The information in this prospectus supplement and accompanying prospectus is not
complete and may be changed. This prospectus supplement and the accompanying
prospectus are not offers to sell these securities and we are not soliciting
offers to buy these securities in any jurisdiction where the offer or sale is
not permitted.
PROSPECTUS SUPPLEMENT (Subject to Completion) Issued December 10, 2002
(To Prospectus dated December 5, 2002)
4,000,000 Preferred Securities
PSEG Funding Trust II
% Preferred Securities
(Liquidation Amount $25 per Preferred Security)
Fully and Unconditionally Guaranteed to the Extent Set Forth Herein by
Public Service Enterprise Group Incorporated
----------
PSEG Funding Trust II is a Delaware statutory trust that will:
o sell preferred securities to the public;
o sell common securities to Public Service Enterprise Group
Incorporated, or PSEG;
o use the proceeds from these sales to buy an equal principal amount
of % junior subordinated debentures due December , 2032 of PSEG;
and
o distribute the cash payments it receives from PSEG on the junior
subordinated debentures to the holders of the preferred securities
and the common securities.
Quarterly Distributions:
For each preferred security that you own, you will receive cumulative cash
distributions, accumulating from the date of original issuance at an annual rate
of % of the liquidation amount of $25 per preferred security, on March , June
, September and December , of each year, beginning March , 2003.
PSEG may defer interest payments on the junior subordinated debentures on
one or more occasions, for up to 20 consecutive quarters. If PSEG does defer the
payment of interest on the junior subordinated debentures, PSEG Funding Trust II
will also defer the payment of distributions on the preferred securities.
However, deferred distributions will themselves accumulate interest at an annual
rate of %, to the extent permitted by law.
Optional Redemption:
PSEG Funding Trust II may redeem some or all of the preferred securities
on or after December , 2007, or all of the preferred securities at any time upon
the occurrence of a special event as discussed in this prospectus supplement, at
a redemption price equal to $25 per preferred security plus accumulated and
unpaid distributions, if any.
Public Service Enterprise Group Incorporated:
PSEG will guarantee the payment by PSEG Funding Trust II of amounts due on
the preferred securities as discussed in this prospectus supplement and in the
accompanying prospectus.
Application has been made to list the preferred securities on the New York
Stock Exchange. If approved, trading of the preferred securities on that
exchange is expected to begin within 30 days after the date of original
issuance, under the symbol "PEG PrU."
Investment in the preferred securities involves certain risks that are
described in the sections entitled "Risk Factors" beginning on page S-10 of this
prospectus supplement and page 5 of the accompanying prospectus.
----------
Per Security Total
------------ -----
Public offering price (1) ............................ $ $
Underwriting commissions to be paid by PSEG .......... $ $
Proceeds, before expenses, to PSEG Funding Trust II .. $ $
(1) Plus accumulated distributions from the date of original issuance,
if settlement occurs after that date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The preferred securities will be ready for delivery in book-entry form
only through The Depository Trust Company on or about December , 2002.
----------
Joint Book-Running Managers
Merrill Lynch & Co. Morgan Stanley UBS Warburg
----------
Credit Suisse First Boston
Lehman Brothers
Prudential Securities
Wachovia Securities
----------
The date of this prospectus supplement is December , 2002.
TABLE OF CONTENTS
Prospectus Supplement Page
----
Prospectus Supplement Summary ........................................... S-3
Risk Factors ............................................................ S-10
Use of Proceeds ......................................................... S-13
Selected Financial Data ................................................. S-14
Capitalization .......................................................... S-15
Ratio of Earnings to Fixed Charges ...................................... S-15
Accounting Treatment .................................................... S-16
Description of the Preferred Securities ................................. S-16
Description of the Junior Subordinated Debentures ....................... S-23
Description of the Guarantee ............................................ S-25
U.S. Federal Income Tax Consequences .................................... S-26
ERISA Considerations .................................................... S-31
Underwriting ............................................................ S-34
Legal Matters ........................................................... S-35
Experts ................................................................. S-35
Prospectus
About this Prospectus ................................................... 3
Information About the Issuers ........................................... 3
Risk Factors ............................................................ 5
Forward-Looking Statements .............................................. 12
Use of Proceeds ......................................................... 13
Accounting Treatment Relating to Preferred Trust Securities ............. 13
Description of the Senior and Subordinated Debt Securities .............. 13
Description of the Trust Debt Securities ................................ 24
Description of the Preferred Trust Securities ........................... 29
Description of the Preferred Securities Guarantee ....................... 37
Relationship among the Preferred Trust Securities,
the Trust Debt Securities and the Preferred Securities Guarantee ...... 39
Description of the Capital Stock ........................................ 40
Description of Stock Purchase Contracts and Stock Purchase Units ........ 41
Plan of Distribution .................................................... 41
Legal Matters ........................................................... 43
Experts ................................................................. 43
Where You Can Find More Information ..................................... 43
Incorporation of Certain Documents by Reference ......................... 43
----------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We and
the trust have not, and the underwriters have not, authorized any person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We and the trust are not,
and the underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement or the accompanying
prospectus or any document incorporated by reference is accurate only as of its
date. PSEG's business, financial condition, results of operations and prospects
may have changed since such date.
In this prospectus supplement, references to "PSEG," "we," "us" and "our"
refer to Public Service Enterprise Group Incorporated, unless the context
indicates that the references are to Public Service Enterprise Group
Incorporated and its consolidated subsidiaries, and references to the "trust"
are to PSEG Funding Trust II.
S-2
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PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights important information about PSEG, the trust and
this offering. It does not contain all the information that is important to you
in connection with your decision to invest in the preferred securities. We
encourage you to read this prospectus supplement and the accompanying prospectus
in their entirety as well as the information we incorporate by reference before
making an investment decision.
Public Service Enterprise Group Incorporated
We are a leading integrated energy company engaged in power generation and
wholesale marketing and trading, as well as in the regulated delivery of power
and gas. Our domestic merchant power generation and wholesale marketing and
trading business, with more than 13,000 megawatts, or MW, of power generation
capacity, is one of the largest in the United States and the largest in the
Pennsylvania-New Jersey-Maryland Power Pool, or PJM, which is the primary power
market in which we participate. Our regulated power and gas distribution
business is also one of the largest in the United States and the largest in New
Jersey. We are also engaged in power generation and distribution in selected
international markets and have a substantial related business focused on
providing energy infrastructure financing in developed countries.
The following chart shows PSEG and its principal subsidiaries, Public
Service Electric and Gas Company (PSE&G), PSEG Power LLC (Power), PSEG Energy
Holdings LLC (Energy Holdings) and PSEG Services Corporation (Services), as well
as the principal operating subsidiaries of those subsidiaries:
PSEG
|
-----------------------------------------------------------
| | | |
PSE&G -- Power -- Energy Holdings Services
| |
|-- Fossil |-- Global
| |
|-- Nuclear |-- Resources
|
|-- ER&T
The major services and products we provide are offered through the
following subsidiaries:
o PSE&G is a regulated public utility supplying electric and gas
service to approximately 2.0 million electric customers and
approximately 1.6 million gas customers in New Jersey. PSE&G's
electric and gas service area is a corridor of approximately 2,600
square miles in which about 70% of the state's population resides.
This heavily populated, commercialized and industrialized service
area encompasses most of New Jersey's largest municipalities,
including its six largest cities. This service territory contains a
diversified mix of commerce and industry and its load requirements
are almost evenly split among residential, commercial and industrial
customers.
o Power is a multi-regional generating and wholesale energy trading
company that integrates its generating assets with its wholesale
energy trading, fuel supply and risk management operations. It
currently owns a portfolio of domestic power generation assets
which, as of September 30, 2002, had a total capacity of more than
13,000 MW (including 1,019 MW of fossil generation assets located in
Connecticut which were acquired by purchase on December 6, 2002). As
a result of New Jersey's deregulation and restructuring of its
electric power industry, PSE&G's generation business was transferred
to Power in August 2000. Power operates these assets on a
competitive merchant basis. Power expects to develop or acquire
additional power generation assets opportunistically. Power is
currently constructing projects that are expected to increase its
capacity by approximately 2,950 MW through 2005, net of planned
retirements.
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S-3
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o Global is a subsidiary of Energy Holdings that develops, owns and
operates power generation and distribution facilities in selected
areas of the worldwide energy market. Global has determined that it
will limit future spending to contractual commitments and refocus
its strategy from one of accelerated growth to one that places
emphasis on increasing the efficiency and returns of its assets. As
of September 30, 2002, Global had ownership interests in 32
operating power generation projects, totaling 5,279 MW (2,306 net MW
owned), and eight regulated distribution companies.
o Resources is a subsidiary of Energy Holdings that invests primarily
in energy-related financial transactions. Resources invests in
transactions where its expertise and understanding of the inherent
risks and operating characteristics of energy-related assets provide
a competitive advantage. As of September 30, 2002, Resources had
approximately $3.1 billion in investments.
Competitive Strengths
We believe that we are well positioned to enhance our position as one of
the leading integrated energy companies. Our significant competitive strengths
include the following:
Relatively stable regulated domestic energy delivery business with strong
cash flows
PSE&G has relatively stable cash flows. The stability of PSE&G's business
is further enhanced by the relative affluence of its customer base; New Jersey
had the fourth-highest per capita personal income in the U.S. in 2000. Unlike
some other utilities that are exposed to daily fluctuations in the price at
which power can be procured for customers, PSE&G and the other New Jersey
utilities can secure all of their customers' longer-term power needs through a
centralized process in which a variety of power marketers bid to supply all of
New Jersey's power requirements over an annual or longer period. This auction
process was completed in February 2002 for the 12-month period from August 1,
2002 to July 31, 2003, and was widely viewed as an efficient, competitive
process for regulated power delivery companies, such as PSE&G, to procure a
longer-term source of power for their customers at constant prices.
One of the most competitive wholesale power generation asset portfolios in
the United States
We believe that Power's portfolio of wholesale power generation plants is
well-diversified in terms of fuel type, technology and energy market segments
served. We also believe that this diversity reduces the risk associated with
market demand cycles and allows us to participate in each segment of the
dispatch curve. Power's generation assets are also strategically located near
concentrations of customers.
Integrated generation and wholesale marketing and trading
As a complement to our portfolio of wholesale power generation assets, we
have an integrated wholesale energy marketing and trading operation with
significant technical capabilities and market expertise and a state-of-the-art
trading floor. This group, which has been in operation since 1997, centrally
controls all of Power's generation assets and provides a competitive wholesale
marketing, trading and risk management function that actively participates in
all aspects of the energy markets. The integration of our generation operations,
fossil fuel procurement and wholesale marketing, trading and risk management
capabilities enables us to optimize our mix of financial and physical assets and
mitigate the effects of adverse movements in the fuel and electricity markets.
Complementary mix of investments in the rapidly changing global energy
markets
In addition to our U.S.-based integrated energy business, we have
developed a portfolio of investments that provides us with near-term earnings
and supports our long-term growth. Resources' energy-related investments
generate cash flow and earnings in the near term, while Global's investments
generally have a longer time horizon prior to achieving expected cash flow and
earnings. In addition, Resources' passive and lower-risk investments balance the
higher risk associated with Global's operating investments.
Business Strategy
We pursue a complementary business mix comprised of regulated energy
distribution and unregulated power generation and wholesale energy marketing and
trading businesses. We believe our existing critical mass and
--------------------------------------------------------------------------------
S-4
--------------------------------------------------------------------------------
expertise in both regulated and unregulated businesses allows us to expand in
both business segments. As key elements of our strategy, we:
Enhance the operating performance of our regulated energy delivery
business
We continue to focus on improving the operating performance of our
regulated energy delivery business by reducing costs, while continuing to
provide safe, highly dependable service to our electric and gas customers. We
constantly seek new initiatives to reduce cost and improve performance, such as
our recent installation of a state-of-the-art substation in Newark, New Jersey
and our phasing in of a sophisticated outage management system. We are also
taking a leading role in the establishment of a research and development
consortium that will be focused on finding new ways to improve service.
Seek to minimize our exposure to long-term and short-term market risks
We actively manage the risks our businesses face through a risk management
framework we developed based on recommendations established by a group of
industry experts known as the Group of Thirty. These recommendations are
generally considered best practices for the use of derivative instruments. We
have a risk management committee that periodically reports to the audit
committee of the PSEG board of directors. On a daily basis, our energy marketing
and trading operations reports its risk exposure to our independent corporate
risk management group, which, in turn, reports to the chief financial officer of
PSEG and to the corporate risk management committee. The corporate risk
management committee sets risk limits, alert limits and portfolio loss limits
for the business. These limits are contained in the procedures and guidelines
that detail the actions for implementation of our corporate policy. The chief
financial officer of PSEG chairs the risk management committee, which formally
meets quarterly to discuss risk matters, but which is also convened on demand
when more immediate risk issues arise. The corporate risk management group is
charged with measuring, monitoring and reporting both market and credit risk.
Our level of risk is computed and reported weekly. We also mark all positions to
market daily and stress-test our portfolio on both a daily and a monthly basis
to seek to identify potential risks to our portfolio.
Opportunistically develop and acquire additional generation facilities in
our target markets
We operate the largest wholesale power generation and wholesale energy
marketing business in the PJM power market, which is one of the largest and most
efficient power markets in the United States. We pursue a disciplined,
opportunistic approach to asset growth through the development of new facilities
on existing sites and the acquisition of existing facilities in neighboring
regions where we can leverage our expertise with regard to operations, market
rules, trading and risk management. Any new development decisions will be based
upon a site's location with respect to load centers, priority position in the
transmission queue and access to existing fuel supplies.
----------
Please refer to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, which is incorporated by reference in this prospectus
supplement, for discussions of current factors affecting our business, including
credit rating developments and economic and industry considerations.
We are a New Jersey corporation with our principal offices located at 80
Park Plaza, Newark, New Jersey 07101. Our telephone number is (973) 430-7000.
PSEG Funding Trust II
PSEG Funding Trust II is a statutory trust that was recently created under
the Delaware Statutory Trust Act and will be governed by an amended and restated
trust agreement among the trustees of the trust and us. The trust agreement, as
amended, was qualified under the Trust Indenture Act of 1939, as amended. The
assets of the trust will consist solely of our junior subordinated debentures.
We will hold all of the common securities of the trust.
The principal offices of the trust are located at 80 Park Plaza, Newark,
New Jersey 07101 and its telephone number is (973) 430-7000.
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S-5
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The Offering
The following is a brief summary of certain terms of this offering. For a
more complete description, see "Description of the Preferred Securities,"
"Description of the Junior Subordinated Debentures" and "Description of the
Guarantee" in this prospectus supplement and "Description of the Trust Debt
Securities," "Description of the Preferred Trust Securities" and "Description of
the Preferred Securities Guarantee" in the accompanying prospectus.
Issuer ......................... PSEG Funding Trust II, a Delaware statutory
trust, has been created for the purpose of
acquiring and holding our % junior
subordinated debentures due December , 2032
and issuing the preferred securities to the
public and common securities to us. Together,
the preferred securities and the common
securities will evidence the entire
beneficial ownership in our junior
subordinated debentures.
The trust has three trustees. The
administrative trustee is one of our
officers. Wachovia Bank, National Association
will act as the property trustee of the trust
and Wachovia Trust Company, National
Association will act as the Delaware trustee
of the trust. The principal offices and
telephone number of the trust are the same as
ours.
Securities Offered ............. % Preferred Securities in denominations
of $25 with an aggregate liquidation amount
of $ . Each preferred security will
represent an undivided beneficial ownership
interest in the assets of the trust. Each
preferred security will entitle its holder to
receive quarterly distributions as described
below.
The trust will invest the proceeds of the
preferred securities and of its common
securities in an equivalent principal amount
of our junior subordinated debentures. The
trust will use the payments it receives on
the junior subordinated debentures to make
the corresponding payments on the preferred
securities and its common securities. We will
guarantee payments on the preferred
securities to the extent described herein and
in the accompanying prospectus. Our
obligations under the junior subordinated
debentures will be subordinated and junior in
right of payment to our existing and future
Senior Indebtedness and our obligations under
the guarantee will be subordinate and junior
in right of payment to all of our general
liabilities. In addition, both the junior
subordinated debentures and the guarantee
will effectively be subordinated to existing
and future liabilities of our subsidiaries.
See the information under the caption
"Description of the Junior Subordinated
Debentures -- Subordination" in this
prospectus supplement for the definition of
"Senior Indebtedness."
Distributions .................. Holders of the preferred securities will be
entitled to receive cumulative cash
distributions at the annual rate of %.
Distributions on the preferred securities
will accumulate from the date of original
issuance, and will be paid quarterly in
arrears on March , June , September and
December of each year, beginning March ,
2003, unless they are deferred as described
below.
Distribution Deferral .......... We may, on one or more occasions, defer the
quarterly interest payments on the junior
subordinated debentures for up to 20
consecutive quarterly periods, unless an
event of default under the junior
subordinated debentures, which we refer to as
a debenture event of default, has occurred
and is continuing. Interest payments may not
be deferred, however, beyond the stated
maturity or redemption of the junior
subordinated debentures, nor
--------------------------------------------------------------------------------
S-6
--------------------------------------------------------------------------------
may we begin a new interest deferral period
until we have paid all accrued interest on
the junior subordinated debentures from the
previous interest deferral period. If we
defer interest payments on the junior
subordinated debentures, the trust will also
defer distributions on the preferred
securities. Any deferred interest on the
junior subordinated debentures will accrue
additional interest at an annual rate of %,
compounded quarterly, to the extent permitted
by law, and, as a result, any deferred
distributions on the preferred securities
will accumulate additional amounts at an
annual rate of %, compounded quarterly, to
the extent permitted by law. During any
period in which we defer interest payments on
the junior subordinated debentures, we may
not do the following, with certain limited
exceptions:
o declare or pay any dividends on our
capital stock; or
o redeem, purchase, acquire or make a
liquidation payment with respect to any
of our capital stock.
If we defer payments of interest on the
junior subordinated debentures, the junior
subordinated debentures will be treated at
that time as being issued with original issue
discount for United States federal income tax
purposes. This means you would be required to
accrue interest income on your preferred
securities even though you will not be
receiving any cash distributions. These
amounts will be included in your gross income
for United States federal income tax
purposes. For more information about the tax
consequences you may have if payments of
distributions are deferred, see "U.S. Federal
Income Tax Consequences" in this prospectus
supplement.
Redemption ..................... The junior subordinated debentures are
scheduled to mature on December , 2032. The
trust will redeem all of the outstanding
preferred securities when the junior
subordinated debentures are repaid at
maturity.
We may redeem the junior subordinated
debentures in whole or in part on or after
December , 2007, or prior to December , 2007,
only in whole at any time within 90 days
following the occurrence and continuation of
certain changes in tax or investment company
laws and regulations, in either case, at 100%
of their principal amount plus accrued and
unpaid interest. If we redeem any junior
subordinated debentures before their
maturity, the trust will use the cash it
receives on the redemption of the junior
subordinated debentures to redeem, on a pro
rata basis (except as described in this
prospectus supplement), the preferred
securities and common securities. These
circumstances are more fully described below
under the captions "Description of the Trust
Preferred Securities--Redemption," in the
accompanying prospectus and "Description of
the Preferred Securities--Special Event
Redemption" and "Description of the Junior
Subordinated Debentures--Redemption" in this
prospectus supplement.
Dissolution of PSEG Funding
Trust II and Distributions
of the Junior Subordinated
Debentures ................... We can dissolve the trust at any time,
provided the dissolution does not result in a
tax event to holders of the preferred
securities. If we elect to dissolve the
trust, the trust will redeem the preferred
securities by distributing the junior
subordinated debentures to holders of the
preferred securities and common securities on
a pro rata basis.
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S-7
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Liquidation Distribution
Upon Dissolution ............. Upon the dissolution and liquidation of the
trust not involving the distribution of the
junior subordinated debentures, the holders
of the preferred securities will be entitled
to receive, out of assets held by the trust,
subject to the rights of creditors of the
trust, if any, distributions in an amount
equal to the aggregate liquidation amount of
$25 per preferred security, plus accumulated
and unpaid distributions to the date of
payment. The trust will not make this
distribution if the junior subordinated
debentures have been distributed to the
holders of the preferred securities.
The Guarantee .................. We will fully and unconditionally guarantee
the payments of all amounts due on the
preferred securities to the extent the trust
has funds available to make those payments.
The guarantee does not cover payments when
the trust does not have sufficient funds to
make payments on the preferred securities. In
other words, if we do not make a payment on
the junior subordinated debentures, the trust
will not have sufficient funds to make
payments on the preferred securities, and the
guarantee will not obligate us to make those
payments on the trust's behalf.
Use of Proceeds ................ The trust will use the proceeds from the sale
of the preferred securities offered hereby
and the sale of its common securities to
purchase our junior subordinated debentures.
We intend to use all the net proceeds from
the sale of the junior subordinated
debentures to repay short-term indebtedness.
We had short-term indebtedness outstanding of
$1.7 billion as of September 30, 2002 with a
weighted average interest rate of 2.53% per
annum.
Listing ........................ Application has been made to list the
preferred securities on the New York Stock
Exchange, or the NYSE, under the symbol "PEG
PrU." If the application is approved, we
expect that trading will commence within 30
days after the preferred securities are first
issued. You should understand that the
listing of the preferred securities will not
ensure that an active trading market will be
available or that you will be able to sell
your preferred securities when you desire or
at all or at the price you originally paid
for them. If the junior subordinated
debentures are distributed, we will use our
best efforts to list the junior subordinated
debentures on the NYSE (or any other exchange
on which the preferred securities are then
listed) in place of the preferred securities.
Form of the Preferred
Securities ................... The preferred securities will be represented
by one or more global certificates that will
be deposited with and registered in the name
of The Depository Trust Company, or DTC. This
means that you will not receive a certificate
for your preferred securities. For more
details, see the information under the
caption "Description of the Preferred
Securities--Global Preferred Securities" in
this prospectus supplement.
Ranking ........................ The preferred securities will generally rank
equal to the trust's common securities in
priority of payment and therefore the trust
will make payments on the preferred
securities and common securities based on pro
rata allocation, except after a debenture
event of default.
Our junior subordinated debentures will be
unsecured and will rank subordinate and
junior in right of payment to all of our
current and future Senior Indebtedness. The
junior subordinated debentures will rank
equally with all of our other junior
subordinated debentures held by trusts
similar
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S-8
--------------------------------------------------------------------------------
to the trust. At September 30, 2002, we and
our subsidiaries had consolidated long-term
indebtedness of approximately $10.6 billion
outstanding and PSEG had $460 million of
senior long-term indebtedness outstanding.
For more details, see the information under
the caption "Description of the Junior
Subordinated Debentures--Subordination" in
this prospectus supplement.
Our guarantee will rank equal to any other
subordinated guarantees that we may issue or
have issued in the past on preferred
securities issued by trusts similar to the
trust. The guarantee will be unsecured and
will rank junior in right of payment to our
general liabilities. The junior subordinated
debentures and the guarantee will be
effectively junior to all existing and future
liabilities of our subsidiaries. At September
30, 2002, our subsidiaries had $12.0 billion
of indebtedness outstanding.
Risk Factors ................... Your investment in the preferred securities
will involve risks. You should carefully
consider the discussion of risks in "Risk
Factors" in this prospectus supplement and
the accompanying prospectus before deciding
whether an investment in the preferred
securities is suitable for you.
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S-9
RISK FACTORS
Your investment in the preferred securities will involve risk. You should
carefully consider the following discussion of risk as well as other information
contained and incorporated by reference in this prospectus supplement and the
accompanying prospectus in order to evaluate an investment in the preferred
securities.
Failure to refinance maturing debt and obtain additional capital at reasonable
rates may have an adverse impact
Over the next several years, we and our subsidiaries will be required to
refinance maturing debt, and expect to incur additional debt and provide equity
to fund subsidiary investment activity. Any inability to obtain required
external capital or to extend or replace maturing debt and/or existing
agreements at current levels and reasonable interest rates may adversely affect
our financial position, results of operations and net cash flows.
The availability and cost of external capital could be affected by each
subsidiary's performance as well as by the performance of their respective
subsidiaries and affiliates. This could include the degree of structural or
regulatory separation between us and our subsidiaries and between PSE&G and its
non-utility affiliates and the potential impact of securities ratings on
consolidated and unconsolidated credit quality. Additionally, compliance with
applicable financial covenants will depend upon our future financial position,
results of operations and net cash flows, as to which no assurances can be
given.
The current ratings of securities of PSEG reflect the respective views of
the rating agencies. There is no assurance that these ratings will continue for
any given period of time or that they will not be revised or withdrawn entirely
by the rating agencies, if, in their respective judgments, circumstances so
warrant. Any downward revisions or withdrawal may adversely effect the market
price of our securities and serve to increase our cost of capital.
Failure to comply with a required maximum debt ratio covenant could have an
adverse impact
Financial covenants contained in our credit facilities include the ratio
of debt (excluding non-recourse project financings and securitization debt and
including commercial paper and loans, certain letters of credit and similar
instruments) to total capitalization. At the end of any quarterly financial
period, such ratio may not be more than 0.70 to 1. As of September 30, 2002, the
ratio of debt to capitalization was 0.65 to 1. Accordingly, were we to incur
additional indebtedness in sufficient amounts, including by issuances of debt
securities in the capital markets, the ratio of debt to total capitalization
would exceed the level permitted by our credit facilities.
Our obligations under the junior subordinated debentures and the preferred
securities are subordinated
Our obligations under the junior subordinated debentures are unsecured and
subordinated. This means that we cannot make any payments of principal
(including redemption payments) or interest on the junior subordinated
debentures if we default on a payment on our Senior Indebtedness. In addition,
if the maturity of the junior subordinated debentures is accelerated, then
holders of our Senior Indebtedness will be entitled to be paid in full before we
make any payment on the junior subordinated debentures. In the event of our
bankruptcy, liquidation or dissolution, our assets would be available to pay
obligations under the junior subordinated debentures only after all payments had
been made on our Senior Indebtedness.
Our obligations under the preferred securities guarantee are unsecured and
will rank in priority of payment:
o junior to all of our other liabilities, except those liabilities
made equal with or junior to the preferred securities guarantee by
their terms;
o senior to all of our capital stock now outstanding or issued in the
future, including our common stock; and
o equally with any other subordinated guarantees that we have issued
or may issue with respect to preferred securities issued by trusts
similar to the trust.
S-10
This means that we cannot make any payments on the preferred securities
guarantee if we default on a payment of any of our other liabilities, except
those liabilities made equal with or junior to the preferred securities
guarantee by their terms. In the event of our bankruptcy, liquidation or
dissolution, our assets would be available to pay obligations under the
preferred securities guarantee only after all payments had been made on our
other liabilities (except those liabilities made equal with or junior to the
preferred securities guarantee by their terms).
Neither the junior subordinated debentures nor the preferred securities
guarantee will limit our ability or the ability of our subsidiaries to incur
additional indebtedness, including indebtedness that ranks senior in priority of
payment to the junior subordinated debentures and the preferred securities
guarantee.
For more information, see "Description of the Guarantee--Status of the
Guarantee" in this prospectus supplement and "Relationship Among the Preferred
Trust Securities, the Trust Debt Securities and the Preferred Securities
Guarantee" in the accompanying prospectus.
Indebtedness and borrowings by our subsidiaries effectively will be senior to
the preferred securities and we are dependent on payments from our subsidiaries
to enable us to pay interest on the junior subordinated debentures that are the
sole assets of the trust
We are a holding company. Our junior subordinated debentures that we will
issue to the trust in connection with the trust's issuance of the preferred
securities, as well as the guarantee, will be effectively subordinated to all
obligations of our subsidiaries, whether secured or unsecured. As a result, the
preferred securities will be structurally subordinated to all existing and
future obligations of our subsidiaries, including claims with respect to trade
payables. This means that holders of the preferred securities will have a junior
position to the claims of creditors of our direct and indirect subsidiaries on
the assets and earnings of such subsidiaries. At September 30, 2002, we had
consolidated total indebtedness of $13.0 billion, of which $12.0 billion was at
the subsidiary level.
We conduct our operations through our subsidiaries, which generate
substantially all of our operating income and cash flow. As a result,
distributions or advances from our subsidiaries are a major source of funds
necessary to meet our debt service and other obligations, including any funds
required to make payments of interest on the junior subordinated debentures that
represent the sole assets of the trust. Contractual provisions, laws or
regulations, as well as any subsidiary's financial condition and operating
performance and requirements, may limit our ability to obtain cash required to
pay our debt service and other obligations, including payment of interest on our
junior subordinated debentures and the related distributions on the preferred
securities.
Other than under the guarantee, you have limited enforcement rights with respect
to the junior subordinated debentures
Except as described below or in the accompanying prospectus, you, as a
holder of preferred securities, will not be able to exercise directly any other
rights with respect to our junior subordinated debentures.
The guarantee has been qualified as an indenture under the Trust Indenture
Act. The guarantee trustee, Wachovia Bank, National Association, will act as
trustee under the guarantee for the purposes of compliance with the provisions
of the Trust Indenture Act. The guarantee trustee will hold the guarantee for
your benefit if you hold any of the preferred securities.
The guarantee will guarantee the payment of the following:
o any accumulated and unpaid distributions that are required to be
paid on the preferred securities, to the extent the trust has funds
available for this purpose;
o the redemption price, including all accumulated and unpaid
distributions to the date of redemption, of preferred securities
that we may have redeemed, to the extent the trust has funds
available for this purpose; and
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o upon a voluntary or involuntary termination, winding-up or
liquidation of the trust, other than in connection with the
distribution of our junior subordinated debentures to you, the
lesser of (a) the total of the liquidation amount and accumulated
and unpaid distributions on the preferred securities to the date of
payment to the extent the trust has funds available for this purpose
and (b) the amount of assets of the trust remaining available for
distribution to holders of the preferred securities in liquidation
of the trust.
The holders of a majority in liquidation amount of the preferred
securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the guarantee trustee or
exercise or direct the exercise of any trust or power conferred upon the
guarantee trustee under the guarantee. Notwithstanding the above, but only under
limited circumstances, holders of the preferred securities may institute a legal
proceeding directly against us to enforce their rights under the guarantee
without first instituting a legal proceeding against the trust, the guarantee
trustee or any other person or entity.
If we default on our obligation to pay principal (including redemption
payments) or interest on the junior subordinated debentures, the trust will not
have sufficient funds to pay distributions, the redemption price or the
liquidation amount of each preferred security. In those circumstances, you will
not be able to rely upon the preferred securities guarantee for payment of these
amounts because the preferred securities guarantee covers such payment only when
the trust has sufficient funds on hand but fails to make such payment.
Instead, you may:
o seek legal redress against us directly or seek other remedies to
collect your pro rata share of payments owed; or
o rely on the property trustee to enforce the trust's rights under the
junior subordinated debentures.
Our ability to defer distributions has tax consequences for you and may have an
adverse effect on the trading price of the preferred securities
So long as no debenture event of default has occurred and is continuing,
we may, on one or more occasions, defer interest payments on the junior
subordinated debentures as described in this prospectus supplement. See
"Description of the Junior Subordinated Debentures--Option to Extend Interest
Payment Period" in this prospectus supplement. If we defer interest payments on
the junior subordinated debentures while the trust is the holder of the junior
subordinated debentures, the trust will defer distributions on the preferred
securities to you during any deferral period.
If we defer interest payments on the junior subordinated debentures, you
will be required to accrue interest income (as original issue discount, or OID)
in respect of the deferred stated interest allocable to your share of the
preferred securities for United States federal income tax purposes. As a result,
you will include such income in gross income for United States federal income
tax purposes prior to the receipt of any cash distributions. In addition, you
will not receive cash from the trust related to such income if you dispose of
your preferred securities prior to the record date on which distributions of
such amounts are made.
We have no current intention of deferring interest payments on the junior
subordinated debentures. However, if we exercise our right to do so in the
future, the preferred securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest on the junior subordinated
debentures. If you sell the preferred securities during a deferral period, you
may not receive the same return on investment as someone else who continues to
hold the preferred securities. In addition, the existence of our right to defer
payments of interest on the junior subordinated debentures may mean that the
market price for the preferred securities (which represent an undivided
beneficial interest in the junior subordinated debentures) may be more volatile
than other securities that do not have this right.
S-12
See "U. S. Federal Income Tax Consequences" in this prospectus supplement
for more information regarding United States federal income tax consequences.
Preferred Securities may be redeemed prior to maturity
The junior subordinated debentures may be redeemed in whole or in part at
any time on or after December , 2007, or prior to December , 2007, in whole, but
not in part, within 90 days following the occurrence and continuation of a
Special Event, in either case at a redemption price equal to 100% of the
principal amount thereof plus any accrued and unpaid interest to the redemption
date. The trust will use the cash it receives on any such redemption of the
junior subordinated debentures to redeem an equivalent liquidation amount of the
preferred securities and common securities of the trust, which we refer to
collectively as the trust securities, on a pro rata basis, unless an event of
default under the trust agreement has occurred and is continuing, in which case
the preferred securities will be redeemed before any common securities.
Distribution of junior subordinated debentures may have an adverse effect on
trading prices
We have the right to dissolve the trust at any time if such dissolution
and any distribution of the junior subordinated debentures would not result in a
taxable event to the holders of the preferred securities. If we dissolve the
trust, the trust will be liquidated by distribution of the junior subordinated
debentures to holders of the preferred securities and the common securities.
Although we will use our best efforts to list the junior subordinated
debentures on the NYSE (or any other exchange or organization on which the
preferred securities are then listed), if they are distributed, we cannot assure
you that the junior subordinated debentures will be approved for listing or that
a liquid trading market for the junior subordinated debentures will develop or
be maintained.
We cannot predict the market prices for the junior subordinated debentures
that may be distributed. The junior subordinated debentures that you receive on
a distribution, or the preferred securities you hold pending such a
distribution, may trade at a discount to the price that you paid to purchase the
preferred securities.
Because you may receive junior subordinated debentures, you should make an
investment decision with regard to the junior subordinated debentures in
addition to the preferred securities. You should carefully review all the
information regarding the junior subordinated debentures contained in this
prospectus supplement and the accompanying prospectus.
Limited voting rights
You will have limited voting rights. In general, unless an event of
default under the trust agreement has occurred and is continuing, only we may
elect or remove any of the trustees, and in no event may holders of the
preferred securities remove the administrative trustee.
See "Information About the Issuers" in the accompanying prospectus and
"Description of the Preferred Securities--Voting Rights; Amendment of Trust
Agreement" in this prospectus supplement for more information.
USE OF PROCEEDS
The trust will use all of the proceeds from the issuance of the preferred
securities and the common securities to purchase $100 million aggregate
principal amount of our junior subordinated debentures. We intend to use the net
proceeds we receive for the junior subordinated debentures to repay short-term
indebtedness. We had short-term indebtedness outstanding of $1.7 billion as of
September 30, 2002 with a weighted average annualized interest rate of 2.53%.
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SELECTED FINANCIAL DATA
The following table sets forth selected financial data for us and our
consolidated subsidiaries. Results as of December 31, 2001 and 2000 and for the
three years ended December 31, 2001 have been derived from our audited
consolidated financial statements and related notes, incorporated by reference
in this prospectus supplement and the accompanying prospectus. Results as of
December 31, 1999 have been derived from our audited consolidated financial
statements and related notes, not incorporated by reference herein. Results as
of and for the nine months ended September 30, 2002 and 2001 are derived from
our unaudited consolidated financial statements and related notes incorporated
by reference this prospectus supplement and in the accompanying prospectus, and
in the opinion of management, include all adjustments necessary for a fair
presentation of our financial position and results of operations as of and for
those periods. The financial data set forth below should be read in conjunction
with our "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and consolidated financial statements, including the
related notes, in the documents incorporated by reference in this prospectus
supplement and the accompanying prospectus.
Nine Months Ended September 30, Year Ended December 31,
------------------------------- --------------------------------
2002 2001 2001 2000 1999
---- ---- ---- ---- ----
(Millions of Dollars, except for per share data)
(unaudited)
Operating Data:
Total Operating Revenues ........................ $ 5,690 $ 5,317 $ 7,055 $ 6,521 $ 6,339
Total Operating Expenses ........................ 4,747 3,883 5,147 4,614 4,458
-------- -------- -------- -------- --------
Operating Income ................................ 943 1,434 1,908 1,907 1,881
-------- -------- -------- -------- --------
Income before Discontinued Operations,
Extraordinary Items and Cumulative Effect
of Changes in Accounting Principles .......... $ 161 $ 584 $ 776 $ 776 $ 736
Loss from Discontinued Operations (A) ........... (41) (17) (15) (12) (13)
Extraordinary Item (B) .......................... -- -- -- -- (804)
Cumulative Effect of a Change in Accounting
Principle (C) ................................ (120) 9 9 -- --
-------- -------- -------- -------- --------
Net Income ...................................... $ -- $ 576 $ 770 $ 764 $ (81)
======== ======== ======== ======== ========
Earnings per Share (Basic and Diluted):
Income before Discontinued Operations,
Extraordinary Items and Cumulative Effects
of Changes in Accounting Principles .......... $ 0.78 $ 2.80 $ 3.73 $ 3.61 $ 3.35
Net Income (Loss) ............................... $ -- $ 2.76 $ 3.70 $ 3.55 $ (0.37)
-------- -------- -------- -------- --------
Weighted Average Common Shares
Outstanding (000's) .......................... 206,552 208,564 208,226 215,121 219,814
Dividends Paid per Common Share ................. $ 1.62 $ 1.62 $ 2.16 $ 2.16 $ 2.16
As of As of December 31,
September 30, 2002 2001 2000 1999
----------------- ---- ---- -----
(unaudited)
Balance Sheet Data:
Total Assets .................................... $ 25,954 $ 25,430 $ 21,526 $ 19,015
======== ======== ======== ========
Commercial Paper and Loans ...................... $ 1,657 $ 1,338 $ 2,885 $ 1,972
Long-Term Debt due within one year .............. 742 1,185 667 1,073
Long-Term Debt:
Long-Term Debt ................................ 6,902 6,437 5,040 4,345
Securitization Debt ........................... 2,259 2,351 -- --
Project Level, Non-Recourse Debt .............. 1,481 1,403 256 230
-------- -------- -------- --------
Total Long-Term Debt ........................ 10,642 10,191 5,296 4,575
Subsidiaries Preferred Securities ............... 1,220 760 1,208 1,208
Common Stockholders' Equity ..................... 3,672 4,137 3,996 3,996
-------- -------- -------- --------
Total Capitalization ........................ $ 17,933 $ 17,611 $ 14,052 $ 12,824
======== ======== ======== ========
----------
(A) Includes an after tax loss on disposal of discontinued operations recorded
in 2002.
(B) Effective April 1, 1999, we discontinued the application of SFAS 71
"Accounting for the Effects of Certain Types of Regulation" for our
generation business and recorded an extraordinary charge consisting
primarily of a write-down of our nuclear and fossil generation stations.
Effective January 1, 2002, we adopted SFAS 145 "Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" and we reclassified a $2 million after-tax loss
relating to the early retirement of debt from Extraordinary Items to a
component of Other Deductions for the nine months ended September 30, 2001
in accordance with the new standard.
(C) Relates to the adoption of SFAS 142 "Goodwill and other Intangible Assets"
on January 1, 2002 and the adoption of SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities" on January 1, 2001.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of PSEG and
its subsidiaries as of September 30, 2002 and as adjusted to give effect to the
sale of the preferred securities offered hereby, the issuance of the junior
subordinated debentures and the application of the estimated net proceeds
therefrom. The following data should be read in conjunction with the
consolidated financial statements and notes thereto of PSEG and its subsidiaries
incorporated herein by reference.
As of
September 30, 2002
------------------------
Actual As Adjusted
------ -----------
(Millions of Dollars)
(Unaudited)
Commercial Paper and Loans ....................................................... $ 1,657 $ 1,560 (1),(2)
Long-Term Debt due within one year ............................................... 742 742
Long-Term Debt:
Long-term debt ................................................................ 6,902 6,902 (1)
Securitization debt ........................................................... 2,259 2,259
Project level, non-recourse debt .............................................. 1,481 1,481
------- -------
Total long-term debt ....................................................... 10,642 10,642
------- -------
Subsidiaries' Preferred Securities:
Preferred stock without mandatory redemption .................................. 80 80
Participating equity preference securities .................................... 460 460
Guaranteed preferred beneficial interests in subordinated debentures .......... 680 780
------- -------
Total subsidiaries' preferred securities ................................... 1,220 1,320
------- -------
Common Stockholders' Equity:
Common stock (233,432,138 shares issued, actual and as adjusted) .............. 3,590 3,590 (2)
Treasury stock, at cost (26,118,590 shares actual and as adjusted) ............ (981) (981)
Retained earnings ............................................................. 1,477 1,477
Accumulated other comprehensive loss .......................................... (414) (414)
------- -------
Total common stockholders' equity .......................................... 3,672 3,672
------- -------
Total capitalization ....................................................... $17,933 $17,936
======= =======
----------
1 Does not reflect the incurrence of $245 million of long-term debt issued
pursuant to a private placement in October 2002, the proceeds of which
were used to reduce short-term debt.
2 Does not reflect the issuance of 17,250,000 shares of common stock in
November 2002, the proceeds of which were used to reduce short-term debt.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated
is as follows:
For the
Nine Months Ended
September 30, Year Ended December 31,
----------------- ----------------------------------------
2002 2001 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges ............. 1.2x 2.1x 2.4x 2.8x 3.1x 2.6x 2.0x
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations excluding extraordinary items, plus the amount of fixed
charges adjusted to exclude: the amount of any interest capitalized during the
period; and the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges amount but
not deducted in the determination of pre-tax income. Fixed charges consist of:
interest, whether expensed or capitalized; amortization of debt discount,
premium and expense; an estimate of interest implicit in rentals; and preferred
securities dividend requirements of subsidiaries and preferred stock dividends,
increased to reflect our pre-tax earnings requirement.
S-15
ACCOUNTING TREATMENT
The financial statements of PSEG Funding Trust II will be reflected in our
consolidated financial statements, with the preferred securities shown on our
balance sheet under the caption "Guaranteed Preferred Beneficial Interests in
Subordinated Debentures." The footnotes to our consolidated financial statements
will reflect that the sole asset of the trust will be our junior subordinated
debentures. Distributions on the preferred securities will be reflected as a
charge to our consolidated income, identified as "Preferred Dividends of
Subsidiary," whether paid or accumulated.
DESCRIPTION OF THE PREFERRED SECURITIES
The following summary of some of the terms and provisions of the preferred
securities supplements the description of the terms and provisions of the
preferred trust securities set forth in the accompanying prospectus under the
heading "Description of the Preferred Trust Securities." To the extent that any
of the terms and provisions of the preferred trust securities described in this
prospectus supplement are inconsistent with the description of the preferred
securities in the accompanying prospectus, the description of the preferred
securities in this prospectus supplement replaces the description in the
accompany prospectus.
Distributions
The preferred securities represent undivided beneficial interests in the
assets of the trust, the sole assets of which will be the junior subordinated
debentures. Distributions on the preferred securities are cumulative and will
accumulate from the date of original issuance at the annual rate of % of the
liquidation amount of $25 per preferred security. Distributions will be payable
quarterly in arrears on March , June , September and December of each year,
commencing March , 2003. Distributions not paid on a quarterly payment date will
accumulate additional distributions (to the extent permitted by law) compounded
quarterly, at the annual rate of %. The term "distributions," as used in this
prospectus supplement, includes any of these additional distributions. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months. Distributions on the preferred
securities will be payable to holders as they appear on the books and records of
the Trust on the relevant record dates. As long as the preferred securities
remain in book-entry form only, the record dates will be one business day prior
to the relevant payment date. With respect to preferred securities not in
book-entry form, the record dates will be the fifteenth calendar day prior to
the relevant payment date, whether or not a business day.
So long as no debenture event of default has occurred and is continuing,
we have the right at any time and from time to time to defer the payment of
interest by extending the interest payment period on the junior subordinated
debentures for up to 20 consecutive quarters. However, no extension period may
extend beyond the maturity or any redemption date of the junior subordinated
debentures. As a consequence, quarterly distributions on the preferred
securities would be deferred by the trust during any extension period, but the
amount of distributions to which holders of the preferred securities would be
entitled would continue to accumulate at %, compounded quarterly. During any
extension period, we may not declare or pay any dividends on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any shares of
our capital stock. Prior to the termination of any extension period, we may
shorten or further extend the interest payment period on the junior subordinated
debentures, provided that no extension period may exceed 20 consecutive quarters
or extend beyond the maturity or any redemption date of the junior subordinated
debentures. Upon the termination of any extension period and the payment of all
amounts then due, we may elect to begin a new extension period. We have no
current intention of exercising our right to defer payments of interest by
extending the interest payment period on the junior subordinated debentures.
The preferred securities will be issued in the form of one or more global
preferred securities and The Depository Trust Company, or DTC, or any successor
depositary will act as depositary for the preferred securities. See "--Global
Preferred Securities" below for a description of DTC and its procedures.
Payments on the preferred securities represented by a global security will be
made in immediately available funds to DTC, as the depositary for the preferred
securities. In the event that the preferred securities are issued in
certificated form, the payment of distributions and payments on redemption or
liquidation will be payable, the transfer of the preferred securities
S-16
will be registerable and preferred securities will be exchangeable at the
corporate office of the property trustee, or at the offices of any other paying
agent or transfer agent appointed by the administrative trustee; provided,
however, that the payment of distributions shall be made by check mailed to the
address of the holder of such preferred securities.
Redemption
Upon the payment of the junior subordinated debentures at maturity or upon
redemption as provided in the indenture, the proceeds from such payment will be
applied by the property trustee to redeem a like amount of trust securities on a
pro rata basis, upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to the aggregate liquidation amount of the trust
securities to be redeemed plus accumulated and unpaid distributions to the date
of redemption, unless an event of default under the trust agreement has occurred
and is continuing, in which case the preferred securities will be redeemed
before any common securities. See "Description of the Junior Subordinated
Debentures--Redemption."
"Like amount" means:
o with respect to a redemption of the trust securities, trust
securities having an aggregate liquidation amount equal to the
aggregate principal amount of junior subordinated debentures to be
paid under the indenture, and
o with respect to a distribution of junior subordinated debentures to
holders of trust securities in connection with a dissolution of the
trust, junior subordinated debentures having an aggregate principal
amount equal to the aggregate liquidation amount of the trust
securities in exchange for which junior subordinated debentures are
distributed.
Special Event Redemption
If a Tax Event or an Investment Company Event, each of which we refer to
as a Special Event, has occurred and is continuing, we have the right to redeem
the junior subordinated debentures, in whole but not in part, and therefore
cause a mandatory redemption of the preferred securities, in whole but not in
part, at the redemption price within 90 days following the occurrence of the
Special Event.
"Tax Event" means that we have received an opinion of counsel experienced
in such matters to the effect that, as a result of any amendment to, or change
in, the laws of the United States or any political subdivision or taxing
authority of or within the United States affecting taxation, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the date of original
issuance of the preferred securities, there is more than an insubstantial risk
that:
o the trust is, or will be, subject to federal income tax with respect
to interest on the junior subordinated debentures,
o interest payable by us on the junior subordinated debentures is not,
or will not be, deductible by us for federal income tax purposes, or
o the trust is, or will be, subject to more than a de minimis amount
of other taxes, duties, assessments or other governmental charges.
"Investment Company Event" means the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority to the
effect that the trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, which change
in law becomes effective on or after the date of original issuance of the
preferred securities.
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Subordination of Common Securities
Payments on the trust securities will be made pro rata based on the
respective aggregate liquidation amounts of the common securities and the
preferred securities. If an event of default has occurred and is continuing with
respect to the junior subordinated debentures, no payments will be made on any
common securities unless payment in full in cash of all accumulated and unpaid
distributions on all outstanding preferred securities for all distribution
periods terminating on or prior to that time, or in the case of a dissolution or
redemption, the full amount of the redemption price or liquidation distribution
on all outstanding preferred securities shall have been made or provided for,
and all funds available to the property trustee shall first be applied to the
payment in full in cash of all payments on all outstanding preferred securities
then due and payable.
If an event of default has occurred and is continuing with respect to the
junior subordinated debentures, the holder of the common securities will be
deemed to have waived any right to act with respect to the event of default
until the effect of the event of default has been cured, waived or otherwise
eliminated with respect to the preferred securities. Until the event of default
has been cured, waived or otherwise eliminated, the property trustee shall act
solely on behalf of the holders of the preferred securities and not on behalf of
us, as holder of the common securities, and only the holders of the preferred
securities will have the right to direct the property trustee to act on their
behalf.
Distribution of Junior Subordinated Debentures
At any time, we may, in our sole discretion, dissolve the trust and, after
satisfaction of liabilities of creditors of the trust, cause a like amount of
junior subordinated debentures to be distributed to the holders of the preferred
securities in liquidation of the trust upon 30 days' prior notice to the holders
of the preferred securities. However, in order to do so, we will be required to
deliver to the trustees an opinion of nationally recognized tax counsel that the
distribution will not be a taxable event to the owners of the preferred
securities for federal income tax purposes. In addition, the junior subordinated
debentures may be distributed to holders of preferred securities in certain
other circumstances as described under "Description of the Preferred Trust
Securities--Liquidation Distribution Upon Dissolution" in the accompanying
prospectus.
Liquidation Amount
The amount payable on the preferred securities in the event of the
dissolution and liquidation of the trust is $25 per preferred security plus
accumulated and unpaid distributions to the date of payment, unless, in
connection with the dissolution and liquidation, the junior subordinated
debentures are distributed to the holders of the preferred securities.
Trust Agreement Event of Default; Notice
An event of default with respect to the junior subordinated debentures
will constitute a "trust agreement event of default" with respect to the
preferred securities. Within 90 days after the occurrence of any trust agreement
event of default actually known to the property trustee, the property trustee
will send notice of it to the holders of the trust securities, the
administrative trustee and us, unless it has been cured or waived. We and the
administrative trustee are required to file annually with the property trustee a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the trust agreement.
Under the trust agreement, if the property trustee has failed to enforce
its rights under the trust agreement or the indenture to the fullest extent
permitted by law and subject to the terms of the trust agreement and the
indenture, any holder of the preferred securities may institute a legal
proceeding directly against us to enforce the property trustee's rights under
the trust agreement or the indenture with respect to junior subordinated
debentures having an aggregate principal amount equal to the aggregate
liquidation amount of the preferred securities of such holder without first
instituting a legal proceeding against the property trustee or any other person.
To the extent that any action under the indenture is entitled to be taken by the
holders of at least a specified percentage of the principal amount of the junior
subordinated debentures, holders of that specified percentage of the preferred
securities may take that action if it is not taken by the property trustee. If a
trust agreement event of default
S-18
attributable to our failure to pay principal of or premium, if any, or interest
on the junior subordinated debentures has occurred and is continuing, then each
holder of preferred securities may institute a legal proceeding directly against
us for enforcement of payment to that holder, all as provided in the indenture.
If an event of default has occurred and is continuing with respect to the
junior subordinated debentures, the preferred securities will have a preference
over the common securities with respect to the payment of distributions and
amounts payable on redemption and liquidation. See "--Subordination of Common
Securities" above and "Description of Preferred Trust Securities--Liquidation
Distribution upon Dissolution" in the accompanying prospectus.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other entity,
except as described below or in "Description of Preferred Trust
Securities--Liquidation Distribution upon Dissolution" in the accompanying
prospectus. The trust may, at our request, with the consent of the
administrative trustee and without the consent of the holders of the trust
securities, merge with or into, consolidate, amalgamate, or be replaced by a
trust organized under the laws of any state, as long as
o the successor entity either
-- expressly assumes all of the obligations of the trust with
respect to the trust securities, or
-- substitutes for the trust securities other securities
substantially similar to the trust securities (the "successor
securities") so long as the successor securities rank the same
as the trust securities with respect to the payment of
distributions and payments upon redemption, liquidation and
otherwise;
o we appoint a trustee of the successor entity with the same powers
and duties as the property trustee with respect to the junior
subordinated debentures;
o the successor securities are listed, or any successor securities
will be listed upon notification of issuance, on any national
securities exchange or other organization on which the trust
securities are then listed or quoted;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the rating of the preferred
securities (including any successor securities) to be downgraded,
placed under surveillance or review or withdrawn by any nationally
recognized statistical rating organization;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the trust securities (including any
successor securities) in any material respect;
o the successor entity has a purpose substantially similar to that of
the trust;
o prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we and the property trustee have
received a legal opinion stating that
-- such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the trust
securities (including any successor securities) in any
material respect, and
-- following the merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease neither the trust
nor the successor entity will be required to register as an
investment company under the Investment Company Act of 1940,
and the trust (or the successor entity) will continue to be
classified as a grantor trust for United States federal income
tax purposes; and
o we or any permitted successor assignee own all of the common
securities of the successor entity and guarantee the obligations of
the successor entity under the successor securities at least to the
extent provided by the related guarantee and trust agreement.
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The trust will not, except with the consent of all holders of the trust
securities, consolidate, amalgamate, merge with or into, or be replaced by, or
convey, transfer or lease its properties and assets substantially as an entirety
to, any other entity, or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if that consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the trust or the
successor entity not to be classified as a grantor trust for United States
federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "--Mergers, Consolidations,
Amalgamations or Replacements of the Trust" above and "Description of the
Preferred Securities Guarantee--Amendments and Assignment" in the accompanying
prospectus and as otherwise required by law and the trust agreement, the holders
of the trust securities will have no voting rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the trust securities, (1) to
cure any ambiguity, defect or inconsistency or (2) to make any other change that
does not adversely affect in any material respect the interests of the holders
of the preferred securities.
The trust agreement may be amended by us and the trustees in any other
respect, with the consent of the holders of a majority in aggregate liquidation
amount of the outstanding preferred securities, except to
o change the amount, timing or currency or otherwise adversely affect
the method of payment of any distribution or liquidation
distribution;
o restrict the right of a holder of any preferred securities to
institute suit for enforcement of any distribution, redemption price
or liquidation distribution;
o change the purpose of the trust;
o authorize the issuance of any additional beneficial interests in the
trust;
o change the redemption provisions;
o change the conditions precedent for us to elect to dissolve the
trust and distribute the junior subordinated debentures to the
holders of the preferred securities or
o affect the limited liability of any holder of the preferred
securities,
which amendment requires the consent of each affected holder of the preferred
securities.
No amendment may be made without receipt by the trust of a legal opinion
stating that the amendment will not affect the trust's status as a grantor trust
for United States federal income tax purposes or its exemption from regulation
as an investment company under the Investment Company Act of 1940.
The trustees shall not
o direct the time, method and place of conducting any proceeding for
any remedy available to a trustee under the indenture or executing
any trust or power conferred on that trustee with respect to the
junior subordinated debentures,
o waive any past default under the indenture,
o exercise any right to rescind or annul an acceleration of the
principal of the junior subordinated debentures or
o consent to any amendment or modification of the indenture, where
consent shall be required,
without, in each case, obtaining the prior consent of the holders of a majority
in aggregate liquidation amount of all outstanding preferred securities;
provided, however, that where a consent under the indenture would require the
consent of each affected holder of junior subordinated debentures, no consent
shall be given by the property trustee without the prior consent of each holder
of the preferred securities. The trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the preferred securities
except by subsequent vote of those holders. The property trustee shall notify
all holders of preferred securities of any notice received from the
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trustee under the indenture as a result of the trust being the holder of the
junior subordinated debentures. In addition to obtaining the consent of the
holders of the preferred securities prior to taking any of these actions, the
trustees shall obtain a legal opinion stating that the trust will not be
classified as an association taxable as a corporation or a partnership for
United States federal income tax purposes as a result of that action and will
continue to be classified as a grantor trust for United States federal income
tax purposes.
Any required consent of holders of preferred securities may be given at a
meeting of holders of the preferred securities convened for that purpose or
pursuant to written consent without a meeting and without prior notice. The
property trustee will cause a notice of any meeting at which holders of
preferred securities are entitled to vote, to be given to each holder of record
of preferred securities in the manner set forth in the trust agreement.
Notwithstanding that holders of preferred securities are entitled to vote
or consent under certain circumstances, any preferred securities that are owned
by us, the trustees or any affiliate of ours or any trustee shall, for purposes
of a vote or consent, be treated as if they were not outstanding.
Global Preferred Securities
The preferred securities will initially be issued in fully registered
global form that will be deposited with, or on behalf of, DTC. Global preferred
securities may be issued only in fully registered form and unless and until a
global preferred security is exchanged in whole or in part for the individual
preferred securities represented thereby, the depositary holding the global
preferred security may transfer the global preferred security only to its
nominee or successor depositary or vice versa and only as a whole.
The following provisions will apply to the depositary arrangements with
respect to global preferred securities and junior subordinated debentures issued
in global form upon dissolution and liquidation of the trust.
So long as DTC or its nominee is the registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
holder of the preferred securities represented by such global security for all
purposes under the trust agreement. Except as provided below, owners of
beneficial interests in a global security will not be entitled to have preferred
securities represented by the global security registered in their names, will
not receive or be entitled to receive physical delivery of preferred securities
in certificated form and will not be considered the owners or holders thereof
under the trust agreement. The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form; those laws may limit the transferability of beneficial
interests in a global security.
If
o we notify the trustees of the trust in writing that DTC is
unwilling, unable or ineligible to continue as depositary and a
successor depositary is not appointed by us within 60 days;
o we determine, in our sole discretion, not to have any preferred
securities represented by one or more global securities; or
o an event of default under the trust agreement has occurred and is
continuing,
then we will issue individual preferred securities in certificated form in
exchange for the relevant global securities.
In any such instance, an owner of a beneficial interest in a global
security will be entitled to physical delivery of individual preferred
securities in certificated form of like tenor and rank, equal in principal
amount to such beneficial interest and to have such preferred securities in
certificated form registered in its name.
The following is based on information furnished by DTC:
Registered Owner. The preferred securities will be issued as fully
registered securities in the name of Cede & Co., which is DTC's partnership
nominee. The applicable trustee will deposit the global securities with the
depositary. The deposit with the depositary and its registration in the name of
Cede & Co. will not change the nature of the actual purchaser's ownership
interest in the preferred securities.
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DTC's Organization. DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of that
law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934.
DTC is owned by a number of its direct participants and the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and some other
organizations that directly participate in DTC. Other entities may access DTC's
system by clearing transactions through or maintaining a custodial relationship
with direct participants. The rules applicable to DTC and its participants are
on file with the SEC.
DTC's Activities. DTC holds securities that its participants deposit with
it. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts. Doing so
eliminates the need for physical movement of securities certificates.
Participant's Records. Except as otherwise provided in this prospectus or
a prospectus supplement, purchases of preferred securities must be made by or
through a direct participant, which will receive a credit for the preferred
securities on the depositary's records. The purchaser's interest is in turn to
be recorded on the participant's records. Actual purchasers will not receive
written confirmation from the depositary of their purchase, but they generally
receive confirmations, along with periodic statements of their holdings, from
the participants through which they entered into the transaction.
Transfers of interests in the global securities will be made on the books
of the participants on behalf of the actual purchasers. Certificates
representing the interest in preferred securities will not be issued unless the
use of global securities is suspended.
The depositary has no knowledge of the actual purchasers of global
securities. The depositary's records only reflect the identity of the direct
participants, who are responsible for keeping account of their holdings on
behalf of their customers.
Notices among the Depositary, Participants and Actual Purchasers. Notices
and other communications by the depositary, its participants and the actual
purchasers will be governed by arrangements among them, subject to any legal
requirements in effect. Any redemption notices will be sent to DTC. If less than
all of the securities within an issue are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each direct participant in such
issue to be redeemed.
Voting Procedures. Neither DTC nor Cede & Co. will give consents for or
vote the global securities. The depositary generally mails an omnibus proxy to
us just after the applicable record date. That proxy assigns Cede & Co.'s voting
rights to the direct participants to whose accounts the preferred securities are
credited at that time.
Payments. Payments in respect of the preferred securities will be
delivered to the depositary. DTC's practice is to credit direct participants'
accounts on the applicable payment date unless it has reason to believe that it
will not receive payment on that date. Payments by participants to actual
purchasers will be governed by standing instructions and customary practices, as
is the case with securities held for customers in bearer form or registered in
"street name." Those payments will be the responsibility of that participant and
not the depositary, the applicable trustee or us, subject to any legal
requirements in effect at that time.
We are responsible for payments to the applicable trustee who is
responsible for paying it to the depositary. The depositary is responsible for
disbursing those payments to direct participants. The participants are
responsible for disbursing payments to the actual purchasers.
DTC may discontinue providing its services as securities depositary with
respect to the preferred securities at any time by giving reasonable notice to
the applicable paying agent or us. Under such circumstances, in the event that a
successor securities depositary is not appointed, preferred security
certificates are required to be printed and delivered.
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We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, preferred
security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that we believe to be reliable,
but we take no responsibility for the accuracy thereof.
None of any underwriter, the trustees, any applicable paying agent or us
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in a global security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interests.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The following summary of some of the terms and provisions of the junior
subordinated debentures supplements the description of the terms and provisions
of the trust debt securities set forth in the accompanying prospectus under the
heading "Description of the Trust Debt Securities." To the extent that any of
the terms and provisions of the junior subordinated debentures described in this
prospectus supplement are inconsistent with the description of the trust debt
securities in the accompanying prospectus, the description of the junior
subordinated debentures in this prospectus supplement replaces the description
in the accompanying prospectus. The junior subordinated debentures will be
issued pursuant to an indenture, which we refer to as the "indenture," to be
dated as of December , 2002, between us and Wachovia Bank, National Association,
the junior subordinated debenture trustee. The junior subordinated debentures
will be unsecured and will rank subordinate and junior in right of payment to
all our Senior Indebtedness.
Interest Rate; Maturity
The trust will invest the proceeds from the issuance of the preferred
securities, together with the consideration paid by us for the common
securities, in the junior subordinated debentures. The junior subordinated
debentures will be issued as a series of debentures under the indenture. The
junior subordinated debentures will mature on December , 2032. The junior
subordinated debentures will bear interest at the annual rate of %, payable
quarterly in arrears on March , June , September and December of each year,
commencing March , 2003. Interest which is accrued and unpaid after a quarterly
payment date will bear additional interest (to the extent permitted by law) at
the annual rate of %, compounded quarterly. The term "interest" includes
quarterly interest payments and interest on quarterly interest payments in
arrears, as applicable. In addition, during any time that the property trustee
is the holder of the junior subordinated debentures, we will be required to pay
additional amounts on the junior subordinated debentures as may be necessary in
order that the distribution amount then due and payable by the trust on the
preferred securities shall not be reduced as a result of any additional taxes,
duties and other governmental charges to which the trust has become subject as a
result of a Tax Event. The interest payment provisions for the junior
subordinated debentures correspond to the distribution provisions of the
preferred securities.
Option to Extend Interest Payment Period
Under the indenture, we have the right to defer payments of interest by
extending the interest payment period for the junior subordinated debentures for
up to 20 consecutive quarterly periods. However, such period of deferral may not
extend beyond the maturity date or earlier redemption date of the junior
subordinated debentures. We refer to any such period of deferral as an
"extension period." We can extend or shorten an existing extension period. At
the end of an extension period, we will be obligated to pay all interest then
accrued and unpaid (together with interest on those accrued and unpaid amounts
to the extent permitted by applicable law). Upon the termination of any
extension period and the payment of all amounts then due, we can elect to begin
a new extension period. We will be required to give notice to the junior
subordinated debenture trustee and cause the junior subordinated debenture
trustee to give notice to the holders of the junior subordinated debentures of
our election to begin an extension period, or any shortening or extension of a
period in advance of the applicable record date.
Redemption
The junior subordinated debentures may be redeemed at our option (1) at
any time on or after December , 2007, in whole or in part, and (2) prior to
December , 2007, in whole, but not in part, within 90 days following the
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occurrence and continuance of a Special Event, in any such case at a redemption
price equal to l00% of the principal amount to be redeemed, plus accrued and
unpaid interest, including any compounded interest and any additional interest,
if any, to the date of redemption.
Subordination
Payments on the junior subordinated debentures will be subordinated to the
prior payment in full of all amounts payable on our Senior Indebtedness.
"Senior Indebtedness" is defined in the indenture as the principal of and
premium, if any, and unpaid interest on
o our indebtedness (including indebtedness of others guaranteed by
us), whether outstanding on the date of the indenture or created
later, incurred, assumed or guaranteed, for money borrowed, unless
the terms of that indebtedness provide that it is not senior or
prior in right of payment to the junior subordinated debentures, and
o renewals, extensions, modifications and refundings of that
indebtedness.
Upon any payment or distribution of our assets or securities, upon our
dissolution or winding-up or total or partial liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts payable on Senior Indebtedness (including any
interest accruing on the Senior Indebtedness after the commencement of a
bankruptcy, insolvency or similar proceeding) will be paid in full before the
holders of the junior subordinated debentures will be entitled to receive from
us any payment of principal of, premium, if any, or interest on, the junior
subordinated debentures or distributions of any assets or securities.
No direct or indirect payment by or on our behalf of principal of,
premium, if any, or interest on, the junior subordinated debentures will be made
if there is
o a default in the payment of all or any portion of any Senior
Indebtedness, or
o any other default pursuant to which the maturity of Senior
Indebtedness has been accelerated and, in either case, the required
notice has been given to the junior subordinated debenture trustee
and the default has not been cured or waived by or on behalf of the
holders of the Senior Indebtedness.
If the junior subordinated debenture trustee or any holder of the junior
subordinated debentures receives any payment of the principal of, premium, if
any, or interest on, the junior subordinated debentures when that payment is
prohibited and before all amounts payable on Senior Indebtedness are paid in
full, then that payment will be received and held in trust for the holders of
Senior Indebtedness and will be paid to the holders of the Senior Indebtedness
remaining unpaid to the extent necessary to pay the Senior Indebtedness in full.
Nothing in the indenture limits the right of the junior subordinated
debenture trustee or the holders of the junior subordinated debentures to take
any action to accelerate the maturity of the junior subordinated debentures or
to pursue any rights or remedies against us, as long as all Senior Indebtedness
is paid before holders of the junior subordinated debentures are entitled to
receive any payment from us of principal of, premium, if any, or interest on,
the junior subordinated debentures.
Upon the payment in full of all Senior Indebtedness, the holders of the
junior subordinated debentures will be subrogated to the rights of the holders
of the Senior Indebtedness to receive payments from us or distributions of our
assets made on the Senior Indebtedness until the junior subordinated debentures
are paid in full.
Events of Default
The following are events of default under the indenture with respect to
the junior subordinated debentures:
o we do not pay interest on a junior subordinated debenture within 30
days of its due date (other than the deferral of interest payments
during an extension period);
o we do not pay the principal of a junior subordinated debenture on
its due date;
o we remain in breach of a covenant in respect of the junior
subordinated debentures for 60 days after we receive written notice
of default stating we are in breach; or
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o we file for bankruptcy or a court appoints a custodian or orders our
liquidation under any bankruptcy law or certain other events of
bankruptcy, insolvency or reorganization occur.
In case an event of default has occurred and is continuing, other than one
relating to bankruptcy, insolvency or reorganization affecting us in which case
the principal of, premium, if any, and any interest on, all of the junior
subordinated debentures shall become immediately due and payable, the junior
subordinated debenture trustee or the holders of at least 25% in aggregate
principal amount of the junior subordinated debentures may declare the
principal, together with interest accrued thereon, of all the junior
subordinated debentures to be due and payable. If neither the junior
subordinated debenture trustee nor the holders make that declaration then, if
the junior subordinated debentures are held by the trust, the holders of at
least 25% in aggregate liquidation amount of the preferred securities shall have
the right to make that declaration by written notice to us and the junior
subordinated debenture trustee. The holders of at least a majority in aggregate
principal amount of the junior subordinated debentures, by notice to the junior
subordinated debenture trustee, can rescind an acceleration, but if the
declaration was made by the holders of the preferred securities, the holders of
at least a majority in aggregate liquidation amount of the preferred securities
must consent to the rescission of the acceleration. We will be required to
furnish to the junior subordinated debenture trustee an annual statement as to
our compliance with all conditions and covenants under the indenture and the
junior subordinated debentures and as to any event of default.
Distribution of the Junior Subordinated Debentures
If junior subordinated debentures are distributed to the holders of the
preferred securities upon the dissolution and liquidation of the trust, the
junior subordinated debentures will be issued in integral multiples of $25. We
anticipate that any junior subordinated debentures distributed to holders of
preferred securities will be distributed in the form of one or more global
securities and that DTC, or any successor depositary for the preferred
securities, would act as depositary for the junior subordinated debentures. The
depositary arrangements for the junior subordinated debentures would be
substantially similar to those in effect for the preferred securities. Neither
we, the junior subordinated debenture trustee nor any paying agent or any of our
other agents will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a global security for such junior subordinated debentures or for
maintaining, supervising or reviewing any records relating to those beneficial
ownership interests. For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemption and
other notices and other matters, see "Description of the Preferred
Securities--Global Preferred Securities." Payments on the junior subordinated
debentures represented by a global security will be made in immediately
available funds to DTC, as the depositary for the junior subordinated
debentures. In the event that the junior subordinated debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
junior subordinated debentures will be registrable and the junior subordinated
debentures will be exchangeable for junior subordinated debentures of other
authorized denominations of a like aggregate principal amount, at the corporate
office of the junior subordinated debenture trustee in Newark, New Jersey, or at
the offices of any other paying agent or transfer agent appointed by us;
provided, however, that payment of interest will be made by check mailed to the
address of the persons entitled to the payment or by wire transfer. In addition,
if the junior subordinated debentures are issued in certificated form, the
record dates for payment of interest will be the 15th calendar day prior to the
relevant payment date, whether or not a business day. If the junior subordinated
debentures are distributed to the holders of the preferred securities upon the
dissolution and liquidation of the trust, we will use our best efforts to list
the junior subordinated debentures on the NYSE.
DESCRIPTION OF THE GUARANTEE
The following summary of some of the terms and provisions of the guarantee
supplements the description of the terms and provisions of the preferred
securities guarantee set forth in the accompanying prospectus under the heading
"Description of the Preferred Securities Guarantee." To the extent that any of
the terms and provisions of the guarantee described in this prospectus
supplement are inconsistent with the description of the preferred securities
guarantee in the accompanying prospectus, the description of the guarantee in
this prospectus supplement replaces the description in the accompany prospectus.
Wachovia Bank, National Association will act as guarantee trustee under the
guarantee. The guarantee trustee will hold the guarantee for the benefit of the
holders of the preferred securities.
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General
We will irrevocably agree, to pay in full, to the holders of the preferred
securities, the guarantee payments set forth below (except to the extent
previously paid), as and when due, regardless of any defense, right of set-off
or counterclaim which the trust may have or assert. The following payments, to
the extent not paid by the trust, will be subject to the guarantee:
o any accumulated and unpaid distributions required to be paid on the
preferred securities, to the extent that that trust has funds
available therefor,
o the redemption price, to the extent that the trust has funds
available therefor, and
o upon a voluntary or involuntary termination, winding-up or
liquidation of the trust (unless the junior subordinated debentures
are redeemed or distributed to holders of the preferred securities
in accordance with their terms), the lesser of
-- the aggregate of the liquidation amount of $25 per preferred
security plus all accumulated and unpaid distributions on the
preferred securities to the date of payment, to the extent the
trust has funds available therefor, and
-- the amount of assets of the trust remaining available for
distribution to holders of the preferred securities upon a
dissolution and liquidation of the trust.
Our obligation to make a guarantee payment may be satisfied by direct
payment by us of the required amounts to the holders of the preferred securities
or by causing the trust to pay those amounts to the holders. While our assets
will not be available pursuant to the guarantee for the payment of any
distribution, liquidation distribution or redemption price on any preferred
securities if the trust does not have funds available therefor as described
above, we have agreed under the trust agreement to pay all expenses of the trust
except its obligations under the trust securities of the trust.
No single document executed by us in connection with the issuance of the
preferred securities will provide for our full, irrevocable and unconditional
guarantee of the preferred securities. It is only the combined operation of our
obligations under the guarantee, the trust agreement, the junior subordinated
debentures and the indenture that has the effect of providing a full,
irrevocable and unconditional guarantee of the trust's obligations under the
preferred securities. See "Relationship Among the Preferred Trust Securities,
the Trust Debt Securities and the Preferred Securities Guarantee" in the
accompanying prospectus.
Status of the Guarantee
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all of our general liabilities.
The trust agreement provides that each holder of preferred securities by
acceptance thereof agrees to the subordination provisions and other terms of the
guarantee. The guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against us to enforce its rights under the guarantee without first instituting a
legal proceeding against any other person or entity). The guarantee will not be
discharged except by payment of the guarantee payments in full to the extent not
previously paid or upon distribution to the holders of the preferred securities
of the junior subordinated debentures pursuant to the trust agreement.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of the preferred
securities and the junior subordinated debentures. This summary is based upon
the Internal Revenue Code of 1986, as amended (the "Tax Code"), United States
Treasury regulations (the "Treasury regulations"), and administrative and
judicial rulings and decisions now in effect, all of which are subject to change
or differing interpretations, possibly with retroactive effect. In particular,
either the Internal Revenue Service (the "IRS") or the courts could disagree
with the conclusions contained in this summary.
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This summary deals only with preferred securities and junior subordinated
debentures held as capital assets and does not deal with persons in special tax
situations, for example, financial institutions, banks, insurance companies,
regulated investment companies, dealers in securities or currencies, persons
holding preferred securities or junior subordinated debentures as a position in
a "straddle" or in a "hedging" or "conversion" transaction for tax purposes, or
persons whose functional currency is not the United States dollar. This summary
also does not deal with holders other than original purchasers who purchase the
preferred securities at their original purchase price.
Before purchasing the preferred securities or junior subordinated
debentures, you should consult your own tax advisor concerning the application
of United States federal income tax laws to your particular situation as well as
any consequences of the purchase, ownership and disposition of the preferred
securities and junior subordinated debentures arising under any other tax laws
of the United States or other taxing jurisdictions.
For purposes of this summary, a "U.S. Holder" is a beneficial owner of a
preferred security or junior subordinated debenture that is for United States
federal income tax purposes:
o a citizen or resident of the United States,
o a corporation or partnership, or other entity treated as a
corporation or partnership for United States federal income tax
purposes, created or organized in or under the laws of the United
States, any state thereof or the District of Columbia, unless
otherwise provided by Treasury regulations,
o an estate the income of which is subject to United States federal
income taxation regardless of its source, or
o a trust if 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 certain electing trusts in
existence on August 20, 1996, to the extent provided in Treasury
regulations,
in each case except as otherwise provided under the provisions of an applicable
tax treaty. A "Non-U.S. Holder" is a beneficial owner of a preferred security or
junior subordinated debenture that is not a U.S. Holder.
Classification of the preferred securities and the junior subordinated
debentures
In connection with the issuance of the preferred securities, Ballard Spahr
Andrews & Ingersoll, LLP, tax counsel to PSEG ("Tax Counsel"), will render its
opinion that, under current law and assuming full compliance with the terms of
the junior subordinated debentures and related documents, the junior
subordinated debentures will be classified for United States federal income tax
purposes as our indebtedness.
Tax Counsel will also render its opinion to the effect that, under current
law and assuming full compliance with the terms of the trust agreement, the
indenture, the guarantee and related documents, the trust will be classified for
United States federal income tax purposes as a grantor trust and will not be
subject to tax as a partnership, an association that is taxable as a
corporation, or a publicly traded partnership taxable as a corporation.
Accordingly, for United States federal income tax purposes, you will generally
be treated as the owner of an undivided interest in the assets of the trust,
specifically, the junior subordinated debentures. You will therefore be required
to include in income for United States federal income tax purposes your
allocable share of interest and other income paid, accrued, or realized with
respect to the junior subordinated debentures. The portion of the purchase price
for a preferred security that is allocable to prior accrued distributions may be
treated as offsetting a portion of the interest income from the next scheduled
payment or accrual on the junior subordinated debentures. Further, corporate
U.S. Holders of the preferred securities will not be entitled to a dividends
received deduction for any income from the preferred securities.
By acceptance of a preferred security, each holder covenants for United
States federal income tax purposes to treat the junior subordinated debentures
as our indebtedness and to treat the preferred securities as evidence of a
beneficial ownership interest in the junior subordinated debentures through a
grantor trust.
S-27
Interest income and original issue discount
Under the Treasury regulations relating to original issue discount
("OID"), a debt instrument is deemed to be issued with OID if there is more than
a "remote" contingency that periodic stated interest payments due on the
instrument will not be timely paid. Our exercise of the option to defer payments
of stated interest on the junior subordinated debentures would generally prevent
us from:
o paying a dividend on our shares of capital stock; or
o redeeming, purchasing, acquiring or making a liquidation payment on
any of our capital stock.
We therefore believe that the likelihood of our exercising the option to
defer payment of stated interest is remote within the meaning of the Treasury
regulations. Accordingly, based upon the advice of Tax Counsel, we intend to
take the position that the junior subordinated debentures will not be deemed to
be issued with OID. Based on this position, provided we have not exercised our
option to defer the payment of interest on the junior subordinated debentures,
stated interest payments on the junior subordinated debentures will be
includible in your ordinary income at the time that those payments are received
or accrued, in accordance with your regular method of accounting for federal
income tax purposes. However, the IRS could interpret the Treasury regulations
relating to OID in a manner contrary to the position we intend to take. If the
IRS succeeded in asserting the contrary position, the OID rules would generally
require you to include interest on the junior subordinated debentures in your
taxable income as it accrues rather than when you receive payment, even though
you may use the cash method of accounting for federal income tax purposes.
Exercise of deferral option
Under the Treasury regulations, if we exercise our option to defer the
payment of interest on the junior subordinated debentures, then the junior
subordinated debentures will be treated as redeemed and reissued for OID
purposes. Accordingly, the sum of the remaining interest payments on the junior
subordinated debentures would be treated as OID, which you would be required to
accrue and include in taxable income on an economic accrual basis over the
remaining term of the junior subordinated debentures, without regard to the
actual timing of interest payments under the junior subordinated debentures and
without regard to your regular method of accounting for federal income tax
purposes. The amount of OID income includible in your taxable income would be
determined on the basis of a constant yield method over the remaining term of
the junior subordinated debentures and the actual receipt of future payments of
stated interest on the junior subordinated debentures would no longer be
separately reported as taxable income. The total amount of OID that would accrue
during the deferred interest payment period would be approximately equal to the
amount of the cash payment due at the end of that period. Any OID included in
income would increase your adjusted tax basis in your preferred securities and
junior subordinated debentures, and your actual receipt of cash interest
payments would reduce that adjusted tax basis.
Receipt of junior subordinated debentures or cash upon liquidation of the trust
We will have the right at any time to dissolve the trust and cause the
junior subordinated debentures to be distributed on a proportionate basis to
you, subject to our receipt of an opinion of counsel that the distribution of
the junior subordinated debentures would not result in a taxable event to
holders of the preferred securities. Under current law, such a distribution, for
United States federal income tax purposes, would be treated as a nontaxable
event to you, and you would receive an aggregate tax basis in the junior
subordinated debentures received equal to your aggregate tax basis in your
preferred securities. Your holding period in the junior subordinated debentures
so received in dissolution of the trust would include the period during which
the preferred securities were held by you. If, despite the delivery of an
opinion of counsel that the dissolution, resulting liquidation and distribution
of junior subordinated debentures would not result in a taxable event to holders
of the preferred securities, the trust is ultimately characterized for United
States federal income tax purposes as an association taxable as a corporation at
the time of its dissolution and liquidation, the distribution of junior
subordinated debentures would be a taxable event to holders of the preferred
securities and your holding period in
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the junior subordinated debentures would commence on the day following your
acquisition of the junior subordinated debentures.
If you receive junior subordinated debentures in exchange for your
preferred securities, you would continue to accrue interest, and OID if any, in
respect of those junior subordinated debentures in the manner described above.
Similarly, if the junior subordinated debentures are redeemed for cash and the
proceeds of the redemption are distributed to you in redemption of your
preferred securities, the redemption would be treated as a sale of the preferred
securities in which gain or loss is recognized as described below.
Sale of preferred securities or junior subordinated debentures
If you sell your preferred securities or junior subordinated debentures,
or otherwise dispose of them in a taxable transaction (including a redemption
for cash), then you will recognize gain or loss in an amount equal to the
difference between:
o the amount realized on the sale, exclusive of the amount equal to
any unpaid interest on the junior subordinated debentures not
previously included in your income, which excluded amount will be
taxed as interest in the manner described above, and
o your adjusted tax basis in the preferred securities or junior
subordinated debentures at the time of disposition.
For these purposes, your adjusted tax basis generally will equal the
initial purchase price that you paid for the preferred securities, minus any
amounts paid for accrued and unpaid distributions that are offset against
interest or OID income, plus any accrued and unpaid distributions that you were
required to treat as OID income, minus any cash payments you received in respect
of accrued OID. Your gain or loss on the sale of preferred securities or junior
subordinated debentures generally will be capital gain or loss, and will be
long-term capital gain or loss if you have held this investment for more than
one year at the time of disposition. Preferential rates of tax may apply to
capital gains recognized upon the disposition of investments held for more than
one year or more than five years. The deductibility of capital losses is subject
to significant limitations.
Taxation of non-U.S. holders
The rules governing the United States federal income taxation of non-U.S.
Holders are complex, and the following discussion is intended only as a summary
of these rules. If you are a non-U.S. Holder, we urge you to consult with your
own tax advisor to determine the impact of United States federal, state, local,
and foreign tax laws, including any tax return filing and other reporting
requirements, with respect to your investment in the preferred securities or the
junior subordinated debentures.
If you are a non-U.S. Holder, you will not be subject to United States
federal income tax on payments of principal, premium (if any) or interest
(including OID, if any) on the preferred securities or the junior subordinated
debentures, or upon the sale, exchange, redemption, retirement or other
disposition of the preferred securities or the junior subordinated debentures,
if:
o you do not own directly or indirectly 10% or more of the voting
equity of PSEG;
o you are not a controlled foreign corporation that is related to us
through stock ownership;
o you are not a bank receiving interest described in Section
881(c)(3)(A) of the Tax Code;
o your income and gain in respect of the preferred securities and
junior subordinated debentures is not effectively connected with the
conduct of a United States trade or business;
o we or the applicable paying agent (the "Withholding Agent") have
received from you a properly executed, applicable IRS Form W-8BEN or
substantially similar form in the year in which a payment of
interest, OID, principal, premium, or other disposition proceeds
occurs, or in a preceding calendar year to the extent provided for
in the instructions to the applicable IRS Form W-8BEN; and
S-29
o in the case of gain upon the sale, exchange, redemption, retirement
or other disposition of the preferred securities or junior
subordinated debentures recognized by an individual non-U.S. Holder,
you were present in the United States for less than 183 days during
the calendar year in which the gain was recognized and certain other
conditions were met.
The IRS Form W-8BEN or substantially similar form must be signed by you
under penalties of perjury certifying that you are a non-U.S. Holder and
providing your name and address. You must inform the Withholding Agent of any
change in the information on this statement within 30 days of the change, and
complete and submit a new IRS Form W-8BEN or substantially similar form with the
updated information. If you hold the preferred securities or junior subordinated
debentures through a securities clearing organization or other qualified
financial institution, the organization or institution may provide a signed
statement to the Withholding Agent. However, in that case, the signed statement
must generally be accompanied by a copy of the executed IRS Form W-8BEN or
substantially similar form that you provided to the organization or institution.
If you are a non-U.S. Holder claiming benefits under an income tax treaty,
you should be aware that you may be required to obtain a taxpayer identification
number and to certify your eligibility under the applicable treaty's limitations
on benefits article in order to comply with the applicable certification
requirements. Treasury regulations also provide rules to determine whether, for
purposes of determining the applicability of a tax treaty, interest paid to a
non-U.S. Holder that is an entity should be treated as paid to the entity or to
those holding ownership interests in that entity, and whether the entity or the
holders in the entity are entitled to benefits under the tax treaty.
In general, a non-U.S. Holder will be subject to regular United States
federal income tax in the same manner as a U.S. Holder with respect to its
investment in the preferred securities and the junior subordinated debentures,
if that investment is effectively connected with the non-U.S. Holder's conduct
of a trade or business in the United States. In addition, a corporate non-U.S.
Holder that receives income that is or is deemed effectively connected with a
trade or business in the United States may also be subject to the branch profits
tax under Section 884 of the Tax Code at the rate of 30% (or lower treaty rate).
This tax is payable in addition to regular United States federal corporate
income tax. To obtain an exemption from withholding on preferred securities or
junior subordinated debentures effectively connected with your conduct of a
trade or business in the United States, you must generally supply to the
withholding agent an applicable IRS Form W-8ECI.
Proposed Legislation
On January 24, 2002, Representative Charles B. Rangel introduced
legislation in the U.S. House of Representatives which, if enacted in its
current form, would in some cases disallow interest deductions for United States
federal income tax purposes for interest paid on debentures with certain
similarities to the junior subordinated debentures. This legislation is proposed
to be effective for instruments issued on or after the date of enactment of such
legislation. Consequently, as drafted, this legislation would not affect the
preferred securities or the junior subordinated debentures or otherwise result
in a Tax Event as described under "Description of the Preferred
Securities--Special Event Redemption." However, there can be no assurance that
the proposed legislation, final legislation or any other future legislative
proposals will not adversely affect our ability to deduct interest on the junior
subordinated debentures or otherwise affect the tax treatment of the
transactions described in this prospectus supplement. Such change could, if
applicable to the junior subordinated debentures or preferred securities, give
rise to a Tax Event, which would permit us to cause a redemption of the
preferred securities and create a taxable event for holders of preferred
securities.
Information reporting and backup withholding
Information reporting and backup withholding at the applicable statutory
rate may apply to interest and other payments to you under the circumstances
discussed below. Amounts withheld under backup withholding are generally not an
additional tax and may be refunded or credited against your federal income tax
liability, provided that you furnish the required information to the IRS.
S-30
If you are a U.S. Holder, you may be subject to backup withholding when
you receive interest or OID payments on the preferred securities or junior
subordinated debentures, or proceeds upon the sale, exchange, redemption,
retirement or other disposition of the preferred securities or junior
subordinated debentures. In general, you can avoid this backup withholding by
properly executing under penalties of perjury an IRS Form W-9 or substantially
similar form that provides:
o your correct taxpayer identification number, and
o a certification that you are exempt from backup withholding because
(a) you are a corporation or come within another enumerated exempt
category, (b) you have not been notified by the IRS that you are
subject to backup withholding or (c) you have been notified by the
IRS that you are no longer subject to backup withholding.
If you do not provide your correct taxpayer identification number on the
IRS Form W-9 or substantially similar form, you may be subject to penalties
imposed by the IRS. Unless you have established on a properly executed IRS Form
W-9 or substantially similar form that you are a corporation or come within
another enumerated exempt category, interest and other payments on the preferred
securities or junior subordinated debentures paid to you during the calendar
year, and the amount of tax withheld, if any, will be reported to you and to the
IRS. It is anticipated that income on the preferred securities and junior
subordinated debentures will be reported to U.S. Holders on Form 1099-INT or, if
we exercise our option to defer any payment of interest, Form 1099-OID, and
mailed to U.S. Holders by January 31 following each calendar year.
If you are a non-U.S. Holder, the amount of interest and OID paid to you
on the preferred securities or junior subordinated debentures during each
calendar year, and the amount of tax withheld, if any, will generally be
reported to you and to the IRS. This information reporting requirement applies
regardless of whether you were subject to withholding or whether withholding was
reduced or eliminated by an applicable tax treaty. Also, interest and OID paid
to you on the preferred securities or the junior subordinated debentures may be
subject to backup withholding, unless you properly certify your non-U.S. Holder
status on an IRS Form W-8BEN or substantially similar form in the manner
described above. Similarly, information reporting and backup withholding will
not apply to proceeds you receive upon the sale, exchange, redemption,
retirement or other disposition of the preferred securities or junior
subordinated debentures, if you properly certify that you are a non-U.S. Holder
on an IRS Form W-8BEN or substantially similar form.
ERISA CONSIDERATIONS
General fiduciary obligations
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974,
ERISA, must consider whether:
o their investment in the preferred securities satisfies the
diversification requirements of ERISA;
o the investment is prudent in light of possible limitations on the
marketability of our preferred securities and junior subordinated
debentures;
o they have authority to acquire the preferred securities under the
applicable governing instrument and Title I of ERISA; and
o the investment is otherwise consistent with their fiduciary
responsibilities.
Trustees and other fiduciaries of an ERISA plan may incur personal
liability for any loss suffered by the plan on account of a violation of their
fiduciary responsibilities. In addition, these fiduciaries may be subject to a
civil penalty of up to 20% of any amount recovered by the plan on account of a
violation. Fiduciaries of any IRA, Roth IRA, Keogh Plan or other qualified
retirement plan subject to the prohibited transaction provisions of the Tax Code
but not subject to Title I of ERISA, referred to as "non-ERISA plans," should
consider that a plan may only make investments that are authorized by the
appropriate governing instrument. Fiduciaries should consult their own legal
advisors if they have any concern as to whether the investment is consistent
with the foregoing criteria.
S-31
Prohibited transactions
Fiduciaries of ERISA plans and persons making the investment decision for
an IRA or other non-ERISA plan should consider the application of the prohibited
transaction provisions of ERISA and the Tax Code in making their investment
decision. Sales and other transactions between an ERISA plan or a non-ERISA
plan, and persons related to it are prohibited transactions. The particular
facts concerning the sponsorship, operations and other investments of an ERISA
plan or non-ERISA plan may cause a wide range of other persons to be treated as
disqualified persons or parties in interest with respect to it. A prohibited
transaction, in addition to imposing potential personal liability upon
fiduciaries of ERISA plans, may also result in the imposition of an excise tax
under the Tax Code or a penalty under ERISA upon the disqualified person or
party in interest with respect to the plan. If the disqualified person who
engages in the transaction is the individual on behalf of whom an IRA or Roth
IRA is maintained or his beneficiary, the IRA or Roth IRA may lose its
tax-exempt status and its assets may be deemed to have been distributed to the
individual in a taxable distribution on account of the prohibited transaction,
but no excise tax will be imposed. Fiduciaries should consult their own legal
advisors as to whether the ownership of the preferred securities or junior
subordinated debentures involves a prohibited transaction.
Special fiduciary and prohibited transactions consequences
The Department of Labor, which has administrative responsibility over
ERISA plans as well as non-ERISA plans, has issued a regulation defining "plan
assets." The regulation generally provides that when an ERISA or non-ERISA plan
acquires a security that is an equity interest in an entity and that security is
neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the ERISA plan's or
non-ERISA plan's assets include both the equity interest and an undivided
interest in each of the underlying assets of the entity, unless it is
established either that the entity is an operating company or that equity
participation in the entity by benefit plan investors is not significant.
The regulation defines a publicly offered security as a security that is
"widely held," "freely transferable" and either part of a class of securities
registered under the Securities Exchange Act of 1934, or sold under an effective
registration statement under the Securities Act of 1933, provided the securities
are registered under the Securities Exchange Act of 1934 within 120 days after
the end of the fiscal year of the issuer during which the offering occurred. The
preferred securities have been registered under the Securities Exchange Act of
1934.
The regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. However, a security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control. We believe that, immediately after this offering, the
preferred securities should be owned by 100 or more investors independent of us
and of each other, and therefore that the "widely held" requirement for
qualification as publicly offered securities should be met.
The regulation provides that whether a security is "freely transferable"
is a factual question to be determined on the basis of all relevant facts and
circumstances. The regulation further provides that, where a security is part of
an offering in which the minimum investment is $10,000 or less, some
restrictions on transfer ordinarily will not, alone or in combination, affect a
finding that these securities are freely transferable. The restrictions on
transfer enumerated in the regulation as not affecting that finding include:
o any restriction on or prohibition against any transfer or assignment
which would result in a termination or reclassification for federal
or state tax purposes, or would otherwise violate any state or
federal law or court order;
o any requirement that advance notice of a transfer or assignment be
given to the issuer and any requirement that either the transferor
or transferee, or both, execute documentation setting forth
representations as to compliance with any restrictions on transfer
which are among those enumerated in the regulation as not affecting
free transferability, including those described in the preceding
clause of this sentence;
o any administrative procedure which establishes an effective date, or
an event prior to which a transfer or assignment will not be
effective; and
o any limitation or restriction on transfer or assignment which is not
imposed by the issuer or a person acting on behalf of the issuer.
S-32
We believe that at present there exist no other facts or circumstances
limiting the transferability of the preferred securities which are not included
among those enumerated as not affecting their free transferability under the
regulation, and we do not expect or intend to impose in the future, or to permit
any person to impose on our behalf, any limitations or restrictions on transfer
which would not be among the enumerated permissible limitations or restrictions.
The discussion herein of ERISA is general in nature and is not intended to
be complete. Any fiduciary of a plan, governmental plan, church plan or a
foreign plan considering an investment in the preferred securities should
consult with its legal advisors regarding the consequences and advisability of
this investment.
S-33
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated the
date of this prospectus supplement, the trust has agreed to sell to each
underwriter named below and each of the underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and UBS
Warburg LLC are acting as representatives, has severally, but not jointly,
agreed to purchase from the trust, the number of preferred securities set forth
opposite the name of each underwriter below.
Number
Underwriter of Preferred Securities
--------- -----------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................
Morgan Stanley & Co. Incorporated .........
UBS Warburg LLC ...........................
Credit Suisse First Boston Corporation ....
Lehman Brothers Inc. ......................
Prudential Securities Incorporated ........
Wachovia Securities, Inc. .................
---------
Total ......................... 4,000,000
=========
In the underwriting agreement, the underwriters have agreed, subject to
the terms and conditions set forth in the underwriting agreement, to purchase
all the preferred securities offered hereby if any of the preferred securities
are purchased. In the event of a default by an underwriter, the underwriting
agreement provides that the purchase commitments of the non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
We and the trust have agreed with the underwriters to indemnify them
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or to contribute with respect to payments that the underwriters may
be required to make.
The underwriters are offering the preferred securities, subject to prior
sale, when, as and if issued and accepted by them, subject to approval of legal
matters by their counsel, including the validity of the preferred securities,
and other conditions contained in the underwriting agreement, such as the
receipt by the underwriters of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
The underwriters and their affiliates have in the past and may in the
future engage in transactions with, or perform services for, us and our
affiliates in the ordinary course of business. Certain of the underwriters or
their affiliates are lenders under certain of our revolving credit facilities.
Affiliates of Wachovia Securities, Inc. serve as Delaware trustee and property
trustee of the trust and will serve as trustee under the indenture pursuant to
which the junior subordinated debentures will be issued and as guarantee trustee
under the guarantee.
The underwriters have advised us that they propose to offer the preferred
securities to the public initially at $25 per preferred security and to dealers
at that price less a concession not in excess of $ per preferred security.
The underwriters may allow, and the dealers may reallow, a discount not in
excess of $ per preferred security to other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
Because the proceeds from the sale of the preferred securities and the
common securities will be used to purchase our junior subordinated debentures,
we have agreed to pay to the underwriters an underwriting commission of $ per
preferred security (or a total of $ ).
We will pay all expenses, estimated to be approximately $ , associated
with the offer and sale of the preferred securities.
Before this offering, there was no established public trading market for
the preferred securities. The trust has applied for the listing of the preferred
securities on the NYSE. If approved, trading of the preferred securities on the
NYSE is expected to begin within 30 days after they are first issued. The
representatives have advised us that
S-34
they intend to make a market in the preferred securities prior to the
commencement of trading on the NYSE. However, the representatives are not
obligated to do so and may discontinue market making at any time without notice.
No assurance is given that a liquid trading market for the preferred securities
will be available.
We and the trust have agreed, during the period beginning from the date of
the underwriting agreement and continuing to and including the earlier of (i)
the date on which the distribution of the preferred securities ceases, as
determined by the representatives, or (ii) 30 days from the settlement date, not
to offer, sell, contract to sell or otherwise dispose of any preferred
securities, any other preferred securities of the trust or any securities of
PSEG which are substantially similar to the junior subordinated debentures, the
preferred securities guarantee or the preferred securities or any securities
convertible into or exchangeable into or representing the right to receive any
of those securities, without the prior written consent of the representatives.
It is expected that delivery of the preferred securities will be made
against payment therefor on or about the date specified in the last paragraph of
the cover page of this prospectus supplement.
In connection with the sale of the preferred securities, rules of the
Securities and Exchange Commission permit the underwriters to engage in
transactions that stabilize the price of the preferred securities. These
transactions may include purchases for the purpose of fixing or maintaining the
price of the preferred securities.
The underwriters may create a short position in the preferred securities
in connection with this offering. That means they may sell a larger number of
preferred securities than is shown on the cover page of this prospectus
supplement. If they create a short position, the underwriters may purchase
preferred securities in the open market to reduce the short position.
If the underwriters purchase the preferred securities to stabilize the
price or to reduce their short position, the price of the preferred securities
could be higher than it might be if they had not made such purchases. The
underwriters make no representation or prediction about any effect that the
purchases may have on the price of the preferred securities.
The underwriters may suspend any of these activities at any time.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that, if the representatives purchase
preferred securities in the open market to reduce the underwriters' short
position or to stabilize the price of the preferred securities, it may reclaim
the amount of the selling concession from the underwriters and the selling group
members who sold those preferred securities as part of this offering.
LEGAL MATTERS
Certain legal matters with respect to the offering of the preferred
securities and the junior subordinated debentures will be passed on for us by
James T. Foran, Esq., our Associate General Counsel, and by Ballard Spahr
Andrews & Ingersoll, LLP, special tax counsel to PSEG, and for the underwriters
by Sidley Austin Brown & Wood LLP. Sidley Austin Brown & Wood LLP will rely upon
the opinion of Mr. Foran as to all matters of New Jersey law. Several matters of
Delaware law with respect to the validity of the preferred securities offered
hereby will be passed upon for us and the trust by Richards, Layton & Finger,
P.A.
EXPERTS
The financial statements as of December 31, 2001 and 2000, and for each of
the three years in the period ended December 31, 2001 and the related financial
statement schedule, incorporated by reference in the prospectus dated December
5, 2002 from the Company's Current Report on Form 8-K dated November 22, 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 in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
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PROSPECTUS
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PSEG FUNDING TRUST II
PSEG FUNDING TRUST III
PSEG FUNDING TRUST IV
By this prospectus, we offer up to
$1,000,000,000
of
Public Service Enterprise Group Incorporated
Common Stock, Preferred Stock,
Stock Purchase Contracts, Stock Purchase Units and
Debt Securities
and
PSEG Funding Trust II
PSEG Funding Trust III
PSEG Funding Trust IV
Preferred Trust Securities
Guaranteed as described in this prospectus by
Public Service Enterprise Group Incorporated
We will provide the specific terms of each series or issue of securities in
supplements to this prospectus. You should read this prospectus and the
applicable supplement carefully before you invest.
See "Risk Factors" beginning on page 5 for certain risks you should
consider.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 5, 2002.
TABLE OF CONTENTS
Page
----
About this Prospectus ..................................................... 3
Information about the Issuers ............................................. 3
Risk Factors .............................................................. 5
Forward-Looking Statements ................................................ 12
Use of Proceeds ........................................................... 13
Accounting Treatment Relating to Preferred Trust Securities ............... 13
Description of the Senior and Subordinated Debt Securities ................ 13
Description of the Trust Debt Securities .................................. 24
Description of the Preferred Trust Securities ............................. 29
Description of the Preferred Securities Guarantee ......................... 37
Relationship among the Preferred Trust Securities,
the Trust Debt Securities and the Preferred Securities Guarantee ........ 39
Description of the Capital Stock .......................................... 40
Description of the Stock Purchase Contracts and Stock Purchase Units ...... 41
Plan of Distribution ...................................................... 41
Legal Matters ............................................................. 43
Experts ................................................................... 43
Where You Can Find More Information ....................................... 43
Incorporation of Certain Documents by Reference ........................... 43
2
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we and PSEG
Funding Trust II, PSEG Funding Trust III and PSEG Funding Trust IV each of which
we refer to as, a "Trust" and, collectively as the "Trusts," filed with the SEC
using a "shelf" registration process. Under this shelf process, we and/or the
Trusts may, from time to time, sell the securities described in this prospectus
or combinations thereof in one or more offerings with a maximum aggregate
initial offering price of up to $1,000,000,000.
This prospectus provides a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under "Where You Can
Find More Information."
In this prospectus, unless the context indicates otherwise, the words and
terms "PSEG," "the company," "we," "our," "ours" and "us" refer to Public
Service Enterprise Group Incorporated and its consolidated subsidiaries.
We may use this prospectus to offer from time to time:
o shares of our common stock, without par value;
o shares of our preferred stock, without par value, which may be
convertible into our common stock;
o stock purchase contracts to purchase shares of our common stock;
o our unsecured debt securities, which may include senior, subordinated
and trust debt securities and which may be convertible into our common
stock. In this prospectus, we refer to the debt securities, which may
include senior debt securities, subordinated debt securities and trust
debt securities, as the "debt securities;"
o stock purchase units, consisting of a stock purchase contract and our
debt securities, a Trust's preferred securities or debt obligations of
third parties, including United States Treasury securities, that are
pledged to secure the stock purchase unit holders' obligations under
the stock purchase contracts.
The Trusts may also use this prospectus to offer from time to time their
respective preferred securities, which we refer to in this prospectus as the
"preferred trust securities." We will execute a preferred securities guarantee
covering the preferred trust securities of each Trust and will guarantee each
Trust's obligations under the preferred trust securities as described herein.
We sometimes refer to our common stock, preferred stock, stock purchase
contracts, stock purchase units, the debt securities, the preferred trust
securities and the preferred securities guarantee collectively as the
"securities."
For more detailed information about the securities, you should also review
the exhibits to the registration statement, which were either filed with the
registration statement or incorporated by reference to other SEC filings.
INFORMATION ABOUT THE ISSUERS
Public Service Enterprise Group Incorporated
We are an integrated energy and energy services company engaged in power
generation, regulated delivery of power and gas service and wholesale energy
marketing and trading. We are an exempt public utility holding company under the
Public Utility Holding Company Act of 1935 and neither own nor operate any
physical properties. Through our subsidiaries, we are one of the leading
providers of energy and energy-related services in the nation. We have four
direct, wholly-owned subsidiaries:
o Public Service Electric and Gas Company ("PSE&G"), which is an
operating public utility company engaged principally in the
transmission and distribution of electric energy and gas service in
New Jersey;
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o PSEG Power LLC ("Power"), which is a multi-regional independent
electric generation and wholesale energy marketing and trading
company;
o PSEG Energy Holdings LLC ("Energy Holdings"), which participates
nationally and internationally in energy-related lines of business
through its subsidiaries; and
o PSEG Services Corporation ("Services"), which provides administrative
and support services to us and our subsidiaries.
We are a New Jersey corporation with our principal offices located at 80
Park Plaza, Newark, New Jersey 07101. Our telephone number is (973) 430-7000.
Ratios of Earnings to Fixed Charges
Our ratios of earnings to fixed charges for each of the periods indicated
is as follows:
(unaudited) Years Ended December 31,
Nine Months Ended ---------------------------------------------------
September 30, 2002 1997 1998 1999 2000 2001
------------------ ---- ---- ---- ---- ----
Ratios of Earnings to
Fixed Charges .......... 1.17 2.43 2.80 3.07 2.60 2.04
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose earnings consist of pre-tax income from
continuing operations excluding extraordinary items, plus the amount of fixed
charges adjusted to exclude: the amount of any interest capitalized during the
period; and the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges amount but
not deducted in the determination of pre-tax income. Fixed charges consist of:
interest, whether expensed or capitalized; amortization of debt discount,
premium and expense; an estimate of interest implicit in rentals; and preferred
securities dividend requirements of subsidiaries and preferred stock dividends,
increased to reflect our pre-tax earnings requirement.
Ratios of Earnings to Combined Fixed Charges and Preference Dividends
Our ratios of earnings to combined fixed charges and preference dividends
for each of the periods indicated is the same as our ratios of earnings to fixed
charges.
The Trusts
Each Trust is a statutory trust created under the Delaware Statutory Trust
Act and operating under a trust agreement among us, Wachovia Bank, National
Association (formerly known as First Union National Bank), as the property
trustee, Wachovia Trust Company, National Association (formerly known as First
Union Trust Company, National Association), as Delaware trustee and one or more
of our employees, as administrative trustee. In this prospectus, we refer to
each of these agreements, as amended and restated, as a "trust agreement." Each
Trust exists only to issue and sell its preferred trust securities and common
trust securities, to acquire and hold our trust debt securities as trust assets
and to engage in activities incidental to the foregoing. We will own all of each
Trust's outstanding common trust securities. These common trust securities will
represent at least 3% of the total capital of each Trust. Payments will be made
on the common trust securities of a Trust pro rata with the preferred trust
securities of that Trust, except that the right to payment on the common trust
securities will be subordinated to the rights of the preferred trust securities
if there is a default under the applicable trust agreement resulting from an
event of default under the related trust debt indenture.
Each Trust's business and affairs will be conducted by its trustees and
us, as depositor, as set forth in its trust agreement. The office of the
Delaware trustee in the State of Delaware is One Rodney Square, 920 King Street,
Suite 102, Wilmington, Delaware 19801. Each Trust's offices are located at 80
Park Plaza, Newark, NJ 07102 and its telephone number is (973) 430-7000.
4
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 Portion Of Our Business Is Conducted Outside The United States,
Adverse International Developments Could Negatively Impact Our Business
A component of our business strategy has been the development, acquisition
and operation of projects outside the United States. The economic and political
conditions in certain countries where Energy Holdings' subsidiary, PSEG Global
Inc. ("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.
A majority of our revenue is generated by one-year contracts with various
direct bidders of the New Jersey basic generation service ("BGS") Auction which
expire on July 31, 2003, and from bilateral contracts for the sale of
electricity with third-party load serving entities and power marketers. Our
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;
5
o changes in the rules set by regulatory authorities with respect to the
manner in which electricity sales will be priced;
o transmission congestion and access in PJM and/or other competitive
markets;
o the operation of nuclear generation plants in PJM and other
competitive markets beyond their presently expected dates of
decommissioning;
o prevailing market prices for enriched uranium, fuel oil, coal and
natural gas and associated transportation costs;
o fluctuating weather conditions;
o reduced growth rate in electricity usage as a result of factors such
as national and regional economic conditions and the implementation of
conservation programs; and
o changes in regulations applicable to PJM and other Independent System
Operators ("ISO").
As a result of the BGS auction, Power entered into contracts with the
direct suppliers of the New Jersey electric utilities, including PSE&G,
commencing August 1, 2002. These bilateral contracts are subject to credit risk.
This credit risk relates to the ability of counterparties to meet their payment
obligations for the power delivered under each BGS contract. Any failure to
collect these payments under these BGS contracts with counterparties could have
a material impact on our results of operations, cash flows and financial
position.
Energy Obligations, Available Supply And Trading Risks Could Negatively Impact
Our Business
Our energy trading and marketing activities frequently involve the
establishment of energy trading positions in the wholesale energy markets on
long-term and short-term bases. To the extent that we have forward purchase
contracts to provide or purchase energy in excess of demand, a downturn in the
markets is likely to result in a loss from a decline in the value of our long
positions as we attempt to sell energy in a falling market. Conversely, to the
extent that we enter into forward sales contracts to deliver energy we do not
own, or take short positions in the energy markets, an upturn in the energy
markets is likely to expose us to losses as we attempt to cover our short
positions by acquiring energy in a rising market.
If the strategy we utilize to hedge our exposures to these various risks is
not effective, we could incur significant losses. Our substantial energy trading
positions can also be adversely affected by the level of volatility in the
energy markets that, in turn, depends on various factors, including weather in
various geographical areas and short-term supply and demand imbalances, which
cannot be predicted with any certainty.
Counterparty Credit Risks Or A Deterioration Of Power's Credit Quality May Have
An Adverse Impact On Our Business
We are exposed to the risk that counterparties will not perform their
obligations. Although we have devoted significant resources to develop our risk
management policies and procedures as well as counterparty credit requirements,
and will continue to do so in the future, we can give no assurance that losses
from our energy trading activities will not have a material adverse effect on
our business, prospects, results of operations, financial condition or net cash
flows.
In connection with its energy trading activities, Power must meet credit
quality standards required by counterparties. Standard industry contracts
generally require trading counterparties to maintain investment grade ratings.
These same contracts provide reciprocal benefits to Power. If Power loses its
investment grade credit rating, its subsidiary, PSEG Energy Resources & Trade
LLC ("ER&T"), would have to provide collateral in the form of letters of credit
or cash, which would significantly impact the energy trading business. This
would increase our costs of doing business and limit our ability to successfully
conduct our energy trading operations.
Substantial Change In The Electric Energy Industry Could Negatively Impact Our
Business
The electric energy industry in the State of New Jersey, 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:
6
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 nuclear operations and decommissioning;
o increased capital investments attributable to environmental
regulations;
o managing energy trading operations;
o ability to complete development or acquisition of current and future
investments;
o managing electric generation 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 terrorism or other similar occurrences.
Our Ability to Service Our Debt Could Be Limited
We are a holding company with no material assets other than the stock of
our subsidiaries 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 or to make any funds available to us to pay
such amounts. As a result, our debt 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 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. 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
7
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.
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.
If Our Operating Performance Falls Below Projected Levels, We May Not Be Able to
Service Our Debt
The risks associated with operating power generation facilities include
the breakdown or failure of equipment or processes, labor disputes and fuel
supply interruption, each of which could result in performance below expected
capacity levels. Operation below expected capacity levels may result in lost
revenues, increased expenses, higher maintenance costs and penalties, in which
case there may not be sufficient cash available to service project debt. In
addition, many of Global's generation projects rely on a single fuel supplier
and a single customer for the purchase of the facility's output under a long
term contract. While Global generally has liquidated damage provisions in its
contracts, the default by a supplier under a fuel contract or a customer under a
power purchase contract could adversely affect the facility's cash generation
and ability to service project debt.
Countries in which Global owns and operates electric and gas distribution
facilities may impose financial penalties if reliability performance standards
are not met. In addition, inefficient operation of the facilities may cause lost
revenue and higher maintenance expenses, in which case there may not be
sufficient cash available to service project debt.
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
Energy Holdings' subsidiary, PSEG Resources LLC ("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
As a public utility, PSE&G's rates are regulated by the New Jersey Board of
Public Utilities ("BPU") and the Federal Energy Regulatory Commission ("FERC").
These rates are designed to recover its operating expenses and allow it to earn
a fair return on its rate base, which primarily consists of its property, plant
and equipment less various adjustments. These rates include its electric and gas
tariff rates that are subject to regulation by the BPU as well as its
transmission rates that are subject to regulation by the FERC. PSE&G's base
rates are set by the BPU for electric distribution and gas distribution and are
effective until the time a new rate case is brought to the BPU. These base rate
cases generally take place every few years. Limited categories of costs are
recovered through adjustment charges that are periodically reset to reflect
actual costs. If these costs exceed the amount included in PSE&G's adjustment
charges, there will be a negative impact on cash flows.
If PSE&G's operating expenses, other than costs recovered through
adjustment charges, exceed the amount included in its base rates and in its FERC
jurisdictional rates, there will be a negative impact on our earnings or
operating cash flows.
Global's electric and gas distribution facilities are rate-regulated
enterprises. Governmental authorities establish rates charged to customers.
While these rates are designed to cover all operating costs and provide a
return, considerable fiscal and cash uncertainties in certain countries due to
economic, political and social crisis could have an adverse impact.
8
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 or 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. The
availability of capital is not assured since it is dependent upon our
performance and that of our 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.
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.
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.
9
Regulatory Issues Significantly Impact Our Operations
Federal, state and local authorities impose substantial regulation and
permitting requirements on the electric power generation business. We are
required to comply with numerous laws and regulations and to obtain numerous
governmental permits in order to operate our generation stations.
We believe that we have obtained all material energy-related federal, state
and local approvals including those required by the Nuclear Regulatory
Commission (NRC), currently required to operate our generation stations.
Although not currently required, additional regulatory approvals may be required
in the future due to a change in laws and regulations or for other reasons. 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 are subject to pervasive regulation by the NRC with respect to the
operation of our nuclear generation stations. This regulation involves testing,
evaluation and modification of all aspects of plant operation in light of NRC
safety and environmental requirements. The NRC also requires continuous
demonstrations that plant operations meet applicable requirements. The NRC has
the ultimate authority to determine whether any nuclear generation unit may
operate.
We can give no assurance that existing regulations will not be revised or
reinterpreted, that new laws and regulations will not be adopted or become
applicable to us or any of our generation stations or that future changes in
laws and regulations will not have a detrimental effect on our business.
Environmental Regulation May Limit Our Operations
We are required to comply with numerous statutes, regulations and
ordinances relating to the safety and health of employees and the public, the
protection of the environment and land use. These statutes, regulations and
ordinances are constantly changing. While we believe that we have obtained all
material environmental-related approvals currently required to own and operate
our facilities or that 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.
We Are Subject To More Stringent Environmental Regulation Than Many Of Our
Competitors
Our facilities are subject to both federal and state pollution control
requirements. Most of our generating facilities are located in the State of New
Jersey. In particular, New Jersey's environmental programs are generally
considered to be more stringent in comparison to similar programs in other
states. As such, there may be instances where the facilities located in New
Jersey are subject to more stringent and, therefore, more costly pollution
control requirements than competitive facilities in other states.
Insurance Coverage May Not Be Sufficient
We have insurance for our facilities, including:
o all-risk property damage insurance;
o commercial general public liability insurance;
10
o boiler and machinery coverage;
o nuclear liability; and
o for our nuclear generating units, replacement power and business
interruption insurance 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 or 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.
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 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 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.
11
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, included in this prospectus or in the documents
or information incorporated by reference or deemed to be incorporated by
reference in this prospectus that address activities, events or developments
that we expect or anticipate will or may occur in the future, including such
matters as our projections, future capital expenditures, business strategy,
competitive strengths, goals, expansion, market and industry developments and
the growth of our businesses and operations, are forward-looking statements.
These statements are based on assumptions and analyses made by us in light of
our experience and our perception of historical trends, current conditions and
expected future developments as well as other factors we believe are appropriate
under the circumstances. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated. These statements are based on management's beliefs as well as
assumptions made by and information currently available to management. When used
herein, the words "will," "anticipate," "intend," "estimate," "believe,"
"expect," "plan," "hypothetical," "potential," and variations of such words and
similar expressions are intended to identify forward-looking statements. 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. These risks and
uncertainties include:
o the significant considerations and risks discussed in any incorporated
document or prospectus supplement;
o general and local economic, market or business conditions;
o industrial, commercial and residential growth in the markets we serve;
o since a portion of our business is conducted outside the United
States, adverse international developments;
o demand (or lack thereof) for electricity, capacity and ancillary
services in the markets served by our generation units;
o increasing competition from other companies;
o the acquisition and development opportunities (or lack thereof) that
may be presented to and pursued by us;
o terrorist threats and activities, particularly with respect to our
generation facilities, economic uncertainty caused by recent terrorist
attacks on the United States and potential adverse reactions to United
States anti-terrorism activities;
o nuclear decommissioning and the availability of storage facilities for
spent nuclear fuel;
o changes in laws or regulations that are applicable to us;
o environmental constraints on construction and operation;
o the rapidly changing market for energy products;
o licensing approval for our nuclear and other operating stations;
o the ability to economically and safely operate our generating
facilities in accordance with regulatory requirements;
o the ability to obtain adequate and timely rate relief in our regulated
businesses;
o the ability to maintain insurance for our operations and facilities at
reasonable rates;
o access to capital;
o credit, commodity and financial market risks; and
o other factors, such as weather conditions, many of which are beyond
our control.
12
Consequently, all of the forward-looking statements made in this prospectus
are qualified by these cautionary statements and we cannot assure you that the
results or developments anticipated by us will be realized or, even if realized,
will have the expected consequences to or effects on us or our business
prospects, financial condition or results of operations. You should not place
undue reliance on these forward-looking statements in making your investment
decision. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to these forward-looking statements to reflect
events or circumstances that occur or arise or are anticipated to occur or arise
after the date hereof. In making an investment decision regarding the
securities, we are not making, and you should not infer, any representation
about the likely existence of any particular future set of facts or
circumstances. The forward-looking statements contained in this prospectus, any
prospectus supplement and the documents incorporated by reference or deemed to
be incorporated by reference into this prospectus and any related prospectus
supplement are intended to qualify for the safe harbor provisions of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we will
use the net proceeds from the sale of the securities for general corporate
purposes, including repayment of outstanding debt. Each Trust will use all of
the proceeds received from the sale of its preferred trust securities and common
trust securities to purchase our trust debt securities.
ACCOUNTING TREATMENT RELATING TO PREFERRED TRUST SECURITIES
The financial statements of each Trust will be consolidated with our
financial statements, with the respective preferred trust securities shown on
our consolidated financial statements as our guaranteed preferred beneficial
interest in trust debt securities. Our financial statements will include a
footnote that discloses, among other things, that the assets of a Trust consist
of our trust debt securities and will specify the designation, principal amount,
interest rate or formula and maturity date of the trust debt securities.
DESCRIPTION OF THE SENIOR AND SUBORDINATED DEBT SECURITIES
We may issue from time to time one or more series of the senior debt
securities under our Senior Indenture dated as of November 1, 1998 between us
and Wachovia Bank, National Association (formerly known as First Union National
Bank), as Senior Trustee, or one or more series of the subordinated debt
securities under our Subordinated Indenture to be entered into between us and
Wachovia Bank, National Association, as Subordinated Trustee. The term "Trustee"
refers to either the Senior Trustee or the Subordinated Trustee, as appropriate.
We will provide information about these debt securities in a prospectus
supplement.
The Senior Indenture and the form of Subordinated Indenture (sometimes
together referred as the "Indentures" and, individually, as an "Indenture") are
filed or incorporated by reference as exhibits to the registration statement of
which this prospectus is a part. The Indentures are subject to and governed by
the Trust Indenture Act of 1939. We have summarized the material terms and
provisions of the Indentures. Because this section is a summary, it does not
describe every aspect of the debt securities and the Indentures. We urge you to
read the Indenture that governs your debt securities for provisions that may be
important to you.
Provisions Applicable to Both the Senior and Subordinated Indentures
General
The debt securities will be our unsecured obligations. The senior debt
securities will rank equally with all other of our unsecured and unsubordinated
indebtedness. The subordinated debt securities will be subordinated in right of
payment to the prior payment in full of our senior indebtedness as described
below under " Subordinated Indenture Provisions." In this section, unless the
context requires, the words "we," "our," "ours" and "us" refer to Public Service
Enterprise Group Incorporated and not its consolidated subsidiaries.
13
Because we are a holding company and conduct all of our operations through
our subsidiaries, holders of our debt securities will generally have a junior
position to claims of creditors of those subsidiaries, including trade
creditors, debt holders, secured creditors, taxing authorities, guarantee
holders and any preferred stockholders other than, in each case, where we are
the creditor. As of September 30, 2002, PSE&G had 795,234 shares of its
preferred stock outstanding with an aggregate par value of approximately $80
million. Our subsidiaries have ongoing corporate debt programs used to finance
their business activities. As of September 30, 2002, our subsidiaries had
approximately $13.0 billion of debt outstanding.
Each Indenture provides that any debt securities proposed to be sold under
this prospectus and the accompanying prospectus supplement may be issued in an
unlimited amount under that Indenture in one or more series, in each case as
authorized by us from time to time.
You should read the relevant prospectus supplement for a description of the
material terms of any debt securities being offered, including:
o the title of the debt securities and whether the debt securities will
be senior debt securities or subordinated debt securities;
o the aggregate principal amount of the debt securities and any limit on
the aggregate principal amount of the debt securities of that series;
o if less than the principal amount of the debt securities are payable
upon acceleration of the maturity of the debt securities, the portion
that will be payable or how this portion will be determined;
o the date or dates, or how the date or dates will be determined or
extended, on which the principal of the debt securities will be
payable;
o the rate or rates of interest, which may be fixed or variable, that
the debt securities will bear, if any, or how the rate or rates will
be determined;
o the terms of any remarketing of the debt securities;
o the date or dates from which interest, if any, on the debt securities
will accrue or how the date or dates will be determined;
o the interest payment dates, if any, and the record dates for any
interest payments or how the date or dates will be determined;
o the basis upon which interest will be calculated if other than that of
a 360-day year of twelve 30-day months;
o the right, if any, to extend interest payment periods and the duration
of any extension;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o whether the debt securities will be issued as registered securities,
bearer securities or both and any applicable restrictions;
o whether the debt securities will be issuable in temporary or permanent
global form and any applicable restrictions or limitations;
o the place or places where the principal of and any premium and
interest on the debt securities will be payable and to whom and how
those payments will be made;
o whether the debt securities are convertible or exchangeable into any
other securities and, if so, the applicable terms and conditions;
o the denominations in which the debt securities will be issuable, if
other than $1,000 or any integral multiple thereof in the case of
registered securities and $5,000 in the case of bearer securities;
o the index, if any, with reference to which the amount of principal of
or any premium or interest on the debt securities will be determined;
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o if other than the Trustee, the identity of each security registrar
and/or paying agent;
o the applicability of the provisions of the applicable Indenture
described below under "-- Satisfaction and Discharge, Defeasance and
Covenant Defeasance" and any provisions in modification of, in
addition to or in lieu of any of these provisions;
o whether and under what circumstances we will pay additional amounts in
respect of any tax, assessment or governmental charge and, if so,
whether we will have the option to redeem the debt securities rather
than pay the additional amounts (and the terms of this option);
o any deletions, additions or changes in the events of default in the
applicable Indenture and any change in the right of the Trustee or the
holders to declare the principal amount of the debt securities due and
payable;
o any deletions, additions or changes in the covenants in the applicable
Indenture;
o the applicability of or any change in the subordination provisions of
the Indenture for a series of debt securities;
o any provisions granting special rights to holders of the debt
securities upon the occurrence of specified events; and
o any other material terms of the debt securities.
If applicable, the prospectus supplement will also set forth information
concerning any other securities offered thereby and a discussion of federal
income tax considerations relevant to the debt securities being offered.
For purposes of this prospectus, any reference to the payment of principal
of or premium or interest, if any, on the debt securities will include the
payment of any additional amounts required by the terms of the debt securities.
Debt securities may provide for less than the entire principal amount to be
payable upon acceleration of the maturity date ("original issue discount
securities"). Federal income tax and other matters concerning any original issue
discount securities will be discussed in the applicable prospectus supplement.
Neither Indenture limits the amount of debt securities that may be issued
in distinct series from time to time. Debt securities issued under an Indenture
are referred to, when a single Trustee is acting as trustee for all debt
securities issued under an Indenture, as the "indenture securities." Each
Indenture provides that there may be more than one Trustee thereunder, each with
respect to one or more different series of indenture securities. See "--
Resignation of Trustee" below. At a time when two or more Trustees are acting
under either Indenture, each with respect to only certain series, the term
indenture securities will mean the one or more series with respect to which each
respective Trustee is acting. In the event that there is more than one Trustee
under either Indenture, the powers and trust obligations of each Trustee as
described herein will extend only to the one or more series of indenture
securities for which it is Trustee. If two or more Trustees are acting under
either Indenture, then the indenture securities for which each Trustee is acting
would in effect be treated as if issued under separate indentures.
The general provisions of the Indentures do not contain any provisions that
would limit our ability to incur indebtedness or that would afford holders of
debt securities protection in the event of a highly leveraged or similar
transaction involving us. Please refer to the prospectus supplement for
information with respect to any deletions from, modifications of or additions to
the events of default or our covenants that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
We have the ability to issue indenture securities with terms different from
those of indenture securities previously issued and, without the consent of the
holders thereof, to reopen a previous series of indenture securities and issue
additional indenture securities of that series, unless the reopening was
restricted when that series was created.
Denominations, Registration and Transfer
Debt securities of a series may be issuable solely as registered
securities, solely as bearer securities or as both registered securities and
bearer securities. The Indentures also provide that debt securities of a series
may be issuable in global form. See "-- Book-Entry Debt Securities." Unless
otherwise provided in the prospectus
15
supplement, debt securities denominated in U.S. dollars (other than global
securities, which may be of any denomination) are issuable in denominations of
$1,000 or any integral multiples of $1,000 (in the case of registered
securities) and in the denomination of $5,000 (in the case of bearer
securities). Unless otherwise indicated in the prospectus supplement, bearer
securities will have interest coupons attached.
Registered securities will be exchangeable for other registered securities
of the same series. If provided in the prospectus supplement, bearer securities
(with all unmatured coupons, except as provided below, and all matured coupons
which are in default) of any series may be similarly exchanged for registered
securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor. If so provided, bearer securities
surrendered in exchange for registered securities between a regular record date
or a special record date and the relevant date for payment of interest will be
surrendered without the coupon relating to that date for payment of interest,
and interest will not be payable in respect of the registered security issued in
exchange for the bearer security, but will be payable only to the holder of the
coupon when due in accordance with the terms of the applicable Indenture. Unless
otherwise specified in the prospectus supplement, bearer securities will not be
issued in exchange for registered securities.
Registered securities of a series may be presented for registration of
transfer and debt securities of a series may be presented for exchange
o at each office or agency required to be maintained by us for payment
of that series as described in "-- Payment and Paying Agents" below,
and
o at each other office or agency that we may designate from time to time
for those purposes.
No service charge will be made for any transfer or exchange of debt
securities, but we may require payment of any tax or other governmental charge
payable in connection with the transfer or exchange.
We will not be required 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
- if debt securities of the series are issuable only as registered
securities, the day of mailing of the relevant notice of
redemption and
- if debt securities of the series are issuable as bearer
securities, the day of the first publication of the relevant
notice of redemption, or, if debt securities of the series are
also issuable as registered securities and there is no
publication, the day of mailing of the relevant notice of
redemption;
o register the transfer of or exchange any registered security, or
portion thereof, called for redemption, except the unredeemed portion
of any registered security being redeemed in part;
o exchange any bearer security called for redemption, except to exchange
the bearer security for a registered security 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 so repaid.
Payment and Paying Agents
Unless otherwise provided in the prospectus supplement, premium, interest
and additional amounts, if any, on registered securities will be payable at any
office or agency to be maintained by us in Morristown, New Jersey and The City
of New York, except that at our option interest may be paid
o by check mailed to the address of the person entitled thereto
appearing in the security register or
o by wire transfer to an account maintained by the person entitled
thereto as specified in the security register.
Unless otherwise provided in the prospectus supplement, payment of any
installment of interest due on any interest payment date for registered
securities will be made to the person in whose name the registered security is
registered at the close of business on the regular record date for that
interest.
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If debt securities of a series are issuable solely as bearer securities or
as both registered securities and bearer securities, unless otherwise provided
in the prospectus supplement, we will be required to maintain an office or
agency
o outside the United States where, subject to any applicable laws and
regulations, the principal of and premium, and interest, if any, on
the series will be payable and
o in The City of New York for payments with respect to any registered
securities of that series (and for payments with respect to bearer
securities of that series in the limited circumstances described
below, but not otherwise);
provided that, if required in connection with any listing of debt securities on
the Luxembourg Stock Exchange or any other stock exchange located outside the
United States, we will maintain an office or agency for those debt securities in
any city located outside the United States required by the applicable stock
exchange. The initial locations of those offices and agencies will be specified
in the prospectus supplement. Unless otherwise provided in the prospectus
supplement, principal of and premium, if any and interest, if any, on bearer
securities may be paid by wire transfer to an account maintained by the person
entitled thereto with a bank located outside the United States. Unless otherwise
provided in the prospectus supplement, payment of installments of interest on
any bearer securities on or before maturity will be made only against surrender
of coupons for those interest installments as they mature. Unless otherwise
provided in the prospectus supplement, no payment with respect to any bearer
security will be made at any office or agency of ours in the United States or by
check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States. However, payments of
principal of and premium, if any and interest, if any, on bearer securities
payable in U.S. dollars will be made at the office of our paying agent in The
City of New York if payment of the full amount thereof in U.S. dollars at all
offices or agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions.
We may from time to time designate additional offices or agencies, approve
a change in the location of any office or agency and, except as provided above,
rescind the designation of any office or agency.
Events of Default
The following will constitute events of default under each Indenture with
respect to any series of debt securities, unless we state otherwise in the
applicable prospectus supplement:
o we do not pay interest on a debt security of that series within 30
days of its due date;
o we do not pay principal of, or any premium on, a debt security of the
series on its due date;
o we do not deposit any sinking fund payment when due by the terms of
any debt security of that series;
o we remain in breach of a covenant in respect of the debt securities of
the series for 60 days after we receive a written notice of default
stating we are in breach. The notice must be sent by either the
Trustee or holders of at least 25% of the principal amount of debt
securities of the series;
o we file for bankruptcy or a court appoints a custodian or orders our
liquidation under any bankruptcy law or certain other events in
bankruptcy, insolvency or reorganization occur; and
o any other event of default provided with respect to debt securities of
that series occurs.
We are required to file with the Trustee, annually, an officer's
certificate as to our compliance with all conditions and covenants under the
applicable Indenture. Each Indenture provides that the Trustee may withhold
notice to the holders of debt securities of a series 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 such series to do so.
If an event of default with respect to debt securities of a series 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
applicable principal amount of all of the debt securities of that series to be
due and payable immediately.
Subject to the provisions of the applicable Indenture relating to the
duties of the Trustee, in case an event of default with respect to debt
securities of a series 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
17
holders of debt securities of that series, unless the holders have offered the
Trustee reasonable indemnity against the expenses and liabilities which might be
incurred by it in compliance with that request. Subject to such provisions for
the indemnification of the Trustee, the holders of a majority in principal
amount of the outstanding debt securities of a series 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.
The holders of a majority in principal amount of the outstanding debt
securities of a series may, on behalf of the holders of all debt securities of
that series and any related coupons, waive any past default with respect to that
series and its consequences, except a default
o in the payment of the principal of, or premium, or interest, if any,
on any debt security of that series or any related coupons or
o relating to a covenant or provision that cannot be modified or amended
without the consent of the holder of each outstanding debt security of
that series affected by the modification or amendment.
Merger or Consolidation
Each Indenture provides that we may not consolidate with or merge with or
into any other corporation or convey or transfer our properties and assets as an
entirety or substantially as an entirety to any person, unless either we are the
continuing corporation or such corporation or person assumes by supplemental
indenture all of our obligations under such Indenture and the securities issued
thereunder and immediately after the transaction no default shall exist.
Modification or Waiver
Modification and amendment of each Indenture may be made by us and the
Trustee thereunder with the consent of the holders of a majority in principal
amount of all outstanding indenture securities issued thereunder that are
affected by the modification or amendment. The consent of the holder of each
outstanding indenture security affected is, however, required to:
o change the maturity of the principal of or any installment of
principal of or interest on that indenture 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, that
indenture security, or change the manner of calculation thereof;
o change our obligation, if any, to pay additional amounts in respect of
that indenture security;
o reduce the portion of the principal of an original issue discount
security or indexed security that would be due and payable upon a
declaration of acceleration of the maturity date thereof or provable
in bankruptcy;
o adversely affect any right of repayment at the option of the holder of
that indenture security;
o change the place or currency of payment of principal, premium or
interest on that indenture security;
o impair the right to institute suit for the enforcement of any such
payment on or after the maturity date, redemption date or repayment
date;
o adversely affect any right to convert or exchange that indenture
security;
o reduce the percentage in principal amount of that outstanding
indenture securities required to amend or waive compliance with
certain provisions of the applicable Indenture or to waive certain
defaults;
o reduce the requirements for voting or quorum described below; or
o modify any of the foregoing requirements or any of the provisions
relating to waiving past defaults or compliance with certain
restrictive provisions, except to increase the percentage of holders
required to effect any such waiver or to provide that certain other
provisions of the Indenture cannot be modified or waived without the
consent of the holders of each indenture security affected thereby.
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In addition, under the Subordinated Indenture, no modification or amendment
thereof may, without the consent of the holder of each outstanding subordinated
security affected thereby, modify any of the provisions of that Indenture
relating to the subordination of the subordinated securities in a manner adverse
to the holders and no such modification or amendment may adversely affect the
rights of any holder of senior indebtedness described under the caption "--
Subordinated Indenture Provisions" without the consent of that holder of senior
indebtedness.
The holders of a majority in aggregate principal amount of outstanding
indenture securities have the right to waive our compliance with certain
covenants in the applicable Indenture.
Modification and amendment of each Indenture may be made by the Trustee and
us, without the consent of any holder, for any of the following purposes:
o to evidence the succession of another person to us as obligor under
such Indenture;
o to add to our covenants for the benefit of the holders of all or any
series of indenture securities issued under the Indenture or to
surrender any right or power conferred upon us by the Indenture;
o to add events of default for the benefit of the holders of all or any
series of indenture securities;
o to add to or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize the terms of, bearer securities, or to
permit or facilitate the issuance of indenture securities in
uncertificated form, provided that any such actions do not adversely
affect the holders of the indenture securities or any related coupons;
o to change or eliminate any provisions of the Indenture, as long as
that change or elimination will become effective only when there are
no indenture securities outstanding entitled to the benefit of those
provisions;
o to secure the indenture securities under the applicable Indenture
pursuant to any requirements of the Indenture, or otherwise;
o to establish the form or terms of indenture securities of any series
and any related coupons;
o to 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 that action does not adversely affect the interests of
holders of indenture securities of a series issued thereunder or any
related coupons in any material respect; 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 indenture securities thereunder, provided that the action
does not adversely affect the interests of the holders of any
indenture securities and any related coupons in any material respect.
In determining whether the holders of the requisite principal amount of
outstanding indenture securities have given any request, demand, authorization,
direction, notice, consent or waiver under the applicable Indenture or whether a
quorum is present at a meeting of holders of indenture securities thereunder,
o the principal amount of an original issue discount security 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 thereof,
o the principal amount of an indexed security that may be counted in
making such determination will be equal to the principal face amount
of the indexed security at original issuance, unless otherwise
provided with respect to the indexed security pursuant to the
Indenture and
o indenture securities owned by us or any other obligor upon the
indenture securities or any affiliate of ours or of any other obligor
shall be disregarded.
Each Indenture contains provisions for convening meetings of the holders of
indenture securities of a series if indenture securities of that series are
issuable as bearer securities. A meeting may be called at any time by the
Trustee, and also, upon request, by us or the holders of at least 10% in
principal amount of the outstanding
19
indenture securities of that series, in any such case upon notice given as
provided in the applicable Indenture. Except for any consent that must be given
by the holder of each indenture security affected thereby, as described above,
any resolution presented at a meeting at which a quorum is present may be
adopted by the affirmative vote of the holders of a majority in principal amount
of the outstanding indenture securities of that series; except that any
resolution with respect to any 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 the outstanding indenture securities of a series may be adopted at a
meeting at which a quorum is present by the affirmative vote of the holders of
that specified percentage in principal amount of the outstanding indenture
securities of that series. Any resolution passed or decision taken at any
meeting of holders of indenture securities of a series held in accordance with
the applicable Indenture will be binding on all holders of indenture 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 indenture securities of a series; except
that, if any action is to be taken at the 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 indenture securities of a series, the
persons holding or representing that specified percentage in principal amount of
the outstanding indenture securities of that series will constitute a quorum.
Satisfaction and Discharge, Full Defeasance and Covenant Defeasance
We may discharge certain of our obligations to holders of debt securities
of a series that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or are due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in an amount sufficient to make
interest, principal and any other payments on the debt securities on their
various due dates.
Each Indenture provides that, if the series of the debt securities provides
for it, we may elect either to defease and be discharged from any and all
obligations with respect to the debt securities and any related coupons, with
certain limited exceptions (this is called "full defeasance") or to be released
from our obligations under any specified covenant with respect to those debt
securities and any related coupons, and any omission to comply with those
obligations shall not constitute a default or an event of default with respect
to those debt securities and any related coupons (this is called "covenant
defeasance").
In order to effect full defeasance or covenant defeasance, we must deposit
for the benefit of all holders of the debt securities of the particular series a
combination of cash and/or U.S. government securities or U.S. government agency
notes or bonds that will generate enough cash to make interest, principal and
other payments on the debt securities on their various due dates.
A trust may only be established if, among other things, we have delivered
to the Trustee a legal opinion stating that the holders of the debt securities
and any related coupons will not recognize income, gain or loss for United
States federal income tax purposes as a result of the 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
the defeasance or covenant defeasance had not occurred, and the legal opinion,
in the case of full defeasance 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.
In the event we effect 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 certain events of default
with respect to any covenant as to which there has been covenant defeasance, the
amount of funds on deposit with the Trustee will be sufficient to pay amounts
due on those debt securities and coupons at the time of their stated maturity
date but may not be sufficient to pay amounts due on those debt securities and
coupons at the time of the acceleration resulting from the event of default. In
such case, we would remain liable to make payment of those amounts due at the
time of acceleration.
If the Trustee or any paying agent is unable to apply any money in
accordance with the applicable Indenture by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then our obligations under the Indenture and the
debt securities and any related coupons will be revived and reinstated as though
no deposit had occurred pursuant to the Indenture, until the Trustee or paying
agent is permitted to apply all such money in accordance with such Indenture.
20
The prospectus supplement may further describe the provisions, if any,
permitting full defeasance or covenant defeasance, including any modifications
to the provisions described above, with respect to the debt securities of or
within a particular series and any related coupons.
Book-Entry Debt Securities
Debt securities of a series may be issued, in whole or in part, in global
form that will be deposited with, or on behalf of, a depositary identified in
the prospectus supplement. Global securities may be issued in either registered
or bearer form and in either temporary or permanent form (a "global security").
Unless otherwise provided in the prospectus supplement, debt securities that are
represented by a global security will be issued in denominations of $1,000 and
any integral multiple thereof, and will be issued in registered form only,
without coupons. Payments of principal of (and premium, if any) and interest, if
any, on debt securities represented by a global security will be made by us to
the Trustee and then by the Trustee to the depositary.
We anticipate that any global securities will be deposited with, or on
behalf of, The Depository Trust Company ("DTC"), New York, New York, that global
securities will be registered in the name of DTC's nominee, and that the
following provisions will apply to the depositary arrangements with respect to
any global securities. Additional or differing terms of the depositary
arrangements will be described in the prospectus supplement.
So long as DTC or its nominee is the registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole holder of
the debt securities represented by such global security for all purposes under
the applicable Indenture. Except as provided below, owners of beneficial
interests in a global security will not be entitled to have debt securities
represented by the global security registered in their names, will not receive
or be entitled to receive physical delivery of debt securities in certificated
form and will not be considered the owners or holders thereof under the
applicable Indenture. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form; those
laws may limit the transferability of beneficial interests in a Global Security.
If
o DTC is at any time unwilling, unable or ineligible to continue as
depositary and a successor depositary is not appointed by us within 90
days following notice to us;
o we determine, in our sole discretion, not to have any debt securities
represented by one or more global securities; or
o an event of default under the applicable Indenture has occurred and is
continuing, then we will issue individual debt securities in
certificated form in exchange for the relevant global securities.
In any such instance, an owner of a beneficial interest in a global
security will be entitled to physical delivery of individual debt securities in
certificated form of like tenor and rank, equal in principal amount to such
beneficial interest and to have such debt securities in certificated form
registered in its name. Unless otherwise provided in the prospectus supplement,
debt securities so issued in certificated form will be issued in denominations
of $1,000 or any integral multiple thereof and will be issued in registered form
only, without coupons.
The following is based on information furnished by DTC and applies to the
extent that it is the depositary, unless otherwise provided in the prospectus
supplement:
Registered Owner. The debt securities will be issued as fully registered
securities in the name of Cede & Co., which is DTC's partnership nominee. The
Trustee will deposit the global securities with the depositary. The deposit with
the depositary and its registration in the name of Cede & Co. will not change
the nature of the actual purchaser's ownership interest in the debt securities.
DTC's Organization. DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of that
law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934.
DTC is owned by a number of its direct participants and the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and some other
organizations that
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directly participate in DTC. Other entities may access DTC's system by clearing
transactions through or maintaining a custodial relationship with direct
participants. The rules applicable to DTC and its participants are on file with
the SEC.
DTC's Activities. DTC holds securities that its participants deposit with
it. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts. Doing so
eliminates the need for physical movement of securities certificates.
Participant's Records. Except as otherwise provided in this prospectus or a
prospectus supplement, purchases of debt securities must be made by or through a
direct participant, which will receive a credit for the debt securities on the
depositary's records. The purchaser's interest is in turn to be recorded on the
participant's records. Actual purchasers will not receive written confirmation
from the depositary of their purchase, but they generally receive confirmations,
along with periodic statements of their holdings, from the participants through
which they entered into the transaction.
Transfers of interests in the global securities will be made on the books
of the participants on behalf of the actual purchasers. Certificates
representing the interest in debt securities will not be issued unless the use
of global securities is suspended.
The depositary has no knowledge of the actual purchasers of global
securities. The depositary's records only reflect the identity of the direct
participants, who are responsible for keeping account of their holdings on
behalf of their customers.
Notices among the Depositary, Participants and Actual Purchasers. Notices
and other communications by the depositary, its participants and the actual
purchasers will be governed by arrangements among them, subject to any legal
requirements in effect. Any redemption notices will be sent to DTC. If less than
all of the securities within an issue are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each direct participant in such
issue to be redeemed.
Voting Procedures. Neither DTC nor Cede & Co. will give consents for or
vote the global securities. The depositary generally mails an omnibus proxy to
us just after the applicable record date. That proxy assigns Cede & Co.'s voting
rights to the direct participants to whose accounts the debt securities are
credited at that time.
Payments. Principal and interest payments made by us will be delivered to
the depositary. DTC's practice is to credit direct participants' accounts on the
applicable payment date unless it has reason to believe that it will not receive
payment on that date. Payments by participants to actual purchasers will be
governed by standing instructions and customary practices, as is the case with
securities held for customers in bearer form or registered in "street name."
Those payments will be the responsibility of that participant and not the
depositary, the applicable Trustee or us, subject to any legal requirements in
effect at that time.
We are responsible for payment of principal, interest and premium, if any,
to the Trustee who is responsible for paying it to the depositary. The
depositary is responsible for disbursing those payments to direct participants.
The participants are responsible for disbursing payments to the actual
purchasers.
DTC may discontinue providing its services as securities depositary with
respect to the debt securities at any time by giving reasonable notice to the
applicable paying agent or us. Under such circumstances, in the event that a
successor securities depositary is not appointed, debt security certificates are
required to be printed and delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, debt security
certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that we believe to be reliable,
but we take no responsibility for the accuracy thereof.
Unless stated otherwise in the prospectus supplement, the underwriters or
agents with respect to a series of debt securities issued as global securities
will be direct participants in DTC.
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None of any underwriter or agent, the Trustees, any applicable paying agent
or us will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests in a global
security, or for maintaining, supervising or reviewing any records relating to
such beneficial interests.
Resignation of Trustee
The Trustee may resign or be removed with respect to one or more series of
indenture securities and a successor Trustee may be appointed to act with
respect to the series. In the event that two or more persons are acting as
Trustee with respect to different series of indenture securities under one of
the Indentures, each such Trustee shall be a Trustee of a trust thereunder
separate and apart from the trust administered by any other Trustee, and any
action described herein to be taken by the Trustee may then be taken by each
Trustee with respect to, and only with respect to, the one or more series of
indenture securities for which it is Trustee.
Subordinated Indenture Provisions
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of and premium and
interest, if any, on subordinated securities is to be subordinated to the extent
provided in the Subordinated Indenture in right of payment to the prior payment
in full of all Senior Indebtedness, but our obligation to make payment of the
principal of and premium and interest, if any, on the subordinated securities
will not otherwise be affected. In addition, no payment on account of principal
or premium, sinking fund or interest, if any, may be made on the subordinated
securities at any time unless full payment of all amounts due in respect of the
principal and premium, sinking fund and interest on Senior Indebtedness has been
made or duly provided for in money.
In the event that, notwithstanding the foregoing, any payment by us is
received by the Subordinated Trustee or the holders of any of the subordinated
securities before all Senior Indebtedness is paid in full, the payment or
distribution shall be paid over to the holders of the Senior Indebtedness or on
their behalf for application to the payment of all the Senior Indebtedness
remaining unpaid until all the Senior Indebtedness has been paid in full, after
giving effect to any concurrent payment or distribution to the holders of the
Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness
upon this distribution, the holders of the subordinated securities will be
subrogated to the rights of the holders of the Senior Indebtedness to the extent
of payments made to the holders of the Senior Indebtedness out of the
distributive share of the subordinated securities.
By reason of the subordination, in the event of a distribution of assets
upon insolvency, certain of our general creditors may recover more, ratably,
than holders of the subordinated securities. The Subordinated Indenture provides
that the subordination provisions thereof will not apply to money and securities
held in trust pursuant to the defeasance provisions of the Subordinated
Indenture.
"Senior Indebtedness" is defined in the Subordinated Indenture as the
principal of and premium, if any, and unpaid interest on
o our indebtedness (including indebtedness of others guaranteed by us),
whether outstanding on the date of the Subordinated Indenture or
thereafter created, incurred, assumed or guaranteed, for money
borrowed, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding it is provided that such
indebtedness is not senior or prior in right of payment to the junior
subordinated debt securities, and
o renewals, extensions, modifications and refundings of any of this
indebtedness.
The subordinated securities, are pari passu with and equal in right of
payment to our 7.44% Deferrable Interest Subordinated Debentures, Series A, our
Floating Rate Deferrable Interest Subordinated Debentures, Series B, our 7.25%
Deferrable Interest Subordinated Debentures, Series C and any guarantees issued
in connection therewith and will be pari passu with and equal in right of
payment to any debt securities or guarantees which may be issued in connection
with issuances of trust preferred securities by a Trust.
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If this prospectus is being delivered in connection with a series of
subordinated securities, the accompanying prospectus supplement or the
information incorporated by reference therein will set forth the approximate
amount of Senior Indebtedness outstanding as of a recent date.
Governing Law
The Indentures and the debt securities will be governed by, and construed
in accordance with, the laws of the State of New Jersey.
The Trustee under the Senior Indenture and the Subordinated Indenture
Wachovia Bank, National Association, the Trustee under our Senior Indenture
dated as of November 1, 1998 with respect to our senior debt securities, will
also be trustee under the Subordinated Indenture with respect to our
Subordinated Securities and the Trust Debt Indenture with respect to our trust
debt securities. In the event that the Trustee's position as trustee under the
Senior Indenture, the Subordinated Indenture and the Trust Debt Indenture
creates a conflict for the Trustee, under certain circumstances, the Trustee
will resign as trustee under one or more of the Senior Indenture, the
Subordinated Indenture or the Trust Debt Indenture.
Wachovia Bank, National Association, is trustee under various indentures
relating to our subsidiaries and affiliates. Our subsidiaries, our affiliates
and we maintain other normal banking relationships, including credit facilities
and lines of credit, with Wachovia Bank, National Association.
DESCRIPTION OF THE TRUST DEBT SECURITIES
General
If specified in the applicable prospectus supplement, the trust debt
securities will be issued in one or more series under the Trust Debt Indenture
to be entered into between us and Wachovia Bank, National Association. The
initial series of trust debt securities to be issued thereunder is provided for
in the form of the Trust Debt Indenture which is filed as an exhibit to the
registration statement of which this prospectus is a part. The ranking of each
series of trust debt securities will be specified in the applicable prospectus
supplement. Each series of junior subordinated trust debt securities will rank
subordinate and junior in right of payment, to the extent and in the manner set
forth in the Trust Debt Indenture, to all of our Senior Indebtedness. See "--
Subordination." The Trust Debt Indenture does not limit the incurrence or
issuance of Senior Indebtedness by us. As used in this portion of the
prospectus, the term "trust debt securities" means the debt securities to be
issued under the Trust Debt Indenture that will comprise the assets of an
issuing Trust and not any other debt securities that could comprise the assets
of an issuing Trust.
You should read the relevant prospectus supplement for a description of the
material terms of any series of trust debt securities being offered, including:
o the title of the series of trust debt securities;
o the aggregate principal amount of the series and any limit on the
aggregate principal amount of such series of trust debt securities;
o the date or dates on which the principal of the trust debt securities
of the series shall be payable or how the date or dates will be
determined;
o the interest rate or rates, which may be fixed or variable, that the
trust debt securities of the series will bear, if any, or how the rate
or rates will be determined;
o any terms regarding redemption;
o the ranking of the series of trust debt securities;
o the maximum extension period for such series of trust debt securities;
and
o any other material terms of the series of trust debt securities.
Certain federal income tax consequences and special considerations relating
to the applicable series of trust debt securities will be described in an
accompanying prospectus supplement.
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Option to Extend Interest Payment Period
Under the Trust Debt Indenture, we have the right to defer payments of
interest by extending the interest payment period for a series of trust debt
securities for up to the specified maximum extension period provided for that
series, except that no extension period can extend beyond the maturity or any
redemption date of that series of trust debt securities. We can also extend or
shorten an existing extension period. At the end of an extension period, we will
be obligated to pay all interest then accrued and unpaid (together with interest
on those accrued and unpaid amounts to the extent permitted by applicable law).
During any extension period, we may not declare or pay any dividend on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
our capital stock. Upon the termination of any extension period and the payment
of all amounts then due, we can elect to begin a new extension period. We will
be required to give notice to the Trustee and cause the Trustee to give notice
to the holders of the applicable series of trust debt securities of our election
to begin an extension period, or any shortening or extension of a period in
advance of the applicable record date.
Subordination
Payments on the junior subordinated debt trust securities will be
subordinated to the prior payment in full of all amounts payable on our Senior
Indebtedness.
"Senior Indebtedness" is defined in the Trust Debt Indenture as the
principal of and premium, if any, and unpaid interest on
o our indebtedness (including indebtedness of others guaranteed by us),
whether outstanding on the date of the Trust Debt Indenture or created
later, incurred, assumed or guaranteed, for money borrowed, unless the
terms of that indebtedness provide that it is not senior or prior in
right of payment to the junior subordinated trust debt securities, and
o renewals, extensions, modifications and refundings of that
indebtedness.
Upon any payment or distribution of our assets or securities, upon our
dissolution or winding-up or total or partial liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts payable on Senior Indebtedness (including any
interest accruing on the Senior Indebtedness after the commencement of a
bankruptcy, insolvency or similar proceeding) will be paid in full before the
holders of the junior subordinated trust debt securities will be entitled to
receive from us any payment of principal of, premium, if any, or interest on,
the junior subordinated trust debt securities or distributions of any assets or
securities.
No direct or indirect payment by or on our behalf of principal of, premium,
if any, or interest on, the junior subordinated trust debt securities will be
made if there is
o a default in the payment of all or any portion of any Senior
Indebtedness or
o any other default pursuant to which the maturity of Senior
Indebtedness has been accelerated and, in either case, the required
notice has been given to the Trustee and the default has not have been
cured or waived by or on behalf of the holders of the Senior
Indebtedness.
If the Trustee or any holder of the junior subordinated trust debt
securities receives any payment of the principal of, premium, if any, or
interest on, the junior subordinated trust debt securities when that payment is
prohibited and before all amounts payable on Senior Indebtedness are paid in
full, then that payment will be received and held in trust for the holders of
Senior Indebtedness and will be paid to the holders of the Senior Indebtedness
remaining unpaid to the extent necessary to pay the Senior Indebtedness in full.
Nothing in the Trust Debt Indenture limits the right of the Trustee or the
holders of the junior subordinated trust debt securities to take any action to
accelerate the maturity of the junior subordinated trust debt securities or to
pursue any rights or remedies against us, as long as all Senior Indebtedness is
paid before holders of the junior subordinated trust debt securities are
entitled to receive any payment from us of principal of, premium, if any, or
interest on, the junior subordinated trust debt securities.
Upon the payment in full of all Senior Indebtedness, the holders of the
junior subordinated trust debt securities will be subrogated to the rights of
the holders of the Senior Indebtedness to receive payments from us or
distributions of our assets made on the Senior Indebtedness until the junior
subordinated trust debt securities are paid in full.
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Denominations, Registration and Transfer
Trust debt securities of a series are issuable only in registered form. The
Trust Debt Indenture also provides that trust debt securities of a series may be
issuable in global form. See "Description of the Senior and Subordinated Debt
Securities -- Book-Entry Debt Securities." Unless otherwise provided in the
prospectus supplement, trust debt securities (other than global securities,
which may be of any denomination) are issuable in denominations of $1,000 or any
integral multiples of $1,000.
Trust debt securities will be exchangeable for other registered securities
of the same series. Registered securities of a series may be presented for
registration of transfer and for exchange
o at each office or agency required to be maintained by us for payment
of such series as described in "-- Payment and Paying Agents" below,
and
o at each other office or agency that we may designate from time to time
for those purposes.
No service charge will be made for any transfer or exchange of trust debt
securities, but we may require payment of any tax or other governmental charge
payable in connection with the transfer or exchange.
We will not be required to
o issue, register the transfer of or exchange trust debt securities
during a period beginning at the opening of business 15 days before
any selection of trust debt securities of that series to be redeemed
and ending at the close of business on the day of mailing of the
relevant notice of redemption;
o register the transfer of or exchange any trust debt security, or
portion thereof, called for redemption, except the unredeemed portion
of any trust debt security being redeemed in part; or
o issue, register the transfer of or exchange any trust debt security
which has been surrendered for repayment at the option of the holder,
except the portion, if any, of the trust debt security not to be so
repaid.
Payment and Paying Agents
Unless otherwise provided in the prospectus supplement, premium, if any,
and interest, if any, on trust debt securities will be payable at any office or
agency to be maintained by us in Morristown, New Jersey and The City of New
York, except that at our option interest may be paid
o by check mailed to the address of the person entitled thereto
appearing in the security register or
o by wire transfer to an account maintained by the person entitled
thereto as specified in the security register. Unless otherwise
provided in the prospectus supplement, payment of any installment of
interest due on any interest payment date for trust debt securities
will be made to the person in whose name the trust debt security is
registered at the close of business on the regular record date for
that interest.
We may from time to time designate additional offices or agencies, approve
a change in the location of any office or agency and, except as provided above,
rescind the designation of any office or agency.
Certain Additional Covenants
We will covenant that we may not declare or pay any distribution on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
our capital stock
o during an extension period,
o if there has occurred and is continuing an event of default under the
Trust Debt Indenture, or
o if we are in default under the preferred securities guarantee.
Any waiver of any event of default will require the approval of at least a
majority of the aggregate principal amount of the trust debt securities of a
particular series or, if the trust debt securities are held by the Trust, the
approval of the holders of at least a majority in aggregate liquidation amount
of the preferred trust securities of the Trust; except that an event of default
resulting from the failure to pay the principal of, premium, if any, or interest
on, the trust debt securities cannot be waived.
26
Modification of the Trust Debt Indenture
We and the Trustee, without notice to or the consent of any holders of
trust debt securities, may amend or supplement the Trust Debt Indenture for any
of the following purposes:
o to cure any ambiguity, defect or inconsistency;
o to comply with the provisions of the Trust Debt Indenture regarding
consolidation, merger or sale, conveyance, transfer or lease of our
properties as an entirety or substantially as an entirety;
o to provide for uncertificated trust debt securities in addition to or
in place of certificated trust debt securities;
o to make any other change that does not in our reasonable judgment
adversely affect the rights of any holder of the trust debt
securities; or
o to set forth the terms and conditions, which shall not be inconsistent
with the Trust Debt Indenture, of any additional series of trust debt
securities and the form of trust debt securities of that series.
In addition, we and the Trustee may modify the Trust Debt Indenture or any
supplemental indenture or waive our future compliance with the provisions of the
Trust Debt Indenture, with the consent of the holders of at least a majority of
the aggregate principal amount of the trust debt securities of each affected
series except that we need the consent of each holder of affected trust debt
securities, for any modification that would:
o reduce the principal amount of, or interest on, the trust debt
securities or change how the principal or interest is calculated;
o reduce the principal amount of outstanding trust debt securities of
any series the holders of which must consent to an amendment of the
Trust Debt Indenture or a waiver;
o change the stated maturity of the principal of, or interest on, the
trust debt securities;
o change the redemption provisions applicable to the trust debt
securities adversely to the holders thereof;
o impair the right to institute suit for the enforcement of any payment
with respect to the trust debt securities;
o change the currency in which payments with respect to the trust debt
securities are to be made; or
o change the ranking provisions applicable to the trust debt securities
adversely to the holders thereof.
If the trust debt securities are held by the Trust, no modification will be made
that adversely affects the holders of the preferred trust securities of the
Trust, and no waiver of any event of default with respect to the trust debt
securities or compliance with any covenant under the Trust Debt Indenture will
be effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation amount of the preferred trust securities of the Trust
or the holder of each preferred trust security, as applicable.
Events of Default
The following are events of default under the Trust Debt Indenture with
respect to any series of trust debt securities unless we state otherwise in the
applicable prospectus supplement:
o we do not pay interest on a trust debt security of the series within
30 days of its due date (other than the deferral of interest payments
during an extension period);
o we do not pay the principal of, or premium on, a trust debt security
of the series on its due date;
o we remain in breach of a covenant in respect of the trust debt
securities of the series for 60 days after we receive written notice
of default stating we are in breach;
o we file for bankruptcy or a court appoints a custodian or orders our
liquidation under any bankruptcy law or certain other events of
bankruptcy, insolvency or reorganization occur.
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In case an event of default has occurred and is continuing, other than one
relating to bankruptcy, insolvency or reorganization affecting us in which case
the principal of, premium, if any, and any interest on, all of the trust debt
securities shall become immediately due and payable, the Trustee or the holders
of at least 25% in aggregate principal amount of the trust debt securities of
that series may declare the principal, together with interest accrued thereon,
of all the trust debt securities of that series to be due and payable. If
neither the Trustee nor the holders make that declaration then, if the trust
debt securities are held by the Trust, the holders of at least 25% in aggregate
liquidation amount of the preferred trust securities shall have the right to
make that declaration by written notice to us and the Trustee. The holders of at
least a majority in aggregate principal amount of the series of trust debt
securities, by notice to the Trustee, can rescind an acceleration, but if the
declaration was made by the holders of the preferred trust securities, the
holders of at least a majority in aggregate liquidation amount of the preferred
trust securities must consent to the rescission of the acceleration. We will be
required to furnish to the Trustee an annual statement as to our compliance with
all conditions and covenants under the Trust Debt Indenture and the trust debt
securities and as to any event of default.
Consolidation, Merger, Sale or Conveyance
We may not consolidate with or merge with or into any other person or sell,
convey, transfer or lease our properties and assets as an entirety or
substantially as an entirety to any person, unless
o the successor person is organized under the laws of the United States
or any state thereof or the District of Columbia and expressly assumes
by a supplemental indenture all of our obligations under the trust
debt securities and the Trust Debt Indenture;
o immediately after the transaction, no default exists; and
o certain other conditions in the Trust Debt Indenture are met.
Defeasance and Discharge
Under the terms of the Trust Debt Indenture, we will be discharged from any
and all obligations in respect of the trust debt securities of any series if,
among other conditions, we deposit with the Trustee, in trust, (1) cash and/or
(2) U.S. government or U.S. government agency notes or bonds that will generate
enough cash to make interest principal and other payments on the trust debt
securities on their various due dates.
Information Concerning the Trustee
Subject to the provisions of the Trust Debt Indenture relating to its
duties, the Trustee will be under no obligation to exercise any of its rights or
powers under the Trust Debt Indenture at the request or direction of the holders
of any series of trust debt securities or the holders of the preferred trust
securities, unless those holders provide to the Trustee reasonable security and
indemnity. If the required indemnity is provided, the holders of at least a
majority in aggregate principal amount of any series of trust debt securities
affected or the holders of at least a majority in aggregate liquidation amount
of the preferred trust securities (with each series voting as a class), as
applicable, will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee with respect
to that series of trust debt securities or exercising any trust or power
conferred on the Trustee.
The Trust Debt Indenture will contain limitations on the right of the
Trustee, as our creditor, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. In addition, the Trustee may be deemed to have a conflicting interest
and may be required to resign as Trustee if at the time of an event of default
(1) it is our creditor or (2) there is a default under the indenture(s) referred
to below.
Wachovia Bank, National Association will be the Trustee under our Trust
Debt Indenture and also is the trustee under our Senior Indenture and will be
trustee under our Subordinated Indenture. In the event that the Trustee's
position as trustee under the Senior Indenture, the Subordinated Indenture and
the Trust Debt Indenture creates a conflict for the Trustee, under certain
circumstances, the Trustee will resign as trustee under one or more of the
Senior Indenture, the Subordinated Indenture or the Trust Debt Indenture.
28
Wachovia Bank, National Association is also the trustee under various
indentures relating to our subsidiaries and affiliates. Our subsidiaries, our
affiliates and we maintain other normal banking relationships, including credit
facilities and lines of credit, with Wachovia Bank, National Association.
Governing Law
The Trust Debt Indenture and the trust debt securities will be governed by
and construed in accordance with the laws of the State of New Jersey.
DESCRIPTION OF THE PREFERRED TRUST SECURITIES
Each Trust may issue preferred trust securities and common trust securities
under its Trust Agreement, which we refer to in this prospectus as the "trust
securities." Material provisions of the Trust Agreements are summarized below.
Because this section is a summary, it does not describe every aspect of the
trust securities and the Trust Agreements. The form of Trust Agreement for each
Trust was filed with the SEC and you should read the Trust Agreement for each
Trust for provisions that may be important to you. The Trust Agreements have
been qualified as indentures under the Trust Indenture Act of 1939.
General
Each Trust Agreement authorizes the respective Trust to issue its preferred
trust securities and its common trust securities. These trust securities of each
Trust will represent undivided beneficial interests in the assets of that Trust.
We will own all of the issued and outstanding common trust securities of each
Trust, with an aggregate liquidation amount equal to at least 3% of the total
capital of that Trust. When a Trust issues its preferred trust securities,
holders of the preferred trust securities will own all of the issued and
outstanding preferred trust securities of that Trust. The preferred trust
securities will be substantially identical to the common trust securities and
will rank equally with the common trust securities, except as described under
"Subordination of Common Trust Securities." The proceeds from the sale of the
preferred trust securities and the common trust securities will be used by the
issuing Trust to purchase our trust debt securities described above under
"Description of the Trust Debt Securities" or such other debt securities as are
specified in the applicable prospectus supplement which will be held in trust by
the property trustee for the benefit of the holders of the trust securities. We
will execute a guarantee agreement for the benefit of the holders of preferred
trust securities (the "guarantee") which will have the ranking specified in the
applicable prospectus supplement. Under the guarantee, we will agree to make
payments of distributions and payments on redemption or liquidation with respect
to the preferred trust securities, but only to the extent the issuing Trust
holds funds available for these payments and has not made them. See "Description
of the Preferred Securities Guarantee" below.
A prospectus supplement relating to the preferred trust securities of a
Trust will include specific terms of those securities and of the related trust
debt securities. As used in this portion of the prospectus, the term "trust debt
securities" relates to the debt securities that will comprise the assets of the
issuing Trust.
Distributions
The only income of an issuing Trust available for distribution to the
holders of its preferred trust securities will be payments on the related trust
debt securities. If we fail to make interest payments on the related trust debt
securities, the issuing Trust will not have funds available to pay distributions
on its preferred trust securities. The payment of distributions, if and to the
extent the issuing Trust has sufficient funds available for the payment of such
distributions, will be guaranteed by us as described below.
Distributions on the preferred trust securities of a Trust will be payable
at a rate specified (or at a rate whose method of determination is described) in
an accompanying prospectus supplement. Unless otherwise specified in the
prospectus supplement, the amount of distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the prospectus supplement, distributions on
the preferred trust securities will be cumulative and will accumulate whether or
not there are funds of the issuing Trust available for payment of distributions
from the date of original issuance and will be payable in arrears on the dates
specified in the prospectus supplement except as otherwise described below.
Unless otherwise specified in the prospectus
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supplement, distribution payments due on a day that is not a business day will
be made on the next day that is a business day (and without any interest or
other payment in respect to the delay), except that if the next business day
falls in the next calendar year, payment will be made on the immediately
preceding business day (each date on which distributions are payable as
described is referred to as a "distribution date"). Unless otherwise specified
in the prospectus supplement, a "business day" means any day other than a
Saturday, Sunday or a day on which banks in The City of New York or the State of
New Jersey are required to remain closed.
Distributions on the preferred trust securities of a Trust will be payable
to the holders thereof as they appear on the securities register of that Trust
on the relevant record date, which, as long as the preferred trust securities
remain in book-entry-only form, will be one business day prior to the relevant
distribution date. Payments will be made as described under "Description of the
Senior and Subordinated Debt Securities -- Book-Entry Debt Securities." In the
event that any preferred trust securities of a Trust are not in book-entry-only
form, the relevant record date for those preferred trust securities will be
specified in the applicable prospectus supplement.
So long as no event of default has occurred and is continuing with respect
to the trust debt securities of a Trust, we will have the right to time to defer
payments of interest by extending the interest payment period on the related
trust debt securities for up to the maximum period specified in the accompanying
prospectus supplement except that no extension period can extend beyond the
maturity or any redemption date of the trust debt securities. We can also extend
or shorten an existing extension period. If interest payments on a series of
trust debt securities are deferred, distributions on the related preferred trust
securities would also be deferred by the issuing Trust during that extension
period, but the amount of distributions to which holders of those preferred
trust securities would be entitled will continue to accumulate at the annual
rate applicable to those distributions, compounded with the same frequency with
which distributions are payable. During any extension period, we may not declare
or pay any distribution on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of our capital stock. Upon the termination of any
extension period and the payment of all amounts then due, we can elect to begin
a new extension period. See "Description of the Trust Debt Securities -- Option
to Extend Interest Payment Period."
Redemption
Upon the payment of a series of trust debt securities at maturity or upon
redemption, the proceeds from that payment will be applied by the respective
property trustee to redeem the same amount of the related trust securities at a
redemption price equal to the liquidation amount of those trust securities plus
all accumulated and unpaid distributions to the redemption date. The redemption
terms of the trust debt securities and the related trust securities will be set
forth in the accompanying prospectus supplement.
If less than all the trust securities of a Trust are to be redeemed on a
redemption date, then the aggregate amount of trust securities to be redeemed
will be selected by the property trustee among the preferred trust securities
and common trust securities of that Trust pro rata based on the respective
aggregate liquidation amounts of the preferred trust securities and common trust
securities, subject to the provisions of "-- Subordination of Common Trust
Securities" below.
Redemption Procedures
Notice of any redemption of trust securities of a Trust will be given by
the property trustee to the holders of the trust securities to be redeemed not
less than 30 nor more than 60 days prior to the redemption date. If a notice of
redemption is given with respect to any trust securities of a Trust, then, to
the extent funds are available therefor, that Trust will irrevocably deposit
with the paying agent for those trust securities funds sufficient to pay the
applicable redemption price for the trust securities being redeemed on the
redemption date and will give the paying agent irrevocable instructions and
authority to pay the redemption price to the holders of those trust securities
upon surrender thereof. Notwithstanding the foregoing, distributions payable on
or prior to the redemption date for any trust securities called for redemption
shall be payable to the holders of the trust securities as they appear on the
securities register for those trust securities on the relevant record dates for
the related distribution dates.
If notice of redemption shall have been given and funds irrevocably
deposited as required, then upon the date of such deposit, all rights of the
holders of the trust securities of a Trust so called for redemption will
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cease, except the right of the holders of the trust securities to receive the
redemption price, but without interest thereon, and the trust securities will
cease to be outstanding. In the event that any redemption date for trust
securities of a Trust is not a business day, then the redemption price will be
payable on the next day that is a business day (and without any interest or
other payment in respect of any such delay), except that if such business day
falls in the next calendar year, the redemption price will be payable on the
immediately preceding business day. In the event that payment of the redemption
price in respect of any trust securities called for redemption is improperly
withheld or refused and not paid either by the Trust thereof or by us pursuant
to the guarantee as described under "Description of the Preferred Securities
Guarantee," Distributions on those trust securities will continue to accumulate
at the then applicable rate from the original redemption date to the date of
payment, in which case the actual payment date will be considered the redemption
date for purposes of calculating the redemption price.
Subject to applicable law, including United States federal securities law,
we or our affiliates may at any time and from time to time purchase outstanding
preferred trust securities of a Trust by tender, in the open market or by
private agreement.
If preferred trust securities of a Trust are partially redeemed on a
redemption date, a corresponding percentage of the common trust securities of
that Trust will also be redeemed. The particular preferred trust securities to
be redeemed will be selected by the property trustee of that Trust by such
method as the property trustee shall deem fair and appropriate. The property
trustee will promptly notify the preferred trust security registrar in writing
of the preferred trust securities selected for redemption and, where applicable,
the partial amount to be redeemed.
Subordination of Common Trust Securities
Payments on the trust securities of a Trust will be made pro rata based on
the respective aggregate liquidation amounts of that Trust's common and
preferred trust securities. If an event of default has occurred and is
continuing with respect to the trust debt securities of a Trust, no payments
will be made on any common trust securities of that Trust unless payment in full
in cash of all accumulated and unpaid distributions on all outstanding preferred
trust securities of that Trust for all distribution periods terminating on or
prior to that time, or in the case of a dissolution or redemption, the full
amount of the redemption price or liquidation distribution on all outstanding
preferred trust securities of that Trust shall have been made or provided for,
and all funds available to the property trustee shall first be applied to the
payment in full in cash of all payments on all outstanding preferred trust
securities of that Trust then due and payable.
If an event of default has occurred and is continuing with respect to the
trust debt securities of a Trust, the holder of the common trust securities of
that Trust will be deemed to have waived any right to act with respect to the
event of default until the effect of the event of default has been cured, waived
or otherwise eliminated with respect to those preferred trust securities. Until
the event of default has been cured, waived or otherwise eliminated, the
property trustee of that Trust shall act solely on behalf of the holders of the
preferred trust securities of that Trust and not on behalf of us, as holder of
its common trust securities, and only the holders of the preferred trust
securities will have the right to direct the property trustee to act on their
behalf.
Liquidation Distribution upon Dissolution
Under each Trust Agreement, a Trust will be dissolved on the earliest to
occur of:
o the expiration of the term of that Trust;
o our bankruptcy, dissolution or liquidation or an acceleration of the
maturity of the trust debt securities held by that Trust;
o our election to dissolve that Trust and, after satisfaction of
liabilities to creditors of that Trust, the distribution of the
related trust debt securities to the holders of that Trust's trust
securities;
o the redemption of all the trust securities of that Trust; and
o an order for the dissolution of that Trust entered by a court of
competent jurisdiction.
Our election to dissolve a Trust shall be made by giving written notice to
the trustees of that Trust not less than 30 days prior to the date of
distribution of its trust debt securities and shall be accompanied by a legal
31
opinion stating that the event will not be a taxable event to the holders of the
trust securities for federal income tax purposes.
If a Trust is dissolved as a result of the expiration of its term, a
bankruptcy event, acceleration of maturity of the related trust debt securities
or a court order, it will be liquidated by its trustees as expeditiously as the
trustees determine to be possible by distributing, after satisfaction of
liabilities to its creditors as provided by applicable law, to the holders of
its trust securities a like amount of the related trust debt securities, unless
that distribution is determined by the property trustee not to be practical, in
which event holders will be entitled to receive out of that Trust's assets
available for distribution to holders, after satisfaction of liabilities to its
creditors as provided by applicable law, an amount equal to the aggregate
liquidation amount per trust security specified in the accompanying prospectus
supplement plus accumulated and unpaid distributions to the date of payment (the
"liquidation distribution"). If the liquidation distribution with respect to the
preferred trust securities of a Trust can be paid only in part because that
Trust has insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable by that Trust on its preferred trust
securities shall be paid on a pro rata basis. The holders of its common trust
securities will be entitled to receive the liquidation distribution upon any
liquidation pro rata with the holders of preferred trust securities, except that
if an event of default has occurred and is continuing, the preferred trust
securities will have a priority over the common trust securities with respect to
payment of the liquidation distribution.
Trust Agreement Event of Default; Notice
An event of default with respect to the related trust debt securities will
constitute a "Trust Agreement event of default" with respect to the preferred
trust securities of a Trust.
Within 90 days after the occurrence of any Trust Agreement event of default
actually known to the property trustee of a Trust, the property trustee will
send notice of it to the holders of the trust securities of that Trust, its
administrative trustee and us, unless the default has been cured or waived. We
and the administrative trustee of each Trust are required to file annually with
the property trustee of that Trust a certificate as to whether or not we are in
compliance with all the conditions and covenants applicable to us under its
Trust Agreement.
Under the Trust Agreement for each Trust, if the property trustee has
failed to enforce its rights under the Trust Agreement or the related Trust Debt
Indenture to the fullest extent permitted by law and subject to the terms of the
Trust Agreement and the related Trust Debt Indenture, any holder of the
preferred trust securities of that Trust may institute a legal proceeding
directly to enforce the property trustee's rights under that Trust Agreement or
the Trust Debt Indenture with respect to trust debt securities having an
aggregate principal amount equal to the aggregate liquidation amount of the
preferred trust securities of such holder without first instituting a legal
proceeding against the property trustee or any other person. To the extent that
any action under a Trust Debt Indenture is entitled to be taken by the holders
of at least a specified percentage of the principal amount of the related trust
debt securities, holders of that specified percentage of the preferred trust
securities may take that action if it is not taken by the property trustee. If a
Trust Agreement event of default attributable to our failure to pay principal of
or premium, if any, or interest on a series of trust debt securities has
occurred and is continuing, then each holder of related preferred trust
securities may institute a legal proceeding directly against us for enforcement
of payment to that holder, all as provided in the related Trust Debt Indenture.
If an event of default has occurred and is continuing with respect to a
series of trust debt securities, the related preferred trust securities of a
Trust will have a preference over the common trust securities of that Trust with
respect to the payment of distributions and amounts payable on redemption and
liquidation as described above. See " Liquidation Distribution upon Dissolution"
and "-- Subordination of Common Trust Securities."
Removal of Trustees
Unless a Trust Agreement event of default has occurred and is continuing,
we, as the holder of the common trust securities of a Trust, may remove any
trustee of that Trust under its trust agreement at any time. If a Trust
Agreement event of default has occurred and is continuing, the holders of a
majority of the total liquidation amount of the outstanding preferred trust
securities of that Trust may remove its property trustee or
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the Delaware trustee, or both of them. We, as the holder of the common trust
securities of a Trust, may remove its administrative trustee at any time. Any
resignation or removal of a trustee under the trust agreement of a Trust will
take effect only on the acceptance of appointment by the successor trustee.
Holders of preferred trust securities of a Trust will have no right to
appoint or remove the administrative trustee of that Trust, who may be
appointed, removed or replaced solely by us as the holder of the common trust
securities of that Trust.
Co-Trustees and Separate Property Trustee
Unless a Trust Agreement event of default has occurred and is continuing,
in order to meet various legal requirements, the holder of the common trust
securities of a Trust and its administrative trustee shall have the power
o to appoint one or more persons approved by the property trustee of
that Trust either to act as co-trustee, jointly with the property
trustee, of all or any part of specified trust property, or to act as
separate trustee of that trust property, and
o to vest in that person or persons in that capacity any property,
title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement of that Trust.
If a Trust Agreement event of default has occurred and is continuing, only
the property trustee of that Trust will have power to make this appointment.
Merger or Consolidation of Trustees
Any corporation or other entity into which any trustee may be merged or
converted or with which it may be consolidated, or any corporation or other
entity resulting from any merger, conversion or consolidation to which any
trustee shall be a party, or any corporation or other entity succeeding to all
or substantially all the corporate trust business of any trustee, shall be the
successor of such trustee under the Trust Agreement of a Trust, as long as the
corporation or other entity is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of a Trust
A Trust may not merge with or into, consolidate, amalgamate, or be replaced
by, or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any corporation or other entity, except as
described below or in "-- Liquidation Distribution upon Dissolution." Each Trust
may, at our request, with the consent of its administrative trustee and without
the consent of the holders of its trust securities, merge with or into,
consolidate, amalgamate, or be replaced by a trust organized under the laws of
any state, as long as
o the successor entity either
- expressly assumes all of the obligations of that Trust with
respect to its trust securities or
- substitutes for the trust securities of that Trust other
securities substantially similar to those trust securities (the
"successor securities") so long as the successor securities rank
the same as those trust securities with respect to the payment of
distributions and payments upon redemption, liquidation and
otherwise;
o we appoint a trustee of the successor entity with the same powers and
duties as the property trustee of that Trust with respect to the
related trust debt securities;
o the successor securities are listed on any national securities
exchange or other organization on which the trust securities of that
Trust are then listed;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the rating of preferred trust
securities of that Trust (including any successor securities) to be
downgraded, placed under surveillance or review or withdrawn by any
nationally recognized statistical rating organization;
33
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the trust securities of that Trust
(including any successor securities) in any material respect;
o the successor entity has a purpose substantially similar to that of
the original Trust;
o prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we and the property trustee of that
Trust have received a legal opinion stating that
- such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the trust
securities of that Trust (including any successor securities) in
any material respect, and
- following the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease neither the Trust nor the successor
entity will be required to register as an investment company
under the Investment Company Act of 1940, and the Trust (or the
successor entity) will continue to be classified as a grantor
trust for United States federal income tax purposes; and
o we or any permitted successor assignee own all of the common
securities of the successor entity and guarantee the obligations of
the successor entity under the successor securities at least to the
extent provided by the related guarantee and Trust Agreement.
No Trust will, except with the consent of all holders of its trust
securities, consolidate, amalgamate, merge with or into, or be replaced by, any
other entity, or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if that action would cause that Trust or the successor
entity not to be classified as a grantor trust for federal income tax purposes.
Voting Rights; Amendment of a Trust Agreement
Except as provided below and under "-- Mergers, Consolidations,
Amalgamations or Replacements of a Trust" and "Description of the Preferred
Securities Guarantee -- Amendments and Assignment" and as otherwise required by
law and the applicable Trust Agreement, the holders of the trust securities of a
Trust will have no voting rights.
Each Trust Agreement may be amended from time to time by us and the
trustees of that Trust, without the consent of the holders of the trust
securities of that Trust, (1) to cure any ambiguity, defect or inconsistency or
(2) to make any other change that does not adversely affect in any material
respect the interests of any holder of the preferred trust securities of that
Trust.
Each Trust Agreement may be amended by us and the trustees of that Trust in
any other respect, with the consent of the holders of a majority in aggregate
liquidation amount of the outstanding preferred trust securities of that Trust,
except to
o change the amount, timing or currency or otherwise adversely affect
the method of payment of any distribution or liquidation distribution,
o restrict the right of a holder of any preferred trust securities of
that Trust to institute suit for enforcement of any distribution,
redemption price or liquidation distribution,
o change the purpose of that Trust,
o authorize the issuance of any additional beneficial interests in that
Trust,
o change the redemption provisions,
o change the conditions precedent for us to elect to dissolve that Trust
and distribute the trust debt securities to the holders of the
preferred trust securities of that Trust or
o affect the limited liability of any holder of the preferred trust
securities of that Trust, which amendment requires the consent of each
affected holder of those preferred trust securities.
No amendment may be made without receipt by the applicable Trust of a legal
opinion stating that the amendment will not affect that Trust's status as a
grantor trust for federal income tax purposes or its exemption from regulation
as an investment company under the Investment Company Act of 1940.
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The Trustees of each Trust shall not
o direct the time, method and place of conducting any proceeding for any
remedy available to a trustee under the Trust Debt Indenture or
executing any trust or power conferred on that trustee with respect to
the trust debt securities of that Trust,
o waive any past default under the Trust Debt Indenture,
o exercise any right to rescind or annul an acceleration of the
principal of the trust debt securities of that Trust or
o consent to any amendment or modification of the Trust Debt Indenture,
where consent shall be required,
without, in each case, obtaining the consent of the holders of a majority in
aggregate liquidation amount of all outstanding preferred trust securities of
that Trust; provided, however, that where a consent under the Trust Debt
Indenture would require the consent of each affected holder of trust debt
securities of that Trust, no consent shall be given by the property trustee of
that Trust without the prior consent of each holder of those preferred trust
securities. The trustees shall not revoke any action previously authorized or
approved by a vote of the holders of the preferred trust securities of that
Trust except by subsequent vote of those holders. The property trustee shall
notify all holders of preferred trust securities of that Trust of any notice
received from the trustee under the Trust Debt Indenture as a result of the
issuer thereof being the holder of the trust debt securities. In addition to
obtaining the consent of the holders of the preferred trust securities of that
Trust prior to taking any of these actions, the trustees shall obtain a legal
opinion stating that the Trust will not be classified as an association taxable
as a corporation or a partnership for federal income tax purposes as a result of
that action and will continue to be classified as a grantor trust for federal
income tax purposes.
Any required consent of holders of preferred trust securities of a Trust
may be given at a meeting of holders of the preferred trust securities convened
for that purpose or pursuant to written consent without a meeting and without
prior notice. The property trustee of a Trust will cause a notice of any meeting
at which holders of preferred trust securities are entitled to vote, to be given
to each holder of record of preferred trust securities of that Trust in the
manner set forth in the Trust Agreement.
Notwithstanding that holders of preferred trust securities of a Trust are
entitled to vote or consent under certain circumstances, any preferred trust
securities of a Trust that are owned by us, the Trustees or any affiliate of
ours or any Trustee shall, for purposes of a vote or consent, be treated as if
they were not outstanding.
Global Preferred Trust Securities
Unless otherwise specified in the applicable prospectus supplement, the
preferred trust securities of a Trust will initially be issued in fully
registered global form that will be deposited with, or on behalf of, a
depositary. Global preferred trust securities may be issued only in fully
registered form and in either temporary or permanent form. Unless and until a
global preferred trust security is exchanged in whole or in part for the
individual preferred trust securities represented thereby, the depositary
holding the global preferred trust security may transfer the global preferred
trust security only to its nominee or successor depositary or vice versa and
only as a whole. Unless otherwise indicated in the applicable prospectus
supplement, the depositary for the global preferred trust securities will be
DTC. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. These
limits and laws may impair the ability to transfer beneficial interests in
global preferred trust securities. See "Description of the Senior and
Subordinated Debt Securities -- Book-Entry Debt Securities" for a description of
DTC and its procedures.
Information Concerning the Property Trustee
The property trustee of each Trust is the sole trustee under the applicable
Trust Agreement for purposes of the Trust Indenture Act of 1939 and will have
and be subject to all of the duties and responsibilities of an indenture trustee
under the Trust Indenture Act of 1939. The property trustee, other than during
the occurrence and continuance of a Trust Agreement event of default, undertakes
to perform only such duties as are specifically set forth in the applicable
Trust Agreement and, upon a Trust Agreement event of default, must use the same
degree of care and skill in the exercise thereof as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the property trustee is under no obligation to
35
exercise any of the powers vested in it by the applicable Trust Agreement at the
request of any holder of preferred trust securities of that Trust unless it is
offered reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred thereby. If no Trust Agreement event of
default has occurred and is continuing, and the property trustee is required to
decide between alternative courses of action, construe ambiguous provisions in
the applicable Trust Agreement or is unsure of the application of any provision
of that Trust Agreement, and the matter is not one on which holders of preferred
trust securities of that Trust are entitled under the applicable Trust Agreement
to vote, then the property trustee shall take such action as is directed by us
and, if not so directed, may take such action as it deems advisable and in the
best interests of the holders of the trust securities of that Trust and will
have no liability except for its own negligent action, negligent failure to act
or willful misconduct.
Wachovia Bank, National Association is the property trustee of each Trust.
Wachovia Bank, National Association is also the trustee under our Senior Debt
Indenture and will be the trustee under our Subordinated Indenture and our Trust
Debt Indenture. In the event that the property trustee's position as trustee
under the Senior Indenture, the Subordinated Indenture or the Trust Debt
Indenture creates a conflict for the property trustee, under certain
circumstances, the property trustee will resign as property trustee or as
trustee under one or more of the Senior Indenture, the Subordinated Indenture or
the Trust Debt Indenture.
Wachovia Bank, National Association is also the trustee under various
indentures relating to our subsidiaries and affiliates. Our subsidiaries, our
affiliates and we maintain other normal banking relationships, including credit
facilities and lines of credit, with Wachovia Bank, National Association.
Books and Records
The books and records of each Trust will be maintained at the principal
office of the respective Trust and will be open for inspection by each holder of
preferred trust securities of that Trust or any authorized representative for
any purpose reasonably related to the holder's interest in that Trust during
normal business hours.
Payment of Preferred Trust Securities and Paying Agent
Unless we indicate differently in a prospectus supplement, payments in
respect of the preferred trust securities of a Trust will be made to the
depositary, which will credit the relevant participants' accounts on the
applicable distribution dates or, if the preferred trust securities of that
Trust are not held by the depositary, payments will be made on the applicable
distribution dates by check mailed to the address of the holder entitled thereto
appearing on the preferred trust security register or in immediately available
funds upon redemption. The paying agent will initially be the property trustee
of that Trust and any co-paying agent chosen by that property trustee and
acceptable to the administrative trustee of that Trust and us, which may be us.
A paying agent may resign upon 30 days' written notice to the administrative
trustee, the applicable property trustee and us. In the event that the property
trustee shall no longer be the paying agent, the administrative trustee of that
Trust will appoint a successor, which shall be a bank, trust company or
affiliate of ours acceptable to the property trustee and us to act as paying
agent.
Registrar and Transfer Agent
The property trustee of each Trust will act as registrar and transfer agent
for the preferred trust securities of that Trust. Registration of transfers of
preferred trust securities will be made without charge by or on behalf of the
applicable Trust, but that Trust may require payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange of its preferred trust securities.
Miscellaneous
Holders of the preferred trust securities of each Trust have no preemptive
or similar rights.
Governing Law
Each Trust Agreement, the preferred trust securities of each Trust and the
common trust securities of each Trust provide that they are to be governed by
and construed in accordance with the laws of the State of Delaware.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Material provisions of each preferred securities guarantee that we will
execute and deliver for the benefit of the holders of preferred trust securities
of a Trust are summarized below. Because this section is a summary, it does not
describe every aspect of the preferred securities guarantees. The form of
preferred securities guarantee for each Trust was filed with the SEC and you
should read it for provisions that may be important to you. The preferred
securities guarantee of each Trust has been qualified as an indenture under the
Trust Indenture Act of 1939.
Wachovia Bank, National Association, will act as guarantee trustee under
each preferred securities guarantee. The guarantee trustee will hold the
preferred securities guarantee for the benefit of the holders of the preferred
trust securities of the respective Trust.
General
We will irrevocably agree, to pay in full, to the holders of the preferred
trust securities of the applicable Trust, the guarantee payments set forth below
(except to the extent previously paid), as and when due, regardless of any
defense, right of set-off or counterclaim which the applicable Trust may have or
assert. The following payments, to the extent not paid by the applicable Trust,
will be subject to the applicable guarantee:
o any accumulated and unpaid distributions required to be paid on the
preferred trust securities of a Trust, to the extent that that Trust
has funds available therefor,
o the redemption price, to the extent that the applicable Trust has
funds available therefor, and
o upon a voluntary or involuntary termination, winding-up or liquidation
of the applicable Trust (unless the trust debt securities of that
Trust are redeemed or distributed to holders of the preferred trust
securities applicable in accordance with their terms), the lesser of
- the aggregate of the liquidation amount specified in the
prospectus supplement per preferred trust security of that Trust
plus all accumulated and unpaid distributions on those preferred
trust securities to the date of payment, to the extent the
applicable Trust has funds available therefor and
- the amount of assets of the applicable Trust remaining available
for distribution to holders of the preferred trust securities of
that Trust upon a dissolution and liquidation of that Trust.
Our obligation to make a guarantee payment may be satisfied by direct
payment by us of the required amounts to the holders of the preferred trust
securities or by causing the applicable Trust to pay those amounts to the
holders. While our assets will not be available pursuant to the guarantee for
the payment of any distribution, liquidation distribution or redemption price on
any preferred trust securities if the applicable Trust does not have funds
available therefor as described above, we have agreed under the applicable Trust
Agreement to pay all expenses of that Trust except its obligations under its
trust securities.
No single document executed by us in connection with the issuance of the
preferred trust securities of any Trust will provide for our full, irrevocable
and unconditional guarantee of the preferred trust securities of that Trust. It
is only the combined operation of our obligations under the applicable
guarantee, the applicable Trust Agreement, the applicable trust debt securities
and the Trust Debt Indenture that has the effect of providing a full,
irrevocable and unconditional guarantee of a Trust's obligations under its
preferred trust securities. See "Relationship Among the Preferred Trust
Securities, the Trust Debt Securities and the Preferred Securities Guarantee."
Status of the Guarantee
The guarantee will constitute our unsecured obligation and will have the
ranking specified in the applicable prospectus supplement. Each Trust Agreement
provides that each holder of preferred trust securities of that Trust by
acceptance thereof agrees to the terms of the guarantee including, if specified
in the prospectus supplement, subordination provisions relating to the
guarantee. The guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against us to enforce its rights under the guarantee without first instituting a
legal proceeding against any other person or entity). The guarantee will not be
discharged except by payment of the guarantee payments in full to the extent
37
not previously paid or upon distribution to the holders of the preferred trust
securities of the applicable Trust of the related trust debt securities pursuant
to the applicable trust agreement.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of holders of the preferred trust securities of a Trust (in which
case no consent of the holders will be required), the guarantee with respect to
any Trust may only be amended with the prior approval of the holders of a
majority in aggregate liquidation amount of the preferred trust securities of a
Trust (excluding any preferred trust securities held by us or an affiliate). The
manner of obtaining any approval will be as set forth under "Description of the
Preferred Trust Securities -- Voting Rights; Amendment of a Trust Agreement."
All agreements contained in each guarantee will bind our successors, assigns,
receivers, trustees and representatives and will inure to the benefit of the
holders of the preferred trust securities of the applicable Trust.
Guarantee Events of Default
An event of default under a guarantee (a "guarantee event of default") will
occur upon our failure to perform any of our payment or other obligations
thereunder, provided that except with respect to a guarantee event of default
resulting from a failure to make any of the guarantee payments, we shall have
received notice of the guarantee event of default from the applicable guarantee
trustee and shall not have cured such guarantee event of default within 60 days
after receipt of such notice. The holders of a majority in aggregate liquidation
amount of the preferred trust securities of a Trust (excluding any preferred
trust securities held by us or an affiliate) will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the guarantee trustee under the guarantee related to that Trust or to direct the
exercise of any trust or power conferred upon the respective guarantee trustee
under the guarantee.
Any holder of the preferred trust securities of a Trust may institute a
legal proceeding directly against us to enforce that holder's rights under the
related guarantee without first instituting a legal proceeding against the
applicable Trust, the applicable guarantee trustee or any other person or
entity.
We, as guarantor, will be required to file annually with each guarantee
trustee a certificate as to whether or not we are in compliance with all the
conditions and covenants applicable to us under the applicable guarantee.
Information Concerning the Guarantee Trustee
Each guarantee trustee, other than during the occurrence and continuance of
a guarantee event of default, undertakes to perform only such duties as are
specifically set forth in the applicable guarantee and, upon a guarantee event
of default, must exercise the rights and powers vested in it by the applicable
guarantee and use the same degree of care and skill in the exercise thereof as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, each guarantee trustee is under no obligation to
exercise any of the powers vested in it by any guarantee at the request of any
holder of preferred trust securities of the applicable Trust unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
Termination of a Guarantee
Each guarantee will terminate and be of no further force and effect upon
full payment of the redemption price or liquidation distribution for the related
preferred trust securities or upon distribution of the related trust debt
securities to the holders of the related preferred trust securities. That
guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the related preferred trust securities must
restore payment of any sums paid under those preferred trust securities or the
guarantee.
Governing Law
Each preferred securities guarantee will be governed by and construed in
accordance with the laws of the State of New Jersey.
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RELATIONSHIP AMONG THE PREFERRED TRUST SECURITIES, THE TRUST
DEBT SECURITIES AND THE PREFERRED SECURITIES GUARANTEE
Payments of distributions and redemption and liquidation payments due on
the preferred trust securities of a Trust (to the extent that Trust has funds
available for such payments) will be guaranteed by us as set forth under
"Description of the Preferred Securities Guarantee." No single document executed
by us in connection with the issuance of the preferred trust securities of a
Trust will provide for our full, irrevocable and unconditional guarantee of
those preferred trust securities. It is only the combined operation of our
obligations under the applicable guarantee, the applicable Trust Agreement, the
related trust debt securities and the Trust Debt Indenture that has the effect
of providing a full, irrevocable and unconditional guarantee of that Trust's
obligations under its preferred trust securities. As used in this portion of the
prospectus, the term "trust debt securities" refers to the debt securities that
will comprise the assets of the Trust.
A holder of any preferred trust security of a Trust may institute a legal
proceeding directly against us to enforce the applicable property trustee's
rights under the related Trust Agreement, Trust Debt Indenture or guarantee
without first instituting a legal proceeding against that property trustee, the
trustee under the Trust Debt Indenture or the applicable guarantee trustee, the
applicable Trust or any other person or entity if that trustee fails to enforce
that particular holder's rights thereunder. Notwithstanding the foregoing, if a
Trust Agreement event of default attributable to our failure to pay principal of
or premium, if any, or interest on the trust debt securities of a Trust has
occurred and is continuing, then each holder of those preferred trust securities
may institute a legal proceeding directly against us for enforcement of any such
payment to such holder, all as provided in the applicable Trust Debt Indenture.
As long as we make payments of interest and other payments when due on the
related trust debt securities, those payments will be sufficient to cover the
payment of distributions and redemption and liquidation distributions due on the
preferred trust securities of a Trust, primarily because
o the aggregate principal amount of the trust debt securities will
be equal to the sum of the aggregate liquidation amount of the
related preferred trust securities and common trust securities,
o the interest rate and interest and other payment dates of the
trust debt securities will match the distribution rate and
distribution and other payment dates for the related preferred
trust securities,
o each Trust Agreement provides that we will pay for all and any
costs, expenses and liabilities of that Trust except that Trust's
obligations under its preferred trust securities and common trust
securities, and
o each Trust Agreement provides that the applicable Trust will not
engage in any activity that is not consistent with its limited
purposes.
If and to the extent that we do not make payments on the trust debt
securities comprising the assets of a Trust, that Trust will not have funds
available to make payments of distributions or other amounts due on its
preferred trust securities.
A principal difference between the rights of a holder of a preferred trust
security of a Trust (which represents an undivided beneficial interest in the
assets of that Trust) and a holder of a trust debt security is that a holder of
a trust debt security will accrue, and (subject to the permissible extension of
the interest payment period) is entitled to receive, interest on the principal
amount of trust debt securities held, while a holder of preferred trust
securities of a Trust is entitled to receive distributions only if and to the
extent the applicable Trust has funds available for the payment of those
distributions.
Upon any voluntary or involuntary dissolution or liquidation of a Trust not
involving a redemption or distribution of any trust debt security, after
satisfaction of liabilities to creditors of that Trust, the holders of its
preferred trust securities will be entitled to receive, out of assets held by
the Trust, the liquidation distribution in cash. See "Description of the
Preferred Trust Securities -- Liquidation Distribution upon Dissolution". Upon
our voluntary liquidation or bankruptcy, each Trust, as holder of the trust debt
securities, would be a creditor of ours, subordinated in the case of junior
subordinated trust debt securities described under "Description of Trust Debt
Securities," in right of payment to all Senior Indebtedness, but entitled to
receive payment in full of principal, premium, if any, and interest, before any
of our stockholders receive payments or distributions.
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A default or event of default under any Senior Indebtedness would not
constitute an event of default with respect to junior subordinated trust debt
securities under the Trust Debt Indenture. However, in the event of payment
defaults under, or acceleration of, Senior Indebtedness, the subordination
provisions of the junior subordinated trust debt securities provide that no
payments may be made in respect of the junior subordinated trust debt securities
until the Senior Indebtedness has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on the
junior subordinated trust debt securities would constitute an event of default.
We and each Trust believe that the above mechanisms and obligations, taken
together, are the equivalent of a full and unconditional guarantee by us of
payments due in respect of the preferred trust securities of each Trust.
DESCRIPTION OF THE CAPITAL STOCK
The following description summarizes the material terms of our capital
stock. Because this section is a summary, it does not describe every aspect of
our common stock. For additional information, you should refer to the applicable
provisions of the New Jersey Business Corporation Act and our Certificate of
Incorporation, as amended (the "Charter") and By-Laws. Our Charter and By-Laws
are exhibits to the registration statement of which this prospectus is a part.
Authorized Capital
Our authorized capital stock consists of 500,000,000 shares of common
stock, without par value, and 50,000,000 shares of preferred stock, without par
value.
Common Stock
General. As of October 31, 2002, 207,420,959 shares of our common stock
were issued and outstanding. On November 18, 2002, we issued 17,250,000
additional shares of our common stock pursuant to an underwritten public
offering. The outstanding shares of our common stock are, and any common stock
offered hereby when issued and paid for will be, fully paid and non-assessable.
Dividend Rights. Holders of our common stock are entitled to such dividends
as may be declared from time to time by our board of directors from legally
available funds after payment of all amounts owed on any preferred stock that
may be outstanding.
Voting Rights. Holders of our common stock are entitled to one vote for
each share held by them on all matters presented to shareholders. In the
election of directors, shareholders have cumulative voting rights.
Liquidation Rights. After satisfaction of the preferential liquidation
rights of any preferred stock, the holders of our common stock are entitled to
share, ratably, in the distribution of all remaining net assets.
Preemptive Conversion or Redemption Rights. The holders of our common stock
have preemptive rights as to additional issues of our common stock not issued on
a competitive basis or by an offering to or through underwriters. The shares of
our common stock are not subject to redemption or to any further calls or
assessments and are not entitled to the benefit of any sinking fund provisions.
Transfer Agents and Registrars
The co-transfer agents and co-registrars for our common and preferred stock
are the Shareholder Services Department of Services and the Continental Stock
Transfer and Trust Company.
Preferred Stock
Our board of directors is authorized, without further shareholder action,
to divide the preferred stock into one or more classes or series and to
determine the designations, preferences, limitations and special rights of any
class or series including, but not limited to, the following:
o the rate of dividend, if any;
o the rights, if any, of the holders of shares of the series upon
our voluntary or involuntary liquidation, dissolution or
winding-up;
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o the terms and conditions upon which shares may be converted into
shares of other series or other capital stock, if issued with the
privilege of conversion;
o the price at and the terms and conditions upon which shares may
be redeemed; and
o the voting rights, if any.
No shares of preferred stock have been issued.
DESCRIPTION OF THE STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts representing contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of our common stock (or a range of numbers of shares pursuant to a
predetermined formula) at a future date or dates. The price per share of our
common stock and number of shares of our common stock may be fixed at the time
the stock purchase contracts are issued or may be determined by reference to a
specific formula set forth in the stock purchase contracts.
The stock purchase contracts may be issued separately or as a part of
units, known as stock purchase units, consisting of (1) a stock purchase
contract or (2) a stock purchase contract and our debt securities, preferred
trust securities or debt obligations of third parties (including United States
Treasury securities), that would secure the holders' obligations to purchase our
common stock under the stock purchase contract. The stock purchase contracts may
require us to make periodic payments to the holders of the stock purchase units
or vice-versa. These payments may be unsecured or prefunded on some basis. The
stock purchase contracts may require holders to secure their obligations in a
specified manner and in certain circumstances we may deliver newly issued
prepaid stock purchase contracts, often known as prepaid securities, upon
release to a holder of any collateral securing the holder's obligations under
the original stock purchase contract.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units and, if applicable, debt securities
or preferred trust securities and will contain a discussion of the material
United States federal income tax considerations applicable to the stock purchase
contracts and stock purchase units. The description in the applicable prospectus
supplement will not contain all of the information you may find useful, and
reference will be made to the stock purchase contracts, and, if applicable,
collateral or depositary arrangements, relating to the stock purchase contracts
or stock purchase units.
PLAN OF DISTRIBUTION
The several Trusts and we may sell the securities directly to purchasers or
indirectly through underwriters, dealers or agents. The names of any such
underwriters, dealers or agents will be set forth in the relevant prospectus
supplement. We may determine the price or other terms of the securities offered
under this prospectus by use of an electronic auction. We will describe how any
auction will determine the price or any other terms, how potential investors may
participate in the auction and the nature of the underwriters' obligations in
the related supplement to this prospectus. We will also set forth in the
relevant prospectus supplement:
o the terms of the offering of the securities;
o the proceeds we will receive from the offering;
o any underwriting discounts and other items constituting underwriters'
compensation;
o any initial public offering price;
o any discounts or concessions allowed or reallowed or paid to dealers;
and
o any securities exchanges on which we may list the securities.
The several Trusts and we may distribute the securities from time to time
in one or more transactions at:
o a fixed price;
o prices that may be changed;
o market prices at the time of sale;
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o prices related to prevailing market prices; or
o negotiated prices.
We will describe the method of distribution in the relevant prospectus
supplement.
If we use underwriters with respect to an offering of the securities, we
will set forth in the relevant prospectus supplement:
o the name of the managing underwriter, if any;
o the name of any other underwriters; and
o the terms of the transaction, including any underwriting discounts and
other items constituting compensation of the underwriters and dealers,
if any.
The underwriters will acquire any securities for their own accounts and
they may resell the securities from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price and at
varying prices determined at the time of sale.
Any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time. We anticipate
that any underwriting agreement pertaining to any securities will:
o entitle the underwriters to indemnification by us against certain
civil liabilities, including liabilities under the Securities Act, or
to contribution with respect to payments that the underwriters may be
required to make related to any such civil liability;
o subject the obligations of the underwriters to certain conditions
precedent; and
o obligate the underwriters to purchase all securities offered in a
particular offering if any such securities are purchased.
If we use a dealer in an offering of the securities, we will sell such
securities to the dealer, as principal. The dealer may then resell the
securities to the public at varying prices to be determined by such dealer at
the time of resale. We will set forth the name of the dealer and the terms of
the transaction in the prospectus supplement.
If we use an agent in an offering of the securities, we will name the agent
and describe the terms of the agency in the relevant prospectus supplement.
Unless we indicate otherwise in the prospectus supplement, we will require an
agent to act on a best efforts basis for the period of its appointment.
Dealers and agents named in a prospectus supplement may be considered
underwriters of the securities described in the prospectus supplement under the
Securities Act. We may indemnify them against certain civil liabilities under
the Securities Act.
In the ordinary course of business, we may engage in transactions with
underwriters, dealers, agents and their affiliates and they may perform services
for us.
The several Trusts and we may solicit offers to purchase the securities and
make sales directly to institutional investors or others who may be considered
underwriters under the Securities Act with respect to such sales. We will
describe the terms of any such offer in the relevant prospectus supplement.
If we authorize underwriters or other agents to solicit offers to purchase
the securities from institutional investors pursuant to contracts providing for
payment and delivery at a future date, we will indicate that we are doing so in
the relevant prospectus supplement. We must approve all purchasers under such
contracts; the institutional investors may include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others.
We will not subject the obligations of such purchasers to any conditions
except that:
o we will not allow such purchases if they violate the laws of any
jurisdiction to which a proposed purchaser is subject; and
o if we are also selling the securities to underwriters, we will not
sell to the underwriters subject to delayed delivery.
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Underwriters and other agents will not be responsible for the validity or
performance of such contracts providing for payment and delivery at a future
date.
We will set forth in the relevant prospectus supplement the anticipated
delivery date of the securities and the prospectus delivery obligations of
dealers.
Each series of securities will be a new issue and, except for the Common
Stock, which is listed on the New York Stock Exchange, will have no established
trading market. We may elect to list any series of new securities on an
exchange, or in the case of the Common Stock, on any additional exchange, but
unless we advise you differently in the prospectus supplement, we have no
obligation to cause any securities to be so listed. Any underwriters that
purchase securities for public offering and sale may make a market in the
securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. We make no assurance
as to the liquidity of, or the trading markets for, any securities.
LEGAL MATTERS
The validity of the securities, including the binding nature of debt
securities, to be issued by us will be passed upon for us by R. Edwin Selover,
Esquire, our Senior Vice President and General Counsel or James T. Foran,
Esquire, our Associate General Counsel and/or such other counsel as is indicated
in the applicable prospectus supplement.
Certain matters of Delaware law relating to the validity of the preferred
trust securities of the Trusts, the enforceability of the respective trust
agreements and the creation of the Trusts will be passed upon by Richards,
Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the
Trusts. The validity of any offered securities may be passed on for any
underwriters, dealers or agents by Sidley Austin Brown & Wood LLP, New York, New
York, who may rely on the opinion of Mr. Selover or Mr. Foran as to matters of
New Jersey law.
EXPERTS
The financial statements as of December 31, 2001 and 2000 and for each of
the three years in the period ended December 31, 2001 and the related financial
statement schedule incorporated in this prospectus by reference from our Current
Report on Form 8-K dated November 22, 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 in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. You may also obtain our filings on the
Internet at the SEC's home page at http://www.sec.gov. Our common stock is
listed on the New York Stock Exchange under the ticker symbol "PEG." You can
obtain information about us at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This prospectus is part of a registration statement on Form S-3 filed with
the SEC under the Securities Act of 1933. It does not contain all of the
information that is important to you. You should read the registration statement
for further information with respect to the securities, the Trust and us.
Statements contained in this prospectus concerning the provisions of any
document filed as an exhibit to the registration statement or otherwise filed
with the SEC highlight selected information, and in each instance reference is
made to the copy of the full document as filed with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference or
deemed incorporated by reference is an important part of this prospectus, and
information that we
43
file later with the SEC will be deemed to automatically update and supersede
this incorporated information. We incorporate by reference the documents in File
No. 9120 listed below and any future filings made with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended,
prior to the termination of any particular offering of securities hereunder.
o Our Annual Report on Form 10-K for the year ended December 31, 2001;
o Our Amended Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 2002;
o Our Quarterly Reports on Form 10-Q for the quarters ended June 30,
2002 and September 30, 2002;
o Our Current Reports on Form 8-K filed with the SEC on January 25,
2002, February 7, 2002, April 16, 2002, July 30, 2002, September 10,
2002, October 11, 2002 and November 22, 2002; and
o Our Amended Current Report on Form 8-K/A dated July 29, 2002.
You can get a free copy of any of the documents incorporated by reference
by making an oral or written request directed to:
J. Brian Smith
Director, Investor Relations
PSEG Services Corporation
80 Park Plaza, 6th Floor
Newark, NJ 07101
Telephone (973) 430-6564
You should rely only on the information contained or incorporated by
reference or deemed to be incorporated by reference in this prospectus or in a
related 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. Our affairs may change after this prospectus and
any related prospectus supplement are distributed. You should not assume that
the information in this prospectus and any related prospectus supplement is
accurate as of any date other than the dates on the front of those documents.
You should read all information supplementing this prospectus.
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