As filed with the Securities and Exchange Commission on October 11, 2002
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PSEG Energy Holdings L.L.C.
(Exact name of registrant as specified in its charter)
New Jersey 6719 22-2983750
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
80 Park Plaza-T22
Newark, New Jersey 07102-4194
(973) 456-3581
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
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Derek M. DiRisio
Vice President and Controller
80 Park Plaza-T22
Newark, New Jersey 07102-4194
(973) 456-3581
(Name, address, including zip code and telephone number,
including area code, of agent for service)
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Copies to:
James T. Foran, Esquire
Associate General Counsel
Public Service Enterprise Group Incorporated
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
(973) 430-7000
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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
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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)
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8.625% Senior Notes due 2008 ... $135,000,000 100% $135,000,000 $12,420
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(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.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant 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.
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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 October 11, 2002.
PROSPECTUS
[LOGO] PSEG
Energy Holdings
$135,000,000
PSEG Energy Holdings L.L.C.
Offer to Exchange
8.625% Senior Notes due 2008
Which have been registered under the Securities Act
For Any and All Outstanding
8.625% Senior Notes due 2008
Which have not been so registered
TERMS OF THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., Eastern Time, on , 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 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 10 for a discussion of factors
you should consider in connection with the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is October , 2002.
TABLE OF CONTENTS
Page
----
Where to Find More Information ............................................ 3
Prospectus Summary ........................................................ 4
The Company ............................................................... 9
Selected Consolidated Financial Data ...................................... 10
Risk Factors .............................................................. 11
Forward-Looking Statements ................................................ 18
Use of Proceeds ........................................................... 19
The Exchange Offer ........................................................ 20
Description of Exchange Notes ............................................. 28
Federal Income Tax Considerations ......................................... 43
Plan of Distribution ...................................................... 45
Legal Opinions ............................................................ 46
Experts ................................................................... 46
When we refer to "we" or "our" or Energy Holdings, we mean PSEG Energy
Holdings L.L.C. and/or its predecessor, PSEG Energy Holdings Inc. When we refer
to the term "note" or "notes", we are referring to both the original notes and
the exchange notes to be issued in the exchange offer. When we refer to
"holders" of the notes, we are referring to those persons who are the registered
holders of notes on the books of the registrar appointed under the indenture.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to exchange only the notes offered by this prospectus, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
2
WHERE TO FIND MORE INFORMATION
In connection with the exchange offer, we have filed with the Securities
and Exchange Commission a registration statement under the Securities Act,
relating to the exchange notes to be issued in the exchange offer. As permitted
by SEC rules, this prospectus omits information included in the registration
statement. For a more complete understanding of this exchange offer, you should
refer to the registration statement, including its exhibits.
The public may read and copy any reports or other information that we file
with the SEC at the SEC's public reference room, Room 1024 at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. Our SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
Incorporation of Certain Documents by Reference
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supercede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Section 13 (a), 13 (c), 14 or 15 (d) of the Securities Exchange Act of
1934.
Our Annual Report on Form 10-K for the year ended December 31, 2001.
Our Current Report on Form 8-K dated September 27, 2002 to update our
Annual Report on Form 10-K for the year ended December 31, 2001 for items 6, 7,
7A, 8 and 14.
Our Quarterly Reports on Form 10-Q for the periods ended March 31, 2002
and June 30, 2002.
Our Current Reports on Form 8-K dated February 6, 2002, April 16, 2002,
October 1, 2002 and October 11, 2002.
Our Current Report on Form 8-K/A dated July 30, 2002.
You may request a copy of these filings, other than exhibits not
specifically incorporated by reference therein, which will be provided to you
without charge, by writing or telephoning:
Director, Investor Relations
PSEG Services Corporation
80 Park Plaza T6B
P.O. Box 570
Newark, New Jersey 07101
Telephone (973) 430-6564
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different or additional information. You should
not rely on any other information or representations. We are not making an offer
of these exchange notes in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus.
PSEG Energy Holdings L.L.C. is a New Jersey limited liability company and
is the successor to PSEG Energy Holdings Inc. On October 1, 2002 PSEG Energy
Holdings Inc. was merged into PSEG Energy Holdings L.L.C., which assumed all of
the assets, liabilities, rights, duties and obligations of PSEG Energy Holdings,
Inc., including the original notes and the exchange and registration rights
agreement, the indenture and the first supplemental indenture dated as of
September 30, 2002.
Summary of the Exchange Offer
The Exchange Offer ................ We are offering to exchange an aggregate
of $135,000,000 principal amount of
exchange notes for $135,000,000 of
original notes. The original notes may be
exchanged only in multiples of $1,000.
Issuance of the Original Notes .... The original notes were issued and sold
on June 7, 2002 in a transaction not
requiring registration under the
Securities Act.
Exchange and Registration
Rights .......................... At the time we issued the original notes,
we entered into an exchange and
registration rights agreement which
obligates us to make this exchange offer.
Required Representations .......... In order to participate in the exchange
offer, you will be required to make some
representations in a letter of
transmittal, including that:
o you are not affiliated with us,
o you are not a broker-dealer who bought
your original notes directly from us,
o you will acquire the exchange notes in
the ordinary course of business, and
o you have not agreed with 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
tradeable 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
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agreed in the exchange and registration
rights agreement relating to the original
notes to allow you to use this prospectus
for this purpose during the 180-day
period following completion of the
exchange offer, subject to our right
under some circumstances to restrict your
use of this prospectus. See "The Exchange
Offer -- Resales of Exchange Notes".
Broker dealers who acquired original
notes directly from us may not rely on
the staff's interpretations and must
comply with the registration and
prospectus delivery requirements of the
Securities Act, including being named as
a selling security holder, in order to
resell the original notes or the exchange
notes.
Accrued Interest on the
Original Notes .................. The exchange notes will bear interest at
an annual rate of 8.625%. Any interest
that has accrued on the original notes
before their exchange in this exchange
offer will be payable on the exchange
notes on the first interest payment date
after the conclusion of this exchange
offer.
Procedures for Exchanging
Notes ........................... The procedures for exchanging original
notes involve notifying the exchange
agent before the expiration date of the
exchange offer of your intention to do
so. The procedures for properly making
notification are described in this
prospectus under the heading "The
Exchange Offer -- Procedures for
Tendering Original Notes".
Expiration Date ................... 5:00 p.m., Eastern Time, on ,
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 .................... Wachovia Bank, National Association
(formerly known as First Union National
Bank) is serving as the exchange agent.
Its address and telephone number are
provided in this prospectus under the
heading "The Exchange Offer -- Exchange
Agent".
Effect on Holders of
Original Notes .................. Any original notes that remain
outstanding after this exchange offer
will continue to be subject to
restrictions on their transfer. After
this exchange offer, holders of original
notes will not (with limited exceptions)
have any further rights under the
exchange and registration rights
agreement. Any market for original notes
that are not exchanged could be adversely
affected by the conclusion of this
exchange offer.
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Summary of the Exchange Notes
This exchange offer applies to $135,000,000 aggregate principal
amount of the original notes. The terms of the exchange notes will be
essentially the same as the original notes, except that the exchange notes will
not contain language restricting their transfer, and holders of the exchange
notes generally will not be entitled to further registration rights under the
exchange and registration rights agreement. The exchange notes issued in the
exchange offer will evidence the same debt as the outstanding original notes,
which they will replace, and both the original notes and the exchange notes are
governed by the same indenture.
Securities Offered ................ $135,000,000 principal amount of 8.625%
Senior Notes due 2008 which have been
registered under the Securities Act. The
exchange notes are expected to constitute
an additional issuance of our 8.625%
Senior Notes due 2008, $400,000,000 of
which we previously issued, pursuant to
an exchange offer similar to the exchange
offer contemplated by this prospectus,
and are currently outstanding. The
exchange notes will have substantially
the same terms, including, without
limitation, the same maturity date and
interest payment dates as the outstanding
notes and are expected to be part of the
same series upon completion of the
transactions contemplated by the
registration statement of which this
prospectus is a part. Upon the completion
of such transactions, the exchange notes
are also expected to be designated by the
same CUSIP and ISIN numbers as, and
accordingly be fungible with, the
outstanding notes. See "Description of
Exchange Notes."
Interest Payment Dates ............ February 15 and August 15.
Stated Maturity Date .............. February 15, 2008
Optional Redemption ............... The exchange notes will be redeemable at
our option in whole or in part at any
time, at a redemption price equal to the
greater of
o 100% of the principal amount of the
exchange notes to be redeemed, and
o the sum of the present values of the
principal amount and the remaining
scheduled payments of interest on the
exchange notes to be redeemed from the
redemption date to February 15, 2008
discounted on a semi-annual basis
(assuming a 360-day year consisting of
30-day months) at a specified Treasury
Rate plus 50 basis points,
o plus, in either case, accrued interest
to the date of redemption. See
"Description of Exchange Notes--
Optional Redemption".
Ranking ........................... The exchange notes will be senior
unsecured obligations and will rank
equally with our senior unsecured
indebtedness. As of June 30, 2002, we had
outstanding $2.0 billion of debt that
ranks equal with the exchange notes and
had no secured debt outstanding. Since we
are a holding company, the exchange notes
will be structurally subordinated to any
indebtedness and other liabilities of our
operating subsidiaries.
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Cross Acceleration ................ The exchange notes will be subject to the
acceleration of their maturity in the
event of the acceleration of the
indebtedness under our revolving credit
facilities and certain other indebtedness
as described under "Description of
Exchange Notes -- Events of Default and
Remedies".
Ratings ........................... The exchange notes have been assigned
ratings of "BBB-" by Standard & Poor's
Ratings Group and Fitch IBCA, Inc. and
"Baa3" by Moody's Investors Service, Inc.
A security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating agency.
Each rating should be evaluated
independently of any other rating.
Sinking Fund ...................... None.
Limitation on Liens ............... Energy Holdings and its subsidiaries may
not incur any liens to secure
indebtedness without providing that the
exchange notes will be equally and
ratably secured with such indebtedness.
These restrictions do not apply to liens
granted by subsidiaries (other than
"Material Subsidiaries" as defined under
"Description of Exchange Notes-- Certain
Definitions") in connection with project
financings, liens securing indebtedness
not exceeding 10% of Consolidated Net
Tangible Assets as defined under
"Description of Exchange Notes-- Certain
Definitions" and other specified liens.
Limitation on Sale and
Leasebacks ...................... Energy Holdings and its subsidiaries may
not enter into sale and leaseback
transactions unless it would be
permissible to incur indebtedness secured
by a lien under the foregoing Limitation
on Liens covenant in the amount of the
indebtedness associated with that sale
and leaseback transaction or unless the
proceeds of that sale and leaseback were
applied to the reduction of indebtedness.
Also not restricted is indebtedness
associated with sale and leaseback
transactions not exceeding 10% of
Consolidated Net Tangible Assets.
Change of Control ................. Upon a "Change of Control" as defined
under "Description of Exchange Notes--
Certain Definitions", a holder of
exchange notes may require us to
repurchase that holder's exchange notes,
in whole or in part, at 101% of the
principal amount of the exchange notes,
plus accrued interest. A Change of
Control will not be deemed to have
occurred if, after giving effect to
circumstances otherwise constituting a
Change of Control, the exchange notes are
rated "BBB-" or better by Standard &
Poor's Ratings Group and "Ba1" or better
by Moody's Investors Service, Inc.
Form .............................. The exchange notes will be represented by
one or more permanent global exchange
notes in fully registered form without
interest coupons, deposited with the
Trustee as custodian for, and registered
in the name of, a nominee of DTC, except
in certain limited circumstances
described in this prospectus.
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Risk Factors ...................... Our business, and an investment in the
exchange notes, is subject to risks (see
"Risk Factors"), including the following:
o Because a substantial amount of our
business is conducted outside the
United States, adverse international
developments could negatively impact
our business.
o Credit, commodity and financial market
risks could negatively impact our
business.
o Because we are a holding company, our
ability to service our debt could be
limited.
o We cannot assure sufficient cash flow
to service the notes.
o Our ability to control the cash flow
from our minority investments is
limited.
o We may not have access to sufficient
capital in the amounts and at the
times needed.
o Failure to obtain adequate and timely
rate relief could negatively impact
our business.
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THE COMPANY
Energy Holdings participates in three energy-related lines of business
through its wholly-owned subsidiaries: PSEG Global Inc. (Global), PSEG Resources
L.L.C. (Resources) and PSEG Energy Technologies Inc. (Energy Technologies). Our
objective is to pursue investment opportunities in the rapidly changing
worldwide energy markets. Global focuses on the operating segments of the
electric industries and Resources seeks to make financial investments in these
industries. We recently announced our intention to exit Energy Technologies, an
energy management company.
We are a direct, wholly-owned subsidiary of Public Service Enterprise
Group Incorporated (PSEG) and an affiliate of Public Service Electric and Gas
Company, a public utility operating in New Jersey, and PSEG Power LLC, a company
providing electric generation service, both of which are also wholly-owned
subsidiaries of PSEG.
We are organized under the laws of the State of New Jersey. Our
headquarters and principal executive offices are located at 80 Park Plaza,
Newark, NJ 07102 and our telephone number is (973) 456-3581.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the periods indicated. The selected consolidated financial data for the six
months ended June 30, 2002 and 2001 was derived from the unaudited financial
statements of Energy Holdings and its consolidated subsidiaries which, in the
opinion of management, have been prepared in a manner consistent with the
audited financial statements for the five years ended December 31, 2001.
Operating results for the six months ended June 30, 2002 are not necessarily
indicative of results which may be expected for the full year. The selected
consolidated financial data was derived from the audited consolidated financial
statements of Energy Holdings and its consolidated subsidiaries for the five
years ended December 31, 2001. This selected data is qualified in its entirety
by the more detailed information and financial statements, including the notes
thereto.
Six Months Ended
Data in Millions except ratios June 30, Years Ended December 31,
----------------- --------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------ ------
Operating Data: (A) (unaudited)
Total Revenues ........................................ $ 320 $ 210 $ 612 $ 444 $ 476 $ 362 $ 316
Total Operating Expenses .............................. 633 40 181 142 212 167 163
Interest, Net of Capitalized Interest ................. 107 72 180 134 94 90 70
Taxes ................................................. (177) 18 61 49 69 32 30
Loss from discontinued operations (B) ................. (37) (11) (9) (9) (2) (3) (7)
Loss on Early Extinguishment of Debt .................. -- (2) (2) -- -- -- --
Cumulative Effect of a Change in Accounting
Principle -- (Loss) Gain (C) ....................... (120) 9 9 -- -- -- --
Net Income (Loss) ..................................... (462) 77 183 114 108 69 48
Preferred Stock Dividends (D) ......................... 11 11 22 24 25 17 1
Earnings Available to PSEG ............................ $(473) $ 66 $ 161 $ 90 $ 83 $ 52 $ 47
As of June 30, Years Ended December 31,
------------- --------------------------------------------------
2002 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------
Balance Sheet Data: (A) (unaudited)
Total Assets ............................................... $6,944 $7,440 $5,197 $4,116 $3,172 $3,024
Total Liabilities .......................................... 1,618 1,821 1,268 1,040 962 1,003
Total Capitalization:
Debt (E) ................................................ 3,413 3,395 2,180 1,701 968 1,236
Common Equity (D) ....................................... 1,404 1,715 1,240 866 733 710
Preferred Equity (D) .................................... 509 509 509 509 509 75
------ ------ ------ ------ ------ ------
Total Stockholder's Equity .............................. 1,913 2,224 1,749 1,375 1,242 785
------ ------ ------ ------ ------ ------
Total Capitalization .................................... $5,326 $5,619 $3,929 $3,076 $2,210 $2,021
Six Months Ended
June 30, Years Ended December 31,
------------------ ---------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- ------- -------
Other Data:(A) (unaudited)
Earnings Before Interest and Taxes (EBIT) (F) ......... $ (375) $ 170 $ 426 $ 306 $ 273 $ 195 $ 155
Cash flows from:
Operating .......................................... $ 22 $ 141 $ 379 $ 240 $ 291 $ 205 $ 160
Investing .......................................... (359) (732) (1,717) (855) (1,157) (313) (1,021)
Financing .......................................... 321 595 1,376 589 902 105 723
Six Months
Ended June 30, Year Ended December 31,
----------------- -------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------ ------
Other Data:(A) (unaudited)
Earnings to Fixed Charges (G) ........................... (3.5x) 1.7x 1.7x 2.0x 3.4x 2.6x 1.9x
EBIT to Interest Expense (F) (H) ........................ (3.5x) 2.4x 2.4x 2.3x 2.9x 2.2x 2.2x
EBITDA to Interest Expense (I) (H) ...................... (3.3x) 2.4x 2.5x 2.5x 3.1x 2.5x 2.4x
Consolidated Debt to Capitalization (E) ................. 64% 55% 60% 55% 55% 44% 61%
Consolidated Recourse Debt to
Recourse Capitalization (J) .......................... 57% 51% 53% 50% 50% 38% 56%
- ----------
(A) In the second quarter of 2002 we adopted a plan to sell our interests in
Tanir Bavi and Energy Technologies. The results of operations of these
entities are presented as discontinued operations for all periods in the
summary consolidated financial data.
(B) Includes a loss on disposal of discontinued operations of $34 million
recorded in the second quarter of 2002.
(C) In 2002, we adopted SFAS 142 "Goodwill and other Intangible Assets." In
2001, we adopted SFAS 133 "Accounting for Derivative Instruments and
Hedging Activities."
(D) All outstanding preferred and common stock is owned by PSEG.
(E) Includes all recourse debt and debt that is non-recourse to Global,
Resources, Energy Technologies and Energy Holdings which is consolidated
on the balance sheet.
(F) EBIT includes operating income plus other income less minority interest.
For this ratio, interest expense is net of capitalized interest of $5
million, $10 million, $16 million, $21 million, $8 million, $1 million and
$5 million for six months ended June 30, 2002 and 2001 and for the years
ended December 31, 2001, 2000, 1999, 1998, and 1997, respectively.
(G) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this ratio, earnings include net income before income
taxes and all fixed charges (net of capitalized interest) and exclude
non-distributed income from investments in which Energy Holdings'
subsidiaries have less than a 50% interest. Fixed charges include interest
expense, expensed or capitalized, amortization of premiums, discounts or
capitalized expenses related to indebtedness and an estimate of interest
expense included in rental expense.
(H) Information concerning EBIT and EBITDA is presented here not as a measure
of operating results, but rather as a measure of ability to service debt.
In addition, EBIT and EBITDA may not be comparable to similarly titled
measures by other companies. EBITDA should not be construed as an
alternative to operating income or cash flow from operating activities,
each as determined according to generally accepted accounting principles.
Although we are not required to meet minimum EBIT or EBITDA to interest
charges tests as part of our debt covenants, we use these measures in our
financial and business planning process to provide reasonable assurance
that our forecasts will provide adequate interest coverage to maintain or
improve our target credit ratings.
(I) EBITDA includes operating income plus other income plus depreciation and
amortization less minority interest. For this ratio, interest expense is
net of capitalized interest as noted above.
(J) Excludes consolidated debt that is non-recourse to Global, Resources,
Energy Technologies and Energy Holdings of $906 million, $461 million,
$909 million, $420 million, $302 million, $220 million and $232 million as
of June 30, 2002 and 2001 and December 31, 2001, 2000, 1999, 1998 and
1997, respectively.
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RISK FACTORS
The following factors should be considered when reviewing our business and
are relied upon by us in issuing any forward-looking statements. These factors
could affect actual results and cause our results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of us.
Some or all of these factors may apply to us and our subsidiaries.
Because A Substantial Portion Of Our Business Is Conducted Outside The United
States, Adverse International Developments Could Negatively Impact Our Business
A key component of our business strategy is the development, acquisition
and operation of projects outside the United States. The economic and political
conditions in certain countries where Global has interests, or in which Global
is or could be exploring development or acquisition opportunities, present risks
that may be different than those found in the United States including:
o delays in permitting and licensing;
o construction delays and interruption of business;
o risks of war;
o expropriation;
o nationalization;
o renegotiation or nullification of existing contracts; and
o changes in law or tax policy.
Changes in the legal environment in foreign countries in which Global may
develop or acquire projects could make it more difficult to obtain non-recourse
project refinancing on suitable terms and could impair Global's ability to
enforce its rights under agreements relating to such projects.
Operations in foreign countries also present risks associated with
currency exchange and convertibility, inflation and repatriation of earnings. In
some countries in which Global may develop or acquire projects in the future,
economic and monetary conditions and other factors could affect Global's ability
to convert its cash distributions to United States Dollars or other freely
convertible currencies, or to move funds offshore from these countries.
Furthermore, the central bank of any of these countries may have the authority
to suspend, restrict or otherwise impose conditions on foreign exchange
transactions or to approve distributions to foreign investors. Although Global
generally seeks to structure power purchase contracts and other project revenue
agreements to provide for payments to be made in, or indexed to, United States
Dollars or a currency freely convertible into United States Dollars, its ability
to do so in all cases may be limited.
Credit, Commodity And Financial Market Risks Could Negatively Impact Our
Business
The revenues generated by the operation of our generating 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. Generation revenues and results of operations will be
dependent upon prevailing market prices for energy, capacity and ancillary
services in the markets we serve.
The following factors are among those that will influence the market
prices for energy, capacity and ancillary services:
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;
11
o changes in the rules set by regulatory authorities with respect to
the manner in which electricity sales will be priced;
o prevailing market prices for 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 Independent System Operators
(ISO).
Substantial Change In The Electric Energy Industry Could Negatively Impact Our
Business
The electric energy industry across the country and around the world is
undergoing major transformations. As a result of deregulation and the unbundling
of energy supplies and services, the electric energy markets are now open to
competition from other suppliers in most markets. Increased competition from
these suppliers could have a negative impact on our wholesale and retail sales.
Among the factors that are common to the electric industry that affect our
business are:
o ability to obtain adequate and timely rate relief, cost recovery,
including unsecuritized stranded costs, and other necessary
regulatory approvals;
o deregulation, the unbundling of energy supplies and services and the
establishment of a competitive energy marketplace for products and
services;
o energy sales retention and growth;
o revenue stability and growth;
o increased capital investments attributable to environmental
regulations;
o ability to complete development or acquisition of current and future
investments;
o managing electric generation and distribution operations in
locations outside of traditional utility service territory;
o exposure to market price fluctuations and volatility;
o regulatory restrictions on affiliate transactions; and
o debt and equity market concerns.
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 war or terrorism or other similar
occurrences.
12
Because We Are a Holding Company Our Ability to Service Our Debt Could Be
Limited
The notes will be our exclusive obligation and not the obligations of any
of our subsidiaries or affiliates. Our obligations with respect to the notes
will not be supported by PSEG.
We are a holding company with no material assets other than the stock of
our subsidiaries and project affiliates. Accordingly, all of our operations are
conducted by our subsidiaries and project affiliates which are separate and
distinct legal entities that have no obligation, contingent or otherwise, to pay
any amounts when due on our debt, including the notes, or to make any funds
available to us to pay such amounts. As a result, our debt, including the notes,
will effectively be subordinated to all existing and future debt, trade
creditors, and other liabilities of our subsidiaries and project affiliates and
our rights and hence the rights of our creditors (including holders of the
notes) to participate in any distribution of assets of any subsidiary or project
affiliate upon its liquidation or reorganization or otherwise would be subject
to the prior claims of that subsidiary's or project affiliate's creditors,
except to the extent that our claims as a creditor of such subsidiary or project
affiliate may be recognized.
We depend on our subsidiaries' and project affiliates' cash flow and our
access to capital in order to service our indebtedness, including the notes. The
project-related debt agreements of subsidiaries and project affiliates generally
restrict their ability to pay dividends, make cash distributions or otherwise
transfer funds to us. These restrictions may include achieving and maintaining
financial performance or debt coverage ratios, absence of events of default, or
priority in payment of other current or prospective obligations.
Our subsidiaries have financed some investments using non-recourse project
level financing. Each non-recourse project financing is structured to be repaid
out of cash 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. Although a default under a project financing
agreement will not cause a default with respect to our debt and that of our
subsidiaries, it may materially affect our ability to service our outstanding
indebtedness, including the notes.
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.
We Cannot Assure Sufficient Cash Flow to Service The Notes
As of June 30, 2002 and December 31, 2001, we had total debt of $2.5
billion, respectively, excluding consolidated non-recourse debt appearing on our
balance sheet. We can give no assurances that our projects and investments will
generate sufficient cash to service our outstanding indebtedness, including the
notes.
Under the existing instruments governing our debt, including the indenture
under which the notes will be issued and our bank agreements, as well as the
agreement governing debt of PSEG Capital Corporation, one of our subsidiaries,
debt may be accelerated or otherwise be subject to repayment upon certain events
of default, including cross defaults, or if we undergo a change of control. In
addition, a default on the notes would result in a cross default under our bank
agreements. If any such event were to occur, we may not have sufficient capital
to pay holders of the notes in full the amounts due under the notes or to repay
any notes tendered pursuant to the Change of Control Offer described under
"Description of Exchange Notes -- Certain Covenants -- Repayment of Notes Upon a
Change of Control".
If Our Operating Performance Falls Below Projected Levels, We May Not Be Able to
Service Our Debt
The risks associated with operating power generation facilities include
the breakdown or failure of equipment or processes, labor disputes and fuel
supply interruption, each of which could result in performance below expected
capacity levels. Operation below expected capacity levels may result in
13
lost revenues, increased expenses, higher maintenance costs and penalties, in
which case there may not be sufficient cash available to service project debt.
In addition, many of Global's generation projects rely on a single fuel supplier
and a single customer for the purchase of the facility's output under a long
term contract. While Global generally has liquidated damage provisions in its
contracts, the default by a supplier under a fuel contract or a customer under a
power purchase contract could adversely affect the facility's cash generation
and ability to service project debt.
Countries in which Global owns and operates electric and gas distribution
facilities may impose financial penalties if reliability performance standards
are not met. In addition, inefficient operation of the facilities may cause lost
revenue and higher maintenance expenses, in which case there may not be
sufficient cash available to service project debt.
Our Ability To Control Cash Flow From Our Minority Investments Is Limited
Our ability to control investments in which we own a minority interest is
limited. Assuming a minority ownership role presents additional risks, such as
not having a controlling interest over operations and material financial and
operating matters or the ability to operate the assets more efficiently. As
such, neither we nor Global are able to unilaterally cause dividends or
distributions to be made to us or Global from these operations.
Minority investments may involve risks not otherwise present for
investments made solely by us and our subsidiaries, including the possibility
that a partner, majority investor or co-venturer might become bankrupt, may have
different interests or goals, and may take action contrary to our instructions,
requests, policies or business objectives. Also, if no party has full control,
there could be an impasse on decisions. In addition, certain investments of
Resources are managed by unaffiliated entities which limits Resources' ability
to control the activities or performance of such investments and managers.
Failure to Obtain Adequate and Timely Rate Relief Could Negatively Impact Our
Business
Global's electric and gas distribution facilities are rate-regulated
enterprises. Governmental authorities establish rates charged to customers.
These rates are currently sufficient to cover all operating costs and provide a
return.
We can give no assurances that rates will, in the future, be sufficient to
cover Global's costs and provide a return on its investment. In addition, future
rates may not be adequate to provide cash flow to pay principal and interest on
the debt of Global's subsidiaries and affiliates and to enable its subsidiaries
and affiliates to comply with the terms of debt agreements.
We May Not Have Access To Sufficient Capital In The Amounts And At The Times
Needed
Capital for our projects and investments has been provided by
internally-generated cash flow and borrowings by us and our subsidiaries. We
require continued access to debt capital from outside sources in order to
efficiently fund our capital needs and assure the success of our future projects
and acquisitions. Our ability to arrange financing on a non-recourse basis and
the costs of capital depend on numerous factors including, among other things,
general economic and market conditions, the availability of credit from banks
and other financial institutions, investor confidence, the success of current
projects and the quality of new projects.
We can give no assurances that our current and future capital structure or
financial condition will permit access to bank and debt capital markets. We also
will require capital from PSEG, the availability of which is not assured since
it is dependent upon our performance and that of PSEG's other subsidiaries. As a
result, there is no assurance that we or our subsidiaries will be successful in
obtaining financing for our projects and acquisitions or funding the equity
commitments required for such projects and acquisitions in the future.
14
We And Our Subsidiaries Are Subject To Substantial Competition From Well-
Capitalized Participants In The Worldwide Energy Markets
We and our subsidiaries are subject to substantial competition in the
United States and in international markets from:
o merchant generators;
o domestic and multi-national utility generators;
o fuel supply companies;
o engineering companies;
o equipment manufacturers;
o and affiliates of other industrial companies.
Restructuring of worldwide energy markets, including the privatization of
government-owned utilities and the sale of utility-owned assets, is creating
opportunities for, and substantial competition from, well-capitalized entities
which may adversely affect our ability to make investments on favorable terms
and achieve our growth objectives. Increased competition could contribute to a
reduction in prices offered for power and could result in lower returns which
may affect our ability to service our outstanding indebtedness, including
short-term debt.
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 merchant generation business. Resources faces
competition from numerous well-capitalized investment and finance company
affiliates of banks, utilities and industrial companies. Energy Technologies
faces substantial competition from utilities and their affiliates, and HVAC and
mechanical contractors.
Power Transmission Facilities May Impact Our Ability To Deliver Our Output To
Customers
Our ability to sell and deliver our electric energy products and grow our
business may be adversely impacted and our ability to generate revenues may be
limited if:
o transmission is disrupted,
o transmission capacity is inadequate, or
o a region's power transmission infrastructure is inadequate.
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 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. We
cannot assure that we will be able to obtain any required regulatory approval in
the future, or that we will be able to obtain any necessary extension in
receiving any required regulatory approvals. Any failure to obtain or comply
with any required regulatory approvals, could materially adversely affect our
ability to operate our generation stations or sell electricity to third parties.
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.
15
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 these 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 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 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.
Insurance Coverage May Not Be Sufficient
We have insurance for our facilities, including:
o all-risk property damage insurance;
o commercial general public liability insurance; and
o boiler and machinery coverage in amounts and with deductibles that
we consider appropriate.
We can give no assurance that this 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 our facilities will be
sufficient to permit us to continue to make payments on our debt. Additionally,
some of our properties 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 a significant lead time and requires us to expend significant sums for
preliminary engineering, permitting, fuel supply, resource exploration, legal
and other development 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 generation, transmission
or distribution facility may involve:
o equipment and material supply interruptions;
o labor disputes;
o unforeseen engineering environmental and geological problems; and
o unanticipated cost overruns.
16
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 specified 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
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, which could affect our
financial results.
Recession, Acts Of War Or Terrorism Could Negatively Impact Our Business
The consequences of a prolonged recession and adverse 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, fuel storage facilities and transmission and distribution facilities 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.
PSEG Could Exercise Its Power Over Us To The Detriment Of Holders Of The Notes
As our sole limited liability company member, PSEG has the power to
control the election of the managers 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 assurances that PSEG would
not exercise its power to control us and allocate resources in a manner that
would benefit PSEG or another subsidiary to the detriment of the holders of the
notes.
The indenture imposes no limitations on our ability to pay dividends or to
make other payments to PSEG or on our ability to enter into transactions with
PSEG or our other affiliates. Payment of dividends to PSEG without limit could
impact our cash available to service the notes. PSEG could decide to no longer
continue to hold our membership interests, although failure to maintain
ownership of a majority of the voting membership interests could trigger the
change of control repurchase provisions in the indenture. Any of these actions
could materially adversely affect our business and thus ultimately our ability
to service the notes.
As a wholly-owned subsidiary of PSEG, we and our domestic subsidiaries are
included in PSEG's consolidated tax filing for federal income tax purposes.
Generally, the leveraged lease transactions in which Resources invests provide
tax losses in the early years of their term that offset taxable income from
other PSEG subsidiaries. We and our subsidiaries are parties to a tax allocation
agreement with PSEG under which we and each of our subsidiaries are responsible
to pay the respective share of taxes due or entitled to receive tax benefits
earned. If PSEG were to modify the tax allocation agreement, our future
investment strategy might change, including Resources' possible curtailment of
new leveraged lease investments that generate tax benefits.
17
The Exchange Notes May Not Be Liquid Because There Is No Public Market For The
Exchange Notes
There is currently no trading market for the exchange notes and we do not
intend to list the exchange notes on any securities exchange or to arrange for
them to be quoted on any quotation system. We can give no assurances as to the
liquidity of any market that may develop for the exchange notes, the ability of
investors to sell the exchange notes or the price at which investors would be
able to sell their exchange notes.
Consequences Of Failure To Exchange Original Notes -- Original Notes Remain
Subject To Transfer Restrictions
Any original notes that remain outstanding after this exchange offer will
continue to be subject to restrictions on their transfer. After this exchange
offer, holders of original notes will not (with limited exceptions) have any
further rights under the exchange and registration rights agreement. Any market
for original notes that are not exchanged could be adversely affected by the
conclusion of this exchange offer.
Exchange Offer Procedures -- Late Deliveries Of Notes And Other Required
Documents Could Prevent a Holder From Exchanging Its Notes
Holders are responsible for complying with all exchange offer procedures.
Issuance of exchange notes in exchange for original notes will only occur upon
completion of the procedures described in this prospectus under the heading "The
Exchange Offer -- Procedures for Tendering Original Notes". Therefore, holders
of original notes who wish to exchange them for exchange notes should allow
sufficient time for timely completion of the exchange procedure. We are not
obligated to notify you of any failure to follow the proper procedure.
Restrictions Applicable To Participating Broker-Dealers -- If You Are a
Broker-Dealer, Your Ability To Transfer The Notes May Be Restricted
A broker-dealer that purchased original notes for its own account as part
of market-making or trading activities must deliver a prospectus when it sells
the exchange notes. Our obligation to make this prospectus available to
broker-dealers is limited. Consequently, we cannot guarantee that a proper
prospectus will be available to broker-dealers wishing to resell their exchange
notes.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by
reference in this offering memorandum, certain of the matters discussed or
incorporated by reference in this offering memorandum constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those anticipated. These statements are based on management's beliefs as
well as assumptions made by and information currently available to management.
When used in this offering memorandum or in any documents incorporated by
reference, the words "will", "anticipate", "intend", "estimate", "believe",
"expect", "plan", "hypothetical", "potential", variations of such words and
similar expressions are intended to identify forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following review of factors should not be construed as exhaustive or as any
admission regarding the adequacy of our disclosures prior to the effective date
of the Private Securities Litigation Reform Act of 1995.
In addition to any assumptions and other factors referred to specifically
in connection with forward-looking statements, factors that could cause actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, the following:
o because a substantial portion of our business is conducted outside the
United States, adverse international developments could negatively impact
our business;
18
o credit, commodity and financial markets could negatively impact our
business;
o substantial change in the electric energy industry could negatively impact
our business;
o generation operating performance may fall below projected levels;
o because we are a holding company our ability to service our debt could be
limited;
o we cannot assure sufficient cash flow to service the Notes;
o if our operating performance falls below projected levels, we may not be
able to service our debt;
o our ability to control cash flow from our minority investments is limited;
o failure to obtain adequate and timely rate relief could negatively impact
our business;
o we may not have access to sufficient capital in the amounts and at the
times needed;
o we and our subsidiaries are subject to substantial competition from
well-capitalized participants in the worldwide energy markets;
o power transmission facilities may impact our ability to deliver our output
to customers;
o regulatory issues significantly impact our operations;
o environmental regulation may limit our operations;
o insurance coverage may not be sufficient;
o acquisition, construction and development activities may not be
successful;
o changes in technology may make our power generation assets less
competitive;
o recession, acts of war or terrorism could negatively impact our business;
and
o PSEG could exercise its power over us to the detriment of holders of the
Notes.
USE OF PROCEEDS
The exchange offer is intended to satisfy some of our obligations under
the exchange and registration rights agreement. We will not receive any cash
proceeds from the issuance of the exchange notes in the exchange offer. In
exchange for issuing the exchange notes as described in this prospectus, we will
receive an equal principal amount of original notes, which will be canceled.
The net proceeds from the sale of the original notes were used for the
repayment of short-term debt outstanding under our revolving credit facilities
and maturing medium-term notes of PSEG Capital Corporation, one of our
subsidiaries. Borrowings under the revolving credit facilities and medium-term
note program were used for general corporate purposes. The applicable per annum
interest rates on the revolving credit facilities and the medium-term notes are
LIBOR plus 1% and 6.5%, respectively.
19
THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the original notes, we entered into an
exchange and registration rights agreement with the initial purchasers. Under
the exchange and registration rights agreement, we agreed to use our reasonable
best efforts to complete the exchange offer and to file and cause to become
effective with the SEC a registration statement for the exchange of the original
notes for exchange notes.
The terms of the exchange notes are the same as the terms of the original
notes except that the exchange notes have been registered under the Securities
Act and will not be subject to some restrictions on transfer that apply to the
original notes. In that regard, the original notes provide, among other things,
that if a registration statement relating to the exchange offer has not been
filed and declared effective within the period specified in the original notes,
the interest rate on the original notes will increase by 0.25% per annum each
90-day period that such additional interest rate continues to accrue under any
such circumstance, up to an aggregate maximum increase equal to 1% per annum,
until the registration statement is filed or declared effective, as the case may
be.
Upon completion of the exchange offer, holders of original notes will not
be entitled to any further registration rights under the exchange and
registration rights agreement, except under limited circumstances. See "Risk
Factors -- Consequences of failure to exchange original notes" and "Description
of Exchange Notes". The exchange offer is not being made to holders of original
notes in any jurisdiction in which the exchange offer or the acceptance of the
notes would not comply with securities or blue sky laws. Unless the context
requires otherwise, the term "holder" with respect to the exchange offer means
any person who has obtained a properly completed bond power from the registered
holder, or any person whose original notes are held of record by The Depository
Trust Company (DTC) who desires to deliver such original notes by book-entry
transfer at DTC. We will exchange as soon as practicable after the expiration
date of the exchange offer the original notes for a like aggregate principal
amount of the exchange notes.
Completion of the exchange offer is subject to the conditions that the
exchange offer not violate any applicable law or interpretation of the staff of
the Division of Corporate Finance of the SEC and that no injunction, order or
decree has been issued which would prohibit, prevent or materially impair our
ability to proceed with the exchange offer. The exchange offer is also subject
to various procedural requirements discussed below with which holders must
comply. We reserve the right, in our absolute discretion, to waive compliance
with these requirements subject to applicable law.
Terms of the Exchange Offer
We are offering, upon the terms and subject to the conditions described in
this prospectus and in the accompanying letter of transmittal, to exchange up to
$135,000,000 aggregate principal amount of exchange notes for a like aggregate
principal amount of original notes properly tendered on or before the expiration
date of the exchange offer and not properly withdrawn in accordance with the
procedures described below. We will issue, promptly after the expiration date of
the exchange offer, an aggregate principal amount of up to $135,000,000 of
exchange notes in exchange for a like principal amount of outstanding original
notes tendered and accepted in connection with the exchange offer. We will pay
all charges and expenses, other than certain applicable taxes described below,
in connection with the exchange offer. See "-- Fees and Expenses".
Holders may tender their original notes in whole or in part in any
integral multiple of $1,000 principal amount. The exchange offer is not
conditioned upon any minimum principal amount of original notes being tendered.
As of the date of this prospectus, $135,000,000 aggregate principal amount of
the original notes is outstanding. Holders of original notes do not have any
appraisal or dissenters' rights in connection with the exchange offer. Original
notes which are not tendered for or are tendered but not accepted in connection
with the exchange offer will remain outstanding and be entitled to the benefits
of the indenture, but will not be entitled to any further registration rights
under the exchange and registration rights agreement, except under limited
circumstances. See "Risk Factors -- Consequences
20
of failure to exchange original notes" and "Description of exchange notes". If
any tendered original notes are not accepted for exchange because of an invalid
tender, the occurrence of other events described in this prospectus or
otherwise, appropriate book-entry transfer will be made, without expense, to the
tendering holder of the notes promptly after the expiration date of the exchange
offer. Holders who tender original notes in connection with the exchange offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with respect to the
exchange of original notes in connection with the exchange offer.
Neither Energy Holdings nor the Board of Managers of Energy Holdings
makes any recommendation to holders of original notes as to whether to tender or
refrain from tendering all or any portion of their original notes in the
exchange offer. In addition, no one has been authorized to make any
recommendation as to whether holders should tender notes in the exchange offer.
Holders of original notes must make their own decisions whether to tender
original notes in the exchange offer and, if so, the aggregate amount of
original notes to tender based on the holders' own financial positions and
requirements.
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., Eastern Time, on 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.
o we will promptly disclose the amendment in a prospectus supplement
that will be distributed to the registered holders of the original
notes,
o we will file a post-effective amendment to the registration
statement filed with the SEC with regard to the exchange notes and
the exchange offer, and
o we will extend the exchange offer to the extent required by Rule
14e-1 under the Exchange Act.
We will promptly notify the exchange agent by making an oral or written
public announcement of any delay in acceptance, extension, termination or
amendment. This announcement in the case of an extension will be made no later
than 9:00 a.m., Eastern Time, on the next business day after the previously
scheduled expiration date. Without limiting the manner in which we may choose to
make any public announcement and, subject to applicable law, we will have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of the exchange offer, we
will exchange and issue to the exchange agent, exchange notes for original notes
validly tendered and not withdrawn promptly after the expiration date. In all
cases, delivery of exchange notes in exchange for original notes tendered and
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of:
21
- original notes or a book-entry confirmation of a book-entry transfer
of original notes into the exchange agent's account at DTC,
including an agent's message (as defined below) if the tendering
holder has not delivered a letter of transmittal,
- the letter of transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees or (in the
case of a book-entry transfer) an agent's message instead of the
letter of transmittal, and
- any other documents required by the letter of transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of original notes into the exchange agent's account at DTC.
The term "agent's message" means a message, transmitted by DTC to and received
by the exchange agent and forming a part of a book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering DTC
participant. This acknowledgment states that the participant has received and
agrees to be bound by the letter of transmittal and that Energy Holdings may
enforce the letter of transmittal against the participant.
Subject to the terms and conditions of the exchange offer, we will be
deemed to have accepted for exchange, and therefore exchanged, original notes
validly tendered and not withdrawn as, if and when we give oral or written
notice to the exchange agent of our acceptance of such original notes for
exchange pursuant to the exchange offer. The exchange agent will act as agent
for us for the purpose of receiving tenders of original notes, letters of
transmittal and related documents, and as agent for tendering holders for the
purpose of receiving original notes, letters of transmittal and related
documents and transmitting exchange notes to validly tendering holders. This
exchange will be made promptly after the expiration date.
If, for any reason whatsoever, acceptance for exchange or the exchange of
any tendered original notes is delayed, whether before or after our acceptance
for exchange of original notes, or we extend the exchange offer or are unable to
accept for exchange or exchange tendered original notes, then, without prejudice
to the rights we have in the exchange offer, the exchange agent may,
nevertheless, on our behalf and subject to Rule 14e-1(c) under the Exchange Act,
retain tendered original notes. These original notes may not be withdrawn except
to the extent tendering holders are entitled to withdrawal rights as described
under "-- Withdrawal Rights".
Under the letter of transmittal or agent's message, a holder of original
notes will warrant and agree that it has full power and authority to tender,
exchange, sell, assign and transfer original notes, that we will acquire good,
marketable and unencumbered title to the tendered original notes, free and clear
of all liens, restrictions, charges and encumbrances, and the original notes
tendered for exchange are not subject to any adverse claims or proxies. The
holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by us or the exchange agent to be
necessary or desirable to complete the exchange, sale, assignment, and transfer
of the original notes tendered in the exchange offer.
Procedures for Tendering Original Notes
Valid Tender. Except as indicated below, in order for original notes to be
validly tendered in the exchange offer, an original copy or facsimile of a
properly completed and duly executed letter of transmittal, with any required
signature guarantees, or, in the case of a book-entry tender, an agent's message
instead of the letter of transmittal, and any other required documents, must be
received by the exchange agent at one of its addresses listed under "-- Exchange
Agent". In addition, either:
- tendered original notes must be received by the exchange agent,
- the tender of original notes must follow the procedures for
book-entry transfer described below and a book-entry confirmation,
including an agent's message if the tendering holder has not
delivered a letter of transmittal, must be received by the exchange
agent, in each case on or before the expiration date, or
- the guaranteed delivery procedures described below must be complied
with.
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If less than all of the original notes are tendered, a tendering holder
should fill in the amount of original notes being tendered in the appropriate
box on the letter of transmittal. The entire amount of original notes delivered
to the exchange agent will be deemed to have been tendered unless otherwise
indicated.
The method of delivery of certificates, the letter of transmittal and all
other required documents is at the option and sole risk of the tendering holder.
Delivery will be deemed made only when actually received by the exchange agent.
If delivery is by mail, we recommend properly insured registered mail, return
receipt requested, or an overnight delivery service. In all cases, you should
allow sufficient time to ensure timely delivery.
Book-Entry Transfer. The exchange agent will establish an account with
respect to the original notes at DTC for purposes of the exchange offer within
two business days after the date of this prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the original notes by causing DTC to transfer such
Original Notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfers. However, although delivery of original notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or an agent's message instead
of the letter of transmittal, and any other required documents, must in any case
be delivered to and received by the exchange agent at its address listed under
"-- Exchange Agent" on or before the expiration date. Alternatively, the
guaranteed delivery procedure described below must be complied with.
Delivery of documents to DTC in accordance with DTC's procedures does not
constitute delivery to the exchange agent.
Signature Guarantees. Certificates for the original notes need not be
endorsed and signature guarantees on the letter of transmittal are unnecessary
unless
(1) a certificate for the original notes is registered in a name other
than that of the person surrendering the certificate or (2) such holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the letter of transmittal. In the case of (1) or (2) above, the
certificates for original notes must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on the bond
power and on the letter of transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein):
- a bank;
- a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer;
- a credit union;
- a national securities exchange, registered securities association or
clearing agency; or
- a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on
behalf of that Eligible Institution. See Instruction 1 to the letter
of transmittal.
Guaranteed Delivery. If a holder desires to tender original notes in the
exchange offer and the certificates for the original notes are not immediately
available or time will not permit all required documents to reach the exchange
agent on or before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis, the original notes may
nevertheless be tendered, provided that all of the following guaranteed delivery
procedures are complied with:
(1) the tenders are made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the letter of transmittal, is received by
the exchange agent, as provided below, on or before the expiration date; and (3)
the certificates (or a book-entry confirmation) representing all tendered
original notes, in proper form for transfer, together with a properly completed
and duly
23
executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, or an agent's message instead of the letter of
transmittal, and any other documents required by the letter of transmittal, are
received by the exchange agent within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the exchange agent and must include a guarantee by an
Eligible Institution in the form shown in the notice. Regardless of any other
provision in this prospectus, the delivery of exchange notes in exchange for
original notes tendered and accepted for exchange in the exchange offer will in
all cases be made only after timely receipt by the exchange agent of original
notes, or of a book-entry confirmation with respect to those original notes, and
an original copy or facsimile of a properly completed and duly executed letter
of transmittal, together with any required signature guarantees, or an agent's
message instead of the letter of transmittal, and any other documents required
by the letter of transmittal. Accordingly, the delivery of exchange notes might
not be made to all tendering holders at the same time, and will depend upon when
original notes, book-entry confirmations with respect to original notes and
other required documents are received by the exchange agent. Our acceptance for
exchange of original notes tendered under any of the procedures described above
will constitute a binding agreement between the tendering holder and us upon the
terms and subject to the conditions of the exchange offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility, including time of receipt, and acceptance for exchange of
any tendered original notes will be determined by us, in our sole discretion.
The interpretation by us of the terms and conditions of the exchange offer,
including the letter of transmittal and the accompanying instructions, will be
final and binding.
We reserve the absolute right, in our sole and absolute discretion, to
reject any and all tenders determined by us not to be in proper form or the
acceptance of which, or exchange for, may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right, subject to applicable law, to
waive any condition or irregularity in any tender of original notes of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders. No tender of original notes will be deemed to have
been validly made until all irregularities with respect to such tender have been
cured or waived. Neither we, any of our affiliates or assigns, the exchange
agent nor any other person will be under any duty to give any notification of
any irregularities in tenders or incur any liability for failure to give any
notification.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person should so indicate when signing, and unless waived by us, proper
evidence satisfactory to us, in our sole discretion, of that person's authority
must be submitted. A beneficial owner of original notes that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact that entity promptly if that
beneficial holder wishes to participate in the exchange offer.
Resales of Exchange Notes
We are making the exchange offer for the exchange notes in reliance on the
position of the staff of the Division of Corporation Finance of the SEC as
defined in certain interpretive letters addressed to third parties in other
transactions. However, we did not seek our own interpretive letter and we cannot
assure that the staff of the Division of Corporation Finance of the SEC would
make a similar determination with respect to the exchange offer as it has in
other interpretive letters to third parties. Based on these interpretations by
the staff of the Division of Corporation Finance of the SEC, and subject to the
two immediately following sentences, we believe that exchange notes issued
pursuant to this exchange offer in exchange for original notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
exchange notes are acquired in the ordinary course of the holder's business and
that the holder is not 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.
24
However, any holder of original notes who is an "affiliate" of ours or who
intends to participate in the exchange offer for the purpose of distributing
exchange notes, or any broker-dealer who purchased original notes from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act,
(a) will not be able to rely on the interpretations of the staff of the
Division of Corporation Finance of the SEC defined in the above-mentioned
interpretive letters,
(b) will not be permitted or entitled to tender such original notes in the
exchange offer and
(c) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or other transfer of such
original notes unless such sale is made pursuant to an exemption from such
requirements.
In addition, as described below, if any broker-dealer holds original notes
acquired for its own account as a result of market-making or other trading
activities and exchanges those original notes for exchange notes, then that
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of those exchange notes. Each
holder of original notes who wishes to exchange original notes for exchange
notes in the exchange offer will be required to represent that:
- it is not an "affiliate" of Energy Holdings,
- any exchange notes to be received by it are being acquired in the
ordinary course of its business,
- it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities
Act) of such exchange notes, and
- if the tendering holder is not a broker-dealer, that holder is not
engaged in, and does not intend to engage in, a distribution (within
the meaning of the Securities Act) of its exchange notes.
In addition, we may require the holder, as a condition to that holder's
eligibility to participate in the exchange offer, to furnish to us (or an agent
of ours) in writing, information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom that holder
holds the original notes to be exchanged in the exchange offer.
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it acquired the original notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of those exchange notes. The letter
of transmittal states that by making that acknowledgement and delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the SEC in the
interpretive letters referred to above, we believe that participating
broker-dealers who acquired original notes for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the exchange notes received
upon exchange of original notes (other than original notes which represent an
unsold allotment from the initial sale of the original notes) with a prospectus
meeting the requirements of the Securities Act, which may be the prospectus
prepared for this exchange offer so long as it contains a description of the
plan of distribution regarding the resale of the exchange notes.
Accordingly, this prospectus, as it may be amended or supplemented from
time to time, may be used by a participating broker-dealer in connection with
resales of exchange notes received in exchange for original notes where the
original notes were acquired by the participating broker-dealer for its own
account as a result of market-making or other trading activities. See "Plan of
Distribution". Subject to certain provisions contained in the exchange and
registration rights agreement, we have agreed that this prospectus, as it may be
amended or supplemented from time to time, may be used by a participating
broker-dealer in connection with resales of exchange notes for a period not
exceeding 180 days after the expiration date. However, a participating
broker-dealer who intends to use this prospectus in connection with the resale
of exchange notes received in exchange for original notes
25
pursuant to the exchange offer must notify us on or before the expiration date,
that it is a participating broker-dealer. This notice may be given in the space
provided for that purpose in the letter of transmittal or may be delivered to
the exchange agent at one of the addresses set forth herein under "-- Exchange
Agent".
Any participating broker-dealer who is an "affiliate" of Energy Holdings
may not rely on these interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. In that regard, each participating broker-dealer who
surrenders original notes in the exchange offer will be deemed to have agreed,
by execution of the letter of transmittal or an agent's message, that upon
receipt of notice from Energy Holdings of the occurrence of any event or the
discovery of:
(1) any fact which makes any statement contained or incorporated by
reference in this prospectus untrue in any material respect or
(2) any fact which causes this prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
in this prospectus, in light of the circumstances under which they were made,
not misleading, or
(3) the occurrence of other events specified in the exchange and
registration rights agreement, that participating broker-dealer will suspend the
sale of exchange notes under this prospectus until we have amended or
supplemented this prospectus to correct the misstatement or omission and have
furnished copies of the amended or supplemented prospectus to the participating
broker-dealer, or we have given notice that the sale of the exchange notes may
be resumed, as the case may be.
Withdrawal Rights
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time on or before the expiration date. In order for a
withdrawal to be effective a written, telegraphic, telex or facsimile
transmission of the notice of withdrawal must be timely received by the exchange
agent at its address listed under "-- Exchange Agent" on or before the
expiration date. Any notice of withdrawal must specify the name of the person
who tendered the original notes to be withdrawn, the aggregate principal amount
of original notes to be withdrawn, and, if certificates for the original notes
have been tendered, the name of the registered holder of the original notes, if
different from that of the person who tendered the original notes.
If original notes have been delivered or otherwise identified to the
exchange agent, then before the physical release of the original notes, the
tendering holder must submit the serial numbers shown on the particular original
notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of original notes
tendered for the account of an Eligible Institution. For original notes tendered
under the procedures for book-entry transfer described in "-- Procedures for
Tendering Original Notes", the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of original
notes, in which case a notice of withdrawal will be effective if delivered to
the exchange agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of original notes may not be rescinded. Original notes
properly withdrawn will not be deemed validly tendered for purposes of the
exchange offer, but may be retendered at any subsequent time on or before the
expiration date by following any of the procedures described above under "--
Procedures for Tendering Original Notes". All questions as to the validity, form
and eligibility, including time of receipt, of withdrawal notices will be
determined by us, in our sole discretion, whose determination shall be final and
binding on all parties. Neither Energy Holdings, the exchange agent nor any
other person is under any duty to give any notification of any irregularities in
any notice of withdrawal nor will those parties incur any liability for failure
to give that notice. Any original notes which have been tendered but which are
withdrawn will be returned to the holder promptly after withdrawal.
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Interest on Exchange Notes
Interest on the notes is payable semi-annually on February 15 and August
15 of each year at the rate of 8.625% per annum. The exchange notes will bear
interest from and including the last interest payment date on the original
notes, which, as of the date hereof, was August 15, 2002. 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
Wachovia Bank, National Association (formerly known as First Union
National Bank) has been appointed as exchange agent for the exchange offer.
Delivery of the letters of transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
prospectus or of the letter of transmittal should be directed to the exchange
agent as follows:
By Registered or Certified Mail:
Wachovia Bank, National Association
First Union Customer Information Center
1525 West W.T. Harris Blvd.
Corporate Trust Department
Charlotte, North Carolina 28262
Attention: Marsha Rice
By Hand or Overnight Delivery Service:
Wachovia Bank, National Association
First Union Customer Information Center
1525 West W.T. Harris Blvd.
Corporate Trust Department
Charlotte, North Carolina 28262
Attention: Marsha Rice
By Facsimile Transmission (for Eligible Institutions only):
(704) 590-7628
Confirm by Telephone: Marsha Rice
or (704) 590-7413
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
Fees and Expenses
We have agreed to pay the exchange agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses. We
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus and related documents to the beneficial owners of original
notes, and in handling or tendering for their customers. Holders who tender
their original notes for exchange will not be obligated to pay any transfer
taxes in connection with the transfer. If, however, exchange notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the original notes tendered, or if a transfer tax is
imposed for any reason other than the exchange of original notes in connection
with the exchange offer, then the amount of any such transfer taxes, whether
imposed on the registered holder or any other persons, will be payable by the
tendering
27
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder. We will not make any
payment to brokers, dealers or other nominees soliciting acceptances of the
exchange offer.
DESCRIPTION OF EXCHANGE NOTES
Holders can find the definitions of some terms used in this description
under the subheading "Certain Definitions".
The terms of the exchange notes to be issued in the exchange offer are
identical in all material respects to the terms of the original notes, except
for the transfer restrictions relating to the original notes. The exchange notes
will be issued, and the original notes were issued, under an indenture dated as
of October 8, 1999, between Energy Holdings and Wachovia Bank, National
Association (formerly known as First Union National Bank), as trustee, as
amended and supplemented by the first supplemental indenture dated as of
September 30, 2000. The exchange notes will evidence the same debt as the
original notes, and both series of notes will be entitled to the benefits of the
indenture and will be treated as a single class of debt securities. Upon
effectiveness of the registration statement of which this prospectus is a part,
the indenture will be subject to and governed by the Trust Indenture Act of
1939.
The following description is a summary of the material provisions of the
notes, the indenture and the exchange and registration rights agreement relating
to the notes. It does not restate those documents in their entirety. We urge
holders to read the notes, the indenture and the registration rights agreement
because they, and not this description, define your rights as holders of the
notes. Copies of the indenture, including a form of the notes, and the
registration rights agreement are available as described below under "--
Additional Information".
Brief Description of the Notes
The notes are general senior unsecured obligations of Energy Holdings and
rank equally in right of payment with all of the other unsecured and
unsubordinated indebtedness of Energy Holdings. Although the notes are senior
unsecured obligations, Energy Holdings has not issued, and does not have any
current firm arrangements to issue, any significant additional indebtedness to
which the notes would be senior. In addition, the notes will be effectively
subordinate to any secured indebtedness issued by Energy Holdings. Energy
Holdings has not issued, and does not have any current firm arrangements to
issue, any secured obligations to which the notes would be effectively
subordinate.
Because Energy Holdings is a holding company that conducts all of its
operations through its subsidiaries, holders of the notes will generally have a
junior position to claims of creditors of those subsidiaries, including trade
creditors, debtholders, secured creditors and taxing authorities.
Principal, Maturity and Interest
The indenture does not limit the aggregate principal amount of debt
securities which may be issued under it. The exchange notes will initially be
limited to $135,000,000 and will be issued in registered form only, without
coupons, in minimum denominations of $1,000. Energy Holdings may "reopen" any
series of debt securities and issue additional debt securities of that series.
The notes will mature on February 15, 2008, the stated maturity date, unless
redeemed or repurchased prior to that date.
Interest on the notes accrues at the rate of 8.625% per annum and is
payable semi-annually in arrears on February 15 and August 15 of each year.
Energy Holdings will make each interest payment to the persons in whose names
the notes are registered at the close of business on the January 31 and July 31
immediately preceding any interest payment date.
Interest on the exchange notes will accrue from the date of original
issuance or, since interest has already been paid, from the most recent interest
payment date to which interest was paid or duly provided for. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. If
any interest payment date or the stated maturity date or date of earlier
redemption or repurchase is not a business day, the required payment shall be
made on the next succeeding day
28
which is a business day, without any interest or other payment in respect of the
payment subject to delay, with the same force and effect as if made on the
interest payment date or stated maturity date or date of earlier redemption or
repurchase.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in Newark, New Jersey and The
City of New York are authorized or obligated by law or executive order to close.
Payment and Paying Agents
Interest on the notes is payable at any office or agency to be maintained
by Energy Holdings in Newark, New Jersey and The City of New York. At the option
of Energy Holdings, however, interest may be paid
o by check mailed to the address of the person entitled to the
interest payment at the address that appears in the "security
register" maintained by Energy Holdings or
o by wire transfer to an account maintained by the person entitled to
the interest payment as specified in the security register.
(Sections 301, 1001 and 1002 of the Indenture).
Transfer and Exchange
Under the indenture, debt securities of any series, including the notes,
may be presented for registration of transfer and may be presented for exchange
o at each office or agency required to be maintained by Energy
Holdings for payment of such series as described in "-- Payment and
Paying Agents", and
o at each other office or agency that Energy Holdings may designate
from time to time for such purposes.
No service charge will be made for any transfer or exchange of debt
securities, including the notes, but Energy Holdings may require payment of any
tax or other governmental charge payable in connection with the transfer or
exchange. (Section 305 of the indenture).
The indenture does not require Energy Holdings to
o issue, register the transfer of or exchange debt securities during a
period beginning at the opening of business 15 days before any
selection of debt securities of that series to be redeemed and
ending at the close of business on (A) if debt securities of the
series are issuable only in registered form, the day of mailing of
the relevant notice of redemption and (B) if debt securities of the
series are issuable in bearer form, the day of the first publication
of the relevant notice of redemption, or, if debt securities of the
series are also issuable in registered form and there is no
publication, the day of mailing of the relevant notice of
redemption;
o register the transfer of or exchange any debt security in registered
form, or portion thereof, called for redemption, except the
unredeemed portion of any debt security in registered form being
redeemed in part;
o exchange any debt security in bearer form called for redemption,
except to exchange such debt security in bearer form for a debt
security in registered form of that series and like tenor that is
simultaneously surrendered for redemption; or
o issue, register the transfer of or exchange any debt security which
has been surrendered for repayment at the option of the holder,
except the portion, if any, of that debt security not to be repaid.
(Section 305 of the Indenture).
The registered holder of a note will be treated as the owner of it for all
purposes.
29
Optional Redemption
The notes will be redeemable at the option of Energy Holdings, in whole or
in part at any time, on at least 30 days but not more than 60 days prior written
notice mailed to the registered holders thereof, at a redemption price equal to
the greater of
o 100% of the principal amount of the notes to be redeemed, and
o the sum, as determined by the Quotation Agent (as defined below), of
the present values of the principal amount of the notes to be
redeemed and the remaining scheduled payments of interest thereon
from the redemption date to February 15, 2008, which we refer to as
the remaining life, discounted from their respective payment dates
to the date of redemption on a semiannual basis, assuming a 360-day
year consisting of twelve 30-day months, at the Treasury Rate (as
defined below) plus 50 basis points
plus, in either case, accrued interest thereon to the date of redemption.
If money sufficient to pay the redemption price of and accrued interest on
all of the notes to be redeemed on the redemption date is deposited with the
trustee or paying agent on or before the redemption date and other conditions
under the indenture are satisfied, then on and after that redemption date,
interest will cease to accrue on those notes called for redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
life that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity with the remaining life of the notes to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date,
the average of four Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or, if the trustee obtains fewer than four Reference Treasury Dealer
Quotations, the average of all of the quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by Energy
Holdings. "Reference Treasury Dealer" means (i) Lehman Brothers Inc., UBSWarburg
LLC, Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary United States Government securities dealer in New York
City, which we refer to as a Primary Treasury Dealer, Energy Holdings shall
substitute therefor another Primary Treasury Dealer, and (ii) any other Primary
Treasury Dealer selected by Energy Holdings.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue,
expressed in each case as a percentage of its principal amount, quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual yield to maturity of the Comparable Treasury
Issue, calculated on the third business day preceding the redemption date using
a price for the Comparable Treasury Issue, expressed as a percentage of its
principal amount, equal to the Comparable Treasury Price for such redemption
date.
Energy Holdings may at any time, and from time to time, purchase the notes
at any price or prices in the open market or otherwise.
Mandatory Redemption
Energy Holdings is not required to make mandatory redemption or sinking
fund payments with respect to the notes.
Certain Definitions
The following is a summary of certain defined terms used in the indenture.
Article One of the indenture contains the full definition of all such terms.
30
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
as at the time of determination, the present value (discounted at a rate per
annum equal to the weighted average interest rate of all outstanding debt
securities, compounded semi-annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended).
"Capitalized Lease Obligations" means all rental obligations as lessee
which, under GAAP, are or will be required to be capitalized on the books of
Energy Holdings or any of its subsidiaries, in each case taken at the amount
thereof accounted for as indebtedness in accordance with such principles.
"Change of Control" means the occurrence of one or more of the following
events:
(1) PSEG (or its successors) shall cease to own a majority of the
outstanding voting stock of Energy Holdings,
(2) at any time following the occurrence of the event described in
clause (1), a person or group (as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) of persons (other
than PSEG) shall have become, directly or indirectly, the beneficial
owner or shall have acquired the absolute power to direct the vote,
of more than 35% of the outstanding voting stock of Energy Holdings,
(3) during any twelve-month period, individuals who at the beginning of
such period constitute the Board of Directors of Energy Holdings
(together with any new directors whose election or nomination was
approved by a majority of the directors then in office who were
either directors at the beginning of such period or who were
previously so approved) shall cease for any reason to constitute a
majority of the Board of Directors of Energy Holdings, unless
approved by a majority of the Board of Directors in office at the
beginning of such period (including such new directors), or
(4) Energy Holdings shall have merged or consolidated with any other
corporation or the properties and assets of Energy Holdings shall
have been conveyed or transferred substantially as an entirety to
any person in accordance with Section 801 of the indenture as
described under "-- Merger or Consolidation".
However, regardless of whether one or more of the above events occurs or
circumstances exist, a Change of Control shall be deemed not to have occurred if
after giving effect to the event or circumstance, the debt securities, including
the notes, are rated no less than "BBB-" by Standard & Poor's Ratings Group and
"Ba1" by Moody's Investors Service.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the total amount of assets, less accumulated depreciation or amortization,
valuation allowances, other applicable reserves and other properly deductible
items in accordance with GAAP, which would appear on a consolidated balance
sheet of Energy Holdings and its consolidated subsidiaries, determined on a
consolidated basis in accordance with GAAP, after giving effect to purchase
accounting and after deduction therefrom, to the extent otherwise included, the
amounts of
o consolidated current liabilities;
o deferred income taxes;
o minority interests in consolidated Subsidiaries held by persons
other than Energy Holdings or a subsidiary;
o excess of cost over fair value of assets of businesses acquired, as
determined by the Board of Directors; and
o unamortized debt discount and expense and other unamortized deferred
changes, goodwill (including the amounts of investments in
affiliates that consist of goodwill), patents, trademarks, service
names, trade names, copyrights, licenses, deferred project costs,
organizational or other development expenses and other intangible
items.
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"Indebtedness" of any person means
o all Indebtedness of such person for borrowed money, whether or not
represented by bonds, debentures, notes or other securities,
o the deferred purchase price of assets or services which in
accordance with GAAP would be shown on the liability side of the
balance sheet of such person,
o all Indebtedness of another person secured by any Lien on any
property owned by such person, whether or not such Indebtedness has
been assumed,
o all obligations of such person to pay a specified purchase price for
goods or services whether or not delivered, i.e., take-or-pay and
similar obligations,
o all Capitalized Lease Obligations of such person and
o all obligations of such person guaranteeing any Indebtedness, lease,
dividend or other obligation of any other person, directly or
indirectly, whether contingent or otherwise.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Material Subsidiary" means any subsidiary of Energy Holdings the
consolidated assets of which, as of the date of any determination of those
assets, constitute at least 10% of the consolidated assets of Energy Holdings
and its subsidiaries, or the consolidated earnings before taxes of which
constituted at least 10% of the consolidated earnings before taxes of Energy
Holdings and its subsidiaries for the most recently completed fiscal year,
provided, however, that
o no subsidiary of a Material Subsidiary shall be a Material
Subsidiary, and
o in all instances each of Global, Resources and PSEG Capital shall be
a Material Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
or assets now owned or acquired after the date of the indenture whereby Energy
Holdings or a subsidiary transfers such property or assets to a person and
leases it back from such person, other than leases for a term of not more than
36 months or between Energy Holdings and a wholly-owned subsidiary or between
wholly-owned subsidiaries.
Certain Covenants
The notes and other series of debt securities issuable under the indenture
will have the benefit of the following covenants which may be waived by the
holders of at least a majority in principal amount of the notes outstanding.
These covenants may not be waived by us or the Trustee.
Limitation on Liens
Energy Holdings covenants in the indenture that it will not, and will not
permit any of its subsidiaries to create, incur, assume or suffer to exist any
Lien upon or with respect to any property or assets (real or personal, tangible
or intangible) of Energy Holdings or any of its subsidiaries, whether now owned
or acquired after the date of the indenture, to secure any Indebtedness that is
incurred, issued, assumed or guaranteed by Energy Holdings or any of its
subsidiaries without in any such case effectively providing, concurrently with
the incurrence, issuance, assumption or guaranty of any such Indebtedness, that
the debt securities shall be equally and ratably secured with any and all such
Indebtedness; provided, however, that these restrictions shall not apply to or
prevent the creation, incurrence, assumption or existence of:
o Liens existing on the date of the indenture;
32
o Liens to secure or provide for the payment of all or any part of the
purchase price of any such property or assets or the cost of
construction or improvement thereof; provided that no such Lien
shall extend to or cover any other property or assets of Energy
Holdings or such Subsidiary of Energy Holdings;
o Liens granted or assumed by subsidiaries (other than Material
Subsidiaries) in connection with project financings or other
Indebtedness that is not guaranteed by or otherwise an obligation of
a Material Subsidiary;
o Liens on the equity interest of any subsidiary that is not a
Material Subsidiary in connection with project financings;
o Liens for taxes not yet due, or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate
reserves have been established;
o Liens incidental to the conduct of the business of or the ownership
of property by Energy Holdings or any of its subsidiaries which were
not incurred in connection with the borrowing of money or the
obtaining of advances of credit and which do not in the aggregate
materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business;
o Liens created in connection with worker's compensation, unemployment
insurance and other social security legislation;
o the replacement, extension or renewal (or successive replacements,
extensions or renewals), as a whole or in part, of any Lien, or of
any agreement, referred to above, or the replacement, extension or
renewal (not exceeding the principal amount of Indebtedness secured
thereby together with any premium, interest, fee or expense payable
in connection with any such replacement, extension or renewal) of
the Indebtedness secured thereby; provided that such replacement,
extension or renewal is limited to all or a part of the same
property that secured the Lien replaced, extended or renewed (plus
improvements thereon or additions or accessions thereto); or
o any other Lien not excepted by the foregoing clauses; provided that,
immediately after the creation or assumption of such Lien, the sum
of (x) the amount of outstanding Indebtedness of Energy Holdings
secured by all Liens created or assumed under the provisions of this
clause plus (y) the Attributable Debt with respect to all
outstanding leases in connection with Sale and Leaseback
transactions entered into pursuant to the proviso under "--
Limitation on Sale and Leaseback Transactions" does not exceed an
amount equal to 10% of Consolidated Net Tangible Assets, as shown on
the consolidated balance sheet of Energy Holdings and its
subsidiaries as of the end of the most recent fiscal quarter for
which financial statements are available. (Section 1005 of the
indenture).
Limitation on Sale and Leaseback Transactions
Energy Holdings covenants in the indenture that it will not, and will not
permit any Subsidiary to, enter into any Sale and Leaseback Transaction unless
(1) Energy Holdings or such Subsidiary would be entitled to create a
Lien on such property or assets securing Indebtedness in an amount
equal to the Attributable Debt with respect to such transaction
without equally and ratably securing the debt securities as
described under the preceding subsection "-- Limitation on Liens" or
(2) the net proceeds of such sale are
o at least equal to the fair value (as determined by our board
of directors) of such property and
o Energy Holdings or such Subsidiary shall apply or cause to be
applied an amount in cash equal to the net proceeds of such
sale to the retirement, within 90 days of the effective date
of any such arrangement, of debt securities or Indebtedness of
Energy Holdings which ranks senior or equal with the debt
securities or with Indebtedness of a Subsidiary (other than
Indebtedness owed to Energy Holdings or a Subsidiary or to
PSEG).
33
However, in addition to the transactions permitted as described in the
clauses (1) and (2), Energy Holdings or any subsidiary may enter into a Sale and
Leaseback Transaction as long as the sum of
(x) the Attributable Debt with respect to such Sale and Leaseback
Transaction and all other Sale and Leaseback Transactions entered
into as described in this proviso, plus
(y) the amount of outstanding Indebtedness secured by Liens incurred as
described in the last bullet paragraph of the preceding subsection
"Limitation on Liens",
does not exceed an amount equal to 10% of Consolidated Net Tangible Assets, as
shown on the consolidated balance sheet of Energy Holdings and its subsidiaries
as of the end of the most recent fiscal quarter for which financial statements
are available. (Section 1006 of the indenture).
Repayment of Notes Upon a Change of Control
Upon a Change of Control, holders of the notes will have the right to
require Energy Holdings to repurchase their notes, in whole or in part, at a
repayment price of 101% of their principal amount plus accrued interest to the
repayment date. The holder of debt securities of each other series to be issued
under the indenture will have the right to require Energy Holdings to repurchase
its debt securities at a repayment price in cash equal to a specified percentage
of the principal amount of the notes to be repurchased established for that
series plus accrued interest, if any, to the date of repayment, in accordance
with the terms described below and in Article 13 of the indenture.
Within 30 days following any Change of Control, Energy Holdings will mail
a notice to each holder of debt securities of each series (with a copy to the
trustee) stating:
o that a Change of Control has occurred and that the holder has the
right to require Energy Holdings to repay that holder's debt
securities, in whole or in part, in not less than the minimum
denomination required for debt securities of that series, at a
repayment price in cash equal to the percentage of the principal
amount of the debt securities established for that series plus
accrued interest, if any, to the date of repayment;
o the circumstances and relevant facts regarding such Change of
Control, including information with respect to pro forma historical
income, cash flow and capitalization of Energy Holdings after giving
effect to the Change of Control;
o the repayment date, which will be a Business Day and be not earlier
than 45 days or later than 60 days from the date such notice is
mailed;
o that any debt security of the series not tendered for purchase will
continue to accrue interest;
o that interest on any debt security of the series accepted for
repayment pursuant to the change of control offer shall cease to
accrue after the repayment of the debt security on the repayment
date;
o that holders electing to have any debt security repaid pursuant to a
change of control offer will be required to surrender the debt
security, with the form entitled "Option to Elect Repayment" on the
reverse of the debt security completed, to the trustee at the
address specified in the notice not earlier than 45 days and not
later than 30 days prior to the repayment date;
o that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
third business day preceding the repayment date, or such shorter
period as may be required by applicable law, a telegram, telex,
facsimile transmission or letter providing the name of the holder,
the principal amount of debt securities the holder delivered for
repayment, and a statement that the holder is withdrawing its
election to have those debt securities repaid; and
o that holders of the series that elect to have their debt securities
purchased only in part will be issued new debt securities of the
series in a principal amount equal to then unpurchased portion of
the debt securities surrendered.
Energy Holdings has covenanted to comply with the tender offer provisions
of Rule 14e-1 under the Securities Exchange Act of 1934 and any other applicable
laws and regulations in the event that a Change of Control occurs and Energy
Holdings is required to make a change of control offer. (Section 1007 of the
indenture).
34
Events of Default and Remedies
The following will constitute events of default under the indenture:
o default in the payment of any interest upon any debt security, any
coupon appertaining thereto or any "additional amounts" (which, if
the terms of the particular series of debt securities so specify,
will be payable upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on the
debt securities) payable in respect of any debt security of that
series when such interest, coupon or additional amounts become due
and payable, and the continuance of such default for a period of 30
days;
o default in the payment of the principal of (or premium, if any, on)
any debt security of that series, when the same becomes due and
payable at maturity, upon redemption;
o default in the deposit of any sinking fund payment when due by the
terms of any debt security of that series;
o default in the performance, or breach, of any covenant or agreement
of Energy Holdings in the indenture with respect to any debt
security of that series, and the continuance of such default for 60
days after written notice of such default to Energy Holdings;
o acceleration of any bond, debenture, note or other evidence of
Indebtedness or under any mortgage, indenture, including the
indenture, or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness by Energy
Holdings or any subsidiary in excess of $25,000,000 in the aggregate
other than
(1) any Indebtedness arising from the obligation to make an equity
investment in a subsidiary or
(2) Indebtedness which is payable solely out of the property or
assets of a partnership, joint venture or similar entity of
which Energy Holdings or any such subsidiary is a participant,
or which is secured by a Lien on the property or assets owned
or held by such entity, without further recourse to or
liability of Energy Holdings or any such subsidiary,
o whether such Indebtedness now exists or shall be created later;
o certain events in bankruptcy, insolvency or reorganization affecting
Energy Holdings; and
o any other event of default provided with respect to debt securities
of that series. (Section 501 of the indenture).
Energy Holdings is required to file with the trustee, annually, an
officer's certificate as to Energy Holdings' compliance with all conditions and
covenants under the indenture. (Section 1008 of the indenture). The indenture
provides that the trustee may withhold notice to the holders of debt securities
of a series, including the notes, of any default (except payment defaults on the
debt securities of that series) if it considers it in the interest of the
holders of debt securities of the series to do so. (Section 601 of the
indenture).
If an event of default with respect to debt securities of a series,
including the notes, has occurred and is continuing, the trustee or the holders
of not less than 25% in principal amount of outstanding debt securities of that
series may declare the principal of all of the debt securities of that series to
be due and payable immediately, by a notice in writing to Energy Holdings.
However, if the debt securities of that series are issued with original issue
discount or are "indexed debt securities," the trustee or the holders of not
less than 25% of the debt securities may declare that portion of the principal
as may be specified in the terms of those debt securities due and payable
immediately. (Section 502 of the indenture). Indexed debt securities are debt
securities, the interest and principal payments on which are determined by
reference to a particular index, such as a foreign currency or commodity.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default with respect to debt securities of any
series, including the notes, has occurred and is continuing, the trustee is
under no obligation to exercise any of its rights or powers under the indenture
at the request, order or direction of the holders of debt securities of that
series, unless those holders have offered the trustee reasonable indemnity
against the expenses and liabilities which might be incurred by it in compliance
with such request. (Section 507 of the indenture).
35
Subject to the provisions for the indemnification of the trustee, the
holders of a majority in principal amount of the outstanding debt securities of
any series of debt securities, including the notes, will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series. (Section 512 of the
indenture).
The holders of a majority in principal amount of the outstanding debt
securities of a series, including the notes, may, on behalf of the holders of
all debt securities of such series and any related coupons, waive any past
default under the indenture with respect to that series and its consequences,
except a default
o in the payment of the principal of (or premium, if any) or interest,
if any, on or additional amounts payable in respect of any debt
security of such series or any related coupons or
o in respect of a covenant or provision that cannot be modified or
amended without the consent of the holder of each outstanding debt
security of that series. (Section 513 of the indenture).
Repayment of Notes Upon Certain Events Involving Resources
If
(1) Energy Holdings shall no longer own 100% of the equity ownership
interest in Resources, or
(2) (a) a transaction or series of related transactions (a "Resources
Transaction") causes the assets of Resources immediately after
such Resources Transaction to be at least 20% less than the
assets of Resources immediately prior to such Resources
Transaction (as measured from the end of the month immediately
preceding the Resources Transaction (or in the case of a
Resources Transaction involving a series of transactions, the
month immediately preceding the first of such transactions))
and
(b) as a direct result of such Resources Transaction, either of
Standard & Poor's Ratings Group or Moody's Investors Service,
Inc. shall downgrade its respective rating of Energy Holdings
below BBB- or "Ba1" (or if either of such ratings immediately
preceding the Resources Transaction is lower than BBB- or
"Ba1," such rating shall as a direct result of such Resources
Transaction be downgraded),
then the holders of the notes shall have the right to require Energy Holdings to
repurchase their notes, in whole or in part, at a repayment price equal to the
greater of
o 100% of the principal amount of the notes to be repurchased, and
o the sum, as determined by the Quotation Agent (as defined in
"Description of Exchange Notes -- Optional Redemption"), of the
present values of the principal amount of the notes to be
repurchased and the remaining scheduled payments of interest thereon
from the repayment date to February 15, 2008 discounted from their
respective payment dates to the date of repayment on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate (as defined in "Description of Exchange Notes
-- Optional Redemption"), plus 50 basis points
plus, in either case, accrued interest on the notes to the date of repayment.
Merger or Consolidation
The indenture provides that Energy Holdings may not consolidate with or
merge with or into any other corporation or convey or transfer its properties
and assets substantially as an entirety to any person, unless either Energy
Holdings is the continuing corporation or such corporation or person assumes by
supplemental indenture all the obligations of Energy Holdings under the
indenture and the debt securities issued under it and immediately after the
transaction no default shall exist. (Section 801 of the indenture).
36
No Personal Liability of Directors, Managers, Officers, Employees and
Members
No past, present or future director, manager, officer, employee,
incorporator, stockholder or member of Energy Holdings, as such, shall have any
liability for any obligations of Energy Holdings under the notes and the
indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws. (Section 113 of the
indenture).
Satisfaction and Discharge, Defeasance and Covenant Defeasance
According to the terms of the indenture, Energy Holdings may discharge
certain obligations to holders of any series of debt securities, including the
notes, that have not already been delivered to the trustee for cancellation and
that either have become due and payable or are by their terms due and payable
within one year, or scheduled for redemption within one year, by irrevocably
depositing with the trustee, in trust, funds in an amount sufficient to pay the
entire indebtedness on such debt securities for principal, and premium, if any,
and interest, if any, and any additional amounts with respect to the debt
securities, to the date of such deposit, if the debt securities have become due
and payable, or to the maturity date or redemption date, as the case may be.
(Section 401 of the indenture).
The indenture provides that, if the provisions of Article Fourteen of the
indenture are made applicable to the debt securities of or within any series,
including the notes, and any related coupons, Energy Holdings may elect either
(a) to defease and be discharged from any and all obligations with
respect to the debt securities and any related coupons, except for
the obligations to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental
charge with respect to payments on such debt securities and the
obligations to register the transfer or exchange of such debt
securities and any related coupons, to replace temporary or
mutilated, destroyed, lost or stolen debt securities and any related
coupons, to maintain an office or agency in respect of such debt
securities and any related coupons, and to hold moneys for payment
in trust (Section 1402 of the indenture) or
(b) to be released from its obligations under any covenant specified
pursuant to Section 301 with respect to such debt securities and any
related coupons, and any omission to comply with such obligations
shall not constitute a default or an event of default with respect
to such debt securities and any related coupons (Section 1403 of the
indenture),
in either case upon the irrevocable deposit by Energy Holdings with the trustee,
in trust, of
(1) an amount in United States Dollars,
(2) Government Obligations (as defined below) applicable to such debt
securities and coupons that through the payment of principal and interest in
accordance with their terms will provide money in an amount, or
(3) a combination of the items referred to in (1) or (2)
in an amount, sufficient to pay the principal of, and premium, if any, and
interest, if any, on the debt securities and any related coupons, and any
mandatory sinking fund or analogous payments on them, on all scheduled due
dates.
Such a trust may only be established if, among other things, Energy
Holdings has delivered to the trustee an opinion of counsel to the effect that
the holders of such debt securities and any related coupons will not recognize
income, gain or loss for United States federal income tax purposes as a 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).
37
"Government Obligations" means securities which are
o direct obligations of the United States or
o obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States, the payment of which
is unconditionally guaranteed as a full faith and credit obligation
by the United States, which are not callable or redeemable at the
option of the issuer of that obligation.
Government Obligations also include a depository receipt issued by a bank or
trust company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt;
provided that, except as required by law, such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from the amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt. (Section 101 of the indenture).
In the event Energy Holdings effects covenant defeasance with respect to
any debt securities and any related coupons and those debt securities and
coupons are declared due and payable because of the occurrence of any event of
default, other than the events of default described in clauses (4) or (8) of
Section 501 of the indenture, with respect to any covenant to which there has
been defeasance, the amount of Government Obligations and funds on deposit with
the trustee will be sufficient to pay amounts due on such debt securities and
coupons at the time of their stated maturity but may not be sufficient to pay
amounts due on such debt securities and coupons at the time of the acceleration
resulting from such event of default. In such case, Energy Holdings would remain
liable to make payment of such amounts due at the time of acceleration. (Section
501 of the indenture).
If the trustee or any paying agent is unable to apply any money in
accordance with the indenture by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then Energy Holdings' obligations under the indenture and such debt
securities and any related coupons shall be revived and reinstated as though no
deposit had occurred pursuant to the indenture, until such time as such trustee
or paying agent is permitted to apply all such money in accordance with the
indenture. However, if Energy Holdings makes any payment of principal of, or
premium, if any, or interest, if any, on any such debt security or any related
coupon following the reinstatement of its obligations, Energy Holdings shall be
subrogated to the rights of the holders of such debt securities and any related
coupons to receive such payment from the money held by such trustee or paying
agent.
Amendment, Supplement and Waiver
Energy Holdings and the trustee may modify and amend the indenture with
the consent of the holders of a majority in principal amount of all outstanding
debt securities that are affected by the modification or amendment; provided
that no modification or amendment may, without the consent of the holder of each
outstanding debt security affected by the modification or amendment, among other
things:
o change the stated maturity date of the principal of, or premium, if
any, on, or any installment of principal of or interest on any debt
security;
o reduce the principal amount of, or the rate or amount of interest in
respect of, or any premium payable upon the redemption of, any debt
security;
o change the manner of calculating the rate of interest;
o change any obligation of Energy Holdings to pay additional amounts
in respect of any debt security;
o reduce the portion of the principal of a debt security issued with
the original issue discount or an indexed debt security that would
be due and payable upon a declaration of acceleration of the
maturity of the debt security or provable in bankruptcy;
38
o adversely affect any right of repayment at the option of the holder
of any such debt security;
o change the place of payment of principal of, or any premium or
interest on, the debt security;
o impair the right to institute suit for the enforcement of any
payment on or after the stated maturity date of the debt security or
on or after any redemption date or repayment date for the debt
security;
o adversely affect any right to convert or exchange any debt security;
o reduce the percentage in principal amount of such outstanding debt
securities, the consent of whose holders is required to amend or
waive compliance with certain provisions of the indenture or to
waive certain defaults under the indenture;
o reduce the requirements for voting or quorum described below; or
o modify any of the preceding requirements or any of the provisions
relating to waiving past defaults or compliance with certain
restrictive provisions, except to increase the percentage of holders
required to effect waiver or to provide that certain other
provisions of the indenture cannot be modified or waived without the
consent of the holder of each debt security affected by the
modification or waiver. (Section 902 of the indenture).
Energy Holdings and the trustee may modify and amend the indenture without
the consent of any holder, for any of the following purposes:
o to evidence the succession of another person to Energy Holdings and
the assumption by any successor of the covenants of Energy Holdings
under the indenture and the debt securities;
o to add to the covenants of Energy Holdings for the benefit of the
holders of all or any series of debt securities issued under the
indenture, including the notes, and any related coupons or to
surrender any right or power conferred upon Energy Holdings by the
indenture;
o to add events of default for the benefit of the holders of all or
any series of debt securities, including the notes, issued under the
indenture;
o to add to or change any provisions of the indenture to facilitate
the issuance of, or to liberalize the terms of, debt securities
issued in bearer form or to permit or facilitate the issuance of
debt securities in uncertificated form, provided that any such
actions do not adversely affect the interests of the holders of the
debt securities issued under the indenture or any related coupons in
any material respect;
o to change or eliminate any provisions of the indenture, provided
that any change or elimination of this nature will become effective
only when there are no debt securities outstanding of any series
created prior to the change or elimination of the provision which
are entitled to the benefit of the provisions;
o to secure the debt securities, including the notes, under the
indenture pursuant to the requirements of Section 1005 of the
indenture, or otherwise;
o to establish the form or terms of debt securities of any series and
any related coupons;
o to evidence and provide for the acceptance of appointment by a
successor trustee or facilitate the administration of the trusts
under the indenture by more than one trustee;
o to cure any ambiguity, defect or inconsistency in the indenture,
provided such action does not adversely affect the interests of
holders of debt securities of a series, including the notes, issued
under the indenture or any related coupons in any material way; or
o to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of debt securities issued under the indenture, including the
notes, provided that the action does not adversely affect the
interests of the holders of the debt securities of that series,
including the notes, and any related coupons in any material way.
(Section 901 of the indenture).
39
In determining whether the holders of the requisite principal amount of
outstanding debt securities have given any request, demand, authorization,
direction, notice, consent or waiver under the indenture or whether a quorum is
present at a meeting of holders of debt securities thereunder,
o the principal amount of a debt security issued with original issue
discount that will be deemed to be outstanding will be the amount of
the principal thereof that would be due and payable as of the date
of such determination upon acceleration of the maturity of the debt
security,
o the principal amount of an indexed debt security that may be counted
in making the determination or calculation and that will be deemed
outstanding will be equal to the principal face amount of the
indexed debt security at original issuance, unless otherwise
provided pursuant to Section 301 of the indenture, and
o Debt securities owned by Energy Holdings or any other obligor upon
the debt securities or any affiliate of Energy Holdings or of such
other obligor shall be disregarded. (Section 101 of the indenture).
The indenture contains provisions for convening meetings of the holders of
debt securities of a series if debt securities of that series are issuable in
bearer form. (Section 1501 of the indenture) A meeting may be called at any time
by the trustee, and also, upon request, by Energy Holdings or the holders of at
least 10% in principal amount of the outstanding debt securities of that series,
in any such case upon notice given as provided in the indenture. (Section 1502
of the indenture) Except for any consent that must be given by the holder of
each debt security, as described above, any resolution presented at a meeting
(or an adjourned meeting duly reconvened) at which a quorum is present may be
adopted by the affirmative vote of the holders of a majority in principal amount
of outstanding debt securities of that series; provided, however, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage which is less than a majority in principal
amount of outstanding debt securities of a series may be adopted at a meeting
(or an adjourned meeting duly reconvened) at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding debt securities of that series. Any resolution passed or
decision taken at any meeting of holders of debt securities of a series duly
held in accordance with the indenture will be binding on all holders of debt
securities of that series and any related coupons. The quorum at any meeting
called to adopt a resolution will be persons holding or representing a majority
in principal amount of the outstanding debt securities of a series; provided,
however, that, if any action is to be taken at a meeting with respect to a
consent or waiver which may be given by the holders of not less than a specified
percentage in principal amount of the outstanding debt securities of a series,
the persons holding or representing the specified percentage in principal amount
of the outstanding debt securities of that series will constitute a quorum.
(Section 1504 of the indenture).
Regardless of the foregoing provisions, if any action is to be taken at a
meeting of holders of debt securities of a series, including the notes, with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that the indenture expressly provides may be made, given
or taken by the holders of a specified percentage in principal amount of all
outstanding debt securities affected by the action or of the holders of that
series and one or more additional series:
o there shall be no minimum quorum requirement for that meeting and
o the principal amount of the outstanding debt securities of the
series that vote in favor of request, demand, authorization,
direction, notice, consent, waiver or other action will be taken
into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action
has been made, given or taken under the indenture. (Section 1504 of
the indenture).
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to PSEG Energy Holdings L.L.C. at 80 Park Plaza, T-22,
Newark, NJ 07102, Attention: Treasurer.
40
Reports
Following the consummation of the exchange offer, to the extent required
by the SEC, Energy Holdings will file a copy of all of the information and
reports referred to in clauses (1) and (2) below with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to holders of the notes upon request:
(1) all quarterly and annual financial information required to be
contained in a filing with the SEC on Forms 10-Q and 10-K and, with
respect to the annual information only, a report on the annual
financial statements certified by Energy Holdings' independent
auditors; and
(2) all information of the type contained in current reports required to
be filed with the SEC on Form 8-K.
The indenture requires Energy Holdings to file the documents referred to
in clauses (1) and (2) above with the trustee within 15 days of the filing of
those documents with the SEC. So long as any notes are outstanding, Energy
Holdings will furnish to the holders of notes the documents referred to in
clauses (1) and (2) above in the manner and to the extent required by the Trust
Indenture Act within 30 days of the filing of those documents with the SEC.
In addition, Energy Holdings has agreed that, for so long as any original
notes remain outstanding, it will furnish upon request to holders of the
original notes and prospective purchasers the information required to be
delivered pursuant to Rule 144A(d) (4) under the Securities Act.
Book-Entry, Delivery and Form
The exchange notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, global notes).
Except as set forth below, the global notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes". Except in the limited
circumstances described below, owners of beneficial interests in the global
notes will not be entitled to receive physical delivery of certificated notes
(as defined below).
Initially, the trustee will act as paying agent and registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. Energy Holdings takes no responsibility
for these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised Energy Holdings that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, participants) and to facilitate the clearance and settlement of
transactions in those securities between participants through electronic
book-entry changes in accounts of its participants. The participants include
securities brokers and dealers (including the initial purchasers of the original
notes), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
(collectively, indirect participants). Persons who are not participants may
beneficially own securities held by or on behalf of DTC only through the
participants or the indirect participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the participants and indirect participants.
41
DTC has also advised Energy Holdings that, pursuant to procedures
established by it, (i) upon deposit of the global notes, DTC will credit the
accounts of participants designated by the Initial Purchasers of the original
notes with portions of the principal amount of the global notes and (ii)
ownership of such interests in the global notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the participants) or by the participants and the
indirect participants (with respect to other owners of beneficial interest in
the global notes).
Investors in the global notes may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations which are participants in such system. All interests in a global
note may be subject to the procedures and requirements of DTC. Those interests
held through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a global note to
such persons will be limited to that extent. Because DTC can act only on behalf
of participants, which in turn act on behalf of indirect participants and
certain banks, the ability of a person having beneficial interests in a global
note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, premium, if any, and interest on
a global note registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered holder under the Indenture. Under the
terms of the indenture, Energy Holdings and the trustee will treat the persons
in whose names the notes, including the global notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither Energy Holdings, the trustee
nor any agent of Energy Holdings or the trustee has or will have any
responsibility or liability for
o any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interest in the global notes, or for
maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the
beneficial ownership interests in the global notes or
o any other matter relating to the actions and practices of DTC or any
of its participants or indirect participants.
DTC has advised Energy Holdings that its current practice, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant security
as shown on the records of DTC unless DTC has reason to believe it will not
receive payment on such payment date. Payments by the participants and the
indirect participants to the beneficial owners of notes will be governed by
standing instructions and customary practices and will be the responsibility of
the participants or the indirect participants and will not be the responsibility
of DTC, the trustee or Energy Holdings. Neither Energy Holdings nor the trustee
will be liable for any delay by DTC or any of its participants in identifying
the beneficial owners of the notes, and Energy Holdings and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Interest in the global notes are expected to be eligible to trade in DTC's
same-day funds settlement system and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
DTC has advised Energy Holdings that it will take any action permitted to
be taken by a holder of notes only at the direction of one or more participants
to whose account DTC has credited the interests in the global notes and only in
respect of such portion of the aggregate principal amount of the notes
42
as to which such participant or participants has or have given such direction.
However, if there is an event of default under the notes, DTC reserves the right
to exchange the global notes for legended notes in certificated form, and to
distribute such notes to its participants.
Exchange of Book-Entry Notes for Certificated Notes
If
o DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by Energy
Holdings within 90 days following notice to Energy Holdings,
o DTC determines, in its sole discretion, not to have any of the notes
represented by one or more global notes, or
o an event of default under the indenture has occurred and is
continuing,
then Energy Holdings will issue individual notes in certificated form in
exchange for the relevant global notes. In any such instance, an owner of a
beneficial interest in a global note will be entitled to physical delivery of
individual notes in certificated form of like tenor and rank, equal in principal
amount to such beneficial interest and to have such notes in certificated form
registered in its name. In all cases, notes in certificated form delivered in
exchange for any global note or beneficial interests therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of the depositary (in accordance with its customary procedures).
FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of the material United States federal income
tax consequences resulting from the exchange offer and from the ownership of the
exchange notes. It deals only with exchange notes held as capital assets and not
with special classes of noteholders, such as dealers in securities or
currencies, life insurance companies, tax exempt entities, and persons that hold
an exchange note in connection with an arrangement that completely or partially
hedges the exchange note. The discussion is based upon the Internal Revenue Code
of 1986, as amended, and regulations, rulings and judicial decisions thereunder
as of the date hereof. Such authorities may be repealed, revoked or modified so
as to produce federal income tax consequences different from those discussed
below. The information contained in this section has been passed upon for us by
James T. Foran, Esquire, Associate General Counsel of PSEG. We have received an
opinion of counsel from Mr. Foran regarding the material federal income tax
consequences of the exchange offer.
Noteholders tendering their original notes or prospective purchasers of
exchange notes should consult their own tax advisors concerning the United
States federal income tax and any state or local income or franchise tax
consequences in their particular situations and any consequences under the laws
of any other taxing jurisdiction.
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.
43
United States Holders
For purposes of this discussion, a "United States Holder" means:
(1) a citizen or resident of the United States;
(2) a partnership, corporation or other entity treated as a corporation
or partnership for United States federal income tax purposes,
created or organized in or under the law of the United States or of
any State of the United States including the District of Columbia;
(3) an estate the income of which is subject to United States federal
income tax regardless of its source;
(4) a trust, if either:
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or
more United States persons have the authority to control all
substantial decisions of the trust; or
(b) the trust was in existence on August 20, 1996 and elected to
be treated as a United States person at all times thereafter;
(5) any other person that is subject to United States federal income tax
on interest income derived from a note as a result of such income
being effectively connected with the conduct by such person of a
trade or business within the United States; or
(6) certain former citizens of the United States whose income and gain
on the exchange notes will be subject to U.S. income tax.
Payments of Interest
Interest on an exchange note will be taxable to a United States Holder as
ordinary interest income at the time it is received or accrued, depending on the
noteholder's method of accounting for tax purposes.
Disposition of an Exchange Note
Upon the sale, exchange or retirement of an exchange note, a United States
Holder generally will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement (other than
amounts representing accrued and unpaid interest, which will be treated as
ordinary income) and such holder's adjusted basis in the exchange note. Such
gain or loss generally will be long-term capital gain or loss if the holder's
holding period in the exchange note was more than one year at the time of
disposition.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply with respect to
non-corporate United States Holders to payments of principal and interest on an
exchange note and the proceeds of the sale 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 or otherwise fails to comply with
applicable requirements of the backup withholding rules.
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;
44
(c) is not a bank receiving interest described in Section
881(c)(3)(A) of the Internal Revenue Code; and
(d) provides a statement, under penalties of perjury (such as Form
W-8BEN), to us that the holder is a United States Alien and
provides its name and address;
(2) a noteholder that is a United States Alien will not be subject to
United States federal income tax on gain realized on the sale,
exchange or redemption of such note, unless:
(a) the gain is effectively connected with the conduct of a trade
or business within the United States by the United States
Alien; or
(b) in the case of a United States Alien who is a nonresident
alien individual and holds the exchange note as a capital
asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements
are met; and
(3) an exchange note will not be subject to United States federal estate
tax as a result of the death of a noteholder who is not a citizen or
resident of the United States at the time of death, provided that:
(a) such noteholder did not at the time of death actually or
constructively own 10% or more of the combined voting power of
all classes of our stock; and,
(b) at the time of such noteholder's death, payments of interest
on such exchange note would not have been effectively
connected with the conduct by such noteholder of a trade or
business in the United States.
United States information reporting requirements and backup withholding
tax will not apply to payments on an exchange note made outside the United
States by us or any paying agent (acting in its capacity as such) to a
noteholder that is a United States Alien provided that a statement described in
(1)(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 (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 180
days after the exchange offer has been completed, we will make this prospectus,
as
45
amended or supplemented, available to any broker-dealer that reasonably requests
such document for use in connection with any such resale. Broker dealers who
acquired original notes directly from us may not rely on the staff's
interpretations and must comply with the registration and prospectus delivery
requirements of the Securities Act, including being named as a selling security
holder, in order to resell the original notes or the exchange notes.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the exchange offer has been completed, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such document
in the letter of transmittal. We have agreed to pay certain expenses incident to
the exchange offer, other than commission or concessions of any brokers or
dealers, and will indemnify the holders of the exchange notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this exchange offer, each broker-dealer that receives
exchange notes for its own account pursuant to the exchange offer agrees that,
upon receipt of notice from Energy Holdings of the happening of any event which
makes any statement in the prospectus untrue in any material respect or requires
the making of any changes in the prospectus in order to make the statements
therein not misleading (which notice we agree to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the prospectus until we
have amended or supplemented the prospectus to correct such misstatement or
omission and have furnished copies of the amended or supplemental prospectus to
such broker-dealer.
LEGAL OPINIONS
The validity of the notes will be passed upon for Energy Holdings by James
T. Foran, Esquire, Associate General Counsel of PSEG or R. Edwin Selover,
Esquire, Senior Vice President and General Counsel of PSEG. The information
contained in Federal Income Tax Considerations has been passed upon for Energy
Holdings by Mr. Foran.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in this prospectus by reference from
our Annual Report on Form 10-K for the year ended December 31, 2001 as updated
by our Current Report on Form 8-K dated September 27, 2002 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 under their authority as experts in
accounting and auditing.
46
================================================================================
$135,000,000
---------------
[LOGO] PSEG
Energy Holdings
---------------
Offer to Exchange
8.625% Senior Notes due 2008
Which have been registered under the Securities Act
For Any and All Outstanding
8.625% Senior Notes due 2008
Which have not been so registered
================================================================================
Part II
Information not required in Prospectus
Item 20. Indemnification of Managers and Officers
Section 19 of Energy Holdings Limited Liability Company Agreement provides
as follows:
Exculpation and Indemnification.
a. No Member, Officer, Manager, 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.
b. 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 19 shall be provided
out of and to the extent of Company assets only, and no Member shall
have personal liability on account thereof.
c. To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by a Covered Person defending any
claim, demand, action, suit or proceeding shall, from time to time,
be advanced by the Company prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the
Company of an undertaking by or on behalf of the Covered Person to
repay such amount if it shall be determined that the Covered Person
is not entitled to be indemnified as authorized in this Section 19.
d. A Covered Person shall be fully protected in relying in good faith
upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to
matters the Covered Person reasonably believes are within such other
Person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and
amount of the assets, liabilities, or any other facts pertinent to
the existence and amount of assets from which distributions to the
Member might properly be paid.
e. To the extent that, at law or in equity, a Covered Person has duties
(including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting
under this Agreement shall not be liable to the Company or to any
other Covered Person for its good faith reliance on the provisions
of this Agreement or any approval or authorization granted by the
Company or any other Covered Person. The provisions of this
Agreement, to the extent that they restrict the duties and
liabilities of a Covered Person otherwise existing at law or in
equity, are agreed by the Member to replace such other duties and
liabilities of such Covered Person.
f. The Company may purchase and maintain insurance, to the extent and
in such amounts as the Treasurer, in his sole discretion, shall deem
reasonable, on behalf of Covered Persons and such other persons or
entities as the Treasurer shall determine, against any liability
that may be asserted against or expenses that may be incurred by any
such person or entity in connection with the activities of the
Company or such indemnities, regardless of whether the
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Company would have the power to indemnify such person or entity
against such liability under the provisions of this Agreement. The
Company may enter into indemnity contracts with Covered Persons and
such other persons or entities as the Board shall determine and
adopt written procedures pursuant to which arrangements are made for
the advancement of expenses and the funding of obligations under
Section 18(c) and containing such other procedures regarding
indemnification as are appropriate.
g. The foregoing provisions of this Section 19 shall survive any
termination of this Agreement.
Item 21. Exhibits and Financial Statement Schedules
Exhibit Index
Exhibit
Number Description
- ------- -----------
3.1 -- Certificate of Formation.*
3.2 -- Limited Liability Company Agreement.*
4.1 -- Indenture dated as of October 8, 1999 between Energy Holdings and
Wachovia Bank, National Association (formerly known as First Union
National Bank).**
4.2 -- First Supplemental Indenture dated as of September 30, 2002.*
4.3 -- Exchange and Registration Rights Agreement dated June 7, 2002.
between Energy Holdings and the purchasers named in Schedule I of
the purchase agreement.
4.4 -- Form of Exchange Note.
5 -- Opinion of James T. Foran, Esquire.
8 -- Opinion of James T. Foran, Esquire regarding tax matters.
12 -- Statement regarding computation of ratios of earnings.
21 -- Subsidiaries of the Registrant.
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.
- ----------
* Incorporated by reference from Form 8-K dated October 1, 2002 (Exhibits 3,
3.2, and 4)
** Incorporated by reference to Registration Statement No. 333-95697 (Exhibit
4.1)
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to managers, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has 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 registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
manager, officer or controlling person in connection with the securities being
registered, the registrant 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 registrant hereby undertakes 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 registrant hereby undertakes (a):
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
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(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(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 that are
incorporated by reference in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act, 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered thereby, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PSEG Energy Holdings L.L.C., 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 11th day of October of 2002.
PSEG ENERGY HOLDINGS L.L.C.
By: /s/ ROBERT J. DOUGHERTY JR.
--------------------------------------
Robert J. Dougherty, Jr.
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ E. James Ferland Chairman of the Board October 11, 2002
- ---------------------------- and Chief Executive Officer
E. James Ferland (Principal Executive Officer)
/s/ Thomas M. O'Flynn Executive Vice President October 11, 2002
- ---------------------------- and Chief Financial Officer
Thomas M. O'Flynn and Director (Principal
Financial Officer)
/s/ Derek M. DiRisio Vice President and October 11, 2002
- ---------------------------- Controller (Principal
Derek M. DiRisio Accounting Officer)
This Registration Statement has also been signed by Derek M. DiRisio,
Attorney-in-Fact, on behalf of the following Managers on October 11, 2002.
Robert E. Busch
Frank Cassidy
Robert J. Dougherty, Jr.
R. Edwin Selover
By: /s/ DEREK M. DIRISIO
---------------------------
Derek M. DiRisio
Attorney-in-Fact
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Exhibit Index
Exhibit
Number Description
- ------- -----------
3.1 -- Certificate of Formation.*
3.2 -- Limited Liability Company Agreement.*
4.1 -- Indenture dated October 8, 1999 between Energy Holdings and Wachovia
Bank, National Association (formerly known as First Union National
Bank).**
4.2 -- First Supplemental Indenture dated as of September 30, 2002.
4.3 -- Exchange and Registration Rights Agreement dated June 7, 2002
between Energy Holdings and the purchasers named in Schedule I of
the purchase agreement.
4.4 -- Form of Exchange Note.
5 -- Opinion of James T. Foran, Esquire.
8 -- Opinion of James T. Foran, Esquire regarding tax matters.
12 -- Statement regarding computation of ratios of earnings.
21 -- Subsidiaries of the Registrant.
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.
- ----------
* Incorporated by reference from Form 8-K dated October 1, 2002
** Incorporated by reference to Registration Statement No. 333-95697