647 2,819
Total assets................................ 12,360 11,174 9,607 9,485 9,670
Long-term debt.............................. 4,784 4,157 2,984 2,735 2,832
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely company debentures......... 250 250 250 250 --
Preferred stock
With sinking fund requirements............ 47 47 47 47 295
Without sinking fund requirements......... 50 50 50 50 171
Common equity............................... 2,012 1,613 1,790 2,809 2,745
Short-term debt............................. 1,037 857 636 135 144
Total capital provided by investors......... 8,180 6,974 5,757 6,026 6,187
FINANCIAL RATIOS:
Return on average common equity--%(e)....... 27.14% 16.89% 10.98% 11.69% 12.30%
Embedded cost rates(b)
Long-term debt--%......................... 6.98 6.95 7.40 7.88 7.89
Preferred stock--%........................ 5.87 5.87 5.87 5.85 6.09
Preferred securities--%................... 8.44 8.44 8.44 8.43
Times interest earned before income
taxes(e).................................. 2.95x 3.14x 3.28x 3.59x 3.55x
Ratio of earnings to fixed charges--total
enterprise basis(c)(e).................... 2.66 2.80 3.10 3.51 3.45
Ratio of earnings to fixed charges and
dividends on preferred stock--total
enterprise basis(c)(e).................... 2.55 2.64 2.77 3.11 2.90
OTHER DATA:
COMMON STOCK DATA:
Number of shares outstanding--thousands
Year-end.................................. 145,041 143,697 157,412 166,248 162,665
Average................................... 144,350 152,287 164,651 164,550 161,060
Number of record shareowners(b)............. 91,777 91,553 100,458 117,293 123,290
Basic EPS (loss)--reported.................. $ 3.45 $ 2.84 $ (3.46) $ 1.80 $ 2.05
Basic EPS--excluding nonrecurring
items(e).................................. 3.29 2.35 1.87 2.00 2.05
Diluted EPS (loss)--reported................ 3.44 2.84 (3.46) 1.80 2.05
Diluted EPS--excluding nonrecurring
items(e).................................. 3.28 2.35 1.87 2.00 2.05
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2000(a) 1999(a) 1998(a) 1997(a) 1996
-------- -------- -------- -------- --------
Dividends declared per share................ $ 1.06 $ 1.00 $ 1.335 $ 1.67 $ 1.67
Book value per share(b)..................... 13.87 11.23 11.37 16.90 16.87
Market price per share(b)................... 45.188 22.875 27.875 23.938 23.000
Dividend payout rate--%(g).................. 32% 43% 71% 84% 81%
Dividend yield--%(d)........................ 2.35 4.37 4.79 6.98 7.26
Price earnings ratio(g)..................... 13.78x 9.73x 14.91x 11.97x 11.22x
SALES DATA--MILLIONS OF KILOWATT--HOURS:
Electric energy supplied--retail............ 41,493 36,637 31,651 31,964 32,307
Electric energy supplied--wholesale......... 40,884 32,045 36,708 21,454 14,341
Electric energy delivered--retail........... 37,642 35,987 32,144 31,964 32,307
------------
(a) The earnings for each year, except for 1996, were affected by nonrecurring
items. These adjustments affected net income and certain items under
Financial Ratios and Common Stock Data. See "Earnings" in "Review of
Financial Condition and Results of Operations" for a description of
nonrecurring items in 2000, 1999 and 1998.
(b) At year-end.
(c) Computed using earnings and fixed charges of PPL and its subsidiaries. Fixed
charges consist of interest on short- and long-term debt, other interest
charges, interest on capital lease obligations and the estimated interest
component of other rentals.
(d) Based on year-end market prices.
(e) Based on earnings excluding nonrecurring items. See "Earnings" in "Review of
Financial Condition and Results of Operations" for a description of
nonrecurring items in 2000, 1999, and 1998.
(f) Operating income of 1997 and 1996 restated to conform to the current
presentation.
(g) Based on diluted EPS--excluding nonrecurring items.
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REVIEW OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
audited consolidated financial statements and related notes incorporated by
reference herein. This Review of Financial Condition and Results of Operations
contains forward-looking statements. Please see "Forward-Looking Information"
for a discussion of the uncertainties, risks and assumptions associated with
these statements.
PPL Corporation is a holding company with headquarters in Allentown,
Pennsylvania. See Item 1 "Business--Background" in our Annual Report on Form
10-K for descriptions of our major segments. Other subsidiaries may be formed by
PPL to take advantage of new business opportunities.
Certain capitalized terms used herein and not otherwise defined have the
meanings ascribed thereto in our Annual Report on Form 10-K under "Glossary of
Terms and Abbreviations."
RESULTS OF OPERATIONS
The following discussion explains significant changes in principal items on
the consolidated statement of income, comparing 2000 to 1999, and 1999 to 1998.
Certain items on the consolidated statement of income have been impacted by
the acquisition of Montana generation assets. PPL acquired these generation
assets from Montana Power in December 1999. As such, the results of PPL Montana
are included for the entire year in 2000, but only for the last two weeks of
1999. When discussing PPL's results of operations for 2000 compared with 1999,
the results of PPL Montana for the year 2000 are eliminated for purposes of
comparability.
EARNINGS
2000 1999 1998
----- ----- ------
Earnings per share (basic)--excluding nonrecurring items.... $3.29 $2.35 $ 1.87
Nonrecurring items:
Environmental insurance recoveries........................ .16 -- --
Sale of Sunbury plant and related assets.................. -- .28 --
Sale of SWEB supply business.............................. -- .42 --
Securitization............................................ -- .13 --
Write-down carrying value of investments.................. -- (.34) --
PUC restructuring charge.................................. -- -- (5.56)
FERC municipalities settlement............................ -- -- (.19)
Settlement with NUG....................................... -- -- .11
U.K. tax rate reduction................................... -- -- .06
PPL Gas Utilities acquisition costs....................... -- -- .03
Other impacts of restructuring............................ -- -- .22
----- ----- ------
Earnings (loss) per share (basic)--actual................... $3.45 $2.84 $(3.46)
===== ===== ======
The earnings of PPL for 2000, 1999 and 1998 were impacted by several
nonrecurring items. Earnings in 2000 benefited by $.16 per share from insurance
settlements for past and potential future environmental exposures. In addition,
the Pennsylvania Public Utility Commission ("PUC") restructuring adjustments
provided a favorable impact of about $.22 per share on earnings in the second
half of 1998. The nonrecurring items without note references are discussed below
in "Other Income and (Deductions)."
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48
Excluding the effects of nonrecurring items, earnings per share were $3.29
in 2000 (or $3.28 diluted), compared with $2.35 in 1999. The adjusted earnings
for 2000 represent a $.94 per share improvement, or about 40%, compared with
1999. The earnings improvement was primarily due to:
-- higher margins on wholesale transactions, including PPL Montana;
-- the end of a one year 4% rate reduction for delivery customers in
Pennsylvania;
-- gains on sales of emission allowances;
-- lower depreciation on certain fossil generating assets; and
-- fewer common shares outstanding.
These earnings improvements in 2000 were partially offset by higher levels
of interest expense, higher costs of wages and employee benefits and the
write-off of a regulatory asset related to Pennsylvania's 1998 electric choice
program.
Excluding the effects of nonrecurring items, 1999 earnings were $2.35
compared with $1.87 for 1998. The adjusted earnings for 1999 represent a $.48
per share improvement, or about 26%, compared with 1998. This earnings
improvement was primarily due to higher margins on wholesale energy and
marketing activities, an increase in electricity supplied to commercial and
industrial customers, lower taxes, lower depreciation on generation assets,
increased earnings from unregulated operations, and the benefit of fewer common
shares outstanding. In addition, 1998 earnings were adversely impacted by mild
winter weather. The earnings improvements in 1999 were partially offset by a 4%
rate reduction for electric delivery customers in Pennsylvania and by the loss
of customers who shopped for alternate electric generation suppliers. In
addition, 1998 earnings benefited from certain regulatory treatments that did
not carry over to 1999.
OPERATING REVENUES
Retail Electric and Gas. Increase (decrease) in retail revenues from
electric and gas operations was attributable to the following:
2000 VS. 1999 1999 VS. 1998
------------- -------------
(IN MILLIONS)
Retail Electric Revenue
PPL Electric
Electric delivery................................. $ 28 $(179)
PLR electric generation supply.................... 32 (159)
PPL EnergyPlus
Electric generation supply........................ 88 416
PPL Global
Electric delivery................................. 75 245
Other................................................ 3 25
---- -----
226 348
---- -----
Retail Gas Revenue
PPL Gas Utilities.................................... 25 74
PPL EnergyPlus....................................... 43 6
---- -----
68 80
---- -----
Retail Revenues--total................................. $294 $ 428
==== =====
Operating revenues from retail electric operations increased by $226
million in 2000 compared with 1999. PPL EnergyPlus provided 15.5% more
electricity to retail customers in 2000 as compared to 1999. Revenues from PPL
Global were $75 million, or 31%, greater in 2000 as compared to 1999, due to the
acquisition of Companhia Energetica do Maranhao ("CEMAR"), and higher sales
volumes in Chile, El Salvador and
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Bolivia. Also contributing to the increase were higher PPL Electric retail
delivery sales in 2000 compared with 1999, and the end of the one year 4% rate
reduction for delivery customers. In addition, PPL Electric's provider of last
resort ("PLR") revenues were higher in 2000, as fewer customers selected a
supplier other than PPL Electric.
Operating revenues from retail electric operations increased by $348
million in 1999 compared with 1998. This was primarily due to the consolidation
of Empresas Emel, S.A. ("Emel") and Est de Centr, S.A. de S.V. ("EC") results
effective January 1, 1999. Also, PPL Electric and PPL EnergyPlus provided 6.5%
more electricity to retail customers during 1999 as compared with 1998.
Both PPL Gas Utilities and PPL EnergyPlus had higher retail gas sales for
2000 when compared to 1999. The increase in PPL Gas Utilities' revenues reflects
greater demand, higher gas commodity costs and increased off-system revenues in
2000. PPL EnergyPlus' increase was related to intensified gas marketing efforts
and increased retail pricing attributed to higher wholesale gas commodity costs.
After eliminating the revenues of PPL Gas Utilities, which was acquired in
August 1998, retail gas revenues increased by $6 million in 1999 compared with
1998.
PPL Gas Utilities' two natural gas delivery subsidiaries reached a
settlement with the PUC for a $9.3 million base rate increase, effective January
1, 2001. As a condition of the settlement, PPL Gas Utilities agreed to not
increase natural gas delivery base rates in Pennsylvania for the next three
years.
Wholesale Energy Marketing and Trading. The increase (decrease) in
revenues from wholesale energy marketing and trading activities was attributable
to the following:
2000 VS. 1999 1999 VS. 1998
------------- -------------
(IN MILLIONS)
PPL Electric/PPL EnergyPlus
Bilateral Sales...................................... $209 $ 38
PJM.................................................. 39 --
Cost-based contracts................................. (38) (71)
Gas & oil sales...................................... (39) 223
PPL Montana............................................ 405 9
PPL Maine.............................................. 67 15
Other.................................................. (3) 3
---- ----
$640 $217
==== ====
After eliminating the revenues of PPL Montana, wholesale energy marketing
and trading revenues increased by $235 million in 2000 compared to 1999. This
was primarily due to higher bilateral sales revenues due to higher market
pricing and increased sales volumes to other counterparties.
Wholesale energy marketing and trading revenues increased by $217 million
in 1999 compared with 1998. This increase was predominately due to an increase
in wholesale gas revenues. This increase was, in part, due to greater demand for
gas-fired generation and an increase in retail gas marketing activities. The
decrease in revenues from cost-based contracts reflects the phase-down of the
capacity and energy agreement with Jersey Central Power & Light Company
("JCP&L"). The contract expired in December 1999.
ENERGY-RELATED BUSINESSES
Energy-related businesses (see Note 1 to the consolidated financial
statements) contributed $46 million to the 2000 operating income of PPL, which
was a decrease of $14 million from 1999. This decrease was primarily due to
operating losses incurred by PPL's synfuel projects. These and other losses were
partially offset by increased operating income of the mechanical contracting and
engineering subsidiaries, and higher equity earnings from PPL Global's
international investments.
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Energy-related businesses provided an additional $35 million to operating
income in 1999 compared with 1998. This was primarily due to PPL Global's higher
equity earnings from its investment in Western Power Distribution ("WPD"), and
additional operating income provided by the mechanical contracting and
engineering subsidiaries.
FUEL
Fuel costs increased by $47 million in 2000 compared with 1999, and
decreased by $11 million in 1999 compared with 1998.
Electric fuel costs increased by $23 million in 2000 compared with 1999.
Excluding PPL Montana, electric fuel costs decreased by $8 million during 2000
compared with 1999. The decrease was attributed to lower unit costs for nuclear
generation, in part due to a $5 million accrual in 1999 for dry cask canisters
for on-site spent fuel storage. The decrease from lower unit costs was partially
offset by higher generation at Susquehanna.
Electric fuel costs decreased by $44 million in 1999 compared with 1998.
The decrease resulted from lower generation by PPL Generation's coal-fired and
oil/gas fired units, as well as lower fuel prices for coal. The lower coal-fired
generation resulted from units being dispatched less during off-peak periods, as
a result of NOx allowances affecting the unit costs from May to September of
1999. The Holtwood plant closing and the Sunbury plant sale (see "Power Plant
Operations" discussion below) also contributed to the decrease in generation. In
addition, PPL Generation entered into a rail contract which lowered coal freight
prices effective June 1999. These decreases in 1999 were partially offset by
higher fuel prices for nuclear and oil/gas-fired stations.
The cost of natural gas and propane increased by $24 million in 2000
compared with 1999. This reflects higher sales by PPL Gas Utilities, and
intensified gas marketing efforts by PPL EnergyPlus.
The cost of natural gas and propane increased by $33 million in 1999
compared with 1998. This reflects the acquisition of PPL Gas Utilities in August
1998. The results for 1999 included a full year of operations of PPL Gas
Utilities.
ENERGY PURCHASES
The increase in energy purchases was attributable to the following:
2000 VS. 1999 1999 VS. 1998
------------- -------------
(IN MILLIONS)
PPL EnergyPlus......................................... $143 $309
PPL Maine.............................................. 58 6
PPL Global............................................. 46 142
PPL Montana............................................ 121 1
Other.................................................. 15 --
---- ----
$383 $458
==== ====
After excluding the impact of PPL Montana, energy purchases increased by
$262 million during 2000, compared with 1999. This increase was attributed to
higher wholesale prices for energy purchases needed to supply retail load
obligations.
Excluding the purchases made by Emel and EC, which were consolidated by PPL
Global effective January 1, 1999, energy purchases increased by $316 million in
1999 when compared to 1998. The increase was primarily due to increased gas
purchases by the Energy Marketing Center, additional wholesale purchases to
support PPL EnergyPlus, and higher wholesale prices for electricity. These
increases were partially offset by a decrease in the volume of electricity
purchases.
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OTHER OPERATION EXPENSES
Other operation expenses increased by $47 million in 2000 when compared to
1999. After eliminating the expenses of PPL Montana, other operation expenses
decreased $30 million in 2000 when compared with 1999. This decrease was
primarily the result of environmental insurance settlements, gains on the sale
of emission allowances and reduced pension costs. These reductions were
partially offset by increased expenses due to the CEMAR acquisition, a loss
accrual under the Clean Air Act and increased costs of wages and other benefits.
Other operation expenses increased by $69 million in 1999 compared with
1998. Operating expenses of acquired companies and certain regulatory impacts
caused a substantial portion of this increase. These included:
-- PPL Global's consolidation of Emel and EC, effective January 1, 1999,
which added about $25 million in operation expenses.
-- About $23 million of additional operation expenses of PPL Gas
Utilities recorded in 1999 compared to 1998. PPL Gas Utilities was
acquired in August 1998.
-- About $46 million of regulatory credits recorded in 1998. These
credits were for the loss of revenue as a result of Pennsylvania's
pilot Electric Choice Program and the deferral of undercollected
energy costs. No similar items were reflected in 1999, as the pilot
program was completed and energy costs were no longer recoverable
through the Energy Cost Rate.
Eliminating the effects of the above amounts, the other operation expenses
of PPL decreased by $29 million in 1999 compared with 1998. This decrease was
primarily due to PPL Electric's cost-cutting initiatives, gains on the sale of
emission allowances and decreased load dispatching activities for system
control.
MAINTENANCE EXPENSES
Maintenance expenses increased by $46 million in 2000 from 1999. After
eliminating the expenses of PPL Montana, maintenance expenses increased by $33
million in 2000 from 1999. This increase was primarily due to higher maintenance
costs at the Susquehanna generating station, higher transmission and
distribution line maintenance expenses and higher costs of wages.
Maintenance expenses increased by $33 million in 1999 from 1998. About half
of the increase was due to the consolidation of Emel and EC effective January 1,
1999 and the acquisition of PPL Gas Utilities in August 1998. The other half of
this increase was due to higher costs of outage-related and other maintenance at
PPL Electric's fossil and nuclear power plants, and additional expenses to
maintain transmission and distribution facilities.
POWER PLANT OPERATIONS
In April 1999, PPL Electric closed its Holtwood coal-fired generating
station. The closing was part of an effort to reduce operating costs and
position PPL for the competitive marketplace. The adjacent hydroelectric plant,
owned by PPL Holtwood, continues to operate.
In November 1999, PPL Electric sold its Sunbury plant and the principal
assets of its wholly-owned coal processing subsidiary, Lady Jane Collieries, to
Sunbury Holdings, LLC. PPL Electric received cash proceeds of $107 million for
the assets, including coal inventory, which resulted in a one-time contribution
to earnings of about $.28 per share.
DEPRECIATION
Depreciation increased by $4 million in 2000 compared with 1999. After
eliminating the expenses of PPL Montana, depreciation decreased by $10 million
in 2000 compared with 1999. This decrease was primarily due to a change in the
estimated remaining useful lives of certain PPL generating plants. PPL
subsidiaries periodically review the depreciable lives of their fixed assets. In
conjunction with corporate realignment
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activities undertaken in early 2000, studies were conducted of depreciable lives
of certain generation assets. These studies indicated that the estimated
economic lives for certain generation assets were longer than currently used to
calculate depreciation for financial statement purposes. Therefore, effective
July 1, 2000, PPL Generation revised the estimated economic lives for fossil
generation and pipeline assets. This change is expected to reduce depreciation
expense by approximately $33 million per year for the next several years from
previous levels. The reduction in depreciation expense in the second half of
2000 was partially offset by depreciation of CEMAR's transmission, distribution
and other assets recorded subsequent to acquisition by PPL Global.
Depreciation decreased by $81 million in 1999 compared with 1998. This
decrease was mainly due to the write-down of generation-related assets in
connection with the restructuring adjustments recorded in June 1998. The
decrease was partially offset by depreciation associated with the acquisition of
PPL Gas Utilities in August 1998 and the consolidation of Emel and EC effective
January 1, 1999.
OTHER INCOME AND (DEDUCTIONS)
Other income of PPL decreased by $112 million in 2000 from 1999. PPL
Electric's earnings in 2000 reflected a charge of $12 million resulting from a
PUC ruling requiring the write-off of the regulatory asset for the loss incurred
in Pennsylvania's pilot Electric Choice Program, and an adverse Federal Energy
Regulatory Commission ("FERC") decision regarding investments in PJM
Interconnection, LLC ("PJM"). PPL Generation also recorded a loss contingency
for an unasserted claim against the company under the Clean Air Act. Other
income in 1999 included PPL Global's share of the gain on the sale of South
Western Electricity plc's ("SWEB") electrical supply business (which was $78
million pre-U.S. tax), and a $66 million pre-tax gain on the sale of PPL
Electric's Sunbury plant and the principal assets of its wholly owned
subsidiary, Lady Jane Collieries. These increases were partially offset by a $51
million write-down of certain of PPL Global's international investments: WPD,
Aguaytia and Bolivian Generating Group, LLC ("BGG"). The net impact of the
charges in 2000, versus the credits to income in 1999, are the primary reasons
for the decrease in other income between the periods.
Other income in 1999 increased by $31 million from 1998. PPL recorded
several favorable nonrecurring items in 1998, including a $30 million recovery
from a Non-Utility Generator ("NUG") to settle a suit over disputed energy
prices, a $9 million credit for a reduction in U.K. corporate tax rates and a $6
million credit to earnings to reverse the prior expensing of PPL Gas Utilities
acquisition costs. However, there were larger credits to other income in 1999,
as noted above.
FINANCING COSTS
PPL experienced higher financing costs on long-term debt during the past
few years, primarily associated with the issuance of $2.4 billion of transition
bonds by PPL Transition Bond Company in August 1999, and the issuance of
medium-term notes by PPL Capital Funding in 2000. Refer to Note 10 to the
consolidated financial statements for more information. Interest on long-term
debt and dividends on preferred stock increased from $219 million in 1997 to
$349 million in 2000. Interest on short-term debt, net of capitalized interest
and Allowance for Funds Used During Construction ("AFUDC") borrowed funds,
increased from $20 million in 1997 to $53 million in 2000. This increase
reflects PPL Capital Funding's commercial paper program initiated in 1998.
INCOME TAXES
Income tax expense increased by $120 million in 2000 compared with 1999.
This was primarily due to an increase in pre-tax book income and a 1999 release
of deferred taxes no longer required due to securitization.
Income tax expense decreased by $85 million in 1999, compared with 1998.
This was primarily due to a release of deferred income taxes no longer required
due to securitization and tax changes relating to the 1998 restructuring
write-off.
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FINANCIAL CONDITION
ENERGY MARKETING AND TRADING ACTIVITIES
PPL, through its PPL EnergyPlus subsidiary, purchases and sells electricity
and energy at the wholesale level under FERC market-based tariffs throughout the
United States. PPL enters into agreements to market available energy and
capacity from its generation assets in Pennsylvania, Maine and Montana with the
expectation of profiting from market price fluctuations.
If PPL were unable to deliver firm capacity and energy under these
agreements, under certain circumstances it would be required to pay damages.
These damages would be based on the difference between the market price to
acquire replacement capacity or energy and the contract price of the undelivered
capacity or energy. Depending on price volatility in the wholesale energy
markets, such damages could be significant. Extreme weather conditions,
unplanned power plant outages, transmission disruptions, non-performance by
counterparties (or their counterparties) with which it has power contracts, and
other factors could affect PPL's ability to meet its firm capacity or energy
obligations, or cause significant increases in the market price of replacement
capacity and energy. Although PPL attempts to mitigate these risks, there can be
no assurance that it will be able to fully meet its firm obligations, that it
will not be required to pay damages for failure to perform, or that it will not
experience counterparty non-performance in the future.
PPL attempts to mitigate risks associated with open contract positions by
reserving generation capacity to deliver electricity to satisfy its net firm
sales contracts and, when necessary, by purchasing firm transmission service. In
addition, PPL adheres to its risk management policy and programs, including
established credit policies to evaluate counterparty credit risk. To date, PPL
has not experienced any significant losses due to non-performance by
counterparties. Additionally, given the current electric energy situation in
California, PPL has established a reserve to limit its exposure as a result of
sales within that market area. See Note 19 to the consolidated financial
statements for a discussion related to the California energy situation.
On January 1, 1999, PPL adopted mark-to-market accounting for energy
contracts executed for trading purposes, in accordance with EITF 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." Under mark-to-market accounting, gains and losses from changes in
market prices on contracts executed for trading purposes are reflected in
current earnings. The earnings effect of mark-to-market accounting was not
significant in 1999. Under EITF 98-10, energy trading activities refer to energy
contracts executed with the objective of generating profits on, or from exposure
to, shifts or changes in market prices. Risk management activities refer to
energy contracts that are designated as (and effective as) hedges of non-trading
activities (i.e., marketing available capacity and energy and purchasing fuel
for consumption). PPL adopted SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS 138, effective January 1, 2001. See
Note 18 to the consolidated financial statements for the effect of adopting SFAS
133.
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CAPITAL EXPENDITURE REQUIREMENTS
The schedule below shows PPL's current capital expenditure projections for
the years 2001-2005 and actual spending for the year 2000:
PPL CAPITAL EXPENDITURE REQUIREMENTS(1)
ACTUAL PROJECTED
------ ----------------------------------------
2000 2001 2002 2003 2004 2005
------ ------ ------ ---- ---- ----
(IN MILLIONS)
Construction expenditures(2)
Generating facilities(3)............... $ 79 $ 858 $ 767 $655 $261 $108
Transmission and Distribution
facilities.......................... 148 142 154 158 161 174
Environmental.......................... 134 69 17 22 56 50
Other.................................. 35 107 54 49 42 41
---- ------ ------ ---- ---- ----
Total construction expenditures........ 396 1,176 992 884 520 373
Nuclear fuel............................. 44 59 54 55 57 57
---- ------ ------ ---- ---- ----
Total capital expenditures............. $440 $1,235 $1,046 $939 $577 $430
==== ====== ====== ==== ==== ====
------------
(1) This information includes announced development projects and excludes lease
payments by PPL Montana under its sales/leaseback transaction and any equity
investments by PPL Global.
(2) Construction expenditures include AFUDC and capitalized interest, which are
expected to be less than $11 million in each of the years 2001-2005.
(3) Includes the projected development costs for PPL Global's turbine generation
projects. Some of these projects may ultimately be financed by parties who
lease such projects back to PPL pursuant to leases that are not capitalized
on PPL's financial statements.
PPL's capital expenditure projections for the years 2001-2005 total about
$4.2 billion. Capital expenditure plans are revised from time to time to reflect
changes in conditions.
ACQUISITIONS AND DEVELOPMENT
Refer to Note 11 to the consolidated financial statements for information
regarding acquisitions and development activities. Additionally, in February
2001, Western Power Distribution Limited ("WPDL") and Glas Cymru Cyfyngedig
("Glas") executed a contract whereby Glas would purchase the water business for
one British pound sterling and assume the water business' 1.8 billion British
pounds sterling of debt.
At December 31, 2000, PPL Global had investments in foreign facilities,
including consolidated investments in Emel, EC, CEMAR and others. See Note 3 to
the consolidated financial statements for information on PPL Global's
unconsolidated investments accounted for under the equity method.
FINANCING AND LIQUIDITY
Cash and cash equivalents increased by $409 million more during 2000
compared with 1999. The reasons for this change were:
-- a $221 million increase in cash provided by operating activities,
primarily due to an increase in operating income;
-- a $428 million decrease in cash used in investing activities,
primarily due to lower acquisitions of generating assets; and
-- a $240 million decrease in cash provided by various financing
activities.
From 1998 through 2000, PPL issued $4.1 billion of long-term debt
(including $2.4 billion of securitized debt issued by PPL Transition Bond
Company). For the same period, PPL issued $105 million of common stock,
excluding stock issued in conjunction with the PPL Gas Utilities acquisition.
From 1998 through 2000, PPL retired $2.5 billion of long-term debt and purchased
$835 million of common shares. From 1998 through 2000, PPL Electric also
incurred $128 million of obligations under capital leases.
Refer to Note 10 to the consolidated financial statements for additional
information on credit arrangements and financing activities in 2000. Also, in
February 2001, PPL and PPL Capital Funding filed a $1.2 billion omnibus shelf
registration statement with the SEC to register debt and equity securities.
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MANAGEMENT
OUR EXECUTIVE OFFICERS
POSITIONS HELD WITH PPL CORPORATION
NAME AGE OR ITS SUBSIDIARIES
---- --- -----------------------------------
William F. Hecht................................ 58 Chairman, President and Chief Executive
Officer
Francis A. Long................................. 60 Executive Vice President
John R. Biggar.................................. 56 Executive Vice President and Chief Financial
Officer
Robert J. Grey.................................. 50 Senior Vice President, General Counsel and
Secretary
Michael E. Bray................................. 53 President--PPL Electric Utilities Corporation
Paul T. Champagne............................... 42 President--PPL Global, LLC
James H. Miller................................. 52 President--PPL Generation, LLC
Lawrence E. De Simone........................... 53 President--PPL EnergyPlus, LLC
Joseph J. McCabe................................ 51 Vice President and Controller
James E. Abel................................... 50 Vice President--Finance and Treasurer
Each of the above officers, with the exception of Messrs. Bray, Miller and
De Simone, had been employed by PPL Corporation or its subsidiaries for more
than five years as of December 31, 2000.
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ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in our consolidated
financial statements, with the trust preferred securities shown on our balance
sheet as PPL-obligated mandatorily redeemable preferred capital trust securities
of a subsidiary trust holding solely subordinated notes of PPL Capital Funding.
The footnotes to our consolidated financial statements will reflect that the
sole asset of the Trust will be the subordinated notes of PPL Capital Funding.
Distributions on the trust preferred securities will be reflected as a charge to
our consolidated income, identified as "Distributions on Preferred Securities of
a Subsidiary Trust," whether paid or accumulated.
The purchase contracts are forward transactions in our common stock. Upon
settlement of a purchase contract, PPL Corporation will receive the stated
amount of $25 on the purchase contract and will issue the requisite number of
shares of our common stock. The stated amount received will be credited to
shareholders' equity.
Prior to the issuance of shares of our common stock upon settlement of the
purchase contracts, the PEPS Units will be reflected in our earnings per share
calculations using the treasury stock method. Under this method, the number of
shares of our common stock used in calculating earnings per share is deemed to
be increased by the excess, if any, of the number of shares issuable upon
settlement of the purchase contracts over the number of shares that could be
purchased by PPL Corporation in the market (at the average market price during
the period) using the proceeds receivable upon settlement. Consequently, we
expect there will be no dilutive effect on our earnings per share except during
periods when the average market price of a share of our common stock is above
the threshold appreciation price.
DESCRIPTION OF THE PEPS UNITS
The following is a summary of some of the terms of the PEPS Units. This
summary together with the summary of some of the terms of the purchase
contracts, the purchase contract agreement, the pledge agreement and the trust
preferred securities set forth under the captions "Description of the Purchase
Contracts," "Certain Provisions of the Purchase Contracts, the Purchase Contract
Agreement and the Pledge Agreement" and "Description of the Trust Preferred
Securities" in this prospectus supplement contain a description of all of the
material terms of the PEPS Units but is not complete. We refer you to the forms
of the purchase contract agreement, the pledge agreement and the trust preferred
securities that have been filed or incorporated by reference as exhibits to the
registration statement of which this prospectus supplement and the accompanying
prospectus form a part. This summary supplements the description of the stock
purchase units in the accompanying prospectus, and, to the extent it is
inconsistent, replaces the description in the accompanying prospectus.
GENERAL
Each PEPS Unit offered will initially consist of:
-- a purchase contract under which the holder will purchase from PPL
Corporation on the purchase contract settlement date, or upon early
settlement, for $25, a number of shares of our common stock equal to
the applicable settlement rate described under "Description of the
Purchase Contracts--General" or "Description of the Purchase
Contracts--Early Settlement" in this prospectus supplement, as the
case may be, and under which we will pay to the holder contract
adjustment payments at the rate of .46% of the stated amount per
year, or $.1150 per year, paid quarterly; and
-- a trust preferred security, having a stated liquidation amount of
$25, representing an undivided beneficial ownership interest in the
assets of PPL Capital Funding Trust I, which assets will consist
solely of the subordinated notes of PPL Capital Funding, under which
we will pay cash distributions at the rate of 7.29% per year, or
$1.8225 per year, paid quarterly.
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The trust preferred security will be pledged under the pledge agreement to
secure your obligation to purchase our common stock under the purchase contract.
We will have the right at any time to dissolve the Trust and, after
satisfaction of liabilities to creditors of the Trust, if any, to cause the PPL
Capital Funding subordinated notes to be distributed to the holders of the trust
securities.
References in this prospectus supplement to trust preferred securities,
unless the context otherwise requires, include the PPL Capital Funding
subordinated notes that would be delivered to the holders of the trust preferred
securities upon dissolution of the Trust.
In addition, if a tax event occurs prior to the purchase contract
settlement date, we may cause the subordinated notes of PPL Capital Funding
(and, thus, the trust preferred securities) to be redeemed. Upon such a "tax
event redemption," the securities intermediary will use the proceeds from the
redemption of the PPL Capital Funding subordinated notes to purchase a portfolio
of zero-coupon U.S. treasury securities that mature one business day prior to
the purchase contract settlement date and on the various dates upon which
payments would have been due on the PPL Capital Funding subordinated notes. We
refer to this portfolio of treasury securities as the "treasury portfolio." The
treasury portfolio will be substituted for the redeemed trust preferred
securities as the collateral securing the holders' obligations under the related
purchase contracts and the Trust will be dissolved.
If the Trust is dissolved at a time prior to May 18, 2004 when the trust
preferred securities are part of the PEPS Unit or following a successful initial
remarketing of the trust preferred securities on the third business day
preceding February 18, 2004 or from time to time thereafter before the tenth
business day preceding May 18, 2004, each PEPS Unit thereafter will consist of a
purchase contract plus either a PPL Capital Funding subordinated note having a
principal amount of $25 or the applicable ownership interest of the treasury
portfolio, as applicable, instead of a trust preferred security. If the Trust is
dissolved at a time when the trust preferred securities are no longer a part of
the PEPS Unit, the holder of the trust preferred securities will receive either
a PPL Capital Funding subordinated note or cash in an amount equal to the
redemption price of the PPL Capital Funding subordinated note, as applicable.
An "applicable ownership interest" means, with respect to a PEPS Unit that
includes the treasury portfolio,
(1) a 1/40, or 2.5%, undivided beneficial ownership interest in a
$1,000 face amount of a principal or interest strip in a U.S. treasury
security included in the treasury portfolio that matures on or prior to May
17, 2004; and
(2) for the scheduled distribution date on the trust preferred
securities that occurs on May 18, 2004, in the case of a successful
remarketing of the trust preferred securities, or for each scheduled
interest payment date on the PPL Capital Funding subordinated notes that
occurs after the date upon which the PPL Capital Funding subordinated notes
are redeemed due to a tax event and on or before May 18, 2004, in the case
of a tax event redemption, a .0456%, undivided beneficial ownership
interest in a $1,000 face amount of a principal or interest strip in a U.S.
treasury security included in the treasury portfolio that matures on or
prior to such date.
Unless otherwise specified, references in this prospectus supplement to the
"applicable ownership interest of the treasury portfolio" have the meaning
specified in clause (1) of this definition.
The purchase price of each PEPS Unit will be allocated between the purchase
contract and the trust preferred security in proportion to their respective fair
market values at the time of purchase. We expect that, at the time of issuance,
the fair market value of each purchase contract will be $0 and the fair market
value of each trust preferred security will be $25.
So long as the units are in the form of PEPS Units, either the related
trust preferred securities or the applicable ownership interest of the treasury
portfolio, as applicable, will be pledged to the collateral agent to secure the
holders' obligations to purchase our common stock under the related purchase
contracts.
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CREATING TREASURY PEPS UNITS BY SUBSTITUTING A TREASURY SECURITY FOR TRUST
PREFERRED SECURITIES
Unless the treasury portfolio has replaced the trust preferred securities
as a component of the PEPS Units as the result of a successful initial
remarketing of the trust preferred securities or a tax event redemption, each
holder of 40 PEPS Units may create 40 Treasury PEPS Units by substituting for
the trust preferred securities that are a part of the PEPS Units a treasury
security having an aggregate stated liquidation amount at maturity equal to
$1,000.
Each Treasury PEPS Unit will consist of:
-- a purchase contract under which the holder will purchase from us on
the purchase contract settlement date, or upon early settlement, for
$25, a number of shares of our common stock equal to the applicable
settlement rate, and under which the Trust will pay to the holder
contract adjustment payments at the rate of .46% of the stated amount
per year; and
-- a 1/40 undivided beneficial ownership interest in a related
zero-coupon U.S. treasury security (CUSIP No. 912820BJ5) with a
principal amount at maturity equal to $1,000 and maturing on May 17,
2004, the business day preceding the purchase contract settlement
date.
The term "business day" means any day other than a Saturday or a 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 Chase Manhattan
Bank, acting as indenture trustee with respect to the subordinated notes of PPL
Capital Funding and property trustee under the declaration of trust, is closed
for business.
The Treasury PEPS Unit holder's beneficial ownership in the treasury
security will be pledged under the pledge agreement to secure the holder's
obligation to purchase shares of our common stock under the purchase contract.
To create 40 Treasury PEPS Units, a holder is required to:
-- either deposit with The Bank of New York, which is acting as the
securities intermediary under the pledge agreement, a zero-coupon
U.S. treasury security (CUSIP No. 912820BJ5) with a principal amount
at maturity equal to $1,000 and maturing on May 17, 2004; and
-- transfer to the purchase contract agent 40 PEPS Units, accompanied by
a notice stating that the holder of the PEPS Units has deposited a
treasury security with the securities intermediary, or has requested
that the securities intermediary so purchase a treasury security, and
requesting that the purchase contract agent instruct the collateral
agent to release the related 40 trust preferred securities.
Upon receiving instructions from the purchase contract agent and
confirmation of receipt of the treasury security by the securities intermediary,
the collateral agent will cause the securities intermediary to release the
related 40 trust preferred securities from the pledge and deliver them to the
purchase contract agent, free and clear of our security interest. The purchase
contract agent then will:
-- cancel the 40 PEPS Units;
-- transfer the related 40 trust preferred securities to the holder; and
-- deliver 40 Treasury PEPS Units to the holder.
A treasury security will be substituted for the trust preferred securities
and will be pledged to the collateral agent to secure the holder's obligation to
purchase shares of our common stock under the related purchase contracts. These
trust preferred securities thereafter will trade separately from the Treasury
PEPS Units.
Holders who create Treasury PEPS Units or recreate PEPS Units, as discussed
below, will be responsible for any fees or expenses payable to the collateral
agent in connection with substitutions of collateral. See "Certain Provisions of
the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement--Miscellaneous" in this prospectus supplement.
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RECREATING PEPS UNITS
Unless the treasury portfolio has replaced the trust preferred securities
as a component of the PEPS Units as the result of a successful initial
remarketing of the trust preferred securities or a tax event redemption, each
holder of Treasury PEPS Units will have the right, at any time on or prior to
the seventh business day immediately preceding May 18, 2004, to substitute for
the related treasury securities held by the collateral agent trust preferred
securities in an aggregate stated liquidation amount equal to the aggregate
amount payable at stated maturity of the treasury securities. This substitution
would recreate PEPS Units, and the applicable treasury securities would be
released to the holder.
Because treasury securities are issued in integral multiples of $1,000,
holders of Treasury PEPS Units may make this substitution only in integral
multiples of 40 Treasury PEPS Units. If the treasury portfolio has replaced the
trust preferred securities as a component of the PEPS Units as the result of a
successful initial remarketing of the trust preferred securities or a tax event
redemption, holders of the Treasury PEPS Units will not be able to recreate any
PEPS Units.
Each holder of 40 Treasury PEPS Units may recreate 40 PEPS Units by:
-- depositing with the securities intermediary 40 trust preferred
securities; and
-- transferring to the purchase contract agent 40 Treasury PEPS Units,
accompanied by a notice stating that such holder has deposited 40
trust preferred securities with the securities intermediary and
requesting that the purchase contract agent instruct the collateral
agent to release the related treasury security.
Upon receiving instructions from the purchase contract agent and
confirmation of receipt of the trust preferred securities by the securities
intermediary, the collateral agent will cause the securities intermediary to
release the related treasury security from the pledge and deliver it to the
purchase contract agent, on behalf of the holder, free and clear of our security
interest. The purchase contract agent then will:
-- cancel the 40 Treasury PEPS Units;
-- transfer the related treasury security to the holder; and
-- deliver 40 PEPS Units to the holder.
The substituted trust preferred securities or the applicable ownership
interest in the treasury portfolio will be pledged with the collateral agent to
secure the PEPS Unit holder's obligation to purchase our common stock under the
related purchase contracts.
CURRENT PAYMENTS
The payments on the PEPS Units will consist of cash distributions payable
on the trust preferred securities by the Trust or the subordinated notes of PPL
Capital Funding or amounts payable in respect of the treasury portfolio, as
applicable, payable at the rate of 7.29% of the stated liquidation or principal
amount per year, payable quarterly in arrears on February 18, May 18, August 18
and November 18, starting August 18, 2001. In addition, holders of both PEPS
Units and Treasury PEPS Units will be entitled to receive quarterly contract
adjustment payments payable by us at the rate of .46% of the stated amount per
year. In addition, the trust preferred securities or subordinated notes are
subject to the contingent payment rules, and you will be required to accrue OID
on the related trust preferred securities or subordinated notes, as the case may
be, at the "comparable yield" as discussed under "United States Federal Income
Tax Consequences."
If a holder of PEPS Units creates Treasury PEPS Units by substituting a
treasury security for the trust preferred securities, such holder will not
receive any distributions on the Treasury PEPS Units other than the contract
adjustment payments. If a Treasury PEPS Unit holder continues to hold the trust
preferred security that has been separated from the PEPS Unit, it will continue
to receive distributions on the trust preferred security.
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LISTING OF THE PEPS UNITS AND THE TREASURY PEPS UNITS
The PEPS Units have been approved for listing on the New York Stock
Exchange under the symbol "PPL-PrE." If Treasury PEPS Units are created and then
traded to a sufficient extent that applicable exchange listing requirements are
met, we will try to list them on the national securities exchanges or
associations on which the PEPS Units are then listed or quoted, but we have no
obligation to do so. We do not intend to list the trust preferred securities on
any securities exchange.
REPURCHASE OF THE PEPS UNITS
We may purchase from time to time any of the PEPS Units offered by this
prospectus supplement and the accompanying prospectus that are then outstanding
by tender, in the open market, by private agreement or otherwise.
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
The following description is a summary of some of the terms of the purchase
contracts. It supplements the description of the stock purchase contracts in the
accompanying prospectus and, to the extent it is inconsistent, replaces the
description in the accompanying prospectus. The purchase contracts will be
issued pursuant to the purchase contract agreement between us and The Chase
Manhattan Bank, as purchase contract agent. The description of the purchase
contracts and the purchase contract agreement in this prospectus supplement and
the accompanying prospectus contain a summary of their material terms but do not
purport to be complete, and reference is hereby made to the form of the purchase
contract agreement that is filed as an exhibit or incorporated by reference to
the registration statement.
On the business day immediately preceding May 18, 2004, unless:
-- a holder of PEPS Units or Treasury PEPS Units has settled the related
purchase contracts prior to or on the fifth business day preceding
May 18, 2004 through the early delivery of cash to the purchase
contract agent in the manner described under "--Early Settlement";
-- a holder of PEPS Units that include trust preferred securities has
settled the related purchase contracts with separate cash prior to or
on the business day immediately preceding May 18, 2004 pursuant to
prior notice given in the manner described under "--Notice to Settle
with Cash";
-- a holder of PEPS Units has had the trust preferred securities related
to the holder's purchase contracts successfully remarketed in the
manner described under "--Remarketing" below;
-- a holder of PEPS Units has delivered cash to the remarketing agent to
purchase the treasury portfolio on its behalf in the manner described
under "--Remarketing"; or
-- an event described under "--Termination" has occurred,
then,
-- in the case of PEPS Units, unless the treasury portfolio has replaced
the trust preferred securities as a component of the PEPS Units as
the result of a successful initial remarketing of the trust preferred
securities as described under "--Remarketing" below or a tax event
redemption, we will exercise our rights as a secured party to dispose
of the trust preferred securities in accordance with applicable law;
and
-- in the case of Treasury PEPS Units or, in the event that the treasury
portfolio has replaced the trust preferred securities as a component
of the PEPS Units as the result of a successful initial remarketing
of the trust preferred securities or a tax event redemption, in the
case of PEPS Units, the principal amount of the related treasury
securities, or the appropriate applicable ownership interest of the
treasury portfolio, as applicable, when paid at maturity, will
automatically be applied to satisfy in full the holder's obligation
to purchase common stock under the related purchase contracts.
The common stock will then be issued and delivered to the holder or the
holder's designee, upon presentation and surrender of the certificate evidencing
the PEPS Units or Treasury PEPS Units and payment by the holder of any transfer
or similar taxes payable in connection with the issuance of the common stock to
any person other than the holder.
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Each purchase contract that is a part of a PEPS Unit or a Treasury PEPS
Unit will obligate its holder to purchase, and PPL Corporation to sell, on the
purchase contract settlement date (unless the purchase contract terminates prior
to that date or is settled early at the holder's option), a number of shares of
our common stock equal to the settlement rate, for $25 in cash. The number of
shares of our common stock issuable upon settlement of each purchase contract on
the purchase contract settlement date (which we refer to as the "settlement
rate") will be determined as follows, subject to adjustment as described under
"--Anti-Dilution Adjustments" below:
-- if the average of the closing prices of our common stock on the 20
trading days ending on the third trading day prior to the purchase
contract settlement date is equal to or greater than $65.03, the
"threshold appreciation price," then each purchase contract will be
settled for .3845 shares;
-- if the average of the closing prices of our common stock on the 20
trading days ending on the third trading day prior to the purchase
contract settlement date, is less than $65.03 but greater than the
closing price of our common stock on the date of this prospectus
supplement, the "reference price," then each purchase contract will
be settled for a number of shares having a value, based on such 20-
trading day average, equal to $25; and
-- if the average of the closing prices of our common stock on the 20
trading days ending on the third trading day prior to the purchase
contract settlement date is less than or equal to the reference
price, then each purchase contract will be settled for .4690 shares.
Except under the limited circumstances described under "--Anti-Dilution
Adjustments," if you elect to settle your purchase contract early, the number of
shares of our common stock issuable upon settlement of such purchase contract
will be .3845.
FOR ILLUSTRATIVE PURPOSES ONLY, THE FOLLOWING TABLE SHOWS THE FRACTION OF A
SHARE OF OUR COMMON STOCK ISSUABLE UPON SETTLEMENT OF EACH PURCHASE CONTRACT AT
VARIOUS ASSUMED VALUES FOR THE AVERAGE OF THE CLOSING PRICES OF OUR COMMON STOCK
ON THE 20 TRADING DAYS ENDING ON THE THIRD TRADING DAY PRIOR TO THE PURCHASE
CONTRACT SETTLEMENT DATE, THE "APPLICABLE MARKET VALUE." The $65.03 threshold
appreciation price represents an appreciation of 22% above the reference price
of $53.30. The table assumes that there will be no adjustments to the settlement
rate described under "--Anti-Dilution Adjustments" below. We cannot assure you
that the actual applicable market value will be within the range set forth
below. A holder of a PEPS Unit or a Treasury PEPS Unit will receive on the
purchase contract settlement date, in settlement of each purchase contract, the
following fractions of a share of our common stock at the following assumed
applicable market values:
ASSUMED APPLICABLE FRACTION OF A SHARE OF
MARKET VALUE OUR COMMON STOCK
----------------------- ----------------------
$35 0.4690
$40 0.4690
$45 0.4690
$50 0.4690
$55 0.4545
$60 0.4167
$65 0.3846
$70 0.3845
$75 0.3845
$80 0.3845
$85 0.3845
$90 0.3845
As the above table illustrates, if, on the purchase contract settlement
date, the applicable market value of a share of our common stock is greater than
or equal to the threshold appreciation price of $65.03, we would be obligated to
deliver .3845 shares of our common stock for each purchase contract. As a
result, the holder would receive 82% of the appreciation in the market value of
the shares of our common stock underlying each
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purchase contract above $65.03. If, on the purchase contract settlement date,
the applicable market value of a share of our common stock is less than the
threshold appreciation price of $65.03 but greater than the reference price of
$53.30, we would be obligated to deliver a number of shares of our common stock
having a value, based on the applicable market value, equal to $25 and we would
retain all appreciation in the market value of the shares of our common stock
underlying each purchase contract for that period. If, on the purchase contract
settlement date, the applicable market value of a share of our common stock is
less than or equal to the reference price of $53.30, we would be obligated to
deliver in settlement of the purchase contract .4690 shares of our common stock
for each purchase contract, regardless of the market price of the shares of our
common stock. As a result, the holder would realize the entire loss on the
decline in market value of the shares of our common stock underlying each
purchase contract for that period.
The term "closing price" of shares of our common stock means, on any date
of determination (1) the closing sale price (or, if no closing sale price is
reported, the reported last sale price) of shares of our common stock on the New
York Stock Exchange on such date or, if shares of our common stock are not
listed for trading on the New York Stock Exchange on any such date, as reported
in the composite transactions for the principal United States securities
exchange on which the shares of our common stock are so listed, or if shares of
our common stock are not so listed on a United States national or regional
securities exchange, as reported by the Nasdaq National Market or (2) if shares
of our common stock are not so reported, the last quoted bid price for the
shares of our common stock in the over-the-counter market as reported by the
National Quotation Bureau or a similar organization, or, if such bid price is
not available, the average of the mid-point of the last bid and ask prices of
shares of our common stock on such date from at least three nationally
recognized independent investment banking firms retained for this purpose by us.
The term "trading day" means a day on which the shares of our common stock
(1) are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of business and
(2) has traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the shares of our common stock.
We will not issue any fractional shares of our common stock upon settlement
of a purchase contract. Instead of a fractional share, the holder will receive
an amount of cash equal to such fraction multiplied by the applicable market
value. If, however, a holder surrenders for settlement at one time more than one
purchase contract, then the number of shares of our common stock issuable
pursuant to such purchase contracts will be computed based upon the aggregate
number of purchase contracts surrendered.
Prior to the settlement of a purchase contract, the shares of our common
stock underlying each purchase contract will not be outstanding, and the holder
of the purchase contract will not have any voting rights, rights to dividends or
other distributions or other rights of a holder of our common stock by virtue of
holding such purchase contract.
By purchasing a PEPS Unit or a Treasury PEPS Unit, a holder will be deemed
to have, among other things:
-- irrevocably authorized the purchase contract agent as its
attorney-in-fact to enter into and perform that holder's obligations
under the related purchase contract and pledge agreement on behalf of
such holder;
-- agreed to be bound by the terms and provisions of the related
purchase contract; and
-- agreed to be bound by the pledge arrangement contained in the related
pledge agreement.
In addition, each holder will be deemed to have agreed to treat itself as
the owner of the related trust preferred security, treasury security or
applicable ownership interest of the treasury portfolio, as the case may be, and
to treat the subordinated notes of PPL Capital Funding as indebtedness for
United States federal, state and local income and franchise tax purposes.
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REMARKETING
Pursuant to the remarketing agreement and subject to the terms of the
supplemental remarketing agreement among the remarketing agent, the purchase
contract agent, the Trust, PPL Capital Funding and PPL Corporation, unless a tax
event redemption has occurred or you deliver cash in the amount of the treasury
portfolio to the securities intermediary to purchase the treasury portfolio on
your behalf prior to or on the fifth business day preceding February 18, 2004,
your trust preferred securities will be remarketed on the third business day
immediately preceding February 18, 2004. Following a failed attempt to remarket
on this date, the remarketing agent will use its reasonable efforts in its
discretion to remarket all of the trust preferred securities from time to time
prior to the tenth business day preceding May 18, 2004. Instead of participating
in an additional remarketing, you can deliver cash in an amount sufficient to
purchase the treasury portfolio plus any fees or expenses to the remarketing
agent or its designated entity on the second business day immediately preceding
any additional remarketing to purchase the treasury portfolio on your behalf. We
refer to any such additional remarketing as an "additional remarketing," and,
collectively with the first remarketing on the third business day preceding
February 18, 2004, as the "initial remarketing." In addition, we refer to any
initial remarketing that is successful as the "successful initial remarketing."
The remarketing agent will notify PPL Corporation, the securities
intermediary and the purchase contract agent of any additional remarketing that
it plans to conduct as soon as practical, but no less than three business days
in advance of the additional remarketing. Any holder of trust preferred
securities that have been separated from PEPS Units may elect to participate in
an additional remarketing as described below under "--Optional Remarketing."
The remarketing agent will use its reasonable efforts in any initial
remarketing to remarket these trust preferred securities at an aggregate price
of approximately 100.25% of the treasury portfolio price described below. The
portion of proceeds from the remarketing equal to the treasury portfolio
purchase price will be applied to purchase a treasury portfolio consisting of:
-- zero-coupon interest or principal strips of U.S. Treasury securities
that mature on or prior to May 17, 2004 in an aggregate amount equal
to the liquidation preference of the trust preferred securities
included in PEPS Units; and
-- zero-coupon interest or principal strips of U.S. Treasury securities
that mature on or prior to May 17, 2004 in an aggregate amount equal
to the aggregate distribution payment that would be due on that date
on the stated liquidation amount of the trust preferred securities
included in PEPS Units if the distribution rate on the trust
preferred securities were not reset as described under "Description
of the Trust Preferred Securities--Distribution Rate Reset" below.
The treasury portfolio will be substituted for the trust preferred securities
and will be pledged to the collateral agent to secure the PEPS Unit holders'
obligation to purchase our common stock under the purchase contracts.
In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (.25%) of the treasury portfolio purchase
price from any amount of the proceeds in excess of the treasury portfolio
purchase price. The remarketing agent will then remit any remaining portion of
the proceeds to the purchase contract agent for prompt payment to the holders.
PEPS Unit holders whose trust preferred securities are remarketed will not
otherwise be responsible for the payment of any remarketing fee in connection
with the remarketing.
As used in this context, "treasury portfolio purchase price" means the
lowest aggregate price quoted by a primary U.S. government securities dealer in
New York City to the quotation agent on the third business day immediately
preceding February 18, 2004, or from time to time thereafter on the date of any
successful initial remarketing, for the purchase of the treasury portfolio
described above for settlement on February 18, 2004, or from time to time
thereafter on the third business day following the date of an additional
remarketing that is successful.
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"Quotation agent" means Morgan Stanley & Co. Incorporated or its successor
or any other primary U.S. government securities dealer in New York City selected
by us.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related trust preferred securities, other than to PPL Corporation,
at a price equal to or greater than 100% of the treasury portfolio purchase
price, or (2) the remarketing has not occurred because a condition precedent to
the remarketing has not been fulfilled, in each case resulting in a failed
initial remarketing, the trust preferred securities will continue to be a
component of PEPS Units, and another remarketing may be attempted as described
below.
If the initial remarketing has failed, and unless a tax event redemption
has occurred, PEPS Unit holders have the option to notify the purchase contract
agent on or prior to the fifth business day immediately preceding May 18, 2004
of their intention to settle the related purchase contracts with separate cash
and provide such cash on or prior to the fourth business day preceding May 18,
2004. The trust preferred securities of any holder who has failed to give this
notice and deliver such cash will be remarketed on the third business day
immediately preceding May 18, 2004, which we refer to as the "final
remarketing."
The remarketing agent will then use its reasonable efforts to remarket
these trust preferred securities at a price of approximately 100.25% of the
aggregate stated liquidation amount. The portion of the proceeds from this final
remarketing equal to the aggregate stated liquidation amount of the trust
preferred securities will be automatically applied to satisfy in full the PEPS
Unit holders' obligations to purchase our common stock.
In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (.25%) of the aggregate stated liquidation
amount of the remarketed trust preferred securities from any amount of the
proceeds in excess of the aggregate stated liquidation amount of the remarketed
trust preferred securities. The remarketing agent will then remit any remaining
portion of the proceeds for the benefit of the holders. PEPS Unit holders whose
trust preferred securities are remarketed will not otherwise be responsible for
the payment of any remarketing fee in connection with the remarketing.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related trust preferred securities in the final remarketing, other
than to PPL Corporation, at a price equal to or greater than 100% of the
aggregate stated liquidation amount of the trust preferred securities, or (2)
the remarketing has not occurred because a condition precedent to the
remarketing has not been fulfilled, in each case resulting in a failed final
remarketing, we will exercise our rights as a secured party to dispose of the
trust preferred securities in accordance with applicable law and such
disposition will be deemed to satisfy in full each holder's obligation to
purchase our common stock under the related purchase contracts.
We will cause a notice of any failed remarketing to be published on the
business day immediately following the date of a failed initial or final
remarketing, by publication in a daily newspaper in the English language of
general circulation in The City of New York, which is expected to be The Wall
Street Journal. In addition, PPL Corporation will request in the case of the
initial remarketing on the third business day preceding February 18, 2004 and in
the case of the final remarketing on the third business day preceding May 18,
2004, as applicable, not later than seven nor more than 15 calendar days prior
to a remarketing date, that the depositary notify its participants holding trust
preferred securities, PEPS Units and Treasury PEPS Units of the remarketing. In
the case of any additional remarketing subsequent to February 18, 2004, such
request will be made as soon as practical after PPL Corporation is notified of
an additional remarketing by the remarketing agent. If required, we will
endeavor to ensure that a registration statement with regard to the full amount
of the trust preferred securities to be remarketed will be effective in a form
that will enable the remarketing agent to rely on it in connection with the
remarketing process.
REMARKETING AGENT
The remarketing agent will be Morgan Stanley & Co. Incorporated. PPL
Corporation, PPL Capital Funding, the Trust and the remarketing agent will enter
into the remarketing agreement which provides, among other things, that Morgan
Stanley & Co. Incorporated will act as the exclusive remarketing agent and will
use reasonable efforts to remarket trust preferred securities tendered. Under
certain circumstances, some
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portion of the trust preferred securities tendered in the remarketing may be
purchased by the remarketing agent.
The remarketing agreement provides that the remarketing agent will incur no
liability to PPL Corporation, PPL Capital Funding or the Trust or to any holder
of PEPS Units, trust preferred securities in its individual capacity or as
remarketing agent for any action or failure to act in connection with a
remarketing or otherwise, except as a result of the negligence or willful
misconduct on its part.
We and the Trust have agreed to indemnify the remarketing agent against
certain liabilities, including liabilities under the Securities Act of 1933,
arising out of or in connection with its duties under the remarketing agreement.
The remarketing agreement also will provide that the remarketing agent may
resign and be discharged from its duties and obligations under the remarketing
agreement. No such resignation, however, will become effective unless a
nationally recognized broker-dealer has been appointed by us as successor
remarketing agent and that successor remarketing agent has entered into a
remarketing agreement with the Trust and us. In such case, we will use
reasonable efforts to appoint a successor remarketing agent and enter into a
remarketing agreement with such person as soon as reasonably practicable.
EARLY SETTLEMENT
Unless the treasury portfolio has replaced the trust preferred securities
as a component of the PEPS Units as a result of a successful initial remarketing
or a tax event redemption, a holder of PEPS Units may settle the related
purchase contract at any time on or prior to 5:00 p.m., New York City time, on
the fifth business day immediately preceding May 18, 2004 by delivering to the
purchase contract agent (1) a completed "Election to Settle Early" form and (2)
a cash payment in the form of a wire transfer of immediately available funds
payable to, or upon the order of, PPL Corporation in an amount equal to:
-- $25 times the number of purchase contracts being settled; plus
-- if the delivery is made with respect to any purchase contract during
the period from the close of business on any record date next
preceding any payment date to the opening of business on such payment
date, an amount equal to the contract adjustment payments payable on
the payment date with respect to the purchase contract.
If you are a Treasury PEPS Unit holder you may settle your purchase
contracts early only in integral multiples of 40 purchase contracts at any time
on or prior to the second business day immediately preceding May 18, 2004 by
delivering to the purchase contract agent (1) a completed "Election to Settle
Early" form and (2) a cash payment in immediately available funds of an amount
equal to:
-- $25 times the number of purchase contracts being settled; plus
-- if the delivery is made with respect to any purchase contract during
the period from the close of business on any record date next
preceding any payment date to the opening of business on such payment
date, an amount equal to the contract adjustment payments payable on
the payment date with respect to the purchase contract.
Upon early settlement, we will sell, and the holder will be entitled to
buy, .3845 shares of our common stock for each purchase contract being settled
(regardless of the market price of one share of our common stock on the date of
early settlement), subject to adjustment under the circumstances described under
"--Anti-Dilution Adjustments" below. We will cause (1) the shares of our common
stock to be delivered and (2) the related trust preferred security or treasury
security, as the case may be, securing such purchase contract to be released
from the pledge under the pledge agreement, and, within three business days
following the settlement date, each will be transferred to the purchase contract
agent for delivery to the holder. The holder's right to receive future contract
adjustment payments will terminate, and no adjustment will be made to or for the
holder on account of any amounts accrued in respect of contract adjustment
payments.
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If the purchase contract agent receives a completed "Election to Settle
Early" and payment of $25 for each purchase contract being settled earlier than
5:00 p.m., New York City time, on any business day, then that day will be
considered the settlement date. If the purchase contract agent receives the
foregoing on or after 5:00 p.m., New York City time, on any business day or at
any time on a day that is not a business day, then the next business day will be
considered the settlement date. As long as the PEPS Units or Treasury PEPS
Units, as applicable, are evidenced by one or more global PEPS Unit or Treasury
PEPS Unit certificates deposited with DTC, procedures for early settlement also
will be governed by standing arrangements between DTC and the purchase contract
agent.
NOTICE TO SETTLE WITH CASH
Unless the treasury portfolio has replaced the trust preferred securities
as a component of PEPS Units as a result of a successful initial remarketing of
the trust preferred securities or a tax event redemption, a holder of PEPS Units
may settle the related purchase contract with separate cash on the fourth
business day immediately preceding May 18, 2004. A holder of a PEPS Unit wishing
to settle the related purchase contract with cash must notify the purchase
contract agent by delivering the PEPS Unit certificate evidencing the PEPS Unit
at the offices of the purchase contract agent with the "Notice to Settle with
Cash" prior to 5:00 p.m., New York City time, on the fourth business day
preceding May 18, 2004. If you hold a Treasury PEPS Unit, you have until 5:00
p.m., New York City time, on the second business day preceding May 18, 2004 to
deliver your "Notice to Settle with Cash." A Treasury PEPS Unit holder may only
settle its purchase contracts in integral multiples of 40 purchase contracts.
The holder must also deliver to the securities intermediary a cash payment
in the form of a wire transfer of immediately available funds payable to, or
upon the order of the securities intermediary. Such payment must be delivered,
in the case of PEPS Units, prior to 5:00 p.m., New York City time, on the fourth
business day preceding May 18, 2004. If you hold a Treasury PEPS Unit, you have
until 5:00 p.m., New York City time, on the business day immediately preceding
May 18, 2004 to deliver your payment.
Upon receipt of the cash payment, the related trust preferred security or
treasury security, as the case may be, will be released from the pledge
arrangement and transferred to the purchase contract agent for distribution to
the holder of the related PEPS Unit. The holder of the PEPS Unit will then
receive the applicable number of shares of our common stock on the purchase
contract settlement date.
If a holder that has given notice of its intention to settle with cash
fails to deliver the cash by the applicable time and date specified above, such
holder's trust preferred security will automatically be remarketed if a
successful remarketing has not taken place. Otherwise, we will exercise our
right as a secured party to dispose of, in accordance with applicable law, the
related trust preferred securities, and such disposition will be deemed to
satisfy in full the holder's obligation to purchase common stock under the
related purchase contracts.
Any cash received by the securities intermediary upon cash settlement will
be invested promptly in permitted investments and paid to us on the purchase
contract settlement date. Any funds received by the securities intermediary in
excess of the funds necessary to settle the purchase contracts in respect of the
investment earnings from such investments will be distributed to the purchase
contract agent for payment to the holders who settled with cash.
CONTRACT ADJUSTMENT PAYMENTS
Contract adjustment payments in respect of PEPS Units and Treasury PEPS
Units will be fixed at a rate per year of .46% of the stated amount per purchase
contract. Contract adjustment payments payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. Contract adjustment
payments will accrue from May 9, 2001 and will be payable quarterly in arrears
on February 18, May 18, August 18 and November 18 of each year, commencing
August 18, 2001.
Contract adjustment payments will be payable to the holders of purchase
contracts as they appear on the books and records of the purchase contract agent
on the relevant record dates, which will be on the first day of
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the month in which the relevant payment date falls. These distributions will be
paid through the purchase contract agent, who will hold amounts received in
respect of the contract adjustment payments for the benefit of the holders of
the purchase contracts relating to the PEPS Units and Treasury PEPS Units.
Subject to any applicable laws and regulations, each such payment will be made
as described under "Book Entry Systems."
If any date on which contract adjustment payments are to be made on the
purchase contracts related to the PEPS Units and Treasury PEPS Units is not a
business day, then payment of the contract adjustment payments payable on that
date will be made on the next succeeding day which is a business day, and no
interest or payment will be paid in respect of the delay. However, if that
business day is in the next succeeding calendar year, that payment will be made
on the immediately preceding business day, in each case with the same force and
effect as if made on that payment date. A "business day" means any day other
than a Saturday, Sunday or any other day on which banking institutions and trust
companies in The City of New York are permitted or required by any applicable
law to close.
Our obligations with respect to contract adjustment payments will be
subordinated and junior in right of payment to our obligations under any of our
senior indebtedness.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the settlement rate will be adjusted if certain
events occur, including:
-- the payment of dividends (and other distributions) on our common
stock made in our common stock;
-- the issuance to all holders of our common stock of rights, warrants
or options entitling them, for a period of up to 45 days, to
subscribe for or purchase our common stock at less than the "current
market price," as defined below, of our common stock;
-- subdivisions, splits or combinations of our common stock;
-- distributions to all holders of our common stock of evidences of PPL
Corporation indebtedness, shares of capital stock, securities, cash
or property (excluding any dividend or distribution covered by the
first and second bullets above and any dividend or distribution paid
exclusively in cash);
-- distributions consisting exclusively of cash to all holders of our
common stock, excluding any quarterly cash dividend on our common
stock to the extent that the aggregate cash dividend per share of our
common stock in any fiscal quarter does not exceed $.265, and
excluding any dividend or distribution in connection with a
liquidation, dissolution or termination of PPL Corporation (if an
adjustment is required to be made as set forth in this clause as a
result of a distribution (1) that is a quarterly dividend, such an
adjustment would be based on the amount by which such dividend
exceeds $.265 or (2) that is not a quarterly dividend, such an
adjustment would be based on the full amount of such distribution);
and
-- the successful completion of a tender or exchange offer made by PPL
Corporation or any of its subsidiaries for its common stock that
involves an aggregate consideration having a fair market value that,
when combined with (a) any cash and the fair market value of other
consideration payable in respect of any tender or exchange offer by
PPL Corporation or any of its subsidiaries for its common stock
concluded within the preceding 12 months and (b) the aggregate amount
of any all-cash distributions to all holders of our common stock made
within the preceding 12 months exceeds 15% of PPL Corporation's
aggregate market capitalization on the expiration of such tender or
exchange offer.
The term "current market price" per share of our common stock on any day
means the average of the daily closing prices for the five consecutive trading
days selected by us commencing not more than 30 trading days before, and ending
not later than, the earlier of the day in question and the day before the "ex
date" with respect to the issuance or distribution requiring such computation.
For purposes of this paragraph, the term "ex date," when used with respect to
any issuance or distribution, will mean the first date on which the shares of
our common stock trade on the applicable exchange or in the applicable market
without the right to receive such issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which our common stock is
converted into the right to receive other securities, cash or property, each
purchase contract then outstanding would become, without the consent of the
holder of the
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related PEPS Unit or Treasury PEPS Unit, as the case may be, a contract to
purchase only the kind and amount of securities, cash and other property
receivable upon consummation of the transaction by a holder of the number of
shares that would have been received by the holder of the related PEPS Unit or
Treasury PEPS Unit if the purchase contract settlement date had occurred
immediately prior to the date of consummation of such transaction.
In the case of PPL Corporation's consolidation with or merger into any
other person, any merger of another person into PPL Corporation (other than a
merger that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of our common stock) in which 30% or more of
the total consideration paid to PPL Corporation's shareholders consists of cash
or cash equivalents, you may settle your purchase contract with cash during the
one-week period beginning on the twenty-third trading day following the closing
date of the merger at the applicable settlement rate. For this purpose, the
twenty-third trading day after the closing date of the merger will be deemed to
be the "purchase contract settlement date" for the purpose of determining the
"applicable market value."
If at any time PPL Corporation makes a distribution of property to holders
of its common stock that would be taxable to such shareholders as a dividend for
United States federal income tax purposes (i.e., distributions of evidences of
PPL Corporation's indebtedness or assets, but generally not stock dividends or
rights to subscribe for capital stock) and, pursuant to the settlement rate
adjustment provisions of the purchase contract agreement, the settlement rate is
increased, such increase may give rise to a taxable dividend to holders of the
PEPS Units and Treasury PEPS Units. See "United States Federal Income Tax
Consequences--PEPS Units--Purchase Contracts--Adjustment to Settlement Rate" in
this prospectus supplement.
In addition, we may make such increases in the settlement rate as we deem
advisable in order to avoid or diminish any income tax to holders of our common
stock resulting from any dividend or distribution of our common stock (or rights
to acquire our common stock) or from any event treated as such for income tax
purposes or for any other reason.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate will be required
unless such adjustment would require an increase or decrease of at least 1% in
the settlement rate; provided that any adjustments not made by reason of the
foregoing will be carried forward and taken into account in any subsequent
adjustment.
Whenever the settlement rate is adjusted, PPL Corporation must deliver to
the purchase contract agent a certificate setting forth the settlement rate,
detailing the calculation of the settlement rate and describing the facts upon
which the adjustment is based. In addition, PPL Corporation must notify the
holders of the PEPS Units and Treasury PEPS Units of the adjustment within ten
business days of any event requiring such adjustment and describe in reasonable
detail the method by which the settlement rate was adjusted.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of shares of our common stock issuable upon early
settlement of a purchase contract.
If an adjustment is made to the settlement rate, an adjustment also will be
made to the applicable market value solely to determine which settlement rate
will be applicable on the purchase contract settlement date.
TERMINATION
The purchase contracts and the obligations and rights of PPL Corporation
and of the holders of the PEPS Units and Treasury PEPS Units thereunder
(including the holders' obligation and right to purchase and receive shares of
our common stock and the right to receive accrued contract adjustment payments)
will terminate automatically upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to PPL Corporation. Upon
such termination, the collateral agent will release the related trust preferred
securities, applicable ownership interests of the treasury portfolio or treasury
securities, as the case may be, from the pledge arrangement and cause the
securities intermediary to transfer such trust preferred securities, applicable
ownership interests of the treasury portfolio or treasury securities to the
purchase contract agent for distribution to the holders of the PEPS Units and
Treasury PEPS Units subject, in the case
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of the applicable ownership interest of the treasury portfolio, to the purchase
contract agent's disposition of the subject securities for cash and the payment
of such cash to the holders to the extent that the holders otherwise would have
been entitled to receive less than $1,000 of any such security. Upon such
termination, however, such release and distribution may be subject to a delay.
In the event that PPL Corporation becomes the subject of a case under the
Bankruptcy Code, such delay may occur as a result of the automatic stay under
the Bankruptcy Code and continue until such automatic stay has been lifted. We
expect any such delay to be limited.
PLEDGED SECURITIES AND PLEDGE
The trust preferred securities that are a part of the PEPS Units (or the
applicable ownership interests of the treasury portfolio that are a part of the
PEPS Units, if a successful initial remarketing or a tax event redemption has
occurred) or, if substituted, the treasury securities that are a part of the
Treasury PEPS Units (collectively, the "pledged securities") will be pledged to
the collateral agent for our benefit pursuant to the pledge agreement to secure
your obligation to purchase shares of our common stock under the related
purchase contracts. The rights of the holders of the PEPS Units and Treasury
PEPS Units with respect to such pledged securities will be subject to PPL
Corporation's security interest therein. No holder of PEPS Units or Treasury
PEPS Units will be permitted to withdraw the pledged securities related to such
PEPS Units or Treasury PEPS Units from the pledge arrangement except:
-- in the case of a PEPS Unit, to substitute a treasury security for the
related trust preferred security;
-- in the case of a Treasury PEPS Unit, to substitute trust preferred
securities for the related treasury security (for this bullet point
and the one above, as provided for under "Description of the PEPS
Units--Creating Treasury PEPS Units by Substituting a Treasury
Security for Trust Preferred Securities" and "--Recreating PEPS
Units" in this prospectus supplement); and
-- upon early settlement, settlement for cash or termination of the
related purchase contracts.
Subject to PPL Corporation's security interest and the terms of the
purchase contract agreement and the pledge agreement, each holder of PEPS Units
(unless the treasury portfolio has replaced the trust preferred securities as a
component of PEPS Units as a result of a successful remarketing or a tax event
redemption) will be entitled, through the purchase contract agent and the
collateral agent, to all of the proportional rights and preferences of the
related trust preferred securities (including distribution, voting, redemption,
repayment and liquidation rights), and each holder of Treasury PEPS Units or
PEPS Units (if the treasury portfolio has replaced the trust preferred
securities as a component of PEPS Units as a result of a successful initial
remarketing or a tax event redemption) will retain beneficial ownership of the
related treasury securities or applicable ownership interest of the treasury
portfolio, as applicable, pledged in respect of the related purchase contracts.
PPL Corporation will have no interest in the pledged securities other than its
security interest.
Upon receipt of distributions on the pledged securities, the securities
intermediary will distribute such payments to the purchase contract agent, which
in turn will distribute those payments, together with contract adjustment
payments received from us, to the holders in whose names the PEPS Units or
Treasury PEPS Units are registered at the close of business on the record date
preceding the date of such distribution.
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CERTAIN PROVISIONS OF THE PURCHASE CONTRACTS, THE
PURCHASE CONTRACT AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Payments on the PEPS Units and Treasury PEPS Units will be payable, the
purchase contracts will be settled and transfers of the PEPS Units and Treasury
PEPS Units will be registrable at the office of the purchase contract agent in
the Borough of Manhattan, New York City. In addition, if the PEPS Units or
Treasury PEPS Units do not remain in book-entry form, we have the option to make
payments on the PEPS Units and Treasury PEPS Units by check mailed to the
address of the person entitled thereto as shown on the security register.
No service charge will be made for any registration of transfer or exchange
of the PEPS Units or Treasury PEPS Units, except for any tax or other
governmental charge that may be imposed in connection therewith.
MODIFICATION
Subject to certain limited exceptions, we and the purchase contract agent
may not modify the terms of the purchase contracts or the purchase contract
agreement without the consent of the holders of not less than a majority of the
outstanding purchase contracts, except that no such modification may, without
the consent of the holder of each outstanding purchase contract affected
thereby:
-- change any payment date;
-- change the amount or type of collateral required to be pledged to
secure a holder's obligations under the purchase contract, impair the
right of the holder of any purchase contract to receive distributions
on such collateral, or otherwise adversely affect the holder's rights
in or to such collateral;
-- change the place or currency of payment or reduce any contract
adjustment payments;
-- impair the right to institute suit for the enforcement of a purchase
contract or any contract adjustment payments;
-- reduce the number of shares of our common stock purchasable under a
purchase contract, increase the purchase price of the shares of our
common stock on settlement of any purchase contract, change the
purchase contract settlement date or otherwise adversely affect the
holder's rights under a purchase contract; or
-- reduce the above-stated percentage of outstanding purchase contracts
whose holders' consent is required for the modification or amendment
of the provisions of the purchase contracts, the purchase contract
agreement or the pledge agreement;
provided that if any amendment or proposal would adversely affect only the PEPS
Units or only the Treasury PEPS Units, then only the affected voting group of
holders will be entitled to vote on such amendment or proposal, and such
amendment or proposal will not be effective except with the consent of the
holders of not less than a majority of such voting group or, if referred to in
the first through sixth bullets above, all of the holders of such voting group.
Subject to certain limited exceptions, we, the collateral agent, the
securities intermediary and the purchase contract agent may not modify the terms
of the pledge agreement without the consent of the holders of not less than a
majority of the outstanding purchase contracts, except that no such modification
may, without the consent of the holder of each outstanding purchase contract
affected thereby:
-- change the amount or type of collateral required to be pledged to
secure a holder's obligations under the purchase contract, impair the
right of the holder of any purchase contract to receive interest
payments on such collateral or otherwise adversely affect the
holder's rights in or to such collateral;
-- otherwise effect any action that under the purchase contract
agreement would require the consent of the holders of each
outstanding purchase contract affected thereby; or
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-- reduce the above-stated percentage of outstanding purchase contracts
whose holders' consent is required for the modification or amendment;
provided that if any amendment or proposal would adversely affect only the PEPS
Units or only the Treasury PEPS Units, then only the affected voting group of
holders will be entitled to vote on such amendment or proposal, and such
amendment or proposal will not be effective except with the consent of the
holders of not less than a majority of such voting group or, if referred to in
the first through third bullets above, all of the holders of such voting group.
NO CONSENT TO ASSUMPTION
Each holder of a PEPS Unit or a Treasury PEPS Unit will be deemed under the
terms of the purchase contract agreement, by the purchase of such PEPS Unit or
Treasury PEPS Unit, to have expressly withheld any consent to the assumption
(i.e., affirmance) of the related purchase contracts by PPL Corporation, its
receiver, liquidator or trustee in the event that PPL Corporation becomes the
subject of a case under the Bankruptcy Code or other similar state or federal
law providing for reorganization or liquidation.
MERGER, SALE OR LEASE
PPL Corporation will covenant in the purchase contract agreement that it
will not merge or consolidate with any other entity or sell, assign, transfer,
lease or convey all or substantially all of its properties and assets to any
other entity or group of affiliated entities unless:
-- either PPL Corporation is the continuing corporation or the successor
corporation is a corporation organized under the laws of the United
States of America, a state thereof or the District of Columbia and
such corporation expressly assumes all of PPL Corporation's
obligations under the purchase contracts, the purchase contract
agreement and the pledge agreement by one or more supplemental
agreements in form reasonably satisfactory to the purchase contract
agent and the collateral agent; and
-- PPL Corporation or such successor corporation is not, immediately
after such merger, consolidation, sale, assignment, transfer, lease
or conveyance, in default in the performance of any of its
obligations thereunder.
GOVERNING LAW
The purchase contracts, the purchase contract agreement and the pledge
agreement will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The Chase Manhattan Bank will be the purchase contract agent. The purchase
contract agent will act as the agent for the holders of the PEPS Units and
Treasury PEPS Units. The purchase contract agent will not be obligated to take
any discretionary action in connection with a default under the terms of the
PEPS Units, the Treasury PEPS Units or the purchase contract agreement.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement also
will contain provisions under which the purchase contract agent may resign or be
replaced. Such resignation or replacement will be effective upon the appointment
of a successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Bank of New York will be the collateral agent. The collateral agent
will act solely as our agent and will not assume any obligation or relationship
of agency or trust for or with any of the holders of the PEPS Units and the
Treasury PEPS Units except for the obligations owed by a pledgee of property to
the owner thereof under the pledge agreement and applicable law.
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The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement also will contain provisions under which
the collateral agent may resign or be replaced. Such resignation or replacement
will be effective upon the appointment of a successor.
INFORMATION CONCERNING THE SECURITIES INTERMEDIARY
The Bank of New York will be the securities intermediary. All property
delivered to the securities intermediary pursuant to the purchase contract
agreement or the pledge agreement will be credited to a collateral account
established by the securities intermediary for the collateral agent. The
securities intermediary will treat the purchase contract agent as entitled to
exercise all rights relating to any financial asset credited to such collateral
account, subject to the provisions of the pledge agreement.
MISCELLANEOUS
The purchase contract agreement will provide that we will pay all fees and
expenses related to (1) the retention of the collateral agent and the securities
intermediary and (2) the enforcement by the purchase contract agent of the
rights of the holders of the PEPS Units and Treasury PEPS Units. Holders who
elect to substitute the related pledged securities, thereby creating Treasury
PEPS Units or recreating PEPS Units, however, will be responsible for any fees
or expenses payable in connection with such substitution, as well as for any
commissions, fees or other expenses incurred in acquiring the pledged securities
to be substituted. We will not be responsible for any such fees or expenses.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The following description is a summary of the terms of the trust preferred
securities. It supplements the description of the preferred trust securities in
the accompanying prospectus and, to the extent it is inconsistent with the
accompanying prospectus, replaces the description in the accompanying
prospectus. The trust preferred securities, which initially form a part of the
PEPS Units and which, under certain circumstances, will trade separately from
the purchase contracts also forming a part of the PEPS Units, will be issued
pursuant to the terms of the declaration of trust. The terms of the trust
preferred securities will include those stated in the declaration of trust and
those made part of the declaration of trust by the Trust Indenture Act.
The following description of certain terms of the trust preferred
securities and certain provisions of the declaration of trust in this prospectus
supplement and their description in the accompanying prospectus contain a
description of certain of their terms but do not purport to be complete, and
reference is hereby made to the copy of the declaration of trust (including the
definitions of certain terms used therein) that is filed as an exhibit or
incorporated by reference to the registration statement, the Delaware Business
Trust Act and the Trust Indenture Act.
SECURITIES ISSUABLE BY THE TRUST
The declaration of trust authorizes the Trust to issue the trust preferred
securities and the trust common securities. The trust preferred securities and
the trust common securities represent undivided beneficial interests in the
assets of the Trust. PPL Capital Funding will own all of the trust common
securities. PPL Capital Funding may transfer the trust common securities only to
an affiliate that is a U.S. person for U.S. federal income tax purposes. The
trust preferred securities and the trust common securities will generally have
equivalent terms, except that:
-- if an event of default under the declaration of trust occurs and is
continuing, the holders of the trust preferred securities will have
the right to receive periodic distributions and liquidation,
redemption and other payments before the holder of the trust common
securities receives any payments and
-- the holder of trust common securities will have the exclusive right
to dissolve the Trust or to appoint, remove or replace the trustees
and to increase or decrease the number of trustees.
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DISTRIBUTIONS
As a beneficial owner of the subordinated notes, you will be entitled to
receive cash distributions on your trust preferred security that will accumulate
and be payable initially at a rate per year of 7.29% of the stated liquidation
amount of $25 per trust preferred security to, but excluding the date on which
the reset rate is reset in connection with a successful initial remarketing or a
successful final remarketing. Interest not paid on the subordinated notes will
accrue and compound quarterly at the rate of 7.29% per year and, as a result,
distributions on the trust preferred securities not paid on the scheduled
payment date will accumulate and compound quarterly at the rate of 7.29% per
year through and including May 18, 2004. The term "distribution," as used
herein, includes any such distributions payable unless otherwise stated.
The applicable distribution rate on the trust preferred securities will be
reset on the day on which a successful remarketing has taken place, as described
above under "Description of the Purchase Contracts--Remarketing," to the reset
rate described below under "--Distribution Rate Reset," and such reset rate will
become effective on the third business day following a successful initial or
final remarketing (the "reset effective date") unless the remarketing of the
trust preferred securities on any such date fails. If the remarketing of the
trust preferred securities on any such date fails, the distribution rate on the
trust preferred securities will not be reset at that time. However, in the event
of a failed final remarketing, the distribution rate will be reset pursuant to a
formula as described under "--Failed Final Remarketing" below.
The amount of interest payable on the subordinated notes, and, as a result,
distributions payable for any period will be computed (1) for any full quarterly
interest period, on the basis of a 360-day year of twelve 30-day months, and (2)
for any period shorter than a full quarterly interest period, on the basis of a
30-day month and, for any period of less than one month, on the basis of the
actual number of days elapsed per 30-day month.
Interest on the subordinated notes will be cumulative, will accrue from the
first date of issuance of the subordinated notes and will be payable quarterly,
in arrears, on February 18, May 18, August 18 and November 18 of each year,
commencing August 18, 2001, and, as a result, distributions on the trust
preferred securities will be cumulative, will accumulate from the first day of
issuance of the trust preferred securities and will be payable quarterly in
arrears on such dates.
Distributions are payable only to the extent that payments are made to the
Trust in respect of the subordinated notes of PPL Capital Funding held by the
property trustee and to the extent the Trust has funds available for the payment
of such distributions.
DISTRIBUTION RATE RESET
The applicable quarterly distribution rate on the trust preferred
securities and the interest rate on the related subordinated notes will be reset
to equal the sum of the reset spread and the rate of interest on the applicable
benchmark treasury, as defined below, in effect on the third business day
immediately preceding the reset effective date, and will be determined by the
reset agent. In the case of a successful initial remarketing as described under
"Description of Purchase Contracts--Remarketing" above, the reset rate will be
the rate determined by the reset agent as the rate the trust preferred
securities should bear in order for the trust preferred securities included in
the PEPS Units to have an approximate aggregate market value on the reset date
of 100.25% of the treasury portfolio purchase price. In the case of a successful
final remarketing, the reset rate will be the rate determined by the reset agent
as the rate the trust preferred securities should bear in order for each trust
preferred security to have an approximate market value on the reset date of
100.25% of the stated liquidation amount of the trust preferred security. In the
case of a failed initial remarketing followed by a failed final remarketing, the
reset rate will be determined pursuant to a formula as described under "--Failed
Final Remarketing" below. The reset rate will in no event exceed the maximum
rate permitted by applicable law, nor will it be below the initial distribution
rate and interest rate.
The "applicable benchmark treasury" means direct obligations of the United
States as agreed upon by us and the reset agent (which may be obligations
treated on a when-issued basis only), having a maturity comparable to the
remaining term to maturity of the trust preferred securities. The rate for the
applicable
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benchmark treasury will be the bid side rate displayed at 10:00 a.m., New York
City time, on the third business day immediately preceding the reset effective
date, in the Telerate system (or if the Telerate system is no longer available
on that date, or, in the opinion of the reset agent (after consultation with
us), is no longer an appropriate system from which to obtain the rate, such
other nationally recognized quotation system as, in the opinion of the reset
agent (after consultation with us), is appropriate). If this rate is not so
displayed, the rate for the applicable benchmark treasury shall be, as
calculated by the reset agent, the yield to maturity for the applicable
benchmark treasury, expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis, and computed by taking
the arithmetic mean of final market bid rates, as of 10:30 a.m., New York City
time, on the third business day immediately preceding the reset effective date,
as applicable, of three leading United States government securities dealers
selected by the reset agent (after consultation with us) (which may include the
reset agent or an affiliate thereof). Morgan Stanley & Co. Incorporated will be
the reset agent.
The reset rate to be determined in connection with the first remarketing on
the third business day prior to February 18, 2004 or the final remarketing on
the third business day prior to May 18, 2004 will be determined in accordance
with the following procedures: On the seventh business day immediately preceding
the applicable remarketing date, the applicable benchmark treasury to be used to
determine the reset rate on the third business day prior to the reset effective
date, which is the date of the remarketing, will be selected, and the reset
spread to be added to the rate of interest on the applicable benchmark treasury
in effect on the third business day immediately preceding the reset effective
date will be established by the reset agent. The reset spread and the applicable
benchmark treasury will be announced by us on the tenth business day prior to
the applicable reset effective date (the "reset announcement date"). We will
cause a notice of the reset spread and the applicable benchmark treasury to be
published on the business day following the reset announcement date by
publication in a daily newspaper in the English language of general circulation
in New York City, which is expected to be The Wall Street Journal. We will also
request, not later than seven nor more than 15 calendar days prior to the reset
announcement date, that the securities depositary for the trust preferred
securities notify its participants holding trust preferred securities, and that
the securities depositary for the PEPS Units and Treasury PEPS Units notify its
participants holding PEPS Units or Treasury PEPS Units of the reset announcement
date and, in the case of a final remarketing to be conducted on the third
business day immediately preceding May 18, 2004, if any, of the procedures that
must be followed if any owner of PEPS Units wishes to settle the related
purchase contract with cash on the business day immediately preceding May 18,
2004.
The reset rate to be determined in connection with any additional
remarketing subsequent to the first remarketing on the third business day
preceding February 18, 2004 and prior to the tenth business day preceding May
18, 2004 will be determined in accordance with the same procedures as set forth
above, except that the applicable benchmark treasury to be used to determine the
reset rate on the date of the remarketing will be selected on the third business
day immediately preceding the date on which the trust preferred securities will
be remarketed, which will be the reset announcement date for the additional
remarketing. In addition, we will request as soon as practical after we have
been notified of an additional remarketing by the remarketing agent that the
securities depositary for the trust preferred securities and the PEPS Units and
Treasury PEPS Units notify its participants of the reset announcement date.
OPTIONAL REMARKETING
On or prior to the second business day immediately preceding the
remarketing date (except as described below for any additional remarketing), but
no earlier than the distribution date immediately preceding the remarketing
date, holders of trust preferred securities that are not part of PEPS Units may
elect to have their trust preferred securities remarketed in the same manner as
trust preferred securities that are a part of PEPS Units by delivering their
trust preferred securities along with a notice of this election to the custodial
agent designated by us. The custodial agent will hold the trust preferred
securities in an account separate from the collateral account in which the
pledged trust preferred securities are held. Holders of trust preferred
securities electing to have their trust preferred securities remarketed will
also have the right to withdraw their election on or prior to the second
business day immediately preceding the remarketing date.
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If the remarketing on the third business day preceding February 18, 2004
fails, and if the remarketing agent in its discretion proceeds with any
additional remarketing as described under "Description of the Purchase
Contracts--Remarketing" above, then in case of any such additional remarketing,
the remarketing agent shall notify all holders of trust preferred securities
that are not part of PEPS Units of the date of such additional remarketing as
soon as practical, but no later than three business days immediately preceding
the remarketing date. Holders who wish to participate in any additional
remarketing have to deliver their trust preferred securities together with the
notice of this election to the custodial agent no later than two business days
following the notification by the remarketing agent. As a consequence of the
shorter notice period for any additional remarketing, it may be more difficult
for a holder of separate trust preferred securities to participate in an
additional remarketing.
The proceeds of the remarketing of trust preferred securities that are not
part of PEPS Units will be paid to the holders in cash after deduction, to the
extent permissible, of the remarketing fee.
FAILED FINAL REMARKETING
If, by 4:00 p.m., New York City time, on the third business day immediately
preceding May 18, 2004, the remarketing agent is unable to remarket all the
trust preferred securities tendered or deemed tendered for purchase in the final
remarketing, a "failed final remarketing" will be deemed to have occurred, and
the remarketing agent will so advise the depositary, the property trustee, the
Trust and us.
If a failed final remarketing occurs and you are a PEPS Unit holder who has
not settled your purchase contract early or has not settled your purchase
contract with cash or has given notice of your election to settle your purchase
contract with cash but failed to do so, we may exercise our rights as a secured
party and take possession of your trust preferred securities. Your obligation to
purchase the shares of our common stock then will be fully satisfied, and you
will receive the appropriate number of shares of our common stock.
If a failed final remarketing occurs, and you are a holder of trust
preferred securities that are not part of a PEPS Unit, you will retain
possession of your trust preferred securities and the reset rate will be equal
to (1) the two-year benchmark treasury rate, as defined below, plus (2) the
applicable spread, as defined below, provided that the reset rate will not be
below the initial rate.
The term "two-year benchmark treasury rate" means the bid side rate
displayed at 10:00 a.m., New York City time, on the third business day prior to
the purchase contract settlement date for direct obligations of the United
States having a maturity comparable to the remaining term to maturity of the
subordinated notes, as agreed upon by us and the remarketing agent. This rate
will be as displayed in the Telerate system or, if the Telerate system is no
longer available or, in the opinion of the remarketing agent (after consultation
with us), no longer an appropriate system from which to obtain such rate, such
other nationally recognized quotation system as, in the opinion of the
remarketing agent (after consultation with us) is appropriate. If this rate is
not so displayed, the two-year benchmark treasury rate will be calculated by the
remarketing agent as the yield to maturity of the trust preferred securities,
expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis, and computed by taking the arithmetic
mean of the secondary market bid rates, as of 10:30 a.m., New York City time, on
the third business day prior to the purchase contract settlement date of three
leading United States government securities dealers selected by the remarketing
agent (after consultation with us) (which may include the remarketing agent or
an affiliate thereof).
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The term "applicable spread" means the spread determined as set forth
below, based on the prevailing rating, as defined below, of our subordinated
notes in effect at the close of business on the business day immediately
preceding the date of a failed final remarketing:
PREVAILING RATING ON OUR SUBORDINATED NOTES SPREAD
------------------------------------------------------------ ------
AA/"Aa"..................................................... 3.00%
A/"a"....................................................... 4.00%
BBB/"Baa"................................................... 5.00%
Below BBB/"Baa"............................................. 7.00%
You should know that we are using the rating on our subordinated notes as a
convenient benchmark to ascertain the "applicable spread" and that if a rating
were given to your trust preferred securities by a nationally recognized rating
agency, it may or may not be the same as the rating on our subordinated notes.
For purposes of this definition, the "prevailing rating" of our
subordinated notes shall be:
(1) AA/"Aa" if our subordinated notes have a credit rating of AA- or
better by Standard & Poor's Ratings Service and "Aa3" or better by Moody's
Investors Service, Inc. or the equivalent of such ratings by such agencies
or a substitute rating agency or substitute rating agencies selected by the
remarketing agent (after consultation with us);
(2) if not under clause (1) above, then A/"a" if our subordinated
notes have a credit rating of A-or better by S&P and "A3" or better by
Moody's or the equivalent of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected by the remarketing
agent (after consultation with us);
(3) if not under clause (1) or (2) above, then BBB/"Baa" if our
subordinated notes have a credit rating of BBB- or better by S&P and "Baa3"
or better by Moody's or the equivalent of such ratings by such agencies or
a substitute rating agency or substitute rating agencies selected by the
remarketing agent (after consultation with us); or
(4) if not under clauses (1) through (3) above, then below BBB/"Baa".
Notwithstanding the foregoing, (A) if (i) the credit rating of our
subordinated notes by S&P shall be on the "Credit Watch" of S&P with a
designation of "negative implications" or "developing", or (ii) the credit
rating of our subordinated notes by Moody's shall be on the "Corporate Credit
Watch List" of Moody's with a designation of "downgrade" or "uncertain", or, in
each case, on any successor list of S&P or Moody's with a comparable
designation, the prevailing ratings of our subordinated notes shall be deemed to
be within a range one full level lower in the above table than those actually
assigned to our subordinated notes by Moody's and S&P and (B) if our
subordinated notes are rated by only one rating agency on or before the
remarketing date, the prevailing rating will at all times be determined without
reference to the rating of any other rating agency; provided that if no such
rating agency shall have in effect a rating of our subordinated notes and the
remarketing agent is unable to identify a substitute rating agency or rating
agencies, the prevailing rating shall be below BBB/"Baa."
The remarketing agent is not obligated to purchase any trust preferred
securities that would otherwise remain unsold in the remarketing. Neither we nor
the Trust nor the property trustee nor the remarketing agent will be obligated
in any case to provide funds to make payment upon tender of trust preferred
securities for remarketing. Whether or not there has been a "failed final
remarketing" will be determined in the sole, reasonable discretion of the
remarketing agent.
REMARKETING PROCEDURES
For information on remarketing procedures, you should carefully read
"Description of the Purchase Contracts--Remarketing" above.
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DESCRIPTION OF THE PPL CAPITAL FUNDING SUBORDINATED NOTES
The following description is a summary of the terms of the subordinated
notes of PPL Capital Funding. It supplements the description of the subordinated
debt securities in the accompanying prospectus and, to the extent it is
inconsistent with the accompanying prospectus, replaces the description in the
accompanying prospectus. The subordinated notes of PPL Capital Funding will be
issued under a subordinated indenture to be dated as of May 9, 2001, as
supplemented by a first supplemental indenture relating to the PPL Capital
Funding subordinated notes, between us and The Chase Manhattan Bank, as
indenture trustee.
The descriptions in this prospectus supplement and the accompanying
prospectus contain a description of certain terms of the PPL Capital Funding
subordinated notes and the indenture but do not purport to be complete, and
reference is hereby made to the indenture, the supplemental indenture, and the
form of subordinated note that are or will be filed as exhibits or incorporated
by reference to the registration statement and to the Trust Indenture Act.
GENERAL
The subordinated notes will be PPL Capital Funding's direct, unsecured
obligations and will rank without preference or priority among themselves and
equally with all of PPL Capital Funding's existing and future unsecured and
subordinated indebtedness. The subordinated notes initially will be issued in an
aggregate principal amount equal to $515,463,918, such amount being the sum of
the maximum aggregate stated liquidation amounts of the trust preferred
securities and the common securities. If the over-allotment option is exercised
in full by the underwriters an additional $77,319,588 of the subordinated notes
will be issued to the Trust.
The PPL Capital Funding subordinated notes will be unconditionally
guaranteed by PPL Corporation as described in the accompanying prospectus under
"Description of Subordinated Debt Securities--Subordinated Guarantees."
The subordinated notes will not be subject to a sinking fund provision.
Unless a tax event redemption occurs, the entire principal amount of the
subordinated notes will mature and become due and payable, together with any
accrued and unpaid interest thereon, on May 18, 2006.
We will have the right at any time to dissolve the Trust and cause the
subordinated notes to be distributed to the holders of the trust securities. If
the Trust is dissolved after the purchase contract settlement date (other than
as a result of the redemption of the subordinated notes) and you continue to
hold trust preferred securities, you will receive your pro rata share of the
subordinated notes held by the Trust (after any creditors of the Trust have been
paid). If the Trust is dissolved prior to the purchase contract settlement date,
then these subordinated notes will be substituted for the trust preferred
securities and will be pledged as collateral to secure your obligation to
purchase our common stock under your purchase contracts.
If the subordinated notes are distributed to the holders of the trust
securities in liquidation of such holders' interests in the Trust, the
subordinated notes will initially be issued in the form of one or more global
certificates deposited with DTC. Under certain limited circumstances, the
subordinated notes may be issued in certificated form in exchange for the global
certificates. In the event that the subordinated notes are issued in
certificated form, the subordinated notes will be in denominations of $25 and
integral multiples thereof and may be transferred or exchanged at the offices
described below. Payments on subordinated notes issued as global certificates
will be made to DTC, a successor depositary or, in the event that no depositary
is used, to a paying agent for the subordinated notes. In the event the
subordinated notes are issued in certificated form, principal and interest will
be payable, the transfer of the subordinated notes will be registrable and the
subordinated notes will be exchangeable for subordinated notes of other
denominations of a like aggregate principal amount at the corporate trust office
or agency of the indenture trustee in New York City, provided that at our
option, payment of interest may be made by check. Notwithstanding the foregoing,
so long as the holder of any subordinated notes is the property trustee, we will
make payment of principal and interest on the subordinated notes held by the
property trustee at such place and to such account as may be designated by the
property trustee.
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The indenture does not contain provisions that afford holders of the
subordinated notes protection in the event we are involved in a highly leveraged
transaction or other similar transaction that may adversely affect such holders.
INTEREST
Each subordinated note will bear interest initially at the rate of 7.29%
per year from the original issuance date, payable quarterly in arrears on
February 18, May 18, August 18 and November 18 of each year, commencing August
18, 2001. Interest will be payable by check mailed to the person in whose name
the subordinated note is registered at the close of business on the first day of
the month in which the interest payment date falls. In addition, because the
subordinated notes are subject to the contingent payment rules, original issue
discount (OID) will accrue on the subordinated notes.
The applicable interest rate on the subordinated notes will be reset on the
third business day immediately preceding February 18, 2004, or on the date of
any additional remarketing thereafter, to the reset rate described above under
"Description of the Trust Preferred Securities--Distribution Rate Reset", which
reset rate is also applicable for the subordinated notes unless the remarketing
of the trust preferred securities on any such date fails. The reset rate will
become effective on the reset effective date, which is three business days
immediately following any remarketing date. If the initial remarketing of the
trust preferred securities on any such date fails, the interest rate on the
subordinated notes will not be reset at that time. However, in these
circumstances, the interest rate on the subordinated notes outstanding on and
after May 18, 2004 will be reset on the third business day immediately preceding
May 18, 2004 to the reset rate described above under "Description of the Trust
Preferred Securities--Distribution Rate Reset" in the case of a successful final
remarketing or to the reset rate described above under "Description of the Trust
Preferred Securities--Failed Final Remarketing" in the case of a failed final
remarketing.
The amount of interest payable on the subordinated notes for any period
will be computed (1) for any full quarterly period on the basis of a 360-day
year of twelve 30-day months and (2) for any period shorter than a full
quarterly period, on the basis of a 30-day month and, for any period less than a
month, on the basis of the actual number of days elapsed per 30-day month. In
the event that any date on which interest is payable on the subordinated notes
is not a business day, then payment of the interest payable on such date will be
made on the next day that is a business day (and without any interest or other
payment in respect of any such delay), except that, if such business day is in
the next calendar year, then such payment will be made on the preceding business
day.
COVENANTS OF PPL CORPORATION
PPL Corporation will covenant that during the continuance of an event of
default, it will not:
-- declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any
PPL Corporation capital stock; or
-- make any guarantee payments with respect to any guarantee by PPL
Capital Funding or PPL Corporation of the debt of any subsidiary of
PPL Capital Funding or PPL Corporation if such guarantee ranks
equally with or junior in interest to the subordinated notes.
However, PPL Corporation may:
-- declare a dividend in connection with the implementation of a
stockholders' rights plan or the redemption or repurchase of any such
rights pursuant thereto;
-- reclassify PPL Corporation's capital stock or exchange or convert one
class or series of PPL Corporation's capital stock for another class
or series of PPL Corporation's capital stock;
-- purchase fractional interests in shares of PPL Corporation's capital
stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
-- declare dividends or distributions in PPL Corporation's capital
stock; and
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-- make payments under the guarantee related to the trust preferred
securities.
OPTIONAL REDEMPTION--TAX EVENT
If a tax event, as defined below, occurs and is continuing, we may redeem,
at our option, the subordinated notes in whole, but not in part, at a price
equal to, for each subordinated note, the redemption amount, as defined below,
plus accrued and unpaid interest thereon to the date of redemption, the "tax
event redemption date". Upon a tax event redemption, the Trust will use the
proceeds of such tax event redemption to redeem trust securities having an
aggregate stated liquidation amount equal to the aggregate principal amount of
the subordinated notes redeemed by distributing the redemption amount plus any
accumulated and unpaid distributions. If a tax event redemption occurs prior to
the purchase contract settlement date, the redemption price payable in
liquidation of the PEPS Unit holders' interests in the Trust will be distributed
to the securities intermediary, which in turn will apply an amount equal to the
redemption amount of such redemption price to purchase the treasury portfolio on
behalf of the holders of the PEPS Units and remit the remaining portion, if any,
of such redemption price to the purchase contract agent for payment to the
holders of the PEPS Units. Thereafter, the applicable ownership interest of the
treasury portfolio will be substituted for the trust preferred securities and
will be pledged to the collateral agent to secure the PEPS Unit holders'
obligations to purchase our common stock under the related purchase contract. If
a tax event redemption occurs after the purchase contract settlement date, the
treasury portfolio will not be purchased and the proceeds will be distributed to
the purchase contract agent for payment to the holders of the PEPS Units. If a
tax event redemption occurs, holders of trust preferred securities that are not
part of PEPS Units will directly receive proceeds from the redemption of the
subordinated notes.
"Tax event" means the receipt by PPL Capital Funding 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 which proposed change, pronouncement,
action or decision is announced on or after the date of issuance of the trust
preferred securities, there is more than an insubstantial increase in the risk
that (1) the Trust is, or within 90 days of the date of such opinion will be,
subject to United States federal income tax with respect to income received or
accrued on the subordinated notes, (2) interest payable by us on the
subordinated notes is not, or within 90 days of the date of such opinion, will
not be, deductible by us, in whole or in part, for United States federal income
tax purposes, or (3) 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.
"Redemption amount" means, prior to the purchase contract settlement date,
for each subordinated note, the product of the principal amount of such
subordinated note and a fraction, the numerator of which is the treasury
portfolio purchase price, as defined below, and the denominator of which is the
applicable principal amount, as defined below, and means, after the purchase
contract settlement date, the principal amount of such subordinated note.
"Treasury portfolio purchase price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City, a "primary
treasury dealer", to the quotation agent, as defined below, on the third
business day preceding the tax event redemption date for the purchase of the
treasury portfolio for settlement on the tax event redemption date.
"Applicable principal amount" means either (1) if the tax event redemption
date occurs prior to the purchase contract settlement date, the aggregate
principal amount of the subordinated notes corresponding to the aggregate stated
liquidation amount of the trust preferred securities that are part of the PEPS
Units on the tax event redemption date or (2) if the tax event redemption date
occurs on or after the purchase contract settlement date, the aggregate
principal amount of the subordinated notes corresponding to the aggregate stated
liquidation amount of the trust preferred securities outstanding on the tax
event redemption date.
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"Treasury portfolio" means, with respect to the applicable principal amount
of subordinated notes, a portfolio of zero-coupon U.S. treasury securities
consisting of (a) principal or interest strips of U.S. treasury securities that
mature on or prior to May 17, 2004 in an aggregate amount at maturity equal to
the applicable principal amount and (b) with respect to each scheduled interest
payment date on the subordinated notes that occurs after the tax event
redemption date, principal or interest strips of U.S. treasury securities that
mature on or prior to such date in an aggregate amount at maturity equal to the
aggregate interest payment that would be due on the applicable principal amount
of the subordinated notes on such date.
"Quotation agent" means (1) Morgan Stanley & Co. Incorporated and its
respective successors, provided that if Morgan Stanley & Co. Incorporated ceases
to be a primary treasury dealer, we will substitute another primary treasury
dealer therefor, or (2) any other primary treasury dealer selected by us.
ADDITIONAL INDENTURE PROVISIONS APPLICABLE TO THE SUBORDINATED NOTES OF PPL
CAPITAL FUNDING
As long as the subordinated notes are held by the Trust, it will be an
event of default with respect to the subordinated notes if the Trust voluntarily
or involuntarily dissolves, winds up its business or otherwise terminates its
existence except in connection with:
-- the distribution of the subordinated notes to holders of trust
preferred securities and trust common securities in liquidation of
their interests in the Trust;
-- the redemption of all of the outstanding trust preferred securities
and trust common securities; or
-- certain mergers, consolidations or amalgamations, each as permitted
by the declaration of trust.
AGREEMENT BY PURCHASERS OF CERTAIN TAX TREATMENT
Each subordinated note will provide that, by acceptance of the subordinated
note, or a beneficial interest therein, you intend that the subordinated note
constitutes debt and you agree to treat it as debt for United States federal,
state and local tax purposes.
BOOK-ENTRY ISSUANCE
If distributed to holders of trust preferred securities in connection with
the involuntary or voluntary dissolution of the Trust, the subordinated notes
will be issued as one or more global certificates registered in the name of DTC
or its nominee. The subordinated notes will be issued only as fully-registered
securities registered in the name of Cede & Co., DTC's nominee. The subordinated
notes will be issued in accordance with the procedures set forth in this
prospectus supplement under "Book-Entry Systems".
DESCRIPTION OF THE GUARANTEE
The following description is a summary of the terms of the guarantee that
will be executed and delivered by us for the benefit of the holders of the trust
preferred securities. It supplements the description of the guarantee in the
accompanying prospectus and, to the extent it is inconsistent with the
accompanying prospectus, replaces the description in the accompanying
prospectus. The terms of the guarantee will be those set forth in the guarantee
and those made part of the guarantee by the Trust Indenture Act.
The descriptions contained in this prospectus supplement and the
accompanying prospectus contain a description of certain terms of the guarantee,
but do not purport to be complete, and reference is hereby made to the form of
guarantee (including definitions of certain terms used therein) that is filed as
an exhibit or incorporated by reference to the registration statement.
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GENERAL
To the extent described below, we will agree to pay the following amounts
in full if they are not paid by the Trust:
-- any accumulated and unpaid distributions and additional amounts on
the trust preferred securities to the extent we have made
corresponding payments on the subordinated notes of PPL Capital
Funding to the property trustee;
-- the redemption price for any trust preferred securities called for
redemption by the trust, including all accumulated and unpaid
distributions to the date of redemption, to the extent we have made
corresponding payments on the PPL Capital Funding subordinated notes
to the property trustee; and
-- payments upon the dissolution, winding-up or termination of the Trust
equal to the lesser of:
-- the stated liquidation amount plus all accumulated and unpaid
distributions and additional amounts on the trust preferred
securities to the extent the Trust has funds legally available for
those payments; and
-- the amount of assets of the Trust remaining legally available for
distribution to the holders of the trust preferred securities in
liquidation of the trust.
We will not be required to make these liquidation payments if:
-- the Trust distributes the PPL Capital Funding subordinated notes to
the holders of the trust preferred securities in exchange for their
trust preferred securities; or
-- the Trust redeems the trust preferred securities in full upon the
maturity or redemption of the PPL Capital Funding subordinated notes.
The guarantee is a guarantee from the time of issuance of the trust
preferred securities. We will be obligated to make guarantee payments when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert. We may satisfy our obligations to make guarantee payments either
by making payments directly to holders of the trust preferred securities or to
the guarantee trustee for remittance to the holders or by causing the Trust to
make the payments to them.
The guarantee only covers distributions and other payments on the trust
preferred securities if and to the extent we have made corresponding payments on
the PPL Capital Funding subordinated notes to the property trustee. If we do not
make those corresponding payments:
-- the property trustee will not make distributions on the trust
preferred securities;
-- the Trust will not have funds available for payments on the trust
preferred securities; and
-- we will not be obligated to make guarantee payments.
Our obligation to make guarantee payments will be:
-- unsecured;
-- senior in right of payment to our subordinated liabilities or
subordinated guarantees entered into relating to our other
liabilities;
-- equal in rank to any securities or guarantees that are expressly made
equal by their terms; and
-- senior to our share capital.
We have, through the guarantee, the PPL Capital Funding subordinated notes
and the indenture, taken together, fully and unconditionally guaranteed all of
the Trust's obligations under the trust preferred 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 of trust.
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COVENANTS OF PPL CORPORATION
Under the guarantee, PPL Corporation will agree that, as long as any trust
preferred securities issued by the Trust are outstanding, PPL Corporation will
not make the payments and distributions described below if:
-- PPL Corporation is in default on its guarantee payments or other
payment obligations under the guarantee; or
-- any event of default under the declaration of trust has occurred and
is continuing.
In these circumstances, PPL Corporation will agree that it will not:
-- declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any
of its capital stock; or
-- make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities that rank equally
with or junior in interest to the subordinated notes of PPL Capital
Funding or make any guarantee payments with respect to any guarantee
by it of the debt of any subsidiary of PPL Corporation if such
guarantee ranks equally with or junior in interest to the PPL Capital
Funding subordinated notes.
However, even during such circumstances, we may:
-- declare a dividend in connection with the implementation of a
stockholders' rights plan or the redemption or repurchase of any such
rights pursuant thereto;
-- reclassify PPL Corporation's capital stock or exchange or convert one
class or series of PPL Corporation's capital stock for another class
or series of PPL Corporation's capital stock;
-- purchase fractional interests in shares of PPL Corporation's capital
stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
-- declare dividends or distributions in PPL Corporation's capital
stock; and
-- make payments under the guarantee related to the trust preferred
securities.
BOOK-ENTRY SYSTEMS
The Depository Trust Company will act as securities depository for the PEPS
Units, the Treasury PEPS Units, the trust preferred securities and the
subordinated notes of PPL Capital Funding, as applicable, the "securities". The
securities will be issued in fully-registered form in the name of Cede & Co.
(DTC's partnership nominee). We will issue one or more fully registered
certificates as global securities for each of the securities in their respective
aggregate principal or stated amounts and deposit the certificates with DTC.
DTC has provided us with the following information: 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 United States Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement among direct participants of securities transactions, such as
transfers and pledges, in deposited securities through computerized book-entry
changes in direct participants' accounts. This eliminates the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and other
organizations. DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly. The rules that apply to DTC
and its participants are on file with the SEC.
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If you intend to purchase any of the securities in the manner provided by
this prospectus supplement you must do so through the DTC system by or through
direct participants. The participant that you purchase through will receive a
credit for the applicable security on DTC's records. The ownership interest of
each actual purchaser of the applicable security, who we refer to as a
"beneficial owner", is in turn to be received on the participants' records.
Beneficial owners will not receive written confirmation from DTC of their
purchases, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the participant through which the beneficial owner entered into
the transaction. 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 ownership interests in the applicable security except in the event that
use of the book-entry system for the securities is discontinued.
To facilitate subsequent transfers, all securities deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of securities with 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.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by
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
securities. Under its usual procedures, DTC would mail an Omnibus Proxy to us as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants to whose accounts the
securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
We will make any payments on the securities to DTC. DTC's practice is to
credit direct participants' accounts on the payable 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 the payable 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, us or any trustee, subject to
any statutory or regulatory requirements as may be in effect from time to time.
We or the applicable trustee will be responsible for the payment of all
amounts to DTC. DTC will be responsible for the disbursement of those payments
to its participants, and the participants will be responsible for disbursements
of those payments to beneficial owners.
DTC may discontinue providing its service as securities depository with
respect to the securities at any time by giving reasonable notice to us or the
trustee. Under these circumstances, in the event that a successor securities
depository is not obtained, we will print and deliver to you certificates for
the securities.
Also, in case we decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository) we will print and
deliver to you certificates for the various certificates you may own.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable (including DTC),
but we take no responsibility for its accuracy.
Neither we, nor any trustee nor the underwriters will have any
responsibility or obligation to participants, or the persons for whom they act
as nominees, with respect to:
-- the accuracy of the records of DTC, its nominee or any participant,
-- any ownership interest in the securities, or
-- any payments to, or the providing of notice, to participants or
beneficial owners.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of PEPS Units,
Treasury PEPS Units, trust preferred securities, and our common stock acquired
under the purchase contracts as of the date of this prospectus supplement. Where
noted, it constitutes the opinion of Simpson Thacher & Bartlett, counsel to PPL
Corporation, PPL Capital Funding and the Trust.
Except where otherwise stated, this summary deals only with PEPS Units,
Treasury PEPS Units, trust preferred securities, and PPL Corporation common
stock held as capital assets by a holder who:
-- is a United States person (as defined below), and
-- purchases the PEPS Units upon original issuance at their original
issue price.
A "United States person" is a holder who is one of the following:
-- a citizen or resident of the United States;
-- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision of
the United States;
-- an estate the income of which is subject to United States federal
income taxation regardless of its source; or
-- a trust that (1) is subject to the primary supervision of a court
within the United States and the control of one or more United States
persons, or (2) has a valid election in effect under applicable
United States Treasury regulations to be treated as a United States
person.
Your tax treatment may vary depending on your particular situation. This
summary does not address all the tax consequences that may be relevant to
holders that are subject to special tax treatment, such as:
-- dealers in securities or currencies;
-- financial institutions;
-- tax-exempt investors;
-- traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
-- persons liable for alternative minimum tax;
-- insurance companies;
-- persons holding PEPS Units, Treasury PEPS Units, trust preferred
securities, or our common stock as part of a hedging, conversion,
integrated or constructive sale transaction;
-- persons holding PEPS Units, Treasury PEPS Units, trust preferred
securities or our common stock as part of a straddle; or
-- persons whose functional currency is not the United States dollar.
In addition, if a partnership holds our PEPS Units, Treasury PEPS Units,
trust preferred securities or our common stock, the tax treatment of a partner
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the above
instruments, you should consult your tax advisors.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated under the Code and administrative
and judicial interpretations. These income tax laws, regulations and
interpretations, however, may change at any time. Any change could be
retroactive to the issuance date of the PEPS Units.
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The authorities on which this summary is based are subject to various
interpretations, and the opinions of Simpson Thacher & Bartlett are not binding
on the Internal Revenue Service (which we refer to as the "IRS") or the courts.
Either the IRS or the courts could disagree with the explanations or conclusions
contained in this summary. No statutory, administrative or judicial authority
directly addresses the treatment of PEPS Units or instruments similar to PEPS
Units for United States federal income tax purposes. As a result, no assurance
can be given that the IRS or the courts will agree with the tax consequences
described herein. You should consult your own tax advisor regarding the tax
consequences to you of the purchase, ownership and disposition of the PEPS
Units, Treasury PEPS Units, trust preferred securities and our common stock,
including the tax consequences under state, local, foreign and other tax laws.
For a discussion of the possible redemption of the subordinated notes upon the
occurrence of a tax event, see "Description of the PPL Capital Funding
Subordinated Notes--Optional Redemption--Tax Event" in this prospectus
supplement.
PEPS UNITS
ALLOCATION OF PURCHASE PRICE
Your acquisition will be treated as an acquisition of the trust preferred
security and the purchase contract constituting the unit. The purchase price of
each unit will be allocated between the trust preferred security and the
purchase contract in proportion to their respective fair market values at the
time of purchase. Such allocation will establish your initial tax basis in the
trust preferred security and the purchase contract. We will report the fair
market value of each trust preferred security as $25 and the fair market value
of each purchase contract as $0. This position will be binding on you (but not
on the IRS) unless you explicitly disclose a contrary position on a statement
attached to your timely filed United States federal income tax return for the
taxable year in which a unit is acquired. Thus, absent such disclosure, you
should allocate the purchase price for a unit in accordance with the foregoing.
The remainder of this discussion assumes that this allocation of the purchase
price will be respected for United States federal income tax purposes.
TRUST PREFERRED SECURITIES
CLASSIFICATION OF THE TRUST
In connection with the issuance of the trust preferred securities, Simpson
Thacher & Bartlett is of the opinion that under current law and assuming full
compliance with the terms of the declaration of trust, and based upon certain
facts and assumptions contained in such opinion, the Trust will be classified as
a grantor trust for United States federal income tax purposes and not as an
association taxable as a corporation. As a result, for United States federal
income tax purposes, you generally will be treated as owning an undivided
beneficial ownership interest in the subordinated notes. Thus, you will be
required to include in your gross income your proportionate share of the
original issue discount that is accrued on the subordinated notes. See below
under the caption "--Accrual of Interest" in this section.
CLASSIFICATION OF THE SUBORDINATED NOTES
In connection with the issuance of the subordinated notes, Simpson Thacher
& Bartlett is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in its opinion, the
subordinated notes will be classified as indebtedness for United States federal
income tax purposes. PPL Capital Funding, the Trust and you (by your acceptance
of a beneficial ownership interest in a trust preferred security) agree to treat
the subordinated notes as indebtedness for all United States tax purposes. The
remainder of this discussion assumes that the subordinated notes will be
classified as indebtedness of PPL Capital Funding.
You will not be entitled to a dividends received deduction with respect to
any income you recognize on the subordinated notes.
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ACCRUAL OF INTEREST
Because of the manner in which the interest rate on the subordinated notes
is reset, the notes will be classified as contingent payment debt obligations
and the Treasury regulations that apply to contingent payment debt obligations
will apply to the subordinated notes. All payments on the subordinated notes
including stated interest will be taken into account under these Treasury
regulations and actual cash payments of interest on the subordinated notes will
not be reported separately as taxable income. As discussed more fully below, the
effect of these Treasury regulations will be to:
-- require you, regardless of your usual method of tax accounting, to
use the accrual method with respect to the subordinated notes;
-- possibly result in the accrual of original issue discount by you in
excess of stated interest payments actually received by you; and
-- generally result in ordinary rather than capital treatment of any
gain, and to some extent loss, on the sale, exchange, repurchase or
redemption of the notes.
Under the contingent payment debt rules, you will be required to include
original issue discount in income each year, regardless of your usual method of
tax accounting, based on the comparable yield of the subordinated notes. In
order to determine your income, these rules require PPL Capital Funding to
determine, as of the issue date, the comparable yield for the subordinated
notes. The comparable yield of the subordinated notes will generally be the rate
at which PPL Capital Funding would issue a fixed rate debt instrument with terms
and conditions similar to the subordinated notes.
PPL Capital Funding is required to provide the comparable yield to you and,
solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the subordinated notes
and estimates the amount and timing of contingent payments on the subordinated
notes. We have determined that the comparable yield is an annual rate of 7.71%,
compounded quarterly. Based on the comparable yield, the projected payment
schedule per subordinated note is $.5012 for the period ending on August 18,
2001, $.4556 for each subsequent quarter ending on or prior to the remarketing
date and $.5024 for each quarter ending after the remarketing date which
includes the final interest payment. Under the first supplemental indenture
governing the subordinated notes, PPL Capital Funding will agree, and by
acceptance of a beneficial interest in the subordinated notes each holder of the
subordinated notes will be deemed to have agreed, for United States federal
income tax purposes, to be bound by our determination of the comparable yield
and projected payment schedule.
THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE ARE NOT PROVIDED
FOR ANY PURPOSE OTHER THAN THE DETERMINATION OF YOUR INTEREST ACCRUALS AND
ADJUSTMENTS THEREOF IN RESPECT OF THE SUBORDINATED NOTES AND DO NOT CONSTITUTE A
REPRESENTATION REGARDING THE ACTUAL AMOUNT OF THE PAYMENT ON A SUBORDINATED
NOTE.
The amount of original issue discount on a subordinated note for each
accrual period is determined by multiplying the comparable yield of the
subordinated note, adjusted for the length of the accrual period, by the
subordinated note's adjusted issue price at the beginning of the accrual period,
determined in accordance with the rules set forth in the contingent payment debt
regulations. The adjusted issue price of each subordinated note at the beginning
of each accrual period will equal $25, increased by any original issue discount
previously accrued on the subordinated note and decreased by the fixed payments
and by the contingent payments projected to be made on the subordinated note.
The amount of original issue discount so determined is allocated on a ratable
basis to each day in the accrual period that you held the note. PPL Capital
Funding is required to provide information returns stating the amount of
original issue discount accrued on subordinated notes held of record by persons
other than corporations and other exempt owners.
If after the remarketing date the remaining amounts of principal and
interest payable on the subordinated notes differ from the payments set forth on
the foregoing projected payment schedule, negative or positive adjustments
reflecting such differences should be taken into account by you as adjustments
to interest income in a reasonable manner over the period to which they relate.
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DISTRIBUTION OF SUBORDINATED NOTES OR CASH UPON LIQUIDATION OF THE TRUST
As described under the caption "Description of the PPL Capital Funding
Subordinated Notes" in this prospectus supplement, the subordinated notes held
by the Trust may be distributed to you in exchange for your trust preferred
securities if the Trust is liquidated before the maturity of the subordinated
notes.
Under current law, except as described below, this type of distribution
from a grantor trust would not be taxable. Upon such a distribution, you will
receive your proportionate share of the subordinated notes previously held
indirectly through the Trust. Your holding period and total tax basis in the
subordinated notes will equal the holding period and total tax basis that you
had in your trust preferred securities before the distribution. If, however, the
Trust is treated as an association taxable as a corporation, a tax event will
occur. If we elect to distribute the subordinated notes to you at this time, the
distribution would be taxable to the Trust and to you.
If you receive subordinated notes in exchange for your trust preferred
securities, you would accrue interest in respect of the subordinated notes
received from the Trust in the manner described above under the caption
"--Accrual of Interest" in this prospectus supplement.
In certain circumstances described above under the caption "Description of
the PPL Capital Funding Subordinated Notes--Optional Redemption--Tax Event" in
this prospectus supplement, we may redeem the subordinated notes and distribute
cash in liquidation of the Trust. This redemption would be taxable as described
below under "--Sale or Disposition of PEPS Units or Treasury PEPS Units".
TREASURY PEPS UNITS
SUBSTITUTION OF TREASURY SECURITY TO CREATE TREASURY PEPS UNITS
If you deliver a treasury security to the collateral agent in substitution
for the trust preferred security, you generally will not recognize gain or loss
upon the delivery of the treasury security or the release of the trust preferred
security. You will continue to include in income any interest with respect to
the trust preferred securities and treasury security, and your tax basis in the
trust preferred securities, treasury security and the purchase contract will not
be affected by the delivery and release.
OWNERSHIP OF TREASURY SECURITIES
You will be treated as owning the treasury securities that are part of the
Treasury PEPS Units. PPL Corporation, the Trust and, by acquiring PEPS Units,
you agree to treat yourself as the owner, for United States federal, state and
local income and franchise tax purposes, of the treasury securities that are a
part of the Treasury PEPS Units beneficially owned by you. Your initial tax
basis in the treasury securities that are a part of the Treasury PEPS Units will
be equal to the amount paid for the treasury security. You generally will
include in income any original issue discount or acquisition discount otherwise
includible with respect to the treasury security. In general, you will be
required to include in income each year that you hold a treasury security the
portion of the original issue discount or acquisition discount that accrues on
the treasury security in such year.
SUBSTITUTION OF TRUST PREFERRED SECURITIES TO RECREATE PEPS UNITS
If you deliver trust preferred securities to the collateral agent to
recreate PEPS Units, you generally will not recognize gain or loss upon the
delivery of the trust preferred securities or the release of the treasury
security. You will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, with respect to the treasury
security and the trust preferred securities, and your tax basis in the trust
preferred securities, the treasury security and the purchase contract will not
be affected by the delivery and release.
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PURCHASE CONTRACTS
CONTRACT ADJUSTMENT PAYMENTS
There is no direct authority addressing the treatment of the contract
adjustment payments under current law, and such treatment is unclear. Contract
adjustment payments may constitute taxable income to you when received or
accrued, in accordance with your method of tax accounting. To the extent we are
required to file information returns with respect to contract adjustment
payments, we intend to report such payments as taxable income to you. You should
consult your own tax advisor concerning the treatment of contract adjustment
payments, including the possibility that any such payment may be treated as a
loan, purchase price adjustment, rebate or payment analogous to an option
premium, rather than being includible in income on a current basis. The
treatment of contract adjustment payments could affect your tax basis in a
purchase contract or PPL Corporation common stock received under a purchase
contract or your amount realized upon the sale or disposition of a PEPS Unit or
Treasury PEPS Unit or the termination of a purchase contract. See "--Acquisition
of Common Stock Under a Purchase Contract", "--Sale or Disposition of PEPS Units
or Treasury Units" and "--Termination of Purchase Contract".
ACQUISITION OF COMMON STOCK UNDER A PURCHASE CONTRACT
You generally will not recognize gain or loss on the purchase of common
stock under a purchase contract, except with respect to any cash paid in lieu of
a fractional share of common stock. Subject to the following discussion, your
aggregate initial tax basis in the common stock received under a purchase
contract generally should equal (a) the purchase price paid for such common
stock, plus (b) your tax basis in the purchase contract (if any), less (c) the
portion of such purchase price and tax basis allocable to the fractional share.
Contract adjustment payments that were paid to you in cash but were not
includible in your income should reduce your tax basis in the purchase contract
or the shares of our common stock to be received thereunder. See "--Contract
Adjustment Payments". The holding period for common stock received under a
purchase contract will commence on the day acquired.
EARLY SETTLEMENT OF PURCHASE CONTRACT
You will not recognize gain or loss on the receipt of your proportionate
share of the trust preferred securities or treasury securities, upon early
settlement of a purchase contract and you will have the same tax basis in such
trust preferred securities or treasury securities, as the case may be, as before
such early settlement.
TERMINATION OF PURCHASE CONTRACT
If a purchase contract terminates, you will recognize gain or loss equal to
the difference between your amount realized (if any) upon such termination and
your adjusted tax basis (if any) in the purchase contract at the time of such
termination. Contract adjustment payments, if any, received by you but not
includible in your income should either reduce your tax basis in the purchase
contract or result in an amount realized on the termination of the purchase
contract. See "--Contract Adjustment Payments". Capital gains of individuals
derived in respect of capital assets held for more than one year are taxed at a
maximum rate of 20%. The deductibility of capital losses is subject to
limitations.
You will not recognize gain or loss on the receipt of your proportionate
share of the trust preferred securities or treasury securities upon termination
of the purchase contract and you will have the same tax basis in such trust
preferred securities, subordinated notes or treasury securities , as the case
may be, as before such termination. If the termination of the purchase contract
occurs when the purchase contract has a negative value, see "--Sale or
Disposition of PEPS Units or Treasury PEPS Units". You should consult your own
tax advisor regarding the termination of the purchase contract when the purchase
contract has a negative value.
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ADJUSTMENT TO SETTLEMENT RATE
You might be treated as receiving a constructive distribution from PPL
Corporation if (i) the settlement rate is adjusted and as a result of such
adjustment your proportionate interest in the assets or earnings and profits of
PPL Corporation is increased and (ii) the adjustment is not made pursuant to a
bona fide, reasonable anti-dilution formula. An adjustment in the settlement
rate would not be considered made pursuant to such a formula if the adjustment
were made to compensate you for certain taxable distributions with respect to
the common stock. Thus under certain circumstances, an increase in the
settlement rate might give rise to a taxable dividend to you even though you
would not receive any cash related thereto.
SALE OR DISPOSITION OF PEPS UNITS OR TREASURY PEPS UNITS
Upon a disposition of a PEPS Unit or Treasury PEPS Unit, you will be
treated as having sold, exchanged or disposed of the purchase contract and the
trust preferred securities or treasury securities, as the case may be, that
constitute such PEPS Unit or Treasury PEPS Unit. You generally will have gain or
loss equal to the difference between the portion of your proceeds allocable to
the purchase contract and the trust preferred securities or treasury securities,
as the case may be, and your respective adjusted tax bases in the purchase
contract and the trust preferred securities or treasury securities. For purposes
of determining gain or loss, your proceeds will not include an amount equal to
accrued and unpaid interest on the treasury security not previously included in
income, which will be treated as ordinary interest income. Further, to the
extent you are treated as having received an amount with respect to accrued
contract adjustment payments, such amounts may be treated as ordinary income, to
the extent not previously included in income.
In the case of the purchase contracts and the treasury securities, such
gain or loss generally will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year are
taxed at a maximum rate of 20%. The deductibility of capital losses is subject
to limitations. If the disposition of a PEPS Unit or Treasury PEPS Unit occurs
when the purchase contract has a negative value, you should be considered to
have received additional consideration for the trust preferred securities or
treasury securities in an amount equal to such negative value, and to have paid
such amount to be released from your obligation under the purchase contract. You
should consult your tax advisor regarding a disposition of a PEPS Unit or
Treasury PEPS Unit at a time when the purchase contract has a negative value.
Contract adjustment payments that you did not previously include in income
should either reduce your tax basis in the purchase contract or result in an
increase of the amount realized on the disposition of the purchase contract. Any
contract adjustment payments included in your income but not paid should
increase your tax basis in the purchase contract. See "--Contract Adjustment
Payments".
Gain on the sale, exchange or other disposition of a subordinated note
underlying a trust preferred security prior to and including the remarketing
date generally will be treated as ordinary income. Loss from the disposition of
a subordinated note prior to and including the remarketing date will be treated
as ordinary loss to the extent of your prior net interest inclusions (reduced by
the total net negative adjustments previously allowed as an ordinary loss). Any
loss in excess of such amount will be treated as capital loss. Gain recognized
on the sale, exchange or other disposition of a subordinated note after the
remarketing date will be ordinary income to the extent attributable to the
excess, if any, of the present value of the total remaining principal and
interest payments due on the subordinated note underlying the trust preferred
security over the present value of the total remaining payments set forth on the
projected payment schedule for such subordinated note. Any gain recognized in
excess of such amount and any loss recognized on such sale, exchange or other
disposition generally will be treated as capital gain or loss. Capital gain of
individuals derived in respect of capital assets held for more than one year are
generally subject to tax at a maximum rate of 20%. The deductibility of capital
losses is subject to limitations.
Special rules apply in determining the tax basis of a note. Your basis in a
note is generally increased by original issue discount you previously accrued on
the note, and reduced by the fixed payments and by the contingent payments
projected to be made.
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REMARKETING AND TAX EVENT REDEMPTION OF TRUST PREFERRED SECURITIES
A remarketing or tax event redemption of the trust preferred securities
will be a taxable event for holders of trust preferred securities which will be
subject to tax in the manner described above under "--Sale or Disposition of
PEPS Units or Treasury PEPS Units".
OWNERSHIP OF THE TREASURY PORTFOLIO
You will be treated as owning the treasury portfolio that is a part of the
PEPS Units. PPL Corporation, the Trust and, by acquiring PEPS Units, you agree
to treat yourself as the owner, for United States federal, state and local
income and franchise tax purposes, of the treasury portfolio that is a part of
the PEPS Units beneficially owned by you. Your initial tax basis in your
applicable ownership interest of the treasury portfolio will equal your pro rata
portion of the amount paid by the collateral agent for the treasury portfolio.
Your adjusted tax basis in the treasury portfolio will be increased by the
amount of original issue discount included in income with respect thereto and
decreased by the amount of cash received in respect of the treasury portfolio.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
The Treasury portfolio will consist of stripped U.S. Treasury securities.
Following a remarketing of the trust preferred securities or a tax event
redemption prior to the purchase contract settlement date, a holder of PEPS
Units will be required to treat its pro rata portion of each U.S. Treasury
security in the Treasury portfolio as a bond that was originally issued on the
date the collateral agent acquired the relevant U.S. Treasury securities and
that has original issue discount equal to the holder's pro rata portion of the
excess of the amounts payable on such U.S. Treasury securities over the value of
the U.S. Treasury securities at the time the collateral agent acquires them on
behalf of holders of PEPS Units. A holder, whether on the cash or accrual method
of tax accounting, will be required to include original issue discount (other
than original issue discount on short-term U.S. Treasury securities as defined
below) in income for United States federal income tax purposes as it accrues on
a constant yield to maturity basis. The amount of such excess will constitute
only a portion of the total amounts payable in respect of the Treasury
portfolio. Consequently, a portion of each scheduled payment to holders will be
treated as a return of such holders' investment in the Treasury portfolio and
will not be considered current income for United States federal income tax
purposes.
In the case of any U.S. Treasury security with a maturity of one year or
less from the date of its issue (a "short-term U.S. Treasury Security"), in
general only accrual basis taxpayers will be required to include original issue
discount in income as it accrues. Unless such accrual basis holder elects to
accrue the original issue discount on a short-term U.S. Treasury Security on a
constant yield to maturity basis, such original issue discount will be accrued
on a straight-line basis.
NON-UNITED STATES HOLDERS
The following discussion only applies to Non-United States Holders. You are
a "Non-United States Holder" if you are not a United States person. Special
rules may apply to you if you are a "controlled foreign corporation", "passive
foreign investment company" or "foreign personal holding company".
UNITED STATES FEDERAL WITHHOLDING TAX
The 30% United States federal withholding tax will not apply to any payment
of principal or interest (including original issue discount) on the trust
preferred securities (or the subordinated notes) or treasury securities provided
that:
-- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the Treasury regulations;
-- you are not a controlled foreign corporation that is related to us
through stock ownership;
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-- you are not a bank whose receipt of interest on the trust preferred
securities (or the subordinated notes) or treasury securities is
described in section 881(c)(3)(A) of the Code; and
-- (a) you provide your name and address on an IRS Form W-8BEN (or other
applicable form), and certify, under penalty of perjury, that you are
not a United States person, or (b) if you hold your PEPS Units,
Treasury PEPS Units, or trust preferred securities (or subordinated
notes) or treasury securities) through certain foreign
intermediaries, you must satisfy the certification requirements of
applicable United States Treasury regulations. Special certification
requirements apply to certain Non-United States Holders that are
entities rather than individuals.
If you cannot satisfy the requirements described above, payments of
premium, if any, and interest (including original issue discount) made to you
will be subject to the 30% United States federal withholding tax, unless you
provide us with a properly executed (1) IRS Form W-8BEN (or other applicable
form) claiming an exemption from, or reduction in the rate of, withholding under
the benefit of an applicable tax treaty or (2) IRS Form W-8ECI stating that
interest paid on the trust preferred securities (or the subordinated notes) or
treasury securities is not subject to withholding tax because it is effectively
connected with your conduct of a trade or business in the United States.
The 30% United States federal withholding tax will not apply to any gain
that you realize on the sale, exchange, or other disposition of the PEPS Units,
Treasury PEPS Units, trust preferred securities, subordinated notes, treasury
securities, and PPL Corporation common stock acquired under the purchase
contract. However, interest income, including original issue discount and any
gain treated as ordinary income, that you realize on the sale, exchange or other
disposition of a trust preferred security or subordinated note will be subject
to withholding in certain circumstances unless the conditions described in the
four bullet points above are satisfied.
PPL Corporation will generally withhold a 30% United States federal
withholding tax on contract adjustment payments and dividends paid on our common
stock acquired under a purchase contract or such lower rate as may be specified
by an applicable income tax treaty. However, contract adjustment payments or
dividends that are effectively connected with the conduct of a trade or business
by the Non-United States Holder within the United States and, where a tax treaty
applies, are attributable to a United States permanent establishment of the
Non-United States Holder are not subject to the withholding tax, but instead are
subject to United States federal income tax, as described below.
A Non-United States Holder of our common stock or a purchase contract who
wishes to claim the benefit of an applicable treaty rate (and avoid back-up
withholding as discussed below) for dividends or contract adjustment payments
will be required to satisfy certain certification and disclosure requirements
described in the fourth bullet point above.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax on payments pursuant to an income tax treaty may obtain a refund
of any excess amounts withheld by filing an appropriate claim for refund with
the IRS.
UNITED STATES FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
(including original issue discount) on the trust preferred securities (or the
subordinated notes) or treasury securities, dividends on the PPL Corporation
common stock or, to the extent they constitute taxable income, contract
adjustment payments from the purchase contracts are effectively connected with
the conduct of that trade or business, you will be subject to United States
federal income tax on that interest, dividends or contract adjustment payments
on a net income basis (although exempt from the 30% withholding tax), in the
same manner as if you were a United States person as defined under the Code.
Certain certification and disclosure requirements must be complied with in order
for effectively connected income to be exempt from withholding. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year, subject to adjustments, that are effectively connected with the
conduct by you of a trade or business in the United States. For this purpose,
interest on the trust preferred
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securities (or the subordinated notes) or treasury securities, dividends on the
common stock and, to the extent they constitute taxable income, the contract
adjustment payments from the purchase contracts will be included in earnings and
profits.
Any gain realized on the disposition of a trust preferred security,
subordinated note, treasury security, purchase contract or share of PPL
Corporation common stock generally will not be subject to United States federal
income tax unless (1) that gain or income is effectively connected with the
conduct of a trade or business by you in the United States or (2) you are an
individual who is present in the United States for 183 days or more in the
taxable year of that disposition, and certain other conditions are met or (3) in
the case of PEPS Units, Treasury PEPS Units or PPL Corporation common stock, PPL
Corporation is or has been a "United States real property holding corporation"
for United States federal income tax purposes.
An individual Non-United States Holder described in clause (1) above will
be subject to tax on the net gain derived from the sale under regular graduated
United States federal income tax rates. An individual Non-United States Holder
described in clause (2) above will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by United States source capital
losses (even though the individual is not considered a resident of the United
States). If a Non-U.S. Holder that is a foreign corporation falls under clause
(1) above, it will be subject to tax on its gain under regular graduated United
States federal income tax rates and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings and profits or at
such lower rate as may be specified by an applicable income tax treaty.
PPL Corporation has not determined whether it is a "United States real
property holding corporation" for United States federal income tax purposes. If
PPL Corporation was or becomes a United States real property holding
corporation, so long as PPL Corporation common stock continues to be regularly
traded on an established securities market, (1) you will not be subject to
United States federal income tax on the disposition of our common stock if you
hold or held (at any time during the shorter of the five year period preceding
the date of disposition or your holding period) less than or equal to five
percent of the total outstanding PPL Corporation common stock and (2) you will
not be subject to United States federal income tax on the disposition of the
purchase contracts if on the day you acquired the purchase contracts, the
purchase contracts had a fair market value less than the fair market value of
the purchase contracts. If however, the our common stock ceases to be regularly
traded on an established securities market, you hold or held more than five
percent of the total outstanding our common stock during the relevant period, or
your purchase contract had a fair market value greater than five percent of the
PPL corporation's common stock the date you acquired it, you will be subject to
United States federal income tax on the disposition of the our common stock or
the purchase contract.
UNITED STATES FEDERAL ESTATE TAX
Your estate will not be subject to United States federal estate tax on the
trust preferred securities, subordinated notes, or treasury securities
beneficially owned by you at the time of your death, provided that (1) you do
not own 10% or more of the total combined voting power of all classes of PPL
Corporation voting stock, within the meaning of the Code and United States
Treasury regulations, and (2) interest on those trust preferred securities,
subordinated notes or treasury securities would not have been, if received at
the time of your death, effectively connected with the conduct by you of a trade
or business in the United States. Our common stock acquired under a purchase
contract and owned by you at the time of your death will be subject to United
States federal estate tax unless an applicable estate tax treaty provides
otherwise. Purchase contracts owned by you at the time of your death may be
subject to United States federal estate tax unless an applicable estate tax
treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to payments on
the PEPS Units, Treasury PEPS Units, trust preferred securities, subordinated
notes, treasury securities, and our common stock made to you and to the proceeds
of the sale or other disposition of such instruments, unless you are an exempt
recipient
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such as a corporation. A 31% backup withholding tax will apply to such payments
if you fail to provide a taxpayer identification number, a certification of
exempt status, or fail to report in full interest income.
NON-UNITED STATES HOLDERS
In general, no information reporting or backup withholding will be required
regarding payments on the PEPS Units, Treasury PEPS Units, trust preferred
securities, subordinated notes, treasury securities, and our common stock
(except possibly with respect to contract adjustment payments) that we make to
you provided that we do not have actual knowledge that you are a United States
person and we have received from you the statement described above under
"--United States Federal Withholding Tax."
In addition, no information reporting or backup withholding will be
required regarding the proceeds of the sale of PEPS Units, Treasury PEPS Units,
trust preferred securities, subordinated notes, treasury securities, and our
common stock made within the United States or conducted through certain United
States financial intermediaries if the payor receives the statement described
above and does not have actual knowledge that you are a United States person or
you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
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ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), plans and
individual retirement accounts that are subject to Section 4975 of the Code and
entities whose assets are considered assets of such plans (collectively,
"plans") may purchase PEPS Units subject to the investing fiduciary's
determination that the investment satisfies ERISA's fiduciary standards and
other requirements applicable to investments by plans. Accordingly, among other
factors, the fiduciary should consider whether the investment would satisfy the
prudence and diversification requirements of ERISA and would be consistent with
the documents and instruments governing the plans.
Section 406 of ERISA and Section 4975 of the Code prohibit fiduciaries from
engaging in specified transactions involving "plan assets" with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code with
respect to the plan. A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code. Thus, a plan
fiduciary considering an investment in PEPS Units also should consider whether
such an investment might constitute or give rise to a prohibited transaction
under ERISA or the Code for which no exemption is available. For example, the
purchase and holding of PEPS Units by a plan with respect to which we, the
underwriters or any of our affiliates is a party in interest or disqualified
person could constitute a prohibited transaction under ERISA or the Code unless
an exemption were available for such purchase.
In addition, the Department of Labor (the "DOL") has issued regulations
under which the assets of the Trust would be deemed to be "plan assets" for
purposes of ERISA and Section 4975 of the Code if 25% or more of the value of
any class of equity interests in the Trust were held by plans, other employee
benefit plans not subject to ERISA or Section 4975 of the Code (such as
governmental, church and foreign plans), or other entities holding "plan assets"
(collectively, "Benefit Plan Investors"). No assurance can be given that the
value of the PEPS Units held by Benefit Plan Investors will be less than 25% of
the total value of such PEPS Units at the completion of the initial offering or
thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions to this exception. Certain transactions
involving the Trust could be deemed to constitute direct or indirect prohibited
transactions if the PEPS Units were acquired with "plan assets" and the assets
of the Trust were deemed to be "plan assets" of plans investing in the Trust.
The DOL has issued prohibited transaction class exemptions, "PTCEs", that
may apply to the acquisition and holding of the PEPS Units, as well as
transactions involving the Trust. These class exemptions include PTCE 84-14
(respecting transactions determined by independent qualified professional asset
managers), PTCE 90-1 (respecting insurance company pooled separate accounts),
PTCE 91-38 (respecting bank collective trust funds), PTCE 95-60 (respecting
insurance company general accounts) and PTCE 96-23 (respecting transactions
determined by in-house asset managers).
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in nonexempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the PEPS
Units on behalf of or with "plan assets" of any plan consult with counsel
regarding the potential consequences if the assets of the Trust were deemed to
be "plan assets" or if the acquisition and holding of the PEPS Units constitutes
a prohibited transaction and failed to satisfy applicable fiduciary requirements
imposed under ERISA. Any purchaser or holder of the PEPS Units or any interest
therein will be deemed to have represented by its purchase and holding thereof
that it: (a) is not a Plan or an entity holding "plan assets" and is not
purchasing such securities on behalf of or with "plan assets" of any plan or (b)
is eligible for exemptive relief and satisfies the applicable fiduciary
requirements of ERISA.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus supplement, the underwriters named
below, for whom Morgan Stanley & Co. Incorporated, Credit Suisse First Boston
Corporation, First Union Securities, Inc., Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and UBS Warburg LLC are acting as
representatives, have severally agreed to purchase, and PPL Corporation and the
Trust have agreed to sell to them, severally, the number of PEPS Units indicated
below:
NUMBER OF
NAME PEPS UNITS
---- ----------
Morgan Stanley & Co. Incorporated........................... 8,400,000
Credit Suisse First Boston Corporation...................... 4,400,000
First Union Securities, Inc................................. 1,800,000
Goldman, Sachs & Co......................................... 1,800,000
Merrill Lynch, Pierce, Fenner & Smith 1,800,000
Incorporated...................................
UBS Warburg LLC............................................. 1,800,000
----------
Total............................................. 20,000,000
==========
The underwriters are offering the PEPS Units subject to their acceptance of
the PEPS Units from PPL Corporation and the Trust and subject to prior sale. The
underwriting agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the PEPS Units offered by this prospectus
supplement are subject to the approval of certain legal matters by their counsel
and to certain other conditions. The underwriters are obligated to take and pay
for all of the PEPS Units offered by this prospectus supplement, other than
those covered by the over-allotment option described below, if any such PEPS
Units are taken.
The per PEPS Unit price of any PEPS Unit sold by the underwriters shall be
the public offering price listed on the cover page of this prospectus
supplement, in United States dollars, less an amount not greater than the per
PEPS Unit amount of the concession to dealers described below.
The underwriters initially propose to offer part of the PEPS Units directly
to the public at the public offering price listed on the cover page of this
prospectus supplement and part to certain dealers at a price that represents a
concession not in excess of $.490 per PEPS Unit under the public offering price.
After the initial offering of the PEPS Units, the offering price and other
selling terms may from time to time be varied by the representatives.
PPL Corporation and the Trust have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus supplement, to purchase
up to an additional 3,000,000 PEPS Units at the public offering price listed on
the cover page of this prospectus supplement, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with this offering. To the
extent the option is exercised, each underwriter will become obligated to
purchase approximately the same percentage of the additional PEPS Units as the
number set forth next to that underwriter's name in the preceding table bears to
the total number of PEPS Units set forth next to the names of all the
underwriters in the preceding table. If the underwriters' over-allotment option
is exercised in full, the total price to public would be $575,000,000, the total
underwriting discounts and commissions would be $17,250,000 and the net proceeds
would be $575,000,000.
Prior to this offering, there has been no public market for the PEPS Units.
The PEPS Units have been approved for listing on the New York Stock Exchange
under symbol "PPL-PrE." In order to meet one of the requirements for listing on
the New York Stock Exchange, the underwriters have undertaken to sell the PEPS
Units to a minimum of 400 beneficial owners.
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Each of PPL Corporation, the Trust and certain of PPL Corporation's
executive officers and directors has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it
will not, during the period ending 90 days after the date of this prospectus
supplement:
-- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose
of directly or indirectly, any PEPS Units, purchase contracts or
shares of our common stock or any securities convertible into or
exercisable or exchangeable for PEPS Units, purchase contracts or
shares of PPL Corporation's common stock; or
-- enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
PEPS Units, purchase contracts or shares of PPL Corporation's common
stock;
whether any transaction described above is to be settled by delivery of PEPS
Units, purchase contracts or shares of PPL Corporation's common stock or such
other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to, among other things:
-- the sale of shares or PEPS Units to the underwriters;
-- the issuance by PPL Corporation of shares of common stock upon the
exercise of an option outstanding on the date of this prospectus
supplement or with respect to awards under PPL Corporation's
executive stock incentive plan outstanding on the date of this
prospectus supplement; or
-- the grant of options or awards pursuant to PPL Corporation's employee
benefit plans, provided that such options or awards do not vest prior
to the termination of the lock-up period.
In order to facilitate the offering of the PEPS Units, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the PEPS Units, the trust preferred securities or PPL Corporation's common
stock. Specifically, the underwriters may over-allot in connection with the
offering, creating a short position in the PEPS Units for their own account. In
addition, to cover over-allotments or to stabilize the price of the PEPS Units,
the trust preferred securities or PPL Corporation's common stock, the
underwriters may bid for, and purchase, PEPS Units, the trust preferred
securities or PPL Corporation's common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the PEPS Units in the offering, if the syndicate
repurchases previously distributed PEPS Units in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the PEPS Units, the
trust preferred securities or PPL Corporation's common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
From time to time, some of the underwriters and their affiliates have
provided, and continue to provide, investment banking and commercial banking
services to PPL Corporation.
PPL Corporation and the Trust have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act.
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VALIDITY OF SECURITIES
Simpson Thacher & Bartlett, New York, New York, counsel to PPL Corporation,
PPL Capital Funding and PPL Capital Funding Trust I, will pass upon the validity
of the securities and the securities guarantees for PPL Corporation, PPL Capital
Funding and the Trust and certain tax matters with respect to the offering of
the securities. Michael A. McGrail, Esq., Senior Counsel of PPL Services
Corporation, will pass upon the validity of the securities guarantees for PPL
Corporation. Sullivan & Cromwell, New York, New York, will pass upon the
validity of the securities and the securities guarantees for the underwriters.
Certain matters of Delaware law relating to the validity of the trust preferred
securities, the enforceability of the Trust Agreement and the creation of the
Trust will be passed upon by Richards, Layton & Finger, P.A., special Delaware
counsel to PPL Corporation, PPL Capital Funding and the Trust. Simpson Thacher &
Bartlett and Sullivan & Cromwell will rely on the opinion of Mr. McGrail as to
matters involving the law of the Commonwealth of Pennsylvania, and on the
opinion of Richards, Layton & Finger, P.A., as to matters involving the law of
the State of Delaware in connection with the trust preferred securities. As to
matters involving the law of the State of New York, Mr. McGrail will rely on the
opinion of Simpson Thacher & Bartlett.
EXPERTS
PPL Corporation's consolidated financial statements that are incorporated
by reference from its annual report on Form 10-K for the year ended December 31,
2000 have been so incorporated in reliance on the report by
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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INFORMATION WE INCORPORATE BY REFERENCE
The rules of the SEC allow us to "incorporate by reference" information
into this prospectus supplement, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
prospectus supplement, and later information that we file with the SEC will
automatically update and supersede that information. This prospectus supplement
incorporates by reference the documents set forth below that have been
previously filed with the SEC. These documents contain important information
about PPL Corporation.
SEC FILINGS (FILE NO. 1-11458) PERIOD/DATE
------------------------------------------------- -----------------------------------
Annual Report on Form 10-K Year ended December 31, 2000
Current Reports on Form 8-K January 26, 2001 and April 30, 2001
PPL Corporation's Registration Statement on Form April 27, 1995
8-B
We are also incorporating by reference additional documents that PPL
Corporation files with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act between the date of this prospectus supplement and the
termination of the offering of the PEPS Units.
PPL Corporation will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus supplement has been
delivered, a copy of any and all of these filings. You may request a copy of
these filings by writing or telephoning us at:
PPL Corporation
Two North Ninth Street
Allentown, Pennsylvania 18101-1179
Attention: Investor Services Department
Telephone: 1-800-345-3085
We have not included or incorporated by reference any separate financial
statements of PPL Capital Funding herein. We do not consider those financial
statements to be material to holders of the subordinated notes because (1) PPL
Capital Funding was formed for the primary purpose of providing financing for
PPL Corporation and its subsidiaries, (2) PPL Capital Funding does not currently
engage in any independent operations and (3) PPL Capital Funding does not
currently plan to engage, in the future, in more than minimal independent
operations. See "PPL Capital Funding." PPL Capital Funding has received a "no
action" letter from the Staff of the SEC stating that the Staff would not raise
any objection if PPL Capital Funding does not file periodic reports under
Sections 13 and 15(d) of the Exchange Act. Accordingly, we do not expect PPL
Capital Funding to file those reports.
We have similarly not included or incorporated by reference any separate
financial statements of the Trust herein. We do not consider those financial
statements to be material to holders of the trust preferred securities because
(1) the Trust is a newly formed special purpose entity and has no operating
history or independent operations and (2) the Trust is not engaged and does not
propose to engage in any activity other than holding as trust assets the
subordinated notes of PPL Capital Funding and issuing the trust preferred
securities and the common securities. We do not expect the Trust to file
periodic reports under Sections 13 and 15(d) of the Exchange Act.
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PROSPECTUS
PPL CORPORATION
PPL CAPITAL FUNDING, INC.
PPL CAPITAL FUNDING TRUST I
Two North Ninth Street
Allentown, Pennsylvania 18101-1179
(610) 774-5151
$1,200,000,000
PPL CORPORATION
COMMON STOCK, PREFERRED STOCK,
STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
PPL CAPITAL FUNDING, INC.
DEBT SECURITIES AND SUBORDINATED DEBT SECURITIES
GUARANTEED AS TO PAYMENT AS DESCRIBED
IN THIS PROSPECTUS BY PPL CORPORATION
PPL CAPITAL FUNDING TRUST I
PREFERRED TRUST SECURITIES
GUARANTEED AS DESCRIBED
IN THIS PROSPECTUS BY PPL CORPORATION
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the supplements carefully
before you invest. This prospectus may not be used to sell securities unless
accompanied by a prospectus supplement.
We may offer the securities directly or through underwriters or agents. The
applicable prospectus supplement will describe the terms of any particular plan
of distribution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION DETERMINED
THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is February 9, 2001.
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TABLE OF CONTENTS
PAGE
----
ABOUT THIS PROSPECTUS....................................... 2
WHERE YOU CAN FIND MORE INFORMATION......................... 3
PPL CORPORATION............................................. 5
PPL CAPITAL FUNDING......................................... 7
PPL CAPITAL FUNDING TRUST I................................. 7
USE OF PROCEEDS............................................. 7
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED
CHARGES AND PREFERRED DIVIDENDS........................... 7
DESCRIPTION OF PPL CORPORATION'S CAPITAL STOCK.............. 8
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE
UNITS..................................................... 9
DESCRIPTION OF THE DEBT SECURITIES.......................... 10
DESCRIPTION OF THE TRUST SECURITIES......................... 18
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE........... 25
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES............. 27
INFORMATION CONCERNING THE TRUSTEES......................... 39
EXPERTS..................................................... 39
VALIDITY OF THE SECURITIES AND THE SECURITIES GUARANTEES.... 39
PLAN OF DISTRIBUTION........................................ 40
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that PPL Corporation,
PPL Capital Funding, Inc. ("PPL Capital Funding") and PPL Capital Funding Trust
I (the "Trust") filed with the Securities and Exchange Commission, or SEC, using
a "shelf" registration process. Under this shelf process, we may, from time to
time, sell combinations of the securities described in this prospectus in one or
more offerings up to a total dollar amount of $1,200,000,000. This amount
includes $398,084,506 of securities registered under an earlier registration
statement. This prospectus provides a general description of the securities we
may offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under "Where You Can
Find More Information."
We may use this prospectus to offer from time to time:
(a) shares of PPL Corporation Common Stock, par value $.01 per share
("Common Stock");
(b) shares of PPL Corporation Preferred Stock, par value $.01 per
share ("Preferred Stock");
(c) contracts to purchase shares of PPL Corporation Common Stock
("Stock Purchase Contracts"); and
(d) stock purchase units, each representing either (1) a Stock
Purchase Contract or (2) a Stock Purchase Contract and debt securities or
preferred trust securities of third parties (such as Debt Securities or
Subordinated Debt Securities of PPL Capital Funding, Preferred Trust
Securities of the Trust or United States Treasury securities) that are
pledged to secure the stock purchase unit holders' obligations to purchase
Common Stock under the Stock Purchase Contracts ("Stock Purchase Units").
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We may also use this prospectus to offer from time to time:
(a) PPL Capital Funding's unsecured and unsubordinated debt
securities ("Debt Securities"); and
(b) PPL Capital Funding's unsecured subordinated debt securities
("Subordinated Debt Securities").
PPL Corporation will unconditionally guarantee the payment of principal,
premium and interest on the PPL Capital Funding Debt Securities and Subordinated
Debt Securities as described below in "Description of the Debt Securities--PPL
Corporation Guarantees" and "Description of the Subordinated Debt Securities--
Subordinated Guarantees."
We may also use this prospectus to offer from time to time the Trust's
preferred trust securities ("Preferred Trust Securities"). PPL Corporation will
guarantee the Trust's obligations under the Preferred Trust Securities as
described below under "Description of the Preferred Securities Guarantee."
We sometimes refer to the Common Stock, the Preferred Stock, the Stock
Purchase Contracts, the Stock Purchase Units, the Debt Securities, the
Subordinated Debt Securities and the Preferred Trust Securities collectively as
the "Securities." In addition, we sometimes refer to PPL Corporation's
guarantees of Debt Securities ("Guarantees"), guarantees of Subordinated Debt
Securities ("Subordinated Guarantees"), and the guarantee of Preferred Trust
Securities ("Preferred Securities Guarantee"), collectively as "Securities
Guarantees."
For more detailed information about the Securities and the Securities
Guarantees, you can read the exhibits to the registration statement. Those
exhibits have been either filed with the registration statement or incorporated
by reference to earlier SEC filings listed in the registration statement.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
PPL Corporation files reports, proxy statements and other information with
the SEC. Information filed with the SEC by PPL Corporation can be inspected and
copied at the Public Reference Room maintained by the SEC and at the following
Regional Offices of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2551
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Further information on the operation of the
SEC's Public Reference Room in Washington, D.C. can be obtained by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, such as PPL
Corporation, who file electronically with the Commission. The address of that
site is http://www.sec.gov.
PPL Corporation Common Stock is listed on the New York Stock Exchange
("NYSE") and the Philadelphia Stock Exchange (symbol: PPL), and reports, proxy
statements and other information concerning PPL Corporation can also be
inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005 and the Philadelphia Stock Exchange, 1900 Market Street, Philadelphia,
Pennsylvania 19103. In addition, reports, proxy statements and other information
concerning PPL Corporation can be inspected at its offices at Two North Ninth
Street, Allentown, Pennsylvania 18101-1179. PPL Corporation maintains an
Internet site at http://www.pplweb.com (which is not intended to be an active
hyperlink herein) which
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contains information concerning PPL Corporation and its affiliates. The
information at PPL Corporation's Internet site is not incorporated in this
prospectus by reference, and you should not consider it a part of this
prospectus.
INCORPORATION BY REFERENCE
The rules of the SEC allow us to "incorporate by reference" information
into this prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
and later information that we file with the SEC will automatically update and
supersede that information. This prospectus incorporates by reference the
documents set forth below that have been previously filed with the SEC. These
documents contain important information about PPL Corporation.
SEC FILINGS (FILE NO. 1-11459) PERIOD/DATE
------------------------------ -----------
Annual Report on Form 10-K, as amended by Year ended December 31, 1999
Form 10-K/A, filed with the SEC on June 28,
2000
Quarterly Reports on Form 10-Q Quarters ended March 31, June 30 and
September 30, 2000
Current Reports on Form 8-K January 28, February 14, May 26, June 2,
June 15, July 5, July 14, July 31, August
1, August 23, October 20, October 26 and
December 21, 2000 and January 26, 2001
PPL Corporation's Registration Statement on April 27, 1995
Form 8-B
We are also incorporating by reference additional documents that PPL
Corporation files with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), between
the date of this prospectus and the termination of the offering of the
Securities. In addition, we are also incorporating by reference any additional
documents that PPL Corporation files with the SEC pursuant to these sections of
the Exchange Act after the date of the filing of the registration statement
containing this prospectus, and prior to the effectiveness of the registration
statement.
PPL Corporation will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus has been delivered, a copy
of any and all of these filings. You may request a copy of these filings by
writing or telephoning us at:
PPL Corporation
Two North Ninth Street
Allentown, Pennsylvania 18101-1179
Attention: Investor Services Department
Telephone: 1-800-345-3085
We have not included or incorporated by reference any separate financial
statements of PPL Capital Funding herein. We do not consider those financial
statements to be material to holders of the Debt Securities or Subordinated Debt
Securities because (1) PPL Capital Funding was formed for the primary purpose of
providing financing for PPL Corporation and its subsidiaries, (2) PPL Capital
Funding does not currently engage in any independent operations and (3) PPL
Capital Funding does not currently plan to engage, in the future, in more than
minimal independent operations. See "PPL Capital Funding." PPL Capital Funding
has received a "no action" letter from the Staff of the SEC stating that the
Staff would not raise any objection if PPL Capital Funding does not file
periodic reports under Sections 13 and 15(d) of the Exchange Act. Accordingly,
we do not expect PPL Capital Funding to file those reports.
We have similarly not included or incorporated by reference any separate
financial statements of the Trust herein. We do not consider those financial
statements to be material to holders of the Preferred Trust
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Securities because (1) the Trust is a newly formed special purpose entity and
has no operating history or independent operations, and (2) the Trust is not
engaged in and does not propose to engage in any activity other than holding as
trust assets the Subordinated Debt Securities of PPL Capital Funding and issuing
the Preferred Trust Securities and the Common Trust Securities. We do not expect
the Trust to file periodic reports under Sections 13 and 15(d) of the Exchange
Act.
PPL CORPORATION
PPL Corporation is a holding company with headquarters in Allentown,
Pennsylvania. Its principal subsidiaries include:
-- PPL Electric Utilities Corporation ("PPL Utilities"), which provides
electricity delivery service in eastern and central Pennsylvania;
-- PPL Energy Funding Corporation ("Energy Funding"), a holding company
for PPL Corporation's unregulated business;
-- PPL EnergyPlus, LLC ("EnergyPlus"), which sells energy and energy
services in deregulated markets;
-- PPL Generation, LLC ("PPL Generation"), which owns and operates all
of PPL Corporation's U.S. generation facilities, including those
generating facilities previously owned by PPL Utilities;
-- PPL Montana Holdings, LLC, which holds, through subsidiaries,
investments in electricity generation and related assets in Montana;
-- PPL Montana, LLC, which generates electricity for wholesale and
retail customers in Montana and the Northwest;
-- PPL Global, LLC ("PPL Global"), an international independent power
company which develops and acquires U.S. and international energy
projects and which owns international energy projects;
-- PPL Gas Utilities Corporation, which provides natural gas
distribution, transmission and storage services and sells propane;
-- PPL Spectrum, Inc., which markets energy-related products and
services;
-- PPL Capital Funding, which engages in financing for PPL Corporation
and its subsidiaries;
-- H.T. Lyons, Inc., McClure Company, McCarl's Inc., Burns Mechanical,
and Western Mass. Holdings, Inc., which are mechanical contracting
and engineering firms; and
-- PPL Transition Bond Company, LLC (a special purpose subsidiary of PPL
Utilities), formed to issue transition bonds under the Pennsylvania
Electricity Generation and Customer Choice and Competition Act
("Customer Choice Act").
CORPORATE REALIGNMENT
Prior to July 1, 2000, PPL Utilities had been an integrated public utility
which engaged in the generation, transmission and distribution of electricity in
its franchised territory in eastern and central Pennsylvania, and which also
engaged in wholesale energy marketing in the United States and Canada. PPL
Utilities also engaged in retail energy marketing in newly deregulated markets
through EnergyPlus, which had been a wholly-owned subsidiary of PPL Utilities.
As a result of federal and state legislation and regulatory initiatives,
the electric utility industry, including PPL Utilities, has experienced and will
continue to experience a significant increase in the level of competition in the
energy supply market. At the federal level, the Energy Policy Act of 1992
created a new class of independent power producers to promote competition in the
electric energy market for bulk power, and the Federal Power Act was amended to
provide open access to electric transmission systems for wholesale
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transactions. In addition, the Customer Choice Act was enacted in Pennsylvania
to restructure the state's electric utility industry in order to create retail
access to a competitive market for generation of electricity.
On July 1, 2000, PPL Corporation and PPL Utilities completed a corporate
realignment in order to effectively separate PPL Utilities' regulated
transmission and distribution operations from its recently deregulated
generation operations and better position the companies and their affiliates in
the new competitive marketplace. As part of the corporate realignment, PPL
Utilities transferred its generating assets to PPL Generation. PPL Utilities
also transferred its wholesale energy marketing assets to EnergyPlus, and
subsequently transferred its interest in EnergyPlus to Energy Funding. PPL
Utilities retained its electric transmission and distribution businesses. PPL
Global also transferred its U.S. electric generating subsidiaries to PPL
Generation as part of the realignment; PPL Global retains its international
electric generation and distribution assets, and will continue to acquire and
develop power projects in the United States and internationally. The corporate
realignment followed receipt of various regulatory approvals, including
approvals of the Pennsylvania Public Utility Commission, the Federal Energy
Regulatory Commission and the Nuclear Regulatory Commission.
HOLDING COMPANY STRUCTURE
PPL Corporation conducts its operations primarily through PPL Utilities and
PPL Corporation's other wholly-owned subsidiaries, and substantially all of PPL
Corporation's consolidated assets are held by PPL Utilities and these other
subsidiaries. Accordingly, PPL Corporation's cash flow, its ability to pay
dividends on its capital stock and its ability to meet its obligations under the
Securities Guarantees are largely dependent upon the earnings of PPL Utilities
and the other subsidiaries and the distribution or other payment of such
earnings to PPL Corporation in the form of dividends, loans or advances or
repayment of loans and advances from PPL Corporation. The subsidiaries are
separate and distinct legal entities and have no obligation to pay any amounts
due on any Securities (except for the Securities issued by such subsidiaries) or
to make any funds available for such payment.
Because PPL Corporation is a holding company, its obligations under the
Securities Guarantees will be effectively subordinated to all existing and
future liabilities of its subsidiaries. Therefore, PPL Corporation's rights and
the rights of its shareholders and creditors, including rights of a holder of
any Security under a Securities Guarantee, to participate in the assets of any
subsidiary in the event that such a subsidiary is liquidated or reorganized,
will be subject to the prior claims of such subsidiary's creditors. To the
extent that PPL Corporation may itself be a creditor with recognized claims
against any such subsidiary, PPL Corporation's claims would still be effectively
subordinated to any security interest in, or mortgages or other liens on, the
assets of the subsidiary and would be subordinated to any indebtedness or other
liabilities of the subsidiary senior to that held by PPL Corporation. Although
certain agreements to which PPL Corporation and its subsidiaries are parties
limit the ability to incur additional indebtedness, PPL Corporation and its
subsidiaries retain the ability to incur substantial additional indebtedness and
other liabilities.
The information above concerning PPL Corporation and its subsidiaries is
only a summary and does not purport to be comprehensive. In addition, certain
statements regarding PPL Corporation and its affiliates contained or
incorporated by reference in this prospectus are "forward-looking statements"
within the meaning of the securities laws. Although PPL Corporation believes
that the expectations reflected in such statements are reasonable, it can give
no assurance that such expectations will prove to have been correct. For
additional information concerning PPL Corporation and its subsidiaries,
including certain assumptions, risks and uncertainties involved in the
forward-looking statements contained or incorporated by reference in this
prospectus, you should refer to the information described in "Where You Can Find
More Information."
PPL Corporation's offices are located at Two North Ninth Street, Allentown,
Pennsylvania 18101-1179 and its telephone number is (610) 774-5151.
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PPL CAPITAL FUNDING
PPL Capital Funding is a Delaware corporation and a wholly-owned subsidiary
of PPL Corporation. PPL Capital Funding's primary business is to provide
financing for the operations of PPL Corporation and its subsidiaries.
PPL Capital Funding's offices are located at Two North Ninth Street,
Allentown, Pennsylvania 18101-1179 and its telephone number is (610) 774-5151.
PPL CAPITAL FUNDING TRUST I
The Trust is a statutory business trust created under Delaware law under a
trust agreement which is to be amended pursuant to an Amended and Restated Trust
Agreement (as so amended, the "Trust Agreement") among PPL Corporation, The
Chase Manhattan Bank as the Property Trustee, Chase Manhattan Bank USA, National
Association, as Delaware Trustee and two employees of PPL Corporation as
Administrative Trustees. The Trust exists only to issue and sell its Preferred
Trust Securities and Common Trust Securities, to acquire and hold the
Subordinated Debt Securities as trust assets and to engage in activities
incidental to the foregoing. All of the Common Trust Securities will be owned by
PPL Corporation. The Common Trust Securities will represent at least 3% of the
total capital of the Trust. Payments will be made on the Common Trust Securities
pro rata with the Preferred Trust Securities, except that the Common Trust
Securities' right to payment will be subordinated to the rights of the Preferred
Trust Securities if there is a default under the Trust Agreement resulting from
an event of default under the Subordinated Indenture (as defined herein). The
Trust has a term of approximately 40 years, but may dissolve earlier as provided
in the Trust Agreement. The Trust's business and affairs will be conducted by
its Administrative Trustees, as set forth in the Trust Agreement. The office of
the Delaware Trustee in the State of Delaware is 1201 Market Street, 9th Floor,
Wilmington, Delaware 19801. The Trust's offices are located at Two North Ninth
Street, Allentown, PA 18101-1179, and the telephone number is (610) 774-5151.
USE OF PROCEEDS
Unless we indicate differently in the applicable prospectus supplement, the
net proceeds from the sale of the Debt Securities, Subordinated Debt Securities
and/or the Preferred Trust Securities will be loaned to PPL Corporation and/or
its subsidiaries. PPL Corporation and/or its subsidiaries are expected to use
the proceeds of such loans, and the proceeds of any other Securities, for
general corporate purposes, including investing in unregulated business
activities and reducing short-term debt incurred to provide interim financing
for such purposes.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth PPL Corporation's ratio of earnings to fixed
charges and ratio of earnings to fixed charges and preferred dividends for the
periods indicated:
TWELVE MONTHS ENDED YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------
SEPTEMBER 30, 2000(A) 1999(A) 1998(A) 1997 1996 1995
--------------------- ------- ------- ---- ---- ----
Ratio of earnings to fixed
charges......................... 2.98 2.98 3.48 3.33 3.43 3.47
Ratio of earnings to fixed charges
and preferred dividends (b)..... 2.76 2.72 3.12 2.94 2.88 2.92
------------
(a) 2000, 1999 and 1998 net income excludes extraordinary items. For purposes of
these ratios, earnings for the year ended December 31, 1998 exclude an
extraordinary charge of $948 million (after tax) associated with PPL
Utilities' restructuring proceedings before the Pennsylvania Public Utility
Commission and the Federal Energy Regulatory Commission. See PPL
Corporation's reports on file with the SEC pursuant to the Exchange Act as
described under "Where You Can Find More Information" for more information.
(b) Includes distributions on company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely company debentures.
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DESCRIPTION OF PPL CORPORATION'S CAPITAL STOCK
The description below is a summary of certain provisions of PPL
Corporation's capital stock. The Pennsylvania Business Corporation Law and the
Restated Articles of Incorporation and By-laws of PPL Corporation determine the
rights and privileges of holders of PPL Corporation's capital stock. We
encourage you to read such documents, which have been filed with the SEC, and
the Pennsylvania law for more information regarding such capital stock.
AUTHORIZED CAPITAL
The authorized capital stock of PPL Corporation consists of 390,000,000
shares of Common Stock, par value $.01 per share and 10,000,000 shares of
Preferred Stock, par value $.01 per share.
COMMON STOCK
As of December 31, 2000, 145,041,342 shares of Common Stock were issued and
outstanding. The outstanding Common Stock is, and the Common Stock offered
hereby when issued and paid for will be, fully paid and non-assessable.
Dividends. Dividends on the Common Stock will be paid if, when and as
determined by the Board of Directors of PPL Corporation out of funds legally
available for this purpose. The rate and timing of future dividends will depend
upon the future earnings and financial condition of PPL Corporation and its
subsidiaries and upon other relevant factors affecting PPL Corporation's
dividend policy which PPL Corporation cannot presently determine. As a practical
matter, the ability of PPL Corporation to pay dividends will be governed by the
ability of PPL Corporation's operating subsidiaries to pay dividends to PPL
Corporation. To date, the funds required by PPL Corporation to enable it to pay
dividends on its Common Stock have been derived predominantly from dividends
paid by PPL Utilities to PPL Corporation. In the future, dividends from
subsidiaries other than PPL Utilities will also be a source of funds for
dividend payments by PPL Corporation. The subsidiaries' ability to pay dividends
to PPL Corporation will be subject to the prior rights of the holders of such
subsidiaries' outstanding debt and preferred securities, the availability of
earnings and the needs of their businesses. See "PPL Corporation--Holding
Company Structure." The restrictions on the payment of dividends contained in
PPL Utilities' Amended and Restated Articles of Incorporation and in its first
mortgage bond indenture do not currently limit the amount of regular quarterly
dividends PPL Utilities pays on its common stock.
Voting Rights. Holders of Common Stock are entitled to one vote for each
share held by them on all matters presented to shareowners. Pursuant to PPL
Corporation's Articles of Incorporation, the holders of Common Stock will not
have cumulative voting rights in the election of directors. PPL Corporation's
bylaws provide for a classified board of directors consisting of three classes
as nearly equal in number as may be. Each class holds office until the third
year following the election of such class, and no director may be removed except
for cause upon a two-thirds vote of all outstanding shares. PPL Corporation's
bylaws also provide for certain notice requirements for shareowner nominations
and proposals at annual meetings and preclude shareowners from bringing business
before any special meeting. PPL Corporation's Articles of Incorporation and
certain provisions of Pennsylvania law would require a supermajority vote of
holders or a majority vote of disinterested directors to approve certain
business combinations and other major transactions involving PPL Corporation.
Liquidation Rights. After satisfaction of the preferential liquidation
rights of any Preferred Stock, the holders of the Common Stock are entitled to
share, ratably, in the distribution of all remaining net assets.
Preemptive and Other Rights. The holders of Common Stock do not have
preemptive rights as to additional issues of Common Stock or conversion rights.
The shares of Common Stock are not subject to redemption or to any further calls
or assessments and are not entitled to the benefit of any sinking fund
provisions.
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PREFERRED STOCK
PPL Corporation's Board of Directors is authorized, without further
shareowner action, to divide the Preferred Stock into one or more classes or
series and to determine the designations, preferences, limitations and special
rights of any class or series including, but not limited to, the following:
(a) the rate of dividend, if any;
(b) the rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, dissolution or winding up of PPL
Corporation;
(c) the terms and conditions upon which shares may be converted into
shares of other series or other capital stock, if issued with the privilege
of conversion;
(d) the price at and the terms and conditions upon which shares may
be redeemed; and
(e) the voting rights, if any.
No shares of Preferred Stock have been issued. The applicable prospectus
supplement will describe the terms of any Preferred Stock.
Unless otherwise provided in the applicable prospectus supplement, holders
of Preferred Stock will not have any preemptive rights to subscribe for or
purchase any additional shares of the capital stock of PPL Corporation, or other
securities or other right or option to purchase shares of capital stock.
CERTAIN TAX MATTERS
In the opinion of counsel for PPL Corporation, the Common Stock and
Preferred Stock are exempt from existing personal property taxes in
Pennsylvania.
LISTING
The outstanding shares of Common Stock are, and the shares offered hereby
will be, listed on the New York and Philadelphia Stock Exchanges.
TRANSFER AGENTS AND REGISTRARS
The Transfer Agents and Registrars for the Common Stock are PPL Utilities
and Norwest Bank Minnesota, N.A., St. Paul, Minnesota.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
PPL Corporation may issue Stock Purchase Contracts representing contracts
obligating holders to purchase from PPL Corporation, and PPL Corporation to sell
to the holders, a specified number of shares of Common Stock at a future date or
dates. The price per share of Common Stock and number of shares of Common Stock
may be fixed at the time the Stock Purchase Contracts are issued or may be
determined by reference to a specific formula set forth in the Stock Purchase
Contracts. The Stock Purchase Contracts may be issued separately or as a part of
other Stock Purchase Units that consist of (a) a Stock Purchase Contract or (b)
a Stock Purchase Contract and debt securities or preferred trust securities of
third parties (including, but not limited to, Debt Securities, Subordinated Debt
Securities, Preferred Trust Securities or United States Treasury securities),
that would secure the holders' obligations to purchase the Common Stock under
the Stock Purchase Contracts. The Stock Purchase Contracts may require PPL
Corporation to make periodic payments to the holders of the Stock Purchase Units
or vice-versa. These 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.
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DESCRIPTION OF THE DEBT SECURITIES
The following description sets forth certain general terms and provisions
of PPL Capital Funding's unsecured debt securities, consisting of notes or
debentures, that we may offer by this prospectus ("Debt Securities"). We will
describe the particular terms of Debt Securities, and provisions that vary from
those described below, in one or more prospectus supplements.
We may issue the Debt Securities from time to time in the future in one or
more series. We will issue the Debt Securities and the guarantee or guarantees
of PPL Corporation relating thereto (the "Guarantee" or "Guarantees") under the
Indenture, dated as of November 1, 1997 (as such indenture has been and may be
supplemented, the "Indenture"), among PPL Capital Funding, PPL Corporation and
The Chase Manhattan Bank, as trustee (the "Trustee").
The Indenture is filed as an exhibit to the registration statement. The
Indenture and its associated documents contain the full legal text of the
matters described in this section. Because this section is a summary, it does
not describe every aspect of the Debt Securities or the Indenture. This summary
is subject to and qualified in its entirety by reference to all the provisions
of the Indenture, including definitions of certain terms used in the Indenture.
We also include references in parentheses to certain sections of the Indenture.
Whenever we refer to particular sections or defined terms of the Indenture in
this prospectus or in a prospectus supplement, such sections or defined terms
are incorporated by reference herein or in the prospectus supplement. This
summary also is subject to and qualified by reference to the description of the
particular terms of your securities described in the applicable prospectus
supplement or supplements. The Indenture has been qualified under the Trust
Indenture Act, and you should refer to the Trust Indenture Act for provisions
that apply to the Debt Securities.
GENERAL
We may issue an unlimited amount of Debt Securities or other securities
under the Indenture. The Debt Securities and all other debt securities issued
previously or hereafter under the Indenture are collectively referred to herein
as the "Indenture Securities."
The Debt Securities will be unsecured and unsubordinated obligations of PPL
Capital Funding, and by the Guarantees will be unconditionally guaranteed by PPL
Corporation as to payment of principal and any interest and premium. See "--PPL
Corporation Guarantees."
Prior to the issuance of each series, certain aspects of the particular
Debt Securities have to be specified in a supplemental indenture, in a board
resolution of PPL Capital Funding, or in one or more officer's certificates of
PPL Capital Funding pursuant to a supplemental indenture or a board resolution.
We refer you to the applicable prospectus supplement(s) for a description of the
following terms of the series of Debt Securities:
(a) the title of such Debt Securities;
(b) any limit upon the principal amount of such Debt Securities;
(c) the date or dates on which principal will be payable or how to
determine such dates;
(d) the rate or rates or method of determination of interest; the
date from which interest will accrue; the dates on which interest will be
payable ("Interest Payment Dates"); and any record dates for the interest
payable on such Interest Payment Dates;
(e) any obligation or option of PPL Capital Funding to redeem,
purchase or repay Debt Securities, or any option of the Holder to require
PPL Capital Funding to redeem or repurchase Debt Securities, and the terms
and conditions upon which such Debt Securities will be redeemed, purchased
or repaid;
(f) the denominations in which such Debt Securities will be issuable
(if other than denominations of $1,000 and any integral multiple thereof);
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(g) whether such Debt Securities are to be issued in whole or in part
in the form of one or more global Debt Securities and, if so, the identity
of the depositary for such global Debt Securities; and
(h) any other terms of such Debt Securities.
(See Section 301.)
PPL CORPORATION GUARANTEES
PPL Corporation will unconditionally guarantee the payment of principal of
and any interest and premium on the Debt Securities, when due and payable,
whether at the stated maturity date, by declaration of acceleration, call for
redemption or otherwise, in accordance with the terms of such Debt Securities
and the Indenture. The Guarantees will remain in effect until the entire
principal of and any premium and interest on the Debt Securities has been paid
in full or otherwise discharged in accordance with the provisions of the
Indenture. (See Article Fourteen.) The Guarantees will be unsecured debt of PPL
Corporation, not subordinated by their terms to any other obligations of PPL
Corporation. See "PPL Corporation--Holding Company Structure," above, however,
with regard to the effect of the holding company structure on the status of PPL
Corporation's obligations compared to obligations of its subsidiaries.
PAYMENT OF DEBT SECURITIES
INTEREST
Unless we indicate differently in a prospectus supplement, we will pay
interest on each Debt Security on each Interest Payment Date by check mailed to
the person in whose name such Debt Security is registered (the registered holder
of any Indenture Security being called a "Holder" in this prospectus) as of the
close of business on the regular record date relating to such Interest Payment
Date, except that interest payable at maturity (whether at stated maturity, upon
redemption or otherwise, "Maturity") will be paid to the person to whom
principal is paid.
However, if we default in paying interest on a Debt Security, we will pay
defaulted interest in either of the two following ways:
(a) We will first propose to the Trustee a payment date for such
defaulted interest. Next, the Trustee will choose a Special Record Date for
determining which Holders are entitled to the payment. The Special Record
Date will be between 10 and 15 days before the payment date we propose.
Finally, we will pay such defaulted interest on the payment date to the
Holder of the Debt Security as of the close of business on the Special
Record Date.
(b) Alternatively, we can propose to the Trustee any other lawful
manner of payment that is consistent with the requirements of any
securities exchange on which such Debt Securities are listed for trading.
If the Trustee thinks the proposal is practicable, payment will be made as
proposed.
(See Section 307.)
PRINCIPAL
Unless we indicate differently in a prospectus supplement, we will pay
principal of and any interest and premium on the Debt Securities at Maturity
upon presentation of the Debt Securities at the office of The Chase Manhattan
Bank in New York, New York, as our Paying Agent. Any other Paying Agent
initially designated for the Debt Securities of a particular series will be
named in the applicable prospectus supplement.
In our discretion, we may change the place of payment on the Debt
Securities, and may remove any Paying Agent and may appoint one or more
additional Paying Agents (including PPL Capital Funding, PPL Corporation or any
affiliate of either of them). (See Section 602.)
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FORM; TRANSFERS; EXCHANGES
Unless otherwise indicated in a prospectus supplement, the Debt Securities
will be issued:
(a) only in fully registered form;
(b) without interest coupons; and
(c) in denominations that are integral multiples of $1,000. (See
Section 302.)
You may have your Debt Securities divided into Debt Securities of smaller
denominations (of at least $1,000) or combined into Debt Securities of larger
denominations, as long as the total principal amount is not changed. This is
called an "exchange."
You may exchange or transfer Debt Securities at the office of the Trustee.
The Trustee acts as our agent for registering Debt Securities in the names of
holders and transferring debt securities. We may appoint another agent or act as
our own agent for this purpose. The entity performing the role of maintaining
the list of registered holders is called the "Security Registrar." It will also
perform transfers.
In our discretion, we may change the place for registration of transfer of
the Debt Securities and may remove and/or appoint one or more additional
Security Registrars (including PPL Capital Funding, PPL Corporation or any
affiliate of either of them). (See Sections 305 and 602.)
Except as otherwise provided in a prospectus supplement, there will be no
service charge for any transfer or exchange of the Debt Securities, but you may
be required to pay a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. We may block the transfer or exchange of
(a) Debt Securities during a period of 15 days prior to giving any notice of
redemption or (b) any Debt Security selected for redemption in whole or in part,
except the unredeemed portion of any Debt Security being redeemed in part. (See
Section 305.)
REDEMPTION
We will set forth any terms for the redemption of Debt Securities in a
prospectus supplement. Unless we indicate differently in a prospectus
supplement, and except with respect to Debt Securities redeemable at the option
of the Holder, Debt Securities will be redeemable upon notice by mail between 30
and 60 days prior to the redemption date. If less than all of the Debt
Securities of any series or any tranche thereof are to be redeemed, the Trustee
will select the Debt Securities to be redeemed. In the absence of any provision
for selection, the Trustee will choose a method of random selection as it deems
fair and appropriate. (See Sections 403 and 404.)
Debt Securities will cease to bear interest on the redemption date. PPL
Capital Funding will pay the redemption price and any accrued interest once you
surrender the Debt Security for redemption. (See Section 405.) If only part of a
Debt Security is redeemed, the Trustee will deliver to you a new Debt Security
of the same series for the remaining portion without charge. (Section 406.)
We may make any redemption at the option of PPL Capital Funding conditional
upon the receipt by the Paying Agent, on or prior to the date fixed for
redemption, of money sufficient to pay the redemption price. If the Paying Agent
has not received such money by the date fixed for redemption, PPL Capital
Funding will not be required to redeem such Debt Securities. (See Section 404.)
EVENTS OF DEFAULT
An "Event of Default" occurs with respect to Indenture Securities of any
series if
(a) we do not pay any interest on any Indenture Securities of the
applicable series within 30 days of the due date;
(b) we do not pay principal or premium on any Indenture Securities of
the applicable series on its due date;
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(c) we remain in breach of a covenant (excluding covenants solely
applicable to a specific series) or warranty of the Indenture for 90 days
after we receive a written notice of default stating we are in breach and
requiring remedy of the breach; the notice must be sent by either the
Trustee or Holders of 25% of the principal amount of Indenture Securities
of the affected series; the Trustee or such Holders can agree to extend the
90-day period and such an agreement to extend will be automatically deemed
to occur if we are diligently pursuing action to correct the default;
(d) the Guarantees on any Indenture Securities of the applicable
series
(1) cease to be effective (except in accordance with their terms),
(2) are found in any judicial proceeding to be unenforceable or
invalid, or
(3) are denied or disaffirmed (except in accordance with their
terms);
(e) we file for bankruptcy or certain other events in bankruptcy,
insolvency, receivership or reorganization occur; or
(f) any other Event of Default specified in the prospectus supplement
occurs.
(See Section 801.)
No Event of Default with respect to the Debt Securities necessarily constitutes
an Event of Default with respect to the Indenture Securities of any other series
issued under the Indenture.
REMEDIES
ACCELERATION
Any One Series. If an Event of Default occurs and is continuing with
respect to any one series of Indenture Securities, then either the Trustee or
the Holders of 25% in principal amount of the outstanding Indenture Securities
of such series may declare the principal amount of all of the Indenture
Securities of such series to be due and payable immediately.
More Than One Series. If an Event of Default occurs and is continuing with
respect to more than one series of Indenture Securities, then either the Trustee
or the Holders of 25% in aggregate principal amount of the outstanding Indenture
Securities of all such series, considered as one class, may make such
declaration of acceleration. Thus, if there is more than one series affected,
the action by 25% in principal amount of the Indenture Securities of any
particular series will not, in itself, be sufficient to make a declaration of
acceleration.
(See Section 802.)
RESCISSION OF ACCELERATION
After the declaration of acceleration has been made and before the Trustee
has obtained a judgment or decree for payment of the money due, such declaration
and its consequences will be rescinded and annulled, if
(a) we pay or deposit with the Trustee a sum sufficient to pay
(1) all overdue interest;
(2) the principal of and any premium which have become due
otherwise than by such declaration of acceleration and overdue interest
thereon;
(3) interest on overdue interest to the extent lawful; and
(4) all amounts due to the Trustee under the Indenture; and
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(b) all Events of Default, other than the nonpayment of the principal
which has become due solely by such declaration of acceleration, have been
cured or waived as provided in the Indenture.
(See Section 802.) For more information as to waiver of defaults, see "--Waiver
of Default and of Compliance" below.
CONTROL BY HOLDERS; LIMITATIONS
Subject to the Indenture, if an Event of Default with respect to the
Indenture Securities of any one series occurs and is continuing, the Holders of
a majority in principal amount of the outstanding Indenture Securities of that
series will have the right to
(a) direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or
(b) exercise any trust or power conferred on the Trustee with respect
to the Indenture Securities of such series.
If an Event of Default is continuing with respect to more than one series
of Indenture Securities, the Holders of a majority in aggregate principal amount
of the outstanding Indenture Securities of all such series, considered as one
class, will have the right to make such direction, and not the Holders of the
Indenture Securities of any one of such series. These rights of Holders to make
direction are subject to the following limitations:
(a) the Holders' directions may not conflict with any law or the
Indenture; and
(b) the Holders' directions may not involve the Trustee in personal
liability where the Trustee believes indemnity is not adequate.
The Trustee may also take any other action it deems proper which is consistent
with the Holders' direction. (See Sections 812 and 903.)
In addition, the Indenture provides that no Holder of any Indenture
Security will have any right to institute any proceeding, judicial or otherwise,
with respect to the Indenture for the appointment of a receiver or for any other
remedy thereunder unless
(a) that Holder has previously given the Trustee written notice of a
continuing Event of Default;
(b) the Holders of 25% in aggregate principal amount of the
outstanding Indenture Securities of all affected series, considered as one
class, have made written request to the Trustee to institute proceedings in
respect of that Event of Default and have offered the Trustee reasonable
indemnity against costs and liabilities incurred in complying with such
request; and
(c) for 60 days after receipt of such notice, the Trustee has failed
to institute any such proceeding and no direction inconsistent with such
request has been given to the Trustee during such 60-day period by the
Holders of a majority in aggregate principal amount of outstanding
Indenture Securities of all affected series, considered as one class.
Furthermore, no Holder will be entitled to institute any such action if and to
the extent that such action would disturb or prejudice the rights of other
Holders. (See Sections 807 and 903.)
However, each Holder has an absolute and unconditional right to receive
payment when due and to bring a suit to enforce that right. (See Sections 807
and 808.)
NOTICE OF DEFAULT
The Trustee is required to give the Holders of the Indenture Securities
notice of any default under the Indenture to the extent required by the Trust
Indenture Act, unless such default has been cured or waived; except that in the
case of an Event of Default of the character specified above in clause (c) under
"Events of Default," no such notice shall be given to such Holders until at
least 75 days after the occurrence thereof.
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(See Section 902.) The Trust Indenture Act currently permits the Trustee to
withhold notices of default (except for certain payment defaults) if the Trustee
in good faith determines the withholding of such notice to be in the interests
of the Holders.
We will furnish the Trustee with an annual statement as to the compliance
by PPL Capital Funding with the conditions and covenants in the Indenture. (See
Section 605.)
WAIVER OF DEFAULT AND OF COMPLIANCE
The Holders of a majority in aggregate principal amount of the outstanding
Indenture Securities of any series may waive, on behalf of the Holders of all
Indenture Securities of such series, any past default under the Indenture,
except a default in the payment of principal, premium or interest, or with
respect to compliance with certain provisions of the Indenture that cannot be
amended without the consent of the Holder of each outstanding Indenture
Security. (See Section 813.)
Compliance with certain covenants in the Indenture or otherwise provided
with respect to Indenture Securities may be waived by the Holders of a majority
in aggregate principal amount of the affected Indenture Securities, considered
as one class. (See Section 606.)
CONSOLIDATION, MERGER AND CONVEYANCE OF ASSETS AS AN ENTIRETY; NO FINANCIAL
COVENANTS
Subject to the provisions described in the next paragraph, each of PPL
Capital Funding and PPL Corporation will preserve its corporate existence. (See
Section 604.)
PPL Capital Funding and PPL Corporation have each agreed not to consolidate
with or merge into any other entity or convey, transfer or lease its properties
and assets substantially as an entirety to any entity unless
(a) the entity formed by such consolidation or into which PPL Capital
Funding or PPL Corporation, as the case may be, is merged or the entity
which acquires or which leases the property and assets of PPL Capital
Funding or PPL Corporation, as the case may be, substantially as an
entirety is an entity organized and existing under the laws of the United
States of America or any State thereof or the District of Columbia, and
expressly assumes, by supplemental indenture, the due and punctual payment
of the principal, premium and interest on all the outstanding Indenture
Securities (or the Guarantees endorsed thereon, as the case may be) and the
performance of all of the covenants of PPL Capital Funding or PPL
Corporation, as the case may be, under the Indenture, and
(b) immediately after giving effect to such transactions, no Event of
Default, and no event which after notice or lapse of time or both would
become an Event of Default, will have occurred and be continuing. (See
Section 1101.)
The Indenture does not prevent or restrict:
(a) any consolidation or merger after the consummation of which PPL
Capital Funding or PPL Corporation would be the surviving or resulting
entity; or
(b) any conveyance or other transfer, or lease, of any part of the
properties of PPL Capital Funding or PPL Corporation which does not
constitute the entirety, or substantially the entirety, thereof. (See
Section 1103.)
Neither the Indenture nor the Guarantee contains any financial or other
similar restrictive covenants.
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MODIFICATION OF INDENTURE
Without Holder Consent. Without the consent of any Holders of Indenture
Securities, PPL Capital Funding, PPL Corporation and the Trustee may enter into
one or more supplemental indentures for any of the following purposes:
(a) to evidence the succession of another entity to PPL Capital
Funding or PPL Corporation; or
(b) to add one or more covenants of PPL Capital Funding or PPL
Corporation or other provisions for the benefit of the Holders of all or
any series or tranche of Indenture Securities, or to surrender any right or
power conferred upon PPL Capital Funding or PPL Corporation; or
(c) to add any additional Events of Default for all or any series of
Indenture Securities; or
(d) to change or eliminate any provision of the Indenture or to add
any new provision to the Indenture that does not adversely affect the
interests of the Holders; or
(e) to provide security for the Indenture Securities of any series;
or
(f) to establish the form or terms of Indenture Securities of any
series or tranche or any Guarantees as permitted by the Indenture; or
(g) to provide for the issuance of bearer securities; or
(h) to evidence and provide for the acceptance of appointment of a
separate or successor Trustee; or
(i) to provide for the procedures required to permit the utilization
of a noncertificated system of registration for any series or tranche of
Indenture Securities; or
(j) to change any place or places where
(1) we may pay principal, premium and interest,
(2) Indenture Securities may be surrendered for transfer or
exchange, and
(3) notices and demands to or upon PPL Capital Funding or PPL
Corporation may be served; or
(k) to cure any ambiguity, defect or inconsistency or to make any
other changes that do not adversely affect the interests of the Holders in
any material respect.
If the Trust Indenture Act is amended after the date of the Indenture so as
to require changes to the Indenture or so as to permit changes to, or the
elimination of, provisions which, at the date of the Indenture or at any time
thereafter, were required by the Trust Indenture Act to be contained in the
Indenture, the Indenture will be deemed to have been amended so as to conform to
such amendment or to effect such changes or elimination, and PPL Capital
Funding, PPL Corporation and the Trustee may, without the consent of any
Holders, enter into one or more supplemental indentures to effect or evidence
such amendment.
(See Section 1201.)
With Holder Consent. Except as provided above, the consent of the Holders
of at least a majority in aggregate principal amount of the Indenture Securities
of all outstanding series, considered as one class, is generally required for
the purpose of adding to, or changing or eliminating any of the provisions of,
the Indenture pursuant to a supplemental indenture. However, if less than all of
the series of outstanding Indenture Securities are directly affected by a
proposed supplemental indenture, then such proposal only requires the consent of
the Holders of a majority in aggregate principal amount of the outstanding
Indenture Securities of all directly affected series, considered as one class.
Moreover, if the Indenture Securities of any series have been issued in more
than one tranche and if the proposed supplemental indenture directly affects the
rights of the Holders of Indenture Securities of one or more, but less than all,
of such tranches, then such proposal only requires the consent of the Holders of
a majority in aggregate principal amount of the outstanding Indenture Securities
of all directly affected tranches, considered as one class.
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However, no amendment or modification may, without the consent of the
Holder of each outstanding Indenture Security directly affected thereby,
(a) change the stated maturity of the principal or interest on any
Indenture Security (other than pursuant to the terms thereof), or reduce
the principal amount, interest or premium payable or change the currency in
which any Indenture Security is payable, or impair the right to bring suit
to enforce any payment;
(b) reduce the percentages of Holders whose consent is required for
any supplemental indenture or waiver or reduce the requirements for quorum
and voting under the Indenture; or
(c) modify certain of the provisions in the Indenture relating to
supplemental indentures and waivers of certain covenants and past defaults.
A supplemental indenture which changes or eliminates any provision of the
Indenture expressly included solely for the benefit of Holders of Indenture
Securities of one or more particular series or tranches will be deemed not to
affect the rights under the Indenture of the Holders of Indenture Securities of
any other series or tranche. (See Section 1202.)
MISCELLANEOUS PROVISIONS
The Indenture provides that certain Indenture Securities, including those
for which payment or redemption money has been deposited or set aside in trust
as described under "--Satisfaction and Discharge" below, will not be deemed to
be "outstanding" in determining whether the Holders of the requisite principal
amount of the outstanding Indenture Securities have given or taken any demand,
direction, consent or other action under the Indenture as of any date, or are
present at a meeting of Holders for quorum purposes. (See Section 101.)
PPL Capital Funding or PPL Corporation will be entitled to set any day as a
record date for the purpose of determining the Holders of outstanding Indenture
Securities of any series entitled to give or take any demand, direction, consent
or other action under the Indenture, in the manner and subject to the
limitations provided in the Indenture. In certain circumstances, the Trustee
also will be entitled to set a record date for action by Holders. If such a
record date is set for any action to be taken by Holders of particular Indenture
Securities, such action may be taken only by persons who are Holders of such
Indenture Securities on the record date. (See Section 104.)
SATISFACTION AND DISCHARGE
Any Indenture Securities or any portion will be deemed to have been paid
for purposes of the Indenture, and at PPL Capital Funding's election, our entire
indebtedness will be satisfied and discharged, if there shall have been
irrevocably deposited with the Trustee or any Paying Agent (other than PPL
Capital Funding or PPL Corporation), in trust:
(a) money sufficient, or
(b) in the case of a deposit made prior to the maturity of such
Indenture Securities, non-redeemable Government Obligations (as defined in
the Indenture) sufficient, or
(c) a combination of (a) and (b), which in total are sufficient,
to pay when due the principal of, and any premium, and interest due and to
become due on such Indenture Securities or portions thereof on and prior to the
maturity thereof.
(See Section 701.)
The Indenture will be deemed satisfied and discharged when no Indenture
Securities remain outstanding and when we have paid all other sums payable by us
under the Indenture. (See Section 702.)
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All moneys we pay to the Trustee or any Paying Agent on Debt Securities
which remain unclaimed at the end of two years after payments have become due
will be paid to or upon the order of PPL Capital Funding. Thereafter, the Holder
of such Debt Security may look only to us for payment thereof. (See Section
603.)
RESIGNATION AND REMOVAL OF THE TRUSTEE; DEEMED RESIGNATION
The Trustee may resign at any time by giving written notice thereof to us.
The Trustee may also be removed by act of the Holders of a majority in
principal amount of the then outstanding Indenture Securities of any series.
No resignation or removal of the Trustee and no appointment of a successor
trustee will become effective until the acceptance of appointment by a successor
trustee in accordance with the requirements of the Indenture.
Under certain circumstances, we may appoint a successor trustee and if the
successor accepts, the Trustee will be deemed to have resigned.
(See Section 910).
GOVERNING LAW
The Indenture, the Debt Securities and the Guarantees provide that they are
to be governed by and construed in accordance with the laws of the State of New
York.
DESCRIPTION OF THE TRUST SECURITIES
The Trust may issue Preferred Trust Securities and Common Trust Securities
under the Trust Agreement. These Trust securities will represent undivided
beneficial interests in the assets of the Trust. Selected provisions of the
Trust Agreement are summarized below. This summary is not complete. The form of
Trust Agreement was filed with the SEC and you should read the Trust Agreement
for provisions that may be important to you. The Trust Agreement will be
qualified as an indenture under the Trust Indenture Act. You should also refer
to the Trust Indenture Act for provisions that apply to the Preferred Trust
Securities. Wherever particular defined terms of the Trust Agreement are
referred to, such defined terms are incorporated herein by reference.
GENERAL
The Preferred Trust Securities and Common Trust Securities issued by the
Trust will be substantially the same except that, if there is an Event of
Default under the Trust Agreement, as described below, that results from an
Event of Default under the Subordinated Indenture, the rights of the holders of
the Common Trust Securities to payment of distributions and upon liquidation or
redemption will be subordinated to the rights of the holders of the Preferred
Trust Securities. All of the Common Trust Securities of the Trust will be owned
by PPL Corporation.
PPL Corporation will fully and unconditionally guarantee payments due on
the Preferred Trust Securities through a combination of the following:
(a) PPL Corporation's guarantee of PPL Capital Funding's obligations
under the Subordinated Debt Securities (the "Subordinated Guarantee");
(b) the rights of holders of Preferred Trust Securities to enforce
those obligations;
(c) PPL Corporation's agreement to pay the expenses of the Trust; and
(d) PPL Corporation's guarantee of payments due on the Preferred
Trust Securities to the extent of the Trust's assets (the "Preferred
Securities Guarantee").
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The Trust will use the proceeds from the sale of the Preferred Trust
Securities and Common Trust Securities to purchase Subordinated Debt Securities
from PPL Capital Funding. The Subordinated Debt Securities will be guaranteed by
PPL Corporation pursuant to the Subordinated Guarantee described below. The
Subordinated Debt Securities will be held in trust for the benefit of holders of
the Preferred Trust Securities and Common Trust Securities.
A prospectus supplement relating to the Preferred Trust Securities will
include specific terms of those securities and of the Subordinated Debt
Securities. For a description of some specific terms that will affect both the
Preferred Trust Securities and the Subordinated Debt Securities and your rights
under each, see "Description of the Subordinated Debt Securities" below.
DISTRIBUTIONS
The only income of the Trust available for distribution to the holders of
Preferred Trust Securities will be payments on the Subordinated Debt Securities.
If neither PPL Capital Funding nor PPL Corporation makes interest payments on
the Subordinated Debt Securities, the Trust will not have funds available to pay
distributions on Preferred Trust Securities. The payment of distributions, if
and to the extent the Trust has sufficient funds available for the payment of
such distributions, is guaranteed on a limited basis by PPL Corporation as
described under "Description of the Preferred Securities Guarantee."
So long as no Event of Default under the Subordinated Indenture has
occurred and is continuing, PPL Capital Funding may extend the interest payment
period from time to time on the Subordinated Debt Securities for one or more
periods. As a consequence, distributions on Preferred Trust Securities would be
deferred during any such period. Interest would, however, continue to accrue.
During any extended interest period, or for so long as an "Event of Default"
under the Subordinated Indenture resulting from a payment default or any payment
default under the Preferred Securities Guarantee has occurred and is continuing,
PPL Corporation may not:
(a) declare or pay any dividend or distribution on its capital stock,
other than dividends paid in shares of capital stock of PPL Corporation;
(b) redeem, purchase, acquire or make a liquidation payment with
respect to any of its capital stock;
(c) pay any principal, interest or premium on, or repay, repurchase
or redeem any debt securities that are equal or junior in right of payment
with the Subordinated Guarantees; or
(d) make any payments with respect to any guarantee of debt
securities by PPL Corporation if such guarantee is equal or junior in right
of payment to the Subordinated Guarantees.
Before an extension period ends, PPL Capital Funding may further extend the
interest payment period. No extension period as further extended may exceed 20
consecutive quarters. After any extension period and the payment of all amounts
then due, PPL Capital Funding may select a new extended interest payment period.
No interest period may be extended beyond the maturity of the Subordinated Debt
Securities.
REDEMPTION
Whenever Subordinated Debt Securities are repaid, whether at maturity or
earlier redemption, the Property Trustee will apply the proceeds to redeem a
like amount of Preferred Trust Securities and Common Trust Securities.
Preferred Trust Securities will be redeemed at the redemption price plus
accrued and unpaid distributions with the proceeds from the contemporaneous
redemption of Subordinated Debt Securities. Redemptions of the Preferred Trust
Securities will be made on a redemption date only if the Trust has funds
available for the payment of the redemption price plus accrued and unpaid
distributions.
Holders of Preferred Trust Securities will be given not less than 30 nor
more than 60 days' notice of any redemption. On or before the redemption date,
the Trust will irrevocably deposit with the paying agent for
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Preferred Trust Securities sufficient funds and will give the paying agent
irrevocable instructions and authority to pay the redemption price plus accrued
and unpaid distributions to the holders upon surrender of their Preferred Trust
Securities. Distributions payable on or before a redemption date will be payable
to the holders on the record date for the distribution payment. If notice is
given and funds are deposited as required, then on the redemption date all
rights of holders of the Preferred Trust Securities called for redemption will
cease, except the right of the holders to receive the redemption price plus
accrued and unpaid distributions, and the Preferred Trust Securities will cease
to be outstanding. No interest will accrue on amounts payable on the redemption
date. In the event that any date fixed for redemption of Preferred Trust
Securities is not a business day, then payment will be made on the next business
day, except that, if such business day falls in the next calendar year, then
payment will be made on the immediately preceding business day. No interest will
be payable because of any such delay. If payment of Preferred Trust Securities
called for redemption is improperly withheld or refused and not paid either by
the Trust or by PPL Corporation pursuant to the Preferred Securities Guarantee,
distributions on such Preferred Trust Securities will continue to accrue to the
date of payment. The actual payment date will be considered the date fixed for
redemption for purposes of calculating the redemption price plus accrued and
unpaid distributions.
Subject to applicable law, including United States federal securities law,
PPL Corporation or its affiliates may at any time and from time to time purchase
outstanding Preferred Trust Securities by tender, in the open market or by
private agreement.
If Preferred Trust Securities are partially redeemed on a redemption date,
a corresponding percentage of the Common Trust Securities will be redeemed. The
particular Preferred Trust Securities to be redeemed will be selected not more
than 60 days prior to the redemption date by the Property Trustee by such method
as the Property Trustee shall deem fair, taking into account the denominations
in which they were issued. The Property Trustee will promptly notify the
Preferred Trust Security registrar in writing of the Preferred Trust Securities
selected for redemption and, where applicable, the partial amount to be
redeemed.
SUBORDINATION OF COMMON TRUST SECURITIES
Payment of distributions on, and the redemption price, plus accrued and
unpaid distributions, of, the Preferred Trust Securities and Common Trust
Securities shall be made pro rata based on the liquidation preference amount of
such securities. However, if on any distribution payment date or redemption date
an event of default under the Trust Agreement resulting from an event of default
under the Subordinated Indenture has occurred and is continuing, no payment on
any Common Trust Security shall be made until all payments due on the Preferred
Trust Securities have been made. In that case, funds available to the Property
Trustee shall first be applied to the payment in full of all distributions on,
or the redemption price plus accrued and unpaid distributions of, Preferred
Trust Securities then due and payable.
If an event of default under the Trust Agreement results from an event of
default under the Subordinated Indenture, the holder of Common Trust Securities
cannot take action with respect to the Trust Agreement default until the effect
of all defaults with respect to Preferred Trust Securities has been cured,
waived or otherwise eliminated. Until the event of default under the Trust
Agreement with respect to Preferred Trust Securities has been cured, waived or
otherwise eliminated, the Property Trustee shall, to the fullest extent
permitted by law, act solely on behalf of the holders of Preferred Trust
Securities and not the holders of the Common Trust Securities, and only holders
of Preferred Trust Securities will have the right to direct the Property Trustee
to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The Trust shall dissolve and shall be liquidated by the Property Trustee on
the first to occur of:
(a) the expiration of the term of the Trust;
(b) the bankruptcy, dissolution or liquidation of PPL Corporation;
(c) the redemption of all of the Preferred Trust Securities;
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(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction; and
(e) the election of PPL Corporation at any time.
If a dissolution of the Trust occurs, the Trust will be liquidated by the
Property Trustee as expeditiously as the Property Trustee determines to be
appropriate. If a dissolution of the Trust occurs other than by redemption of
all the Preferred Trust Securities, the Property Trustee will provide for the
satisfaction of liabilities of creditors, if any, and distribute to each holder
of the Preferred Trust Securities and Common Trust Securities a proportionate
amount of Subordinated Debt Securities. If a distribution of Subordinated Debt
Securities is determined by the Property Trustee not to be practical, holders
will be entitled to receive, out of the assets of the Trust after adequate
provision for the satisfaction of liabilities of creditors, if any, an amount
equal to the aggregate liquidation preference of the Preferred Trust Securities
plus accrued and unpaid distributions thereon to the date of payment. If this
liquidation distribution can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable by the Trust on the Preferred Trust
Securities shall be paid on a pro rata basis. PPL Corporation, as holder of the
Common Trust Securities, will be entitled to receive distributions upon any
dissolution pro rata with the holders of the Preferred Trust Securities, except
that if an Event of Default (or event that, with the lapse of time or giving of
notice, would become such an Event of Default) has occurred and is continuing
under the Subordinated Indenture, the Preferred Trust Securities will have a
preference over the Common Trust Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events will be an event of default under the Trust
Agreement whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body:
(a) the occurrence of an Event of Default as described in the
Subordinated Indenture;
(b) default by the Trust in the payment of any distribution when it
becomes due and payable, and continuation of that default for a period of
30 days;
(c) default by the Trust in the payment of any redemption price, plus
accrued and unpaid distributions, of any Preferred Trust Security or Common
Trust Security when it becomes due and payable;
(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the trustees under the Trust Agreement which
is not dealt with above, and the continuation of that default or breach for
a period of 90 days after written notice to the Trust and PPL Corporation
by the holders of Preferred Trust Securities having at least 25% of the
total liquidation preference amount of the outstanding Preferred Trust
Securities; or
(e) the occurrence of certain events of bankruptcy or insolvency with
respect to the Trust.
Within 90 days after the occurrence of any event of default actually known
to the Property Trustee, the Property Trustee shall transmit to the holders of
Preferred Trust Securities, PPL Capital Funding, PPL Corporation and the
Administrative Trustees notice of any such default, unless that default will
have been cured or waived.
A holder of Preferred Trust Securities may directly institute a proceeding
to enforce payment when due directly to the holder of the Preferred Trust
Securities of the principal of or interest on Subordinated Debt Securities
having a principal amount equal to the aggregate liquidation preference amount
of the holder's Preferred Trust Securities. The holders of Preferred Trust
Securities have no other rights to exercise directly any other remedies
available to the holder of the Subordinated Debt Securities unless the trustees
under the Trust Agreement fail to do so.
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REMOVAL OF TRUSTEES
Unless an event of default under the Subordinated Indenture has occurred
and is continuing, the holder of the Common Trust Securities may remove any
trustee under the Trust Agreement at any time. If an event of default under the
Subordinated Indenture has occurred and is continuing, the holders of a majority
of the total liquidation preference amount of the outstanding Preferred Trust
Securities may remove the Property Trustee or the Delaware Trustee, or both of
them. The holder of the Common Trust Securities may remove any Administrative
Trustee at any time. Any resignation or removal of a trustee under the Trust
Agreement will take effect only on the acceptance of appointment by the
successor trustee.
Holders of Preferred Trust Securities will have no right to appoint or
remove the Administrative Trustees of the Trust, who may be appointed, removed
or replaced solely by PPL Corporation as the holder of the Common Trust
Securities.
VOTING RIGHTS
Except as provided below and under "Description of the Preferred Securities
Guarantee--Amendments and Assignments," and as otherwise required by law or the
Trust Agreement, the holders of Preferred Trust Securities will have no voting
rights.
While Subordinated Debt Securities are held by the Property Trustee, the
Property Trustee will not:
(a) direct the time, method and place to conduct any proceeding for
any remedy available to the Subordinated Indenture Trustee, or execute any
trust or power conferred on the Subordinated Indenture Trustee with respect
to the Subordinated Debt Securities;
(b) waive any past default under the Subordinated Indenture;
(c) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debt Securities will be due and payable;
or
(d) consent to any amendment, modification or termination of the
Subordinated Indenture or the Subordinated Debt Securities, where that
consent will be required;
without, in each case, obtaining the prior approval of the holders of Preferred
Trust Securities having at least a majority of the liquidation preference amount
of all outstanding Preferred Trust Securities. Where a consent of each holder of
Subordinated Debt Securities affected is required, no consent shall be given by
the Property Trustee without the prior consent of each holder of the Preferred
Trust Securities affected. The Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of Preferred Trust Securities,
except pursuant to the subsequent vote of the holders of Preferred Trust
Securities. If the Property Trustee fails to enforce its rights under the
Subordinated Debt Securities or the Trust Agreement, a holder of the Preferred
Trust Securities may institute a legal proceeding directly against PPL Capital
Funding or PPL Corporation, as the case may be, to enforce the Property
Trustee's rights under the Subordinated Debt Securities or the Trust Agreement
without first instituting any legal proceeding against the Property Trustee or
anyone else. The Property Trustee shall notify all holders of Preferred Trust
Securities of any notice of default received from the Subordinated Indenture
Trustee. The Property Trustee shall not take any action approved by the consent
of the holders without an opinion of counsel experienced in those matters to the
effect that the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes on account of that action.
Holders of Preferred Trust Securities may give any required approval at a
meeting convened for such purpose or by written consent without prior notice.
The Administrative Trustees will give notice of any meeting at which holders of
Preferred Trust Securities are entitled to vote.
No vote or consent of the holders of Preferred Trust Securities will be
required for the Trust to redeem and cancel Preferred Trust Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of Preferred Trust Securities are entitled to
vote or consent under any of the circumstances described above, any Preferred
Trust Securities that are owned by PPL Capital Funding, PPL
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Corporation or any affiliate of any of them, shall be treated as if they were
not outstanding for purposes of such vote or consent.
AMENDMENTS
The Trust Agreement may be amended from time to time by a majority of the
Administrative Trustees and PPL Corporation, without the consent of any holders
of Preferred Trust Securities:
(a) to cure any ambiguity, correct inconsistent provisions or make
any other provisions with respect to matters or questions arising under the
Trust Agreement; or
(b) to change the name of the Trust; or
(c) to modify, eliminate or add to any provisions of the Trust
Agreement to the extent necessary to ensure that the Trust will not be
classified for United States federal income tax purposes other than as a
grantor trust (and not an association taxable as a corporation) at all
times that any Preferred Trust Securities and Common Trust Securities are
outstanding or to ensure the Trust's exemption from the status of an
"investment company" under the Investment Company Act of 1940.
No amendment described above may materially adversely affect the interests
of any holder of Preferred Trust Securities and Common Trust Securities without
such holder's consent. Any of the amendments of the Trust Agreement described in
paragraph (a) above shall become effective when notice of the amendment is given
to the holders of Preferred Trust Securities and Common Trust Securities.
Except as provided below, any provision of the Trust Agreement may be
amended by the Administrative Trustees and PPL Corporation with:
(a) the consent of holders of Preferred Trust Securities and Common
Trust Securities representing not less than a majority in aggregate
liquidation preference amount of the Preferred Trust Securities and Common
Trust Securities then outstanding; and
(b) receipt by the trustees of an opinion of counsel to the effect
that such amendment or the exercise of any power granted to the trustees in
accordance with the amendment will not affect the Trust's status as a
grantor trust for federal income tax purposes or affect the Trust's
exemption from status of an "investment company" under the Investment
Company Act of 1940.
Each affected holder of Preferred Trust Securities or Common Trust
Securities must have consented to any amendment to the Trust Agreement that:
(a) adversely changes the amount or timing of any distribution with
respect to Preferred Trust Securities or Common Trust Securities or
otherwise adversely affects the amount of any distribution required to be
made in respect of Preferred Trust Securities and Common Trust Securities
as of a specified date; or
(b) restricts the right of a holder of Preferred Trust Securities or
Common Trust Securities to institute suit for the enforcement of any such
payment on or after that date.
FORM, EXCHANGE AND TRANSFER
Preferred Trust Securities may be exchanged for other Preferred Trust
Securities in any authorized denomination and of like tenor and aggregate
liquidation preference.
Subject to the terms of the Trust Agreement, Preferred Trust Securities may
be presented for exchange as provided above or for registration of transfer,
duly endorsed or accompanied by a duly executed instrument of transfer, at the
office of the Preferred Trust Security registrar. The Administrative Trustees
may designate PPL Corporation or PPL Capital Funding or any affiliate of either
of them as the Preferred Trust Security registrar. The Property Trustee will
initially act as the Preferred Trust Security registrar and transfer agent. No
service charge will be made for any registration of transfer or exchange of
Preferred Trust Securities, but the Preferred Trust Security registrar may
require payment of a sum sufficient to cover any tax or other
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governmental charge payable in connection with the transfer or exchange. A
transfer or exchange will be made when the Preferred Trust Security registrar
and Administrative Trustees are satisfied with the documents of title and
identity of the person making the request. The Administrative Trustees may at
any time designate additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which any transfer
agent acts, except that PPL Corporation will, or will cause the Preferred Trust
Security registrar to, maintain an office or agency in The City of New York
where Preferred Trust Securities may be transferred or exchanged.
The Trust will not be required to (1) issue, register the transfer of, or
exchange any Preferred Trust Securities during the 15 calendar days before the
mailing of a notice of redemption of any Preferred Trust Securities called for
redemption and ending at the close of business on the day the notice is mailed
or (2) register the transfer of or exchange any Preferred Trust Securities so
selected for redemption, in whole or in part, except the unredeemed portion of
any Preferred Trust Securities being redeemed in part.
PAYMENT OF PREFERRED TRUST SECURITIES AND PAYING AGENT
Unless we indicate differently in a prospectus supplement, payments in
respect of the Preferred Trust Securities will be made on the applicable
distribution dates by check mailed to the address of the holder entitled thereto
as such address appears on the Preferred Trust Security register. The paying
agent shall initially be the Property Trustee and any co-paying agent chosen by
the Property Trustee and acceptable to the Administrative Trustees, PPL Capital
Funding and PPL Corporation, which may be PPL Corporation or PPL Capital
Funding. The paying agent may resign upon 30 days' written notice to the
Administrative Trustees, the Property Trustee, PPL Capital Funding and PPL
Corporation. In the event that the Property Trustee shall no longer be the
paying agent, the Administrative Trustees shall appoint a successor, which shall
be a bank, trust company or affiliate of PPL Corporation acceptable to the
Property Trustee, PPL Capital Funding and PPL Corporation to act as paying
agent.
DUTIES OF THE TRUSTEES
The Delaware Trustee will act as the resident trustee in the State of
Delaware and will have no other significant duties. The Property Trustee will
hold the Subordinated Debt Securities on behalf of the Trust and will maintain a
payment account with respect to the Preferred Trust Securities and Common Trust
Securities, and will also act as trustee under the Trust Agreement for the
purposes of the Trust Indenture Act.
The Administrative Trustees of the Trust are authorized and directed to
conduct the affairs of the Trust and to operate the Trust so that (i) the Trust
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act, (ii) the Trust will not be taxed as a corporation,
(iii) the Trust will not be classified as other than a grantor trust for United
States federal income tax purposes and (iv) the Subordinated Debt Securities
will be treated as indebtedness of PPL Capital Funding for United States federal
income tax purposes. In this regard, PPL Corporation and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust or the Trust Agreement, that PPL Corporation and
the Administrative Trustees determine in their discretion to be necessary or
desirable for those purposes, as long as the action does not materially
adversely affect the interests of the holders of the Preferred Trust Securities.
MISCELLANEOUS
Holders of the Preferred Trust Securities have no preemptive or similar
rights.
GOVERNING LAW
The Trust Agreement, the Preferred Trust Securities and the Common Trust
Securities provide that they are to be governed by and construed in accordance
with the laws of the State of Delaware.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Selected provisions of the Preferred Securities Guarantee that PPL
Corporation will execute and deliver for the benefit of the holders of the
Preferred Trust Securities are summarized below. The summary is not complete.
The form of Preferred Securities Guarantee was filed with the SEC and you should
read the Preferred Securities Guarantee for provisions that may be important to
you. The Preferred Securities Guarantee will be qualified as an indenture under
the Trust Indenture Act. You should refer to the Trust Indenture Act for
provisions that apply to the Preferred Securities Guarantee. Whenever particular
defined terms of the Preferred Securities Guarantee are referred to, those
defined terms are incorporated herein by reference.
The Chase Manhattan Bank will act as Guarantee Trustee under the Preferred
Securities Guarantee. The Guarantee Trustee will hold the Preferred Securities
Guarantee for the benefit of the holders of the Preferred Trust Securities.
GENERAL
PPL Corporation will irrevocably, fully and unconditionally agree to make
the guarantee payments listed below in full to the holders of the Preferred
Trust Securities if they are not made by the Trust, as and when due, regardless
of any defense, right of set-off or counterclaim that the Trust may have or
assert. The following payments will be subject to the Preferred Securities
Guarantee (without duplication):
(a) any accrued and unpaid distributions required to be paid on
Preferred Trust Securities, to the extent the Trust has funds available
therefor;
(b) the redemption price, plus all accrued and unpaid distributions,
for any Preferred Trust Securities called for redemption by the Trust, to
the extent the Trust has funds available therefor; and
(c) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (except in connection with the distribution of
Subordinated Debt Securities to the holders in exchange for Preferred Trust
Securities as provided in the Trust Agreement or upon a redemption of all
of the Preferred Trust Securities upon maturity or redemption of the
Subordinated Debt Securities as provided in the Trust Agreement), the
lesser of:
(1) the aggregate of the liquidation preference and all accrued
and unpaid distributions on Preferred Trust Securities to the date of
payment, to the extent the Trust has funds available therefor; and
(2) the amount of assets of the Trust remaining available for
distribution to holders of Preferred Trust Securities in liquidation of
the Trust after satisfaction of liabilities to creditors of the Trust as
required by applicable law.
PPL Corporation's obligation to make a guarantee payment may be satisfied by
direct payment of the required amounts by PPL Corporation to the holders of
Preferred Trust Securities or by causing the Trust to pay such amounts to those
holders.
The Preferred Securities Guarantee will be a guarantee with respect to the
Preferred Trust Securities, but will not apply to any payment of distributions
if and to the extent that the Trust does not have funds available to make those
payments.
If neither PPL Capital Funding nor PPL Corporation makes interest payments
on the Subordinated Debt Securities held by the Trust, the Trust will not have
funds available to pay distributions on the Preferred Trust Securities. The
Preferred Securities Guarantee will rank subordinate and junior in right of
payment to all other liabilities of PPL Corporation (except those made pari
passu or subordinate by their terms). The Preferred Securities Guarantee does
not limit PPL Corporation from incurring or issuing additional debt, whether
secured or unsecured, senior to or equal in right of payment to the Preferred
Securities Guarantee in the future.
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PPL Corporation will agree to provide funds to the Trust as needed to pay
costs, expenses or liabilities of the Trust to parties other than holders of
Preferred Trust Securities or Common Trust Securities. The Subordinated Debt
Securities, the Subordinated Guarantees and the Preferred Securities Guarantee,
together with the obligations of PPL Corporation with respect to the Preferred
Trust Securities under the Subordinated Indenture, the Trust Agreement, the
Preferred Securities Guarantee, including the agreement by PPL Corporation to
pay expenses and obligations of the Trust to parties (other than holders of
Preferred Trust Securities or Common Trust Securities), constitute a full and
unconditional guarantee of the Preferred Trust Securities by PPL Corporation. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes that guarantee. It is only the combined
operation of these documents that has the effect of providing a full and
unconditional guarantee by PPL Corporation of the Preferred Trust Securities.
AMENDMENTS AND ASSIGNMENT
No consent of holders of Preferred Trust Securities is required for changes
to the Preferred Securities Guarantee that do not materially adversely affect
their rights. Other terms of the Preferred Securities Guarantee may be changed
only with the prior approval of the holders of the Preferred Trust Securities
having at least a majority of the liquidation preference amount of the
outstanding Preferred Trust Securities. All guarantees and agreements contained
in the Preferred Securities Guarantee will bind the successors, assigns,
receivers, trustees and representatives of PPL Corporation and will inure to the
benefit of the holders of the Preferred Trust Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Preferred Securities Guarantee will occur if
PPL Corporation fails to perform any of its payment or other obligations under
the Preferred Securities Guarantee and has not cured such failure within 90 days
of receipt of notice thereof. The holders of the Preferred Trust Securities
having a majority of the liquidation preference of the Preferred Trust
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee under the Preferred
Securities Guarantee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Preferred Securities Guarantee.
Any holder of the Preferred Trust Securities may enforce the Preferred
Securities Guarantee, or institute a legal proceeding directly against PPL
Corporation to enforce the Guarantee Trustee's rights under the Preferred
Securities Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or anyone else.
PPL Corporation will be required to file an annual statement with the
Guarantee Trustee as to its compliance with the Preferred Securities Guarantee.
DUTIES OF THE GUARANTEE TRUSTEE
The Guarantee Trustee will undertake to perform only those duties
specifically set forth in the Preferred Securities Guarantee until a default
occurs. After a default under the Preferred Securities Guarantee, the Guarantee
Trustee must exercise the same degree of care in its duties as a prudent
individual would exercise in the conduct of his or her own affairs. The
Preferred Securities Guarantee Trustee is under no obligation to exercise any of
the powers vested in it by the Preferred Securities Guarantee at the request of
any holder of the Preferred Trust Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that it might incur.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will terminate and be of no further
force and effect upon:
(a) full payment of the redemption price, plus accrued and unpaid
distributions, for all the Preferred Trust Securities;
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(b) the distribution of Subordinated Debt Securities to holders of
the Preferred Trust Securities in exchange for all of the Preferred Trust
Securities; or
(c) full payment of the amounts payable upon liquidation of the
Trust.
The Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred Trust
Securities must restore payment of any sums paid under the Preferred Trust
Securities or the Preferred Securities Guarantee.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will be an unsecured obligation of PPL
Corporation and will rank:
(a) subordinate and junior in right of payment to all other
liabilities of PPL Corporation, including the Subordinated Guarantees;
(b) equal in right of payment with the most senior preferred or
preference stock that may be issued by PPL Corporation and with any
guarantee that may be entered into by PPL Corporation in respect of any
preferred or preference stock of any affiliate of PPL Corporation; and
(c) senior to PPL Corporation common stock.
The Trust Agreement provides that by accepting Preferred Trust Securities,
a holder agrees to the subordination provisions and other terms of the Preferred
Securities Guarantee.
The Preferred Securities Guarantee will be a guarantee of payment and not
of collection, that is, the guaranteed party may institute a legal proceeding
directly against PPL Corporation to enforce its rights under the Preferred
Securities Guarantee without first instituting a legal proceeding against anyone
else.
Because PPL Corporation is a holding company that conducts all of its
operations through subsidiaries, obligations under the Preferred Securities
Guarantee, as obligations of a holding company, will generally have a position
junior to claims of creditors and preferred stockholders of the subsidiaries of
PPL Corporation. See "PPL Corporation--Holding Company Structure" above.
GOVERNING LAW
The Preferred Securities Guarantee provides that it is to be governed by
and construed in accordance with the laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
The Subordinated Indenture and its associated documents contain the full
legal text of the matters described in this section. Because this section is a
summary, it does not describe every aspect of the Subordinated Debt Securities
or the Subordinated Indenture. The form of the Subordinated Indenture has been
filed with the SEC, and you should read the Subordinated Indenture for
provisions that may be important to you. The Subordinated Indenture will be
qualified under the Trust Indenture Act. You should refer to the Trust Indenture
Act for provisions that apply to the Subordinated Debt Securities.
This summary is subject to and qualified in its entirety by reference to
all the provisions of the Subordinated Indenture, including definitions of
certain terms used in the Subordinated Indenture. We also include references in
parentheses to certain sections of the Subordinated Indenture. Whenever we refer
to particular sections or defined terms of the Subordinated Indenture in this
prospectus or in a prospectus supplement, such sections or defined terms are
incorporated by reference herein or in the prospectus supplement. This summary
also is subject to and qualified by reference to the description of the
particular terms of your securities described in the applicable prospectus
supplement or supplements.
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GENERAL
The Subordinated Debt Securities, including any Subordinated Debt
Securities which the Property Trustee will hold on behalf of the Trust as trust
assets, will be issued under the Subordinated Indenture (the "Subordinated
Indenture") among PPL Capital Funding, PPL Corporation and The Chase Manhattan
Bank, as Trustee (the "Subordinated Indenture Trustee"). The Subordinated
Indenture provides for the issuance from time to time of subordinated debt in an
unlimited amount. The Subordinated Debt Securities and all other subordinated
debt issued previously or hereafter under the Subordinated Indenture are
collectively referred to as the "Subordinated Indenture Securities."
Subordinated Debt Securities issued to the Trust will constitute a separate
series under the Subordinated Indenture and will be limited in aggregate
principal amount to the sum of the aggregate liquidation preference amount of
the Preferred Trust Securities and the consideration paid by PPL Corporation for
the Common Trust Securities.
The Subordinated Debt Securities will be unsecured, subordinated
obligations of PPL Capital Funding which rank junior to all of PPL Capital
Funding's Senior Indebtedness (as defined herein). The Subordinated Debt
Securities will be unconditionally guaranteed by PPL Corporation as to payment
of principal, and any interest and premium pursuant to subordinated guarantees
("Subordinated Guarantees") of PPL Corporation which rank junior to all of PPL
Corporation's Senior Indebtedness (as defined herein). See "--Subordinated
Guarantees."
Prior to the issuance of each series, certain aspects of the particular
securities have to be specified in a supplemental indenture, in a board
resolution of PPL Capital Funding, or in one or more officer's certificates of
PPL Capital Funding pursuant to a supplemental indenture or a board resolution.
We refer you to the applicable prospectus supplement(s) for a description of the
following terms of the series of Subordinated Debt Securities:
(a) the title of such Subordinated Debt Securities;
(b) any limit upon the principal amount of such Subordinated Debt
Securities;
(c) the date or dates on which principal will be payable or how to
determine such dates;
(d) the rate or rates or method of determination of interest; the
date from which interest will accrue; the dates on which interest will be
payable ("Subordinated Debt Securities Interest Payment Dates"); and any
record dates for the interest payable on such Subordinated Debt Securities
Interest Payment Dates;
(e) any obligation or option of PPL Capital Funding to redeem,
purchase or repay Subordinated Debt Securities, or any option of the Holder
to require PPL Capital Funding to redeem or repurchase Subordinated Debt
Securities, and the terms and conditions upon which such Subordinated Debt
Securities will be redeemed, purchased or repaid;
(f) the denominations in which such Subordinated Debt Securities will
be issuable (if other than denominations of $25 and any integral multiple
thereof);
(g) whether such Subordinated Debt Securities are to be issued in
whole or in part in the form of one or more global Subordinated Debt
Securities and, if so, the identity of the depositary for such global
Subordinated Debt Securities; and
(h) any other terms of such Subordinated Debt Securities.
(See Section 301.)
SUBORDINATION
The Subordinated Debt Securities will be subordinate and junior in right of
payment to all Senior Indebtedness of PPL Capital Funding. (See Article
Fifteen.) No payment of the principal (including redemption and sinking fund
payments) of, or interest on, the Subordinated Debt Securities may be made by
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PPL Capital Funding until all holders of Senior Indebtedness of PPL Capital
Funding have been paid, if any of the following occurs:
(a) certain events of bankruptcy, insolvency or reorganization of PPL
Capital Funding;
(b) any Senior Indebtedness of PPL Capital Funding is not paid when
due and that default continues without waiver;
(c) any other default has occurred and continues without waiver
pursuant to which the holders of Senior Indebtedness of PPL Capital Funding
are permitted to accelerate the maturity of such Senior Indebtedness; or
(d) the maturity of any other series of subordinated debentures under
the Subordinated Indenture has been accelerated, because of an event of
default which remains uncured.
Upon any distribution of assets of PPL Capital Funding to creditors in
connection with any insolvency, bankruptcy or similar proceeding, all principal
of, and premium, if any, and interest due or to become due on all Senior
Indebtedness of PPL Capital Funding must be paid in full before the holders of
the Subordinated Debt Securities are entitled to receive or retain any payment
from such distribution.
Senior Indebtedness, when used with respect to PPL Capital Funding or PPL
Corporation, is defined in the Subordinated Indenture to include all obligations
of PPL Capital Funding or PPL Corporation, as the case may be, for borrowed
money, or guarantees of the same, or for the payment of money pursuant to
capital leases, unless such obligation or guarantee expressly provides that it
is not superior to or equal in right of payment to the Subordinated Debt
Securities or the Subordinated Guarantees, as the case may be. The obligations
of PPL Corporation under the Preferred Securities Guarantee shall not be deemed
to be Senior Indebtedness. (See Section 101.)
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued. As of December 31, 2000, PPL Capital Funding
had approximately $2.068 billion principal amount of indebtedness for borrowed
money constituting its Senior Indebtedness, and PPL Corporation had
approximately $2.439 billion principal amount of obligations constituting its
Senior Indebtedness (including guarantees of indebtedness of PPL Capital Funding
and certain of PPL Corporation's other subsidiaries).
SUBORDINATED GUARANTEES
PPL Corporation will unconditionally guarantee the payment of principal of
and any interest and premium on the Subordinated Debt Securities, when due and
payable, whether at the stated maturity date, by declaration of acceleration,
call for redemption or otherwise, in accordance with the terms of such
Subordinated Debt Securities and the Subordinated Indenture. The Subordinated
Guarantees will remain in effect until the entire principal of and any premium
and interest on the Subordinated Debt Securities has been paid in full or
otherwise discharged in accordance with the provisions of the Subordinated
Indenture. (See Article Fourteen.)
The Subordinated Guarantees will be subordinate and junior in right of
payment to all Senior Indebtedness of PPL Corporation. No payment of the
principal (including redemption and sinking fund payments) of, or interest on,
the Subordinated Debt Securities may be made by PPL Corporation under the
Subordinated Guarantees until all holders of Senior Indebtedness of PPL
Corporation have been paid, if any of the following occurs:
(a) certain events of bankruptcy, insolvency or reorganization of PPL
Corporation;
(b) any Senior Indebtedness of PPL Corporation is not paid when due
and that default continues without waiver;
(c) any other default has occurred and continues without waiver
pursuant to which the holders of Senior Indebtedness of PPL Corporation are
permitted to accelerate the maturity of such Senior Indebtedness; or
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(d) the maturity of any other series of subordinated debentures under
the Subordinated Indenture which has been guaranteed by PPL Corporation and
has been accelerated, because of an event of default which remains uncured.
Upon any distribution of assets of PPL Corporation to creditors in
connection with any insolvency, bankruptcy or similar proceeding, all principal
of, and premium, if any, and interest due or to become due on all Senior
Indebtedness of PPL Corporation must be paid in full before the holders of the
Subordinated Debt Securities are entitled to receive or retain any payment from
such distribution.
PAYMENT OF SUBORDINATED DEBT SECURITIES
INTEREST
Unless we indicate differently in a prospectus supplement, we will pay
interest on each Subordinated Debt Security on each Subordinated Debt Securities
Interest Payment Date by check mailed to the Holder of the Subordinated Debt
Securities as of the close of business on the regular record date relating to
such Subordinated Debt Securities Interest Payment Date, except, that interest
payable at Maturity will be paid to the person to whom principal is paid.
However, if we default in paying interest on a Subordinated Debt Security,
we will pay defaulted interest in either of the two following ways:
(a) We will first propose to the Subordinated Indenture Trustee a
payment date for such defaulted interest. Next, the Subordinated Indenture
Trustee will choose a Special Record Date for determining which Holders are
entitled to the payment. The Special Record Date will be between 10 and 15
days before the payment date we propose. Finally, we will pay such
defaulted interest on the payment date to the Holder of the Subordinated
Debt Security as of the close of business on the Special Record Date.
(b) Alternatively, we can propose to the Subordinated Indenture
Trustee any other lawful manner of payment that is consistent with the
requirements of any securities exchange on which such Subordinated Debt
Securities are listed for trading. If the Subordinated Indenture Trustee
thinks the proposal is practicable, payment will be made as proposed.
(See Section 307.)
PRINCIPAL
Unless we indicate differently in a prospectus supplement, we will pay
principal of and any interest and premium on the Subordinated Debt Securities at
Maturity upon presentation of the Subordinated Debt Securities at the office of
The Chase Manhattan Bank in New York, New York, as our Paying Agent. Any other
Paying Agent initially designated for the Subordinated Debt Securities of a
particular series will be named in the applicable prospectus supplement.
In our discretion, we may change the place of payment on the Subordinated
Debt Securities, and may remove any Paying Agent and may appoint one or more
additional Paying Agents (including PPL Capital Funding, PPL Corporation or any
affiliate of either of them). (See Section 602.)
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Subordinated Indenture has
occurred and is continuing, PPL Capital Funding may extend the interest payment
period from time to time on the Subordinated Debt Securities for one or more
periods. As a consequence, distributions on Preferred Trust Securities would be
deferred during any extension period. Interest would, however, continue to
accrue. During any extended interest period, or for so long as an "Event of
Default" under the Subordinated Indenture resulting from a
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payment default or a payment default under the Preferred Securities Guarantee
has occurred and is continuing, PPL Corporation may not:
(a) declare or pay any dividend or distribution on its capital stock,
other than dividends paid in shares of capital stock of PPL Corporation;
(b) redeem, purchase, acquire or make a liquidation payment with
respect to any of its capital stock;
(c) pay any principal, interest or premium on, or repay, repurchase
or redeem any debt securities that are equal or junior in right of payment
with the Subordinated Guarantees; or
(d) make any payments with respect to any guarantee of debt
securities by PPL Corporation if such guarantee is equal or junior in right
of payment to the Subordinated Guarantees.
(See Section 312.)
Before an extension period ends, PPL Capital Funding may further extend the
interest payment period. No extension period as further extended may exceed 20
consecutive quarters. After any extension period and the payment of all amounts
then due, PPL Capital Funding may select a new extended interest payment period.
No interest period may be extended beyond the maturity of the Subordinated Debt
Securities. PPL Capital Funding will give the Trust and the Subordinated
Indenture Trustee notice of its election of an extension period prior to the
earlier of (i) one business day before the record date for the distribution
which would occur if PPL Capital Funding did not make the election to extend or
(ii) the date the Administrative Trustees are required to give notice to any
securities exchange or any other applicable self-regulatory organization of the
record date. The Property Trustee shall send notice of that election to the
holders of Preferred Trust Securities.
ADDITIONAL INTEREST
So long as any Preferred Trust Securities remain outstanding, if the Trust
is required to pay any taxes, duties, assessments or governmental charges
imposed by the United States or any other taxing authority on income derived
from the interest payments on the Subordinated Debt Securities, then PPL Capital
Funding will pay as interest on the Subordinated Debt Securities any additional
interest that may be necessary in order that the net amounts retained by the
Trust after the payment of those taxes, duties, assessments or governmental
charges will be the same as the Trust would have had in the absence of such
payment. (See Section 313.)
FORM; TRANSFERS; EXCHANGES
Unless we indicated differently in a prospectus supplement, the
Subordinated Debt Securities will be issued
(a) only in fully registered form;
(b) without interest coupons; and
(c) in denominations that are even multiples of $25. (See Section
302.)
Unless we indicate differently in a prospectus supplement, Subordinated
Debt Securities may be exchanged at the office of the Subordinated Indenture
Trustee. The Subordinated Indenture Trustee will also act as our agent for
registering Subordinated Debt Securities in the names of holders and
transferring debt securities. We may appoint another agent or act as our own
agent for this purpose. The entity performing the role of maintaining the list
of registered holders is called the "Subordinated Indenture Registrar." It will
also perform transfers.
In our discretion, we may change the place for registration of transfer of
the Subordinated Debt Securities and may remove and/or appoint one or more
additional Subordinated Indenture Registrars
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(including PPL Capital Funding, PPL Corporation or any affiliate of either of
them). (See Sections 305 and 602.)
Except as otherwise provided in a prospectus supplement, there will be no
service charge for any transfer or exchange of the Debt Securities, but you may
be required to pay a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. We may block the transfer or exchange of
(a) Subordinated Debt Securities during a period of 15 days prior to giving any
notice of redemption or (b) any Subordinated Debt Security selected for
redemption in whole or in part, except the unredeemed portion of any
Subordinated Debt Security being redeemed in part. (See Section 305.)
Unless we indicate differently in a prospectus supplement, if Subordinated
Debt Securities are distributed to holders of Preferred Trust Securities in a
dissolution of the Trust, the Subordinated Debt Securities will be issued in
fully registered certificated form in the denominations and integral multiples
thereof in which the Preferred Trust Securities have been issued, and they may
be transferred or exchanged at the offices of the Subordinated Indenture
Trustee.
REDEMPTION
For so long as the Trust is the holder of all the Subordinated Debt
Securities, the proceeds of any redemption will be used by the Trust to redeem
Preferred Trust Securities and Common Trust Securities in accordance with their
terms.
We will set forth any terms for the redemption of Subordinated Debt
Securities in a prospectus supplement. Unless we indicate differently in a
prospectus supplement, and except with respect to Subordinated Debt Securities
redeemable at the option of the Holder, Subordinated Debt Securities will be
redeemable upon notice by mail between 30 and 60 days prior to the redemption
date. If less than all of the Subordinated Debt Securities of any series or any
tranche thereof are to be redeemed, the Subordinated Indenture Trustee will
select the Subordinated Debt Securities to be redeemed. In the absence of any
provision for selection, the Subordinated Indenture Trustee will choose a method
of random selection as it deems fair and appropriate. (See Sections 403 and
404.)
Subordinated Debt Securities will cease to bear interest on the redemption
date. PPL Capital Funding will pay the redemption price and any accrued interest
once the Subordinated Debt Securities are surrendered for redemption. (See
Section 405.) If only part of a Subordinated Debt Security is redeemed, the
Subordinated Indenture Trustee will deliver a new Subordinated Debt Security of
the same series for the remaining portion without charge. (See Section 406.)
We may make any redemption at the option of PPL Capital Funding conditional
upon the receipt by the paying agent, on or prior to the date fixed for
redemption, of money sufficient to pay the redemption price. If the paying agent
has not received such money by the date fixed for redemption, PPL Capital
Funding will not be required to redeem such Subordinated Debt Securities. (See
Section 404.)
EVENTS OF DEFAULT
An "Event of Default" occurs with respect to Subordinated Indenture
Securities of any series if
(a) we do not pay any interest on any Subordinated Indenture
Securities of the applicable series within 30 days of the due date;
provided, however, that a valid extension of the interest period by us will
not constitute an Event of Default;
(b) we do not pay principal or premium on any Subordinated Indenture
Securities of the applicable series on its due date;
(c) we remain in breach of a covenant (excluding covenants solely
applicable to a specific series) or warranty of the Subordinated Indenture
for 90 days after we receive a written notice of default stating we are in
breach and requiring remedy of the breach; the notice must be sent by
either the Subordinated Indenture Trustee or Holders of 25% of the
principal amount of Subordinated Indenture Securities of the affected
series; the Subordinated Indenture Trustee or such Holders can agree to
extend the 90-day
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period and such an agreement to extend will be automatically deemed to
occur if we are diligently pursuing action to correct the default;
(d) the Subordinated Guarantees of PPL Corporation relating to any
Subordinated Indenture Securities of the applicable series
(1) cease to be effective (except in accordance with their terms),
(2) are found in any judicial proceeding to be unenforceable or
invalid, or
(3) are denied or disaffirmed (except in accordance with their
terms);
(e) we file for bankruptcy or certain other events in bankruptcy,
insolvency, receivership or reorganization occur; or
(f) any other Event of Default specified in the prospectus supplement
occurs.
(See Section 801.)
No Event of Default with respect to the Subordinated Debt Securities necessarily
constitutes an Event of Default with respect to the Subordinated Indenture
Securities of any other series issued under the Subordinated Indenture.
REMEDIES
ACCELERATION
Any One Series. If an Event of Default occurs and is continuing with
respect to any one series of Subordinated Indenture Securities, then either the
Subordinated Indenture Trustee or the Holders of 25% in principal amount of the
outstanding Subordinated Indenture Securities of such series may declare the
principal amount of all of the Subordinated Indenture Securities of such series
to be due and payable immediately.
More Than One Series. If an Event of Default occurs and is continuing with
respect to more than one series of Subordinated Indenture Securities, then
either the Subordinated Indenture Trustee or the Holders of 25% in aggregate
principal amount of the outstanding Subordinated Indenture Securities of all
such series, considered as one class, may make such declaration of acceleration.
Thus, if there is more than one series affected, the action by 25% in principal
amount of the Subordinated Indenture Securities of any particular series will
not, in itself, be sufficient to make a declaration of acceleration.
(See Section 802.)
RESCISSION OF ACCELERATION
After the declaration of acceleration has been made and before the
Subordinated Indenture Trustee has obtained a judgment or decree for payment of
the money due, such declaration and its consequences will be rescinded and
annulled, if
(a) we pay or deposit with the Subordinated Indenture Trustee a sum
sufficient to pay
(1) all overdue interest;
(2) the principal of and any premium which have become due
otherwise than by such declaration of acceleration and overdue interest
thereon;
(3) interest on overdue interest to the extent lawful; and
(4) all amounts due to the Subordinated Indenture Trustee under
the Subordinated Indenture; and
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(b) all Events of Default, other than the nonpayment of the principal
which has become due solely by such declaration of acceleration, have been
cured or waived as provided in the Subordinated Indenture.
(See Section 802.) For more information as to waiver of defaults, see "--Waiver
of Default and of Compliance" below.
CONTROL BY HOLDERS; LIMITATIONS
Subject to the Subordinated Indenture, if an Event of Default with respect
to the Subordinated Indenture Securities of any one series occurs and is
continuing, the Holders of a majority in principal amount of the outstanding
Subordinated Indenture Securities of that series will have the right to
(a) direct the time, method and place of conducting any proceeding
for any remedy available to the Subordinated Indenture Trustee, or
(b) exercise any trust or power conferred on the Subordinated
Indenture Trustee with respect to the Subordinated Indenture Securities of
such series.
If an Event of Default is continuing with respect to more than one series
of Subordinated Indenture Securities, the Holders of a majority in aggregate
principal amount of the outstanding Subordinated Indenture Securities of all
such series, considered as one class, will have the right to make such
direction, and not the Holders of the Subordinated Indenture Securities of any
one of such series. These rights of Holders to make direction are subject to the
following limitations:
(a) the Holders' directions may not conflict with any law or the
Subordinated Indenture; and
(b) the Holders' directions may not involve the Subordinated
Indenture Trustee in personal liability where the Trustee believes
indemnity is not adequate.
The Subordinated Indenture Trustee may also take any other action it deems
proper which is consistent with the Holders' direction. (See Sections 812 and
903.)
In addition, the Subordinated Indenture provides that no Holder of any
Subordinated Indenture Security will have any right to institute any proceeding,
judicial or otherwise, with respect to the Subordinated Indenture for the
appointment of a receiver or for any other remedy thereunder unless
(a) that Holder has previously given the Subordinated Indenture
Trustee written notice of a continuing Event of Default;
(b) the Holders of 25% in aggregate principal amount of the
outstanding Subordinated Indenture Securities of all affected series,
considered as one class, have made written request to the Subordinated
Indenture Trustee to institute proceedings in respect of that Event of
Default and have offered the Subordinated Indenture Trustee reasonable
indemnity against costs and liabilities incurred in complying with such
request; and
(c) for 60 days after receipt of such notice, the Subordinated
Indenture Trustee has failed to institute any such proceeding and no
direction inconsistent with such request has been given to the Subordinated
Indenture Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of outstanding Subordinated Indenture Securities
of all affected series, considered as one class.
Furthermore, no Holder will be entitled to institute any such action if and to
the extent that such action would disturb or prejudice the rights of other
Holders. (See Sections 807 and 903.)
However, each Holder has an absolute and unconditional right to receive
payment when due and to bring a suit to enforce that right. (See Sections 807
and 808.)
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED TRUST SECURITIES
If there is an Event of Default with respect to Subordinated Debt
Securities held by the Trust, then the holders of Preferred Trust Securities
will rely on the Property Trustee or the Subordinated Indenture Trustee, acting
for the benefit of the Property Trustee, to enforce the Property Trustee's
rights against PPL Capital Funding and PPL Corporation as a holder of the
Subordinated Debt Securities. However, a holder of Preferred Trust Securities
may enforce the Subordinated Indenture directly against PPL Capital Funding and
PPL Corporation to the same extent as if the holder of Preferred Trust
Securities held a principal amount of Subordinated Debt Securities equal to the
aggregate liquidation amount of its Preferred Trust Securities. (See Section
609.)
Subject to their right to bring suit to enforce their right to payment, the
holders of Preferred Trust Securities would not be able to institute any
proceeding with respect to the Subordinated Indenture unless the Subordinated
Indenture Trustee has failed to do so for 60 days after a request of the holders
of 25% in liquidation amount of Preferred Trust Securities. Upon such failure,
the holders of a majority of the aggregate liquidation amount of the outstanding
Preferred Trust Securities would have the right to directly institute
proceedings for enforcement of all other rights of the Subordinated Indenture
Trustee against PPL Capital Funding to the fullest extent permitted by law. (See
Sections 807, 808 and 812.)
NOTICE OF DEFAULT
The Subordinated Indenture Trustee is required to give the Holders of the
Subordinated Indenture Securities notice of any default under the Subordinated
Indenture to the extent required by the Trust Indenture Act, unless such default
has been cured or waived; except that in the case of an Event of Default of the
character specified above in clause (c) under "--Events of Default," no such
notice shall be given to such Holders until at least 90 days after the
occurrence thereof. (See Section 902.) The Trust Indenture Act currently permits
the Subordinated Indenture Trustee to withhold notices of default (except for
certain payment defaults) if the Subordinated Indenture Trustee in good faith
determines the withholding of such notice to be in the interests of the Holders.
We will furnish the Subordinated Indenture Trustee with an annual statement
as to the compliance by PPL Capital Funding with the conditions and covenants in
the Subordinated Indenture. (See Section 605.)
WAIVER OF DEFAULT AND OF COMPLIANCE
The Holders of a majority in aggregate principal amount of the outstanding
Subordinated Indenture Securities of any series may waive, on behalf of the
Holders of all Subordinated Indenture Securities of such series, any past
default under the Subordinated Indenture, except a default in the payment of
principal, premium or interest, or with respect to compliance with certain
provisions of the Subordinated Indenture that cannot be amended without the
consent of the Holder of each outstanding Subordinated Indenture Security. (See
Section 813.)
Compliance with certain covenants in the Subordinated Indenture or
otherwise provided with respect to Subordinated Indenture Securities may be
waived by the Holders of a majority in aggregate principal amount of the
affected Subordinated Indenture Securities, considered as one class. (See
Section 606.)
CONSOLIDATION, MERGER AND CONVEYANCE OF ASSETS AS AN ENTIRETY
Subject to the provisions described in the next paragraph, each of PPL
Capital Funding and PPL Corporation will preserve its corporate existence. (See
Section 604.)
PPL Capital Funding and PPL Corporation have each agreed not to consolidate
with or merge into any other entity or convey, transfer or lease its properties
and assets substantially as an entirety to any entity unless
(a) the entity formed by such consolidation or into which PPL Capital
Funding or PPL Corporation, as the case may be, is merged or the entity
which acquires or which leases the property and assets of PPL Capital
Funding or PPL Corporation, as the case may be, substantially as an
entirety is an
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entity organized and existing under the laws of the United States of
America or any State thereof or the District of Columbia, and expressly
assumes, by supplemental indenture, the due and punctual payment of the
principal, premium and interest on all the outstanding Subordinated
Indenture Securities (or the Subordinated Guarantees endorsed thereon, as
the case may be) and the performance of all of the covenants of PPL Capital
Funding or PPL Corporation, as the case may be, under the Subordinated
Indenture, and
(b) immediately after giving effect to such transactions, no Event of
Default, and no event which after notice or lapse of time or both would
become an Event of Default, will have occurred and be continuing. (See
Section 1101.)
The Subordinated Indenture does not prevent or restrict:
(a) any consolidation or merger after the consummation of which PPL
Capital Funding or PPL Corporation would be the surviving or resulting
entity;
(b) any consolidation of PPL Capital Funding with PPL Corporation or
any other entity all of the outstanding voting securities of which are
owned, directly or indirectly, by PPL Corporation; or any merger of any
such entity into any other of such entities; or any conveyance or other
transfer, or lease, or properties by any thereof to any other thereof;
(c) any conveyance or other transfer, or lease, of any part of the
properties of PPL Capital Funding or PPL Corporation which does not
constitute the entirety, or substantially the entirety, thereof; or
(d) the approval by PPL Capital Funding or PPL Corporation of, or the
consent by PPL Capital Funding or PPL Corporation to, any consolidation or
merger to which any direct or indirect subsidiary or affiliate of PPL
Capital Funding or PPL Corporation, as the case requires, may be a party or
any conveyance, transfer or lease by any such subsidiary or affiliate of
any of its assets. (See Section 1103.)
MODIFICATION OF SUBORDINATED INDENTURE
Without Holder Consent. Without the consent of any Holders of Subordinated
Indenture Securities, PPL Capital Funding, PPL Corporation and the Subordinated
Indenture Trustee may enter into one or more supplemental indentures for any of
the following purposes:
(a) to evidence the succession of another entity to PPL Capital
Funding or PPL Corporation; or
(b) to add one or more covenants of PPL Capital Funding or PPL
Corporation or other provisions for the benefit of the Holders of all or
any series or tranche of Subordinated Indenture Securities, or to surrender
any right or power conferred upon PPL Capital Funding or PPL Corporation;
or
(c) to add any additional Events of Default for all or any series of
Subordinated Indenture Securities; or
(d) to change or eliminate any provision of the Subordinated
Indenture or to add any new provision to the Subordinated Indenture that
does not adversely affect the interests of the Holders; or
(e) to provide security for the Subordinated Indenture Securities of
any series; or
(f) to establish the form or terms of Subordinated Indenture
Securities of any series or tranche or any Subordinated Guarantees as
permitted by the Subordinated Indenture; or
(g) to provide for the issuance of bearer securities; or
(h) to evidence and provide for the acceptance of appointment of a
separate or successor Subordinated Indenture Trustee or co-trustee; or
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(i) to provide for the procedures required to permit the utilization
of a noncertificated system of registration for any series or tranche of
Subordinated Indenture Securities; or
(j) to change any place or places where
(1) we may pay principal, premium and interest,
(2) Subordinated Indenture Securities may be surrendered for
transfer or exchange, and
(3) notices and demands to or upon PPL Capital Funding or PPL
Corporation may be served; or
(k) to cure any ambiguity, defect or inconsistency or to make any
other changes that do not adversely affect the interests of the Holders in
any material respect.
If the Trust Indenture Act is amended after the date of the Subordinated
Indenture so as to require changes to the Subordinated Indenture or so as to
permit changes to, or the elimination of, provisions which, at the date of the
Subordinated Indenture or at any time thereafter, were required by the Trust
Indenture Act to be contained in the Subordinated Indenture, the Subordinated
Indenture will be deemed to have been amended so as to conform to such amendment
or to effect such changes or elimination, and PPL Capital Funding, PPL
Corporation and the Subordinated Indenture Trustee may, without the consent of
any Holders, enter into one or more supplemental indentures to effect or
evidence such amendment.
(See Section 1201.)
With Holder Consent. Except as provided above, the consent of the Holders
of at least a majority in aggregate principal amount of the Subordinated
Indenture Securities of all outstanding series, considered as one class, is
generally required for the purpose of adding to, or changing or eliminating any
of the provisions of, the Subordinated Indenture pursuant to a supplemental
indenture. However, if less than all of the series of outstanding Subordinated
Indenture Securities are directly affected by a proposed supplemental indenture,
then such proposal only requires the consent of the Holders of a majority in
aggregate principal amount of the outstanding Subordinated Indenture Securities
of all directly affected series, considered as one class. Moreover, if the
Subordinated Indenture Securities of any series have been issued in more than
one tranche and if the proposed supplemental indenture directly affects the
rights of the Holders of Subordinated Indenture Securities of one or more, but
less than all, of such tranches, then such proposal only requires the consent of
the Holders of a majority in aggregate principal amount of the outstanding
Subordinated Indenture Securities of all directly affected tranches, considered
as one class.
However, no amendment or modification may, without the consent of the
Holder of each outstanding Subordinated Indenture Security directly affected
thereby,
(a) change the stated maturity of the principal or (except as
described above under "--Option to Extend Interest Payment Period")
interest on any Subordinated Indenture Security (other than pursuant to the
terms thereof), or reduce the principal amount, interest or premium payable
or change the currency in which any Subordinated Indenture Security is
payable, or impair the right to bring suit to enforce any payment;
(b) reduce the percentages of Holders whose consent is required for
any supplemental indenture or waiver or reduce the requirements for quorum
and voting under the Subordinated Indenture; or
(c) modify certain of the provisions in the Subordinated Indenture
relating to supplemental indentures and waivers of certain covenants and
past defaults.
A supplemental indenture which changes or eliminates any provision of the
Subordinated Indenture expressly included solely for the benefit of Holders of
Subordinated Indenture Securities of one or more particular series or tranches
will be deemed not to affect the rights under the Subordinated Indenture of the
Holders of Subordinated Indenture Securities of any other series or tranche. So
long as any Preferred Trust Securities are outstanding, the Subordinated
Indenture Trustee may not consent to any supplemental indenture that would
ordinarily require Subordinated Indenture Security Holder consent without the
prior
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consent of the holders of a majority in aggregate liquidation preference of all
outstanding Preferred Trust Securities affected or, in the case of changes
described in clauses (a) through (c) immediately above, 100% in aggregate
liquidation preference of all such outstanding Preferred Trust Securities
affected. (See Section 1202.)
MISCELLANEOUS PROVISIONS
The Subordinated Indenture provides that certain Subordinated Indenture
Securities, including those for which payment or redemption money has been
deposited or set aside in trust as described under "--Satisfaction and
Discharge" below, will not be deemed to be "outstanding" in determining whether
the Holders of the requisite principal amount of the outstanding Subordinated
Indenture Securities have given or taken any demand, direction, consent or other
action under the Subordinated Indenture as of any date, or are present at a
meeting of Holders for quorum purposes. (See Section 101.)
PPL Capital Funding or PPL Corporation will be entitled to set any day as a
record date for the purpose of determining the Holders of outstanding
Subordinated Indenture Securities of any series entitled to give or take any
demand, direction, consent or other action under the Subordinated Indenture, in
the manner and subject to the limitations provided in the Subordinated
Indenture. In certain circumstances, the Subordinated Indenture Trustee also
will be entitled to set a record date for action by Holders. If such a record
date is set for any action to be taken by Holders of particular Subordinated
Indenture Securities, such action may be taken only by persons who are Holders
of such Subordinated Indenture Securities on the record date. (See Section 104.)
SATISFACTION AND DISCHARGE
Any Subordinated Indenture Securities or any portion will be deemed to have
been paid for purposes of the Subordinated Indenture, and at PPL Capital
Funding's election, the entire indebtedness of PPL Capital Funding and PPL
Corporation will be satisfied and discharged, if there shall have been
irrevocably deposited with the Subordinated Indenture Trustee or any paying
agent (other than PPL Capital Funding or PPL Corporation), in trust:
(a) money sufficient, or
(b) in the case of a deposit made prior to the maturity of such
Subordinated Indenture Securities, non-redeemable Eligible Obligations (as
defined in the Subordinated Indenture) sufficient, or
(c) a combination of (a) and (b), which in total are sufficient,
to pay when due the principal of, and any premium, and interest due and to
become due on such Subordinated Indenture Securities or portions thereof on and
prior to the maturity thereof.
(See Section 701.)
The Subordinated Indenture will be deemed satisfied and discharged when no
Subordinated Indenture Securities remain outstanding and when we have paid all
other sums payable by us under the Subordinated Indenture. (See Section 702.)
All moneys we pay to the Subordinated Indenture Trustee or any paying agent
on Subordinated Debt Securities which remain unclaimed at the end of two years
after payments have become due will be paid to or upon the order of PPL Capital
Funding. Thereafter, the Holder of such Subordinated Debt Security may look only
to us for payment thereof. (See Section 603.)
RESIGNATION AND REMOVAL OF THE SUBORDINATED INDENTURE TRUSTEE; DEEMED
RESIGNATION
The Subordinated Indenture Trustee may resign at any time by giving written
notice thereof to us.
The Subordinated Indenture Trustee may also be removed by act of the
Holders of a majority in principal amount of the then outstanding Subordinated
Indenture Securities of any series.
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No resignation or removal of the Subordinated Indenture Trustee and no
appointment of a successor trustee will become effective until the acceptance of
appointment by a successor trustee in accordance with the requirements of the
Subordinated Indenture.
Under certain circumstances, we may appoint a successor trustee and if the
successor accepts, the Subordinated Indenture Trustee will be deemed to have
resigned.
(Section 910).
GOVERNING LAW
The Subordinated Indenture and the Subordinated Indenture Securities
provide that they are to be governed by and construed in accordance with the
laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEES
The Chase Manhattan Bank has at various times in the ordinary course of
business made loans to PPL Corporation and its subsidiaries and affiliates, and
acts as Administrative Agent with respect to one of our current revolving credit
facilities. In addition, The Chase Manhattan Bank acts as issuing and paying
agent for PPL Capital Funding's commercial paper notes, and acts as guarantee
trustee and property trustee for the trust originated preferred securities and
common securities of our affiliates, PPL Capital Trust and PPL Capital Trust I
and acts as trustee with respect to junior subordinated deferrable interest
debentures of our affiliate, PPL Utilities. Chase Manhattan Bank USA, National
Association, an affiliate of the Trustee, also acts as Delaware trustee for the
trust originated preferred securities and common securities of PPL Capital Trust
and PPL Capital Trust I.
EXPERTS
The consolidated financial statements of PPL Corporation incorporated in
this prospectus by reference to the Annual Report on Form 10-K of PPL
Corporation for the year ended December 31, 1999, as amended by Form 10-K/A
filed with the SEC on June 28, 2000, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting. The audited
consolidated financial information of Hyder plc incorporated in this prospectus
by reference to the Current Report on Form 8-K of PPL Corporation filed with the
SEC on October 20, 2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers, Cardiff, United Kingdom, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements and schedules of Southern Investments UK plc and
subsidiaries incorporated in this prospectus by reference to the Annual Report
on Form 10-K of PPL Corporation for the year ended December 31, 1999, as amended
by Form 10-K/A filed with the SEC on June 28, 2000, have been audited by Arthur
Andersen, independent accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing.
Michael A. McGrail, Esq., Senior Counsel of PPL Services Corporation, has
reviewed the statements made herein and in the incorporated documents as to
matters of law and legal conclusions. Such statements have been made in reliance
upon his authority as an expert.
VALIDITY OF THE SECURITIES AND THE SECURITIES GUARANTEES
Thelen Reid & Priest LLP, New York, New York, counsel to PPL Corporation,
PPL Capital Funding and PPL Capital Funding Trust I, will pass upon the validity
of the Securities and the Securities Guarantees for PPL Corporation, PPL Capital
Funding and the Trust. Simpson Thacher & Bartlett, counsel to PPL Corporation,
will pass upon the validity of Common Stock and the Preferred Stock for PPL
Corporation. Michael A. McGrail, Esq., Senior Counsel of PPL Services
Corporation, will pass upon the validity of the
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PPL Corporation Securities and the Securities Guarantees for PPL Corporation.
Sullivan & Cromwell, New York, New York, will pass upon the validity of the
Securities and the Securities Guarantees for any underwriters or agents. Certain
matters of Delaware law relating to the validity of the Preferred Trust
Securities, the enforceability of the Trust Agreement and the creation of the
Trust will be passed upon by Richards, Layton & Finger, P.A., special Delaware
counsel to PPL Corporation, PPL Capital Funding and the Trust. Thelen Reid &
Priest LLP, Simpson Thacher & Bartlett and Sullivan & Cromwell will rely on the
opinion of Mr. McGrail as to matters involving the law of the Commonwealth of
Pennsylvania, and on the opinion of Richards, Layton & Finger, P.A., as to
matters involving the law of the State of Delaware in connection with the
Preferred Trust Securities. As to matters involving the law of the State of New
York, Mr. McGrail will rely on the opinion of Thelen Reid & Priest LLP.
PLAN OF DISTRIBUTION
We may sell Securities (a) to purchasers directly; (b) to underwriters for
public offering and sale by them; or (c) through agents or dealers. We may
determine the price or other terms of the securities offered under this
prospectus by use of an electronic auction. We will describe how any auction
will determine the price or any other terms, how potential investors may
participate in the auction and the nature of the underwriters' obligations in
the related supplement to this prospectus.
DIRECT SALES
We may sell the Securities directly to institutional investors or others
who may be deemed to be underwriters within the meaning of the Securities Act
with respect to any resale of the Securities. A prospectus supplement will
describe the terms of any such sale.
TO UNDERWRITERS
The applicable prospectus supplement will name any underwriter involved in
a sale of Securities. Underwriters may offer and sell Securities at a fixed
price or prices, which may be changed, or from time to time at market prices or
at negotiated prices. Underwriters may be deemed to have received compensation
from us from sales of Securities in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Securities for
whom they may act as agent.
Underwriters may sell Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions (which may be changed from time to
time) from the purchasers for whom they may act as agent.
Unless otherwise provided in a prospectus supplement, the obligations of
any underwriters to purchase particular Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all
such Securities if any are purchased.
THROUGH AGENTS
We will name any agent or dealer involved in a sale of Securities, as well
as any commissions payable by us to such agent, in a prospectus supplement.
Unless we indicate differently in the prospectus supplement, any such agent will
be acting on a reasonable efforts basis for the period of its appointment.
GENERAL INFORMATION
Underwriters, dealers acting as principals and agents participating in a
sale of Securities may be deemed to be underwriters as defined in the Securities
Act, and any discounts and commissions received by them and any profit realized
by them on resale of the Securities may be deemed to be underwriting discounts
and commissions, under the Securities Act. We may have agreements with
underwriters, dealers and agents to indemnify them against certain civil
liabilities, including liabilities under the Securities Act, and to reimburse
them for certain expenses.
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Underwriters or agents and their associates may be customers of, engage in
transactions with or perform services for us or our affiliates in the ordinary
course of business.
Each series of Securities will be a new issue and, except for the Common
Stock, which is listed on the New York and Philadelphia Stock Exchanges, will
have no established trading market. We may elect to list any series of new
Securities on an exchange, or in the case of the Common Stock, on any additional
exchange, but unless we advise you differently in the prospectus supplement, we
have no obligation to cause any Securities to be so listed. Any underwriters
that purchase Securities for public offering and sale may make a market in the
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. We make no assurance
as to the liquidity of, or the trading markets for, any Securities.
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