As filed with the Securities and Exchange Commission on
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------
PSEG Power LLC
(Exact name of registrant as specified in its charter)
Delaware 4911 22-3663480
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
----------
PSEG Fossil LLC
(Exact name of registrant as specified in its charter)
Delaware 4911 22-3663481
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
----------
PSEG Nuclear LLC
(Exact name of registrant as specified in its charter)
Delaware 4911 22-3663482
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
----------
PSEG Energy Resources & Trade LLC
(Exact name of registrant as specified in its charter)
Delaware 6221 22-3663483
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
----------
80 Park Plaza-T25
Newark, New Jersey 07102
(973) 430-7000
http://www.pseg.com
(Address, including zip code and telephone number, including area code, of
Registrants' principal executive offices)
----------
Thomas M. O'Flynn
Executive Vice President and Chief Financial Officer
PSEG Power LLC
80 Park Plaza-T4B
Newark, New Jersey 07102
(973) 430-7000
(Name, address, including zip code and telephone number, including
area code, of agent for service)
----------
Copies to:
James T. Foran, Esquire
Associate General Counsel
Public Service Enterprise Group Incorporated
80 Park Plaza-T5B
P.O. Box 1171
Newark, New Jersey 07101-1171
(973) 430-7000
----------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462 (c)
under the Securities Act, please check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. |_|
CALCULATION OF REGISTRATION FEE
=============================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities to be Price Per Offering Registration
to be Registered Registered Unit Price Fee (1)
- -------------------------------------------------------------------------------------------------------------
6.95% Senior Notes due 2012 ............... $600,000,000 100% $600,000,000 $55,200
- -------------------------------------------------------------------------------------------------------------
Guarantees of 6.95% Senior Notes
due 2012 ................................ (2) (2) (2) (2)
=============================================================================================================
(1) The registration fee has been calculated pursuant to Rule 457(f)(2) under
the Securities Act. The proposed maximum aggregate offering price
represents the total value of the bonds being exchanged under this
registration statement.
(2) No additional consideration will be paid for the Guarantees. Pursuant to
Rule 457(n) under the Securities Act, no separate fee is payable in
respect of the Guarantees.
The Registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8 (a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8 (a),
may determine.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion dated August 8, 2002
PRELIMINARY PROSPECTUS
PSEG Power LLC
80 Park Plaza, P.O. Box 1170
Newark, NJ 07101-1170
(973) 430-7000
$600,000,000
[LOGO] PSEG
Power LLC
Offer to Exchange
6.95% Senior Notes Due 2012
Which have been registered under the Securities Act
For Any and All Outstanding
6.95% Senior Notes Due 2012
Which have not been so registered
TERMS OF THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., Eastern Time, on , 2002,
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 The exchange notes, like the original notes, will be fully and
unconditionally guaranteed by PSEG Fossil LLC, PSEG Nuclear LLC and
PSEG Energy Resources & Trade LLC on a joint and several basis. The
guarantees will rank equally in right of payment to all existing and
future senior unsecured indebtedness of the guarantors.
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 14 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 , 2002.
TABLE OF CONTENTS
Page
----
Where to Find More Information ............................................ 2
Incorporation of Certain Documents by Reference ........................... 3
Prospectus Summary ........................................................ 4
Risk Factors .............................................................. 14
Forward-Looking Statements ................................................ 21
Use of Proceeds ........................................................... 21
Capitalization ............................................................ 22
The Exchange Offer ........................................................ 23
Description of the Exchange Notes ......................................... 31
Federal Income Tax Considerations ......................................... 50
Plan of Distribution ...................................................... 52
Legal Opinions ............................................................ 53
Experts ................................................................... 53
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. Unless the context otherwise indicates, all references to
"Power," "we," "us" or "our" herein mean PSEG Power LLC, a Delaware limited
liability company, and its consolidated subsidiaries. (For periods prior to
August 21, 2000, " Power," "we," "us" or "our" also includes the generation
business of Public Service Electric and Gas Company.)
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.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
ANNOTATED, 1955, AS AMENDED ("RSA"), WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE
STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA CHAPTER 421-B IS TRUE,
COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any document that we file at the Public Reference Room of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
You may also obtain our filings on the Internet at the SEC's home page at
http://www.sec.gov.
2
This prospectus is part of a registration statement on Form S-4 filed with
the SEC under the Securities Act of 1933, as amended. It does not contain all of
the information that is important to you. You should read the registration
statement for further information with respect to the securities, the guarantors
and us. Statements contained in this prospectus concerning the provisions of any
document filed as an exhibit to the registration statement or otherwise filed
with the SEC highlight selected information, and in each instance reference is
made to the copy of the full document as filed with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that 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 or
deemed incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will be deemed to automatically
update and supersede this incorporated information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the termination of any particular offering of securities
hereunder.
o Our Annual Report on Form 10-K for the year ended December 31, 2001,
File No. 000-49614;
o Our Amended Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 2002, File No. 000-49614;
o Our Amended Current Report on Form 8-K/A dated July 29, 2002; and
o Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, File No. 000-49614.
You can get a free copy of any of the documents incorporated by reference
by making an oral or written request directed to:
J. Brian Smith
Director, Investor Relations
PSEG Services Corporation
80 Park Plaza, 6th Floor
Newark, NJ 07102
Telephone (973) 430-6564
You should rely only on the information contained or incorporated by
reference or deemed to be incorporated by reference in this prospectus. We have
not authorized anyone else to provide you with different or additional
information. You should not rely on any other information or representations.
Our affairs may change after this prospectus has been distributed. You should
not assume that the information in this prospectus is accurate as of any date
other than its date of issuance or the dates otherwise disclosed herein.
3
- --------------------------------------------------------------------------------
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 $600 million principal amount of
6.95% Senior Notes due 2012 for $600
million of original notes of like
series. The original notes may be
exchanged only in minimum denominations
of $1,000 and integral multiples
thereof.
Issuance of the Original Notes ....... The original notes were issued and sold
on June 7, 2002 in a transaction not
requiring registration under the
Securities Act.
Registration Rights .................. At the time we issued the original
notes, we entered into a 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 anyone 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
registration rights agreement relating
to the original notes to allow you to
use this prospectus for this purpose
during the 90-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".
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
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 6.95%. 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 , 2002,
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 ....................... The Bank of New York 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
registration rights agreement. Any
market for original notes that are not
exchanged could be adversely affected by
the consummation of this exchange offer.
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
Summary of the Exchange Notes
This exchange offer applies to $600 million 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 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.
The exchange notes, like the original notes, will be fully and unconditionally
guaranteed by our three principal operating subsidiaries, PSEG Fossil LLC
("Fossil"), PSEG Nuclear LLC ("Nuclear") and PSEG Energy Resources & Trade LLC
("ER&T"), on a joint and several basis. The guarantees will rank equally in
right of payment to all existing and future senior unsecured indebtedness of the
guarantors.
Issuer ............................... PSEG Power LLC
Securities Offered ................... $600 million of 6.95% Senior Notes due
2012 which have been registered under
the Securities Act.
Interest Payment Dates ............... June 1 and December 1 of each year,
beginning December 1, 2002.
Maturity June 1, 2012.
Optional Redemption .................. We may redeem any or all of the exchange
notes at any time at a price equal to
the sum of (i) 100% of the principal
amount of the exchange notes being
redeemed, (ii) a make whole premium and
(iii) unpaid interest accrued up to and
including the applicable redemption
date. See "Description of the Exchange
Notes-- Optional Redemption".
Ranking .............................. The exchange notes:
o will be our senior unsecured
obligations,
o will rank equally with all of our
senior unsecured indebtedness and
o will rank senior to our subordinated
unsecured indebtedness.
As of June 30, 2002, we had
approximately $1.9 billion of
indebtedness outstanding that ranks
equally with the exchange notes.
Guarantees ........................... The exchange notes will be fully and
unconditionally guaranteed by Fossil,
Nuclear and ER&T on a joint and several
basis. The guarantees will rank equally
in right of payment to all existing and
future senior unsecured indebtedness of
the guarantors. We have issued a
guarantee of the obligations of ER&T,
which guarantee is subordinate to the
exchange notes.
Ratings .............................. The exchange notes have been assigned
ratings of "Baa1" by Moody's Investors
Service, Inc., "BBB+" by Fitch, Inc. and
"BBB" by Standard & Poor's Ratings
Services.
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.
Sinking Fund ......................... None.
- --------------------------------------------------------------------------------
6
Certain Covenants .................... The indenture under which the original
notes were, and the exchange notes will
be, issued contains covenants
restricting us and the above-referenced
restricted subsidiaries. These covenants
limit our ability, and the ability of
our restricted subsidiaries to, among
other things:
o in the case of our restricted
subsidiaries, incur certain
indebtedness;
o create liens;
o in the case of our restricted
subsidiaries, create or permit to
exist dividend or payment
restrictions with respect to us;
o sell assets; and
o engage in mergers and
consolidations.
In addition, the indenture contains a
covenant requiring one of our restricted
subsidiaries, ER&T, to pay periodic
dividends or distributions to us of the
excess cash not required for its
business operations. Each of these
covenants is subject to a number of
important qualifications and exceptions.
See "Description of the Exchange Notes--
Selected Indenture Covenants."
Book-Entry 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
Bank of New York as 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 ......................... An investment in the exchange notes
involves certain risks relating to our
business, prospects, financial condition
and results of operations and the terms
of the exchange notes. These risks are
described in "Risk Factors."
PSEG Power LLC
We are one of the largest independent electric generating and wholesale
energy marketing and trading companies in the United States. Through our three
principal direct wholly-owned operating subsidiaries -- Nuclear, Fossil, and
ER&T -- we generate and market electricity, capacity, ancillary services and
natural gas products on a wholesale basis.
We are one of four wholly-owned subsidiaries of Public Service Enterprise
Group Incorporated ("PSEG"), an exempt public utility holding company. PSEG's
other three subsidiaries are Public Service Electric and Gas Company ("PSE&G"),
PSEG Energy Holdings Inc. and PSEG Services Corporation.
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
-------------------------
Public Service Enterprise
Group Incorporated
(PSEG)
-------------------------
|
-----------------------------------------------------------
| | | |
- ------------------ -------------- ----------------- -------------------------
Public Service PSEG Power LLC PSEG Energy PSEG Services Corporation
Electic and Gas (Power) Holdings Inc. (Services)
Company (Energy Holdings)
- ------------------ -------------- ----------------- -------------------------
|
|------------------------------------
| | |
---------------- --------------- ---------------------
PSEG Nuclear LLC PSEG Fossil LLC PSEG Energy Resources
(Nuclear) (Fossil) & Trade LLC
(ER&T)
---------------- --------------- ---------------------
We were established to acquire, own and operate the electric
generation-related business of our affiliate, PSE&G. This transfer occurred in
August 2000.
Our generation portfolio consists of 12,033 megawatts ("MW") of installed
capacity, which is diversified by fuel source, technology and market segment. Of
this total, approximately 11,653 MW are located within the Pennsylvania-New
Jersey-Maryland Power Pool (the "PJM"). The portfolio's diversity represents a
balance that helps to mitigate risks associated with fuel price volatility and
market demand cycles. We are currently constructing projects which will increase
capacity by over 2,950 MW, net of planned retirements and we are under contract
to purchase an additional 1,019 MW in Connecticut. See "Recent Developments".
PSEG Power's Installed Capacity
[The following table was depicted as a Pie Chart in the printed material.]
Market Segments Fuel Technology
- ------------------- ------------------- -----------------------
Load-Following 39% Nuclear 28% Nuclear 28%
Peaking 26% Pumped Storage 2% Pumped Storage 2%
Base Load 35% Coal 17% Combustion Turbine 25%
Gas 40% Steam 33%
Oil 13% Combined Cycle 12%
We derive our revenues and cash flows principally from our electric
generation business, energy trading and related activities. Our generation asset
operations are integrated with our wholesale energy, fuel supply, energy trading
and risk management expertise. The generation segment of our business earns
revenues by selling energy on a wholesale basis under contract to our affiliate,
PSE&G, and to other power marketers and load serving entities ("LSE"), and by
bidding energy, capacity and ancillary services into the wholesale energy
market. The energy trading segment of our business derives revenues by trading
energy, capacity, fixed transmission rights, fuel and emission allowances in the
spot, forward and futures markets.
Our target market, which is referred to herein as the "Super Region,"
extends from Maine to the Carolinas and the Atlantic Coast to Indiana,
encompassing approximately 37% of the nation's power consumption. We are the
largest power supplier in our primary market, the PJM, which is one of the
nation's largest and most well-developed energy markets.
As an Exempt Wholesale Generator ("EWG"), we do not directly serve any
retail customers and use our generation facilities exclusively for the
production of electricity for sale at the wholesale level. We have entered into
one-year contracts commencing on August 1, 2002 with various direct bidders in
the New Jersey basic generation service ("BGS") Auction, which were approved by
the New Jersey Board of Public Utilities ("BPU") on February 15, 2002. As a
result of this auction process, we surpassed our objective of securing contracts
on more than 75% of our generation capacity.
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
On May 1, 2002, PSE&G's gas supply, interstate pipeline capacity and gas
storage contracts were transferred to us. We will, under a requirements
contract, provide gas supply to PSE&G to serve its basic gas supply service
("BGSS") through April 1, 2004.
The energy trading segment of our business derives its revenues and cash
flows principally from trading energy, capacity, fixed transmission rights, fuel
and emission allowances in the spot, forward and futures markets. The energy
trading segment also derives revenues and cash flows through financial
transactions, including swaps, options and futures in the energy markets. ER&T
is a fully integrated energy marketing and trading organization that is active
in the long-term and spot wholesale energy markets. ER&T purchases all of the
capacity and energy produced by Fossil and Nuclear. In conjunction with these
purchases, ER&T uses commodity and financial instruments designed to cover
estimated commitments under our power supply contracts. ER&T also markets and
trades electricity, capacity, ancillary services and natural gas products on a
wholesale basis throughout the Super Region.
ER&T's principal objectives are to sell and deliver physical power from
Power's generating assets, reduce earnings volatility through hedging
activities, procure low cost fuel and natural gas supplies, and produce net
earnings from trading energy-related products around Power's physical assets.
ER&T does not engage in the practice of simultaneous trading for the purpose of
increasing trading volume or revenue. Consistent with its business objectives,
ER&T's incentive compensation programs are based on net earnings and overall
team performance, not on volume or gross revenues.
[MAP ARTWORK]
We mark to market energy trading contracts with gains and losses included
in earnings. The vast majority of these contracts have terms of less than one
year and are valued using market exchange prices and broker quotes. The energy
trading business provides the opportunity for greater returns on our assets. Our
trading business utilizes a conservative risk management strategy to minimize
exposure to long-term and short-term market risk.
We have substantial commitments as part of our growth strategy and ongoing
construction programs. We expect that the majority of our capital requirements
over the next five years will be satisfied by internally generated funds, with
the balance to be provided by the issuance of debt by us or at the project level
and equity contributions from PSEG. For the year ended December 31, 2001, we had
net plant additions of $1.5 billion.
Our forecasted construction and investment expenditures in millions of
dollars for the next five years are as follows:
2002 2003 2004 2005 2006
------ ------ ------ ------ ------
$ 960 $ 700 $ 340 $ 250 $ 230
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
The expenditures in 2001 and projected expenditures are primarily for
developing the Lawrenceburg, Indiana station (1,150 MW), the Waterford, Ohio
station (850 MW) and the Bethlehem, New York station (750 MW) and increasing
capacity to the Bergen (546 MW), Linden (1,218 MW) and Kearny (175 MW) stations
in New Jersey. Our agreement with federal and state governments to restore
alleged non-compliance with New Source Review ("NSR") regulations (which is
estimated to cost $337 million over the next ten years) and other environmental
related costs are also included in the forecasts. The NSR agreement is subject
to public comment and judicial approval, as to which no assurance can be given.
Our capital needs will be dictated by our strategy to continue to develop
as a profitable, growth-oriented supplier in the wholesale power market. We will
size our portfolio of generation assets to take advantage of market
opportunities, while seeking to increase our value and manage commodity price
risk through our wholesale energy trading activity.
Factors affecting actual expenditures and investments, including ongoing
construction programs, include: availability of capital, suitable investment
opportunities, prices of energy and supply in markets in which we participate,
economic and political trends, revised load forecasts, business strategies, site
changes, cost escalations under construction contracts, and requirements of
regulatory authorities and laws.
Competitive Strengths
We believe that we are well positioned to build upon our successful
history and existing asset base to remain one of the largest and one of the most
competitive independent electric generating and wholesale energy marketing and
trading companies in the United States. Our competitive strengths include the
following:
o We have one of the largest and most diversified unregulated
generating portfolios in PJM and the eastern United States:
o our generation assets represent a diversified mix in terms of
fuel type, technology and energy market segments, which
reduces our risk associated with market demand cycles and
allows us to participate in each segment of the dispatch
curve;
o our assets are strategically located near concentrations of
customers, allowing us to capture higher revenues during times
of transmission constraints; and
o our base load coal and nuclear assets continue to achieve high
capacity factors, while our load-following and peaking units
have high equivalent availability.
o We have a wholesale marketing and trading function which is fully
integrated with our generation assets, fuel procurement and trading
activities. Our risk management, wholesale marketing, fuel
procurement and energy trading skills allow us to optimize our
portfolio of generation and natural gas assets by:
o taking advantage of and profiting from regional supply and
demand patterns;
o giving us the ability to opportunistically trade and source
fuel for our generation assets from various locations;
o helping us identify attractive opportunities for expanding
generation capacity through acquisitions, development or
contractual arrangements;
o hedging and protecting the value of our generation assets by
hedging risks,and marketing and entering into
customer-specific transactions; and
o taking advantage of natural gas pipeline and storage contracts
in supplying gas to service PSE&G, and other parties.
o We possess extensive experience within PJM and surrounding regions,
which provides us with in-depth knowledge and insight about the
market's generation assets, market rules and transmission
constraints.
o We have a management team of seasoned individuals who have
long-standing experience with our generation assets, market
conditions, labor relations, business development, commodity trading
and risk management.
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
o We utilize a conservative risk management strategy to minimize our
market and counterparty credit risks, which has been instrumental in
our ability to manage risk while consistently growing the
profitability of our trading operations:
o our corporate risk management committee provides oversight of
the entire process and reports directly to the PSEG Board of
Directors;
o we have a corporate risk management group independent of our
trading operations that reports to the Chief Financial Officer
of PSEG and provides independent risk oversight of trading
activity and monitors, measures and aggregates the financial
risk activities of all trading operations;
o we monitor the value-at-risk associated with our forward
positions, including our generation and sales obligations on a
weekly basis, and we mark our positions to market and stress
test our portfolio on a daily basis; and
o more than 95% of our trading counterparties are investment
grade entities and we continue to monitor emerging issues that
may impact our counterparty credit risk.
o We are a committed environmental leader:
o we led the industry as an advocate for an integrated power
plant emissions strategy that would coordinate reductions of
nitrogen oxides, sulfur dioxide, mercury and carbon dioxide;
o we implemented the largest privately-funded wetlands
restoration program in the United States;
o we achieved a voluntary 80% reduction in nitrogen oxide
emissions at our New Jersey facilities; and
o we were cited by the United States Environmental Protection
Agency ("EPA") for our efforts to reduce solid and hazardous
wastes.
Business Strategy
Our objective is to continue to profitably build our generating and
wholesale energy marketing and trading company based upon our successful formula
of integrating generation asset operations with our wholesale energy, fuel
supply, trading and risk management expertise. To implement our strategy we plan
to:
o Maximize the value of our existing generation assets based upon
their location, low cost and fuel diversity. More specifically, we
plan to:
o provide for long-term power supply contracts associated with
about 75% of our generation portfolio's capacity;
o benefit from the advantageous location of generation assets
near the load centers - therefore allowing us to benefit from
the impacts of transmission; and
o exploit the value of owning generation assets across the
entire market spectrum - base load, load-following and
peaking.
o Continue the strong integration between the operation of our
generation assets, fuel procurement, trading and risk management.
More specifically, we plan to:
o continue to optimize the value of our generation assets by
coordinating their dispatch with our fuel management and
electricity and natural gas trading operations; and
o continue to maintain a strong risk management structure
through the use of best practices in risk management oversight
for both market and credit risk.
o Profitably expand our generation asset base across the eastern
United States -- focusing both within the PJM region and in
adjoining regions.
o Maintain our commitment to the environment -- both by improving the
environmental performance of our generation assets and by taking a
leadership position for a uniform set of stringent, but achievable,
air pollution standards for all United States power plants.
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
Recent Developments
In June 2002, Fossil announced that it had entered into a purchase
agreement with Wisvest Corp., a wholly-owned subsidiary of Wisconsin Energy
Corporation, pursuant to which Fossil has agreed to acquire Wisvest-Connecticut
LLC, the owner of two fossil fueled electric generating facilities, the
Bridgeport Harbor Station and the New Haven Harbor Station, for $220 million,
plus up to $20 million for various expenditures made prior to closing plus the
book value of inventory and fuel at the facilities at the time of closing. The
closing of this transaction is subject to receipt of all applicable regulatory
approvals.
The Bridgeport Harbor Station is a three-unit coal- and oil-fired station
with a total of 553 MW of capacity located on the west shore of Bridgeport
Harbor in Bridgeport, Connecticut. The New Haven Harbor Station is a one-unit
466 MW oil- and natural gas-fired station located on the east shore of New Haven
Harbor in New Haven Connecticut.
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following table sets forth our summary selected consolidated financial
data. The data as of December 31, 2001 and 2000, and for the three years ended
December 31, 2001 have been derived from our audited financial statements
incorporated by reference herein. The data as of December 31, 1999, 1998 and
1997, and for the two years ended December 31, 1998 has been derived from our
audited financial statements not incorporated herein. The data as of June 30,
2002, and for the six months ended June 30, 2002 and 2001 have been derived from
our unaudited financial statements incorporated by reference herein and, in the
opinion of management, include all adjustments necessary for a fair presentation
of our financial position and results of operations for these periods. The
information set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") and the Consolidated Financial Statements and accompanying Notes to
Consolidated Financial Statements found in our Annual Report on Form 10-K for
the year ended December 31, 2001 and our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002. Data related to periods prior to August 2000 have
been derived from PSE&G's financial statements and are not necessarily
indicative of the financial condition, results of operations or net cash flows
that would have existed had PSE&G's generation-related business been an
independent company during those periods.
For the Six Months
Ended June 30,
------------------ For the Years Ended December 31,
(unaudited) --------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- ------- -------
Income Statement Data (in millions) (in millions)
Operating Revenue(1) .......................... $ 1,253 $ 1,237 $ 2,458 $ 2,280 $ 2,694 $ 2,574 $ 2,552
Operating Expenses(1) ......................... 853 800 1,671 1,568 1,763 1,940 1,925
------- ------- ------- ------- ------- ------- -------
Operating Income .............................. 400 437 787 712 931 634 627
Interest Expense .............................. 56 89 143 198 112 216 223
Income Taxes .................................. 141 140 250 208 291 156 101
Income Before Extraordinary
Item ......................................... 203 206 394 313 516 237 195
Extraordinary Item(2) ......................... -- -- -- -- (3,204) -- --
------- ------- ------- ------- ------- ------- -------
Net Income (Loss) ............................. 203 206 394 313 (2,688) 237 195
Earnings (Loss) Available to PSEG ............. $ 203 $ 206 $ 394 $ 313 $(2,691) $ 232 $ 186
As of
June 30,
------------- As of December 31,
(unaudited) --------------------------------------------------------
2002 2001 2000 1999 1998 1997
------------- ------- ------- ------- ------- -------
Balance Sheet Data (in millions) (in millions)
Assets ........................................ $ 6,515 $ 5,503 $ 4,530 $ 3,301 $ 8,045 $ 8,183
Current Liabilities ........................... 963 830 1,470 1,038 762 984
Noncurrent Liabilities ........................ 1,182 1,128 1,006 991 2,096 2,075
Long-Term Debt ................................ $ 3,314 $ 2,685 $ 2,786 $ 0 0 0
Capitalization(3) ............................. $ 4,370 $ 3,709 $ 2,054 $ 1,272 $ 5,187 $ 5,124
For the Six Months
Ended June 30,
------------------ For the Years Ended December 31,
(unaudited) --------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- ------- -------
(in millions) (in millions)
Other Data
EBITDA(4) ..................................... $ 450 $ 490 $ 882 $ 855 $ 1,155 $ 1,015 $ 905
Capital Expenditures .......................... $ 496 $ 763 $ 1,525 $ 493 $ 95 $ 272 $ 175
Ratio of Earnings to
Fixed Charges ............................... 4.01x 3.78x 3.73x 3.39x 7.09x 2.51x 2.07x
- ----------
(1) Operating Revenue and Operating Expenses have been reclassified to conform
with the net presentation of energy trading revenues and costs required by
EITF 02-3.
(2) Effective April 1, 1999, we discontinued the application of SFAS 71 and
recorded an extraordinary charge. The extraordinary charge consisted
primarily of a write-down of our nuclear and fossil generation stations.
(3) Includes Note Payable-- Affiliated Company in the year 2000 and Accounts
Payable-- due to Affiliates for 2001.
(4) Earnings before Interest, Taxes, Depreciation and Amortization.
Information concerning EBITDA is presented here not as a measure of
operating results, rather as a measure of ability to service debt. In
addition, 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 required to meet minimum 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.
- --------------------------------------------------------------------------------
13
RISK FACTORS
In addition to the information contained elsewhere in this prospectus,
prospective investors should carefully consider the risks described below. Each
of the following factors could have a material adverse effect on our business,
prospects, financial condition, results of operations or net cash flows.
Credit, Commodity and Financial Market Risks May Have an Adverse Impact
The revenues generated by the operation of our generation stations are
subject to market risks that are beyond our control. Our generation output will
either be used to satisfy our wholesale contracts or be sold into the
competitive power markets or under other bilateral contracts. Participants in
the competitive power markets are not guaranteed any specified rate of return on
their capital investments through recovery of mandated rates payable by
purchasers of electricity. Although a majority of our revenue is generated by
the BGS contract with PSE&G (which expires on July 31, 2002 and is being
replaced with one-year contracts with various direct bidders in the New Jersey
BGS Auction) and from bilateral contracts for the sale of electricity with LSEs
and power marketers, our revenues and results of operations will be dependent
upon prevailing market prices for energy, capacity and ancillary services in the
markets we serve.
Among the factors that will influence the market prices for energy,
capacity and ancillary services are:
o the extent of additional supplies of capacity, energy and ancillary
services from current competitors or new market entrants, including
the development of new generation facilities that may be able to
produce electricity less expensively;
o changes in the rules set by regulatory authorities with respect to
the manner in which electricity sales will be priced;
o transmission congestion and access in PJM and/or other competitive
markets;
o the operation of nuclear generation plants in PJM and other
competitive markets beyond their presently expected dates of
decommissioning;
o prevailing market prices for enriched uranium, fuel oil, coal and
natural gas and associated transportation costs;
o fluctuating weather conditions;
o reduced growth rate in electricity usage as a result of factors such
as national and regional economic conditions and the implementation
of conservation programs; and
o changes in regulations applicable to PJM and other independent
system operators ("ISOs").
As a result of the BGS auction, we have entered into contracts with the
direct suppliers of the New Jersey electric utilities, including PSE&G,
commencing August 1, 2002. These bilateral contracts are subject to credit risk.
This credit risk relates to the ability of counterparties to meet their payment
obligations for the power delivered under each BGS contract. Depending upon the
creditworthiness of the counterparty, this risk may be substantially higher than
the risk associated with potential nonpayment by PSE&G under the BGS contract
expiring July 31, 2002. Any failure to collect these payments under the new BGS
contracts with counterparties could have a material adverse impact on our
results of operations, cash flows and financial position.
Energy Obligations, Available Supply and Trading Risks May Have an Adverse
Impact
Our energy trading and marketing business frequently involves the
establishment of energy trading positions in the wholesale energy markets on
long-term and short-term bases. To the extent that we have forward contracts to
provide or purchase energy in excess of demand, a downturn in the markets is
likely to result in a loss from a decline in the value of such long positions as
we attempt to sell energy in a falling market. Conversely, to the extent that we
enter into forward sales contracts to deliver energy we do not own, or take
short positions in the energy markets, an upturn in the energy markets is likely
to expose us to losses as we attempt to cover our short positions by acquiring
energy in a rising market.
14
If the strategy we utilize to hedge our exposures to these various risks
is not effective, we could incur significant losses. Our substantial energy
trading positions can also be adversely affected by the level of volatility in
the energy markets that, in turn, depends on various factors, including weather
in various geographical areas and short-term supply and demand imbalances, which
cannot be predicted with any certainty.
Counterparty Credit Risk or a Deterioration in Our Credit Quality May Have an
Adverse Effect
We are exposed to the risk that counterparties will not perform their
obligations. Although we have devoted significant resources to develop our risk
management policies, procedures and counterparty credit requirements and will
continue to do so in the future, we can give no assurance that losses from our
energy trading activities will not have a material adverse effect on our
business, prospects, results of operations, financial condition or net cash
flows.
In connection with our energy trading business, we must meet certain
credit quality standards as are required by counterparties. Standard industry
contracts generally require trading counterparties to maintain investment grade
ratings. These same contracts provide reciprocal benefits to us. If we lose our
investment grade credit rating, ER&T would have to provide collateral in the
form of letters of credit or cash, which would significantly impact the energy
trading business. This would increase our costs of doing business and limit our
ability to successfully conduct our energy trading operations.
Upon Expiration of BGS Contracts, We Cannot Guarantee We Will Be Able to Replace
those Revenues
Our contract to provide PSE&G's energy, capacity and ancillary services
necessary to fulfill its BPU-mandated BGS expired on July 31, 2002. We have
entered into one-year contracts commencing on August 1, 2002 with various direct
bidders in the New Jersey BGS Auction, which were approved by the BPU on
February 15, 2002. Upon the expiration of these contracts, we will have the
opportunity to participate in the bidding process for New Jersey LSEs for
subsequent periods. Because this will be a competitive bidding process open to
other market participants, any bids we may choose to make may not be successful.
Even if we are a successful bidder, we can give no assurance that our revenue
stream and cash flows from a BGS contract for future periods will be the same or
higher than under current contracts.
The Electric Energy Industry is Undergoing Substantial Change
The electric energy industry in the State of New Jersey and across the
country is undergoing major transformations. As a result of deregulation and the
unbundling of energy supplies and services, the gas and electric retail markets
are now open to competition from other suppliers. Increased competition from
these suppliers could reduce the quantity of our sales and have a negative
impact on our earnings and cash flows. We are affected by many issues that are
common to the electric industry such as:
o energy sales retention and growth;
o revenue stability and growth;
o nuclear operations and decommissioning;
o increased capital investments attributable to environmental
regulations;
o managing energy trading operations;
o ability to complete development or acquisition of current and future
investments;
o managing electric generation operations in locations outside of our
traditional service territory;
o exposure to market price fluctuations and volatility;
o regulatory restrictions on affiliate transactions; and
o debt and equity market concerns.
15
Generation Operating Performance May Fall Below Projected Levels
Operation below expected capacity levels may result in lost revenues,
increased expenses and penalties. Individual facilities may be unable to meet
operating and financial obligations resulting in reduced cash flow. The risks
associated with operating power generation facilities (each of which could
result in performance below expected capacity levels) include:
o breakdown or failure of equipment or processes;
o disruptions in the transmission of electricity;
o labor disputes;
o fuel supply interruptions;
o limitations which may be imposed by environmental or other
regulatory requirements;
o permit limitations; and
o operator error or catastrophic events such as fires, earthquakes,
explosions, floods, acts of terrorism or other similar occurrences.
Operation below expected capacity levels may result in lost revenues,
increased expenses and penalties.
Individual facilities may be unable to meet operating and financial
obligations resulting in reduced cash flow.
We Are Subject to Substantial Competition From Well Capitalized Participants in
the Worldwide Energy Markets
We are subject to substantial competition in the United States from
merchant generators, domestic and multi-national utility generators, fuel supply
companies, engineering companies, equipment manufacturers and affiliates of
other industrial companies. Restructuring of energy markets and the sale of
utility-owned assets are 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.
Deregulation may continue to accelerate the current trend toward
consolidation among domestic utilities and could also result in the further
splitting of vertically-integrated utilities into separate generation,
transmission and distribution businesses. As a result, additional competitors
could become active in the independent power industry.
Our Ability to Service Our Debt Could Be Limited
We are a holding company with no material assets other than the stock of
our subsidiaries. Accordingly, all of our operations are conducted by our
subsidiaries. We depend on our subsidiaries' cash flow and our access to capital
in order to service our indebtedness. The project-related debt agreements of
subsidiaries 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 flows 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.
We can give no assurances that our current and future capital structure,
operating performance or financial condition will permit us to access the
capital markets or to obtain other financing at the times, in the amounts and on
the terms necessary or advisable for us to successfully carry out our business
strategy or to service our indebtedness.
16
Power Transmission Facilities May Impact Our Ability to Deliver Our Output to
Customers
If transmission is disrupted, or if transmission capacity is inadequate,
our ability to sell and deliver our electric energy products may be adversely
impacted. If a region's power transmission infrastructure is inadequate, our
ability to generate revenues may be limited.
Regulatory Issues Significantly Impact Our Operations
Federal, state and local authorities impose substantial regulation and
permitting requirements on the electric power generation business. We are
required to comply with numerous laws and regulations and to obtain numerous
governmental permits in order to operate our generation stations.
We believe that we have obtained all material energy-related federal,
state and local approvals, including those required by the Nuclear Regulatory
Commission (the "NRC"), currently required to operate our generation stations.
Although not currently required, additional regulatory approvals may be required
in the future due to a change in laws and regulations or for other reasons. No
assurance can be given that we will be able to obtain any required regulatory
approval that we may require in the future, or that we will be able to obtain
any necessary extension in receiving any required regulatory approvals. If we
fail to obtain or comply with any required regulatory approvals, there could be
a material adverse effect on our ability to operate our generation stations or
to sell electricity to third parties.
We are subject to pervasive regulation by the NRC with respect to the
operation of our nuclear generation stations. This regulation involves testing,
evaluation and modification of all aspects of plant operation in light of NRC
safety and environmental requirements. The NRC also requires continuous
demonstrations that plant operations meet applicable requirements. The NRC has
the ultimate authority to determine whether any nuclear generation unit may
operate.
We can give no assurance that existing regulations will not be revised or
reinterpreted, that new laws and regulations will not be adopted or become
applicable to us or any of our generation stations or that future changes in
laws and regulations will not have a detrimental effect on our business.
Environmental Regulation May Limit Our Operations
We are required to comply with numerous statutes, regulations and
ordinances relating to the safety and health of employees and the public, the
protection of the environment and land use. These statutes, regulations and
ordinances are constantly changing. While we believe that we have obtained all
material environmental-related approvals currently required to own and operate
our facilities or that such approvals have been applied for and will be issued
in a timely manner, we may incur significant additional costs because of
compliance with these requirements. Failure to comply with environmental
statutes, regulations and ordinances could have a material adverse effect on us,
including potential civil or criminal liability and the imposition of clean-up
liens or fines and expenditures of funds to bring our facilities into
compliance.
We can give no assurance that we will be able to:
o obtain all required environmental approvals that we do not yet have
or that may be required in the future;
o obtain any necessary modifications to existing environmental
approvals;
o maintain compliance with all applicable environmental laws,
regulations and approvals; or
o recover any resulting costs through future sales.
Delay in obtaining or failure to obtain and maintain in full force and
effect any such environmental approvals, or delay or failure to satisfy any
applicable environmental regulatory requirements, could prevent construction of
new facilities, operation of our existing facilities or sale of energy from
these facilities or could result in significant additional cost to us.
17
We Are Subject to More Stringent Environmental Regulation than Many of Our
Competitors
Our facilities are subject to both federal and state pollution control
requirements. Most of our generating facilities are located in the State of New
Jersey. In particular, New Jersey's environmental programs are generally
considered to be more stringent in comparison to similar programs in other
states. As such, there may be instances where the facilities located in New
Jersey are subject to more stringent and therefore more costly pollution control
requirements than competitive facilities in other states.
Insurance Coverage May Not Be Sufficient
We have insurance for our generation stations, including:
o all-risk property damage insurance;
o commercial general public liability insurance;
o boiler and machinery coverage;
o nuclear liability; and,
o for our nuclear units, replacement power and business interruption
insurance
in amounts and with deductibles that we consider appropriate. We can give no
assurance that such insurance coverage will be available in the future on
commercially reasonable terms nor that the insurance proceeds received for any
loss of or any damage to any of the generation stations will be sufficient to
permit us to continue to make payments on our debt. Additionally, certain
properties that we own may not be insured in the event of an act of terrorism.
Acquisition, Construction and Development Activities May Not Be Successful
We may seek to acquire, develop and construct new energy projects, the
completion of any of which is subject to substantial risk. This activity
requires significant lead time and requires us to expend significant sums for
preliminary engineering, permitting, fuel supply, legal and other expenses in
preparation for competitive bids or before it can be established whether a
project is economically feasible.
The construction, expansion or refurbishment of a power generation
facility may involve:
o equipment and material supply interruptions;
o labor disputes;
o unforeseen engineering environmental and geological problems; and
o 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. We can give no assurance that we will obtain access to the
substantial debt and equity capital required to develop and construct new
generation projects or to refinance existing projects to supply anticipated
future demand.
Changes in Technology May Make Our Power Generation Assets Less Competitive
A key element of our business plan is that generating power at central
power plants produces electricity at relatively low cost. There are other
technologies that produce electricity, most notably fuel cells, microturbines,
windmills and photovoltaic (solar) cells. While these methods are not currently
18
cost-effective, it is possible that advances in technology will reduce the cost
of alternative methods of producing electricity to a level that is competitive
with that of most central station electric production. If this were to happen,
our market share could be eroded and the value of our power plants could be
significantly impaired. Changes in technology could also alter the channels
through which retail electric customers buy electricity, thereby adversely
affecting our financial results.
Recession, Acts of War or Terrorism Could Have an Adverse Impact
The long-term consequences of the September 11, 2001 terrorist attacks on
the United States are difficult to predict. The consequences of a prolonged
recession and market conditions may include the continued uncertainty of energy
prices and the capital and commodity markets. We cannot predict the impact of
any continued economic slowdown or fluctuating energy prices; however, such
impact could have a material adverse effect on our financial condition, results
of operations and net cash flows.
Like other operators of major industrial facilities, our generation plants
may be targets of terrorist activities that could result in disruption of our
ability to produce or distribute some portion of our energy products. Any such
disruption could result in a significant decrease in revenues and/or significant
additional costs to repair, which could have a material adverse impact on our
financial condition, results of operation and net cash flows.
Our Indenture May Restrict Our Ability to Enter into Certain Transactions
Our Indenture restricts our ability and the ability of our Restricted
Subsidiaries (as defined below under "Description of the Senior Notes --
Definitions") to, among other things:
o in the case of our Restricted Subsidiaries, incur certain
indebtedness;
o create liens;
o in the case of our Restricted Subsidiaries, create or permit to
exist dividend or payment restrictions with respect to us;
o sell assets; and
o engage in mergers and consolidations.
These restrictions may limit our ability to finance future operations,
respond to changing business and economic conditions, secure any needed
additional financing and engage in opportunistic transactions. See "Description
of the Exchange Notes -- Selected Indenture Covenants."
We are Subject to Control by PSEG
Our sole limited liability company member, PSEG, controls the election of
our directors and all other matters submitted for member approval and has
control over our management and affairs. In circumstances involving a conflict
of interest between PSEG, as the sole member, on the one hand, and our
creditors, on the other, we can give no assurance that PSEG would not exercise
its power to control us in a manner that would benefit PSEG to the detriment of
our creditors, including the holders of the exchange 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.
There is No Public Market for the Exchange Notes
We do not intend to list the exchange notes on any U.S. securities
exchange. We can give no assurance concerning the liquidity of any market that
may develop for the exchange notes, the ability of any investor to sell the
exchange notes or the price at which investors would be able to sell their
exchange notes.
Fraudulent Transfer Statutes and Similar Limitations May Limit Your Rights as a
Noteholder
Each of our Restricted Subsidiaries will guarantee our obligations on the
exchange notes (each a "Subsidiary Guaranty"). See "Description of the Exchange
Notes -- Guaranty of Senior Notes."
19
Under federal and state fraudulent transfer laws, a court could find that
the Subsidiary Guaranty provided by a Restricted Subsidiary constituted a
fraudulent conveyance by that Restricted Subsidiary. To do so, a court would
typically have to find that, at the time the Subsidiary Guaranty was issued, the
relevant Restricted Subsidiary:
o issued the Subsidiary Guaranty with the intent of hindering,
delaying or defrauding our current or future creditors; or
o (a) received less than fair consideration or reasonably equivalent
value for incurring the indebtedness represented by its Subsidiary
Guaranty; and (b) either (x) was insolvent or was rendered insolvent
by reason of the issuance of the Subsidiary Guaranty, (y) was
engaged, or about to engage, in a business or transaction for which
its assets were unreasonably small or (z) intended to incur, or
believed or should have believed it would incur, debts beyond its
ability to pay as such debts mature.
Many of the foregoing terms are defined in or interpreted under those fraudulent
transfer statutes.
Different jurisdictions define "insolvency" differently. However, an
entity generally would be considered insolvent at the time it incurred any
particular obligation if (1) its liabilities exceeded its assets, at a fair
valuation, or (2) the present saleable value of its assets is less than the
amount required to pay its total existing debts and liabilities (including any
probable liability related to contingent liabilities) as they become absolute or
matured. We cannot assure you of the standard a court would apply in order to
determine whether any Restricted Subsidiary was "insolvent" as of the date the
applicable Subsidiary Guaranty was issued, or that regardless of the method of
valuation, a court would not determine, regardless of whether such Restricted
Subsidiary was insolvent on the date the Subsidiary Guaranty was issued, that
the payments constituted fraudulent transfers on another ground.
If a court were to make any such finding, it could:
o avoid all or a portion of the relevant Restricted Subsidiary's
obligations on the Subsidiary Guarantees;
o subordinate the relevant Restricted Subsidiary's obligations on the
Subsidiary Guarantees to obligations owed to its other existing and
future creditors, entitling those creditors to be paid in full
before any payment is made on the relevant Subsidiary Guaranty;
and/or
o take other actions detrimental to you, including invalidating the
relevant Subsidiary Guaranty.
In that event, we cannot assure you that you would receive any payment
under the Subsidiary Guaranty of the relevant Restricted Subsidiary.
If You Fail to Exchange Original Notes, They Will 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.
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.
20
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
This prospectus includes "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, included in this prospectus that address
activities, events or developments that we expect or anticipate will or may
occur in the future, including such matters as our projections, future capital
expenditures, business strategy, competitive strengths, goals, expansion, market
and industry developments and the growth of our businesses and operations, are
forward-looking statements. These statements are based on assumptions and
analyses made by us in light of our experience and our perception of historical
trends, current conditions and expected future developments as well as other
factors we believe are appropriate under the circumstances. However, actual
results and developments may differ materially from our expectations and
predictions due to a number of risks and uncertainties, many of which are beyond
our control. These risks and uncertainties include:
o the significant considerations and risk factors discussed in this
prospectus;
o general and local economic, market or business conditions;
o demand (or lack thereof) for electricity, capacity and ancillary
services in the markets served by our generation units;
o increasing competition from other companies;
o the acquisition and development opportunities (or lack thereof) that
may be presented to and pursued by us;
o changes in laws or regulations that are applicable to us;
o environmental constraints on construction and operation;
o the rapidly changing market for energy products; and
o access to capital.
Consequently, all of the forward-looking statements made in this
prospectus are qualified by these cautionary statements and we cannot assure you
that the results or developments anticipated by us will be realized or, even if
realized, will have the expected consequences to or effects on us or our
business, prospects, financial condition or results of operations. You should
not place undue reliance on these forward-looking statements in making your
investment decision. We expressly disclaim any obligation or undertaking to
release publicly any updates or revisions to these forward-looking statements to
reflect events or circumstances that occur or arise or are anticipated to occur
or arise after the date hereof. In making an investment decision regarding the
exchange notes, we are not making, and you should not infer, any representation
about the likely existence of any particular future set of facts or
circumstances.
USE OF PROCEEDS
The exchange offer is intended to satisfy some of our obligations under
the 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 to repay
$545 million of inter-company indebtedness payable to affiliates and for general
company purposes.
21
CAPITALIZATION
The following table sets forth our consolidated capitalization as of June
30, 2002.
As of June 30, 2002
-------------------
(unaudited)
(in millions)
Long-term Debt:
6 7/8% Senior Notes due 2006 .................. $ 500
7 3/4% Senior Notes due 2011 .................. 800
6.95% Senior Notes due 2012 ................... 600
8 5/8% Senior Notes due 2031 .................. 500
Project Level, Non-Recourse Debt .............. 800
Pollution Control Notes ....................... 124
Unamortized Discount .......................... (10)
-------
Total Debt .................................... $ 3,314
-------
Member's Equity(1) .............................. 2,042
Basis Adjustment ................................ (986)
-------
Total Capitalization ............................ $ 4,370
=======
- ----------
(1) We are a limited liability company of which PSEG, is the sole owner and
member.
22
THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the original notes, we and the subsidiary
guarantors entered into a registration rights agreement with the initial
purchasers. Under the registration rights agreement, we and the subsidiary
guarantors agreed to use our 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 the exchange offer has not been consummated within the period specified
in the registration rights agreement, the interest rate on the original notes
will increase by 0.50% per annum, until the exchange offer is consummated.
Upon completion of the exchange offer, holders of original notes will not
be entitled to any further registration rights under the registration rights
agreement, except under limited circumstances. See "Risk Factors -- If You Fail
to Exchange Original Notes, They Will Remain Subject to Transfer Restrictions"
and "Description of the 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
$600 million 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 $600 million 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 minimum
denominations of $1,000 and integral multiples in excess thereof. The exchange
offer is not conditioned upon any minimum principal amount of original notes
being tendered. As of the date of this prospectus, $600 million 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 registration rights agreement, except
under limited circumstances. See "Risk Factors -- If You Fail to Exchange
Original Notes, They Will Remain Subject to Transfer Restrictions" and
"Description of the Exchange Notes". If any tendered original notes are not
accepted
23
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 we nor our Board of Directors make 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 , 2002.
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, we will promptly
o 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:
- 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,
24
- 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 we 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.
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
25
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 executed letter of transmittal (or facsimile thereof), with
any required signature guarantees, or an agent's message instead of the letter
of
26
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 you 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 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.
27
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 ours,
- 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 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 90 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
28
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 ours 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 us 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 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 we, the subsidiary guarantors, 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.
Interest on Exchange Notes
Interest on the Senior Notes will accrue at the rate of 6.95% per annum
and will be payable semi-annually in arrears on June 1 and December 1 of each
year, commencing December 1, 2002. We will
29
make each interest payment to the persons in whose names the exchange notes are
registered at the close of business on the 15th day immediately preceding the
applicable interest payment date. 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
The Bank of New York has been appointed as the 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 letters of transmittal should be directed to
the exchange agent as follows:
By Registered or Certified Mail:
101 Barclay Street
Floor 7 East
New York, NY 10286
Attention: Ms. Diane Amoroso
Reorganization Department
By Hand or Overnight Delivery Service:
The Bank of New York
101 Barclay Street
Corporate Trust Window -- Ground Level
New York, NY 10286
Attention: Ms. Diane Amoroso
Reorganization Department
By Facsimile Transmission (for Eligible Institutions only):
(212) 298-1915
Confirm by Telephone:
or (212) 815-3798
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
30
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 THE EXCHANGE NOTES
General
We issued the original notes and will issue the exchange notes under the
indenture dated as of April 16, 2001 (the "indenture") between and among us, the
Subsidiary Guarantors and The Bank of New York, as trustee (the "trustee"). The
trustee's address is 101 Barclay Street, Floor 8W, New York, NY 10286. The terms
of the exchange notes are stated in the indenture and include terms made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). You should refer to the indenture and the Trust
Indenture Act for a statement of these terms. The indenture and the Senior Notes
are governed by New York law. As used herein, "Senior Notes" means original
notes and/or exchange notes as the context requires.
The following summary of selected provisions of the indenture is not
complete. We recommend that you read the indenture which may be obtained from
the trustee. You can find the definitions of certain capitalized terms used in
the following summary under the subheading "-- Definitions."
The exchange notes will be our senior unsecured obligations. They will
rank equally in right of payment to all of our existing and future senior
unsecured indebtedness. Upon completion of the exchange, we will have
approximately $2,500,000,000 of senior indebtedness outstanding. The exchange
notes will rank junior to secured indebtedness to the extent of related
collateral. We currently do not have any outstanding secured indebtedness.
The exchange notes will be guaranteed, jointly and severally, by the
Subsidiary Guarantors as described below. The Subsidiary Guaranties will rank
equally in right of payment to all existing and future senior unsecured
indebtedness of the Subsidiary Guarantors. Other than intercompany debt, the
Subsidiary Guarantors currently have no indebtedness outstanding.
Principal, Maturity and Interest
The indenture does not limit the aggregate principal amount of debt
securities that we may issue under it and provides that debt securities may be
issued under it up to the principal amount as we may authorize from time to
time. The debt securities may be issued from time to time in one or more series.
We may "reopen" any series of debt securities, including the 6.95% Senior Notes
due 2012, and issue additional debt securities of that series.
The 6.95% Senior Notes due 2012 were initially limited to $600 million.
This series of Senior Notes was issued in registered form only, without coupons,
in minimum denominations of $1,000 and integral multiples in excess thereof. The
6.95% Senior Notes due 2012 will mature at par on June 1, 2012 (the "Stated
Maturity Date") unless we redeem them in accordance with their terms prior to
such date.
Interest on the 6.95% Senior Notes due 2012 accrues at the rate of 6.95%
per annum and is payable semi-annually in arrears on June 1 and December 1 of
each year (each, an "Interest Payment Date"), commencing December 1, 2002. We
will make each interest payment to the persons in whose names the Senior Notes
are registered at the close of business on the 15th day immediately preceding
the applicable 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 is not a Business Day, the required payment shall be made on
the next succeeding day that is a Business Day,
31
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.
Payment and Paying Agents
Interest on the exchange notes will be payable at any office or agency
that we maintain for such purpose in West Paterson, New Jersey and The City of
New York. At our option, however, interest may be paid (i) by check mailed to
the address of the person entitled to the interest payment at the address that
appears in the "security register" that we maintain for such purpose or (ii) by
wire transfer to an account maintained by the person entitled to the interest
payment as specified in the security register subject to the provisions
described under "-- Book Entry, Delivery and Form". (Sections 301, 1001 and 1002
of the indenture.)
Transfer and Exchange
Under the indenture, debt securities of any series, including the exchange
notes, may be presented for registration of transfer and may be presented for
exchange (i) at each office or agency that we are required to maintain for
payment of such series as described in "-- Payment and Paying Agents," above and
(ii) at each other office or agency that we 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 exchange notes, but we 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 us to (i) 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 the day of mailing of the relevant notice
of redemption; (ii) 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; or (iii) 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 such debt security not to be so repaid. (Section 305 of the
indenture.)
The registered holder of an exchange note will be treated as its owner for
all purposes.
Mandatory Redemption
We will not be required to make mandatory redemption or sinking fund
payments with respect to the exchange notes.
Optional Redemption
We may redeem the exchange notes at any time, in whole or in part, upon
not less than 30 nor more than 60 days' prior written notice, as more fully
described under "-- Selection and Notice" below, at a price equal to the greater
of:
(a) 100 percent of the principal amount of the exchange notes being
redeemed, or
(b) as determined by the calculation agent, the sum of the present
values of the remaining scheduled payments of principal and interest
on the exchange notes being redeemed not including any portion of
such payment of interest accrued on the date of redemption, from the
redemption date to the maturity date, discounted to the redemption
date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the treasury rate plus 30 basis points.
plus any accrued and unpaid interest to the date of redemption and liquidated
damages, if any, and additional amounts, if any.
32
"Treasury rate" means, with respect to any redemption date for any of the
exchange notes being redeemed:
(a) the yield for the maturity corresponding to the comparable treasury
issue (as defined below), under the heading that represents the
average for the immediately preceding week, appearing in the most
recently published statistical release designated "H.15(519)" or any
successor publication that is published weekly by the Board of
Governors of the Federal Reserve System and that establishes yields
on actively traded United States Treasury securities adjusted to
constant maturity under the caption "Treasury Constant Maturities,"
provided, that if no maturity is within three months before or after
the maturity date for any of the exchange notes being redeemed the
yields for the two published maturities most closely corresponding
to the comparable treasury issue will be determined and the treasury
rate shall be interpolated or extrapolated from those yields on a
straight line basis, rounding to the nearest month; or
(b) if the release referred to in (a) (or any successor release) is not
published during the week preceding the calculation date or does not
contain the yields referred to above, the rate per annum equal to
the semiannual equivalent yield to maturity of the comparable
treasury issue, calculated using a price for the comparable treasury
issue (expressed as a percentage of its principal amount) equal to
the comparable treasury price for that redemption date.
The treasury rate will be calculated on the third business day preceding
the redemption date.
"Comparable treasury issue" means, with respect to any redemption date for
any of the exchange notes being redeemed, the United States Treasury security
selected by an "independent investment banker" as having the maturity comparable
to the remaining term of the exchange notes to be redeemed 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 to the remaining term of the exchange notes. "Independent investment
banker" means one of the reference treasury dealers appointed by the trustee
after consultation with us.
"Comparable treasury price" means with respect to any redemption date for
any of the exchange notes being redeemed:
(a) the average of four reference treasury dealer quotations (as defined
below) for the redemption date, after excluding the highest and
lowest of those reference treasury dealer quotations, or
(b) if the calculation agent obtains fewer than four reference treasury
dealer quotations, the average of all reference treasury dealer
quotations obtained.
"Reference treasury dealer" means each of four primary U.S. Government
securities dealers in New York City selected by the trustee in consultation with
us and initially will include J.P. Morgan Securities Inc. and Salomon Smith
Barney Inc. If any reference treasury dealer ceases to be a primary U.S.
government securities dealer, the trustee will substitute another primary U.S.
government securities dealer for that dealer.
"Reference treasury dealer quotations" means, with respect to any
redemption date, the average, as determined by the calculation agent, of the bid
and asked prices for the comparable treasury issue (expressed in each case as a
percentage of its principal amount) quoted to the calculation agent by that
reference treasury dealer at 5:00 p.m. New York time on the third business day
preceding the redemption date.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the exchange notes called for
redemption.
Selection and Notice
The trustee will select the exchange notes for redemption on a pro rata
basis or in accordance with any other method the trustee considers fair and
appropriate. Exchange notes in denominations of $1,000 or less may not be
redeemed in part. Notices of redemption will be mailed by first class mail at
least 15 but not more than 60 days prior to the redemption date to each holder
of exchange notes to be redeemed at its registered address. The notice of
redemption will state the portion of the principal
33
amount to be redeemed if the exchange note is to be redeemed in part. An
exchange note in principal amount equal to the unredeemed portion will be issued
in the name of the holder upon cancellation of the original exchange note. On
and after the redemption date, interest will no longer accrue on those exchange
notes or portions of exchange notes called for redemption (unless we default in
the payment of any amount payable by us upon such redemption).
Notices to the holders of the exchange notes shall be given by first class
mail, postage prepaid, to the registered holders of such exchange notes at their
addresses appearing in the note register.
Selected Indenture Covenants
Limitations on Obligations
Restricted Subsidiaries. We will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Obligations (including, without limitation,
Acquired Obligations), except for (i) the Subsidiary Guaranties; (ii)
Obligations existing on the date of the indenture; (iii) Obligations of ER&T
related to the purchase and sale of fuel, capacity, energy (including, but not
limited to, electric power, natural gas and coal), environmental credits or
entitlements, utility services, fuel, water, related transportation services and
other similar or related products and services in the ordinary course of
business; (iv) Obligations of Nuclear related to the purchase and sale of fuel
and related transportation services in the ordinary course of business; (v)
Permitted Hedging Obligations; (vi) Obligations incurred in exchange for, or the
net proceeds of which are used to refund, refinance, or replace Obligations
described under "Limitations on Obligations", provided that the average life of
the refinancing Obligations shall not be shorter than the average life of the
Obligations being refinanced and the principal amount of the refinancing
obligations shall not exceed the principal amount of the Obligations being so
refinanced; and (vii) Obligations to us or any other Restricted Subsidiary which
are subordinated to the Subsidiary Guaranty with respect to the Senior Notes of
the Restricted Subsidiary incurring the Obligations.
The foregoing notwithstanding, Restricted Subsidiaries may Incur
Obligations not otherwise permitted by the preceding paragraph in an aggregate
amount outstanding after giving effect to such Incurrence not to exceed at any
one time the greater of $250 million or 15% of Consolidated Net Tangible Assets
as of the last day of the preceding month.
Subsidiaries Other Than Restricted Subsidiaries. Except for parental
guaranties of debt service reserves, surety bonds, equity guarantees,
performance bonds and bid bonds entered into in the ordinary course of business
aggregating at any one time not more than $100 million, we shall not permit any
Subsidiary that is not a Restricted Subsidiary to, directly or indirectly, Incur
any Obligations (including, without limitation, Acquired Obligations) that are
recourse to us or any Restricted Subsidiary. (Section 1008 of the indenture.)
Limitation on Liens
We may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or permit to exist any Lien of any kind on or
with respect to any Property or interest in our Property or that of any of our
Restricted Subsidiaries or any income or profits therefrom (in each case,
whether the Property is owned at the date of the indenture or thereafter
acquired), unless the Senior Notes are secured equally and ratably with (or
prior to) any and all other Obligations secured by the Lien, provided, however,
that these restrictions shall not apply to or prevent the creation, incurrence,
assumption or existence of Permitted Liens.
Permitted Liens shall include:
o Liens existing on the date of the indenture;
o Liens to secure or provide for the payment of all or part of the
purchase price of any Property or the cost of construction or
improvement thereof; provided that no such Lien shall extend to or
cover any other of our or our Restricted Subsidiaries' Property;
34
o Liens existing on Property at the time such Property is acquired by
us or any Restricted Subsidiary; provided that such Liens (x) are
not created, Incurred or assumed in contemplation of such Property
being acquired and (y) do not extend to or cover any other of our or
our Restricted Subsidiaries' Property;
o Liens existing on Property of any entity at the time such entity is
merged with or into or consolidated with us or a Restricted
Subsidiary; provided that such Liens (x) are not created, Incurred
or assumed in contemplation of such merger or consolidation and (y)
do not extend to any other of our or our Restricted Subsidiaries'
Property;
o Liens securing Permitted Hedging Obligations;
o Liens for taxes, assessments or governmental charges that are not
yet delinquent or that are being contested in good faith by any
appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate reserve
provision, if any, as is required in conformity with GAAP shall have
been made;
o Liens arising by reason of any judgment, decree or order of any
court, so long as any such Lien is being contested in good faith and
is bonded or such judgment, decree or order does not exceed $50
million, and any appropriate legal proceedings that may have been
duly initiated for the review of such judgment, decree or order have
not been finally terminated or the period within which such
proceedings may be initiated has not expired;
o Liens to secure pledges or deposits made in the ordinary course of
business in connection with bids, tenders or contracts (other than
for payment of indebtedness) or to secure guarantees, statutory or
regulatory obligations or surety or performance bonds each made in
the ordinary course of business;
o Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens, in each case arising in the ordinary course of
business and with respect to amounts not yet due or being contested
in good faith by appropriate legal proceedings promptly instituted
and diligently conducted and for which a reserve or other
appropriate provision, if any, as is required in conformity with
GAAP shall have been made;
o Survey exceptions, encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning
or other restrictions as to the use of real properties incidental to
the conduct of the business or to the ownership of Properties which
were not incurred in connection with indebtedness or other
extensions of credit and which do not in the aggregate materially
and adversely affect the value of the Properties or materially
impair their use in the operation of the business;
o Liens securing letters of credit entered into in the ordinary course
of business;
o Liens to secure pollution control revenue bonds or industrial
revenue bonds;
o Liens securing Non-Recourse Obligations of Unrestricted
Subsidiaries;
o Liens granted on the capital stock of Unrestricted Subsidiaries for
the purpose of securing the Obligations of such Unrestricted
Subsidiaries;
o Liens pursuant to Capitalized Leases or Synthetic Leases permitted
to be entered into under the "Limitation on Obligations" covenant;
o Liens arising by reason of leases and subleases of Property pursuant
to a Sale/Leaseback Transaction allowed pursuant to the "Limitation
on Sale of Assets" covenant that do not materially interfere with
the ordinary conduct of our or any of our Restricted Subsidiaries'
business;
o Liens created in connection with worker's compensation, unemployment
insurance and other social security statutes or regulations;
35
o Liens by a Wholly-Owned Subsidiary to us or any Restricted
Subsidiary;
o Liens on Property, other than Capital Stock of Restricted
Subsidiaries, to secure Obligations so long as the sum of the amount
of outstanding Obligations secured by Liens Incurred pursuant to
this provision does not exceed the greater of $250 million or 15% of
Consolidated Net Tangible Assets as of the end of the most recent
fiscal quarter for which financial statements are available; and
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 outstanding 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 Indebtedness secured thereby; provided that
such replacement, extension or renewal is limited to all or part of
the same Property that secured the Lien replaced, extended or
renewed (plus improvements thereon or additions or accessions
thereto). (Section 1005 of the indenture.)
Guarantee of Senior Notes
Each initial Subsidiary Guarantor (Fossil, Nuclear and ER&T) has executed
and any subsequent Subsidiary Guarantor at or before the time the definition of
Subsidiary Guarantor shall be applicable to it, shall execute, a Subsidiary
Guaranty of the Senior Notes in substantially the form provided for by the
indenture. (Section 1601 of the indenture.)
Guarantee of ER&T Obligations
We have executed a guarantee of the Obligations of ER&T substantially in
the form provided for by the indenture. Our guarantee is subordinated to the
Senior Notes.
Payment of Dividends by ER&T to Us
For so long as we continue to guarantee the Obligations of ER&T, we shall
cause ER&T, to the extent permitted by applicable law, to pay, at least
quarterly, dividends or distributions to us of the excess cash not then required
for its business operations. (Section 1010 of the indenture.)
Limitation on Dividend and Other Payment Restrictions
Other than pursuant to the indenture or as otherwise may be required by
law, we will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create or cause to become, or as a result of the acquisition of any
Person or Property, or upon any Person becoming a Restricted Subsidiary, remain
subject to, any consensual encumbrance or consensual restriction of any kind on
the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its Capital Stock;
(ii) make payments on any Obligations owed to us or any of our Restricted
Subsidiaries;
(iii) make loans or advances to us or to any of our Restricted
Subsidiaries;
(iv) transfer any of its Property to us or to any of our Restricted
Subsidiaries; or
(v) make payments under a Subsidiary Guaranty with respect to the Senior
Notes.
The foregoing shall not prohibit:
(a) encumbrances and restrictions resulting from customary provisions
relating to (i) transfers of Property that restrict the subletting
or assignment of any lease or (ii) transfers of Property that are
contained in licenses and that relate to the Property covered
thereby, in each case entered into in the ordinary course of
business;
(b) encumbrances and restrictions on transfers of Property existing on
any assets at the time such assets are acquired (or the entity
owning such assets is acquired) by any Restricted Subsidiary,
whether by merger, consolidation, purchase of such assets or
otherwise; provided
36
that such restrictions and encumbrances (i) are not created,
Incurred or assumed in contemplation of such assets or entity being
acquired by the Restricted Subsidiary and (ii) do not extend to any
other assets of the Restricted Subsidiary; and
(c) restrictions on transfers of Property created in connection with
sales or purchases of electricity, energy, capacity, natural gas,
coal, ancillary services, environmental credits and/or entitlements,
utility services, fuel, water, related transportation services and
other similar products and services, in each case, in the ordinary
course of business; provided that restrictions arising from any
transaction or series of related transactions pursuant to this
clause (c) shall not be materially more restrictive, taken as a
whole, than encumbrances and restrictions customarily accepted as
industry standard for similar transactions. (Section 1007 of the
indenture.)
Limitation on Sale of Assets
Except for a sale of all or substantially all of our assets, as provided
in the "Merger, Consolidation or Sale of Assets" covenant, and other than (1)
assets required to be sold to conform with government regulations, laws or
impositions, (2) sales or dispositions of surplus, obsolete or worn out
equipment, (3) sales or dispositions of ownership interests in Unrestricted
Subsidiaries, or (4) any other sale or disposition so long as after giving
effect to such events, the Rating Agencies shall have confirmed their ratings on
our debt securities in effect immediately prior to such sale or disposition, we
may not, and may not permit any Restricted Subsidiary to, make any Asset Sale
(other than short-term, readily marketable investments purchased for cash
management purposes with funds not representing the proceeds of other Asset
Sales) if, on a pro forma basis, the aggregate net book value of all such Asset
Sales during the most recent 12-month period would exceed 15% of Consolidated
Net Tangible Assets computed as of the most recent quarter preceding such sale;
provided, however, that any such Asset Sale shall be disregarded for purposes of
this 15% limitation if the Net Cash Proceeds are within 270 days thereafter (i)
invested in a Permitted Business, (ii) used to purchase and retire Obligations
ranking equal in right of payment to the Senior Notes or (iii) used to redeem
the Senior Notes at a redemption price equal to 100% of the principal amount of
the Senior Notes to be redeemed, plus accrued and unpaid interest thereon up to
and including the applicable redemption date, plus a make-whole premium equal
to, with respect to any Senior Note, the excess of (a) the aggregate present
value as of the date of prepayment of the expected future cash flows of the
Senior Note (for the avoidance of doubt, these amounts shall include all
principal and interest payable with respect to the Senior Note) (exclusive of
interest accrued to the date of prepayment) that, but for the prepayment, would
have been payable if the prepayment had not been made, determined by discounting
such amounts at a rate that is equal to the applicable treasury rate (as defined
under "-- Optional Redemption" above) plus 0.30% for the 6.95% Senior Notes due
2012 (b) the aggregate principal amount of the Senior Note then to be prepaid.
In addition, on a cumulative basis we may not sell or otherwise dispose of
more than 25% of the assets or Capital Stock in Fossil, unless Net Cash Proceeds
from such sale are invested in other non-nuclear generation assets or the
capital stock of entities engaged in fossil generation and related businesses.
(Section 1006 of the indenture.)
Merger, Consolidation or Sale of Assets
We may not, directly or indirectly, consolidate or merge with or into any
other person (whether or not we are the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
assets, in one or more related transactions, to another Person unless:
(i) the Person formed by the consolidation or surviving the merger or
the Person that acquires by sale, assignment, transfer, conveyance
or other disposition, or that leases, the assets (if other than us)
(in each such case, the "Successor Entity"), is a corporation or
limited liability company organized and existing under the laws of
the United States, any state thereof or the District of Columbia and
expressly assumes our obligations under the indenture and the Senior
Notes;
37
(ii) if any of our or a Restricted Subsidiary's Property or assets would
become subject to a Lien other than a Permitted Lien under the
"Limitations on Liens" covenant, the Senior Notes shall be equally
and ratably secured in accordance with such covenant;
(iii) immediately after such transaction no event exists that is or with
the passage of time or the giving of notice or both would be an
Event of Default under the indenture; and
(iv) each Subsidiary Guarantor shall have by amendment to its Subsidiary
Guaranty with respect to the Senior Notes confirmed that its
Subsidiary Guaranty shall apply to the obligations of the Successor
Entity under the indenture and the Senior Notes. (Section 801 of the
indenture.)
Events of Default and Remedies
Each of the following is an Event of Default under the indenture with
respect to any series of the Senior Notes:
(i) default for five days in the payment when due of interest on any of
the exchange notes of such series;
(ii) default in the payment when due of the principal of, or premium, if
any, or make-whole amount, on, the exchange notes of such series;
(iii) default in the deposit of any sinking fund payment, when and as due
by the terms of the debt securities of such series;
(iv) failure by us or any Restricted Subsidiary to comply with the
provisions described under "Limitation on Sale of Assets" or
"Merger, Consolidation or Sale of Assets";
(v) failure by us or any Restricted Subsidiary for 60 days after written
notice by the trustee or to us and to the trustee by the holders of
25% or more in aggregate principal amount of the Senior Notes of
such series to comply with any of our agreements in the indenture or
the Senior Notes of such series that are not otherwise covered in
clauses (i), (ii), (iii), (iv), (vi), (vii) or (viii);
(vi) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any of our or any of our Subsidiaries; indebtedness (including
indebtedness represented by any other series of debt securities
under the indenture or the payment of which is guaranteed by us or
by any of our Subsidiaries) (but other than Non-Recourse
Obligations) which default (a) is caused by a failure to pay the
principal of such indebtedness at the stated maturity of such
indebtedness after the expiration of grace periods provided in the
indebtedness (a "Payment Default") or (b) has resulted in the
acceleration of the indebtedness prior to its stated maturity; and,
in each case the principal amount of the indebtedness, together with
the principal amount of any other indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $50 million or more;
(vii) failure by us or any of our Restricted Subsidiaries to pay one or
more final judgments not otherwise covered by insurance aggregating
in excess of $50 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and
(viii)certain events of bankruptcy or insolvency with respect to us or
any of our Restricted Subsidiaries. (Section 501 of the indenture.)
Each series of debt securities issued under the indenture may specify
other events of default for such series of debt securities.
We are required to file with the trustee, annually, an officer's
certificate as to our compliance with all conditions and covenants under the
indenture. (Section 1011 of the indenture.) The indenture provides that the
trustee may withhold notice to the holders of debt securities of a series,
including the Senior 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 515 of the indenture.)
38
If an Event of Default (other than an Event of Default occasioned by our
or any of our Restricted Subsidiaries' bankruptcy or insolvency) with respect to
debt securities of a series, including the Senior 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 (or, if
the debt securities of that series are issued with original issue discount or
are "indexed debt securities" (i.e., debt securities, the interest and principal
payments on which are determined by reference to a particular index, such as a
foreign currency or commodity), such portion of the principal as may be
specified in the terms of those debt securities) of all of the debt securities
of that series to be due and payable immediately, by a notice in writing to us
and any Restricted Subsidiary.
If an Event of Default occasioned by our or any of our Restricted
Subsidiaries' bankruptcy or insolvency occurs and is continuing, the principal
of and interest on all debt securities, including the Senior Notes, shall, ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the trustee or any holders of debt securities.
(Section 502 of the indenture.)
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 Senior Notes, has occurred and is continuing, 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 indemnity
satisfactory to the trustee against the expenses and liabilities which might be
incurred by it in compliance with such request. (Section 507 of the indenture.)
Subject to such 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 each series of the Senior 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 Senior 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 such series and its
consequences, except a default (i) 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 (ii) 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 such series
affected thereby. (Section 513 of the indenture.)
Definitions
"Acquired Obligations" means, with respect to any Person, (i) Obligations
of any other Person existing at the time the other Person is merged with or into
or became a Subsidiary of the Person, including, without limitation, Obligations
Incurred in connection with, or in contemplation of, the other Person merging
with or into or becoming a Subsidiary of the Person; and (ii) Obligations
secured by a Lien encumbering any asset acquired by the Person at the time the
asset is acquired by the Person.
"Asset Sale" means any sale, transfer, conveyance, lease or other
disposition (including by way of merger, consolidation or sale-leaseback) by us
or any of our Restricted Subsidiaries to any Person (other than to us or a
Restricted Subsidiary of ours and other than in the ordinary course of business)
of any Capital Stock or other Property of ours or of any of our Restricted
Subsidiaries (including Capital Stock of Subsidiaries). The term "Asset Sale"
will not include (i) any sale, transfer, conveyance, lease or other disposition
of Property governed by the "Merger, Consolidation or Sale of Assets" covenant
and (ii) any transaction or series of related transactions consisting of the
sale, transfer, conveyance, lease or other disposition of Capital Stock or other
Property with a Fair Market Value aggregating less than $50 million in any
fiscal year. The term "Asset Sale" also will not include (a) the grant of or
realization upon a Lien permitted under the "Limitation on Liens" covenant or
the exercise of remedies thereunder and (b) sales of fuel, capacity, energy
(including, but not limited to, electric power, natural gas and coal),
environmental credits or entitlements, related transportation services and other
related services by ER&T and its Permitted Hedging Obligations as permitted by
the "Limitation on Obligations" covenant.
39
"Attributable Debt" means with respect to any Sale/Leaseback Transaction,
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/Leaseback
Transaction (including any period for which the lease has been extended).
"Board of Directors" means either the Board of Directors of PSEG Power or
any duly authorized committee of such Board.
"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.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Capitalized Lease" means as applied to any Person, any lease of any
Property of which the discounted present value of the rental obligations of such
Person as lessee, in conformity with GAAP, is required to be capitalized on the
balance sheet of such Person, and "Capitalized Lease Obligation" means the
rental obligations, as aforesaid, under such lease.
"Commodity Trading Obligations," with respect to any Person, means the
Obligations of such Person under (i) any commodity swap agreement, commodity
future agreement, commodity option agreement, commodity cap agreement, commodity
floor agreement, commodity collar agreement, commodity hedge agreement, and any
put, call or other agreement or arrangement, or combination thereof, designed to
protect such Person against fluctuations in commodity prices or (ii) any
commodity swap agreement, commodity future agreement, commodity option
agreement, commodity hedge agreement, and any put, call or other agreement or
arrangement, or combination thereof (including an agreement or arrangement to
hedge foreign exchange risks) in respect of commodities entered into by us
pursuant to asset optimization and risk management policies and procedures
adopted in good faith by the Board of Directors.
"Consolidated Current Liabilities," as of the date of determination, means
the aggregate amount of our and our Restricted Subsidiaries' liabilities on a
consolidated basis which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating (i) all inter-company
items between us and any consolidated Restricted Subsidiary, (ii) all current
maturities of long-term indebtedness, all as determined in accordance with GAAP
and (iii) all liabilities attributable to Subsidiaries that are not Restricted
Subsidiaries.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the total amount of assets (less accumulated depreciation or amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) of us and our Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, consistently applied, and after
giving effect to purchase accounting and after deducting therefrom, to the
extent otherwise included, the amounts of:
o Consolidated Current Liabilities;
o excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors;
o unamortized debt discount and expense and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, deferred project costs, organization or
developmental expenses and other intangible items;
o treasury stock;
40
o any cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and
o all assets attributable to Subsidiaries that are not Restricted
Subsidiaries (including Capital Stock thereof), except to the extent
of dividends or distributions received from such Subsidiaries.
"Default" means any event, act or condition that is, or after notice or
the passage of time or both would be, an Event of Default.
"Event of Default" has the meaning specified in Section 501 of the
indenture.
"Fair Market Value" means the price that would be paid by a purchaser to a
seller in an arm's-length transaction.
"GAAP" means generally accepted accounting principles in the United States
applied on a basis consistent with the principles, methods, procedures and
practices employed in the preparation of our audited financial statements,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under any interest rate or currency swap agreement, interest rate
or currency future agreement, interest rate cap or collar agreement, interest
rate or currency hedge agreement, and any put, call or other agreement or
arrangement designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Incur" means, with respect to any Obligation, to directly or indirectly
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable for or with respect to, or become responsible for payment of,
contingently or otherwise, such Obligation. The term "Incurrence" has a
corresponding meaning.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority, or other security or similar agreement or preferential
arrangement 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).
"Net Cash Proceeds" from an Asset Sale is defined to mean cash payments
received (including any cash payments received by way of a payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received (including any cash received upon sale or disposition of any such note
or receivable), excluding any other consideration received in the form of
assumption by the acquiring Person of Obligations relating to the Property
disposed of in such Asset Sale or received in any form other than cash)
therefrom, in each case, net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses of any kind (including consent and
waiver fees and any applicable premiums, earn-out or working interest payments
or payments in lieu or in termination thereof) Incurred, (ii) all federal,
state, provincial, foreign and local taxes and other governmental charges
required to be accrued as a liability under GAAP as a consequence of such Asset
Sale, (iii) a reasonable reserve for the after-tax cost of any indemnification
payments (fixed and contingent) attributable to seller's indemnities to the
purchaser undertaken by us or any of our Subsidiaries in connection with such
Asset Sale, (iv) all payments made on any Obligation that is secured by such
Property, in accordance with the terms of any Lien upon or with respect to such
Property, or that must by its terms or by applicable law or in order to obtain a
required consent or waiver be repaid out of the proceeds from or in connection
with such Asset Sale and (v) all distributions and other payments made to
holders of Capital Stock of Subsidiaries (other than us or our Restricted
Subsidiaries) as a result of such Asset Sale.
41
"Non-Recourse Obligation" means, with respect to any Person, any financing
that is or was Incurred with respect to the development, acquisition, design,
engineering, procurement, construction, operation, ownership, servicing or
management of one or more facilities used or useful in a Permitted Business in
respect of which such Person has a direct or indirect interest, provided that
such financing is without recourse to any Person or Property other than to (i)
the Property that constitutes such facilities, (ii) the income from and proceeds
of such facilities, (iii) the Capital Stock of, and other investments in, the
Person that owns the Property that constitutes any such facilities and (iv) the
Capital Stock of, and other investments in, any Person obligated with respect to
such financing and of any Subsidiary of such Person that owns a direct or
indirect interest in any such facilities.
"Obligations" of any Person shall mean at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person arising under any conditional sale or other
title retention arrangement or otherwise to pay the deferred purchase price of
Property or services, (iv) all obligations of such Person Incurred in respect of
Attributable Debt associated with any Sale/Leaseback Transaction, Capitalized
Lease or Synthetic Lease, (v) all obligations of such Person under letters of
credit, (vi) all obligations of such Person under trade or bankers' acceptances,
(vii) all obligations of such Person under Hedging Obligations and Commodity
Trading Obligations, (viii) trade payables in respect of fuel, labor, supplies
or other materials or services or the obligation to provide power, (ix)
Preferred Stock and Redeemable Stock issued to any Person other than us or a
Restricted Subsidiary, (x) all obligations of others secured by a Lien on any
asset of such Person, whether or not such obligations are assumed by such Person
and (xi) all obligations of others to the extent guaranteed by such Person. The
amount of any obligation shall be deemed to be the amount equal to the stated or
determinable amount thereof or, if not stated or determinable, the maximum
probable liability thereunder as determined by us in good faith.
"Permitted Business" means any business in which we or any of our
Subsidiaries were engaged on the date of the indenture or any other power or
energy-related business, including the business of acquiring, developing, owning
or operating electric power or thermal energy generation or cogeneration
facilities, electric power transmission, fuel supply and fuel transportation
facilities, together with their related power supply, thermal energy and fuel
contracts and other facilities, services or goods that are ancillary,
incidental, complementary or reasonably related to the marketing, trading,
development, construction or management servicing, ownership or operation of the
foregoing.
"Permitted Hedging Obligations" of any Person shall mean (i) Hedging
Obligations entered into in the ordinary course of business and in accordance
with such Person's established risk management policies that are designed to
protect such Person against, among other things, fluctuations in interest rates
or currency exchange rates and which in the case of agreements relating to
interest rates shall have a notional amount no greater than the payments due
with respect to the Obligations being hedged thereby and (ii) Commodity Trading
Obligations.
"Person" means an individual, a corporation, a limited liability company,
a partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) or preferred or preference stock of such Person that is
outstanding or issued on or after the date of original issuance of the debt
securities under the indenture.
"Property" of any Person is defined to mean all types of real, personal,
tangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Rating Agencies" means Moody's Investors Service Inc., Standard & Poor's
Ratings Services, Fitch Inc. and any successor thereof.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Senior Notes,
42
(ii) redeemable at the option of the holder of such Capital Stock at any time
prior to the Stated Maturity of the Senior Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Obligations having a scheduled maturity prior to the Stated Maturity of the
Senior Notes.
"Restricted Subsidiary" means only PSEG Fossil LLC, PSEG Nuclear LLC, PSEG
Energy Resources & Trade LLC and each other of our Subsidiaries that executes a
Subsidiary Guaranty with respect to the Senior Notes and is subsequently
designated by the Board of Directors by written notice to the trustee as a
Restricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to Property now
owned or hereafter acquired whereby we or one of our Subsidiaries transfers the
Property to a Person and leases it back from that Person, other than leases for
a term of not more than 12 months or between us and one of our Wholly-Owned
Subsidiaries that is a Restricted Subsidiary or between Wholly-Owned
Subsidiaries that are Restricted Subsidiaries.
"Stated Maturity" means with respect to any Senior Note or any installment
of interest thereon, the date specified in such Senior Note as the fixed date on
which any principal of such Senior Note or any such installment of interest is
due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
limited liability company, association or other business entity of which more
than 50% of the total voting power of Voting Stock is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and (ii) any partnership
(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantor" means all current and subsequently designated
Restricted Subsidiaries.
"Subsidiary Guaranty" means a guaranty of a Subsidiary Guarantor in favor
of the trustee for the benefit of the holders of the Senior Notes in
substantially the form provided for by the indenture or a guaranty of a
Subsidiary Guarantor of any other of our Obligations.
"Synthetic Lease" means (i) a lease pursuant to which the lessee is
treated as the owner of the Property subject to the lease for tax purposes,
whether or not such lease is treated as an operating lease for accounting
purposes or (ii) a lease treated as an operating lease for accounting purposes
but having at least three of the following characteristics, (a) the term of the
lease, inclusive of all renewal periods at the lessee's option, is greater than
75% of the useful life of the Property subject to the lease as estimated at the
inception of the Lease, (b) the lessee has the right to purchase such Property
at a fixed price, (c) the lessee's payments under the lease are calculated to
amortize and service the debt of the lessor incurred in order to acquire the
asset and (d) the lessor obtains 80% or more of the cost of the asset from
borrowed funds.
"Unrestricted Subsidiary" means a Subsidiary that is not a Restricted
Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Obligations
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Obligations into (ii) the total of the product obtained
by multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (b) the numbers of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
43
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by us and/or one or
more of our Wholly-Owned Subsidiaries.
Reports and Rule 144A Information Requirement
We must file with the trustee, within 30 days of filing them with the SEC,
copies of the current, quarterly and annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that we are required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If we are not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, we must
nevertheless file with the SEC (if permitted) and the trustee, on the date upon
which we would have been required to file with the SEC, current, quarterly and
annual financial statements, including any notes thereto (and with respect to
annual reports, an auditor's report by a firm of established national
reputation, upon which the trustee may conclusively rely), and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," both
comparable to that which we would have been required to include in such current,
quarterly and annual reports, information, documents or other reports on Forms
8-K, 10-Q and 10-K if we were subject to the requirements of Section 13 or 15(d)
of the Exchange Act; provided that we will not be required to register under the
Exchange Act by virtue of this provision, if not otherwise required to do so.
We have agreed to furnish to the holders of the Senior Notes and
prospective purchasers of the Senior Notes designated by holders of the Senior
Notes, upon their request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act until such time as the Senior Notes are
no longer "restricted securities" within the meaning of Rule 144 under the
Securities Act (assuming such Senior Notes have not been owned by an affiliate
of ours).
No Personal Liability of Directors, Officers, Employees and Members
No past, present or future director, officer, employee, or member, as
such, shall have any liability for any of our obligations under the Senior Notes
and the indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each holder by accepting an exchange note
waives and releases all such liability as part of the consideration for issuance
of the exchange notes. This waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such waiver
is against public policy.
(Section 113 of the indenture.)
Satisfaction and Discharge
According to the terms of the indenture, we may discharge certain
obligations to holders of any series of debt securities, including the exchange
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 thereto, 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.)
Legal Defeasance and Covenant Defeasance
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 exchange notes, and any related coupons pursuant to Section 301
thereunder, we may elect either (a) to defease and be discharged from any and
all obligations with respect to such debt securities and any related coupons
(except for the obligation 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
44
moneys for payment in trust) (defeasance) (Section 1402 of the indenture) or (b)
to be released from our 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
(covenant defeasance) (Section 1403 of the indenture), in either case upon the
irrevocable deposit by us with the trustee (or other qualifying trustee), in
trust, of (i) an amount in United States Dollars, (ii) 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 (iii) a combination thereof in an amount,
sufficient to pay the principal of (and premium, if any) and interest, if any,
on such debt securities and any related coupons, and any mandatory sinking fund
or analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, we have
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 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 (i) direct obligations
of the United States or (ii) 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 we effect covenant defeasance with respect to any debt
securities and any related coupons and such 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 clause (iii) under "Events of
Default and Remedies" which provisions would no longer be applicable to such
debt securities and coupons), 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, we would
remain liable to make payment of such amount 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 our 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;
provided, however, that if we make 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, we 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.
45
Amendment, Supplement and Waiver
We 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 thereby, 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;
o change the rate, or manner of calculating the rate, of interest;
o change any of our obligations 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 foregoing 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; or
o modify or affect the terms and conditions of the obligations of any
Subsidiary Guarantor in respect of the due and punctual payment of
principal of, or any premium or interest on, guaranteed securities.
(Section 902 of the indenture.)
The trustee and we 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 us and the
assumption by any successor of our covenants under the indenture and
the debt securities;
o to add to our covenants for the benefit of the holders of all or any
series of debt securities issued under the indenture, including the
exchange notes, and any related coupons or to surrender any right or
power conferred upon us 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 exchange 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;
46
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 provisions which
are entitled to the benefit of the provisions;
o to secure the debt securities, including the exchange notes, under
the indenture pursuant to the "Limitations on Liens" covenant 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;
o to cure an 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 exchange
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
exchange notes, provided that the action does not adversely affect
the interests of the holders of the debt securities of that series,
including the exchange 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 of 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 us or any other obligor upon the debt
securities or any affiliate of ours 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 us 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 the 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.)
47
Notwithstanding the foregoing provisions, if any action is to be taken at
a meeting of holders of debt securities of a series, including the exchange
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
o the principal amount of the outstanding debt securities of the
series that vote in favor of the 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.)
Concerning the Trustee
The Bank of New York is the trustee under the indenture.
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any Holder of Senior Notes, unless such
Holder will have offered to the trustee security and indemnity satisfactory to
it against any loss, liability or expense. The trustee may resign at any time
with respect to a series of debt securities by written notice in accordance with
the indenture. In addition, the trustee may be removed upon the happening of
certain events specified in the indenture. Following any resignation or removal
of the trustee, our Board of Directors will promptly appoint a successor trustee
with respect to the debt securities affected in accordance with the indenture.
Book-Entry, Delivery and Form
The certificates representing the exchange notes will be in fully
registered form without interest coupons.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the exchange notes represented by such Global
Notes for all purposes under the indenture. No beneficial owner of an interest
in the Global Notes will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
indenture and, if applicable, Euroclear or Clearstream.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of us, the trustee, or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Notes will
credit participants, accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of such Global
Notes, as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in such Global Notes
held through such participants will be governed
48
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of Senior Notes. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Neither the trustee nor we will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed within 90 days, we
will issue definitive, certificated Senior Notes in exchange for the Global
Notes.
Euroclear has advised us as follows: Euroclear was created in 1968 to hold
securities for its participants and to clear and settle transactions between its
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash. Euroclear
provides various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries. Euroclear is operated by
Euroclear Bank S.A./N.V. (the "Euroclear Operator"), under contract with
Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear participants. Euroclear participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to others that clear through or maintain a custodial relationship
with a Euroclear participant, either directly or indirectly.
The Euroclear Operator was granted a banking license by the Belgian
Banking and Finance Commission in 2000, authorizing it to carry out banking
activities on a global basis. It took over operation of Euroclear from the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York on
December 31, 2000.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System, and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions with respect to exchange notes held beneficially through
Euroclear will be credited to the cash accounts of Euroclear participants in
accordance with the Terms and Conditions, to the extent received by Euroclear.
Clearstream has advised us as follows: Clearstream is incorporated under
the laws of The Grand Duchy of Luxembourg as a professional depositary.
Clearstream holds securities for its participants and facilitates the clearance
and settlement of securities transactions between its participants through
49
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Clearstream provides
to its participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depositary, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are financial institutions around the world, including securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to Clearstream is also available to others
that clear through or maintain a custodial relationship with a Clearstream
participant either directly or indirectly.
Distributions with respect to exchange notes held beneficially through
Clearstream will be credited to cash accounts of Clearstream participants in
accordance with its rules and procedures, to the extent received by Clearstream.
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, (the "Code") 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 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.
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;
50
(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 of an exchange note before maturity.
A "backup withholding" tax at the applicable statutory rate 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 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;
51
(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)(d) 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 or a
foreign partnership in which one or more of its partners are "U.S. persons" as
defined in U.S. Treasury regulations, who, in the aggregate, hold more than 50%
of the income or capital interest in the partnership or a foreign partnership
engaged in a United States trade or business (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 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.
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 90
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
52
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 90 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 us 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.
LEGAL OPINIONS
The validity of the exchange notes will be passed upon for us by James T.
Foran, Esquire, Associate General Counsel of PSEG. The information contained in
"Federal Income Tax Considerations" has been passed upon for us by Mr. Foran.
EXPERTS
The financial statements and the related financial statement schedule,
incorporated in this prospectus by reference from the PSEG Power LLC Annual
Report on Form 10-K for the year ended December 31, 2001 and the financial
statements from which the Selected Financial Data included in this prospectus
under the captions "Income Statement Data", "Balance Sheet Data", and Capital
Expenditures under the caption "Other Data" for each of the five years in the
period ended December 31, 2001 have been derived, 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 and included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
53
================================================================================
$600,000,000
[Logo] PSEG
Power LLC
Offer to Exchange
$600,000,000 6.95% Senior Notes due 2012
Which have been registered under the Securities Act
For Any and All Outstanding
$600,000,000 6.95% Senior Notes due 2012
Which have not been so registered
================================================================================
Part II
Information not required in Prospectus
Item 20. Indemnification of Directors and Officers
Article 18 of each registrant's limited liability agreement provides, as
follows:
o No Member, Officer, Director, employee or agent of the Company
and no employee, representative, agent or Affiliate of the
Member (collectively, the "Covered Persons") shall be liable
to the Company or any other Person who has an interest in or
claim against the Company for any loss, damage or claim
incurred by reason of any act or omission performed or omitted
by such Covered Person in good faith on behalf of the Company
and in a manner reasonably believed to be within the scope of
the authority conferred on such Covered Person by this
Agreement, except that a Covered Person shall be liable for
any such loss, damage or claim incurred by reason of such
Covered Person's willful misconduct.
Article 18 also provides as follows:
o To the fullest extent permitted by applicable law, a Covered
Person shall be entitled to indemnification from the Company
for any loss, damage or claim incurred by such Covered Person
by reason of any act or omission performed or omitted by such
Covered Person in good faith on behalf of the Company and in a
manner reasonably believed to be within the scope of the
authority conferred on such Covered Person by this Agreement,
except that no Covered Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred
by such Covered Person by reason of such Covered Person's
willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section 18
shall be provided out of and to the extent of Company assets
only, and no Member shall have personal liability on account
thereof.
The directors and officers of the registrants are insured under policies
of insurance, within the limits and subject to the limitations of the policies,
against claims made against them for acts in the discharge of their duties, and
each registrant is insured to the extent that it is required or permitted by law
to indemnify the directors and officers for such loss. The premiums for such
insurance are paid by the respective registrant.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits.
Exhibit
Number Description
- ------- -----------
3.1 -- Certificate of Formation of PSEG Power LLC.(1)
3.2 -- PSEG Power LLC Limited Liability Company Agreement.(1)
3.3 -- Certificate of Formation of PSEG Fossil LLC.(1)
3.4 -- PSEG Fossil LLC Limited Liability Company Agreement.(1)
3.5 -- Certificate of Formation of PSEG Nuclear LLC.(1)
3.6 -- PSEG Nuclear LLC Limited Liability Company Agreement.(1)
3.7 -- Certificate of Formation of PSEG Energy Resources & Trade LLC.(1)
3.8 -- PSEG Energy Resources & Trade LLC Limited Liability Company
Agreement.(1)
4.1 -- Indenture dated April 16, 2001 between Registrants and The Bank of New
York and form of Subsidiary Guaranty included therein.(1)
4.2 -- Registration Rights Agreement dated June 4, 2002 between Registrants
and the purchasers named therein.
4.3 -- Form of 6.95% Exchange Note.
5 -- Opinion of James T. Foran, Esquire.
8 -- Opinion of James T. Foran, Esquire regarding tax matters.
10 -- Basic Generation Service Contract with PSE&G.(1)
12 -- Statement regarding computation of ratios of earnings.
II-1
Exhibit
Number Description
- ------- -----------
21 -- Subsidiaries of the Registrants.(1)
23.1 -- Consent of James T. Foran, Esquire (contained in Exhibits 5 and 8).
23.2 -- Independent Auditors' Consent.
24 -- Power of Attorney.
25 -- Statement of Eligibility of Trustee on Form T-1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
- ----------
(1) Previously filed as the respectively numbered exhibit with Registrant's
Registration Statement on Form S-4, No. 333-69228, September 10, 2001 and
incorporated herein by reference.
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
The undersigned registrants hereby undertake (a):
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change in such information in the
registration statement; provided, however, that the registrant
need not file a post-effective amendment to include the
information required to be included by subsection (a)(1)(i) or
(a)(l)(ii) if such information is contained in periodic
reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PSEG Fossil LLC, certifies that it has reasonable grounds to believe
it meets all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newark, State of New Jersey, on this 8th day of
August, 2002.
PSEG Fossil LLC
By: /s/ Thomas R. Smith
-------------------
Thomas R. Smith
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas R. Smith Principal Executive August 8, 2002
- ------------------------------------------------ Officer, Principal Financial
Thomas R. Smith Officer and Director
/s/ Patricia A. Rado Principal Accounting Officer August 8, 2002
- ------------------------------------------------
Patricia A. Rado
/s/ Frank Cassidy Director August 8, 2002
- ------------------------------------------------
Frank Cassidy
/s/ Harold W. Keiser Director August 8, 2002
- ------------------------------------------------
Harold W. Keiser
/s/ Steven R. Teitelman Director August 8, 2002
- ------------------------------------------------
Steven R. Teitelman
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PSEG Nuclear LLC, certifies that it has reasonable grounds to
believe it meets all of the requirements for filing on Form S-4 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newark, State of New
Jersey, on this 8th day of August, 2002.
PSEG Nuclear LLC
By: /s/ Harold W. Keiser
--------------------
Harold W. Keiser
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
Signature Title Date
--------- ---- ----
/s/ Harold W. Keiser Principal Executive August 8, 2002
- ------------------------------------------------ Officer, Principal Financial
Harold W. Keiser Officer and Director
/s/ Patricia A. Rado Principal Accounting Officer August 8, 2002
- ------------------------------------------------
Patricia A. Rado
/s/ Frank Cassidy Director August 8, 2002
- ------------------------------------------------
Frank Cassidy
/s/ Thomas R. Smith Director August 8, 2002
- ------------------------------------------------
Thomas R. Smith
/s/ Steven R. Teitelman Director August 8, 2002
- ------------------------------------------------
Steven R. Teitelman
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PSEG Energy Resources & Trade LLC, certifies that it has reasonable
grounds to believe it meets all of the requirements for filing on Form S-4 and
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newark, State of New
Jersey, on this 8th day of August, 2002.
PSEG Energy Resources & Trade LLC
By: /s/ Steven R. Teitelman
-----------------------------
Steven R. Teitelman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ---- ----
/s/ Steven R. Teitelman Principal Executive August 8, 2002
- ------------------------------------------------ Officer, Principal Financial
Steven R. Teitelman Officer and Director
/s/ Patricia A. Rado Principal Accounting Officer August 8, 2002
- ------------------------------------------------
Patricia A. Rado
/s/ Frank Cassidy Director August 8, 2002
- ------------------------------------------------
Frank Cassidy
/s/ Harold W. Keiser Director August 8, 2002
- ------------------------------------------------
Harold W. Keiser
/s/ Thomas R. Smith Director August 8, 2002
- ------------------------------------------------
Thomas R. Smith
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PSEG Power LLC, certifies that it has reasonable grounds to believe
it meets all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newark, State of New Jersey, on this 8th day of
August, 2002.
PSEG POWER LLC
By: /s/ Frank Cassidy
-----------------
Frank Cassidy
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ---- ----
/s/ E. James Ferland Principal Executive August 8 , 2002
- ------------------------------------------------ Officer, and Director
E. James Ferland
/s/ Thomas M. O'Flynn Principal Financial Officer August 8, 2002
- ------------------------------------------------ and Director
Thomas M. O'Flynn
/s/ Patricia A. Rado Principal Accounting Officer August 8, 2002
- ------------------------------------------------
Patricia A. Rado
/s/ Robert E. Busch Director August 8, 2002
- ------------------------------------------------
Robert E. Busch
/s/ Robert J. Dougherty Jr. Director August 8, 2002
- ------------------------------------------------
Robert J. Dougherty, Jr.
/s/ Frank Cassidy Director August 8, 2002
- ------------------------------------------------
Frank Cassidy
/s/ R. Edwin Selover Director August 8, 2002
- ------------------------------------------------
R. Edwin Selover
/s/ Michael J. Thomson Director August 8, 2002
- ------------------------------------------------
Michael J. Thomson
II-6
Exhibit Index
-------------
3.1 -- Certificate of Formation of PSEG Power LLC.(1)
3.2 -- PSEG Power LLC Limited Liability Company Agreement.(1)
3.3 -- Certificate of Formation of PSEG Fossil LLC.(1)
3.4 -- PSEG Fossil LLC Limited Liability Company Agreement.(1)
3.5 -- Certificate of Formation of PSEG Nuclear LLC.(1)
3.6 -- PSEG Nuclear LLC Limited Liability Company Agreement.(1)
3.7 -- Certificate of Formation of PSEG Energy Resources & Trade LLC.(1)
3.8 -- PSEG Energy Resources & Trade LLC Limited Liability Company
Agreement.(1)
4.1 -- Indenture dated April 16, 2001 between Registrants and The Bank of New
York and form of Subsidiary Guaranty included therein.(1)
4.2 -- Registration Rights Agreement dated June 4, 2002 between Registrants
and the purchasers named therein.
4.3 -- Form of 6.95% Exchange Note.
5 -- Opinion of James T. Foran, Esquire.
8 -- Opinion of James T. Foran, Esquire regarding tax matters.
10 -- Basic Generation Service Contract with PSE&G.(1)
12 -- Statement regarding computation of ratios of earnings.
21 -- Subsidiaries of the Registrants.(1)
23.1 -- Consent of James T. Foran, Esquire (contained in Exhibits 5 and 8).
23.2 -- Independent Auditors' Consent.
24 -- Power of Attorney.
25 -- Statement of Eligibility of Trustee on Form T-1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.