PROSPECTUS
[LOGO]
$400,000,000
PSEG Energy Holdings Inc.
Offer to Exchange
8.625% Senior Notes due 2008
Which have been registered under the Securities Act
For Any and All Outstanding
8.625% Senior Notes due 2008
Which have not been so registered
TERMS OF THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., Eastern Time, on November 8,
2001, unless extended by us in our sole discretion subject to applicable
law.
o The terms of the exchange notes are substantially identical to the
original notes, except that the exchange notes are registered under the
Securities Act and the transfer restrictions and registration rights
applicable to the original notes do not apply to the exchange notes.
o All original notes that are validly tendered and not validly withdrawn
will be exchanged.
o Tenders of original notes may be withdrawn at any time prior to expiration
of the exchange offer.
o We do not intend to apply for listing of the exchange notes on any
securities exchange or to arrange for them to be quoted on any quotation
system.
o The exchange offer is subject to customary conditions, including the
condition that the exchange offer not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission.
o We will not receive any proceeds from the exchange offer.
o You will not incur any material federal income tax consequences from your
participation in the exchange offer.
Please see "Risk Factors" beginning on page 13 for a discussion of factors
you should consider in connection with the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is October 4, 2001.
TABLE OF CONTENTS
Page
----
Where to Find More Information .......................................... 3
Prospectus Summary ...................................................... 4
The Company ............................................................. 8
Summary Consolidated Financial Data ..................................... 12
Risk Factors ............................................................ 13
Forward-Looking Statements .............................................. 17
Use of Proceeds ......................................................... 18
Capitalization .......................................................... 18
The Exchange Offer ...................................................... 19
Description of Exchange Notes ........................................... 27
Federal Income Tax Considerations ....................................... 42
Plan of Distribution .................................................... 45
Legal Opinions .......................................................... 46
Experts ................................................................. 46
When we refer to the term "note" or "notes", we are referring to both the
original notes and the exchange notes to be issued in the exchange offer. When
we refer to "holders" of the notes, we are referring to those persons who are
the registered holders of notes on the books of the registrar appointed under
the indenture.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to exchange only the notes offered by this prospectus, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
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WHERE TO FIND MORE INFORMATION
In connection with the exchange offer, we have filed with the Securities
and Exchange Commission a registration statement under the Securities Act,
relating to the exchange notes to be issued in the exchange offer. As permitted
by SEC rules, this prospectus omits information included in the registration
statement. For a more complete understanding of this exchange offer, you should
refer to the registration statement, including its exhibits.
The public may read and copy any reports or other information that we file
with the SEC at the SEC's public reference room, Room 1024 at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. The public may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. Our SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
Incorporation of Certain Documents by Reference
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supercede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Section 13 (a), 13 (c), 14 or 15 (d) of the Securities Exchange Act of
1934.
Our annual Report on Form 10-K for the year ended December 31, 2000.
Our quarterly Reports on Form 10-Q for the periods ended March 31, 2001
and June 30, 2001.
You may request a copy of this filing, other than exhibits not
specifically incorporated by reference therein, which will be provided to you
without charge, by writing or telephoning:
Director, Investor Relations
PSEG Services Corporation
80 Park Plaza T6B
P.O. Box 570
Newark, New Jersey 07101
Telephone (973) 430-6564
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these exchange notes in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus.
Summary of the Exchange Offer
The Exchange Offer ............... We are offering to exchange an aggregate of
$400,000,000 principal amount of exchange
notes for $400,000,000 of original notes.
The original notes may be exchanged only in
multiples of $1,000.
Issuance of the Original Notes ... The original notes were issued and sold on
February 10, 2001 in a transaction not
requiring registration under the Securities
Act.
Exchange and Registration
Rights ......................... At the time we issued the original notes, we
entered into an exchange and registration
rights agreement which obligates us to make
this exchange offer.
Required Representations ......... In order to participate in the exchange
offer, you will be required to make some
representations in a letter of transmittal,
including that:
o you are not affiliated with us,
o you are not a broker-dealer who bought
your original notes directly from us,
o you will acquire the exchange notes in
the ordinary course of business, and
o you have not agreed with nanyone to
distribute the exchange notes.
If you are a broker-dealer that purchased
original notes for your own account as part
of market-making or trading activities, you
may represent to us that you have not agreed
with us or our affiliates to distribute the
exchange notes. If you make this
representation, you need not make the last
representation provided for above.
Resale of the Exchange Notes ..... We are making the exchange offer in reliance
on the position of the staff of the Division
of Corporation Finance of the SEC as defined
in certain interpretive letters issued to
third parties in other transactions. We
believe that the exchange notes acquired in
this exchange offer may be freely traded
without compliance with the provisions of
the Securities Act that call for
registration and delivery of a prospectus,
except as described in the following
paragraph.
The exchange notes will be freely tradable
only if the holders meet the conditions
described under "Required Representations"
above. If you are a broker-dealer that
purchased original notes for your own
account as part of market-making or trading
activities, you must deliver a prospectus
when you sell exchange notes. We have agreed
in the exchange and registration rights
agreement relating to the original notes to
allow you to use this prospectus for this
purpose during the 180-day period following
completion of the exchange offer, subject to
our right under some circumstances to
restrict your use of this prospectus. See
"The Exchange Offer -- Resales of Exchange
Notes".
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Broker dealers who acquired original notes
directly from us may not rely on the staff's
interpretations and must comply with the
registration and prospectus delivery
requirements of the Securities Act,
including being named as a selling security
holder, in order to resell the original
notes or the exchange notes.
Accrued Interest on the
Original Notes ................ The exchange notes will bear interest at an
annual rate of 8.625%. Any interest that has
accrued on the original notes before their
exchange in this exchange offer will be
payable on the exchange notes on the first
interest payment date after the conclusion
of this exchange offer.
Procedures for Exchanging
Notes .......................... The procedures for exchanging original notes
involve notifying the exchange agent before
the expiration date of the exchange offer of
your intention to do so. The procedures for
properly making notification are described
in this prospectus under the heading "The
Exchange Offer -- Procedures for Tendering
Original Notes".
Expiration Date .................. 5:00 p.m., Eastern Time, on November 8,
2001, unless the exchange offer is extended.
Exchange Date .................... We will notify the exchange agent of the
date of acceptance of the original notes for
exchange.
Withdrawal Rights ................ If you tender your original notes for
exchange in this exchange offer and later
wish to withdraw them, you may do so at any
time before 5:00 p.m., Eastern Time, on the
day this exchange offer expires.
Acceptance of Original
Notes and Delivery of
Exchange Notes ................. We will accept any original notes that are
properly tendered for exchange before 5:00
p.m., Eastern Time, on the day this exchange
offer expires. The exchange notes will be
delivered promptly after expiration of this
exchange offer.
Tax Consequences ................. You will not incur any material federal
income tax consequences from your
participation in this exchange offer.
Use of Proceeds .................. We will not receive any cash proceeds from
this exchange offer.
Exchange Agent ................... First Union National Bank is serving as the
exchange agent. Its address and telephone
number are provided in this prospectus under
the heading "The Exchange Offer -- Exchange
Agent".
Effect on Holders of
Original Notes ................. Any original notes that remain outstanding
after this exchange offer will continue to
be subject to restrictions on their
transfer. After this exchange offer, holders
of original notes will not (with limited
exceptions) have any further rights under
the exchange and registration rights
agreement. Any market for original notes
that are not exchanged could be adversely
affected by the conclusion of this exchange
offer.
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Summary of the Exchange Notes
This exchange offer applies to $400,000,000 aggregate principal amount of
the original notes. The terms of the exchange notes will be essentially the same
as the original notes, except that the exchange notes will not contain language
restricting their transfer, and holders of the exchange notes generally will not
be entitled to further registration rights under the exchange and registration
rights agreement. The exchange notes issued in the exchange offer will evidence
the same debt as the outstanding original notes, which they will replace, and
both the original notes and the exchange notes are governed by the same
indenture.
Securities Offered ............... $400,000,000 principal amount of 8.625%
Senior Notes due 2008 which have been
registered under the Securities Act.
Interest Payment Dates ........... February 15 and August 15
Stated Maturity Date ............. February 15, 2008
Optional Redemption .............. The exchange notes will be redeemable at our
option in whole or in part at any time, at a
redemption price equal to the greater of
o 100% of the principal amount of the
exchange notes to be redeemed, and
o the sum of the present values of the
principal amount and the remaining
scheduled payments of interest on the
exchange notes to be redeemed from the
redemption date to February 15, 2008
discounted on a semi-annual basis
(assuming a 360-day year consisting of
30-day months) at a specified Treasury
Rate plus 40 basis points,
o plus, in either case, accrued interest
to the date of redemption. See
"Description of Exchange Notes --
Optional Redemption".
Ranking .......................... The exchange notes will be senior unsecured
obligations and will rank equally with our
senior unsecured indebtedness. As of June
30, 2001, we had outstanding $837 million of
debt that ranks equal with the exchange
notes and had no secured debt outstanding.
An additional $550 million of debt that
ranks equal with the exchange notes was
issued in July, 2001. Since we are a holding
company, the exchange notes will be
structurally subordinated to any
indebtedness and other liabilities of our
operating subsidiaries.
Cross Acceleration ............... The exchange notes will be subject to the
acceleration of their maturity in the event
of the acceleration of the indebtedness
under our revolving credit facilities and
certain other indebtedness as described
under "Description of Exchange Notes --
Events of Default and Remedies".
Ratings .......................... The exchange notes have been assigned
ratings of "BBB-" by Standard & Poor's
Ratings Group and Fitch IBCA, Inc. and
"Baa3" by Moody's Investors Service, Inc.
A security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any
time by the assigning rating agency. Each
rating should be evaluated independently of
any other rating.
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Sinking Fund ..................... None.
Limitation on Liens .............. PSEG Energy Holdings Inc. (Energy Holdings)
and its subsidiaries may not incur any liens
to secure indebtedness without providing
that the exchange notes will be equally and
ratably secured with such indebtedness.
These restrictions do not apply to liens
granted by subsidiaries (other than
"Material Subsidiaries" as defined under
"Description of Exchange Notes-- Certain
Definitions") in connection with project
financings, liens securing indebtedness not
exceeding 10% of Consolidated Net Tangible
Assets as defined under "Description of
Exchange Notes-- Certain Definitions" and
other specified liens.
Limitation on Sale and
Leasebacks ..................... Energy Holdings and its subsidiaries may not
enter into sale and leaseback transactions
unless it would be permissible to incur
indebtedness secured by a lien under the
foregoing Limitation on Liens covenant in
the amount of the indebtedness associated
with that sale and leaseback transaction or
unless the proceeds of that sale and
leaseback were applied to the reduction of
indebtedness. Also not restricted is
indebtedness associated with sale and
leaseback transactions not exceeding 10% of
Consolidated Net Tangible Assets.
Change of Control ................ Upon a "Change of Control" under
"Description of Exchange Notes -- Certain
Definitions", a holder of exchange notes may
require us to repurchase that holder's
exchange notes, in whole or in part, at 101%
of the principal amount of the exchange
notes, plus accrued interest. A Change of
Control will not be deemed to have occurred
if, after giving effect to circumstances
otherwise constituting a Change of Control,
the exchange notes are rated "BBB-" or
better by Standard & Poor's Ratings Group
and "Ba1" or better by Moody's Investors
Service, Inc.
Form ............................. The exchange notes will be represented by
one or more permanent global exchange notes
in fully registered form without interest
coupons, deposited with the Trustee as
custodian for, and registered in the name
of, a nominee of DTC, except in certain
limited circumstances described in this
prospectus.
Risk Factors ..................... Our business, and an investment in the
exchange notes, is subject to risks (see
"Risk Factors"), including the following:
o Because we are a holding company, our
ability to service our debt could be
limited.
o Our ability to control the cash flow
from our minority investments is
limited.
o We may not have access to sufficient
capital in the amounts and at the times
needed.
o We cannot assure sufficient cash flow to
service the notes.
o Because a substantial amount of our
business is conducted outside the United
States, adverse international
developments could negatively impact our
business.
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THE COMPANY
Energy Holdings participates in three energy-related lines of business
through its wholly-owned subsidiaries: PSEG Global Inc. (Global), PSEG Resources
Inc. (Resources) and PSEG Energy Technologies Inc. (Energy Technologies). Our
objective is to pursue investment opportunities in the rapidly changing
worldwide energy markets where our technical, market and regulatory expertise
can be applied to create economic value.
We focus on
o supplying reliable, competitively priced energy in high growth
markets;
o providing capital to finance energy-related assets; and
o supplying products and services designed to assist customers in
efficient energy utilization.
We are a direct, wholly-owned subsidiary of Public Service Enterprise
Group Incorporated (PSEG) and an affiliate of Public Service Electric and Gas
Company, a public utility operating in New Jersey, which is also a wholly-owned
subsidiary of PSEG. We provide administrative support for our subsidiaries and
financing on the basis of a combined credit profile. In addition, PSEG Capital
Corporation (PSEG Capital), our subsidiary, has provided debt financing in the
form of Medium-Term Notes, with maturities ranging from 2001 to 2003, in an
aggregate principal amount of up to $650 million to our subsidiaries on the
basis of a net worth maintenance agreement with PSEG.
Global
Global develops, acquires, owns and operates electric generation and
distribution facilities and engages in power production and distribution,
including wholesale and retail sales of electricity, in selected domestic and
international markets. Global has ownership interests in 30 operating generation
projects totaling 4,964 megawatts (MW) (1,935 MW net of other partners'
interest) located in the United States, Argentina, China, India, Poland and
Venezuela. Global has ownership interests in 15 projects totaling 3,210 MW
(1,577 MW net) in construction or advanced development that are located in the
United States, Argentina, China, India, Italy, Oman, Poland, Taiwan, Tunisia and
Venezuela. Of Global's generation projects in operation, construction or
advanced development, 1,463 MW net, or 42%, are located in the United States.
Global is actively involved, through affiliates and joint ventures, in managing
the operations of 15 operating generation projects and will be actively involved
through affiliates and joint ventures in managing the operations of 12 of the
projects in construction or advanced development. Global owns interests in seven
distribution companies which, as of June 30, 2001 and December 31, 2000, totaled
approximately 50% and 54%, respectively, of Global's assets, providing
electricity to approximately three million customers in Argentina, Brazil, Chile
and Peru. Global is actively involved in managing the operations of these
distribution companies. Global was established in 1984 and as of June 30, 2001
and December 31, 2000 had assets of approximately $2.9 billion ($1.4 billion
distribution, $1.3 billion generation, and $0.2 billion other assets) and $2.3
billion ($1.2 billion distribution, $0.9 billion generation, and $0.2 billion
other assets), respectively. The information stated in this paragragh includes
the interests in certain projects, located in Argentina, that are pending sale.
For further discussion, see "Recent Developments -- Global."
Resources
Resources provides energy infrastructure financing in developed
countries. Resources invests in energy-related financial transactions through
leveraged leases and manages a diversified portfolio of more than 60 investments
including leveraged leases, leveraged buyout funds, limited partnerships and
marketable securities. As of June 30, 2001 and December 31, 2000, Resources had
approximately $2.7 billion and $2.3 billion, respectively, invested in leveraged
leases representing approximately 90% and 88%, respectively, of Resources'
assets. Approximately 94% of these leveraged leases are with lessees that have
investment grade credit ratings. Leveraged leases of energy-related plant and
equipment totaled approximately $2.3 billion or 83% and $1.8 billion or 79% of
the lease portfolio and 77% and
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70% of Resources' assets as of June 30, 2001 and December 31, 2000,
respectively. The remainder of Resources' portfolio is further diversified
across a wide spectrum of asset types and business sectors, including leveraged
leases of aircraft, railcars, real estate and industrial equipment, limited
partnership interests in project finance transactions, leveraged buyout and
venture funds and marketable securities. All of Resources' investments since
1992 have been energy-related. Resources was established in 1985 and as of June
30, 2001 and December 31, 2000 had assets of approximately $3.0 billion and $2.6
billion, respectively.
Energy Technologies
Energy Technologies is an energy management company that constructs,
operates and maintains heating, ventilating and air conditioning (HVAC) systems
for, and provides energy-related engineering, consulting and mechanical
contracting services to, industrial and commercial customers in the Northeastern
and Middle Atlantic United States. Energy Technologies was established in 1997
and as of June 30, 2001 and December 31, 2000 had assets of approximately $326
million and $312 million, respectively.
Recent Developments
Energy Holdings
o We are currently evaluating the economic consequences of the
September 11, 2001 terrorist attacks on the United States,
particularly their impact on accelerating the continued economic
slowdown in the United States and worldwide. The consequences of a
prolonged recession may include the continued weakening of certain
Latin American currencies, including the Brazilian Real and the
Chilean Peso, and further credit rating downgrades of certain
airlines in the United States and worldwide. As of June 30, 2001,
$1.589 billion or 25% of Energy Holdings' assets were invested in
Latin America, specifically in Brazil, Argentina, Chile, Peru and
Venezuela and $198 million or 3% of Energy Holdings' assets were
comprised of leveraged leases of sixteen aircraft leased to six
separate lessees. We cannot predict the impact of any further
currency devaluations, continued economic slowdown and potential
lessee payment defaults; however, such impact could have a material
adverse effect on Energy Holdings' financial condition, results of
operations and net cash flows.
o In July 2001, we issued $550 million of 8.50% senior notes due 2011.
We have filed a registration statement with the SEC relating to an
exchange offer for, or the resale of, these senior notes in
September 2001. The net proceeds from the sale were used for the
repayment of short-term debt from intercompany loans and borrowings
under our revolving credit facilities and for general corporate
purposes.
o In June 2001, Moody's Investors Service, Inc. upgraded our senior
unsecured debt ratings to Baa3 from Ba1. The rating outlook is
stable.
o In the second quarter of 2001, PSEG invested $300 million in
additional equity in our company, which we used to repay short-term
debt incurred in connection with recent investment activity.
o In May 2001, we extended our existing $165 million, 364-day
revolving credit facility to May 2002 and increased the facility to
allow for borrowings of up to $200 million.
o In February 2001, we issued $400 million of 8.625% senior notes due
2008. The net proceeds from the sale were used for the repayment of
short-term debt outstanding under our revolving credit facilities.
These are the original notes being offered for exchange.
Global
o In August 2001, Global purchased a 94% equity stake in Sociedad
Austral de Electricidad S.A. (SAESA) and all of its subsidiaries
from Compania de Petroleos de Chile S.A. (COPEC). The SAESA group of
companies consists of four distribution companies and one
transmission company that provide electric service in the southern
part of Chile. Additionally, Global
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purchased from COPEC approximately 14% of Empresa Electrica de la
Frontera S.A. (Frontel) not owned by SAESA. SAESA also owns a 50%
interest in the Argentine distribution company Empresa Electrica del
Rio Negro S.A. Collectively, the companies serve more than 615,000
customers. The purchase will total approximately $460 million, after
Global completes a required tender offer for 6% of publicly traded
SAESA shares in Chile, expected to occur in the fourth quarter of
2001.
o In August 2001, Global entered into an agreement to sell its
interests in several joint ventures in Argentina to a subsidiary of
the AES Corporation (AES) for $376 million. The transaction will
involve the transfer of Global's 30% interest in three Argentine
distribution companies, Empresa Distribuidora de Energia Norte S.A.
(EDEN), Empresa Distribuidora de Energia Sur S.A. (EDES) and Empresa
Distribuidora La Plata S.A. (EDELAP), a 19% share in the 650 MW
Central Termica San Nicolas power plant, and a 33% interest in the
830 MW Parana power plant nearing the completion of construction.
Payment terms for the transaction include a 10% down payment with
the remainder of the purchase price payable under a promissory note
to be issued by a subsidiary of AES to Global and collateralized by
AES subsidiary's interests in the assets. Consummation of the
transaction is subject to Global and a subsidiary of AES obtaining
certain lender and regulatory approvals.
o In July 2001, the first 500 MW power block of the Odessa-Ector Power
Partner, L.P. (OEP) 1,000 MW gas-fired combined-cycle electric
generation facility in Odessa, Texas commenced commercial operation.
In August 2001, the second 500 MW power block of the 1,000 MW power
generation plant commenced commercial operation. OEP is wholly-owned
by Texas Independent Energy, L.P. (TIE), a 50/50 joint venture of
Global and Panda Energy International, Inc.
o In July 2001, Global won the bid to purchase up to a 100% interest
in Empresa de Electricidad de los Andes S.A. (Electroandes) with a
bid of approximately $227 million. Global's closing for this
acquisition is scheduled for the fourth quarter of 2001 and may be
dependent upon resolution of certain matters regarding applicable
tax rates. Electroandes is the sixth largest electric generator in
Peru with a 6% market share. Electroandes' main assets include four
hydroelectric facilities with a combined installed capacity of 183
MW and 460 miles of transmission lines located in the Central Andean
region (northeast of Lima). In addition, Electroandes has the
exclusive rights to develop a 100 MW expansion of an existing
station and a 150 MW greenfield hydroelectric facility. In 2000,
Electroandes generated 1,150 gigawatts of electrical energy, of
which 97% was sold through power purchase agreements to mining
companies in the region.
o In June 2001, Global exercised its option to acquire an additional
49% of Empresa Distribuidora de Electricidad de Entre Rios S.A.
(EDEERSA), bringing its total ownership of EDEERSA to 90%. The
additional ownership was purchased for approximately $110 million.
EDEERSA is the main distributor of electricity in the Province of
Entre Rios, Argentina. EDEERSA holds a 40-year exclusive concession,
granted in 1996 at the time of privatization, to distribute
electricity throughout its service territory, which covers 21,000
square miles and has an estimated population of 1.1 million people.
EDEERSA's distribution network consists of approximately 9,100 miles
of high, medium and low voltage power lines. EDEERSA's approximately
230,000 customers consume approximately 1,500 gigawatts of
electrical energy per annum.
o In June 2001, the Fushi Hydropower Plant began commercial operation
of all units of the plant located along the Rongjiang River in
China. Global owns an indirect 35% interest in the Fushi Hydropower
Plant.
o In June 2001, Global announced that the Tanir Bavi Power Company,
located in India, had begun simple-cycle operation of 170 MW of its
planned 220 MW barge-mounted combined-cycle generating facility. The
plant is expected to begin combined-cycle operation in in the third
quarter of 2001. Power from the facility will be sold to the
Karnataka Electricity Board pursuant to a seven-year fixed price
power purchase agreement (PPA).
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o In May 2001, GWF Energy LLC (GWF Energy), a 50/50 joint venture
between Global and Harbinger GWF LLC, entered into a 10-year PPA
with the California Department of Water Resources to provide 340 MW
of electric capacity to California from three new peaker plants that
GWF Energy is constructing and will operate in California. The first
plant, a 90 MW natural gas-fired plant, was completed and began
operation in August 2001. Global's equity investment in these
plants, including contingencies, is not expected to exceed $100
million.
o In April 2001, Global announced that the PPN Generation Station,
located in India, began commercial operations. The 330 MW
combined-cycle plant is currently being run on naphtha and will
switch to a mixture of naphtha and natural gas as offshore gas wells
are completed. The Tamil Nadu Electricity Board will purchase the
output of the plant under a PPA.
o In March 2001, Global, through Dhofar Power Company (DPCO), signed a
20-year concession with the government of Oman to privatize the
electric system of Salalah. A consortium led by Global and several
major Omani investment groups owns DPCO. The project will enhance
the existing network of generation, transmission and delivery assets
and is expected to add 195 MW of new generating capacity. The
project achieved financial closure in August 2001 and is expected to
achieve commercial operation by March 2003. Total project cost is
estimated at $277 million. Global's equity investment, including
contingencies, is expected to be approximately $82 million.
o In February 2001, Global withdrew from its interest in the Eagle
Point Cogeneration partnership, a 225 MW gas-fired combined-cycle
facility in New Jersey, in exchange for a series of payments
expected to total up to $290 million, to be received over the next
five years, subject to certain contingencies.
o In January 2001, Global and its partner, Panda Energy International,
Inc., announced that the OEP 1,000 MW gas-fired combined-cycle
electric generation facility in Guadalupe County, Texas, began
commercial operation. Approximately 60% of the plant's total output
has been sold via bilateral PPAs and the remainder will be sold on
the Texas spot market.
Resources
o In 2001, Resources invested approximately $438 million in five
leveraged lease financing transactions of three electric power
stations in the United States; an electric distribution network
operated by an electric power district heating and transportation
utility in Austria, a coal-fired facility in Belgium and a gas-fired
cogeneration facility in the Netherlands.
o In 2001, Resources through its investments in a leveraged buyout
fund, received cash distributions of approximately $64 million
resulting in a net after-tax gain of approximately $2 million from
the fund's sale of portions of its equity interests.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for
the periods indicated. The summary consolidated financial data for the six
months ended June 30, 2001 and 2000 was derived from our unaudited financial
statements which have been incorporated by reference in this Prospectus and, in
the opinion of management, have been prepared in a manner consistent with the
audited financial statements for the five years ended December 31, 2000.
Operating results for the six months ended June 30, 2001 are not necessarily
indicative of results which may be expected for the full year. The summary
consolidated financial data as of December 31, 2000 and 1999, and for the three
years ended December 31, 2000 have been derived from our audited consolidated
financial statements, which have been incorporated by reference in this
Prospectus. The summary consolidated financial data as of December 31, 1998,
1997, and 1996, and for the two years ended December 31, 1997 have been derived
from our audited consolidated financial statements not included or incorporated
by reference in this Prospectus. This summary consolidated financial data is
qualified in its entirety by the more detailed information and financial
statements noted above, including the notes thereto. Certain reclassifications
of prior period data have been made to conform with the current presentation.
Six Months Ended
June 30, Years Ended December 31,
------------------- ----------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- ------- -------- -------- -------- ---------
Operating Data: (unaudited) (Thousands of Dollars, except ratios)
Total Revenues .................. $424,095 $384,807 $794,710 $686,955 $440,284 $341,590 $302,800
Total Operating Expenses ........ 271,400 270,669 502,886 424,468 250,539 196,462 171,169
Interest, Net of Capitalized
Interest ...................... 74,704 71,569 136,517 94,685 90,367 72,363 58,261
Taxes ........................... 10,929 12,898 45,337 68,942 30,160 25,816 24,968
Income from Discontinued
Operations (A) ................. -- -- -- -- -- -- 24,238
Loss on Early Extinguishment
of Debt ........................ 1,680 -- -- -- -- -- --
Cumulative Effect of a Change
in Accounting Principle - Gain 8,849 -- -- -- -- -- --
Net Income ...................... 76,923 31,898 113,947 107,999 69,204 47,873 72,662
Preferred Stock Dividends (B) ... 11,380 12,504 23,886 25,007 17,478 598 --
Earnings Available to
Common Stockholder ............ $ 65,543 $ 19,394 $ 90,061 $ 82,992 $ 51,726 $ 47,275 $ 72,662
As of June 30, As of December 31,
-------------- --------------------------------------------------------------
2001 2000 1999 1998 1997 1996
Balance Sheet Data: ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
Total Assets .................... $6,239,915 $5,197,534 $4,114,385 $3,168,530 $3,022,956 $2,122,413
Total Liabilities ............... 1,490,021 1,266,925 1,037,834 958,528 962,954 817,889
Total Capitalization:
Debt (F) ...................... 2,692,574 2,181,776 1,701,686 967,673 1,275,103 627,381
Common Equity (B) ............. 1,548,120 1,239,633 865,665 733,129 709,899 677,143
Preferred Equity (B) .......... 509,200 509,200 509,200 509,200 75,000 --
---------- ---------- ---------- ---------- ---------- ----------
Total Stockholder's Equity .... 2,057,320 1,748,833 1,374,865 1,242,329 784,899 677,143
---------- ---------- ---------- ---------- ---------- ----------
Total Capitalization .......... $4,749,894 $3,930,609 $3,076,551 $2,210,002 $2,060,002 $1,304,524
Six Months Ended
June 30, Years Ended December 31,
--------------------- ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
Other Data: --------- -------- --------- ----------- --------- --------- ---------
(unaudited)
Earnings Before Interest
and Taxes (EBIT) ...... $ 155,142 $115,587 $ 294,722 $ 270,709 $ 187,927 $ 145,813 $ 131,631
Cash flows from:
Operating ............ $ 137,687 $ 24,407 $ 152,384 $ 163,827 $ 52,780 $ 137,057 $ 232,411
Investing ............ (732,387) (73,280) (762,761) (1,031,803) (160,133) (998,424) (560,965)
Financing ............ 596,465 22,604 589,269 902,320 105,133 722,832 (726,442)
Six Months Ended
June 30, Years Ended December 31,
---------------- ------------------------------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
(unaudited)
Earnings to Fixed Charges (C) ........................... 1.4x 1.8x 1.9x 2.7x 2.4x 1.4x 3.0x
EBIT to Interest Expense (D) (H) ........................ 2.1x 1.6x 2.2x 2.9x 2.1x 2.0x 2.3x
EBITDA to Interest Expense (E) (H) ...................... 2.1x 1.8x 2.3x 3.1x 2.4x 2.2x 2.5x
Consolidated Debt to Capitalization (F) ................. 57% 56% 56% 55% 44% 62% 48%
Consolidated Recourse Debt to Recourse Capitalization (G) 50% 53% 51% 50% 38% 57% 48%
----------------------
(A) In 1996, EDC was sold for an aggregate price of $779 million. This sale
resulted in an after-tax gain of $13.5 million.
(B) All outstanding preferred and common stock is owned by PSEG.
(C) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this ratio, earnings include net income before income
taxes and all fixed charges (net of capitalized interest) and exclude
non-distributed income from investments in which Energy Holdings'
subsidiaries have less than a 50% interest. Fixed charges include interest
expense, expensed or capitalized, amortization of premiums, discounts or
capitalized expenses related to indebtedness and an estimate of interest
expense included in rental expense.
(D) EBIT includes operating income plus other income. For this ratio, interest
expense is net of capitalized interest of $10.3 million, $8.2 million,
$20.8 million, $8.5 million, $1.2 million, $5.1 million and $1.3 million
for six months ended June 30, 2001 and 2000 and for the years ended
December 31, 2000, 1999, 1998, 1997, and 1996, respectively.
(E) EBITDA includes operating income plus other income plus depreciation and
amortization. For this ratio, interest expense is net of capitalized
interest as noted above.
(F) Includes all recourse debt and debt that is non-recourse to Global,
Resources, Energy Technologies and Energy Holdings which is consolidated
on the balance sheet.
(G) Excludes consolidated debt that is non-recourse to Global, Resources,
Energy Technologies and Energy Holdings of $611 million, $195 million,
$354 million, $327 million, $220 million and $232 million as of June 30,
2001 and 2000 and December 31, 2000, 1999, 1998 and 1997, respectively.
There was no consolidated non-recourse debt outstanding prior to 1997.
(H) Information concerning EBIT and EBITDA is presented here not as a measure
of operating results, but rather as a measure of ability to service debt.
In addition, EBIT and EBITDA may not be comparable to similarly titled
measures by other companies. EBITDA should not be construed as an
alternative to operating income or cash flow from operating activities,
each as determined according to generally accepted accounting principles.
Although we are not required to meet minimum EBIT or EBITDA to interest
charges tests as part of our debt covenants, we use these measures in our
financial and business planning process to provide reasonable assurance
that our forecasts will provide adequate interest coverage to maintain or
improve our target credit ratings.
--------------------------------------------------------------------------------
12
RISK FACTORS
You should carefully consider the risks described below. Each of the following
factors could have a material adverse effect on our business, financial
condition, results of operations, net cash flows and/or our ability to
service our outstanding indebtedness, including the notes.
Because we are a holding company, our ability to service our debt could be
limited
The notes will be our exclusive obligations and not the obligations of any
of our subsidiaries or affiliates. Our obligations with respect to the notes
will not be supported by PSEG.
We are a holding company with no material assets other than the stock of
our subsidiaries and project affiliates. Accordingly, all of our operations are
conducted by our subsidiaries and project affiliates which are separate and
distinct legal entities that have no obligation, contingent or otherwise, to pay
any amounts when due on the notes or to make any funds available to us to pay
such amounts. As a result, the notes will effectively be subordinated to all
existing and future debt, trade creditors, and other liabilities of our
subsidiaries and project affiliates and our rights and hence the rights of our
creditors (including holders of the notes) to participate in any distribution of
assets of any such subsidiary or project affiliate upon its liquidation or
reorganization or otherwise would be subject to the prior claims of such
subsidiary's or project affiliate's creditors, except to the extent that our
claims as a creditor of such subsidiary or project affiliate may be recognized.
We depend on our subsidiaries' and project affiliates' cash flow and our
access to capital in order to service our indebtedness, including the notes. The
project-related debt agreements of subsidiaries and project affiliates generally
restrict their ability to pay dividends, make cash distributions or otherwise
transfer funds to us. These restrictions may include achieving and maintaining
financial performance or debt coverage ratios, absence of events of default, or
priority in payment of other current or prospective obligations.
Our subsidiaries have financed some investments using non-recourse project
level financing. Each non-recourse project financing is structured to be repaid
out of cash flow provided by the investment. In the event of a default under a
financing agreement which is not cured, the lenders would generally have rights
to the related assets. In the event of foreclosure after a default, our
subsidiary may lose its equity in the asset or may not be entitled to any cash
that the asset may generate. Although a default under a project financing
agreement will not cause a default with respect to the notes, it may materially
affect our ability to service our outstanding indebtedness, including the notes.
Our ability to control the cash flow from our minority investments is limited,
which could limit our ability to service our debt
Our ability to control investments in which we own a minority interest is
limited. As such, we and Global are unable unilaterally to cause dividends or
distributions to be made to us or Global from these operations.
Minority investments may involve risks not otherwise present for
investments made solely by us and our subsidiaries, including the possibility
that a partner, majority investor or co-venturer might become bankrupt, may have
different interests or goals, and may take action contrary to our instructions,
requests, policies or business objectives. Also, if no party has full control,
there could be an impasse on decisions. In addition, certain investments of
Resources are managed by unaffiliated entities which limits Resources' ability
to control the activities or performance of such investments and managers.
We may not have access to sufficient capital in the amounts and at the times
needed
Equity capital for our subsidiaries' projects and our investments have
been provided by equity contributions from PSEG, internally-generated cash flow
and borrowings by ourselves and PSEG Capital. We require continued access to
debt capital from outside sources in order to assure the success of our future
projects and acquisitions. Our ability to arrange financing on a non-recourse
basis and the costs of capital depend on numerous factors including, among other
things, general economic
13
and market conditions, the availability of credit from banks and other financial
institutions, investor confidence, the success of current projects and the
quality of new projects.
We can give no assurances that our current and future capital structure or
financial condition will permit access to bank and debt capital markets. We also
will require capital from PSEG, the availability of which is not assured since
it is dependent upon our performance and that of PSEG's other subsidiaries. As a
result, there is no assurance that we will be successful in obtaining financing
for our projects and acquisitions or funding the equity commitments required for
such projects and acquisitions in the future.
We cannot assure sufficient cash flow to service the notes
As of June 30, 2001 and December 31, 2000, we had total debt of $2.1
billion and $1.8 billion, respectively, excluding consolidated non-recourse debt
appearing on our balance sheet. We can give no assurances that our projects and
investments will generate sufficient cash to service our outstanding
indebtedness, including the notes.
Under the existing instruments governing our debt, including the indenture
under which the notes will be issued and our bank agreements, as well as the
agreement governing debt of PSEG Capital, debt may be accelerated or otherwise
be subject to repayment upon certain events of default, including cross
defaults, or if we undergo a change of control. In addition, a default on the
notes would result in a cross default under our bank agreements. If any such
event were to occur, we may not have sufficient capital to pay holders of the
notes in full the amounts due under the notes or to repay any notes tendered
pursuant to the Change of Control Offer described under "Description of Exchange
Notes -- Certain Covenants -- Repayment of Notes Upon a Change of Control".
Because a substantial amount of our business is conducted outside the United
States, adverse international developments could negatively impact our business
A key component of our business strategy is the development, acquisition
and operation of projects outside the United States. The economic and political
conditions in certain countries where Global has interests or in which Global is
or could be exploring development or acquisition opportunities present risks
that may be different than those found in the United States including: delays in
permitting and licensing, construction delays and interruption of business, as
well as risks of war, expropriation, nationalization, renegotiation or
nullification of existing contracts and changes in law or tax policy. Changes in
the legal environment in foreign countries in which Global may develop or
acquire projects could make it more difficult to obtain non-recourse project
refinancing on suitable terms and could impair Global's ability to enforce its
rights under agreements relating to such projects.
Operations in foreign countries also present risks associated with
currency exchange and convertibility, inflation, and repatriation of earnings.
In some countries in which Global may develop or acquire projects in the future,
economic and monetary conditions and other factors could affect Global's ability
to convert its cash distributions to United States Dollars or other freely
convertible currencies or to move funds offshore from such countries.
Furthermore, the central bank of any such country may have the authority to
suspend, restrict or otherwise impose conditions on foreign exchange
transactions or to approve distributions to foreign investors. Although Global
generally seeks to structure power purchase contracts and other project revenue
agreements to provide for payments to be made in, or indexed to, United States
Dollars or a currency freely convertible into United States Dollars, its ability
to do so in all cases may be limited. See "-- Credit, currency, commodity and
financial market risks may have an adverse impact".
Our future revenues from projects in development could be limited because our
project development, construction and acquisition activities may not be
successful
Our project development and acquisition activities require significant
expenditures for evaluation, engineering, permitting, legal and financial
advisory services, some of which may not result in increased revenues. For
example, we may choose not to proceed with development or may not be successful
in competitive bids despite having incurred significant expenses in connection
with potential investments.
14
The construction, expansion or refurbishment of a power generation or
distribution facility may involve equipment and material supply interruptions,
labor disputes, unforeseen engineering, environmental and geological problems
and unanticipated cost overruns. The proceeds of any insurance, vendor
warranties or performance guarantees may not be adequate to cover lost revenues,
increased expenses or payments of liquidated damages. In addition, some power
purchase contracts permit the customer to terminate the related contract, retain
security posted by the developer as liquidated damages or change the payments to
be made to the subsidiary or the project affiliate in the event certain
milestones, such as commencing commercial operation of the project, are not met
by specified dates. If project start-up is delayed and the customer exercises
these rights, the project may be unable to fund principal and interest payments
under its project financing agreements.
If our operating performance falls below projected levels, we may not be able to
service our debt
The risks associated with operating power generation facilities include
the breakdown or failure of equipment or processes, labor disputes and fuel
supply interruption, each of which could result in performance below expected
capacity levels. Operation below expected capacity levels may result in lost
revenues, increased expenses, higher maintenance costs and penalties, in which
case there may not be sufficient cash available to service project debt. In
addition, many of Global's generation projects rely on a single fuel supplier
and a single customer for the purchase of the facility's output under a long
term contract. While Global generally has liquidated damage provisions in its
contracts, the default by a supplier under a fuel contract or a customer under a
power purchase contract could adversely affect the facility's cash generation
and ability to service project debt.
Countries in which Global owns and operates electric and gas distribution
facilities may impose financial penalties if reliability performance standards
are not met. In addition, inefficient operation of the facilities may cause lost
revenue and higher maintenance expenses, in which case there may not be
sufficient cash available to service project debt.
Credit, currency, commodity and financial market risks may adversely impact our
business
Adverse changes in commodity prices, equity security prices, interest
rates and foreign currency exchange rates and non-performance or non-payment by
counterparties could lower revenues, raise costs and adversely affect our
financial condition, results of operations and net cash flows and our ability to
service our outstanding indebtedness, including the notes.
We and our subsidiaries are subject to substantial competition from well
capitalized participants in the worldwide energy markets
We and our subsidiaries are subject to substantial competition in the
United States and in international markets from independent power producers,
domestic and multi-national utility generators, fuel supply companies,
engineering companies, equipment manufacturers and affiliates of other
industrial companies. Restructuring of worldwide energy markets, including the
privatization of government-owned utilities and the sale of utility-owned
assets, is creating opportunities for, and substantial competition from,
well-capitalized entities which may adversely affect our ability to make
investments on favorable terms and achieve our growth objectives. Increased
competition could contribute to a reduction in prices offered for power and
could result in lower returns which may affect our ability to service our
outstanding indebtedness, including the notes.
Deregulation may continue to accelerate the current trend toward
consolidation among domestic utilities and could also result in the splitting of
vertically-integrated utilities into separate generation, transmission and
distribution businesses. As a result, additional significant competitors could
become active in the independent power industry. Resources faces competition
from numerous well-capitalized investment and finance company affiliates of
banks, utilities and industrial companies. Energy Technologies faces substantial
competition from utilities and their affiliates, and HVAC and mechanical
contractors.
15
Compliance with environmental and other governmental regulation is costly and
could negatively impact our business
We and the projects in which we invest are subject to a number of complex
and stringent environmental and other laws and regulations, including those
which regulate the construction or permitting of new facilities and operation of
existing facilities. Compliance is costly and could delay project operation and
the receipt of revenues.
Global's electric and gas distribution facilities are rate-regulated
enterprises. Rates charged to customers are established by governmental
authorities and are currently sufficient to cover all operating costs and
provide a return. We can give no assurances that future rates will be
established at levels sufficient to cover such costs and provide a return on our
investment. In addition, future rates may not be adequate to provide cash flow
to pay principal and interest on our subsidiaries' and affiliates' debt and to
enable such subsidiaries and affiliates to comply with the terms of debt
agreements.
PSEG could exercise its power over us to the detriment of holders of the notes
As our sole stockholder, PSEG has the power to control the election of the
directors and all other matters submitted for stockholder approval and has
control over our management and affairs. In circumstances involving a conflict
of interest between PSEG, as the sole stockholder, on the one hand, and our
creditors, on the other, we can give no assurances that PSEG would not exercise
its power to control us and allocate resources in a manner that would benefit
PSEG or another subsidiary to the detriment of the holders of the notes.
The indenture imposes no limitations on our ability to pay dividends or to
make other payments to PSEG or on our ability to enter into transactions with
PSEG or our other affiliates. Payment of dividends to PSEG without limit could
impact our cash available to service the notes. PSEG could decide to no longer
continue to hold our stock, although failure to maintain ownership of a majority
of the common stock could trigger the change of control repurchase provisions in
the indenture. Any of these actions could materially adversely affect our
business and thus ultimately our ability to service the notes.
As a wholly-owned subsidiary of PSEG, we and our domestic subsidiaries are
included in PSEG's consolidated tax filing for federal income tax purposes.
Generally, the leveraged lease transactions in which Resources invests provide
tax losses in the early years of their term that offset taxable income from
other PSEG subsidiaries. We and our subsidiaries are parties to a tax allocation
agreement with PSEG under which we and each of our subsidiaries are responsible
to pay the respective share of taxes due or entitled to receive tax benefits
earned. If PSEG were to modify the tax allocation agreement, our future
investment strategy might change, including Resources' possible curtailment of
new leveraged lease investments that generate tax benefits.
The exchange notes may not be liquid because there is no public market for the
exchange notes
There is currently no trading market for the exchange notes and we do not
intend to list the exchange notes on any securities exchange or to arrange for
them to be quoted on any quotation system. We can give no assurances as to the
liquidity of any market that may develop for the exchange notes, the ability of
investors to sell the exchange notes or the price at which investors would be
able to sell their exchange notes.
Consequences of failure to exchange original notes -- original notes remain
subject to transfer restrictions
Any original notes that remain outstanding after this exchange offer will
continue to be subject to restrictions on their transfer. After this exchange
offer, holders of original notes will not (with limited exceptions) have any
further rights under the exchange and registration rights agreement. Any market
for original notes that are not exchanged could be adversely affected by the
conclusion of this exchange offer.
16
Exchange offer procedures -- late deliveries of notes and other required
documents could prevent a holder from exchanging its notes
Holders are responsible for complying with all exchange offer procedures.
Issuance of exchange notes in exchange for original notes will only occur upon
completion of the procedures described in this prospectus under the heading "The
Exchange Offer -- Procedures for Tendering Original Notes". Therefore, holders
of original notes who wish to exchange them for exchange notes should allow
sufficient time for timely completion of the exchange procedure. We are not
obligated to notify you of any failure to follow the proper procedure.
Restrictions applicable to participating broker-dealers -- if you are a
broker-dealer, your ability to transfer the notes may be restricted
A broker-dealer that purchased original notes for its own account as part
of market-making or trading activities must deliver a prospectus when it sells
the exchange notes. Our obligation to make this prospectus available to
broker-dealers is limited. Consequently, we cannot guarantee that a proper
prospectus will be available to broker-dealers wishing to resell their exchange
notes.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by
reference herein, certain of the matters discussed or incorporated by reference
in this prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those anticipated. These statements are based
on management's beliefs as well as assumptions made by and information currently
available to management. When used herein, the words "will", "anticipate",
"intend", "estimate", "believe", "expect", "plan", "hypothetical", "potential"
and variations of such words and similar expressions are intended to identify
forward-looking statements.
In addition to any assumptions and other factors referred to specifically
in connection with forward-looking statements, factors that could cause actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, the following, some of which relate to Energy
Holdings indirectly as a result of their potential impact upon PSEG or its other
subsidiaries:
o deregulation and the unbundling of energy supplies and services and
the establishment of a competitive energy marketplace for products
and services;
o managing rapidly changing wholesale energy trading operations in
conjunction with electricity and gas production, transmission and
distribution systems;
o managing foreign investments and electric generation and
distribution operations in locations outside of the traditional
utility service territory;
o political and foreign currency risks;
o sales retention and growth potential in a mature service territory;
o ability to complete development or acquisition of current and future
investments;
o partner and counterparty risk;
o exposure to market price fluctuations and volatility of fuel and
power supply, power output and marketable securities, among other
commodities and assets;
o ability to obtain adequate and timely rate relief, cost recovery,
and other necessary regulatory approvals;
o federal, state and foreign regulatory actions;
o regulatory oversight with respect to utility and non-utility
affiliate relations and activities;
o operating restrictions, increased costs and construction delays
attributable to environmental regulations;
17
o nuclear decommissioning and the availability of reprocessing and
storage facilities for spent nuclear fuel;
o licensing and regulatory approvals necessary for nuclear and other
operating stations;
o the ability to economically and safely operate nuclear facilities in
which PSEG has an interest in accordance with regulatory
requirements;
o environmental concerns; and
o market risk and debt and equity market concerns associated with
these issues.
USE OF PROCEEDS
The exchange offer is intended to satisfy some of our obligations under
the exchange and registration rights agreement. We will not receive any cash
proceeds from the issuance of the exchange notes in the exchange offer. In
exchange for issuing the exchange notes as described in this prospectus, we will
receive an equal principal amount of original notes, which will be canceled.
The net proceeds from the sale of the original notes were used for the
repayment of short-term debt outstanding under revolving credit facilities.
Borrowings under the revolving credit facilities were used to finance
investments and acquisitions and for general corporate purposes. The applicable
per annum interest rate on the revolving credit facilities was LIBOR plus 1.375%
at the time of issuance.
CAPITALIZATION
The following table sets forth Energy Holdings' consolidated
capitalization as of June 30, 2001 which reflects the sale of the original
notes.
As of June 30, 2001
---------------------
(Thousands of Dollars)
Short-term debt (A) ............................. $ 613,921
Long-term debt .................................. 2,078,653
----------
Total debt ...................................... 2,692,574
----------
Total common equity (B) ......................... 1,548,120
Total preferred equity (B) ...................... 509,200
----------
Total stockholder's equity ...................... 2,057,320
----------
Total capitalization ............................ $4,749,894
==========
----------
(A) Short-term debt includes the portion of long-term debt due within one year
and intercompany loans due to PSEG.
(B) Owned by PSEG.
18
THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the original notes, we entered into an
exchange and registration rights agreement with the initial purchasers. Under
the exchange and registration rights agreement, we agreed to use our reasonable
best efforts to complete the exchange offer and to file and cause to become
effective with the SEC a registration statement for the exchange of the original
notes for exchange notes.
The terms of the exchange notes are the same as the terms of the original
notes except that the exchange notes have been registered under the Securities
Act and will not be subject to some restrictions on transfer that apply to the
original notes. In that regard, the original notes provide, among other things,
that if a registration statement relating to the exchange offer has not been
filed and declared effective within the period specified in the original notes,
the interest rate on the original notes will increase by 0.25% per annum each
90-day period that such additional interest rate continues to accrue under any
such circumstance, up to an aggregate maximum increase equal to 1% per annum,
until the registration statement is filed or declared effective, as the case may
be.
Upon completion of the exchange offer, holders of original notes will not
be entitled to any further registration rights under the exchange and
registration rights agreement, except under limited circumstances. See "Risk
Factors -- Consequences of failure to exchange original notes" and "Description
of Exchange Notes". The exchange offer is not being made to holders of original
notes in any jurisdiction in which the exchange offer or the acceptance of the
notes would not comply with securities or blue sky laws. Unless the context
requires otherwise, the term "holder" with respect to the exchange offer means
any person who has obtained a properly completed bond power from the registered
holder, or any person whose original notes are held of record by The Depository
Trust Company (DTC) who desires to deliver such original notes by book-entry
transfer at DTC. We will exchange as soon as practicable after the expiration
date of the exchange offer the original notes for a like aggregate principal
amount of the exchange notes.
Completion of the exchange offer is subject to the conditions that the
exchange offer not violate any applicable law or interpretation of the staff of
the Division of Corporate Finance of the SEC and that no injunction, order or
decree has been issued which would prohibit, prevent or materially impair our
ability to proceed with the exchange offer. The exchange offer is also subject
to various procedural requirements discussed below with which holders must
comply. We reserve the right, in our absolute discretion, to waive compliance
with these requirements subject to applicable law.
Terms of the Exchange Offer
We are offering, upon the terms and subject to the conditions described in
this prospectus and in the accompanying letter of transmittal, to exchange up to
$400,000,000 aggregate principal amount of exchange notes for a like aggregate
principal amount of original notes properly tendered on or before the expiration
date of the exchange offer and not properly withdrawn in accordance with the
procedures described below. We will issue, promptly after the expiration date of
the exchange offer, an aggregate principal amount of up to $400,000,000 of
exchange notes in exchange for a like principal amount of outstanding original
notes tendered and accepted in connection with the exchange offer. We will pay
all charges and expenses, other than certain applicable taxes described below,
in connection with the exchange offer. See "-- Fees and Expenses".
Holders may tender their original notes in whole or in part in any
integral multiple of $1,000 principal amount. The exchange offer is not
conditioned upon any minimum principal amount of original notes being tendered.
As of the date of this prospectus, $400,000,000 aggregate principal amount of
the original notes is outstanding. Holders of original notes do not have any
appraisal or dissenters' rights in connection with the exchange offer. Original
notes which are not tendered for or are tendered but not accepted in connection
with the exchange offer will remain outstanding and be entitled to the benefits
of the indenture, but will not be entitled to any further registration rights
under the exchange and registration rights agreement, except under limited
circumstances. See "Risk Factors -- Consequences
19
of failure to exchange original notes" and "Description of exchange notes". If
any tendered original notes are not accepted for exchange because of an invalid
tender, the occurrence of other events described in this prospectus or
otherwise, appropriate book-entry transfer will be made, without expense, to the
tendering holder of the notes promptly after the expiration date of the exchange
offer. Holders who tender original notes in connection with the exchange offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with respect to the
exchange of original notes in connection with the exchange offer.
Neither Energy Holdings nor the Board of Directors of Energy Holdings
makes any recommendation to holders of original notes as to whether to tender or
refrain from tendering all or any portion of their original notes in the
exchange offer. In addition, no one has been authorized to make any
recommendation as to whether holders should tender notes in the exchange offer.
Holders of original notes must make their own decisions whether to tender
original notes in the exchange offer and, if so, the aggregate amount of
original notes to tender based on the holders' own financial positions and
requirements.
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., Eastern Time, on November 8,
2001. However, if the exchange offer is extended by us, the term "expiration
date" will mean the latest date and time to which we extend the exchange offer.
We expressly reserve the right in our sole and absolute discretion,
subject to applicable law, at any time and from time to time:
o to delay the acceptance of the original notes for exchange,
o to extend the expiration date of the exchange offer and retain all
original notes tendered in the exchange offer, subject, however, to
the right of holders of original notes to withdraw their tendered
original notes as described under "-- Withdrawal Rights", and
o to waive any condition or otherwise amend the terms of the exchange
offer in any respect.
If the exchange offer is amended in a manner determined by us to
constitute a material change,
o we will promptly disclose the amendment in a prospectus supplement
that will be distributed to the registered holders of the original
notes,
o we will file a post-effective amendment to the registration
statement filed with the SEC with regard to the exchange notes and
the exchange offer, and
o we will extend the exchange offer to the extent required by Rule
14e-1 under the Exchange Act.
We will promptly notify the exchange agent by making an oral or written
public announcement of any delay in acceptance, extension, termination or
amendment. This announcement in the case of an extension will be made no later
than 9:00 a.m., Eastern Time, on the next business day after the previously
scheduled expiration date. Without limiting the manner in which we may choose to
make any public announcement and, subject to applicable law, we will have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of the exchange offer, we
will exchange and issue to the exchange agent, exchange notes for original notes
validly tendered and not withdrawn promptly after the expiration date. In all
cases, delivery of exchange notes in exchange for original notes tendered and
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of:
20
- original notes or a book-entry confirmation of a book-entry transfer
of original notes into the exchange agent's account at DTC,
including an agent's message (as defined below) if the tendering
holder has not delivered a letter of transmittal,
- the letter of transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees or (in the
case of a book-entry transfer) an agent's message instead of the
letter of transmittal, and
- any other documents required by the letter of transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of original notes into the exchange agent's account at DTC.
The term "agent's message" means a message, transmitted by DTC to and received
by the exchange agent and forming a part of a book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering DTC
participant. This acknowledgment states that the participant has received and
agrees to be bound by the letter of transmittal and that Energy Holdings may
enforce the letter of transmittal against the participant.
Subject to the terms and conditions of the exchange offer, we will be
deemed to have accepted for exchange, and therefore exchanged, original notes
validly tendered and not withdrawn as, if and when we give oral or written
notice to the exchange agent of our acceptance of such original notes for
exchange pursuant to the exchange offer. The exchange agent will act as agent
for us for the purpose of receiving tenders of original notes, letters of
transmittal and related documents, and as agent for tendering holders for the
purpose of receiving original notes, letters of transmittal and related
documents and transmitting exchange notes to validly tendering holders. This
exchange will be made promptly after the expiration date.
If, for any reason whatsoever, acceptance for exchange or the exchange of
any tendered original notes is delayed, whether before or after our acceptance
for exchange of original notes, or we extend the exchange offer or are unable to
accept for exchange or exchange tendered original notes, then, without prejudice
to the rights we have in the exchange offer, the exchange agent may,
nevertheless, on our behalf and subject to Rule 14e-1(c) under the Exchange Act,
retain tendered original notes. These original notes may not be withdrawn except
to the extent tendering holders are entitled to withdrawal rights as described
under "-- Withdrawal Rights".
Under the letter of transmittal or agent's message, a holder of original
notes will warrant and agree that it has full power and authority to tender,
exchange, sell, assign and transfer original notes, that we will acquire good,
marketable and unencumbered title to the tendered original notes, free and clear
of all liens, restrictions, charges and encumbrances, and the original notes
tendered for exchange are not subject to any adverse claims or proxies. The
holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by us or the exchange agent to be
necessary or desirable to complete the exchange, sale, assignment, and transfer
of the original notes tendered in the exchange offer.
Procedures for Tendering Original Notes
Valid Tender. Except as indicated below, in order for original notes to be
validly tendered in the exchange offer, an original copy or facsimile of a
properly completed and duly executed letter of transmittal, with any required
signature guarantees, or, in the case of a book-entry tender, an agent's message
instead of the letter of transmittal, and any other required documents, must be
received by the exchange agent at one of its addresses listed under "-- Exchange
Agent". In addition, either:
- tendered original notes must be received by the exchange agent,
- the tender of original notes must follow the procedures for
book-entry transfer described below and a book-entry confirmation,
including an agent's message if the tendering holder has not
delivered a letter of transmittal, must be received by the exchange
agent, in each case on or before the expiration date, or
- the guaranteed delivery procedures described below must be complied
with.
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If less than all of the original notes are tendered, a tendering holder
should fill in the amount of original notes being tendered in the appropriate
box on the letter of transmittal. The entire amount of original notes delivered
to the exchange agent will be deemed to have been tendered unless otherwise
indicated.
The method of delivery of certificates, the letter of transmittal and all
other required documents is at the option and sole risk of the tendering holder.
Delivery will be deemed made only when actually received by the exchange agent.
If delivery is by mail, we recommend properly insured registered mail, return
receipt requested, or an overnight delivery service. In all cases, you should
allow sufficient time to ensure timely delivery.
Book-Entry Transfer. The exchange agent will establish an account with
respect to the original notes at DTC for purposes of the exchange offer within
two business days after the date of this prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the original notes by causing DTC to transfer such
Original Notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfers. However, although delivery of original notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or an agent's message instead
of the letter of transmittal, and any other required documents, must in any case
be delivered to and received by the exchange agent at its address listed under
"-- Exchange Agent" on or before the expiration date. Alternatively, the
guaranteed delivery procedure described below must be complied with.
Delivery of documents to DTC in accordance with DTC's procedures does not
constitute delivery to the exchange agent.
Signature Guarantees. Certificates for the original notes need not be
endorsed and signature guarantees on the letter of transmittal are unnecessary
unless
(1) a certificate for the original notes is registered in a name other
than that of the person surrendering the certificate or (2) such holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the letter of transmittal. In the case of (1) or (2) above, the
certificates for original notes must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on the bond
power and on the letter of transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein):
- a bank;
- a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer;
- a credit union;
- a national securities exchange, registered securities association or
clearing agency; or
- a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on
behalf of that Eligible Institution. See Instruction 1 to the letter
of transmittal.
Guaranteed Delivery. If a holder desires to tender original notes in the
exchange offer and the certificates for the original notes are not immediately
available or time will not permit all required documents to reach the exchange
agent on or before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis, the original notes may
nevertheless be tendered, provided that all of the following guaranteed delivery
procedures are complied with:
(1) the tenders are made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the letter of transmittal, is received by
the exchange agent, as provided below, on or before the expiration date; and (3)
the certificates (or a book-entry confirmation) representing all tendered
original notes, in proper form for transfer, together with a properly completed
and duly
22
executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, or an agent's message instead of the letter of
transmittal, and any other documents required by the letter of transmittal, are
received by the exchange agent within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the exchange agent and must include a guarantee by an
Eligible Institution in the form shown in the notice. Regardless of any other
provision in this prospectus, the delivery of exchange notes in exchange for
original notes tendered and accepted for exchange in the exchange offer will in
all cases be made only after timely receipt by the exchange agent of original
notes, or of a book-entry confirmation with respect to those original notes, and
an original copy or facsimile of a properly completed and duly executed letter
of transmittal, together with any required signature guarantees, or an agent's
message instead of the letter of transmittal, and any other documents required
by the letter of transmittal. Accordingly, the delivery of exchange notes might
not be made to all tendering holders at the same time, and will depend upon when
original notes, book-entry confirmations with respect to original notes and
other required documents are received by the exchange agent. Our acceptance for
exchange of original notes tendered under any of the procedures described above
will constitute a binding agreement between the tendering holder and us upon the
terms and subject to the conditions of the exchange offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility, including time of receipt, and acceptance for exchange of
any tendered original notes will be determined by us, in our sole discretion.
The interpretation by us of the terms and conditions of the exchange offer,
including the letter of transmittal and the accompanying instructions, will be
final and binding.
We reserve the absolute right, in our sole and absolute discretion, to
reject any and all tenders determined by us not to be in proper form or the
acceptance of which, or exchange for, may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right, subject to applicable law, to
waive any condition or irregularity in any tender of original notes of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders. No tender of original notes will be deemed to have
been validly made until all irregularities with respect to such tender have been
cured or waived. Neither we, any of our affiliates or assigns, the exchange
agent nor any other person will be under any duty to give any notification of
any irregularities in tenders or incur any liability for failure to give any
notification.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person should so indicate when signing, and unless waived by us, proper
evidence satisfactory to us, in our sole discretion, of that person's authority
must be submitted. A beneficial owner of original notes that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact that entity promptly if that
beneficial holder wishes to participate in the exchange offer.
Resales of Exchange Notes
We are making the exchange offer for the exchange notes in reliance on the
position of the staff of the Division of Corporation Finance of the SEC as
defined in certain interpretive letters addressed to third parties in other
transactions. However, we did not seek our own interpretive letter and we cannot
assure that the staff of the Division of Corporation Finance of the SEC would
make a similar determination with respect to the exchange offer as it has in
other interpretive letters to third parties. Based on these interpretations by
the staff of the Division of Corporation Finance of the SEC, and subject to the
two immediately following sentences, we believe that exchange notes issued
pursuant to this exchange offer in exchange for original notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
exchange notes are acquired in the ordinary course of the holder's business and
that the holder is not
23
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of the
exchange notes.
However, any holder of original notes who is an "affiliate" of ours or who
intends to participate in the exchange offer for the purpose of distributing
exchange notes, or any broker-dealer who purchased original notes from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act,
(a) will not be able to rely on the interpretations of the staff of the
Division of Corporation Finance of the SEC defined in the above-mentioned
interpretive letters,
(b) will not be permitted or entitled to tender such original notes in the
exchange offer and
(c) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or other transfer of such
original notes unless such sale is made pursuant to an exemption from such
requirements.
In addition, as described below, if any broker-dealer holds original notes
acquired for its own account as a result of market-making or other trading
activities and exchanges those original notes for exchange notes, then that
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of those exchange notes. Each
holder of original notes who wishes to exchange original notes for exchange
notes in the exchange offer will be required to represent that:
- it is not an "affiliate" of Energy Holdings,
- any exchange notes to be received by it are being acquired in the
ordinary course of its business,
- it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities
Act) of such exchange notes, and
- if the tendering holder is not a broker-dealer, that holder is not
engaged in, and does not intend to engage in, a distribution (within
the meaning of the Securities Act) of its exchange notes.
In addition, we may require the holder, as a condition to that holder's
eligibility to participate in the exchange offer, to furnish to us (or an agent
of ours) in writing, information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom that holder
holds the original notes to be exchanged in the exchange offer.
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it acquired the original notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of those exchange notes. The letter
of transmittal states that by making that acknowledgement and delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the SEC in the
interpretive letters referred to above, we believe that participating
broker-dealers who acquired original notes for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the exchange notes received
upon exchange of original notes (other than original notes which represent an
unsold allotment from the initial sale of the original notes) with a prospectus
meeting the requirements of the Securities Act, which may be the prospectus
prepared for this exchange offer so long as it contains a description of the
plan of distribution regarding the resale of the exchange notes.
Accordingly, this prospectus, as it may be amended or supplemented from
time to time, may be used by a participating broker-dealer in connection with
resales of exchange notes received in exchange for original notes where the
original notes were acquired by the participating broker-dealer for its own
account as a result of market-making or other trading activities. See "Plan of
Distribution". Subject to certain provisions contained in the exchange and
registration rights agreement, we have agreed that this prospectus, as it may be
amended or supplemented from time to time, may be used by a participating
broker-dealer in connection with resales of exchange notes for a period not
exceeding
24
180 days after the expiration date. However, a participating broker-dealer who
intends to use this prospectus in connection with the resale of exchange notes
received in exchange for original notes pursuant to the exchange offer must
notify us on or before the expiration date, that it is a participating
broker-dealer. This notice may be given in the space provided for that purpose
in the letter of transmittal or may be delivered to the exchange agent at one of
the addresses set forth herein under "-- Exchange Agent".
Any participating broker-dealer who is an "affiliate" of Energy Holdings
may not rely on these interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. In that regard, each participating broker-dealer who
surrenders original notes in the exchange offer will be deemed to have agreed,
by execution of the letter of transmittal or an agent's message, that upon
receipt of notice from Energy Holdings of the occurrence of any event or the
discovery of:
(1) any fact which makes any statement contained or incorporated by
reference in this prospectus untrue in any material respect or
(2) any fact which causes this prospectus to omit to state a material
fact necessary in order to make the statements contained or
incorporated by reference in this prospectus, in light of the
circumstances under which they were made, not misleading, or
(3) the occurrence of other events specified in the exchange and
registration rights agreement,
that participating broker-dealer will suspend the sale of exchange notes under
this prospectus until we have amended or supplemented this prospectus to correct
the misstatement or omission and have furnished copies of the amended or
supplemented prospectus to the participating broker-dealer, or we have given
notice that the sale of the exchange notes may be resumed, as the case may be.
Withdrawal Rights
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time on or before the expiration date. In order for a
withdrawal to be effective a written, telegraphic, telex or facsimile
transmission of the notice of withdrawal must be timely received by the exchange
agent at its address listed under "-- Exchange Agent" on or before the
expiration date. Any notice of withdrawal must specify the name of the person
who tendered the original notes to be withdrawn, the aggregate principal amount
of original notes to be withdrawn, and, if certificates for the original notes
have been tendered, the name of the registered holder of the original notes, if
different from that of the person who tendered the original notes.
If original notes have been delivered or otherwise identified to the
exchange agent, then before the physical release of the original notes, the
tendering holder must submit the serial numbers shown on the particular original
notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of original notes
tendered for the account of an Eligible Institution. For original notes tendered
under the procedures for book-entry transfer described in "-- Procedures for
Tendering Original Notes", the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of original
notes, in which case a notice of withdrawal will be effective if delivered to
the exchange agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of original notes may not be rescinded. Original notes
properly withdrawn will not be deemed validly tendered for purposes of the
exchange offer, but may be retendered at any subsequent time on or before the
expiration date by following any of the procedures described above under "--
Procedures for Tendering Original Notes". All questions as to the validity, form
and eligibility, including time of receipt, of withdrawal notices will be
determined by us, in our sole discretion, whose determination shall be final and
binding on all parties. Neither Energy Holdings, the exchange agent nor any
other person is under any duty to give any notification of any irregularities in
any notice of withdrawal nor will those parties incur any liability for failure
to give that notice. Any original notes which have been tendered but which are
withdrawn will be returned to the holder promptly after withdrawal.
25
Interest on Exchange Notes
Interest on the notes is payable semi-annually on February 15 and August
15 of each year, beginning August 15, 2001, at the rate of 8.625% per annum. The
exchange notes will bear interest from and including the last interest payment
date on the original notes, or if one has not yet occurred, the date of issuance
of the original notes. Accordingly, holders of original notes that are accepted
for exchange will not receive accrued but unpaid interest on original notes at
the time of tender. Rather, that interest will be payable on the exchange notes
delivered in exchange for the original notes on the first interest payment date
after the expiration date.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
original notes for which they are exchanged, which is the aggregate principal
amount of the original notes, as reflected in our accounting records on the date
of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized in connection with the exchange offer.
The cost of the exchange offer will be amortized over the term of the exchange
notes.
Exchange Agent
First Union National Bank has been appointed as exchange agent for the
exchange offer. Delivery of the letters of transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent as follows:
By Registered or Certified Mail:
First Union National Bank
First Union Customer Information Center
1525 West W.T. Harris Blvd. - 3C3
Corporate Trust Department
Charlotte, North Carolina 28262
Attention: Marsha Rice
By Hand or Overnight Delivery Service:
First Union National Bank
First Union Customer Information Center
1525 West W.T. Harris Blvd. - 3C3
Corporate Trust Department
Charlotte, North Carolina 28262
Attention: Marsha Rice
By Facsimile Transmission (for Eligible Institutions only):
(704) 590-7628
Confirm by Telephone: Marsha Rice
or (704) 590-7413
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
Fees and Expenses
We have agreed to pay the exchange agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses. We
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus and related documents to the beneficial owners of original
notes, and in handling or tendering for their customers. Holders who tender
their original notes for exchange will not be obligated to pay any transfer
taxes in connection with the transfer. If, however, exchange notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the original notes tendered, or if a transfer tax is
imposed for any reason other than the exchange of original notes in connection
with the exchange offer, then the amount of any such transfer
26
taxes, whether imposed on the registered holder or any other persons, will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the letter of transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder. We will not make any payment to brokers, dealers or other nominees
soliciting acceptances of the exchange offer.
DESCRIPTION OF EXCHANGE NOTES
Holders can find the definitions of some terms used in this description
under the subheading "Certain Definitions".
The terms of the exchange notes to be issued in the exchange offer are
identical in all material respects to the terms of the original notes, except
for the transfer restrictions relating to the original notes. The exchange notes
will be issued, and the original notes were issued, under an indenture dated
October 8, 1999, between Energy Holdings and First Union National Bank, as
trustee. The exchange notes will evidence the same debt as the original notes,
and both series of notes will be entitled to the benefits of the indenture and
will be treated as a single class of debt securities. Upon effectiveness of the
registration statement of which this prospectus is a part, the indenture will be
subject to and governed by the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
notes, the indenture and the exchange and registration rights agreement relating
to the notes. It does not restate those documents in their entirety. We urge
holders to read the notes, the indenture and the registration rights agreement
because they, and not this description, define your rights as holders of the
notes. Copies of the indenture, including a form of the notes, and the
registration rights agreement are available as described below under "--
Additional Information".
Brief Description of the Notes
The notes are general senior unsecured obligations of Energy Holdings and
rank equally in right of payment with all of the other unsecured and
unsubordinated indebtedness of Energy Holdings. Although the notes are senior
unsecured obligations, Energy Holdings has not issued, and does not have any
current firm arrangements to issue, any significant additional indebtedness to
which the notes would be senior. In addition, the notes will be effectively
subordinate to any secured indebtedness issued by Energy Holdings. Energy
Holdings has not issued, and does not have any current firm arrangements to
issue, any secured obligations to which the notes would be effectively
subordinate.
Because Energy Holdings is a holding company that conducts all of its
operations through its subsidiaries, holders of the notes will generally have a
junior position to claims of creditors of those subsidiaries, including trade
creditors, debtholders, secured creditors and taxing authorities.
Principal, Maturity and Interest
The indenture does not limit the aggregate principal amount of debt
securities which may be issued under it. The exchange notes will initially be
limited to $400,000,000 and will be issued in registered form only, without
coupons, in minimum denominations of $1,000. Energy Holdings may "reopen" any
series of debt securities and issue additional debt securities of that series.
The notes will mature on February 15, 2008, the stated maturity date, unless
redeemed or repurchased prior to that date.
Interest on the notes accrues at the rate of 8.625% per annum and is
payable semi-annually in arrears on February 15 and August 15 of each year.
Energy Holdings will make each interest payment to the persons in whose names
the notes are registered at the close of business on the January 31 and July 31
immediately preceding any interest payment date.
Interest on the exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the most recent interest
payment date to which interest was paid or duly provided for. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. If
any interest payment date or the stated maturity date or date of earlier
redemption or repurchase is not a business day, the required payment shall be
made on the next succeeding day
27
which is a business day, without any interest or other payment in respect of the
payment subject to delay, with the same force and effect as if made on the
interest payment date or stated maturity date or date of earlier redemption or
repurchase.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in Newark, New Jersey and The
City of New York are authorized or obligated by law or executive order to close.
Payment and Paying Agents
Interest on the notes is payable at any office or agency to be maintained
by Energy Holdings in Newark, New Jersey and The City of New York. At the option
of Energy Holdings, however, interest may be paid
o by check mailed to the address of the person entitled to the
interest payment at the address that appears in the "security
register" maintained by Energy Holdings or
o by wire transfer to an account maintained by the person entitled to
the interest payment as specified in the security register.
(Sections 301, 1001 and 1002 of the Indenture).
Transfer and Exchange
Under the indenture, debt securities of any series, including the notes,
may be presented for registration of transfer and may be presented for exchange
o at each office or agency required to be maintained by Energy
Holdings for payment of such series as described in "-- Payment and
Paying Agents", and
o at each other office or agency that Energy Holdings may designate
from time to time for such purposes.
No service charge will be made for any transfer or exchange of debt
securities, including the notes, but Energy Holdings may require payment of any
tax or other governmental charge payable in connection with the transfer or
exchange. (Section 305 of the indenture).
The indenture does not require Energy Holdings to
o issue, register the transfer of or exchange debt securities during a
period beginning at the opening of business 15 days before any
selection of debt securities of that series to be redeemed and
ending at the close of business on (A) if debt securities of the
series are issuable only in registered form, the day of mailing of
the relevant notice of redemption and (B) if debt securities of the
series are issuable in bearer form, the day of the first publication
of the relevant notice of redemption, or, if debt securities of the
series are also issuable in registered form and there is no
publication, the day of mailing of the relevant notice of
redemption;
o register the transfer of or exchange any debt security in registered
form, or portion thereof, called for redemption, except the
unredeemed portion of any debt security in registered form being
redeemed in part;
o exchange any debt security in bearer form called for redemption,
except to exchange such debt security in bearer form for a debt
security in registered form of that series and like tenor that is
simultaneously surrendered for redemption; or
o issue, register the transfer of or exchange any debt security which
has been surrendered for repayment at the option of the holder,
except the portion, if any, of that debt security not to be repaid.
(Section 305 of the Indenture).
The registered holder of a note will be treated as the owner of it for all
purposes.
28
Optional Redemption
The notes will be redeemable at the option of Energy Holdings, in whole or
in part at any time, on at least 30 days but not more than 60 days prior written
notice mailed to the registered holders thereof, at a redemption price equal to
the greater of
o 100% of the principal amount of the notes to be redeemed, and
o the sum, as determined by the Quotation Agent (as defined below), of
the present values of the principal amount of the notes to be
redeemed and the remaining scheduled payments of interest thereon
from the redemption date to February 15, 2008, which we refer to as
the remaining life, discounted from their respective payment dates
to the date of redemption on a semiannual basis, assuming a 360-day
year consisting of twelve 30-day months, at the Treasury Rate (as
defined below) plus 40 basis points
plus, in either case, accrued interest thereon to the date of redemption.
If money sufficient to pay the redemption price of and accrued interest on
all of the notes to be redeemed on the redemption date is deposited with the
trustee or paying agent on or before the redemption date and other conditions
under the indenture are satisfied, then on and after that redemption date,
interest will cease to accrue on those notes called for redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
life that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity with the remaining life of the notes to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date,
the average of four Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or, if the trustee obtains fewer than four Reference Treasury Dealer
Quotations, the average of all of the quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by Energy
Holdings. "Reference Treasury Dealer" means (i) Lehman Brothers Inc., its
successors; provided, however, that if the foregoing shall cease to be a primary
United States Government securities dealer in New York City, which we refer to
as a Primary Treasury Dealer, Energy Holdings shall substitute therefor another
Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by
Energy Holdings.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue,
expressed in each case as a percentage of its principal amount, quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual yield to maturity of the Comparable Treasury
Issue, calculated on the third business day preceding the redemption date using
a price for the Comparable Treasury Issue, expressed as a percentage of its
principal amount, equal to the Comparable Treasury Price for such redemption
date.
Energy Holdings may at any time, and from time to time, purchase the notes
at any price or prices in the open market or otherwise.
Mandatory Redemption
Energy Holdings is not required to make mandatory redemption or sinking
fund payments with respect to the notes.
Certain Definitions
The following is a summary of certain defined terms used in the indenture.
Article One of the indenture contains the full definition of all such terms.
29
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
as at the time of determination, the present value (discounted at a rate per
annum equal to the weighted average interest rate of all outstanding debt
securities, compounded semi-annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended).
"Capitalized Lease Obligations" means all rental obligations as lessee
which, under GAAP, are or will be required to be capitalized on the books of
Energy Holdings or any of its subsidiaries, in each case taken at the amount
thereof accounted for as indebtedness in accordance with such principles.
"Change of Control" means the occurrence of one or more of the following
events:
(1) PSEG (or its successors) shall cease to own a majority of the
outstanding voting stock of Energy Holdings,
(2) at any time following the occurrence of the event described in
clause (1), a person or group (as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) of persons (other
than PSEG) shall have become, directly or indirectly, the beneficial
owner or shall have acquired the absolute power to direct the vote,
of more than 35% of the outstanding voting stock of Energy Holdings,
(3) during any twelve-month period, individuals who at the beginning of
such period constitute the Board of Directors of Energy Holdings
(together with any new directors whose election or nomination was
approved by a majority of the directors then in office who were
either directors at the beginning of such period or who were
previously so approved) shall cease for any reason to constitute a
majority of the Board of Directors of Energy Holdings, unless
approved by a majority of the Board of Directors in office at the
beginning of such period (including such new directors), or
(4) Energy Holdings shall have merged or consolidated with any other
corporation or the properties and assets of Energy Holdings shall
have been conveyed or transferred substantially as an entirety to
any person in accordance with Section 801 of the indenture as
described under "-- Merger or Consolidation".
However, regardless of whether one or more of the above events occurs or
circumstances exist, a Change of Control shall be deemed not to have occurred if
after giving effect to the event or circumstance, the debt securities, including
the notes, are rated no less than "BBB-" by Standard & Poor's Ratings Group and
"Ba1" by Moody's Investors Service.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the total amount of assets, less accumulated depreciation or amortization,
valuation allowances, other applicable reserves and other properly deductible
items in accordance with GAAP, which would appear on a consolidated balance
sheet of Energy Holdings and its consolidated subsidiaries, determined on a
consolidated basis in accordance with GAAP, after giving effect to purchase
accounting and after deduction therefrom, to the extent otherwise included, the
amounts of
o consolidated current liabilities;
o deferred income taxes;
o minority interests in consolidated Subsidiaries held by persons
other than Energy Holdings or a subsidiary;
o excess of cost over fair value of assets of businesses acquired, as
determined by the Board of Directors; and
o unamortized debt discount and expense and other unamortized deferred
changes, goodwill (including the amounts of investments in
affiliates that consist of goodwill), patents, trademarks, service
names, trade names, copyrights, licenses, deferred project costs,
organizational or other development expenses and other intangible
items.
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"Indebtedness" of any person means
o all indebtedness of such person for borrowed money, whether or not
represented by bonds, debentures, notes or other securities,
o the deferred purchase price of assets or services which in
accordance with GAAP would be shown on the liability side of the
balance sheet of such person,
o all Indebtedness of another person secured by any Lien on any
property owned by such person, whether or not such Indebtedness has
been assumed,
o all obligations of such person to pay a specified purchase price for
goods or services whether or not delivered, i.e., take-or-pay and
similar obligations,
o all Capitalized Lease Obligations of such person and
o all obligations of such person guaranteeing any Indebtedness, lease,
dividend or other obligation of any other person, directly or
indirectly, whether contingent or otherwise.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Material Subsidiary" means any subsidiary of Energy Holdings the
consolidated assets of which, as of the date of any determination of those
assets, constitute at least 10% of the consolidated assets of Energy Holdings
and its subsidiaries, or the consolidated earnings before taxes of which
constituted at least 10% of the consolidated earnings before taxes of Energy
Holdings and its subsidiaries for the most recently completed fiscal year,
provided, however, that
o no subsidiary of a Material Subsidiary shall be a Material
Subsidiary, and
o in all instances each of Global, Resources and PSEG Capital shall be
a Material Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
or assets now owned or acquired after the date of the indenture whereby Energy
Holdings or a subsidiary transfers such property or assets to a person and
leases it back from such person, other than leases for a term of not more than
36 months or between Energy Holdings and a wholly-owned subsidiary or between
wholly-owned subsidiaries.
Certain Covenants
The notes and other series of debt securities issuable under the indenture
will have the benefit of the following covenants which may be waived by the
holders of at least a majority in principal amount of the notes outstanding.
These covenants may not be waived by us or the Trustee.
Limitation on Liens
Energy Holdings covenants in the indenture that it will not, and will not
permit any of its subsidiaries to create, incur, assume or suffer to exist any
Lien upon or with respect to any property or assets (real or personal, tangible
or intangible) of Energy Holdings or any of its subsidiaries, whether now owned
or acquired after the date of the indenture, to secure any Indebtedness that is
incurred, issued, assumed or guaranteed by Energy Holdings or any of its
subsidiaries without in any such case effectively providing, concurrently with
the incurrence, issuance, assumption or guaranty of any such Indebtedness, that
the debt securities shall be equally and ratably secured with any and all such
Indebtedness; provided, however, that these restrictions shall not apply to or
prevent the creation, incurrence, assumption or existence of:
o Liens existing on the date of the indenture;
31
o Liens to secure or provide for the payment of all or any part of the
purchase price of any such property or assets or the cost of
construction or improvement thereof; provided that no such Lien
shall extend to or cover any other property or assets of Energy
Holdings or such Subsidiary of Energy Holdings;
o Liens granted or assumed by subsidiaries (other than Material
Subsidiaries) in connection with project financings or other
Indebtedness that is not guaranteed by or otherwise an obligation of
a Material Subsidiary;
o Liens on the equity interest of any subsidiary that is not a
Material Subsidiary in connection with project financings;
o Liens for taxes not yet due, or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate
reserves have been established;
o Liens incidental to the conduct of the business of or the ownership
of property by Energy Holdings or any of its subsidiaries which were
not incurred in connection with the borrowing of money or the
obtaining of advances of credit and which do not in the aggregate
materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business;
o Liens created in connection with worker's compensation, unemployment
insurance and other social security legislation;
o the replacement, extension or renewal (or successive replacements,
extensions or renewals), as a whole or in part, of any Lien, or of
any agreement, referred to above, or the replacement, extension or
renewal (not exceeding the principal amount of Indebtedness secured
thereby together with any premium, interest, fee or expense payable
in connection with any such replacement, extension or renewal) of
the Indebtedness secured thereby; provided that such replacement,
extension or renewal is limited to all or a part of the same
property that secured the Lien replaced, extended or renewed (plus
improvements thereon or additions or accessions thereto); or
o any other Lien not excepted by the foregoing clauses; provided that,
immediately after the creation or assumption of such Lien, the sum
of (x) the amount of outstanding Indebtedness of Energy Holdings
secured by all Liens created or assumed under the provisions of this
clause plus (y) the Attributable Debt with respect to all
outstanding leases in connection with Sale and Leaseback
transactions entered into pursuant to the proviso under "--
Limitation on Sale and Leaseback Transactions" does not exceed an
amount equal to 10% of Consolidated Net Tangible Assets, as shown on
the consolidated balance sheet of Energy Holdings and its
subsidiaries as of the end of the most recent fiscal quarter for
which financial statements are available. (Section 1005 of the
indenture).
Limitation on Sale and Leaseback Transactions
Energy Holdings covenants in the indenture that it will not, and will not
permit any Subsidiary to, enter into any Sale and Leaseback Transaction unless
(1) Energy Holdings or such Subsidiary would be entitled to create a
Lien on such property or assets securing Indebtedness in an amount
equal to the Attributable Debt with respect to such transaction
without equally and ratably securing the debt securities as
described under the preceding subsection "-- Limitation on Liens" or
(2) the net proceeds of such sale are
o at least equal to the fair value (as determined by our board
of directors) of such property and
o Energy Holdings or such Subsidiary shall apply or cause to be
applied an amount in cash equal to the net proceeds of such
sale to the retirement, within 90 days of the effective date
of any such arrangement, of debt securities or Indebtedness of
Energy Holdings which ranks senior or equal with the debt
securities or with Indebtedness of a Subsidiary (other than
Indebtedness owed to Energy Holdings or a Subsidiary or to
PSEG).
32
However, in addition to the transactions permitted as described in the
clauses (1) and (2), Energy Holdings or any subsidiary may enter into a Sale and
Leaseback Transaction as long as the sum of
(x) the Attributable Debt with respect to such Sale and Leaseback
Transaction and all other Sale and Leaseback Transactions entered
into as described in this proviso, plus
(y) the amount of outstanding Indebtedness secured by Liens incurred as
described in the last bullet paragraph of the preceding subsection
"Limitation on Liens",
does not exceed an amount equal to 10% of Consolidated Net Tangible Assets, as
shown on the consolidated balance sheet of Energy Holdings and its subsidiaries
as of the end of the most recent fiscal quarter for which financial statements
are available. (Section 1006 of the indenture).
Repayment of Notes Upon a Change of Control
Upon a Change of Control, holders of the notes will have the right to
require Energy Holdings to repurchase their notes, in whole or in part, at a
repayment price of 101% of their principal amount plus accrued interest to the
repayment date. The holder of debt securities of each other series to be issued
under the indenture will have the right to require Energy Holdings to repurchase
its debt securities at a repayment price in cash equal to a specified percentage
of the principal amount of the notes to be repurchased established for that
series plus accrued interest, if any, to the date of repayment, in accordance
with the terms described below and in Article 13 of the indenture.
Within 30 days following any Change of Control, Energy Holdings will mail
a notice to each holder of debt securities of each series (with a copy to the
trustee) stating:
o that a Change of Control has occurred and that the holder has the
right to require Energy Holdings to repay that holder's debt
securities, in whole or in part, in not less than the minimum
denomination required for debt securities of that series, at a
repayment price in cash equal to the percentage of the principal
amount of the debt securities established for that series plus
accrued interest, if any, to the date of repayment;
o the circumstances and relevant facts regarding such Change of
Control, including information with respect to pro forma historical
income, cash flow and capitalization of Energy Holdings after giving
effect to the Change of Control;
o the repayment date, which will be a Business Day and be not earlier
than 45 days or later than 60 days from the date such notice is
mailed;
o that any debt security of the series not tendered for purchase will
continue to accrue interest;
o that interest on any debt security of the series accepted for
repayment pursuant to the change of control offer shall cease to
accrue after the repayment of the debt security on the repayment
date;
o that holders electing to have any debt security repaid pursuant to a
change of control offer will be required to surrender the debt
security, with the form entitled "Option to Elect Repayment" on the
reverse of the debt security completed, to the trustee at the
address specified in the notice not earlier than 45 days and not
later than 30 days prior to the repayment date;
o that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
third business day preceding the repayment date, or such shorter
period as may be required by applicable law, a telegram, telex,
facsimile transmission or letter providing the name of the holder,
the principal amount of debt securities the holder delivered for
repayment, and a statement that the holder is withdrawing its
election to have those debt securities repaid; and
o that holders of the series that elect to have their debt securities
purchased only in part will be issued new debt securities of the
series in a principal amount equal to then unpurchased portion of
the debt securities surrendered.
Energy Holdings has covenanted to comply with the tender offer provisions
of Rule 14e-1 under the Securities Exchange Act of 1934 and any other applicable
laws and regulations in the event that a
33
Change of Control occurs and Energy Holdings is required to make a change of
control offer. (Section 1007 of the indenture).
Events of Default and Remedies
The following will constitute events of default under the indenture:
o default in the payment of any interest upon any debt security, any
coupon appertaining thereto or any "additional amounts" (which, if
the terms of the particular series of debt securities so specify,
will be payable upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on the
debt securities) payable in respect of any debt security of that
series when such interest, coupon or additional amounts become due
and payable, and the continuance of such default for a period of 30
days;
o default in the payment of the principal of (or premium, if any, on)
any debt security of that series, when the same becomes due and
payable at maturity, upon redemption;
o default in the deposit of any sinking fund payment when due by the
terms of any debt security of that series;
o default in the performance, or breach, of any covenant or agreement
of Energy Holdings in the indenture with respect to any debt
security of that series, and the continuance of such default for 60
days after written notice of such default to Energy Holdings;
o acceleration of any bond, debenture, note or other evidence of
Indebtedness or under any mortgage, indenture, including the
indenture, or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness by Energy
Holdings or any subsidiary in excess of $25,000,000 in the aggregate
other than
(1) any Indebtedness arising from the obligation to make an equity
investment in a subsidiary or
(2) Indebtedness which is payable solely out of the property or
assets of a partnership, joint venture or similar entity of
which Energy Holdings or any such subsidiary is a participant,
or which is secured by a Lien on the property or assets owned
or held by such entity, without further recourse to or
liability of Energy Holdings or any such subsidiary,
o whether such Indebtedness now exists or shall be created later;
o certain events in bankruptcy, insolvency or reorganization affecting
Energy Holdings; and
o any other event of default provided with respect to debt securities
of that series. (Section 501 of the indenture).
Energy Holdings is required to file with the trustee, annually, an
officer's certificate as to Energy Holdings' compliance with all conditions and
covenants under the indenture. (Section 1008 of the indenture). The indenture
provides that the trustee may withhold notice to the holders of debt securities
of a series, including the notes, of any default (except payment defaults on the
debt securities of that series) if it considers it in the interest of the
holders of debt securities of the series to do so. (Section 601 of the
indenture).
If an event of default with respect to debt securities of a series,
including the notes, has occurred and is continuing, the trustee or the holders
of not less than 25% in principal amount of outstanding debt securities of that
series may declare the principal of all of the debt securities of that series to
be due and payable immediately, by a notice in writing to Energy Holdings.
However, if the debt securities of that series are issued with original issue
discount or are "indexed debt securities," the trustee or the holders of not
less than 25% of the debt securities may declare that portion of the principal
as may be specified in the terms of those debt securities due and payable
immediately. (Section 502 of the indenture). Indexed debt securities are debt
securities, the interest and principal payments on which are determined by
reference to a particular index, such as a foreign currency or commodity.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default with respect to debt securities of any
series, including the notes, has occurred and is continuing,
34
the trustee is under no obligation to exercise any of its rights or powers under
the indenture at the request, order or direction of the holders of debt
securities of that series, unless those holders have offered the trustee
reasonable indemnity against the expenses and liabilities which might be
incurred by it in compliance with such request. (Section 507 of the indenture).
Subject to the provisions for the indemnification of the trustee, the
holders of a majority in principal amount of the outstanding debt securities of
any series of debt securities, including the notes, will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series. (Section 512 of the
indenture).
The holders of a majority in principal amount of the outstanding debt
securities of a series, including the notes, may, on behalf of the holders of
all debt securities of such series and any related coupons, waive any past
default under the indenture with respect to that series and its consequences,
except a default
o in the payment of the principal of (or premium, if any) or interest,
if any, on or additional amounts payable in respect of any debt
security of such series or any related coupons or
o in respect of a covenant or provision that cannot be modified or
amended without the consent of the holder of each outstanding debt
security of that series. (Section 513 of the indenture).
Repayment of Notes Upon Certain Events Involving Resources
If
(1) Energy Holdings shall no longer own 100% of the equity ownership
interest in Resources, or
(2) (a) a transaction or series of related transactions (a "Resources
Transaction") causes the assets of Resources immediately after
such Resources Transaction to be at least 20% less than the
assets of Resources immediately prior to such Resources
Transaction (as measured from the end of the month immediately
preceding the Resources Transaction (or in the case of a
Resources Transaction involving a series of transactions, the
month immediately preceding the first of such transactions))
and
(b) as a direct result of such Resources Transaction, either of
Standard & Poor's Ratings Group or Moody's Investors Service,
Inc. shall downgrade its respective rating of Energy Holdings
below BBB- or Ba1 (or if either of such ratings immediately
preceding the Resources Transaction is lower than BBB- or Ba1,
such rating shall as a direct result of such Resources
Transaction be downgraded),
then the holders of the notes shall have the right to require Energy Holdings to
repurchase their notes, in whole or in part, at a repayment price equal to the
greater of
o 100% of the principal amount of the notes to be repurchased, and
o the sum, as determined by the Quotation Agent (as defined in
"Description of Exchange Notes - Optional Redemption"), of the
present values of the principal amount of the notes to be
repurchased and the remaining scheduled payments of interest thereon
from the repayment date to February 15, 2008 discounted from their
respective payment dates to the date of repayment on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate (as defined in "Description of Exchange Notes
-- Optional Redemption"), plus 40 basis points
plus, in either case, accrued interest on the notes to the date of repayment.
Merger or Consolidation
The indenture provides that Energy Holdings may not consolidate with or
merge with or into any other corporation or convey or transfer its properties
and assets substantially as an entirety to any person, unless either Energy
Holdings is the continuing corporation or such corporation or person assumes by
supplemental indenture all the obligations of Energy Holdings under the
indenture and the
35
debt securities issued under it and immediately after the transaction no default
shall exist. (Section 801 of the indenture).
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, incorporator or
stockholder of Energy Holdings, as such, shall have any liability for any
obligations of Energy Holdings under the notes and the indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws. (Section 113 of the indenture).
Satisfaction and Discharge, Defeasance and Covenant Defeasance
According to the terms of the indenture, Energy Holdings may discharge
certain obligations to holders of any series of debt securities, including the
notes, that have not already been delivered to the trustee for cancellation and
that either have become due and payable or are by their terms due and payable
within one year, or scheduled for redemption within one year, by irrevocably
depositing with the trustee, in trust, funds in an amount sufficient to pay the
entire indebtedness on such debt securities for principal, and premium, if any,
and interest, if any, and any additional amounts with respect to the debt
securities, to the date of such deposit, if the debt securities have become due
and payable, or to the maturity date or redemption date, as the case may be.
(Section 401 of the indenture).
The indenture provides that, if the provisions of Article Fourteen of the
indenture are made applicable to the debt securities of or within any series,
including the notes, and any related coupons, Energy Holdings may elect either
(a) to defease and be discharged from any and all obligations with
respect to the debt securities and any related coupons, except for
the obligations to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental
charge with respect to payments on such debt securities and the
obligations to register the transfer or exchange of such debt
securities and any related coupons, to replace temporary or
mutilated, destroyed, lost or stolen debt securities and any related
coupons, to maintain an office or agency in respect of such debt
securities and any related coupons, and to hold moneys for payment
in trust (Section 1402 of the indenture) or
(b) to be released from its obligations under any covenant specified
pursuant to Section 301 with respect to such debt securities and any
related coupons, and any omission to comply with such obligations
shall not constitute a default or an event of default with respect
to such debt securities and any related coupons (Section 1403 of the
indenture),
in either case upon the irrevocable deposit by Energy Holdings with the trustee,
in trust, of
(1) an amount in United States Dollars,
(2) Government Obligations (as defined below) applicable to such debt
securities and coupons that through the payment of principal and
interest in accordance with their terms will provide money in an
amount, or
(3) a combination of the items referred to in (1) or (2)
in an amount, sufficient to pay the principal of, and premium, if any, and
interest, if any, on the debt securities and any related coupons, and any
mandatory sinking fund or analogous payments on them, on all scheduled due
dates.
Such a trust may only be established if, among other things, Energy
Holdings has delivered to the trustee an opinion of counsel to the effect that
the holders of such debt securities and any related coupons will not recognize
income, gain or loss for United States federal income tax purposes as a
36
result of such defeasance or covenant defeasance and will be subject to United
States Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred. The opinion of counsel, in the case of defeasance under clause
(a) above, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law occurring
after the date of the indenture. (Section 1404 of the indenture).
"Government Obligations" means securities which are
o direct obligations of the United States or
o obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States, the payment of which
is unconditionally guaranteed as a full faith and credit obligation
by the United States, which are not callable or redeemable at the
option of the issuer of that obligation.
Government Obligations also include a depository receipt issued by a bank or
trust company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt;
provided that, except as required by law, such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from the amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt. (Section 101 of the indenture).
In the event Energy Holdings effects covenant defeasance with respect to
any debt securities and any related coupons and those debt securities and
coupons are declared due and payable because of the occurrence of any event of
default, other than the events of default described in clauses (4) or (8) of
Section 501 of the indenture, with respect to any covenant to which there has
been defeasance, the amount of Government Obligations and funds on deposit with
the trustee will be sufficient to pay amounts due on such debt securities and
coupons at the time of their stated maturity but may not be sufficient to pay
amounts due on such debt securities and coupons at the time of the acceleration
resulting from such event of default. In such case, Energy Holdings would remain
liable to make payment of such amounts due at the time of acceleration. (Section
501 of the indenture).
If the trustee or any paying agent is unable to apply any money in
accordance with the indenture by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then Energy Holdings' obligations under the indenture and such debt
securities and any related coupons shall be revived and reinstated as though no
deposit had occurred pursuant to the indenture, until such time as such trustee
or paying agent is permitted to apply all such money in accordance with the
indenture. However, if Energy Holdings makes any payment of principal of, or
premium, if any, or interest, if any, on any such debt security or any related
coupon following the reinstatement of its obligations, Energy Holdings shall be
subrogated to the rights of the holders of such debt securities and any related
coupons to receive such payment from the money held by such trustee or paying
agent.
Amendment, Supplement and Waiver
Energy Holdings and the trustee may modify and amend the indenture with
the consent of the holders of a majority in principal amount of all outstanding
debt securities that are affected by the modification or amendment; provided
that no modification or amendment may, without the consent of the holder of each
outstanding debt security affected by the modification or amendment, among other
things:
o change the stated maturity date of the principal of, or premium, if
any, on, or any installment of principal of or interest on any debt
security;
o reduce the principal amount of, or the rate or amount of interest in
respect of, or any premium payable upon the redemption of, any debt
security;
37
o change the manner of calculating the rate of interest;
o change any obligation of Energy Holdings to pay additional amounts
in respect of any debt security;
o reduce the portion of the principal of a debt security issued with
the original issue discount or an indexed debt security that would
be due and payable upon a declaration of acceleration of the
maturity of the debt security or provable in bankruptcy;
o adversely affect any right of repayment at the option of the holder
of any such debt security;
o change the place of payment of principal of, or any premium or
interest on, the debt security;
o impair the right to institute suit for the enforcement of any
payment on or after the stated maturity date of the debt security or
on or after any redemption date or repayment date for the debt
security;
o adversely affect any right to convert or exchange any debt security;
o reduce the percentage in principal amount of such outstanding debt
securities, the consent of whose holders is required to amend or
waive compliance with certain provisions of the indenture or to
waive certain defaults under the indenture;
o reduce the requirements for voting or quorum described below; or
o modify any of the preceding requirements or any of the provisions
relating to waiving past defaults or compliance with certain
restrictive provisions, except to increase the percentage of holders
required to effect waiver or to provide that certain other
provisions of the indenture cannot be modified or waived without the
consent of the holder of each debt security affected by the
modification or waiver. (Section 902 of the indenture).
Energy Holdings and the trustee may modify and amend the indenture without
the consent of any holder, for any of the following purposes:
o to evidence the succession of another person to Energy Holdings and
the assumption by any successor of the covenants of Energy Holdings
under the indenture and the debt securities;
o to add to the covenants of Energy Holdings for the benefit of the
holders of all or any series of debt securities issued under the
indenture, including the notes, and any related coupons or to
surrender any right or power conferred upon Energy Holdings by the
indenture;
o to add events of default for the benefit of the holders of all or
any series of debt securities, including the notes, issued under the
indenture;
o to add to or change any provisions of the indenture to facilitate
the issuance of, or to liberalize the terms of, debt securities
issued in bearer form or to permit or facilitate the issuance of
debt securities in uncertificated form, provided that any such
actions do not adversely affect the interests of the holders of the
debt securities issued under the indenture or any related coupons in
any material respect;
o to change or eliminate any provisions of the indenture, provided
that any change or elimination of this nature will become effective
only when there are no debt securities outstanding of any series
created prior to the change or elimination of the provision which
are entitled to the benefit of the provisions;
o to secure the debt securities, including the notes, under the
indenture pursuant to the requirements of Section 1005 of the
indenture, or otherwise;
o to establish the form or terms of debt securities of any series and
any related coupons;
o to evidence and provide for the acceptance of appointment by a
successor trustee or facilitate the administration of the trusts
under the indenture by more than one trustee;
38
o to cure any ambiguity, defect or inconsistency in the indenture,
provided such action does not adversely affect the interests of
holders of debt securities of a series, including the notes, issued
under the indenture or any related coupons in any material way; or
o to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of debt securities issued under the indenture, including the
notes, provided that the action does not adversely affect the
interests of the holders of the debt securities of that series,
including the notes, and any related coupons in any material way.
(Section 901 of the indenture).
In determining whether the holders of the requisite principal amount of
outstanding debt securities have given any request, demand, authorization,
direction, notice, consent or waiver under the indenture or whether a quorum is
present at a meeting of holders of debt securities thereunder,
o the principal amount of a debt security issued with original issue
discount that will be deemed to be outstanding will be the amount of
the principal thereof that would be due and payable as of the date
of such determination upon acceleration of the maturity of the debt
security,
o the principal amount of an indexed debt security that may be counted
in making the determination or calculation and that will be deemed
outstanding will be equal to the principal face amount of the
indexed debt security at original issuance, unless otherwise
provided pursuant to Section 301 of the indenture, and
o Debt securities owned by Energy Holdings or any other obligor upon
the debt securities or any affiliate of Energy Holdings or of such
other obligor shall be disregarded. (Section 101 of the indenture).
The indenture contains provisions for convening meetings of the holders of
debt securities of a series if debt securities of that series are issuable in
bearer form. (Section 1501 of the indenture) A meeting may be called at any time
by the trustee, and also, upon request, by Energy Holdings or the holders of at
least 10% in principal amount of the outstanding debt securities of that series,
in any such case upon notice given as provided in the indenture. (Section 1502
of the indenture) Except for any consent that must be given by the holder of
each debt security, as described above, any resolution presented at a meeting
(or an adjourned meeting duly reconvened) at which a quorum is present may be
adopted by the affirmative vote of the holders of a majority in principal amount
of outstanding debt securities of that series; provided, however, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage which is less than a majority in principal
amount of outstanding debt securities of a series may be adopted at a meeting
(or an adjourned meeting duly reconvened) at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding debt securities of that series. Any resolution passed or
decision taken at any meeting of holders of debt securities of a series duly
held in accordance with the indenture will be binding on all holders of debt
securities of that series and any related coupons. The quorum at any meeting
called to adopt a resolution will be persons holding or representing a majority
in principal amount of the outstanding debt securities of a series; provided,
however, that, if any action is to be taken at a meeting with respect to a
consent or waiver which may be given by the holders of not less than a specified
percentage in principal amount of the outstanding debt securities of a series,
the persons holding or representing the specified percentage in principal amount
of the outstanding debt securities of that series will constitute a quorum.
(Section 1504 of the indenture).
Regardless of the foregoing provisions, if any action is to be taken at a
meeting of holders of debt securities of a series, including the notes, with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that the indenture expressly provides may be made, given
or taken by the holders of a specified percentage in principal amount of all
outstanding debt securities affected by the action or of the holders of that
series and one or more additional series:
o there shall be no minimum quorum requirement for that meeting and
39
o the principal amount of the outstanding debt securities of the
series that vote in favor of request, demand, authorization,
direction, notice, consent, waiver or other action will be taken
into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action
has been made, given or taken under the indenture. (Section 1504 of
the indenture).
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to PSEG Energy Holdings Inc. at 80 Park Plaza, T-22,
Newark, NJ 07102, Attention: Treasurer.
Reports
Following the consummation of the exchange offer, to the extent required
by the SEC, Energy Holdings will file a copy of all of the information and
reports referred to in clauses (1) and (2) below with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to holders of the notes upon request:
(1) all quarterly and annual financial information required to be
contained in a filing with the SEC on Forms 10-Q and 10-K and, with
respect to the annual information only, a report on the annual
financial statements certified by Energy Holdings' independent
auditors; and
(2) all information of the type contained in current reports required to
be filed with the SEC on Form 8-K.
The indenture requires Energy Holdings to file the documents referred to
in clauses (1) and (2) above with the trustee within 15 days of the filing of
those documents with the SEC. So long as any notes are outstanding, Energy
Holdings will furnish to the holders of notes the documents referred to in
clauses (1) and (2) above in the manner and to the extent required by the Trust
Indenture Act within 30 days of the filing of those documents with the SEC.
In addition, Energy Holdings has agreed that, for so long as any original
notes remain outstanding, it will furnish upon request to holders of the
original notes and prospective purchasers the information required to be
delivered pursuant to Rule 144A(d) (4) under the Securities Act.
Book-Entry, Delivery and Form
The exchange notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, global notes).
Except as set forth below, the global notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes". Except in the limited
circumstances described below, owners of beneficial interests in the global
notes will not be entitled to receive physical delivery of certificated notes
(as defined below).
Initially, the trustee will act as paying agent and registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. Energy Holdings takes no responsibility
for these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised Energy Holdings that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, participants) and to facilitate the clearance and
40
settlement of transactions in those securities between participants through
electronic book-entry changes in accounts of its participants. The participants
include securities brokers and dealers (including the initial purchasers of the
original notes), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
(collectively, indirect participants). Persons who are not participants may
beneficially own securities held by or on behalf of DTC only through the
participants or the indirect participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the participants and indirect participants.
DTC has also advised Energy Holdings that, pursuant to procedures
established by it, (i) upon deposit of the global notes, DTC will credit the
accounts of participants designated by the Initial Purchasers of the original
notes with portions of the principal amount of the global notes and (ii)
ownership of such interests in the global notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the participants) or by the participants and the
indirect participants (with respect to other owners of beneficial interest in
the global notes).
Investors in the global notes may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations which are participants in such system. All interests in a global
note may be subject to the procedures and requirements of DTC. Those interests
held through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a global note to
such persons will be limited to that extent. Because DTC can act only on behalf
of participants, which in turn act on behalf of indirect participants and
certain banks, the ability of a person having beneficial interests in a global
note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, premium, if any, and interest on
a global note registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered holder under the Indenture. Under the
terms of the indenture, Energy Holdings and the trustee will treat the persons
in whose names the notes, including the global notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither Energy Holdings, the trustee
nor any agent of Energy Holdings or the trustee has or will have any
responsibility or liability for
o any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interest in the global notes, or for
maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the
beneficial ownership interests in the global notes or
o any other matter relating to the actions and practices of DTC or any
of its participants or indirect participants.
DTC has advised Energy Holdings that its current practice, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant security
as shown on the records of DTC unless DTC has reason to believe it will not
receive payment on such payment date. Payments by the participants and the
indirect participants to the beneficial owners of notes will be governed by
standing instructions and customary practices and will be the responsibility of
the participants or the
41
indirect participants and will not be the responsibility of DTC, the trustee or
Energy Holdings. Neither Energy Holdings nor the trustee will be liable for any
delay by DTC or any of its participants in identifying the beneficial owners of
the notes, and Energy Holdings and the Trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee for all
purposes.
Interest in the global notes are expected to be eligible to trade in DTC's
same-day funds settlement system and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
DTC has advised Energy Holdings that it will take any action permitted to
be taken by a holder of notes only at the direction of one or more participants
to whose account DTC has credited the interests in the global notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such participant or participants has or have given such direction.
However, if there is an event of default under the notes, DTC reserves the right
to exchange the global notes for legended notes in certificated form, and to
distribute such notes to its participants.
Exchange of Book-Entry Notes for Certificated Notes
If
o DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by Energy
Holdings within 90 days following notice to Energy Holdings,
o DTC determines, in its sole discretion, not to have any of the notes
represented by one or more global notes, or
o an event of default under the indenture has occurred and is
continuing,
then Energy Holdings will issue individual notes in certificated form in
exchange for the relevant global notes. In any such instance, an owner of a
beneficial interest in a global note will be entitled to physical delivery of
individual notes in certificated form of like tenor and rank, equal in principal
amount to such beneficial interest and to have such notes in certificated form
registered in its name. In all cases, notes in certificated form delivered in
exchange for any global note or beneficial interests therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of the depositary (in accordance with its customary procedures).
FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of the material United States federal income
tax consequences resulting from the exchange offer and from the ownership of the
exchange notes. It deals only with exchange notes held as capital assets and not
with special classes of noteholders, such as dealers in securities or
currencies, life insurance companies, tax exempt entities, and persons that hold
an exchange note in connection with an arrangement that completely or partially
hedges the exchange note. The discussion is based upon the Internal Revenue Code
of 1986, as amended, and regulations, rulings and judicial decisions thereunder
as of the date hereof. Such authorities may be repealed, revoked or modified so
as to produce federal income tax consequences different from those discussed
below. The information contained in this section has been passed upon for us by
James T. Foran, Esquire, Associate General Counsel of PSEG. We have received an
opinion of counsel from Mr. Foran regarding the material federal income tax
consequences of the exchange offer.
Noteholders tendering their original notes or prospective purchasers of
exchange notes should consult their own tax advisors concerning the United
States federal income tax and any state or local income or franchise tax
consequences in their particular situations and any consequences under the laws
of any other taxing jurisdiction.
42
Consequences of Tendering Original Notes
The exchange of original notes for the exchange notes pursuant to the
exchange offer will not be treated as an "exchange" for United States federal
income tax purposes because the exchange notes will not be considered to differ
materially in kind or extent from the original notes. Rather, the exchange notes
received by a noteholder will be treated as a continuation of the original notes
in the hands of such noteholder. As a result, there will be no United States
federal income tax consequences to noteholders exchanging the original notes for
the exchange notes pursuant to the exchange offer. The noteholder must continue
to include stated interest in income as if the exchange had not occurred. The
adjusted basis and holding period of the exchange notes for any noteholder will
be the same as the adjusted basis and holding period of the original notes.
Similarly, there would be no United States federal income tax consequences to a
holder of original notes that does not participate in the exchange offer.
United States Holders
For purposes of this discussion, a "United States Holder" means:
(1) a citizen or resident of the United States;
(2) a partnership, corporation or other entity treated as a corporation
or partnership for United States federal income tax purposes,
created or organized in or under the law of the United States or of
any State of the United States including the District of Columbia;
(3) an estate the income of which is subject to United States federal
income tax regardless of its source;
(4) a trust, if either:
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or
more United States persons have the authority to control all
substantial decisions of the trust; or
(b) the trust was in existence on August 20, 1996 and elected to
be treated as a United States person at all times thereafter;
(5) any other person that is subject to United States federal income tax
on interest income derived from a note as a result of such income
being effectively connected with the conduct by such person of a
trade or business within the United States; or
(6) certain former citizens of the United States whose income and gain
on the exchange notes will be subject to U.S. income tax.
Payments of Interest
Interest on an exchange note will be taxable to a United States Holder as
ordinary interest income at the time it is received or accrued, depending on the
noteholder's method of accounting for tax purposes.
Disposition of an Exchange Note
Upon the sale, exchange or retirement of an exchange note, a United States
Holder generally will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement (other than
amounts representing accrued and unpaid interest, which will be treated as
ordinary income) and such holder's adjusted basis in the exchange note. Such
gain or loss generally will be long-term capital gain or loss if the holder's
holding period in the exchange note was more than one year at the time of
disposition.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply with respect to
non-corporate United States Holders to payments of principal and interest on an
exchange note and the proceeds of the sale
43
of an exchange note before maturity. A 31% "backup withholding" tax will apply
to such payments if the United States Holder fails to provide an accurate
taxpayer identification number or to report all interest and dividends required
to be shown on its federal income tax returns.
Payments to United States Aliens
As used herein, a "United States Alien" is a person or entity that, for
United States federal income tax purposes, is not a United States Holder (as
defined above).
Under current United States federal income and estate tax law:
(1) payments of principal and interest on an exchange note by us or any
paying agent to a noteholder that is a United States Alien will not
be subject to withholding of United States federal income tax,
provided that the noteholder:
(a) does not actually or constructively own 10% or more of the
combined voting power of our stock;
(b) is not a controlled foreign corporation related to us through
stock ownership;
(c) is not a bank receiving interest described in Section
881(c)(3)(A) of the Internal Revenue Code; and
(d) provides a statement, under penalties of perjury (such as Form
W-8BEN), to us that the holder is a United States Alien and
provides its name and address;
(2) a noteholder that is a United States Alien will not be subject to
United States federal income tax on gain realized on the sale,
exchange or redemption of such note, unless:
(a) the gain is effectively connected with the conduct of a trade
or business within the United States by the United States
Alien; or
(b) in the case of a United States Alien who is a nonresident
alien individual and holds the exchange note as a capital
asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements
are met; and
(3) an exchange note will not be subject to United States federal estate
tax as a result of the death of a noteholder who is not a citizen or
resident of the United States at the time of death, provided that:
(a) such noteholder did not at the time of death actually or
constructively own 10% or more of the combined voting power of
all classes of our stock; and,
(b) at the time of such noteholder's death, payments of interest
on such exchange note would not have been effectively
connected with the conduct by such noteholder of a trade or
business in the United States.
United States information reporting requirements and backup withholding
tax will not apply to payments on an exchange note made outside the United
States by us or any paying agent (acting in its capacity as such) to a
noteholder that is a United States Alien provided that a statement described
in(1)(c) above has been received and neither we nor our paying agent has actual
knowledge that the payee is not a United States Alien.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of an exchange note effected
outside the United States by a foreign office of a "broker" (as defined in
applicable Treasury regulations), provided that such broker:
(1) is a United States Alien;
(2) derives less than 50% of its gross income for certain periods from
the conduct of a trade or business in the United States; and
(3) is not a controlled foreign corporation as to the United States (a
person described in (1), (2) and (3) above being hereinafter
referred to as a "foreign controlled person"). Payment of the
proceeds of the sale of an exchange note effected outside the United
States by a foreign office
44
of any broker that is not a foreign controlled person will not be subject
to backup withholding tax, but will be subject to information reporting
requirements unless such broker has documentary evidence in its records
that the beneficial owner is a United States Alien and certain other
conditions are met, or the beneficial owner otherwise establishes an
exemption.
New regulations governing backup withholding and information reporting are
generally scheduled to become effective for payments made after December 31,
2000. Rules under these regulations will have essentially the same substantive
effect, but will unify current certification procedures and forms.
PLAN OF DISTRIBUTION
We are making the exchange offer in reliance on the position of the staff
of the Division of Corporation Finance of the SEC as defined in certain
interpretive letters issued to third parties in other transactions.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for original notes where
such original notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period not to exceed 180
days after the exchange offer has been completed, we will make this prospectus,
as amended or supplemented, available to any broker-dealer that reasonably
requests such document for use in connection with any such resale. Broker
dealers who acquired original notes directly from us may not rely on the staff's
interpretations and must comply with the registration and prospectus delivery
requirements of the Securities Act, including being named as a selling security
holder, in order to resell the original notes or the exchange notes.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the exchange offer has been completed, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such document
in the letter of transmittal. We have agreed to pay certain expenses incident to
the exchange offer, other than commission or concessions of any brokers or
dealers, and will indemnify the holders of the exchange notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this exchange offer, each broker-dealer that receives
exchange notes for its own account pursuant to the exchange offer agrees that,
upon receipt of notice from Energy Holdings of the happening of any event which
makes any statement in the prospectus untrue in any material respect or requires
the making of any changes in the prospectus in order to make the statements
therein not misleading (which notice we agree to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the prospectus until we
have amended or supplemented the prospectus to correct such misstatement or
omission and have furnished copies of the amended or supplemental prospectus to
such broker-dealer.
45
LEGAL OPINIONS
The validity of the notes will be passed upon for Energy Holdings by James
T. Foran, Esquire, Associate General Counsel of PSEG or R. Edwin Selover,
Esquire, Vice President and General Counsel of PSEG. The information contained
in Federal Income Tax Considerations has been passed upon for Energy Holdings by
Mr. Foran.
EXPERTS
The consolidated balance sheets as of December 31, 2000 and 1999 and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the three years in the period ended December 31, 2000, and the
related financial statement schedules, incorporated in this prospectus by
reference from Energy Holdings' Annual Report on Form 10-K for the year ended
December 31, 2000, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
46
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$400,000,000
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[Logo] PSEG
Energy Holdings Inc.
----------
Offer to Exchange
8.625% Senior Notes due 2008
Which have been registered under the Securities Act
For Any and All Outstanding
8.625% Senior Notes due 2008
Which have not been so registered
================================================================================