EXHIBIT 99.1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 7, 2002)
15,000,000 SHARES
[LOGO]
COMMON STOCK
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We are offering 15,000,000 shares of common stock. Our common stock is listed on
the New York Stock Exchange, the Chicago Stock Exchange and the Philadelphia
Stock Exchange under the symbol "DQE." The last reported sale price of our
common stock on the consolidated tape on June 20, 2002 was $13.58 per share.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT.
PER SHARE TOTAL
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Public Offering Price $ 13.500 $ 202,500,000
Underwriting Discounts and Commissions $ 0.506 $ 7,590,000
Proceeds to DQE (before expenses) $ 12.994 $ 194,910,000
We have granted the underwriters a 30-day option to purchase up to 2,250,000
additional shares of our common stock on the same terms and conditions as set
forth above to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares to
purchasers on or about June 26, 2002.
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LEHMAN BROTHERS
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SALOMON SMITH BARNEY
GOLDMAN, SACHS & CO.
MORGAN STANLEY
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ABN AMRO ROTHSCHILD LLC
M.R. BEAL & COMPANY
JEFFERIES & COMPANY, INC.
LEGG MASON WOOD WALKER
INCORPORATED
TOKYO-MITSUBISHI INTERNATIONAL PLC
June 20, 2002
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About this Prospectus Supplement ...........................................ii
Summary....................................................................S-1
Risk Factors...............................................................S-7
Forward-Looking Statements................................................S-11
Price Range of Common Stock and Dividends.................................S-12
Use of Proceeds...........................................................S-13
Capitalization ...........................................................S-13
Underwriting..............................................................S-14
Validity..................................................................S-16
PROSPECTUS
Important Information About This Prospectus..................................2
DQE..........................................................................3
DQE Capital..................................................................4
Description of DQE Capital Stock.............................................5
Preferred Stock...........................................................5
Common Stock..............................................................9
Description of Stock Purchase Contracts and Stock Purchase Units............14
Description of DQE Warrants.................................................14
Description of DQE Debt Securities..........................................15
Description of DQE Capital Debt Securities..................................24
Plan of Distribution........................................................33
Available Information.......................................................35
A Warning About Forward-Looking Statements..................................35
Experts.....................................................................36
Validity....................................................................36
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AS OF ANY TIME AFTER THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR, IF LATER, THE DATE OF
AN INCORPORATED DOCUMENT, IS ACCURATE BECAUSE OUR BUSINESS, FINANCIAL CONDITION
OR RESULTS OF OPERATIONS MAY HAVE CHANGED SINCE THAT DATE. WE ARE NOT MAKING AN
OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE AN OFFER IS NOT
PERMITTED. IN THIS PROSPECTUS SUPPLEMENT, "DQE," "WE," "US" AND "OUR" REFER TO
DQE, INC. AND ITS SUBSIDIARIES UNLESS THE CONTEXT REQUIRES OTHERWISE.
i
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement is a supplement to the accompanying prospectus
that is also a part of this document. This prospectus supplement and the
accompanying prospectus are part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under the shelf registration process, we may sell any combination of the
securities described in the accompanying prospectus up to a dollar amount of
$500 million, of which this offering is a part. In this prospectus supplement,
we provide you with specific information about the terms of this offering. Both
this prospectus supplement and the accompanying prospectus include important
information about us, our common stock and other information you should know
before investing in our common stock. This prospectus supplement also adds,
updates and changes information contained in the accompanying prospectus. To the
extent that any statement that we make in this prospectus supplement is
inconsistent with the statements made in the accompanying prospectus, the
statements made in the accompanying prospectus are deemed modified or superseded
by the statements made in this prospectus supplement. You should read both this
prospectus supplement and the accompanying prospectus as well as the additional
information described under the heading "Available Information" on page 35 in
the accompanying prospectus.
ii
SUMMARY
This summary highlights information contained elsewhere, or incorporated
by reference, in this prospectus supplement and the accompanying prospectus. As
a result, it does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
supplement, including the accompanying prospectus and the documents incorporated
by reference, which are described under "Available Information" in the
accompanying prospectus. This prospectus supplement and the accompanying
prospectus contain or incorporate forward-looking statements. Forward-looking
statements should be read with the cautionary statements and important factors
included in "Forward-Looking Statements" below.
DQE
OUR COMPANY
DQE is a holding company whose subsidiaries deliver essential products and
services, including electricity, water and communications, to more than one
million customers throughout the United States. Our subsidiaries include the
following:
o Duquesne Light Company, our largest operating subsidiary, is engaged in
the transmission and distribution of electric energy and provides
electric service to approximately 586,000 direct customers in
southwestern Pennsylvania (including the City of Pittsburgh), a
territory of approximately 800 square miles. As a public utility,
Duquesne Light is subject to regulation by the Pennsylvania Public
Utility Commission, or PUC, with respect to retail rates, accounting,
issuance of securities and other matters. Duquesne Light is also
subject to regulation by the Federal Energy Regulatory Commission with
respect to rates for wholesale sales and transmission services,
accounting and other matters.
o AquaSource, Inc. is a water resource management company that acquires,
develops and manages water and wastewater systems and complementary
businesses.
o DQE Energy Services, LLC is an energy facilities management company
that provides energy outsourcing solutions, including development,
operation and maintenance of energy and alternative fuel facilities.
o Duquesne Power, Inc. was formed in April 2002 to explore various
alternative generation supply options.
o DQE Communications, Inc. owns and operates a high-speed, fiber-optic
based transmission network for the provision of fiber to
telecommunications companies and others desiring broadband capacity.
o DQE Financial Corp. owns and operates landfill gas collection and
processing systems and is an investment and portfolio management
organization focused on structured finance and alternative energy
investments.
o DQE Capital Corporation provides financing for the operations of DQE's
subsidiaries, other than Duquesne Light.
o Additional subsidiaries are involved in propane distribution,
management of our remaining electronic and energy technologies
investment portfolios as well as insurance services for DQE and various
affiliates.
DQE is a "holding company" under the Public Utility Holding Company Act of
1935, but is exempt from the provisions of that Act, except for Section 9(a)(2)
of the Act which relates to the acquisition of public utility companies.
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RECENT REGULATORY BACKGROUND
RESTRUCTURING UNDER THE CUSTOMER CHOICE ACT. The Pennsylvania Electricity
Generation Customer Choice and Competition Act, or "Customer Choice Act", which
became effective on January 1, 1997, provides for competition in the electric
generation industry in Pennsylvania by enabling Pennsylvania electric utility
customers to purchase electricity at market prices from a variety of generation
suppliers. Duquesne Light subsequently initiated a strategy, approved by the
PUC, to exit the generation business and become a pure electricity delivery
company. In April 2000, Duquesne Light completed the sale of its generation
assets. In its 1998 final restructuring order pursuant to the Customer Choice
Act, the PUC determined that Duquesne Light could recover certain above-market
costs associated with its generation assets, or "transition costs" associated
with the transition to competition, through the collection of a "competitive
transition charge," or CTC, from electric utility customers. Following
application of the net proceeds from the generation asset sale to reduce
transition costs, the CTC was fully collected in March 2002 for most of Duquesne
Light's residential customers. Duquesne Light currently anticipates full CTC
collection by mid-year 2002 for customers in most of the remaining major rate
classes.
POLR OBLIGATION. Under the Customer Choice Act, Duquesne Light must act as
a provider of last resort, or POLR, to provide electricity for any customer in
its service territory who does not choose an alternative generation supplier, or
whose supplier fails to deliver. As part of the sale of its generation assets in
2000, Duquesne Light entered into an arrangement with Orion Power MidWest, L.P.,
which was acquired by Reliant Resources, Inc. in February 2002, to provide the
electricity necessary to satisfy this POLR obligation, and has extended this
arrangement through December 31, 2004. The current POLR arrangement, which was
approved by the PUC, permits Duquesne Light, following collection of the CTC for
each rate class, to recover an average margin of 0.5 cents per kilowatt-hour
supplied to customers who have not chosen an alternative generation supplier.
This arrangement expires on December 31, 2004. As of May 31, 2002, approximately
78 percent of Duquesne Light's customers (measured on a kilowatt-hour basis) had
not chosen an alternative supplier and were receiving electricity through the
POLR arrangement.
Earlier in 2002, Duquesne Light began the process of evaluating a variety
of options to supply power to its POLR customers after its current supply
arrangement expires at the end of 2004. Duquesne Light is working with the PUC
and other stakeholders to develop a post-2004 arrangement to provide long-term
protection and rate stability to its customers. Post-2004 supply options
considered include:
o negotiating an extension of the current arrangement;
o negotiating a similar arrangement with another generation company;
o entering into alternative supply arrangements, including the
construction of an electric generating facility - either independently
or with partners; and
o combining two or more of the above options.
As described below under "Our Back-to-Basics Business Strategy," we have
decided, subject to receipt of appropriate regulatory approvals, to proceed with
the development of a 600 megawatt gas-fired generating facility as a key
component of our post-2004 POLR plan. Duquesne Light continues to develop a
comprehensive plan for post-2004 POLR supply, and plans to file a specific
post-2004 POLR proposal with the PUC by August of this year. See "Our
Back-to-Basics Business Strategy" below for more information.
DQE's principal executive offices are located 411 Seventh Avenue,
Pittsburgh, Pennsylvania 15219-1905 and the telephone number is (412) 393-6000.
See "Available Information" in the accompanying prospectus for the
availability of additional information about DQE.
OUR BACK-TO-BASICS BUSINESS STRATEGY
Upon completion of a strategic review process in the third quarter of
2001, we announced a new management team and a change in our strategic
direction. We adopted a Back-to-Basics strategy featuring a more concentrated
focus on our utility operations and complementary businesses. As part of our
Back-to-Basics strategy, we currently are exploring opportunities to sell
certain non-complementary assets, depending on market conditions. Our strategy
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is to grow earnings more steadily, with less volatility, over the next few
years. The cornerstone of this strategy will be a focus on seeking growth
through a disciplined investment and management approach. New investment
opportunities will be expected to have a strong and clear relationship to our
core electric business, as well as the ability to create sustained value.
As part of our Back-to-Basics business strategy, on May 28, 2002, our
Board of Directors and management team announced a growth plan designed to build
on the successes of our core utility business, Duquesne Light, and to provide
long-term benefits for shareholders and customers. Our goal is to take the best
of what we are today and build on it. Our plan is intended to enhance our
financial flexibility, through a reduction in debt and an increase in equity, so
we can pursue opportunities close to our core business that are designed to
provide sustained value. Key components of our strategy include:
o divesting non-core businesses;
o conserving cash through a revised dividend policy;
o issuing additional equity through the offering contemplated by this
prospectus; and
o developing an additional earnings stream from our core electric
business through a comprehensive long-term rate plan for our utility
customers, backed by a secure supply of electricity, including the
development of a 600-megawatt generating facility within Duquesne
Light's service territory.
ASSET DIVESTITURES. A key step in implementing our Back-to-Basics strategy
is the divestiture of non-core, under-performing assets. We are currently
exploring the sale of all or a portion of any of these businesses, including our
propane assets, our energy-technology investments, and our water and wastewater
management business.
The amounts of our investment in these businesses at April 30, 2002 were
approximately as follows: $70 million in the propane business, $20 million in
energy-technology investments and $325 million in our water and wastewater
management company.
Sales of any or a portion of any of these businesses will be dependent on
market conditions. We are currently receiving proposals for the purchase of all
or part of our water and wastewater management business. We cannot predict
whether any sales will be completed, or when or at what price or prices.
However, we believe that the prices of certain potential asset sales are likely
to be significantly less than the values recorded on our books, and that as a
result, we will be required to take a significant charge to earnings in
connection with these sales. This charge could occur as early as June 30, 2002
depending on, among other factors, if and when we commit to a plan to sell any
of these assets.
If we were able to enter into agreements to sell all or part of the water
and wastewater business, we could not close any such sale or sales, or receive
any proceeds therefrom, until regulatory approval is received from each of the
states in which our regulated water and wastewater utilities operate. We
estimate that these approvals would take 6 to 18 months after the appropriate
applications have been filed with the state and local regulatory agencies. Sales
of our propane and energy-technology investments do not require similar state
and local regulatory approvals and therefore could be consummated sooner.
Even if no asset sales are completed, we may have to write down the value
of the goodwill attributable to certain businesses due to the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets." See "Risk Factors."
COMMON STOCK DIVIDEND. Our Board of Directors has declared a $0.42 per
share quarterly dividend, payable on July 1, 2002 to holders of record on June
10, 2002. However, the Board continues to evaluate the level of dividends and
the targeted payout ratio, and currently expects to reduce the quarterly
dividend by 40 percent to $0.25 per share, commencing with the dividend expected
to be paid in October 2002.
Cash conserved through the reduced level of dividends would provide funds
for investing in our core electric business as part of our Back-to-Basics
strategy. The new dividend level and the related payout ratio would place us
more in line with our peers within the electric utility industry.
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POLR. Our Board of Directors has authorized us to proceed, subject to
receipt of appropriate regulatory approvals, with the development of a
natural-gas fired generating station, with an initial 600-megawatt base unit
designed for future expansion to include an additional 600-megawatt unit. As
discussed above, the decision to build the initial 600-megawatt unit, and to
proceed with permitting for the second unit, is a result of a comprehensive
evaluation of a variety of options to provide power to Duquesne Light customers
who prefer the familiarity and price certainty of our POLR service after the
current supply arrangement expires at the end of 2004. In addition, this
alternative is designed to enhance shareholder value through a continuing
earnings stream from the core electric business.
Our generation development project is subject to receipt of appropriate
regulatory approvals, including approval of our post-2004 POLR supply plan.
Duquesne Light is preparing to file with the PUC by August 2002, a comprehensive
plan that would extend fixed prices for POLR customers as protection from
electric market volatility beyond 2004. This plan will be backed by a balanced
supply portfolio, which combines firm contractual sources of energy and the
recently authorized generating facility.
The first 600-megawatt unit currently is estimated to cost approximately
$400 million. Up to $25 million of the proceeds of this offering will be used
for the development of this facility. Construction of the first unit is
currently projected to take approximately 24 months, once approval is received
from the PUC and the Pennsylvania Department of Environmental Protection.
Duquesne Power, a recently formed DQE subsidiary, will own and operate the
generating facility, to be located at the former LTV site in Hopewell Township,
Beaver County, Pennsylvania.
We plan to fund the generation plant project through a combination of debt
and equity. We expect to fund the equity component with proceeds from the
divestiture of non-core assets, cash savings from the revised dividend policy
and proceeds from this offering.
RECENT DEVELOPMENTS
RECENT EARNINGS GUIDANCE
DQE currently estimates earnings will be in the range of $85 to $90
million for 2002 and $95 to $100 million for 2003, excluding any potential
charges from asset dispositions in connection with our Back-to-Basics strategy
or other asset write-downs that may be reflected in earnings for these years.
Our estimates assume the following:
o Duquesne Light earnings, exclusive of earnings related to the POLR
arrangement, of $55 to $56 million in 2002, and $51 to $53 million in
2003, which reflects decreased earnings on the declining balance of
transition costs, partially offset by an assumed continuation of
existing cost reduction initiatives;
o earnings from the existing POLR arrangement of $14 to $15 million in
2002 and $22 to $23 million in 2003, assuming that approximately 80
percent of Duquesne Light customers (measured on a kilowatt hour basis)
will receive electricity through POLR service through 2002 and 2003;
o earnings from AquaSource of $8 to $10 million in 2002, and $11 to $12
million in 2003, assuming continued cost savings from integration
efforts and increased revenues from rate requests; and
o $8 to $9 million of earnings in 2002 and $11 to $12 million of earnings
in 2003, from other businesses, after deduction of costs related to DQE
and DQE Capital.
Earnings will be affected by a variety of factors that we cannot predict.
See "Risk Factors" and "Forward-Looking Statements."
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THE OFFERING
All of the shares of our common stock offered hereby are being sold by us.
Common stock offered......................... 15,000,000 Shares
Common stock outstanding as of June 20, 2002. 56,493,896 Shares
Common stock outstanding as of June 20,
2002, adjusted for the offering............ 71,493,896 Shares
New York Stock Exchange symbol............... "DQE"
Common stock price range from January 1,
2001 to June 20, 2002...................... $13.58 to $22.20
Current indicated annual dividend rate(1).... $1.00
Use of proceeds.............................. To retire debt, invest in
our growth strategy and for
general corporate purposes.
Risk factors................................. You should carefully consider
the information set forth
under "Risk Factors" before
investing in our common stock.
The numbers above do not reflect any shares of common stock that may be
issued pursuant to the underwriters' over-allotment option.
For more information regarding our common stock, please refer to
"Description of DQE Capital Stock-Common Stock" in the accompanying prospectus.
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(1)DQE paid quarterly common stock dividends in 2001, and for the first half of
2002, at a rate of $0.42 per share per quarter, or $1.68 per share on an
annualized basis. As described in "Our Back-to-Basics Business Strategy"
above, our Board of Directors continues to evaluate the level of dividends
and the targeted payout ratio. On May 28, 2002, our Board of Directors
announced that it expects to reduce the current quarterly dividend by
approximately 40 percent, to $0.25 per share, commencing with the dividend
expected to be paid in October 2002.
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SUMMARY FINANCIAL DATA
(in millions, except per share data)
Three Months
Ended March 31, Year Ended December 31,
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2002 2001 2001 2000 1999
---- ---- ---- ---- ----
STATEMENT OF INCOME DATA:
Operating revenues................................ $308.1 $320.5 $1,296.1 $1,327.6 $1,341.2
Operating expenses................................ 282.1 296.0 1,412.8 1,223.3 1,022.4
Operating income (loss)........................... 26.0 24.5 (116.7) 104.3 318.8
Other income...................................... 21.1 23.4 11.7 227.7 152.0
Income (loss) before interest and other charges... 47.1 47.9 (105.0) 332.0 470.8
Total interest and other charges ................. 21.8 28.4 104.4 123.6 158.7
Net income (loss), after cumulative effect of
change in accounting principle.................. 16.7 12.2 (153.4) 153.6 201.4
Earnings (loss) per common share
Basic........................................... $0.29 $0.22 $(2.75) $2.44 $2.65
Diluted......................................... 0.29 0.22 (2.75) 2.39 2.62
As of March 31, As of December 31,
------------------ ------------------------
2002 2001 2001 2000
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BALANCE SHEET DATA:
Total assets...................................... $3,135.6 $3,846.1 $3,225.9 $3,844.2
Long-term debt, less current maturities........... 1,198.3 1,350.2 1,198.8 1,349.3
Duquesne Light Company Obligated
Mandatorily Redeemable Preferred
Securities...................................... 150.0 150.0 150.0 150.0
Preferred and Preference Stock.................... 93.2 91.1 92.8 91.4
Common stockholders' equity....................... 503.7 760.8 508.5 783.7
S-6
RISK FACTORS
In considering whether to purchase our common stock, 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, as well as the
factors listed in "Forward-Looking Statements" below.
WE WILL LIKELY BE REQUIRED TO TAKE CHARGES IN CONNECTION WITH ANY ASSET
DIVESTITURES.
We have identified and are currently exploring the sale of all or a
portion of our propane assets, our energy-technology investments, and our water
and wastewater management business. The amounts of our investment in these
businesses at April 30, 2002 were approximately as follows: $70 million in the
propane business, $20 million in energy-technology investments and $325 million
in our water and wastewater management company. We cannot predict whether any
sales will be completed, or when or at what price or prices. However, we believe
that prices of certain potential asset sales are likely to be significantly less
than the values recorded on our books, and that as a result, we will be required
to take a significant charge to earnings in connection with these sales. This
charge could occur as early as June 30, 2002 depending on, among other factors,
if and when we commit to a plan to sell any of these assets.
WE MAY BE REQUIRED TO TAKE CHARGES IN 2002 ASSOCIATED WITH THE APPLICATION
OF CERTAIN ACCOUNTING STANDARDS.
SFAS No. 142, "Goodwill and Other Intangible Assets" became effective
January 1, 2002. SFAS No. 142 discontinues the requirement for amortization of
goodwill and indefinite-lived intangible assets, and generally requires an
annual review for the impairment of those assets. Impairment is to be examined
more frequently if certain indicators appear. As of April 30, 2002, we have
goodwill, net of accumulated amortization, of approximately $112 million related
to our water and wastewater business and $30 million related to our propane
assets, which is subject to the transitional assessment provisions of SFAS No.
142.
We have retained a valuation consultant to perform an independent
valuation of our water and wastewater management and propane businesses in
connection with the adoption of SFAS No. 142. The resulting valuations may be
significantly less than the values recorded on our books, which could result in
a significant charge to earnings. Any such charge may be estimable in the second
quarter of 2002 and would be reported as a change in accounting principle
effective January 1, 2002.
Any adjustment to our recorded values for either the propane assets or the
water and wastewater management business resulting from the adoption of SFAS No.
142 could differ from adjustments in value that may be required related to the
disposition of either of these businesses.
In addition, at April 30, 2002 our investments in three energy-technology
businesses, which are publicly traded, had market values which are, in the
aggregate, approximately $8 million below our original cost bases. Should the
decline in value of these investments be deemed other than temporary pursuant to
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," we would take a charge to earnings to reflect these investments at
their market value.
ALTHOUGH OUR BOARD OF DIRECTORS RECENTLY DECLARED A DIVIDEND ON OUR COMMON
STOCK, IT EXPECTS TO REDUCE THE QUARTERLY DIVIDEND COMMENCING IN OCTOBER 2002.
ADDITIONALLY, WE CANNOT ASSURE YOU THAT FUTURE DIVIDEND PAYMENTS WILL BE MADE
OR, IF MADE, IN WHAT AMOUNTS THEY MAY BE PAID.
DQE's Board of Directors regularly evaluates our common stock dividend
policy and sets the amount each quarter. The level of dividends will continue to
be influenced by many factors, including, among other things, our earnings,
financial condition and cash flows from subsidiaries, as well as general
economic and competitive conditions. The Board of Directors will also consider
the impact of the planned divestiture of non-complementary assets and the
ratings on our fixed-income securities as discussed in "Price Range of Common
Stock and Dividends" below. Our Board of Directors continues to evaluate the
level of dividends and the reported payout ratio, and expects to reduce the
quarterly dividend by 40 percent to $0.25 per share, commencing with the
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dividend expected to be paid in October 2002. We cannot assure you that
dividends will be paid in the future, or that, if paid, dividends will be at the
same amount or with the same frequency as in the past.
OUR ABILITY TO PAY DIVIDENDS IS LARGELY DEPENDENT UPON THE EARNINGS OF OUR
SUBSIDIARIES, INCLUDING DUQUESNE LIGHT, AND THE DISTRIBUTION OF SUCH EARNINGS TO
US.
Our subsidiaries are separate and distinct legal entities and have no
obligation to make payments on our common stock, or to make any funds available
for such payment. Our subsidiaries' ability to make dividend payments or other
distributions to us may be restricted by their obligations to holders of their
outstanding debt and preferred securities and to their creditors, the
availability of earnings and the needs of their businesses. See "Price Range of
Common Stock and Dividends" below and "DQE - Effect of Holding Company
Structure" in the accompanying prospectus.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR PROVIDER OF LAST RESORT
OBLIGATIONS.
Duquesne Light must provide, as the provider of last resort under the
Customer Choice Act, electricity for any customer in its service territory who
does not choose an alternative generation supplier, or whose supplier fails to
deliver. See "Summary - Our Company." Duquesne Light has an arrangement with
Orion to purchase power sufficient to meet its obligations through 2004, at
rates the PUC has approved for this supply. After Duquesne Light has fully
collected the CTC, it may further collect, through its PUC-approved rates, an
average margin of 0.5 cents per KWH supplied through this POLR arrangement.
Except for this margin, these arrangements with Orion are designed to transfer
to Orion the financial risks and rewards associated with Duquesne Light's POLR
obligation. While there are certain safeguards in our contract with Orion
designed to mitigate our losses in the event that Orion defaults on its
performance under the POLR arrangements, we may face the credit risk of such a
default. If Orion were to fail to deliver under the contract, Duquesne Light
would have to make purchases in the market at the time of default at a time when
market prices could be higher. While the Customer Choice Act provides generally
for POLR supply costs to be borne by customers, recent litigation suggests that
it may not be clear whether Duquesne Light could pass any costs in excess of the
existing PUC-approved POLR prices on to its customers. Duquesne Light also
retains the risk that customers will not pay for the generation supply it
purchases from Orion for such customers. However, a component of Duquesne
Light's delivery rate is designed to cover the cost of a normal level of
uncollectible accounts.
As to the margin, the POLR obligation does not provide Duquesne Light with
any guaranteed level of sales. If Duquesne Light customers obtain service from
alternate suppliers, which they may generally choose to do at any time, our
revenues associated with the 0.5 cent margin will decline.
WE MAY FACE LOSSES IN CONNECTION WITH PENDING SHAREHOLDER AND INVESTOR
LITIGATION AGAINST DQE AND AQUASOURCE.
In late 2001, class action lawsuits were filed by purported shareholders
of DQE against DQE and David Marshall, our former Chairman, President & Chief
Executive Officer in the U.S. District Court for the Western District of
Pennsylvania, alleging that the defendants violated the federal securities laws
by issuing a series of materially false and misleading statements concerning
investments made by DQE Enterprises and their impact on our current and future
financial results. The plaintiffs claim that, as a result of these statements,
the price of DQE securities was artificially inflated. We believe that this
lawsuit is entirely without merit, strenuously deny all of the plaintiffs'
allegations of wrongdoing and believe we have meritorious defenses to the
plaintiffs' claims. We are vigorously defending this lawsuit. However, we cannot
predict the ultimate outcome of this case or estimate the range of any potential
loss that may be incurred in the litigation.
Also in 2001, 39 former and current employees of AquaSource, all minority
investors in AquaSource, commenced an action against DQE, AquaSource and others
in the District Court of Harris County, Texas alleging that the defendants
fraudulently induced the plaintiffs to agree to sell their AquaSource stock back
to AquaSource, and that defendants took actions intended to decrease the value
of the stock. Plaintiffs seek, among other things, an award of actual damages
not to exceed $100 million and exemplary damages not to exceed $400 million.
DQE and AquaSource have filed counterclaims alleging that 10 plaintiffs
who held key AquaSource management positions engaged in deceptive practices in
connection with funding for acquisitions and that all plaintiffs were unjustly
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enriched by such wrongful actions. DQE, AquaSource and AquaSource Utility, Inc.
also filed a counterclaim against two plaintiffs alleging claims for breach of
contract, breach of warranty, indemnification, fraud, and unjust enrichment in
connection with the acquisition of various water and wastewater companies from
such plaintiffs. The parties to this lawsuit are currently engaged in settlement
discussions. We cannot predict the ultimate outcome of this case or estimate the
range of potential loss that may be incurred in connection with this lawsuit or
any settlement thereof.
See "Available Information" in the accompanying prospectus for where you
can find more information regarding these lawsuits.
OUR GENERATION DEVELOPMENT ACTIVITIES MAY NOT BE SUCCESSFUL AND OUR
PLANNED PROJECT MAY NOT COMMENCE OPERATION AS SCHEDULED.
We have recently been authorized to develop a 600 MW generating facility.
See "Our Back-to-Basic Business Strategy." The development and construction of
generating facilities involves numerous risks. We may be required to expend
significant sums for preliminary engineering, permitting, fuel supply, electric
interconnection, legal and other expenses before regulatory approval is
obtained. Our success in developing the 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. If we were unable to
complete the development of a facility, we would generally not be able to
recover our investment in the project.
In addition, successful completion of this project is subject to numerous
factors, including:
o favorable regulatory treatment of our post-2004 POLR strategy;
o cost and availability of fuel;
o changes in market prices of power;
o our ability to obtain permits and approvals and comply with applicable
regulations;
o availability and timely delivery of gas turbine generators and other
equipment;
o unforeseen engineering problems;
o construction delays and contractor performance shortfalls;
o shortages and inconsistent quality of equipment, material and labor;
o work stoppages;
o adverse weather conditions;
o environmental and geological conditions; and
o unanticipated cost increases.
Any of these factors could give rise to delays, cost overruns or the
termination of the project. While we anticipate entering into a turnkey
engineering, procurement and construction contract with a reliable contractor,
the failure to complete construction according to specifications and on time can
result in cost overruns, liabilities, reduced plant efficiency, higher operating
and other costs and reduced earnings.
WE MAY BE REQUIRED TO RECORD A CHARGE ASSOCIATED WITH OUR INVESTMENT IN A
PARTNERSHIP THAT IS IN BANKRUPTCY.
DQE Financial maintains a limited partnership investment in a
waste-to-energy facility. In January 2002, Moody's Investors Service downgraded
the general partner's credit rating. The general partner's credit condition led
to an event of default under the partnership's service agreement to operate the
underlying waste-to-energy facility for the local authority. The local authority
has issued a notice to terminate the services agreement effective May 30, 2002.
On April 1, 2002, the general partner and the partnership filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to the
bankruptcy filing, the general partner obtained debtor-in-possession financing
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to meet ongoing cash needs and has obtained a non-binding letter of intent to be
acquired upon emergence from Chapter 11. On June 8, 2002, the partnership group,
including DQE Financial, began negotiations with the local authority to
restructure the service agreement. DQE Financial is currently assessing the
effect of these events on the recoverability of its asset carrying value, which
was approximately $15.7 million as of April 30, 2002, but cannot predict the
extent of any potential charge at this time.
WE MAY BE REQUIRED TO MAKE ADDITIONAL FEDERAL TAX PAYMENTS FOR ADJUSTMENTS
PROPOSED BY THE IRS.
The Internal Revenue Service has issued a notice of proposed adjustment
increasing our 1994 federal income tax liability in the approximate amount of
$22 million (including penalties and interest). The proposed adjustment relates
to an investment by one of our subsidiaries in certain structured lease
transactions. We have paid the proposed adjustment and filed a protest, which is
currently pending with the IRS Appeals Office. As part of their current audit of
our 1995 through 1997 years, the IRS has indicated that it is considering
proposed adjustments for these years relating to the same transactions as well
as to other similar transactions. If the IRS were to propose adjustments
relating to these transactions for the years 1995 through 2001 similar to those
proposed for 1994 and if those adjustments were sustained, we would project that
the proposed assessment of additional tax would be approximately $175 million
(before interest and penalties). We intend to deposit $55 million with the IRS
to be applied toward any adjustments which may ultimately be proposed. The tax
years 1998 through 2001 remain subject to IRS review.
One of our subsidiaries entered into other structured lease transactions
from 1995 through 1997. In 1999, the IRS published a revenue ruling setting
forth its official position which is to disallow deductions attributable to
certain leasing transactions. We believe the IRS is likely to challenge our
subsidiary's structured lease transactions by characterizing them as those
described in the revenue ruling. However, the IRS has not yet proposed any
adjustments with respect to these transactions, and we cannot predict the
nature, extent or timing of any proposed adjustments.
It is not possible to predict if, when or to what extent any IRS
adjustments ultimately proposed for the period 1994 through 2001 will be
sustained. We do not believe that the ultimate resolution of our federal tax
liability for this period will have a material adverse effect on our financial
position. However, the resolution of this tax liability, depending on the extent
and timing thereof, could have a material adverse effect on our results of
operations and cash flows for the period in which the liability is determined or
paid.
EVENTS OR CIRCUMSTANCES WHICH ADVERSELY AFFECT OUR FINANCIAL POSITION
COULD RESULT IN DEFAULTS UNDER OUR CREDIT AGREEMENTS.
DQE and Duquesne Light are subject to financial covenants contained in
credit agreements. These covenants, among other things, require each of DQE and
Duquesne Light to maintain maximum debt-to-capitalization ratios of 65%. At
March 31, 2002, we were in compliance with those covenants, having ratios of
approximately 63.5% at DQE and 60.7% at Duquesne Light. However, any events or
circumstances (including any charges to earnings) which have an effect, directly
or indirectly, of reducing our common equity or increasing our indebtedness, in
relative terms, could result in non-compliance with these covenants. In
addition, the DQE and Duquesne Light revolving credit agreements expire in
October 2002 and will have to be replaced.
CERTAIN PROVISIONS OF LAW, AS WELL AS PROVISIONS IN OUR ARTICLES AND
BY-LAWS, MAY MAKE IT MORE DIFFICULT FOR OTHERS TO OBTAIN CONTROL OF DQE, EVEN
THOUGH SOME SHAREHOLDERS MIGHT CONSIDER THIS FAVORABLE.
We are a Pennsylvania corporation and certain anti-takeover provisions of
Pennsylvania law apply to us and impose various impediments to the acquisition
of control of DQE or to the consummation of certain business combinations with
DQE. In addition, our articles of incorporation and by-laws contain provisions
which may make it more difficult to remove incumbent directors or effect certain
business combinations with DQE without the approval of the Board of Directors.
See "Description of DQE Capital Stock" in the accompanying prospectus. Finally,
certain federal and state utility regulatory statutes may also make it difficult
for another party to acquire a controlling interest in DQE, as a public utility
holding company. These provisions of law and of our corporate documents,
individually or in the aggregate, could discourage a future takeover attempt
which individual shareholders might deem to be in their best interests or in
which shareholders would receive a premium for their shares over current prices.
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FORWARD-LOOKING STATEMENTS
We use forward-looking statements in this prospectus supplement and the
accompanying prospectus, including the documents incorporated herein and
therein. Statements that are not historical facts are forward-looking
statements, and are based on beliefs and assumptions of our management, and on
information currently available to management. Forward-looking statements
include statements preceded by, followed by or using such words as "believe,"
"expect," "anticipate," "plan," "estimate" or similar expressions. Such
statements speak only as of the date they are made, and we undertake no
obligation to update publicly any of them in light of new information or future
events. Actual results may materially differ from those implied by
forward-looking statements due to known and unknown risks and uncertainties,
some of which are discussed below.
o DQE cash flow, net income, earnings, earnings growth, capitalization,
dividends and dividend payout ratio will depend on the performance of our
subsidiaries, on the effectiveness of the divestiture of non-core businesses,
the implementation of our growth strategy and board policy.
o Demand for and pricing of electric, water and telecommunications utility
services and landfill gas, changing market conditions and weather conditions
could affect earnings levels at DQE and each subsidiary.
o Duquesne Light's earnings will be affected by the number of customers who
choose to receive electric generation through our existing provider of last
resort arrangement and by final PUC approval of our post-2004 provider of
last resort plan.
o The development of the generation plant described above will depend on
various regulatory approvals.
o Customer energy demand, fuel costs and plant operations will affect DQE
Energy Services' earnings.
o The outcome of the shareholder lawsuits against DQE and AquaSource may affect
our performance.
o Market and business conditions, demand for services and stock market
volatility may affect our ability to monetize our non-core propane business,
energy-technology investments and water and waste-water management business.
o The events of September 11, 2001 have created broad uncertainty in the global
economy, and we continue to assess the impact on our businesses, including,
but not limited to, DQE Financial.
o Our overall performance and that of our subsidiaries and our affiliates could
be affected by economic, competitive, regulatory, governmental (including
tax) and technological factors affecting operations, markets, products,
services and prices, as well as other factors discussed in our SEC filings
made to date.
We refer to the documents identified under "Available Information" in the
accompanying prospectus for a discussion of these and other risks and
uncertainties.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed and traded on the New York, Chicago and
Philadelphia Stock Exchanges under the symbol "DQE". On June 20, 2002, the last
reported sale price of our common stock on the consolidated tape was $13.58. As
of June 1, 2002, there were approximately 54,000 holders of record of our common
stock. The following table provides, for the calendar quarters indicated, the
high and low prices per share of our common stock for the period shown below as
reported on the consolidated tape and the amount of per-share dividends paid in
the periods indicated.
DIVIDENDS
PERIOD HIGH LOW PAID
- ------ ------ ------ ---------
2002:
First Quarter....................... $22.20 $18.93 $0.42
Second Quarter (through June 20, 2002) 21.16 13.58 0.42(1)
2001:
First Quarter....................... 33.15 28.80 0.42
Second Quarter...................... 30.90 21.00 0.42
Third Quarter....................... 22.57 18.90 0.42
Fourth Quarter...................... 20.36 16.68 0.42
2000:
First Quarter....................... 48.50 33.63 0.40
Second Quarter...................... 45.50 38.00 0.40
Third Quarter....................... 43.02 37.06 0.40
Fourth Quarter...................... 40.38 30.75 0.40
- --------------------
(1)On May 23, 2002, our Board of Directors declared a quarterly common stock
dividend of 42 cents per share to holders of record on June 10, 2002, payable
on July 1, 2002. As described below, our Board of Directors regularly
evaluates the common stock dividend in light of many factors. On May 28,
2002, the Board announced that it expected to reduce the quarterly dividend
to $0.25 per share, commencing with the dividend expected to be paid in
October 2002. See "Summary-Our Business Strategy" above for more information.
Our Board of Directors regularly evaluates our common stock dividend
policy and sets the dividend amount for each quarter. The level of dividends
will continue to be influenced by many factors such as, among other things, our
earnings, financial condition and cash flows from subsidiaries, as well as
general economic and competitive conditions. The Board also has to consider the
impact of a downgrade in any ratings on our securities and the effectiveness of
the divestiture of non-complementary assets, which are discussed above and in
the Incorporated Documents. See "Description of DQE Capital Stock - Dividends"
and "- Common Stock - Dividend Rights" in the accompanying prospectus for
additional information regarding dividends.
Our common stock is junior in entitlement to dividends or assets to rights
of holders of any of our preferred stock and to claims of our creditors
including, but not limited to, holders of debt securities issued or guaranteed
by us and, as discussed in the accompanying prospectus, to the claims of
creditors of our subsidiaries.
In addition, as described under "DQE - Effect of Holding Company
Structure" in the accompanying prospectus, we are a holding company and
substantially all of the assets shown on our consolidated balance sheet are held
by our subsidiaries. Accordingly, our earnings and cash flow and our ability to
meet our obligations are largely dependent upon the earnings and cash flows of
our subsidiaries and the distribution of such earnings to us in the form of
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dividends or other payments. The subsidiaries are separate and distinct legal
entities and have no obligation to pay dividends on our common stock or to make
any funds available for such payment.
As discussed in the accompanying prospectus, Duquesne Light Company is our
largest subsidiary. If Duquesne Light cannot pay dividends on its common stock,
we may not be able to pay dividends on our common stock. Payments of dividends
on Duquesne Light's common stock may be restricted by Duquesne Light's
obligations to holders of preferred and preference stock, under Duquesne Light's
articles of incorporation, and by obligations of a Duquesne Light subsidiary to
holders of its securities and other creditors. No dividends or distributions may
be made on Duquesne Light's common stock if Duquesne Light has not paid
dividends or sinking fund obligations on its preferred or preference stock.
Further, the aggregate amount of Duquesne Light's common stock dividend payments
or distributions may not exceed certain percentages of net income if the ratio
of total common shareholders' equity to total capitalization is less than
specified percentages. Dividends on Duquesne Light stock may also be effectively
limited by the terms of certain financing agreements.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $194.4 million after
deducting underwriting discounts and estimated expenses payable by us (or
approximately $223.6 million, assuming the underwriters exercise the
over-allotment option in full). We intend to use these net proceeds to reduce
outstanding short- and long-term debt; to fund up to $25 million of development
costs for the proposed generation project; and for general corporate purposes,
including to pay approximately $55 million to the IRS toward any adjustments in
conjunction with certain structured lease transactions. Long-term debt we are
considering retiring with the proceeds of this offering matures on dates from
2022 to 2025, and bears interest at annual rates of 7.55% to 8.2%. We may also
reduce outstanding commercial paper balances with the proceeds of this offering.
At June 20, 2002, we had outstanding commercial paper balances of $61 million,
having a weighted average interest rate of 2.1%.
CAPITALIZATION
The table below shows our capitalization on a consolidated basis as of
March 31, 2002. The "As Adjusted" column reflects our capitalization after
giving effect to the offering of common stock contemplated by this prospectus
supplement, without giving effect to the underwriters over-allotment option or
the use of proceeds. You should read this table along with the financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2001. See "Available Information" in the accompanying prospectus.
AS OF MARCH 31, 2002
--------------------------------------
($ IN MILLIONS)
ACTUAL AS ADJUSTED
---------------- -----------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
Common Stockholders' Equity .... $ 503.7 25.9 $ 698.1 32.6%
Preferred and Preference Stock . 93.2 4.8 93.2 4.4
Duquesne Light Company
Obligated Mandatorily
Redeemable Preferred
Securities .................. 150.0 7.7 150.0 7.0
Long-Term Debt, excluding
current maturities (1) ...... 1,198.3 61.6 1,198.3 56.0
-------- ----- -------- -----
Total Capitalization ........... $1,945.2 100% $2,139.6 100%
(1) Excludes approximately $3 million of capital lease obligations.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement dated June 20, 2002, each of the underwriters named below, for whom
Lehman Brothers Inc. acts as sole bookrunner and lead manager, have severally
agreed to purchase from us the respective number of shares of our common stock
shown opposite its names below:
NUMBER OF
UNDERWRITER SHARES
----------- ------
Lehman Brothers Inc. ................ 8,606,250
Salomon Smith Barney Inc. ........... 1,575,000
Morgan Stanley & Co. Incorporated ... 1,575,000
Goldman, Sachs & Co. ................ 1,181,250
ABN AMRO Rothschild LLC ............. 412,500
M.R. Beal & Company ................. 412,500
Jefferies & Company, Inc. ........... 412,500
Legg Mason Wood Walker, Incorporated 412,500
Tokyo-Mitsubishi International plc .. 412,500
----------
Total.......................... 15,000,000
The underwriting agreement provides that the underwriters' obligations to
purchase shares of our common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, including:
o the obligation to purchase all of the shares offered hereby, if any of
the shares are purchased;
o the representations and warranties made by us to the underwriters are
true;
o there is no material change in the financial markets which makes it
impracticable or inadvisable to proceed with the contemplated offering;
and
o we deliver customary closing documents to the underwriters.
We have granted the underwriters an option to purchase, from time to time,
until 30 days after the date of the underwriting agreement, in whole or in part,
up to an aggregate of an additional 2,250,000 shares of our common stock at the
public offering price less underwriting discounts and commissions shown on the
cover page of this prospectus supplement. This option may be exercised to cover
over-allotments, if any, made in connection with this offering. To the extent
that the option is exercised, each underwriter will be obligated, so long as the
conditions set forth in the underwriting agreement are satisfied, to purchase
its pro rata portion of these additional shares based on the underwriter's
percentage underwriting commitment in the offering as indicated in the preceding
table and we will be obligated to sell the shares of our common stock to the
underwriters.
The underwriters have advised us that they propose to offer the shares of
common stock directly to the public at the public offering price set forth on
the cover page of this prospectus supplement, and to selected dealers, who may
include the underwriters, at such public offering price less a selling
concession not in excess of $0.30 per share. The underwriters may allow, and the
selected dealers may re-allow, a concession not in excess of $0.10 per share to
brokers and dealers. If all the shares are not sold at the public offering
price, the underwriters may change the offering price and other selling terms.
The following table summarizes the underwriting discounts and commissions
we will pay to the underwriters. These amounts are shown assuming both no
exercise and full exercise of the underwriters' over-allotment option.
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No Exercise Full Exercise
----------- -------------
Per share to be paid by DQE............... $ 0.506 $ 0.506
Total..................................... $ 7,590,000 $ 8,728,500
We estimate that our total expenses for this offering, excluding
underwriting discounts and commissions, will be approximately $500,000.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids or purchases for the purpose
of pegging, fixing or maintaining the price of the common stock in accordance
with Regulation M under the Securities Exchange Act of 1934:
o Over-allotment involves sales by an underwriter of shares in excess of
the number of shares an underwriter is obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by an underwriter is not
greater than the number of shares that it may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. An underwriter may close out any short position by either
exercising its over-allotment option or purchasing shares in the open
market.
o Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
o Syndicate covering transactions involve purchases of the common stock
in the open market after the distribution has been completed in order
to cover syndicate short positions. In determining the source of shares
to close out the short position, an underwriter will consider, among
other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares
through the over-allotment option. If an underwriter sells more shares
than could be covered by the over-allotment option, which is called a
naked short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely to be
created if an underwriter is concerned that there could be downward
pressure on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the offering.
o Penalty bids permit an underwriter to reclaim a selling concession from
a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the market price of
the common stock or preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor the underwriters make any representation that the underwriters will
engage in these stabilizing transactions or that any transaction, once
commenced, will not be discontinued without notice.
We have agreed that we will not, without the prior written consent of
Lehman Brothers Inc., offer or sell any of our common stock (other than pursuant
to our dividend reinvestment and stock purchase plan or any employee benefit,
stock option, or other plans in effect on the date of this prospectus
supplement, or pursuant to other rights or options outstanding at the date of
this prospectus supplement, or in connection with the settlement of certain
litigation referred to in "Risk Factors" above) prior to 90 days after the
consummation of this offering.
Our directors and executive officers have entered into similar lock-up
agreements with the underwriters whereby they have agreed that they will not,
without the prior written consent of Lehman Brothers Inc., offer, sell or
S-15
otherwise dispose of any shares of our common stock (subject to certain limited
exceptions) for a period ending 40 days after the date of this prospectus
supplement.
We have agreed to indemnify the underwriters against liabilities relating
to this offering, including liabilities under the Securities Act of 1933, and to
contribute to payments that the underwriters may be required to make for these
liabilities.
The prospectus supplement and the accompanying prospectus may be made
available in electronic format on Internet sites or through other online
services maintained by the underwriters or one or more of the selling group
members participating in this offering, or by their affiliates. In those cases,
prospective investors may view offering terms online and, depending upon the
underwriter or the particular selling group member, prospective investors may be
allowed to place orders online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account holders. Any such
allocation for online distributions will be made by the underwriters on the same
basis as other allocations.
Other than the prospectus in electronic format, the information on the
underwriters' or any selling group member's web site and any information
contained in any other web site maintained by the underwriter or any selling
group member is not part of this prospectus supplement or the accompanying
prospectus or the registration statement of which this prospectus supplement and
the accompanying prospectus form a part, has not been approved or endorsed by us
or the underwriters or any selling group member in its capacity as underwriter
or selling group member and should not be relied upon by investors.
Certain of the underwriters and their affiliates have performed and expect
to continue to perform financial advisory, investment banking, trustee or
lending services for us in the ordinary course of business for which they have
received and will receive customary compensation. Lehman Brothers is acting as
our financial advisor in connection with our review of assets, and in December
2001 received approximately 4% of AquaSource Class A common stock in exchange
for financial services relating to the potential sale of AquaSource and other
strategic options being explored by DQE.
This prospectus supplement and the accompanying prospectus are not, and
under no circumstances are to be construed as, an advertisement or a public
offering of shares in Canada or any province or territory thereof. Any offer or
sale of shares in Canada will be made only under an exemption from the
requirements to file a prospectus supplement or prospectus with the relevant
Canadian securities regulators and only by a dealer registered in accordance
with local provincial securities laws, or, alternatively, pursuant to an
exemption from the dealer registration requirement in the relevant province or
territory of Canada in which such offer or sale is made.
Purchasers of shares of common stock may be required to pay stamp taxes
and other charges under the laws and practices of the jurisdiction of purchase,
in addition to the offering price on the cover of this prospectus supplement.
VALIDITY
The validity of the common stock will be passed upon for DQE by David R.
High, Esq., Vice President and General Counsel of DQE, and by Thelen Reid &
Priest LLP, special counsel for DQE. Certain legal matters will be passed upon
for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. Skadden, Arps,
Slate, Meagher & Flom LLP represents DQE and its affiliates in connection with
certain legal matters.
S-16
PROSPECTUS
- ----------
$500,000,000
DQE, INC.
DQE CAPITAL CORPORATION
PREFERRED STOCK
COMMON STOCK
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
WARRANTS
DQE DEBT SECURITIES
DQE CAPITAL DEBT SECURITIES
DQE may offer from time to time its Preferred Stock, Common Stock, Stock
Purchase Contracts, Stock Purchase Units, Warrants to purchase Preferred or
Common Stock and Debt Securities, and DQE Capital may offer from time to time
its Debt Securities, up to an aggregate amount of $500,000,000.
The common stock of DQE is traded on the New York Stock Exchange, the
Philadelphia Stock Exchange and the Chicago Stock Exchange.
- ---------------------
One or more supplements to this prospectus will indicate the amount and terms of
each issue of securities, including the offering price, to be issued by DQE and
DQE Capital.
DQE and DQE Capital may sell the securities to or through underwriters, dealers
or agents or directly to one or more purchasers. The applicable prospectus
supplement will describe each offering of the securities.
- ---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ---------------------
The date of this prospectus is June 7, 2002.
TABLE OF CONTENTS
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS............................. 2
DQE..................................................................... 3
DQE CAPITAL............................................................. 4
DESCRIPTION OF DQE CAPITAL STOCK........................................ 5
Preferred Stock....................................................... 5
Common Stock.......................................................... 9
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS........ 14
DESCRIPTION OF DQE WARRANTS............................................. 14
DESCRIPTION OF DQE DEBT SECURITIES...................................... 15
DESCRIPTION OF DQE CAPITAL DEBT SECURITIES.............................. 24
PLAN OF DISTRIBUTION.................................................... 33
AVAILABLE INFORMATION................................................... 35
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.............................. 35
EXPERTS................................................................. 36
VALIDITY................................................................ 36
2
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that DQE and
DQE Capital filed with the United States Securities and Exchange Commission, or
the "SEC." We may sell the securities described in this prospectus from time to
time in one or more offerings. This prospectus only provides you with a general
description of the securities. Each time we offer securities, we will provide a
supplement to this prospectus that contains specific information about the terms
of the securities then being offered. The supplement may also add, update or
change information contained in this prospectus.
In addition to the information contained in this prospectus and applicable
supplement, this prospectus incorporates by reference important business and
financial information about DQE that is not included in or delivered with this
prospectus. See "AVAILABLE INFORMATION." You may obtain copies of documents
containing such information from us, without charge, by either calling or
writing to us at:
DQE, Inc.
411 Seventh Avenue
P.O. Box 1930
Pittsburgh, Pennsylvania 15230-1090
Attention: Corporate Secretary
Telephone: 412-393-6000
You should rely only on the information contained or incorporated by
reference in this prospectus and the applicable supplement. We have not
authorized any other person to provide you with different information. You
should not assume that the information contained or incorporated in this
prospectus as of any time after the date of this prospectus or, if later, the
date of an incorporated document, is accurate because our business, financial
condition or results of operations may have changed since that date.
We are not making an offer to sell any securities in any jurisdiction
where an offer or sale is not permitted.
SEE P. 35 FOR "A WARNING ABOUT FORWARD-LOOKING STATEMENTS", INCLUDING
CAUTIONARY LANGUAGE REGARDING THE FORWARD-LOOKING INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
3
DQE
GENERAL
DQE is a holding company whose subsidiaries deliver essential products and
services including electricity, water and communications to more than one
million customers throughout the United States. Our subsidiaries include:
o Duquesne Light Company, our largest operating subsidiary, which is
engaged in the transmission and distribution of electric energy and
provides electric service to approximately 586,000 direct customers in
southwestern Pennsylvania (including in the City of Pittsburgh), a
territory of approximately 800 square miles. As a public utility,
Duquesne Light is subject to regulation by the Pennsylvania Public
Utility Commission with respect to retail rates, accounting, issuance
of securities and other matters. Duquesne Light is also subject to
regulation by the Federal Energy Regulatory Commission with respect to
rates for wholesale sales and transmission services, accounting and
other matters.
o AquaSource, Inc., which is a water resource management company that
acquires, develops and manages water and wastewater systems and
complementary businesses.
o DQE Energy Services, LLC, which is an energy facilities management
company that provides energy outsourcing solutions including
development, operation and maintenance of energy and alternative fuel
facilities.
o DQE Communications, Inc., which developed and owns a 60,000 mile
fiber-optic network in Pittsburgh.
o DQE Financial Corp., which owns and operates landfill gas collection
and processing systems and is an investment and portfolio management
organization focused on structured finance and alternative energy
investments.
o DQE Capital, which is described below under its own heading.
o Other business lines, including propane distribution and insurance
services for DQE and various affiliates.
In the second half of 2001, following the completion of a strategic review
process, DQE announced a new management team and a change in its strategic
direction. DQE adopted a "back-to-basics" strategy featuring, among other
things, a more concentrated focus on our utility operations and complementary
businesses.
DQE is a "holding company" under the Public Utility Holding Company Act of
1935, but is exempt from all provisions thereof except Section 9(a)(2) which
relates to the acquisition of public utility companies.
DQE's principal executive offices are located 411 Seventh Avenue,
Pittsburgh, Pennsylvania 15219-1905 and the telephone number is (412) 393-6000.
See "AVAILABLE INFORMATION" for the availability of additional information
about DQE.
EFFECT OF HOLDING COMPANY STRUCTURE
DQE Debt Securities or Guaranties
Since DQE is a holding company, substantially all of the assets shown on
DQE's consolidated balance sheet are held by its subsidiaries. Accordingly,
DQE's earnings and cash flow and its ability to meet its obligations are largely
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dependent upon the earnings and cash flows of such subsidiaries and the
distribution or other payment of such earnings to DQE in the form of dividends
or loans or advances and repayment of loans and advances from DQE. The
subsidiaries are separate and distinct legal entities and, except for DQE
Capital, have no obligation to pay any amounts due on any securities offered by
this prospectus or to make any funds available for such payment.
Due to the holding company structure, DQE's obligations on its debt
securities, or on its guaranty of DQE Capital's debt securities, will be
effectively subordinated to all existing and future liabilities of DQE's
subsidiaries. Therefore, DQE's rights and the rights of its creditors, including
the rights of the holders of DQE Capital's debt securities under DQE's guaranty
thereof, to participate in the assets of any subsidiary (other than DQE Capital)
upon the liquidation or reorganization of such subsidiary will be subject to the
prior claims of such subsidiary's creditors. To the extent that DQE may itself
be a creditor with recognized claims against any such subsidiary, DQE's claims
would still be effectively subordinated to any security interest in, or
mortgages or other liens on, the assets of such subsidiary and would be
subordinated to any indebtedness or other liabilities of such subsidiary senior
to that held by DQE. Although certain agreements to which DQE and its
subsidiaries are parties limit the incurrence of additional indebtedness, DQE
and its subsidiaries retain the ability to incur substantial additional
indebtedness and other liabilities.
DQE Equity Securities
Any equity securities of DQE, including preferred or common stock, which
may be offered by this prospectus are, by definition, junior in entitlement to
dividends or assets to claims of DQE's creditors including, but not limited to,
holders of debt securities issued or guaranteed by DQE and, as discussed above,
to the claims of creditors of DQE's subsidiaries.
DQE's board of directors regularly evaluates our common stock dividend
policy and sets the amount each quarter. The level of dividends will continue to
be influenced by many factors such as, among other things, our earnings,
financial condition and cash flows from subsidiaries, as well as general
economic and competitive conditions. The board also has to consider the impact
of the downgrade in the ratings of certain of our securities and the
effectiveness of the divestiture of non-complementary assets, which are
discussed in the Incorporated Documents.
Duquesne Light Company
As discussed above, Duquesne Light Company is our largest subsidiary. If
Duquesne Light cannot pay dividends on its common stock, we may not be able to
pay dividends on our common stock or preferred stock. Payments of dividends on
Duquesne Light's common stock may be restricted by Duquesne Light's obligations
to holders of preferred and preference stock, under Duquesne Light's articles of
incorporation, and by obligations of a Duquesne Light subsidiary to holders of
its securities and other creditors. No dividends or distributions may be made on
Duquesne Light's common stock if Duquesne Light has not paid dividends or
sinking fund obligations on its preferred or preference stock. Further, the
aggregate amount of Duquesne Light's common stock dividend payments or
distributions may not exceed certain percentages of net income if the ratio of
total common shareholder's equity to total capitalization is less than specified
percentages. Dividends on Duquesne Light stock may also be effectively limited
by the terms of certain financing agreements.
DQE CAPITAL
DQE Capital Corporation is a Delaware corporation and a wholly owned
subsidiary of DQE. DQE Capital's primary business purpose is to provide
financing for the operations of the direct and indirect subsidiaries of DQE
other than Duquesne Light Company.
DQE Capital's principal executive offices are located at 411 Seventh
Avenue, Pittsburgh, Pennsylvania 15219-1905 and the telephone number is (412)
393-6000.
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USE OF PROCEEDS
Except as otherwise specified in the applicable prospectus supplement, DQE
intends to use the proceeds of each issue of its securities which may be offered
by this prospectus to make loans to and/or equity investments in one or more of
DQE's direct or indirect subsidiaries (other than DQE Capital), to repay
advances from subsidiaries and otherwise for general corporate purposes. These
subsidiaries may, in turn, use the funds so invested for general corporate
purposes, including expanded business activities and the reduction of short-term
debt incurred to provide interim financing.
Except as otherwise specified in the applicable prospectus supplement, DQE
Capital intends to use the proceeds of each issue of its securities which may be
offered by this prospectus for loans to DQE and/or to one or more of DQE's
direct or indirect subsidiaries (other than Duquesne Light Company) to be
ultimately used for the purposes generally described above.
DESCRIPTION OF DQE CAPITAL STOCK
DQE may offer additional shares of preferred stock in one or more series.
DQE may also offer additional shares of common stock. DQE's Restated Articles of
Incorporation, as amended, authorize DQE to issue up to 4,000,000 shares of
Preferred Stock, no par value. The Articles also authorize DQE to issue up to
187,500,000 shares of Common Stock, no par value. As of April 30, 2002, there
were outstanding 163,520 shares of Preferred Stock, Series A (Convertible), and
56,438,612 shares of Common Stock. The new shares of Preferred Stock and Common
Stock which may be offered by this prospectus are called the "New Preferred
Stock" and the "New Common Stock", respectively.
The rights and privileges of holders of DQE's capital stock are governed
by DQE's Articles and By-Laws and the Pennsylvania Business Corporation Law, or
BCL. Certain provisions of the Articles and DQE's capital stock are summarized
below. Because this section is a summary, it does not describe every aspect of
the Articles. DQE has filed the Articles, as well as a form of amendment to
establish a series of New Preferred Stock, as exhibits to the registration
statement of which this prospectus is a part. We encourage you to read the
Articles and the form of amendment for provisions that may be important to you.
Capitalized terms used under this heading which are not otherwise defined in
this prospectus have the meanings set forth in the Articles.
PREFERRED STOCK
GENERAL
The Board of Directors is authorized to divide the Preferred Stock into
series and, as to each series, to determine the designation and number of shares
of such series and the voting rights, preferences, limitations and special
rights, if any, of the shares of such series. Such divisions and determinations
will be set forth in one or more amendments to the Articles adopted by the Board
of Directors. All shares of Preferred Stock of each series rank equally as to
dividends and the liquidation preference of such shares payable upon the
liquidation, dissolution or winding up of DQE. All shares of Preferred Stock of
all series will rank equally as to dividends and liquidation preference except
to the extent otherwise provided in the amendment to the Articles establishing
any series of Preferred Stock.
The prospectus supplement relating to each series of New Preferred Stock
offered by this prospectus will set forth or describe:
o the designation and number of shares of such series;
o the dividend rate or rates on the shares of such series, the date or
dates from which dividends shall accrue, the dates on which dividends
will, subject to the provisions of the Articles, be payable, the record
dates for the payment of dividends and the relative ranking of such
shares as to the payment of dividends;
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o the liquidation preference of the shares of such series and the
relative ranking of such shares as to the payment of amounts upon
liquidation, dissolution or winding up;
o provisions relating to optional or mandatory redemption of the shares
of such series;
o provisions relating to the optional or mandatory conversion of the
shares of such series into other securities of DQE;
o provisions relating to the optional or mandatory exchange of the shares
of such series for other securities of DQE or any other issuer;
o the voting rights of the holders of the shares of such series; and
o any other preferences, limitations and/or special rights of the shares
of such series.
DIVIDENDS
General
When, as and if declared by the Board of Directors, and subject to the
rights of the holders of any shares of any series of Preferred Stock or other
stock ranking senior to or on a parity with any particular series of New
Preferred Stock with respect to dividends, DQE will pay, out of funds legally
available therefor, dividends in cash to the holders of shares of each series of
New Preferred Stock at the rate or rates thereon.
Dividends on the shares of each series of New Preferred Stock will be
payable, subject to the terms and conditions set forth in the Articles, on each
dividend payment date, beginning on the first dividend payment date following
the respective date or dates of issuance of the shares of such series, to the
registered holders of such shares as of the close of business on the record date
with respect to such dividend payment date.
Accrual of Dividends, etc.
Except as otherwise specified in the applicable prospectus supplement,
dividends will begin to accrue on the shares of each series of New Preferred
Stock from the respective date or dates of issuance of the shares of such
series. Dividends will accrue on a daily basis whether or not at the time DQE
shall have funds legally available for distributions to shareholders. Except as
otherwise specified in the applicable prospectus supplement, accrued dividends
for any period less than a full annual period will be computed on the basis of a
year deemed to consist of (A) 360 days and (B) twelve calendar months each,
itself, deemed to consist of 30 days; provided, however, that, if any part of
the period for which accrued dividends are being computed shall consist of a
portion of a calendar month, accrued dividends for such part of such period will
be computed on the basis of the actual number of days elapsed during such
calendar month (excluding the date of payment, if any, in such calendar month)
in relation to the full annual dividend accrued during a deemed 360-day year.
Accrued but unpaid dividends will accumulate as of the dividend payment date on
which they first become payable, but no interest shall accrue on accumulated but
unpaid dividends.
Parity Stock
So long as any series of New Preferred Stock shall be outstanding, if (A)
at any time DQE shall not have satisfied in full the cumulative dividends
accrued on such series of New Preferred Stock for all Dividend Periods (as
hereinafter defined) ended at or prior to such time and (B) at such time there
shall have accrued and shall remain unpaid, for Dividend Periods ended at or
prior to such time, dividends on shares of any other series of the Preferred
Stock or any other class of stock in either case ranking as to dividends on a
parity with such series of New Preferred Stock, any funds of DQE legally
available for the purpose will be allocated among all cumulative dividends
accrued and unpaid, for all Dividend Periods ended at or prior to such time, on
all such parity series of the Preferred Stock and such other parity stock in
proportion to the respective amounts thereof.
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Junior Securities
So long as any shares of any series of New Preferred Stock shall be
outstanding, DQE will not (A) declare or pay or set apart for payment any
dividends or make any other distributions on any Junior Securities (as
hereinafter defined) or (B) make any payment on account of the redemption,
purchase or other acquisition or retirement of any Junior Securities, unless, as
of the date of any such declaration, setting aside or payment, as the case may
be, there shall also have been declared and paid or set aside for payment
dividends accumulated on such series of New Preferred Stock during all Dividend
Periods ended on or prior to such date; provided, however, that the foregoing
restriction will not prohibit (X) any dividend payable solely in shares of
Junior Securities or (Y) the acquisition of any Junior Securities either (i)
pursuant to any employee or director incentive or benefit plan or arrangement
(including any employment, severance or consulting agreement), or any dividend
or interest reinvestment or stock purchase plan, of DQE or any affiliate of DQE
heretofore or hereafter adopted or (ii) in exchange solely for any other Junior
Securities; and provided, further, that nothing in the Articles will prevent the
simultaneous declaration or payment of dividends on both the Preferred Stock and
any Junior Securities if, at the time of such declaration, there are sufficient
funds legally available to pay all dividends concurrently.
LIQUIDATION
General
Subject to the rights of the holders of shares of any series of Preferred
Stock any stock of DQE ranking senior to or on a parity with any particular
series of New Preferred Stock in respect of distributions upon the liquidation,
dissolution or winding up of DQE, upon any such liquidation, dissolution or
winding up (whether voluntary or involuntary), each holder of shares of each
series of New Preferred Stock will be entitled to be paid, out of the assets of
DQE which remain after the payment and discharge of all liabilities of DQE,
before any distribution or payment is made upon any Junior Securities, an amount
in cash equal to the aggregate Liquidation Value (as hereinafter defined) of the
shares of such series of New Preferred Stock held by such holder plus an amount
equal to accrued and unpaid dividends thereon to (but excluding) the date of
payment, and the holders of shares of series of New Preferred Stock will not be
entitled to any further payment. If, upon any such liquidation, dissolution or
winding up of DQE, DQE's assets available to be distributed among the holders of
the shares of series of New Preferred Stock and any other series of the
Preferred Stock and any other stock in either case ranking as to any such
distribution on a parity with the series of New Preferred Stock are insufficient
to permit payment to such holders of the aggregate amount which they are
entitled to be paid, then such assets will be allocated among all liquidation
requirements on all such parity series of Preferred Stock and such other parity
stock in proportion to the respective amounts then required for the satisfaction
thereof.
Neither the consolidation, merger or other combination of DQE with or into
any other entity or entities (whether or not DQE is the surviving entity), nor
the sale, transfer or other disposition by DQE of all or any part of its assets,
nor the reduction of the capital stock of DQE nor any other form of
recapitalization or reorganization affecting DQE will be deemed to be a
liquidation, dissolution or winding up of DQE within the meaning of the
preceding paragraph.
REDEMPTION
The applicable prospectus supplement will set forth any terms for the
optional or mandatory redemption of each series of New Preferred Stock.
Except as otherwise specified in the applicable prospectus supplement, if
less than all of the outstanding shares of any series of New Preferred Stock are
to be redeemed, DQE will select the shares to be redeemed pro rata, by lot or by
any other method as shall be determined by DQE to be equitable.
Except as otherwise specified in the applicable prospectus supplement, any
notice of mandatory or optional redemption will be sent to the holders of the
shares of any series of New Preferred Stock to be redeemed at the addresses
shown on the books of DQE by first class mail, postage prepaid, mailed not less
than thirty (30) days nor more than sixty (60) days prior to the redemption
date.
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With respect to any notice of redemption of shares of series of New
Preferred Stock at the option of DQE, unless, upon the giving of such notice,
such shares shall be deemed to have been redeemed and to be no longer
outstanding by reason of the deposit with a redemption agent of funds sufficient
to effect such redemption in accordance with and subject to the Articles, such
notice may state that such redemption shall be conditional upon the setting
aside by DQE or the delivery to a redemption agent, on or prior to the date
fixed for such redemption, of legally available funds sufficient to pay the
redemption price of such shares, and that if such funds shall not have been so
set aside or delivered such notice shall be of no force or effect and DQE shall
not be required to redeem such shares. In the event that such notice of
redemption contains such a condition and such funds are not so set aside or
delivered, the redemption shall not be made and within a reasonable time
thereafter notice shall be given that such funds were not so set aside or
delivered and such redemption was not required to be made.
RANKING; PRO RATA SHARING; RETIREMENT
Ranking
Except as otherwise specified in the applicable prospectus supplement,
each series of New Preferred Stock will rank senior to the Common Stock as to
the payment of dividends and as to the distribution of assets on liquidation,
dissolution or winding-up of DQE, and, except as so specified, each series of
New Preferred Stock will rank on a parity with all other series of Preferred
Stock as to the payment of dividends and as to the distribution of assets on
liquidation, dissolution or winding-up.
Pro Rata Sharing
Except to the extent otherwise provided in the Articles, all payments to
be made in respect of the shares of each series of New Preferred Stock and
shares of each other series of Preferred Stock and of any other stock ranking on
a parity with such series of New Preferred Stock with respect to payments of
such character will be made pro rata, so that amounts paid per share on such
series of New Preferred Stock, such other series of Preferred Stock and such
other priority stock will in all cases bear to each other the same ratio that
the amounts then payable per share on all shares of such series of Preferred
Stock and such other priority stock bear to each other.
Retirement
Any shares of each series of New Preferred Stock redeemed or converted as
provided in the applicable prospectus supplement will be retired as shares of
series of Preferred Stock of the particular series and be restored to the status
of authorized but unissued shares of Preferred Stock, undesignated as to series,
and may thereafter be reissued as permitted by applicable law.
VOTING RIGHTS
Except to the extent otherwise specifically provided by applicable law,
holders of shares of any series of New Preferred Stock will have no special
voting rights and their consent shall not be required for the taking of any
corporate action.
Under Pennsylvania law, the holders of shares of Preferred Stock of all
affected series will be entitled to vote, together as a single class, with
respect to any amendment to the Articles which would authorize a new series of
Preferred Stock or another class of stock having a preference as to dividends or
assets which is senior to the shares of such series of New Preferred Stock, or
would authorize an increase in the number of authorized shares of any such
senior series or class; and no such amendment may be adopted unless, among other
things, it receives the affirmative vote of a majority of the votes cast in such
class vote. In addition, under Pennsylvania law, the holders of shares of series
of Preferred Stock of all affected series will be entitled to similar voting
rights, together as a single class, with respect to any merger or consolidation
which would effect any change in the Articles if such holders would have been
entitled to a class vote with respect to such change if such change had been
accomplished as an amendment to the Articles rather than by merger or
consolidation.
See "Common Stock - Voting Rights" for the voting rights of the holders of
Series A Preferred Stock
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DEFINITIONS
"Dividend Period", as to the shares of each series of New Preferred Stock
or any other series of the Preferred Stock or of any other class of stock in
either case ranking as to dividends on a parity with such series of New
Preferred Stock, means the period commencing on any dividend payment date
prescribed for such series and ending on the day next preceding the next
succeeding dividend payment date for such series, except that the initial
Dividend Period for any particular shares of any series or class shall be the
period commencing on the date or dates from which dividends on such shares shall
be cumulative and ending on the day next preceding the first dividend payment
date prescribed for such shares.
"Junior Securities" means the Common Stock and, with respect to each
series of New Preferred Stock, (1) for purposes of clause (A) in the paragraph
"Junior Securities" under "Dividends" above, any other class or series of stock
ranking junior to such series of New Preferred Stock in right of payment of
dividends or (2) for all other purposes, any other class or series of stock
ranking junior to such series of New Preferred Stock in right of payment of
amounts distributable upon liquidation, dissolution or winding up.
"Liquidation Value", as to each share of each series of New Preferred
Stock, means the amount payable in respect of such share upon the liquidation,
dissolution or winding up of DQE set forth in the amendment to the Articles
establishing such series.
COMMON STOCK
------------
GENERAL
Except for the rights of holders of the Series A Preferred Stock,
described below, and such rights as may be granted to the holders of any other
series of Preferred Stock in the amendment establishing such series or as
required by law, all of the voting and other rights of the shareholders of DQE
belong exclusively to the holders of the Common Stock.
DIVIDEND RIGHTS
The holders of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
However, the Board of Directors has granted, in the case of the outstanding
series of Preferred Stock, and may grant, if additional Preferred Stock is
issued, preferential dividend rights to the holders of such stock which would
prohibit payment of dividends on the Common Stock unless and until specified
dividends on such series of Preferred Stock have been paid and in certain other
circumstances.
LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up of DQE, whether voluntary or
involuntary, the holders of Common Stock are entitled to share ratably in the
assets of DQE available for distribution after all liabilities of DQE have been
satisfied. The Board of Directors has granted, in the case of the series of New
Preferred Stock, and may grant, if additional Preferred Stock is issued,
preferential liquidation rights to the holders of such stock which would entitle
them to be paid out of the assets of DQE available for distribution before any
distribution is made to the holders of Common Stock.
VOTING RIGHTS
General
Each holder of Common Stock is entitled to one vote for each whole share
held and, in addition, has cumulative voting rights in the election of
directors. The holders of the Series A Preferred Stock are entitled to vote on
all matters submitted to a vote of the holders of the Common Stock, voting
together with the holders of the Common Stock as one class. Each holder of
Series A Preferred Stock is entitled to three votes for each share held, subject
to adjustment, and also has cumulative voting rights in the election of
directors.
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In the election of directors, each shareholder is entitled to cast a total
number of votes determined by multiplying
o the number of shares held, times
o the number of votes per share (one, in the case of Common Stock, and
three, in the case of Series A Preferred Stock), times
o the number of directors to be elected.
Each shareholder may cast the total number of votes, determined as described
above, for one candidate or may distribute them among any two or more
candidates. Cumulative voting rights are intended to increase the chances of
having at least some board representation for minority shareholders.
Board of Directors
Number; Classification. The Articles provide that the Board of Directors
shall consist of such number of directors as may be fixed from time to time by a
majority of the Disinterested Directors (defined below) then in office, plus
such number of additional directors, if any, as the holders of Preferred Stock,
voting separately as a class or series, shall have the right from time to time
to elect. The Articles further provide that the Board of Directors, excluding
any directors elected by the holders of Preferred Stock, voting separately as a
class or series, shall be divided into three classes, as nearly equal in number
as possible, with one class of directors to be elected at each annual meeting of
shareholders, to hold office until the third succeeding annual meeting and until
their successors are elected and qualify. At the date of this prospectus, there
are ten members of the Board of Directors, none of whom were elected by holders
of the Series A Preferred Stock.
The classification of the Board of Directors, as described above, tends to
reduce the effect of cumulative voting by increasing the minimum number of
shares required to be held in order to elect one or more directors.
Removal. The Articles provide that for so long as the general corporate
law of DQE's state of incorporation specifically mandates such power, a
director, any class of directors or the entire Board of Directors may be removed
from office by shareholder vote without cause, but only if shareholders entitled
to cast at least 80% of the votes which all shareholders are entitled to cast at
an annual election of directors or of such class of directors shall vote in
favor of such removal. The power of shareholders to remove directors without
cause is not required under the Pennsylvania Business Corporation Law as
currently in effect (except upon the unanimous vote of shareholders). Therefore,
under the Articles, the shareholders may remove a director from office only for
cause and only if the holders of at least a majority of the voting power of the
then outstanding shares of Voting Stock (defined below) which are not
beneficially owned by an Interested Stockholder (defined below) shall vote in
favor of such removal.
Vacancies. The Articles provide that vacancies in the members of the Board
of Directors elected by holders of Voting Stock, including vacancies resulting
from an increase in the number of directors, shall be filled only by a majority
vote of the Disinterested Directors then in office, though less than a quorum,
except as otherwise required by law. Directors elected to fill vacancies will
hold office for a term expiring at the annual meeting of shareholders at which
the term of the class to which they have been elected expires.
Nomination of Director Candidates. The Articles require that any
shareholder intending to nominate a candidate for election as a director must
give written notice of the nomination, containing certain specified information,
to the Secretary of DQE not later than 120 days in advance of the meeting at
which the election is to be held.
Directors Elected by Preferred Shareholders. The provisions of the
Articles with respect to the Board of Directors described above would not apply
to any directors separately elected by the holders of any class or series of
stock having a preference over the Common Stock as to dividends or assets.
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Certain Business Combinations
The Articles provide that the affirmative vote of the holders of (i) at
least 80% of the voting power of all then outstanding shares of Voting Stock (as
defined in the Articles), voting as a single class, and (ii) at least a majority
of the voting power of the then outstanding shares of Voting Stock which are not
beneficially owned by an Interested Stockholder (as defined in the Articles),
voting as a single class, is required for the approval or authorization of any
Business Combination (as defined in the Articles) involving an Interested
Stockholder, except
o a Business Combination approved by a majority of the Disinterested
Directors (as defined in the Articles), or
o a Business Combination as to which certain minimum price and procedural
requirements, described below, are satisfied.
If the requisite approval of Disinterested Directors were given or the
minimum price and procedural requirements were satisfied with respect to a
particular Business Combination, the normal approval requirements of
Pennsylvania law would apply to such Business Combination.
The minimum price and procedural requirements referred to above consist of
all of the following six conditions:
(1) The aggregate amount of the cash and the fair market value of
consideration other than cash to be received per share by holders of Common
Stock in the Business combination shall be at least equal to the highest of
the following:
o (if applicable) the highest per share price paid in order to
acquire any shares of Common Stock at any time beneficially owned
by the Interested Stockholder which were acquired (i) within the
two-year period immediately prior to the first public
announcement of the proposed Business Combination (the
"Announcement Date") or (ii) in the transaction in which it
became an Interested Stockholder, whichever is higher;
o the fair market value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher; and
o (if applicable) the price per share equal to the fair market
value per share of Common Stock determined pursuant to the
immediately preceding paragraph multiplied by the ratio of (i)
the highest per share price paid in order to acquire any shares
of Common Stock at any time beneficially owned by the Interested
Stockholder which were acquired within the two-year period
immediately prior to the Announcement Date to (ii) the fair
market value per share of Common Stock on the first day in such
two-year period on which the Interested Stockholder beneficially
owned any shares of Common Stock.
(2) The aggregate amount of the cash and the fair market value of
consideration other than cash to be received per share by holders of shares of
any other class or series of Voting Stock shall be at least equal to the highest
of the following:
o (if applicable) the highest per share price paid in order to
acquire any shares of such class or series of Voting Stock at any
time beneficially owned by the Interested Stockholder which were
acquired (i) within the two-year period immediately prior to the
Announcement Date or (ii) in the transaction in which it became
an Interested Stockholder, whichever is higher;
o (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of voting
Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of DQE;
o the fair market value per share of such class or series of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher; and
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o (if applicable) the price per share equal to the fair market
value per share of such class or series of Voting Stock
determined pursuant to the immediately preceding paragraph,
multiplied by the ratio of (i) the highest per share price paid
in order to acquire any shares of such class or series of Voting
Stock at any time beneficially owned by the Interested
Stockholder which were acquired within the two-year period
immediately prior to the Announcement Date to (ii) the fair
market value per share of such class of Voting Stock on the first
day in such two-year period on which the Interested Stockholder
beneficially owned any shares of such class or series of Voting
Stock.
(3) The consideration to be received by holders of each class or series of
outstanding Voting Stock (including Common Stock) shall be in cash or in the
same form as was previously paid in order to acquire shares of Voting Stock
which are beneficially owned by the Interested Stockholder. If the Interested
Stockholder beneficially owns shares of Voting Stock which were acquired with
varying forms of consideration, the form of consideration to be received by
holders of each class or series of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of Voting Stock (regardless of
class or series) beneficially owned by the Interested Stockholder. All per share
prices referred to in clauses (1) and (2) above shall be appropriately adjusted
to reflect any intervening stock dividend, stock split, combination of shares or
similar event.
(4) After the Determination Date and prior to the consummation of
such Business Combination:
o except as approved by a majority of the Disinterested Directors,
there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or
not cumulative) on any outstanding capital stock of DQE having
preference over the Common Stock as to dividends or upon
liquidation;
o there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as approved
by a majority of the Disinterested Directors, and (ii) in the
event of any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, an increase in such
annual rate of dividends (as necessary to prevent any such
reduction), unless the failure so to increase such annual rate is
approved by a majority of the Disinterested Directors; and
o such Interested Stockholder shall not have become the beneficial
owner of any additional shares of Voting Stock except as part of
the transaction in which it became an Interested Stockholder.
(5) After the Determination Date, the Interested Stockholder shall not
have received the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by DQE, whether
in anticipation of or in connection with such Business Combination or otherwise.
(6) If the proposed Business Combination otherwise requires a stockholder
vote, such Business Combination shall be submitted to the holders of capital
stock of DQE entitled to vote thereon, and their proxies for approval of such
transaction shall be solicited in accordance with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder, and in
any event (whether or not a stockholder vote is required), a proxy or
information statement describing the proposed Business Combination, complying
with such requirements and containing other information specified in the
Articles shall be mailed to all holders of Voting Stock and the holders of any
other class or series of stock entitled to vote thereon at least 30 days prior
to the earlier of the date of the stockholder meeting to vote on such Business
Combination or the consummation of such Business Combination.
Amendments to the Articles or By-Laws
The Articles provide that any amendment, alteration, change or repeal of
any provision of Article 7 or Article 8 of the Articles (which contain
provisions relating to business combinations), the adoption of any provision
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inconsistent therewith, or the adoption, amendment or repeal by the shareholders
of any By-Law, shall require the affirmative votes of (i) the holders of at
least 80% of the voting power of all then outstanding shares of Voting Stock,
voting together as a single class, and (ii) the holders of at least a majority
of the voting power of the then outstanding shares of Voting Stock which are not
beneficially owned by any Interested Stockholder, voting together as a single
class, unless such action is recommended by a majority of the Disinterested
Directors and at the time of such recommendation the Disinterested Directors
constitute a majority of the full Board of Directors, excluding any directors
elected by the holders of Preferred Stock, voting separately as a class or
series.
The Articles provide that the Board of Directors, by a vote including a
majority of the Disinterested Directors then in office, may adopt, amend or
repeal By-Laws with respect to those matters which are not, by statute, reserved
exclusively to the shareholders.
The provisions of the Articles described in this subsection "Voting
Rights" are in addition to certain provisions of Pennsylvania law which
restrict, or require a special shareholder vote to approve, certain transactions
between DQE and a shareholder of DQE.
The Articles reserve for DQE the right to amend, alter, change or repeal
any provision contained therein in the manner now or hereafter prescribed by
law, and all rights conferred upon shareholders therein are granted subject to
this reservation.
The Articles also provide that any action required or permitted to be
taken at a meeting of shareholders or a class of shareholders of DQE may be
taken without a meeting upon the written consent of shareholders who would have
been entitled to cast the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders entitled to vote
thereon were present and voting. Such consents shall be filed with the Secretary
of DQE.
Definitions
A "Business Combination" includes, generally, a merger, consolidation or
share exchange, a sale or other disposition of 5% or more of DQE's consolidated
total assets or the issuance or transfer of securities, in any case involving
DQE or a subsidiary and an Interested Stockholder (or an affiliate or associate
of an Interested Stockholder).
The term "Disinterested Director" means, generally, a director of DQE who
is not an Interested Stockholder or an affiliate, associate or representative of
an Interested Stockholder.
An "Interested Stockholder" means generally any person which (1) is at the
time the beneficial owner, directly or indirectly, of more than 10% of the
voting power of the outstanding Voting Stock; (2) is at the time an affiliate of
DQE and at any time within the two prior years was such a beneficial owner, or
(3) is an assignee of any such person.
The term "Voting Stock" means the capital stock of DQE entitled to vote
generally in an annual election of directors of DQE. At present, the Common
Stock and the Series A Preferred Stock are the only classes or series of DQE's
Voting Stock.
Anti-Takeover Effect
The classification of the Board of Directors, the limitations on the
removal of directors, the requirements for director nominations, the approval,
pricing and procedural requirements for a Business Combination and the
limitations on amendments to the Articles and the By-Laws, all as described
above, individually or in the aggregate, may have an "anti-takeover" effect.
These provisions could discourage a future takeover attempt which is not
approved by DQE's Board of Directors but which individual shareholders might
deem to be in their best interests or in which shareholders would receive a
premium for their shares over their current market prices. As a result,
shareholders who might desire to participate in such transaction might not have
13
an opportunity to do so. Certain of these provisions could also cause the
removal of the incumbent Board of Directors or management to require more time
or render such removal more difficult, procedurally or otherwise.
MISCELLANEOUS
Holders of Common Stock have no preemptive or other rights to subscribe
for any shares or securities of DQE. There are no sinking fund provisions,
conversion rights or redemption provisions applicable to the Common Stock, and
the holders of fully paid Common Stock are under no liability for assessments by
DQE.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for DQE's Common Stock is EquiServe Trust
Company, NA, P.O. Box 43010, Providence, Rhode Island 02940-3010. The Transfer
Agent and Registrar for each series of New Preferred Stock will be identified in
the applicable prospectus supplement.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
DQE may issue stock purchase contracts, including contracts obliging
holders to purchase from DQE and DQE to sell to the holders, a specified number
of shares of Common Stock at a future date or dates. The consideration per share
of Common Stock and the 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 described in the stock purchase contracts. We may issue
the stock purchase contracts separately or as a part of stock purchase units
consisting of:
o a stock purchase contract; and
o either a debt security of DQE or DQE Capital or a debt obligation of a
third party, including a U.S. Treasury security.
The DQE or DQE Capital debt security or debt obligation of a third party
may serve as collateral to secure the holders' obligations to purchase the
Common Stock under the stock purchase contracts. The stock purchase contracts
may require us to make periodic payments to the holders of stock purchase
contracts. These payments may be unsecured or prefunded on some basis to be
specified. The stock purchase contracts may require their holders to secure
their obligations in a specified manner. The applicable prospectus supplement
will describe the specific terms and other provisions of any stock purchase
contracts or stock purchase units.
DESCRIPTION OF DQE WARRANTS
General
DQE may issue warrants in one or more series for the purchase of Preferred
Stock or Common Stock. Warrants may be issued independently or together with any
offered securities and may be attached to or separate from such securities. Each
series of warrants will be issued under a separate warrant agreement to be
entered into between a warrant agent specified in the agreement and us. The
warrant agent will act solely as our agent in connection with the warrants of
that series and will not assume any obligation or relationship of agency or
trust for or with any holders or beneficial owners of warrants.
Warrant Rights
The applicable prospectus supplement will describe the terms of the
warrants in respect of which this prospectus is being delivered. These terms
will include the title of the warrants, the aggregate number of the warrants,
14
the price or prices at which the warrants will be issued, the currencies in
which the price or prices of the warrants may be payable, the designation,
amount and terms of the offered securities purchasable upon exercise of the
warrants, the designation and terms of the other offered securities, if any,
with which the warrants are issued and the number of the warrants issued with
the security, if applicable, the date on and after which the warrants and the
offered securities purchasable upon exercise of the warrants will be separately
transferable, the price or prices at which and currency or currencies in which
the offered securities purchasable upon exercise of the warrants may be
purchased, the date on which the right to exercise the warrants shall commence
and the date on which the right shall expire, the minimum or maximum amount of
the warrants which may be exercised at any one time, information with respect to
book-entry procedures, if any, if appropriate, a discussion of Federal income
tax consequences and any other material terms of the warrants, including terms,
procedures and limitations relating to the exchange and exercise of the
warrants.
DESCRIPTION OF DQE DEBT SECURITIES
As used in this section, the term "Debt Securities" means Debt Securities
which may be offered by DQE under this prospectus, the term "Indenture" means
DQE's indenture referred to below, the term "Indenture Securities" means all
debt securities outstanding under that indenture and the term "Trustee" means
the trustee under that indenture.
GENERAL
DQE may issue Debt Securities in one or more series, or in one or more
tranches within a series, under an Indenture from DQE to Bank One Trust Company,
NA, as trustee. The terms of the Debt Securities will include those stated in
the Indenture and those made part of the Indenture by the Trust Indenture Act of
1939, as amended. 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
is qualified in its entirety by reference to, the Indenture and the Trust
Indenture Act. DQE has filed a form of Indenture, as well as a form of officer's
certificate to establish a series of debt securities, as exhibits to the
registration statement of which this prospectus is a part. We encourage you to
read the forms of Indenture and officer's certificate for provisions that may be
important to you. Capitalized terms used under this heading which are not
otherwise defined in this prospectus have the meanings set forth in the
Indenture. Wherever particular provisions of the Indenture or terms defined in
the Indenture are referred to, those provisions or definitions are incorporated
by reference as a part of the statements made in this prospectus and those
statements are qualified in their entirety by that reference. References to
article and section numbers, unless otherwise indicated, are references to
article and section numbers of the Indenture.
In addition to the Debt Securities, other debt securities may be issued
under the Indenture, without any limit on the aggregate principal amount. The
Debt Securities and all other debt securities issued under the Indenture are
collectively referred to as the "Indenture Securities." Each series of Indenture
Securities will be unsecured and will rank pari passu with all other series of
Indenture Securities, except as otherwise provided in the Indenture, and with
all other unsecured and unsubordinated indebtedness of DQE. Except as otherwise
described in the applicable prospectus supplement, the Indenture does not limit
the incurrence or issuance by DQE of other secured or unsecured debt, whether
under the Indenture, under any other indenture that DQE may enter into in the
future or otherwise. See the prospectus supplement relating to any offering of
Debt Securities.
The applicable prospectus supplement will describe the following terms of
the Debt Securities of each series or tranche:
o the title of the Debt Securities;
o any limit upon the aggregate principal amount of the Debt Securities;
o the date or dates on which the principal of the Debt Securities is
payable or the method of determination thereof and the right, if any,
to extend such date or dates;
15
o the rate or rates at which the Debt Securities will bear interest, if
any, or the method by which such rate or rates, if any, will be
determined, the date or dates from which any such interest will accrue,
the interest payment dates on which any such interest will be payable,
the right, if any, of DQE to defer or extend an interest payment date,
and the regular record date for any interest payable on any interest
payment date and the person or persons to whom interest on the Debt
Securities will be payable on any interest payment date, if other than
the person or persons in whose names the Debt Securities are registered
at the close of business on the regular record date for such interest;
o the place or places where, subject to the terms of the Indenture as
described below under "-Payment and Paying Agents", the principal of
and premium, if any, and interest, if any, on the Debt Securities will
be payable and where, subject to the terms of the Indenture as
described below under "-Registration and Transfer", the Debt Securities
may be presented for registration of transfer or exchange and the place
or places where notices and demands to or upon DQE in respect of the
Debt Securities and the Indenture may be served; the Security Registrar
and Paying Agents for the Debt Securities; and, if such is the case,
that the principal of the Debt Securities will be payable without
presentation or surrender;
o any period or periods within which, date or dates on which, the price
or prices at which and the terms and conditions upon which the Debt
Securities may be redeemed, in whole or in part, at the option of DQE;
o the obligation or obligations, if any, of DQE to redeem or purchase any
of the Debt Securities pursuant to any sinking fund or other mandatory
redemption provisions or at the option of the Holder, and the period or
periods within which, or date or dates on which, the price or prices at
which, and the terms and conditions upon which the Debt Securities will
be redeemed or purchased, in whole or in part, pursuant to such
obligation, and applicable exceptions to the requirements of a notice
of redemption in the case of mandatory redemption or redemption at the
option of the Holder;
o the terms, if any, pursuant to which the Debt Securities may be
converted into or exchanged for shares of capital stock or other
securities of DQE or any other Person;
o the terms, if any, pursuant to which DQE's obligations on such Debt
Securities (or all Indenture Securities) are subordinated to other
specified obligations of DQE;
o the denominations in which any of the Debt Securities will be issuable
if other than denominations of $1,000 and any integral multiple of
$1,000;
o if such Debt Securities are to be issued in global form--
o any limitations on the rights of the registered holder or
holders of such Debt Securities to transfer or exchange the
same or to obtain registration of transfer thereof,
o any limitations on the rights of beneficial owners of such Debt
Securities to obtain certificates therefor, and
o the identity of the depository and any other matters incidental
to such Debt Securities; and
o any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture.
PAYMENT AND PAYING AGENTS
Except as may be specified in the applicable prospectus supplement, DQE
will pay interest, if any, on each Debt Security on each interest payment date
to the person in whose name such Debt Security is registered (the registered
holder of any Indenture Security being called a "Holder") as of the close of
business on the regular record date relating to such interest payment date;
16
provided, however, that DQE will pay interest at maturity (whether at stated
maturity, upon redemption or otherwise, "Maturity") to the person to whom
principal is paid. However, if there has been a default in the payment of
interest on any Debt Security, such defaulted interest may be payable to the
Holder of such Debt Security as of the close of business on a date selected by
the Trustee which is not more than 30 days and not less than 10 days before the
date proposed by DQE for payment of such defaulted interest or in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which such Debt Security may be listed, if the Trustee deems such manner of
payment practicable. (See Section 307.)
Unless otherwise specified in the applicable prospectus supplement, DQE
will pay the principal of and premium, if any, and interest, if any, on the Debt
Securities at Maturity upon presentation of the Debt Securities at the corporate
trust office of Bank One Trust Company, NA, as paying agent for DQE. DQE may
change the place of payment of the Debt Securities, may appoint one or more
additional paying agents (including DQE) and may remove any paying agent, all at
its discretion. (See Section 502.)
REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable prospectus supplement,
Holders may register the transfer of Debt Securities, and may exchange Debt
Securities for other Debt Securities of the same series and tranche, of
authorized denominations and having the same terms and aggregate principal
amount, at the corporate trust office of Bank One Trust Company, NA, as security
registrar for the Debt Securities. DQE may change the place for registration of
transfer and exchange of the Debt Securities, may appoint one or more additional
security registrars (including DQE) and may remove any security registrar, all
at its discretion. (See Section 502.) Except as otherwise provided in the
applicable prospectus supplement, no service charge will be made for any
transfer or exchange of the Debt Securities, but DQE may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of the Debt
Securities. DQE will not be required to execute or provide for the registration
of transfer of or the exchange of (a) any Debt Security during a period of 15
days before 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
The applicable prospectus supplement will set forth any terms for the
optional or mandatory redemption of Debt Securities. Except as otherwise
provided in the applicable prospectus supplement with respect to Debt Securities
redeemable at the option of the Holder, Debt Securities will be redeemable only
upon notice by mail not less than 30 nor more than 60 days before the date fixed
for redemption. If less than all the Debt Securities of a series, or any tranche
thereof, are to be redeemed, the particular Debt Securities to be redeemed will
be selected by such method as shall be provided for such series or tranche, or
in the absence of any such provision, by such method of random selection as the
Security Registrar deems fair and appropriate. (See Sections 403 and 404.)
Any notice of redemption at the option of DQE may state that such
redemption will be conditional upon receipt by the Paying Agent or Agents, on or
before the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such Debt Securities
and that if such money has not been so received, such notice will be of no force
or effect and DQE will not be required to redeem such Debt Securities. (See
Section 404.)
SATISFACTION AND DISCHARGE
Any Indenture Securities, or any portion of the principal amount thereof,
will be deemed to have been paid for purposes of the Indenture and, at DQE's
election, the entire indebtedness of DQE in respect thereof will be deemed to
have been satisfied and discharged, if there shall have been irrevocably
deposited with the Trustee or any Paying Agent (other than DQE), in trust:
o money in an amount which will be sufficient, or
17
o in the case of a deposit made before the maturity of such Indenture
Securities, Eligible Obligations, which do not contain provisions
permitting the redemption or other prepayment thereof at the option of
the issuer thereof, the principal of and the interest on which when
due, without any regard to reinvestment thereof, will provide moneys
which, together with the money, if any, deposited with or held by the
Trustee or such Paying Agent, will be sufficient, or
o a combination of (a) and (b) which will be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Indenture Securities. For this purpose, Eligible
Obligations include direct obligations of, or obligations unconditionally
guaranteed by, the United States, entitled to the benefit of the full faith and
credit thereof and certificates, depositary receipts or other instruments which
evidence a direct ownership interest in such obligations or in any specific
interest or principal payments due in respect thereof, and such other
obligations or instruments as shall be specified in an accompanying prospectus
supplement. (See Section 601.)
The Indenture will be deemed to have been satisfied and discharged when no
Indenture Securities remain outstanding thereunder and DQE has paid or caused to
be paid all other sums payable by DQE under the Indenture. (See Section 602.)
The right of DQE to cause its entire indebtedness in respect of Indenture
Securities of any series to be deemed to be satisfied and discharged as
described above will be subject to the satisfaction of conditions specified in
the instrument creating such series.
EVENTS OF DEFAULT
Any one or more of the following events with respect to a series of
Indenture Securities that has occurred and is continuing will constitute an
"Event of Default" with respect to such series of Indenture Securities:
o failure to pay interest on any Indenture Security of such series within
30 days after the same becomes due and payable; provided, however, that
no such failure will constitute an Event of Default if DQE has made a
valid extension of the interest payment period with respect to the
Indenture Securities of such series if so provided with respect to such
series; or
o failure to pay the principal of or premium, if any, on any Indenture
Security of such series when due; provided, however, that no such
failure will constitute an Event of Default if DQE has made a valid
extension of the Maturity of the Indenture Securities of such series,
if so provided with respect to such series; or
o failure to perform, or breach of, any covenant or warranty of DQE
contained in the Indenture for 60 days after written notice to DQE from
the Trustee or to DQE and the Trustee by the holders of at least 33% in
principal amount of the Outstanding Indenture Securities of such series
as provided in the Indenture unless the Trustee, or the Trustee and the
Holders of a principal amount of Securities of such series not less
than the principal amount of Indenture Securities the Holders of which
gave such notice, as the case may be, agree in writing to an extension
of such period before its expiration; provided, however, that the
Trustee, or the Trustee and the Holders of such principal amount of
Indenture Securities of such series, as the case may be, will be deemed
to have agreed to an extension of such period if corrective action is
initiated by DQE within such period and is being diligently pursued; or
o certain events in bankruptcy, insolvency or reorganization of DQE.
(See Section 701.)
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REMEDIES
Acceleration of Maturity
If an Event of Default applicable to the Indenture Securities of any
series occurs and is continuing, then either the Trustee or the Holders of not
less than 33% in aggregate principal amount of the Outstanding Indenture
Securities of such series may declare the principal amount (or, if any of the
Outstanding Indenture Securities of such series are Discount Securities, such
portion of the principal amount thereof as may be specified in the terms
thereof) of all of the Outstanding Indenture Securities of such series to be due
and payable immediately by written notice to the Company (and to the Trustee if
given by Holders); provided, however, that if an Event of Default occurs and is
continuing with respect to more than one series of Indenture Securities, the
Trustee or the Holders of not less than 33% in aggregate principal amount of the
Outstanding Indenture Securities of all such series, considered as one class,
may make such declaration of acceleration and not the Holders of the Indenture
Securities of any one such series.
At any time after such a declaration of acceleration with respect to the
Indenture Securities of any series has been made, but before a judgment or
decree for payment of the money due has been obtained, such declaration and its
consequences will, without further act, be deemed to have been rescinded and
annulled, if
o DQE has paid or deposited with the Trustee a sum sufficient to pay
o all overdue interest, if any, on all Indenture Securities of
such series;
o the principal of and premium, if any, on any Indenture
Securities of such series which have become due otherwise than
by such declaration of acceleration and interest, if any,
thereon at the rate or rates prescribed therefor in such
Indenture Securities;
o interest, if any, upon overdue interest, if any, at the rate or
rates prescribed therefor in such Indenture Securities, to the
extent that payment of such interest is lawful; and
o all amounts due to the Trustee under the Indenture in respect of
compensation and reimbursement of expenses; and
o all Events of Default with respect to Indenture Securities of such
series, other than the non-payment of the principal of the Indenture
Securities of such series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in
the Indenture. (See Section 702.)
Right to Direct Proceedings
If an Event of Default with respect to the Indenture Securities of any
series occurs and is continuing, the Holders of a majority in principal amount
of the Outstanding Indenture Securities of such series will have the right to
direct the time, method and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; provided, however, that if an Event of Default occurs and 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; and provided, further, that (a) such direction does not conflict with
any rule of law or with the Indenture, and could not involve the Trustee in
personal liability in circumstances where indemnity would not, in the Trustee's
sole discretion, be adequate, (b) the Trustee does not determine that the action
so directed would be unjustly prejudicial to the Holders of Indenture Securities
of such series not taking part in such direction and (c) the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction. (See Section 712.)
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Limitation on Right to Institute Proceedings
No Holder of any Indenture Security will have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture or for the
appointment of a receiver or for any other remedy thereunder unless:
o such Holder has previously given to the Trustee written notice of a
continuing Event of Default with respect to the Indenture Securities of
any one or more series;
o the Holders of a majority in aggregate principal amount of the
outstanding Indenture Securities of all series in respect of which such
Event of Default has occurred, considered as one class, have made
written request to the Trustee to institute proceedings in respect of
such Event of Default and have offered the Trustee reasonable indemnity
against costs and liabilities to be incurred in complying with such
request; and
o 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 Indenture
Securities then outstanding.
Furthermore, no Holder of Indenture Securities of any series 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 of Indenture Securities
of such series. (See Section 707.)
No Impairment of Right to Receive Payment
Notwithstanding that the right of a Holder to institute a proceeding with
respect to the Indenture is subject to certain conditions precedent, each Holder
of an Indenture Security will have the right, which is absolute and
unconditional, to receive payment of the principal of and premium, if any, and
interest, if any, on such Indenture Security when due and to institute suit for
the enforcement of any such payment, and such rights may not be impaired or
affected without the consent of such Holder. (See Section 708.)
Notice of Default
The Trustee is required to give the Holders notice of any default under
the Indenture to the extent required by the Trust Indenture Act, unless such
default shall have been cured or waived, except that no such notice to holders
of a default of the character described in clause (c) under "- Events of
Default" may be given until at least 75 days after the occurrence thereof. For
purposes of the preceding sentence, the term "default" means any event which is,
or after notice or lapse of time, or both, would become, an Event of Default.
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.
(See Section 802.)
CONSOLIDATION, MERGER, SALE OF ASSETS
DQE may not consolidate with or merge into any other Person, or convey or
otherwise transfer, or lease, all of its properties, as or substantially as an
entirety, to any Person, unless:
o the Person formed by such consolidation or into which DQE is merged or
the Person which acquires by conveyance or other transfer, or which
leases (for a term extending beyond the last Stated Maturity of the
Indenture Securities then Outstanding), all of the properties of DQE as
or substantially as an entirety, shall be a Person organized and
existing under the laws of the United States, any State or Territory
thereof or the District of Columbia or under the laws of Canada or any
Province thereof; and
o such Person shall expressly assume the due and punctual payment of the
principal of and premium, if any, and interest, if any, on all the
Indenture Securities then Outstanding and the performance and
observance of every covenant and condition of the Indenture to be
performed or observed by DQE.
20
In the case of the conveyance or other transfer of all of the properties of DQE,
as or substantially as an entirety, to any person as contemplated above, DQE
would be released and discharged from all obligations under the Indenture and on
all Indenture Securities then outstanding unless DQE elects to waive such
release and discharge. Upon any such consolidation or merger or any such
conveyance or other transfer of properties of DQE, the successor or transferee
would succeed to, and be substituted for, and would be entitled to exercise
every power and right of, DQE under the Indenture. (See Sections 1001, 1002 and
1003).
The Indenture will not prevent or restrict:
o any consolidation or merger after the consummation of which DQE would
be the surviving or resulting entity;
o any consolidation or merger of any Person all of the outstanding voting
securities of which are owned, directly or indirectly, by DQE with or
into any other of such Persons; or any conveyance or other transfer, or
lease, of properties by any thereof to any other thereof;
o any conveyance or other transfer, or lease, of any part of the
properties of DQE which does not constitute the entirety, or
substantially the entirety, thereof; or
o the approval by DQE, or the consent by DQE to, any consolidation or
merger to which any direct or indirect subsidiary or affiliate of DQE
may be a party or any conveyance, transfer or lease by any such
subsidiary or affiliate of any of its assets. (See Section 1004.)
MODIFICATION OF INDENTURE
Modifications Without Consent
DQE and the Trustee may enter into one or more supplemental indentures
without the consent of any Holders of Indenture Securities, for any of the
following purposes:
o to evidence the succession of another Person to DQE and the assumption
by any such successor of the covenants of such party; or
o to add one or more covenants of DQE or other provisions for the benefit
of all Holders of Indenture Securities or for the benefit of the
Holders of, or to remain in effect only so long as there shall be
Outstanding, Indenture Securities of one or more specified series, or
one or more Tranches thereof, or to surrender any right or power
conferred upon DQE by the Indenture; or
o to change or eliminate any provision of the Indenture or to add any new
provision to the Indenture, provided that if such change, elimination
or addition adversely affects the interests of the Holders of the
Indenture Securities of any series or Tranche in any material respect,
such change, elimination or addition will become effective with respect
to such series or Tranche only when no Indenture Security of such
series or Tranche remains Outstanding; or
o to provide collateral security for the Indenture Securities or any
series thereof; or
o to establish the form or terms of the Indenture Securities of any
series or Tranche as permitted by the Indenture; or
o to provide for the authentication and delivery of bearer securities and
coupons appertaining thereto representing interest, if any, thereon and
for the procedures for the registration, exchange and replacement
thereof and for the giving of notice to, and the solicitation of the
vote or consent of, the Holders thereof, and for any and all other
matters incidental thereto; or
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o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the Indenture Securities of one or
more series; or
o to provide for the procedures required to permit the utilization of a
non-certificated system of registration for all, or any series or
Tranche of, the Indenture Securities; or
o to change any place or places where--
o the principal of and premium, if any, and interest, if any, on
all or any series of Indenture Securities, or any Tranche
thereof, will be payable,
o all or any series of Indenture Securities, or any Tranche
thereof, may be surrendered for registration of transfer,
o all or any series of Indenture Securities, or any Tranche
thereof, may be surrendered for exchange and
o notices and demands to or upon DQE in respect of all or any
series of Indenture Securities, or any Tranche thereof, and the
Indenture may be served; or
o to cure any ambiguity, to correct or supplement any provision therein
which may be defective or inconsistent with any other provision
therein, or to make any other changes to the provisions thereof or to
add other provisions with respect to matters and questions arising
under the Indenture, so long as such other changes or additions do not
adversely affect the interests of the Holders of Indenture Securities
of any series or Tranche in any material respect.
Without limiting the generality of the foregoing, if the Trust Indenture
Act is amended after the date of the Original Indenture in such a way as to
require changes to the Indenture or the incorporation therein of additional
provisions or so as to permit changes to, or the elimination of, provisions
which, at the date of the Original 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 DQE and the Trustee may, without
the consent of any Holders of Indenture Securities, enter into one or more
supplemental indentures to evidence such amendment. (See Section 1101.)
Modifications Requiring Consent
Except as provided above, the consent of the Holders of a majority in
aggregate principal amount of the Indenture Securities of all series then
Outstanding, considered as one class, is required for the purpose of adding any
provisions to, or changing in any manner, or eliminating any of the provisions
of, the Indenture pursuant to one or more supplemental indentures; provided,
however, that if less than all of the series of Indenture Securities Outstanding
are directly affected by a proposed supplemental indenture, then the consent
only of the Holders of a majority in aggregate principal amount of Outstanding
Indenture Securities of all series so directly affected, considered as one
class, will be required; and provided, further, that 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 one or
more, but less than all, of such Tranches, then the consent only of the Holders
of a majority in aggregate principal amount of the Outstanding Indenture
Securities of all Tranches so directly affected, considered as one class, will
be required; and provided, further, that no such supplemental indenture may:
o change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Indenture Security other than pursuant
to the terms thereof, or reduce the principal amount thereof or the
rate of interest thereon (or the amount of any installment of interest
thereon) or change the method of calculating such rate or reduce any
premium payable upon the redemption thereof, or reduce the amount of
the principal of any Discount Security that would be due and payable
upon a declaration of acceleration of Maturity or change the coin or
currency (or other property) in which any Indenture Security or any
premium or the interest thereon is payable, or impair the right to
22
institute suit for the enforcement of any such payment on or after the
Stated Maturity of any Indenture Security (or, in the case of
redemption, on or after the redemption date) without, in any such case,
the consent of the Holder of such Indenture Security;
o reduce the percentage in principal amount of the Outstanding Indenture
Securities of any series, or any Tranche thereof, the consent of the
Holders of which is required for any such supplemental indenture, or
the consent of the Holders of which is required for any waiver of
compliance with any provision of the Indenture or of any default
thereunder and its consequences, or reduce the requirements for quorum
or voting, without, in any such case, the consent of the Holder of each
Outstanding Indenture Security of such series or Tranche; or
o modify certain of the provisions of the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers of
past defaults with respect to the Indenture Securities of any series,
or any Tranche thereof, without the consent of the Holder of each
Outstanding Indenture Security of such series or Tranche.
A supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of the Holders of, or which is to remain in effect only so long as there
shall be Outstanding, Indenture Securities of one or more specified series, or
one or more Tranches thereof, or modifies the rights of the Holders of Indenture
Securities of such series or Tranches with respect to such covenant or other
provision, will be deemed not to affect the rights under the Indenture of the
Holders of the Indenture Securities of any other series or Tranche.
If the supplemental indenture or other document establishing any series or
Tranche of Indenture Securities so provides, and as specified in the applicable
prospectus supplement and/or pricing supplement, the Holders of such Indenture
Securities will be deemed to have consented, by virtue of their purchase of such
Indenture Securities, to a supplemental indenture containing the additions,
changes or eliminations to or from the Indenture which are specified in such
supplemental indenture or other document, no Act of such Holders will be
required to evidence such consent and such consent may be counted in the
determination of whether the Holders of the requisite principal amount of
Indenture Securities have consented to such supplemental indenture. (See Section
1102.)
DUTIES OF THE TRUSTEE; RESIGNATION; REMOVAL
The Trustee will have, and will be subject to, all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Trustee will be under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any Holder of Indenture Securities, unless such Holder offers it
reasonable indemnity against the costs, expenses and liabilities which might be
incurred thereby. The Trustee will not be required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of its
duties if the Trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it. (See Sections 801 and 803.)
The Trustee may resign at any time with respect to the Indenture
Securities of one or more series by giving written notice thereof to DQE or may
be removed at any time with respect to the Indenture Securities of one or more
series by Act of the Holders of a majority in principal amount of the
Outstanding Indenture Securities of such series delivered to the Trustee and
DQE. 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. So long as no
Event of Default or event which, after notice or lapse of time, or both, would
become an Event of Default has occurred and is continuing, if DQE has delivered
to the Trustee with respect to one or more series an instrument appointing a
successor trustee with respect to that or those series and such successor has
accepted such appointment in accordance with the terms of the Indenture, the
Trustee with respect to that or those series will be deemed to have resigned and
the successor will be deemed to have been appointed as trustee in accordance
with the Indenture. (See Section 810.)
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EVIDENCE OF COMPLIANCE
Compliance with the Indenture provisions is evidenced by written
statements of officers of DQE or persons selected or paid by DQE. In certain
cases, DQE must furnish opinions of counsel and certifications of an engineer,
appraiser or other expert (who in some cases must be independent). In addition,
the Indenture requires that DQE give the Trustee, not less than annually, a
brief statement as to compliance with the conditions and covenants under the
Indenture.
GOVERNING LAW
The Indenture and the Indenture Securities will be governed by and
construed in accordance with the laws of the State of New York, except to the
extent that the Trust Indenture of 1939, as amended, shall be applicable.
PENNSYLVANIA CORPORATE LOANS TAX
DQE will be required to withhold from interest paid to individuals who are
residents of Pennsylvania and who hold securities for their own account a
Pennsylvania Corporate Loans Tax, currently assessed at the rate of 4 mills
($0.004) per annum, on each dollar of the principal amount of their securities.
DESCRIPTION OF DQE CAPITAL DEBT SECURITIES
As used in this section, the term "Debt Securities" means Debt Securities
which may be offered by DQE Capital under this prospectus, the term "Indenture"
means DQE Capital's indenture referred to below, the term "Indenture Securities"
means all debt securities outstanding under that indenture and the term
"Trustee" means the trustee under that indenture.
GENERAL
DQE Capital may issue Debt Securities in one or more series, or in one or
more tranches within a series, under an Indenture, dated as of August 1, 1999,
from DQE Capital and DQE to Bank One Trust Company, NA, as successor trustee.
The terms of the Debt Securities will include those stated in the Indenture and
those made part of the Indenture by the Trust Indenture Act of 1939, as amended.
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 is qualified in its
entirety by reference to, the Indenture and the Trust Indenture Act. DQE Capital
has filed the Indenture, as well as a form of officer's certificate to establish
a series of debt securities, as exhibits to the registration statement of which
this prospectus is a part. We encourage you to read the Indenture and the form
of officer's certificate for provisions that may be important to you.
Capitalized terms used under this heading which are not otherwise defined in
this prospectus have the meanings set forth in the Indenture. Wherever
particular provisions of the Indenture or terms defined in the Indenture are
referred to, those provisions or definitions are incorporated by reference as a
part of the statements made in this prospectus and those statements are
qualified in their entirety by that reference. References to article and section
numbers, unless otherwise indicated, are references to article and section
numbers of the Indenture.
In addition to the Debt Securities, other debt securities may be issued
under the Indenture, without any limit on the aggregate principal amount. The
Debt Securities and all other debt securities issued under the Indenture are
collectively referred to as the "Indenture Securities." Each series of Indenture
Securities will be unsecured and will rank pari passu with all other series of
Indenture Securities, except as otherwise provided in the Indenture, and with
all other unsecured and unsubordinated indebtedness of DQE Capital. Except as
otherwise described in the applicable prospectus supplement, the Indenture does
not limit the incurrence or issuance by DQE Capital of other secured or
unsecured debt, whether under the Indenture, under any other indenture that DQE
Capital may enter into in the future or otherwise. See the prospectus supplement
relating to any offering of Debt Securities.
DQE will unconditionally guarantee the payment when due of the principal
of and premium, if any, and interest, if any, on the Indenture Securities. See
"Guaranty of DQE".
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The applicable prospectus supplement will describe the following terms of
the Debt Securities of each series or tranche:
o the title of the Debt Securities;
o any limit upon the aggregate principal amount of the Debt Securities;
o the date or dates on which the principal of the Debt Securities is
payable or the method of determination thereof and the right, if any,
to extend such date or dates;
o the rate or rates at which the Debt Securities will bear interest, if
any, or the method by which such rate or rates, if any, will be
determined, the date or dates from which any such interest will accrue,
the interest payment dates on which any such interest will be payable,
the right, if any, of DQE Capital to defer or extend an interest
payment date, and the regular record date for any interest payable on
any interest payment date and the person or persons to whom interest on
the Debt Securities will be payable on any interest payment date, if
other than the person or persons in whose names the Debt Securities are
registered at the close of business on the regular record date for such
interest;
o the place or places where, subject to the terms of the Indenture as
described below under "-Payment and Paying Agents", the principal of
and premium, if any, and interest, if any, on the Debt Securities will
be payable and where, subject to the terms of the Indenture as
described below under "-Registration and Transfer", the Debt Securities
may be presented for registration of transfer or exchange and the place
or places where notices and demands to or upon DQE Capital in respect
of the Debt Securities and the Indenture may be served; the Security
Registrar and Paying Agents for the Debt Securities; and, if such is
the case, that the principal of the Debt Securities will be payable
without presentation or surrender;
o any period or periods within which, date or dates on which, the price
or prices at which and the terms and conditions upon which the Debt
Securities may be redeemed, in whole or in part, at the option of DQE
Capital;
o the obligation or obligations, if any, of DQE Capital to redeem or
purchase any of the Debt Securities pursuant to any sinking fund or
other mandatory redemption provisions or at the option of the Holder,
and the period or periods within which, or date or dates on which, the
price or prices at which, and the terms and conditions upon which the
Debt Securities will be redeemed or purchased, in whole or in part,
pursuant to such obligation, and applicable exceptions to the
requirements of a notice of redemption in the case of mandatory
redemption or redemption at the option of the Holder;
o the terms, if any, pursuant to which the Debt Securities may be
converted into or exchanged for shares of capital stock or other
securities of DQE Capital or any other Person;
o the denominations in which any of the Debt Securities will be issuable
if other than denominations of $1,000 and any integral multiple of
$1,000;
o if such Debt Securities are to be issued in global form--
o any limitations on the rights of the registered holder or
holders of such Debt Securities to transfer or exchange the same
or to obtain registration of transfer thereof,
o any limitations on the rights of beneficial owners of such Debt
Securities to obtain certificates therefor, and
o the identity of the depository and any other matters incidental
to such Debt Securities; and
25
o any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture.
GUARANTY OF DQE
DQE will unconditionally guarantee the payment of principal of and
premium, if any, and interest, if any, 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 Guaranty will be contained in the Indenture
and will also be endorsed on each Debt Security. The Guaranty will remain in
effect until the entire principal of and premium, if any, and interest, if any,
on the Debt Securities has been paid in full or otherwise discharged in
accordance with the provisions of the Indenture. (See Article Thirteen.)
PAYMENT AND PAYING AGENTS
Except as may be specified in the applicable prospectus supplement, DQE
Capital will pay interest, if any, on each Debt Security on each interest
payment date to the person in whose name such Debt Security is registered (the
registered holder of any Indenture Security being called a "Holder") as of the
close of business on the regular record date relating to such interest payment
date; provided, however, that DQE Capital will pay interest at maturity (whether
at stated maturity, upon redemption or otherwise, "Maturity") to the person to
whom principal is paid. However, if there has been a default in the payment of
interest on any Debt Security, such defaulted interest may be payable to the
Holder of such Debt Security as of the close of business on a date selected by
the Trustee which is not more than 30 days and not less than 10 days before the
date proposed by DQE Capital for payment of such defaulted interest or in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which such Debt Security may be listed, if the Trustee deems such
manner of payment practicable. (See Section 307.)
Unless otherwise specified in the applicable prospectus supplement, DQE
Capital will pay the principal of and premium, if any, and interest, if any, on
the Debt Securities at Maturity upon presentation of the Debt Securities at the
corporate trust office of Bank One Trust Company, NA, as paying agent for DQE
Capital. DQE Capital may change the place of payment of the Debt Securities, may
appoint one or more additional paying agents (including DQE Capital) and may
remove any paying agent, all at its discretion. (See Section 502.)
REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable prospectus supplement,
Holders may register the transfer of Debt Securities, and may exchange Debt
Securities for other Debt Securities of the same series and tranche, of
authorized denominations and having the same terms and aggregate principal
amount, at the corporate trust office of Bank One Trust Company, NA, as security
registrar for the Debt Securities. DQE Capital may change the place for
registration of transfer and exchange of the Debt Securities, may appoint one or
more additional security registrars (including DQE Capital) and may remove any
security registrar, all at its discretion. (See Section 502.) Except as
otherwise provided in the applicable prospectus supplement, no service charge
will be made for any transfer or exchange of the Debt Securities, but DQE
Capital may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of the Debt Securities. DQE Capital will not be required to
execute or provide for the registration of transfer of or the exchange of (a)
any Debt Security during a period of 15 days before 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
The applicable prospectus supplement will set forth any terms for the
optional or mandatory redemption of Debt Securities. Except as otherwise
provided in the applicable prospectus supplement with respect to Debt Securities
redeemable at the option of the Holder, Debt Securities will be redeemable only
upon notice by mail not less than 30 nor more than 60 days before the date fixed
for redemption. If less than all the Debt Securities of a series, or any tranche
thereof, are to be redeemed, the particular Debt Securities to be redeemed will
be selected by such method as shall be provided for such series or tranche, or
in the absence of any such provision, by such method of random selection as the
Security Registrar deems fair and appropriate. (See Sections 403 and 404.)
26
Any notice of redemption at the option of DQE Capital may state that such
redemption will be conditional upon receipt by the Paying Agent or Agents, on or
before the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such Debt Securities
and that if such money has not been so received, such notice will be of no force
or effect and DQE Capital will not be required to redeem such Debt Securities.
(See Section 404.)
SATISFACTION AND DISCHARGE
Any Indenture Securities, or any portion of the principal amount thereof,
will be deemed to have been paid for purposes of the Indenture and, at DQE
Capital's election, the entire indebtedness of DQE Capital and DQE in respect
thereof will be deemed to have been satisfied and discharged, if there shall
have been irrevocably deposited with the Trustee or any Paying Agent (other than
DQE Capital or DQE), in trust:
o money in an amount which will be sufficient, or
o in the case of a deposit made before the maturity of such Indenture
Securities, Eligible Obligations, which do not contain provisions
permitting the redemption or other prepayment thereof at the option of
the issuer thereof, the principal of and the interest on which when
due, without any regard to reinvestment thereof, will provide moneys
which, together with the money, if any, deposited with or held by the
Trustee or such Paying Agent, will be sufficient, or
o a combination of (a) and (b) which will be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Indenture Securities. For this purpose, Eligible
Obligations include direct obligations of, or obligations unconditionally
guaranteed by, the United States, entitled to the benefit of the full faith and
credit thereof and certificates, depositary receipts or other instruments which
evidence a direct ownership interest in such obligations or in any specific
interest or principal payments due in respect thereof, and such other
obligations or instruments as shall be specified in an accompanying prospectus
supplement. (See Section 601.)
The Indenture will be deemed to have been satisfied and discharged when no
Indenture Securities remain outstanding thereunder and DQE Capital has paid or
caused to be paid all other sums payable by DQE Capital under the Indenture.
(See Section 602.)
The right of DQE Capital to cause its entire indebtedness in respect of
Indenture Securities of any series to be deemed to be satisfied and discharged
as described above will be subject to the satisfaction of conditions specified
in the instrument creating such series.
EVENTS OF DEFAULT
Any one or more of the following events with respect to a series of
Indenture Securities that has occurred and is continuing will constitute an
"Event of Default" with respect to such series of Indenture Securities:
o failure to pay interest on any Indenture Security of such series within
30 days after the same becomes due and payable; provided, however, that
no such failure will constitute an Event of Default if DQE Capital has
made a valid extension of the interest payment period with respect to
the Indenture Securities of such series if so provided with respect to
such series; or
o failure to pay the principal of or premium, if any, on any Indenture
Security of such series when due; provided, however, that no such
failure will constitute an Event of Default if DQE Capital has made a
valid extension of the Maturity of the Indenture Securities of such
series, if so provided with respect to such series; or
o failure to perform, or breach of, any covenant or warranty of DQE
Capital or DQE contained in the Indenture for 60 days after written
notice to DQE Capital and DQE from the Trustee or to DQE Capital, DQE
27
and the Trustee by the holders of at least 33% in principal amount of
the Outstanding Indenture Securities of such series as provided in the
Indenture unless the Trustee, or the Trustee and the Holders of a
principal amount of Securities of such series not less than the
principal amount of Indenture Securities the Holders of which gave such
notice, as the case may be, agree in writing to an extension of such
period before its expiration; provided, however, that the Trustee, or
the Trustee and the Holders of such principal amount of Indenture
Securities of such series, as the case may be, will be deemed to have
agreed to an extension of such period if corrective action is initiated
by DQE Capital or DQE within such period and is being diligently
pursued; or
o certain events in bankruptcy, insolvency or reorganization of DQE
Capital or DQE.
(See Section 701.)
REMEDIES
Acceleration of Maturity
If an Event of Default applicable to the Indenture Securities of any
series occurs and is continuing, then either the Trustee or the Holders of not
less than 33% in aggregate principal amount of the Outstanding Indenture
Securities of such series may declare the principal amount (or, if any of the
Outstanding Indenture Securities of such series are Discount Securities, such
portion of the principal amount thereof as may be specified in the terms
thereof) of all of the Outstanding Indenture Securities of such series to be due
and payable immediately by written notice to the Company (and to the Trustee if
given by Holders); provided, however, that if an Event of Default occurs and is
continuing with respect to more than one series of Indenture Securities, the
Trustee or the Holders of not less than 33% in aggregate principal amount of the
Outstanding Indenture Securities of all such series, considered as one class,
may make such declaration of acceleration and not the Holders of the Indenture
Securities of any one such series.
At any time after such a declaration of acceleration with respect to the
Indenture Securities of any series has been made, but before a judgment or
decree for payment of the money due has been obtained, such declaration and its
consequences will, without further act, be deemed to have been rescinded and
annulled, if
o DQE Capital or DQE has paid or deposited with the Trustee a sum
sufficient to pay
o all overdue interest, if any, on all Indenture Securities of
such series;
o the principal of and premium, if any, on any Indenture
Securities of such series which have become due otherwise than
by such declaration of acceleration and interest, if any,
thereon at the rate or rates prescribed therefor in such
Indenture Securities;
o interest, if any, upon overdue interest, if any, at the rate or
rates prescribed therefor in such Indenture Securities, to the
extent that payment of such interest is lawful; and
o all amounts due to the Trustee under the Indenture in respect of
compensation and reimbursement of expenses; and
o all Events of Default with respect to Indenture Securities of such
series, other than the non-payment of the principal of the Indenture
Securities of such series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in
the Indenture. (See Section 702.)
Right to Direct Proceedings
If an Event of Default with respect to the Indenture Securities of any
series occurs and is continuing, the Holders of a majority in principal amount
of the Outstanding Indenture Securities of such series will have the right to
direct the time, method and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power conferred on the
28
Trustee; provided, however, that if an Event of Default occurs and 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; and provided, further, that (a) such direction does not conflict with
any rule of law or with the Indenture, and could not involve the Trustee in
personal liability in circumstances where indemnity would not, in the Trustee's
sole discretion, be adequate, (b) the Trustee does not determine that the action
so directed would be unjustly prejudicial to the Holders of Indenture Securities
of such series not taking part in such direction and (c) the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction. (See Section 712.)
Limitation on Right to Institute Proceedings
No Holder of any Indenture Security will have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture or for the
appointment of a receiver or for any other remedy thereunder unless:
o such Holder has previously given to the Trustee written notice of a
continuing Event of Default with respect to the Indenture Securities of
any one or more series;
o the Holders of a majority in aggregate principal amount of the
outstanding Indenture Securities of all series in respect of which such
Event of Default has occurred, considered as one class, have made
written request to the Trustee to institute proceedings in respect of
such Event of Default and have offered the Trustee reasonable indemnity
against costs and liabilities to be incurred in complying with such
request; and
o 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 Indenture
Securities then outstanding.
Furthermore, no Holder of Indenture Securities of any series 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 of Indenture Securities
of such series. (See Section 707.)
No Impairment of Right to Receive Payment
Notwithstanding that the right of a Holder to institute a proceeding with
respect to the Indenture is subject to certain conditions precedent, each Holder
of an Indenture Security will have the right, which is absolute and
unconditional, to receive payment of the principal of and premium, if any, and
interest, if any, on such Indenture Security when due and to institute suit for
the enforcement of any such payment, and such rights may not be impaired or
affected without the consent of such Holder. (See Section 708.)
Notice of Default
The Trustee is required to give the Holders notice of any default under
the Indenture to the extent required by the Trust Indenture Act, unless such
default shall have been cured or waived, except that no such notice to holders
of a default of the character described in clause (c) under "- Events of
Default" may be given until at least 75 days after the occurrence thereof. For
purposes of the preceding sentence, the term "default" means any event which is,
or after notice or lapse of time, or both, would become, an Event of Default.
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.
(See Section 802.)
CONSOLIDATION, MERGER, SALE OF ASSETS
Neither DQE Capital nor DQE may consolidate with or merge into any other
Person, or convey or otherwise transfer, or lease, all of its properties, as or
substantially as an entirety, to any Person, unless:
29
o the Person formed by such consolidation or into which DQE Capital or
DQE, as the case requires, is merged or the Person which acquires by
conveyance or other transfer, or which leases (for a term extending
beyond the last Stated Maturity of the Indenture Securities then
Outstanding), all of the properties of DQE Capital or DQE, as the case
requires, as or substantially as an entirety, shall be a Person
organized and existing under the laws of the United States, any State
or Territory thereof or the District of Columbia or under the laws of
Canada or any Province thereof; and
o such Person shall expressly assume the due and punctual payment of the
principal of and premium, if any, and interest, if any, on all the
Indenture Securities then Outstanding and the performance and
observance of every covenant and condition of the Indenture to be
performed or observed by DQE Capital or DQE, as the case requires.
In the case of the conveyance or other transfer of all of the properties of DQE
Capital or DQE, as or substantially as an entirety, to any person as
contemplated above, DQE Capital or DQE, as the case requires, would be released
and discharged from all obligations under the Indenture and on all Indenture
Securities then outstanding unless DQE Capital or DQE, as the case requires,
elects to waive such release and discharge. Upon any such consolidation or
merger or any such conveyance or other transfer of properties of DQE Capital or
DQE, as the case requires, the successor or transferee would succeed to, and be
substituted for, and would be entitled to exercise every power and right of, DQE
Capital or DQE, as the case requires, under the Indenture. (See Sections 1001,
1002 and 1003).
The Indenture will not prevent or restrict:
o any consolidation or merger after the consummation of which DQE Capital
or DQE would be the surviving or resulting entity;
o any consolidation of DQE Capital with DQE or any other Person all of
the outstanding voting securities of which are owned, directly or
indirectly, by DQE; or any merger of any of such Persons into any other
of such Persons; or any conveyance or other transfer, or lease, of
properties by any thereof to any other thereof;
o any conveyance or other transfer, or lease, of any part of the
properties of DQE Capital or DQE which does not constitute the
entirety, or substantially the entirety, thereof; or
o the approval by DQE Capital or DQE of, or the consent by DQE Capital or
DQE to, any consolidation or merger to which any direct or indirect
subsidiary or affiliate of DQE Capital or DQE, 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 1004.)
MODIFICATION OF INDENTURE
Modifications Without Consent
DQE Capital, DQE and the Trustee may enter into one or more supplemental
indentures without the consent of any Holders of Indenture Securities, for any
of the following purposes:
o to evidence the succession of another Person to DQE Capital or DQE, as
the case may be, and the assumption by any such successor of the
covenants of such party; or
o to add one or more covenants of DQE Capital or DQE, as the case may be,
or other provisions for the benefit of all Holders of Indenture
Securities or for the benefit of the Holders of, or to remain in effect
only so long as there shall be Outstanding, Indenture Securities of one
or more specified series, or one or more Tranches thereof, or to
surrender any right or power conferred upon DQE Capital or DQE by the
Indenture; or
30
o to change or eliminate any provision of the Indenture or to add any new
provision to the Indenture, provided that if such change, elimination
or addition adversely affects the interests of the Holders of the
Indenture Securities of any series or Tranche in any material respect,
such change, elimination or addition will become effective with respect
to such series or Tranche only when no Indenture Security of such
series or Tranche remains Outstanding; or
o to provide collateral security for the Indenture Securities or any
series thereof; or
o to establish the form or terms of the Indenture Securities of any
series or Tranche as permitted by the Indenture; or
o to provide for the authentication and delivery of bearer securities and
coupons appertaining thereto representing interest, if any, thereon and
for the procedures for the registration, exchange and replacement
thereof and for the giving of notice to, and the solicitation of the
vote or consent of, the Holders thereof, and for any and all other
matters incidental thereto; or
o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the Indenture Securities of one or
more series; or
o to provide for the procedures required to permit the utilization of a
non-certificated system of registration for all, or any series or
Tranche of, the Indenture Securities; or
o to change any place or places where--
o the principal of and premium, if any, and interest, if any, on
all or any series of Indenture Securities, or any Tranche
thereof, will be payable,
o all or any series of Indenture Securities, or any Tranche
thereof, may be surrendered for registration of transfer,
o all or any series of Indenture Securities, or any Tranche
thereof, may be surrendered for exchange and
o notices and demands to or upon DQE Capital or DQE in respect of
all or any series of Indenture Securities, or any Tranche
thereof, and the Indenture may be served; or
o to cure any ambiguity, to correct or supplement any provision therein
which may be defective or inconsistent with any other provision
therein, or to make any other changes to the provisions thereof or to
add other provisions with respect to matters and questions arising
under the Indenture, so long as such other changes or additions do not
adversely affect the interests of the Holders of Indenture Securities
of any series or Tranche in any material respect.
Without limiting the generality of the foregoing, if the Trust Indenture
Act is amended after the date of the Original Indenture in such a way as to
require changes to the Indenture or the incorporation therein of additional
provisions or so as to permit changes to, or the elimination of, provisions
which, at the date of the Original 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 DQE Capital, DQE and the Trustee
may, without the consent of any Holders of Indenture Securities, enter into one
or more supplemental indentures to evidence such amendment. (See Section 1101.)
Modifications Requiring Consent
Except as provided above, the consent of the Holders of a majority in
aggregate principal amount of the Indenture Securities of all series then
Outstanding, considered as one class, is required for the purpose of adding any
31
provisions to, or changing in any manner, or eliminating any of the provisions
of, the Indenture pursuant to one or more supplemental indentures; provided,
however, that if less than all of the series of Indenture Securities Outstanding
are directly affected by a proposed supplemental indenture, then the consent
only of the Holders of a majority in aggregate principal amount of Outstanding
Indenture Securities of all series so directly affected, considered as one
class, will be required; and provided, further, that 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 one or
more, but less than all, of such Tranches, then the consent only of the Holders
of a majority in aggregate principal amount of the Outstanding Indenture
Securities of all Tranches so directly affected, considered as one class, will
be required; and provided, further, that no such supplemental indenture may:
o change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Indenture Security other than pursuant
to the terms thereof, or reduce the principal amount thereof or the
rate of interest thereon (or the amount of any installment of interest
thereon) or change the method of calculating such rate or reduce any
premium payable upon the redemption thereof, or reduce the amount of
the principal of any Discount Security that would be due and payable
upon a declaration of acceleration of Maturity or change the coin or
currency (or other property) in which any Indenture Security or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity of any Indenture Security (or, in the case of
redemption, on or after the redemption date) without, in any such case,
the consent of the Holder of such Indenture Security;
o reduce the percentage in principal amount of the Outstanding Indenture
Securities of any series, or any Tranche thereof, the consent of the
Holders of which is required for any such supplemental indenture, or
the consent of the Holders of which is required for any waiver of
compliance with any provision of the Indenture or of any default
thereunder and its consequences, or reduce the requirements for quorum
or voting, without, in any such case, the consent of the Holder of each
Outstanding Indenture Security of such series or Tranche; or
o modify certain of the provisions of the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers of
past defaults with respect to the Indenture Securities of any series,
or any Tranche thereof, without the consent of the Holder of each
Outstanding Indenture Security of such series or Tranche.
A supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of the Holders of, or which is to remain in effect only so long as there
shall be Outstanding, Indenture Securities of one or more specified series, or
one or more Tranches thereof, or modifies the rights of the Holders of Indenture
Securities of such series or Tranches with respect to such covenant or other
provision, will be deemed not to affect the rights under the Indenture of the
Holders of the Indenture Securities of any other series or Tranche.
If the supplemental indenture or other document establishing any series or
Tranche of Indenture Securities so provides, and as specified in the applicable
prospectus supplement and/or pricing supplement, the Holders of such Indenture
Securities will be deemed to have consented, by virtue of their purchase of such
Indenture Securities, to a supplemental indenture containing the additions,
changes or eliminations to or from the Indenture which are specified in such
supplemental indenture or other document, no Act of such Holders will be
required to evidence such consent and such consent may be counted in the
determination of whether the Holders of the requisite principal amount of
Indenture Securities have consented to such supplemental indenture. (See Section
1102.)
DUTIES OF THE TRUSTEE; RESIGNATION; REMOVAL
The Trustee will have, and will be subject to, all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Trustee will be under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any Holder of Indenture Securities, unless such Holder offers it
reasonable indemnity against the costs, expenses and liabilities which might be
incurred thereby. The Trustee will not be required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of its
32
duties if the Trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it. (See Sections 801 and 803.)
The Trustee may resign at any time with respect to the Indenture
Securities of one or more series by giving written notice thereof to DQE Capital
or may be removed at any time with respect to the Indenture Securities of one or
more series by Act of the Holders of a majority in principal amount of the
Outstanding Indenture Securities of such series delivered to the Trustee and DQE
Capital. 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. So long
as no Event of Default or event which, after notice or lapse of time, or both,
would become an Event of Default has occurred and is continuing, if DQE Capital
has delivered to the Trustee with respect to one or more series an instrument
appointing a successor trustee with respect to that or those series and such
successor has accepted such appointment in accordance with the terms of the
Indenture, the Trustee with respect to that or those series will be deemed to
have resigned and the successor will be deemed to have been appointed as trustee
in accordance with the Indenture. (See Section 810.)
EVIDENCE OF COMPLIANCE
Compliance with the Indenture provisions is evidenced by written
statements of officers of DQE Capital and DQE or persons selected or paid by DQE
Capital or DQE. In certain cases, DQE Capital or DQE must furnish opinions of
counsel and certifications of an engineer, appraiser or other expert (who in
some cases must be independent). In addition, the Indenture requires that DQE
Capital and DQE give the Trustee, not less than annually, a brief statement as
to compliance with the conditions and covenants under the Indenture.
GOVERNING LAW
The Indenture and the Indenture Securities will be governed by and
construed in accordance with the laws of the State of New York, except to the
extent that the Trust Indenture of 1939, as amended, shall be applicable.
PENNSYLVANIA CORPORATE LOANS TAX
DQE Capital may be required to withhold from interest paid to individuals
who are residents of Pennsylvania and who hold securities for their own account
a Pennsylvania Corporate Loans Tax, currently assessed at the rate of 4 mills
($0.004) per annum, on each dollar of the principal amount of their securities.
PLAN OF DISTRIBUTION
DQE or DQE Capital, as the case may be, may sell Preferred Stock, Common
Stock, Stock Purchase Contracts, Stock Purchase Units, warrants, DQE Debt
Securities or DQE Capital Debt Securities being offered hereby in one or more of
the following ways from time to time: (1) directly to one or a limited number of
institutional purchasers, (2) through agents, (3) through underwriters and/or
(4) through dealers.
The prospectus supplement will set forth the terms of the offering of each
series of securities, including the name or names of any underwriters or agents,
the purchase price of the securities and the proceeds to DQE or DQE Capital, as
the case may be, from the sale, any underwriting discounts or agency fees and
other items constituting underwriters' or agents' compensation, any discounts or
concessions allowed or reallowed or paid to dealers and any securities exchange
on which the securities may be listed.
If DQE or DQE Capital, as the case may be, uses underwriters to sell
securities, the underwriters will acquire such securities for their own account
and resell them from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. Unless otherwise set forth in the applicable
prospectus supplement, the obligations of the underwriters to purchase such
securities will be subject to certain conditions precedent, and the underwriters
will be obligated to purchase all of such securities if any of such securities
are purchased, except that, in certain cases involving a default by one or more
33
underwriters, less than all of such securities may be purchased. The initial
public offering prices and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If DQE or DQE Capital, as the case may be, uses one or more agents to sell
securities, the agents will be named, and any commissions payable by DQE or DQE
Capital to such agents will be set forth, in the applicable prospectus
supplement. Unless otherwise indicated in the applicable prospectus supplement,
any such agent will act on a best efforts basis for the period of its
appointment.
New shares of DQE's Common Stock sold through agents or underwriters may
be sold by means of (i) ordinary brokers' transactions, (ii) block transactions
(which may involve crosses) in accordance with the rules of the New York Stock
Exchange, the Philadelphia Stock Exchange, the Chicago Stock Exchange and other
exchanges on which the Common Stock is admitted to trading privileges, including
transactions in which any agent may sell shares as agents but may also position
and resell all or a portion of the blocks as principals, (iii) offerings off the
floors of the Exchanges or (iv) a combination of any such methods. Sales may be
made at market prices prevailing market prices (which could be subject to
change). Any such offering would be described in a supplement to this prospectus
setting forth the terms of the offering and the number of shares being offered.
Securities may also be offered and sold, if so indicated in the prospectus
supplement, in connection with a remarketing agreement upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise
by one or more remarketing firms acting as principals for their own accounts or
as agents for DQE or DQE Capital, as the case may be, and this prospectus, as it
may be amended or supplemented, may be used in connection with any such
remarketing. Any remarketing firm will be identified and the terms of its
agreement, if any, with DQE, and its compensation will be described in the
prospectus supplement.
Any agents, underwriters or dealers participating in the distribution of
the securities may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of the securities may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended. Agents and underwriters may be entitled under agreements entered into
with DQE or DQE Capital, as the case may be, to indemnification by DQE or DQE
Capital, as the case may be, against certain liabilities, including liabilities
under the Securities Act and other securities laws, or to contribution with
respect to payments that the agents or underwriters may be required to make in
respect thereof.
Subject to market conditions, DQE plans to offer up to $250 million of
Common Stock in an underwritten transaction in the second or third quarter of
2002. At the date of this prospectus, DQE expects the underwriters to include
Lehman Brothers Inc. The underwriters will be identified, and the principal
terms of the underwriting arrangement, including underwriter's compensation,
will be described in the applicable prospectus supplement.
The outstanding shares of DQE's Common Stock are listed on the New York
Stock Exchange, the Philadelphia Stock Exchange and the Chicago Stock Exchange.
Any new shares of Common Stock will also be listed on those Exchanges, subject
to official notice of issuance.
Each series of securities will be a new issue and, except for the Common
Stock, which is listed on the New York, Philadelphia and Chicago Stock
Exchanges, will have no established trading market. Unless otherwise provided in
the applicable prospectus supplement relating to the securities, DQE does not
intend to apply for the listing of any other securities on a national securities
exchange, but any agents, underwriters or dealers participating in the
distribution of the securities may make a market in the securities, as permitted
by applicable laws and regulations. Any such underwriters, dealers or agents
would not be obligated to do so, however, and could discontinue making a market
at any time without notice. No assurance can be given as to the liquidity of any
trading market for the securities.
Any agents, underwriters or dealers or agents participating in the
distribution of the securities, and/or affiliates thereof, may engage in
transactions with and perform services for DQE and its affiliates in the
ordinary course of business.
34
AVAILABLE INFORMATION
DQE files annual, quarterly and other reports with the SEC pursuant to the
Securities Exchange Act of 1934, as amended. You may read and copy these reports
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference rooms
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
(http://www.sec.gov.) that contains DQE's reports filed with the SEC.
DQE incorporates by reference into this prospectus:
o DQE's most recent Annual Report on Form 10-K filed by DQE with the SEC
pursuant to the Exchange Act; and
o all other documents filed by DQE with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the filing of DQE's
most recent Annual Report and before the termination of the offering
made by this prospectus,
and all of such documents are deemed to be a part of this prospectus from the
date of filing such documents. The documents incorporated or deemed to be
incorporated herein by reference are sometimes hereinafter called the
"Incorporated Documents." Any statement contained in an Incorporated Document
may be modified or superseded by a statement in this prospectus or in any
prospectus supplement or in any subsequently filed Incorporated Document. The
Incorporated Documents (File No. 1-10290) as of the date of this prospectus are:
o DQE's Annual Report on Form 10-K for the year ended December 31, 2001,
filed March 29, 2002;
o DQE's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, filed May 15, 2002; and
o DQE's Current Reports on Form 8-K, filed February 19, April 5, and May
30, 2002.
DQE maintains an Internet site (http://www.dqe.com) that contains
information concerning DQE and its affiliates including DQE. The information
contained at the Internet site of DQE. is not incorporated in this prospectus by
reference, and you should not consider it a part of this prospectus.
We have not included or incorporated by reference any separate financial
statements of DQE Capital herein. We do not consider those financial statements
to be material to holders of the securities because (1) DQE Capital is a finance
subsidiary of DQE, formed for the purpose of providing financing for DQE and its
subsidiaries, (2) DQE Capital does not currently engage in any independent
operations and (3) DQE Capital does not currently plan to engage, in the future,
in more than minimal independent operations. See "DQE CAPITAL." DQE Capital does
not file periodic reports under Sections 13 and 15(d) of the Exchange Act and we
do not expect DQE Capital to file those reports in the future.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus, including the documents that are
incorporated by reference, that are not historical facts are forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include information about plans, objectives and
strategies and possible future results of our operations, as well as the
assumptions upon which these statements are based. Also, when we use any of the
words "believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. Actual results or performance may differ materially
from those contemplated by the forward-looking statements due to a number of
known and unknown risks and uncertainties, many of which are beyond our control.
Demand for electric utility service, as well as change in market and weather
conditions, will affect cash flows, returns on investments and earnings levels
of Duquesne Light Company, our largest operating subsidiary. Energy prices will
affect the number of customers using Duquesne Light's provider of last resort
35
service, which in turn will affect earnings. Overall DQE performance will also
be affected by economic, competitive, regulatory, governmental and technological
factors affecting operations, markets, products, services, and prices applicable
to the businesses of all our subsidiaries, as well as the factors discussed in
our SEC filings made to date. We refer to the documents identified above under
"AVAILABLE Information" for a discussion of these and other risks and
uncertainties.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference to DQE's most recent
Annual Report on Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is included in such
Annual Report which is incorporated herein by reference (which report, in the
case of the Annual Report for the year ended December 31, 2001, expresses an
unqualified opinion and includes an explanatory paragraph referring to a change
in accounting method to record an estimate of unbilled revenues for electricity
delivered but not yet billed) and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
VALIDITY
The validity of the securities will be passed upon for DQE and DQE Capital
by David R. High, Esq., Vice President and General Counsel of DQE, and by Thelen
Reid & Priest LLP, special counsel for DQE and DQE Capital, and for any agents,
underwriters or dealers by counsel to be identified in the applicable prospectus
supplement.
15,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
PROSPECTUS SUPPLEMENT
June 20, 2002
------------------
LEHMAN BROTHERS
------------------
SALOMON SMITH BARNEY
GOLDMAN, SACHS & CO.
MORGAN STANLEY
------------------
ABN AMRO ROTHSCHILD LLC
M.R. BEAL & COMPANY
JEFFERIES & COMPANY, INC.
LEGG MASON WOOD WALKER
INCORPORATED
TOKYO-MITSUBISHI INTERNATIONAL PLC