<PAGE>
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 28, 1997
3,800,000 PREFERRED SECURITIES
PSE&G CAPITAL TRUST II
% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES (QUIPS(SM)),* SERIES B
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT PSE&G CAPITAL TRUST II
HAS AVAILABLE FUNDS AS SET FORTH HEREIN BY
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
------------------
The % Cumulative Quarterly Income Preferred Securities, Series B (the
"Series B Preferred Securities") offered hereby represent undivided beneficial
interests in the assets of PSE&G Capital Trust II, a statutory business trust
created under the laws of the State of Delaware (the "Series B Issuer"). Public
Service Electric and Gas Company ("PSE&G") is the owner of the beneficial
interests represented by the common securities of the Series B Issuer (the
"Common Securities"). First Union National Bank is the Property Trustee of the
Series B Issuer (the "Property Trustee"). The Series B Issuer exists for the
sole purpose of issuing beneficial interests in the assets of the Series B
Issuer and investing the proceeds thereof in % Deferrable Interest
Subordinated Debentures, Series B due 2046 to be issued by PSE&G (the "Series B
Debentures"). The Series B Preferred Securities have a preference over the
Common Securities under certain circumstances with respect to cash distributions
and amounts payable on redemption or liquidation. See "Description of the
Preferred Securities-- Subordination of Common Securities" in the accompanying
Prospectus.
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" COMMENCING ON PAGE S-4 FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE SERIES B PREFERRED SECURITIES, INCLUDING THE PERIOD
DURING WHICH AND CIRCUMSTANCES UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
SERIES B PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSEQUENCES.
The Series B Preferred Securities have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance. Trading of the
Series B Preferred Securities is expected to commence within a 30-day period
after the initial delivery thereof.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING THE SERIES B
OFFERING PRICE COMMISSION(1) ISSUER(2)(3)
--------------- --------------- -------------
<S> <C> <C> <C>
Per Series B Preferred Security............................................ $ 25.00 (2) $ 25.00
Total...................................................................... $ (2) $
</TABLE>
- --------------------------
(1) PSE&G and the Series B Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Series B Preferred
Securities will be used to purchase the Series B Debentures, under the
Underwriting Agreement, PSE&G will pay to the Underwriters an underwriting
commission of $ per Series B Preferred Security (or $ in the
aggregate), except that such commission will be $ per Series B
Preferred Security sold to certain institutions. See "Underwriting."
(3) Expenses of the offering, which are payable by PSE&G, are estimated to be
$225,000.
------------------------------
The Series B Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Series B Preferred Securities will be made in
book-entry-only form through the facilities of DTC in New York, New York on or
about February , 1997, against payment therefor in immediately available
funds.
- --------------------------
* QUIPS is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
INCORPORATED
SMITH BARNEY INC.
--------------------------
The date of this Prospectus Supplement is January , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Holders of the Series B Preferred Securities are entitled to receive
cumulative cash distributions ("Distributions") at an annual rate of % of the
liquidation amount of $25 per Series B Preferred Security, accumulating from the
date of original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing March 31, 1997. So long as
no Debenture Event of Default has occurred and is continuing, PSE&G has the
right to defer payments of interest on the Series B Debentures by extending the
interest payment period in respect thereof for up to 20 consecutive quarters
(each, an "Extension Period"), but not beyond the maturity or any redemption
date of the Series B Debentures. See "Certain Terms of the Series B Preferred
Securities--Distributions" herein and "Description of the Debentures--Option to
Extend Interest Payment Period" in the accompanying Prospectus. If and for so
long as interest payments are deferred, Distributions on the Series B Preferred
Securities will also be deferred. During an Extension Period, Distributions will
continue to accumulate and owners of Series B Preferred Securities will be
required to accrue interest income for Federal income tax purposes. See "United
States Taxation--Potential Extension of Interest Payment Period and Original
Issue Discount."
PSE&G has, through the Series B Guarantee, the Trust Agreement, the
Indenture and the Series B Debentures, taken together, fully, irrevocably and
unconditionally guaranteed all of the Series B Issuer's obligations under the
Series B Preferred Securities. Under the Series B Guarantee, PSE&G agrees to
make payments of Distributions and payments on redemption or liquidation with
respect to the Series B Preferred Securities, but only to the extent that the
Series B Issuer holds funds available therefor and has not made such payments.
See "Description of the Guarantee" in the accompanying Prospectus. If PSE&G
fails to make a payment on the Series B Debentures, the Series B Issuer will not
have sufficient funds to make the related payment, including Distributions, on
the Series B Preferred Securities. The Series B Guarantee does not cover any
such payment when the Series B Issuer does not have sufficient funds available
therefor. In such event, the Property Trustee or holders of the Series B
Preferred Securities may enforce the rights of the Series B Issuer under the
Series B Debentures. See "Description of the Guarantee--Guarantee Events of
Default" in the accompanying Prospectus.
The obligations of PSE&G under the Series B Guarantee are subordinate and
junior in right of payment to all general liabilities (other than the MIPs
Guarantees, as defined in the accompanying Prospectus) of PSE&G, and the
obligations of PSE&G under the Series B Debentures are subordinate and junior in
right of payment to all present and future Senior Indebtedness of PSE&G (as
defined in the accompanying Prospectus). At December 31, 1996, the Senior
Indebtedness of PSE&G aggregated approximately $5.221 billion.
The Series B Preferred Securities are subject to mandatory redemption upon
payment of the Series B Debentures at maturity on February , 2046, or upon
earlier redemption. See "Certain Terms of the Series B Preferred
Securities--Redemption." PSE&G has the option at any time on or after February
, 2002 to redeem, in whole or in part, the Series B Debentures. In addition,
the Series B Debentures are subject to redemption, in whole but not in part, at
the option of PSE&G upon the occurrence of certain special events described
under "Certain Terms of the Series B Preferred Securities--Special Event
Redemption."
PSE&G has the right, at any time, subject to certain conditions, to
terminate the Series B Issuer and cause the Series B Debentures to be
distributed to the holders of the Series B Preferred Securities and the Common
Securities. See "Certain Terms of the Series B Preferred
Securities--Distribution of Series B Debentures." If the Series B Debentures are
so distributed, PSE&G will use its best efforts to list them on the New York
Stock Exchange.
In the event of the termination and liquidation of the Series B Issuer,
holders of Series B Preferred Securities will be entitled to receive a
liquidation amount of $25 per Series B Preferred Security plus accumulated and
unpaid Distributions to the date of payment, unless, in connection therewith,
the Series B Debentures are distributed to the holders of the Series B Preferred
Securities and the Common Securities. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination" in the accompanying
Prospectus.
The Series B Preferred Securities are represented by a single global
security registered in the name of The Depository Trust Company ("DTC") or its
nominee. Beneficial interests in the Series B Preferred Securities will be shown
on, and transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described in the accompanying Prospectus, Series
B Preferred Securities in certificated form will not be issued in exchange for
the global security. See "Description of the Preferred
Securities--Book-Entry-Only Issuance--The Depository Trust Company" in the
accompanying Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES B
PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS, AND SHOULD BE READ IN CONJUNCTION
WITH, THE INFORMATION CONTAINED IN THE ACCOMPANYING PROSPECTUS. EACH OF THE
CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT AND NOT DEFINED HEREIN HAS
THE MEANING SET FORTH IN THE ACCOMPANYING PROSPECTUS.
RISK FACTORS
PROSPECTIVE PURCHASERS OF SERIES B PREFERRED SECURITIES SHOULD CAREFULLY
REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING
MATTERS:
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES B GUARANTEE AND THE SERIES
B DEBENTURES
The obligations of Public Service Electric and Gas Company ("PSE&G") under
the Guarantee issued by PSE&G (the "Series B Guarantee") for the benefit of the
holders of the % Cumulative Quarterly Income Preferred Securities, Series B
(the "Series B Preferred Securities") issued by PSE&G Capital Trust II (the
"Series B Issuer") are unsecured and rank subordinate and junior in right of
payment to all general liabilities (other than the MIPs Guarantees) of PSE&G.
The obligations of PSE&G under its % Deferrable Interest Subordinated
Debentures, Series B (the "Series B Debentures") issued pursuant to the
Indenture dated as of June 1, 1996, as supplemented by the First Supplemental
Indenture dated as of February , 1997 thereto (as amended and supplemented
from time to time, the "Indenture") between PSE&G and First Union National Bank,
as trustee (the "Debenture Trustee"), are unsecured and rank subordinate and
junior in right of payment to all Senior Indebtedness of PSE&G. At December 31,
1996, the Senior Indebtedness of PSE&G aggregated approximately $5.221 billion.
No terms of the Series B Preferred Securities, the Series B Debentures or the
Series B Guarantee limit PSE&G's ability to incur additional indebtedness,
including indebtedness that ranks senior to the Series B Debentures and the
Series B Guarantee. See "Description of the Guarantee--Status of the Guarantee"
and "Description of the Debentures-- Subordination" in the accompanying
Prospectus.
The ability of the Series B Issuer to pay cash distributions
("Distributions") on the Series B Preferred Securities and the redemption price
or liquidation amount of the Series B Preferred Securities is solely dependent
upon PSE&G making the related payments on the Series B Debentures when due.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no event of default with respect to the Series B Debentures (a
"Debenture Event of Default") under the Indenture has occurred and is
continuing, PSE&G has the right at any time and from time to time to defer
payments of interest on the Series B Debentures by extending the interest
payment period on the Series B Debentures for up to 20 consecutive quarters
(each, an "Extension Period"), but not beyond the maturity or any redemption
date of the Series B Debentures. As a consequence, Distributions on the Series B
Preferred Securities would be deferred by the Series B Issuer during any
Extension Period (but the amount of Distributions to which holders of the Series
B Preferred Securities would be entitled would continue to accumulate at the
rate of % per annum, compounded quarterly). During any Extension Period,
PSE&G may not declare or pay any dividend on, or redeem, purchase, acquire or
make a liquidation payment with respect to, any shares of PSE&G's capital stock.
Prior to the termination of any Extension Period, PSE&G may shorten or further
extend the interest payment period on the Series B Debentures, provided that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity or
any redemption date of the Series B Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, PSE&G may elect to
begin a new Extension Period, subject to the above requirements.
See "Certain Terms of the Series B Preferred Securities--Distributions"
herein and "Description of the Debentures--Option to Extend Interest Payment
Period" in the accompanying Prospectus.
S-3
<PAGE>
Should an Extension Period occur, an owner of Series B Preferred Securities
(which represent undivided beneficial interests in the Series B Debentures) will
continue to accrue interest income for Federal income tax purposes in respect of
its PRO RATA share of the Series B Debentures held by the Series B Issuer. As a
result, an owner of Series B Preferred Securities will include such interest in
gross income for Federal income tax purposes in advance of the receipt of cash
and will not receive the cash related to such income from the Series B Issuer if
such owner disposes of the Series B Preferred Securities prior to the record
date for the payment of Distributions following such Extension Period. See
"United States Taxation--Potential Extension of Interest Payment Period and
Original Issue Discount."
PSE&G has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Series B Debentures.
However, should PSE&G exercise such right in the future, the market price of the
Series B Preferred Securities is likely to be affected. An owner who disposes of
Series B Preferred Securities during an Extension Period might not receive the
same return on investment as an owner who continues to hold Series B Preferred
Securities. In addition, as a result of the mere existence of PSE&G's right to
defer interest payments on the Series B Debentures, the market price of the
Series B Preferred Securities may be more volatile than other securities on
which original issue discount accrues that are not subject to such deferrals.
TRADING CHARACTERISTICS OF THE SERIES B PREFERRED SECURITIES; TAX CONSEQUENCES
The Series B Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the Series B
Debentures. An owner of Series B Preferred Securities who disposes of Series B
Preferred Securities prior to the record date for the payment of Distributions
will nevertheless be required to include accrued but unpaid interest on the
Series B Debentures through the date of disposition in income as ordinary income
and to add such amount to its adjusted tax basis of the Series B Preferred
Securities so disposed. Such owner will recognize a capital loss to the extent
the selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than its adjusted tax basis (which will include accrued but
unpaid interest). Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for Federal income tax purposes. See
"United States Taxation."
SPECIAL EVENT REDEMPTION AND PROPOSED FEDERAL INCOME TAX LAW CHANGES
Upon the occurrence and continuation of a Tax Event or an Investment Company
Event (each as defined in "Certain Terms of the Series B Preferred
Securities--Special Event Redemption"), PSE&G has the right to redeem the Series
B Debentures, in whole but not in part, and therefore cause a mandatory
redemption of the Series B Preferred Securities and common securities of the
Series B Issuer (the "Common Securities" and, together with the Series B
Preferred Securities, the "Trust Securities"), at a redemption price equal to
the liquidation amount plus accumulated and unpaid Distributions, within 90 days
following the occurrence of such Tax Event or Investment Company Event.
In late 1995, President Clinton proposed certain tax law changes that would,
among other things, generally deny interest deductions to corporate issuers if
the debt instrument has a term exceeding 20 years and is not reflected as
indebtedness on such issuer's consolidated balance sheet. Because the term of
the Series B Debentures exceeds 20 years, this proposal, were it to become
effective, would prevent PSE&G from deducting interest on the Series B
Debentures. However, on March 29, 1996, the Chairmen of the Senate Finance
Committee and the House Ways and Means Committee issued a joint statement to the
effect that it was their intention that the effective date of the President's
legislative proposals, if adopted, will be no earlier than the date of
appropriate Congressional action. While none of these proposals were enacted
into law during the 104th Congress, it is anticipated that President Clinton may
renew these proposals as part of his fiscal 1998 budget or as part of compromise
tax legislation. In the opinion of special tax counsel to PSE&G and the Series B
Issuer, under current law, interest on the
S-4
<PAGE>
Series B Debentures is deductible. There can be no assurance, however, that such
proposals, subsequent proposals or final legislation will not affect the ability
of PSE&G to deduct interest on the Series B Debentures which, in turn, could
give rise to a Tax Event and, accordingly, PSE&G's optional right to redeem the
Series B Debentures, as described under "Certain Terms of the Series B Preferred
Securities--Special Event Redemption."
DISTRIBUTION OF SERIES B DEBENTURES; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
At any time, PSE&G may, in its sole discretion, terminate the Series B
Issuer and cause the Series B Debentures to be distributed to the holders of the
Trust Securities, provided that PSE&G shall have delivered to the Issuer
Trustees (as defined herein) an opinion of nationally recognized tax counsel
(which may be regular tax counsel to PSE&G or an affiliate but not an employee
thereof and which must be acceptable to First Union National Bank, as the
Property Trustee for the Series B Issuer (the "Property Trustee")) that any such
distribution will not be a taxable event to the owners of the Trust Securities.
Although PSE&G has agreed to use its best efforts to list the Series B
Debentures so distributed on the New York Stock Exchange, there can be no
assurance that the Series B Debentures will be approved for listing on the New
York Stock Exchange or that a trading market will exist for the Series B
Debentures.
There can be no assurance as to the market prices for the Series B
Debentures that may be distributed in exchange for the Series B Preferred
Securities if a termination of the Series B Issuer were to occur. Accordingly,
the Series B Debentures that a holder of Series B Preferred Securities may
receive upon such a distribution, or the Series B Preferred Securities held
pending such a distribution, may trade at a discount to the price that the
investor paid to purchase such Series B Preferred Securities. Because holders of
Series B Preferred Securities may receive Series B Debentures at PSE&G's sole
discretion, prospective purchasers of Series B Preferred Securities are also
making an investment decision with regard to the Series B Debentures and should
carefully review all the information regarding the Series B Debentures contained
herein. See "Certain Terms of the Series B Preferred Securities--Distribution of
Series B Debentures" herein and "Description of the Debentures" in the
accompanying Prospectus.
RIGHTS UNDER THE SERIES B GUARANTEE
The Series B Guarantee has been qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). First Union
National Bank is the indenture trustee under the Series B Guarantee (the
"Guarantee Trustee") for the purposes of compliance with the Trust Indenture Act
and holds the Series B Guarantee for the benefit of the holders of the Series B
Preferred Securities. Under the Series B Guarantee, PSE&G agrees to make the
following payments to the holders of the Series B Preferred Securities, to the
extent not paid by the Series B Issuer: (i) any accumulated and unpaid
Distributions on the Series B Preferred Securities to the extent that the Series
B Issuer has funds available therefor, (ii) the redemption price of any Series B
Preferred Securities called for redemption to the extent that the Series B
Issuer has funds available therefor, and (iii) upon a voluntary or involuntary
termination and liquidation of the Series B Issuer (unless the Series B
Debentures are distributed to holders of the Series B Preferred Securities), the
lesser of (a) the liquidation amount of $25 per Series B Preferred Security plus
accumulated and unpaid Distributions to the date of payment, and (b) the amount
of assets of the Series B Issuer available for distribution to holders of Series
B Preferred Securities upon such termination and liquidation of the Series B
Issuer. See "Description of the Guarantee--General" in the accompanying
Prospectus. The holders of at least a majority in aggregate liquidation amount
of the Series B Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Series B Guarantee and to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Series B Guarantee.
Any holder of the Series B Preferred Securities may institute a legal proceeding
directly against PSE&G to enforce its rights under the Series B Guarantee
without first instituting a legal proceeding against the Series B Issuer, the
Guarantee Trustee or any other person or entity. If PSE&G
S-5
<PAGE>
defaults on its obligation to pay amounts payable on the Series B Debentures,
the Series B Issuer will not have sufficient funds for the payment of
Distributions, amounts payable on redemption of the Series B Preferred
Securities or amounts payable upon liquidation of the Series B Issuer and,
accordingly, holders of the Series B Preferred Securities will not be able to
rely upon the Series B Guarantee for payment of such amounts. Instead, the
Property Trustee or holders of the Series B Preferred Securities may enforce the
rights of the Series B Issuer under the Series B Debentures against PSE&G
pursuant to the terms of the Series B Debentures. The Amended and Restated Trust
Agreement of the Series B Issuer (the "Trust Agreement") provides that each
holder of Series B Preferred Securities, by acceptance thereof, agrees to the
provisions of the Trust Agreement, the Series B Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Series B Preferred Securities have limited voting rights under
the Trust Agreement. Holders of Series B Preferred Securities will not be
entitled to vote to appoint, remove or replace the Issuer Trustees, which voting
rights are vested exclusively in PSE&G as the holder of the Common Securities,
except that upon the occurrence of an event of default under the Trust
Agreement, the holders of at least a majority in aggregate liquidation amount of
the Series B Preferred Securities may replace the Property Trustee and the
Delaware Trustee (as defined herein). See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement" and "--Removal of
Issuer Trustees" in the accompanying Prospectus.
PSE&G CAPITAL TRUST II
PSE&G Capital Trust II is a statutory business trust created under the laws
of the State of Delaware pursuant to the Trust Agreement. The exclusive business
of the Series B Issuer is to issue and sell the Trust Securities representing
undivided beneficial interests in the assets of the Series B Issuer and to use
the proceeds therefrom to purchase the Series B Debentures, to maintain the
status of the Series B Issuer as a grantor trust for Federal income tax purposes
and to engage in only those activities that are necessary, convenient or
incidental to the foregoing. Accordingly, the Series B Debentures will be the
sole assets of the Series B Issuer and payments on the Series B Debentures will
be the sole revenues of the Series B Issuer. Pursuant to the Trust Agreement,
PSE&G will be obligated to pay all expenses and liabilities of the Series B
Issuer except the Series B Issuer's obligations under the Series B Preferred
Securities. The Series B Issuer has a term of 54 years, but may be terminated
earlier as provided in the Trust Agreement. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination" in the accompanying
Prospectus.
The business and affairs of the Series B Issuer are conducted by three
trustees: (i) First Union National Bank, as Property Trustee; (ii) an affiliate
of the Property Trustee with its principal place of business in the State of
Delaware, as "Delaware Trustee"; and (iii) one individual who is an employee and
officer of or affiliated with PSE&G, as "Administrative Trustee." The Property
Trustee, the Delaware Trustee and the Administrative Trustee are collectively
referred to herein as the "Issuer Trustees." The Trust Agreement is qualified as
an indenture under the Trust Indenture Act and the Property Trustee is the
indenture trustee thereunder for the purposes of compliance with the Trust
Indenture Act.
Concurrently with the issuance of the Series B Preferred Securities, PSE&G
will acquire Common Securities of the Series B Issuer with a liquidation amount
equal to at least 3% of the aggregate liquidation amount of all of the Trust
Securities of the Series B Issuer. The Common Securities rank PARI PASSU, and
payments will be made thereon PRO RATA, with the Series B Preferred Securities,
except that upon the occurrence and continuance of a Debenture Event of Default,
the rights of PSE&G, as holder of the Common Securities, to payment of
Distributions and payments upon redemption and liquidation will be subordinated
to the rights of the holders of the Series B Preferred Securities.
S-6
<PAGE>
The principal place of business of the Series B Issuer is 80 Park Plaza,
P.O. Box 570, Newark, New Jersey 07101 and its telephone number is (201)
430-7000.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
GENERAL
PSE&G is an operating public utility company engaged principally in the
generation, transmission, distribution and sale of electric energy service and
in the transmission, distribution and sale of gas service in New Jersey. PSE&G
supplies electric and gas service in areas of New Jersey in which approximately
5,500,000 persons, approximately 70% of the State's population, reside. PSE&G is
the principal subsidiary of Public Service Enterprise Group Incorporated
("Enterprise") which owns all of PSE&G's common stock.
PSE&G's service area is a corridor of approximately 2,600 square miles
running diagonally across the State of New Jersey from Bergen County in the
northeast to an area below the City of Camden in the southwest. This heavily
populated, commercialized and industrialized territory encompasses most of New
Jersey's largest municipalities, including the six largest cities, in addition
to approximately 300 suburban and rural communities.
RATIO OF EARNINGS TO FIXED CHARGES
PSE&G's ratio of earnings to fixed charges for each of the periods indicated
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -----------------------------------------------------
1992 1993 1994 1995 1996
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
2.70 3.30 3.35 3.25 2.83
</TABLE>
The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income, to
which has been added fixed charges and taxes based on income of PSE&G and its
subsidiaries. Fixed charges consist of interest charges and an interest factor
in rentals.
RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND
REQUIREMENTS
PSE&G's ratio of earnings to fixed charges plus preferred securities
dividend requirements for each of the periods indicated is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------
1992 1993 1994 1995 1996
- ----------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
2.43 2.89 2.92 2.77 2.62
</TABLE>
The ratio of earnings to fixed charges plus preferred securities dividend
requirements represents, on a pre-tax basis, the number of times earnings cover
fixed charges plus preferred securities dividend requirements. Earnings consist
of net income, to which has been added fixed charges and taxes based on income
of PSE&G and its subsidiaries. Fixed charges consist of interest charges and an
interest factor in rentals. Preferred securities dividend requirements represent
the pre-tax earnings necessary to pay dividends on outstanding preferred
securities, computed at the effective tax rates for the applicable periods.
S-7
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Series B Preferred Securities and the
Common Securities will be used by the Series B Issuer to purchase the Series B
Debentures from PSE&G. The net proceeds from the sale of the Series B Debentures
will be used by PSE&G to redeem all 188,684 outstanding shares of its 6.80%
Cumulative Preferred Stock ($100 par value) at $102 per share, called for
redemption on January 31, 1997, and all 750,000 outstanding shares of its 7.44%
Cumulative Preferred Stock ($100 par value) at $103.72 per share, to be called
for redemption on June 1, 1997.
CAPITALIZATION
The following table sets forth the consolidated capitalization of PSE&G and
its subsidiaries as of December 31, 1996 and as adjusted to give effect to the
issuance of the Series B Preferred Securities offered hereby and the use of
proceeds therefrom. The following data should be read in conjunction with the
consolidated financial statements and notes thereto of PSE&G and its
subsidiaries incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ACTUAL AS ADJUSTED
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Common Equity
Common Stock............................................ $ 2,563,003 $ 2,563,003
Contributed Capital from Enterprise..................... 594,395 594,395
Retained Earnings....................................... 1,365,003 1,358,618
-------------- --------------
Total Common Equity................................... 4,522,401 4,516,016
Preferred Stock without mandatory redemption.............. 113,392 94,524
Preferred Stock with mandatory redemption................. 150,000 75,000
Monthly Guaranteed Preferred Beneficial Interests in
Company's Subordinated Debentures(1).................... 210,000 210,000
Quarterly Guaranteed Preferred Beneficial Interests in
Company's Subordinated Debentures(2).................... 208,000 303,000
Long-Term Debt............................................ 4,107,331 4,107,331
-------------- --------------
Total Capitalization.................................. $ 9,311,124 $ 9,305,871
</TABLE>
- ------------------------
(1) The sole assets of the issuer of these securities, Public Service Electric
and Gas Capital, L.P., are the 9.375% Deferrable Interest Subordinated
Debentures, Series A in the aggregate principal amount of $154,639,176, with
a stated maturity of November 17, 2043 and the 8.00% Deferrable Interest
Subordinated Debentures, Series B in the aggregate principal amount of
$61,855,670, with a stated maturity of September 15, 2044.
(2) The sole assets of the issuers of these securities, PSE&G Capital Trust I
and the Series B Issuer, respectively, are the 8.625% Deferrable Interest
Subordinated Debentures, Series A in the aggregate principal amount of
$214,433,000, with a stated maturity of June 26, 2045, issued by PSE&G
Capital Trust I, and the % Series B Debentures in the aggregate principal
amount of $97,938,150, with a stated maturity of February , 2046, issued
by the Series B Issuer.
S-8
<PAGE>
CERTAIN TERMS OF THE SERIES B PREFERRED SECURITIES
The following summary of certain terms and provisions of the Series B
Preferred Securities supplements the description of the terms and provisions of
the Preferred Securities set forth in the accompanying Prospectus under the
heading "Description of the Preferred Securities," to which description
reference is hereby made.
DISTRIBUTIONS
The Series B Preferred Securities represent undivided beneficial interests
in the assets of the Series B Issuer, the sole assets of which will be the
Series B Debentures. Distributions on the Series B 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 Series B Preferred Security.
Distributions will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing March 31, 1997.
Distributions in arrears after the quarterly payment date therefor will
accumulate additional Distributions (to the extent permitted by law) compounded
quarterly at the annual rate of % thereof. The term "Distributions," as used
herein, shall include any such 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.
So long as no Debenture Event of Default has occurred and is continuing,
PSE&G has the right at any time and from time to time to defer the payment of
interest by extending the interest payment period on the Series B Debentures for
up to 20 consecutive quarters, provided that any such Extension Period shall not
extend beyond the maturity or any redemption date of the Series B Debentures. As
a consequence, quarterly Distributions on the Series B Preferred Securities
would be deferred by the Series B Issuer during any Extension Period, but the
amount of Distributions to which holders of the Series B Preferred Securities
would be entitled would continue to accumulate at the rate set forth above,
compounded quarterly. During any Extension Period, PSE&G may not declare or pay
any dividend on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any shares of PSE&G's capital stock. Prior to the termination
of any Extension Period, PSE&G may shorten or further extend the interest
payment period on the Series B Debentures, provided that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
20 consecutive quarters or extend beyond the maturity or any redemption date of
the Series B Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, PSE&G may elect to begin a new Extension
Period, subject to the above requirements. See "United States
Taxation--Potential Extension of Interest Payment Period and Original Issue
Discount" herein and "Description of the Debentures--Option to Extend Interest
Payment Period" in the accompanying Prospectus. PSE&G has no current intention
of exercising its right to defer payments of interest by extending the interest
payment period on the Series B Debentures.
The Series B Preferred Securities are issued in the form of a single global
security and The Depository Trust Company ("DTC") or any successor depositary
will act as depositary for the Series B Preferred Securities. See "Description
of the Preferred Securities--Book-Entry-Only Issuance--The Depository Trust
Company" in the accompanying Prospectus. Payments on the Series B Preferred
Securities represented by the global security will be made in immediately
available funds to DTC, as the depositary for the Series B Preferred Securities.
In the event that the Series B Preferred Securities are issued in certificated
form, the payment of Distributions and payments on redemption or liquidation
will be payable, the transfer of the Series B Preferred Securities will be
registerable and Series B Preferred Securities will be exchangeable at the
corporate office of the Property Trustee in Newark, New Jersey, or at the
offices of any other paying agent or transfer agent appointed by the
Administrative Trustee; provided, however, that the payment of Distributions may
be made at the option of the Property Trustee by check mailed to the address of
the persons entitled thereto or by wire transfer. In addition, if the
S-9
<PAGE>
Series B Preferred Securities are issued in certificated form, the record dates
for the payment of Distributions will be the 15th day of the last month of each
quarter, whether or not a Business Day.
REDEMPTION
Upon the payment of the Series B 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 the Trust Securities, upon not
less than 30 nor more than 60 days' notice, at a redemption price equal to the
aggregate liquidation amount plus accumulated and unpaid Distributions to the
date of redemption (the "Redemption Price"). See "Certain Terms of the Series B
Debentures-- Redemption."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having an aggregate liquidation amount equal to the
principal amount of Series B Debentures to be paid in accordance with the
Indenture and (ii) with respect to a distribution of Series B Debentures to
holders of Trust Securities in connection with a termination and liquidation of
the Series B Issuer, Series B Debentures having a principal amount equal to the
aggregate liquidation amount of the Trust Securities in exchange for which such
Series B Debentures are distributed.
SPECIAL EVENT REDEMPTION
If a Tax Event or an Investment Company Event (each, a "Special Event") has
occurred and is continuing, PSE&G has the right to redeem the Series B
Debentures, in whole but not in part, and therefore cause a mandatory redemption
of the Trust Securities, in whole but not in part, at the Redemption Price
within 90 days following the occurrence of such Special Event.
"Tax Event" means that PSE&G shall have received an opinion of counsel
(which may be counsel to PSE&G or an affiliate but not an employee thereof and
which must be acceptable to the Property Trustee) experienced in such matters to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein 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 Series B
Preferred Securities, there is more than an insubstantial risk that (i) the
Series B Issuer is, or will be, subject to Federal income tax with respect to
interest on the Series B Debentures, (ii) interest payable by PSE&G on the
Series B Debentures is not, or will not be, deductible by PSE&G for Federal
income tax purposes or (iii) the Series B Issuer 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 (a
"Change in 1940 Act Law") to the effect that the Series B Issuer is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act of 1940, as amended, which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the Series B Preferred
Securities.
DISTRIBUTION OF SERIES B DEBENTURES
At any time, PSE&G may, in its sole discretion, terminate the Series B
Issuer and cause a Like Amount of Series B Debentures to be distributed to the
holders of the Trust Securities in liquidation of the Series B Issuer upon 30
days' prior notice to the holders of the Trust Securities, provided that PSE&G
shall have delivered to the Issuer Trustees an opinion of nationally recognized
tax counsel (which may be regular tax counsel to PSE&G or an affiliate but not
an employee thereof and which must be acceptable
S-10
<PAGE>
to the Property Trustee) that any such distribution will not be a taxable event
to the owners of the Trust Securities for Federal income tax purposes. In
addition, the Series B Debentures may be distributed to holders of Trust
Securities in certain other circumstances as described under "Certain Terms of
the Preferred Securities--Liquidation Distribution Upon Termination" in the
accompanying Prospectus.
LIQUIDATION AMOUNT
The amount payable on the Series B Preferred Securities in the event of the
termination and liquidation of the Series B Issuer is $25 per Series B Preferred
Security plus accumulated and unpaid Distributions to the date of payment,
unless, in connection therewith, the Series B Debentures are distributed to the
holders of the Trust Securities.
CERTAIN TERMS OF THE SERIES B DEBENTURES
The following summary of certain terms and provisions of the Series B
Debentures supplements the description of the terms and provisions of the
Debentures set forth in the accompanying Prospectus under the heading
"Description of the Debentures," to which description reference is hereby made.
The Series B Debentures are unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of PSE&G.
INTEREST RATE; MATURITY
Concurrently with the issuance of the Series B Preferred Securities, the
Series B Issuer is investing the proceeds thereof, together with the
consideration paid by PSE&G for the Common Securities, in the Series B
Debentures. The Series B Debentures will be issued as a series of Debentures
under the Indenture. The Series B Debentures will mature on February , 2046.
The Series B Debentures will bear interest at the annual rate of % of the
principal amount thereof, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing March 31, 1997. Interest
which is accrued and unpaid after the quarterly payment date therefor will bear
additional interest on the amount thereof (to the extent permitted by law) at
the annual rate of % thereof, compounded quarterly. The term "interest," as
used herein, shall include quarterly interest payments and interest on quarterly
interest payments in arrears, as applicable. The interest payment provisions for
the Series B Debentures correspond to the Distribution provisions of the Series
B Preferred Securities.
REDEMPTION
The Series B Debentures are redeemable prior to maturity at the option of
PSE&G at a redemption price equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the redemption date (i) at any time on or after
February , 2002, in whole or in part, or (ii) if a Special Event has occurred
and is continuing, in whole but not in part.
DISTRIBUTION OF SERIES B DEBENTURES
If Series B Debentures are distributed to the holders of the Trust
Securities upon the termination and liquidation of the Series B Issuer, the
Series B Debentures will be issued in denominations of $25 and integral
multiples thereof. It is anticipated that the Series B Debentures would be
distributed in the form of a single global security and DTC, or any successor
depositary for the Series B Preferred Securities, would act as depositary for
the Series B Debentures. The depositary arrangements for the Series B Debentures
would be substantially similar to those in effect for the Series B Preferred
Securities. Neither PSE&G, the Debenture Trustee, any paying agent nor any other
agent of PSE&G or the Debenture Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for such Series B
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. For a
S-11
<PAGE>
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-- Book-Entry-Only
Issuance--The Depository Trust Company" in the accompanying Prospectus.
Payments on the Series B Debentures represented by the global security will
be made in immediately available funds to DTC, as the depositary for the Series
B Debentures. In the event that the Series B Debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
Series B Debentures will be registrable and the Series B Debentures will be
exchangeable for Series B Debentures of other authorized denominations of a like
aggregate principal amount, at the corporate office of the Debenture Trustee in
Newark, New Jersey, or at the offices of any other paying agent or transfer
agent appointed by PSE&G; provided, however, that payment of interest may be
made at the option of PSE&G by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Series B Debentures
are issued in certificated form, the record dates for payment of interest will
be the 15th day of the last month of each quarter, whether or not a Business
Day.
If the Series B Debentures are distributed to the holders of the Trust
Securities upon the termination and liquidation of the Series B Issuer, PSE&G
will use its best efforts to list the Series B Debentures on the New York Stock
Exchange.
UNITED STATES TAXATION
GENERAL
This section is a summary of certain Federal income tax considerations that
may be relevant to prospective purchasers of Series B Preferred Securities and
is the opinion of Ballard Spahr Andrews & Ingersoll, special tax counsel to
PSE&G and the Series B Issuer, insofar as it relates to matters of law and legal
conclusions. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Subsequent changes may cause tax consequences to vary substantially
from the consequences described below. Unless otherwise stated, this summary
deals only with Series B Preferred Securities held as capital assets and does
not deal with special classes of holders, such as dealers in securities or
currencies, life insurance companies, persons holding Series B Preferred
Securities as a hedge against or which are hedged against currency risks or as a
part of a straddle, or persons whose functional currency is not the United
States dollar.
POTENTIAL INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE OF SERIES B
PREFERRED SECURITIES PURSUANT TO THE OFFERING MADE HEREBY AND OF THE OWNERSHIP
AND DISPOSITION OF SERIES B PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER LAWS.
In the opinion of Ballard Spahr Andrews & Ingersoll, the Series B Debentures
will be treated as indebtedness for Federal income tax purposes. However,
holders of Series B Preferred Securities should note that the Internal Revenue
Service (the "IRS") may attempt to treat the Series B Debentures as equity
rather than indebtedness for Federal tax purposes, as described below. If the
IRS were successful in such attempt, the Series B Debentures would be subject to
redemption at the option of PSE&G as described under "Certain Terms of the
Series B Debentures--Redemption" and "Certain Terms of the Series B Preferred
Securities--Special Event Redemption."
In late 1995, President Clinton proposed certain tax law changes that would,
among other things, generally deny interest deductions to corporate issuers if
the debt instrument has a term exceeding 20 years and is not reflected as
indebtedness on such issuer's consolidated balance sheet. Because the term of
the Series B Debentures exceeds 20 years, this proposal, were it to become
effective, would prevent PSE&G from deducting interest on the Series B
Debentures. However, on March 29, 1996, the
S-12
<PAGE>
Chairmen of the Senate Finance Committee and the House Ways and Means Committee
issued a joint statement to the effect that it was their intention that the
effective date of the President's legislative proposals, if adopted, will be no
earlier than the date of appropriate Congressional action. While none of these
proposals were enacted into law during the 104th Congress, it is anticipated
that President Clinton may renew these proposals as part of his fiscal 1998
budget or as part of compromise tax legislation. In the opinion of Ballard Spahr
Andrews & Ingersoll, under current law, interest on the Series B Debentures is
deductible. There can be no assurance, however, that such proposals, subsequent
proposals or final legislation will not affect the ability of PSE&G to deduct
interest on the Series B Debentures which, in turn, could give rise to a Tax
Event and, accordingly, PSE&G's optional right to redeem the Series B
Debentures, as described under "Certain Terms of the Series B Preferred
Securities--Special Event Redemption."
INCOME FROM SERIES B PREFERRED SECURITIES
In connection with the issuance of the Series B Debentures, in the opinion
of Ballard Spahr Andrews & Ingersoll, under current law and assuming full
compliance with the terms of the Trust Agreement, the Series B Issuer will be
classified as a grantor trust and not as an association taxable as a corporation
or partnership for Federal income tax purposes.
As a consequence, each owner of Series B Preferred Securities will be
considered the owner of a PRO RATA portion of the Series B Debentures held by
the Series B Issuer. As a further consequence, each owner of Series B Preferred
Securities will be required to include in gross income his or her PRO RATA share
of the income accrued on the Series B Debentures held by the Series B Issuer.
Such income should not exceed Distributions received by the owners of Series B
Preferred Securities on the Series B Preferred Securities except in limited
circumstances described under "--Potential Extension of Interest Payment Period
and Original Issue Discount." No portion of such income will be eligible for the
dividends-received deduction.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under the Indenture, under certain circumstances, PSE&G has the right at any
time and from time to time to extend the interest payment period on the Series B
Debentures for up to 20 consecutive quarters but not beyond the maturity or any
redemption date of the Series B Debentures. PSE&G's right to defer payments of
interest by extending the interest payment period will cause the Series B
Debentures to be treated as issued with "original issue discount" for Federal
income tax purposes. Accordingly, an owner of Series B Preferred Securities will
accrue interest income (i.e., original issue discount) under a constant yield
basis over the term of the Series B Debentures (including any Extension Period),
regardless of the receipt of cash with respect to the period to which such
income is attributable.
As a result, owners of Series B Preferred Securities during an Extension
Period will include interest in gross income in advance of the receipt of cash,
and any owners of Series B Preferred Securities who dispose of Series B
Preferred Securities prior to the record date for the payment of Distributions
following such Extension Period will include interest in gross income, but will
not receive any cash related thereto. The tax basis of a Series B Preferred
Security will be increased by the amount of any original issue discount that is
included in income without a receipt of cash and will be decreased when and if
such cash is subsequently received by the owner of the Series B Preferred
Security.
DISPOSITION OF THE SERIES B PREFERRED SECURITIES
Gain or loss will be recognized on a sale, including a redemption for cash,
of Series B Preferred Securities (which represent undivided beneficial interests
in the Series B Debentures) in an amount equal to the difference between the
amount realized and the tax basis of an owner of Series B Preferred Securities
in his or her PRO RATA share of the Series B Debentures. Gain or loss recognized
by an owner of
S-13
<PAGE>
Series B Preferred Securities on the sale or exchange of Series B Preferred
Securities held for more than one year generally will be taxable as long-term
capital gain or loss.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder or beneficial owner who or which is (i) a nonresident alien individual or
(ii) a foreign corporation, partnership, estate or trust, in either case not
subject to Federal income tax on a net income basis in respect of a Series B
Preferred Security.
Under present Federal income tax law, subject to the discussion below with
respect to backup withholding:
(i) payments by the Series B Issuer or any of its paying agents to any
United States Alien Holder will not be subject to Federal withholding tax,
provided that (a) the owner of the Series B Preferred Security does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of PSE&G, (b) the owner of the Series B
Preferred Securities is not a controlled foreign corporation that is related
to PSE&G through stock ownership, and (c) either (1) the owner of the Series
B Preferred Securities certifies to the Series B Issuer or its agent, under
penalties of perjury, that it is a United States Alien Holder and provides
its name and address to the Series B Issuer or its agent or (2) the holder
of the Series B Preferred Securities is a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution"), and
such holder certifies to the Series B Issuer or its agent, under penalties
of perjury, that such statement has been received from the owner by it or by
a financial institution between it and the owner and furnishes the payor
with a copy thereof; and
(ii) a United States Alien Holder of a Series B Preferred Security will
not be subject to Federal income or withholding tax on any gain realized on
the sale or exchange of a Series B Preferred Security unless such person is
present in the United States for 183 days or more in the taxable year of
sale and such person has a "tax home" in the United States or certain other
requirements are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments to
noncorporate United States holders of the proceeds of the sale of the Series B
Preferred Securities within the United States and "backup withholding" at a rate
of 31% will apply to such payments if the seller fails to provide a correct
taxpayer identification number. Information reporting requirements and backup
withholding will also apply to original issue discount allocable to noncorporate
United States holders of the Series B Preferred Securities if the seller fails
to provide a correct taxpayer identification number.
Payments of the proceeds from the sale by a United States Alien Holder of
Series B Preferred Securities made to or through a foreign office of a broker
will not be subject to information reporting or backup withholding, except that,
if the broker is a United States person, a controlled foreign corporation for
United States tax purposes or a foreign person 50% or more of whose gross income
is effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payment. Payments of
the proceeds from a sale of Series B Preferred Securities to or through the
United States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-United
States status or otherwise establishes an exemption from information reporting
and backup withholding.
S-14
<PAGE>
RECEIPT OF SERIES B DEBENTURES UPON LIQUIDATION OF THE SERIES B ISSUER
PSE&G may cause the Series B Issuer to be terminated and cause the Series B
Debentures to be distributed to the holders of Series B Preferred Securities in
liquidation of such holders' interests in the Series B Issuer, provided that
PSE&G has delivered to the Issuer Trustees an opinion of nationally recognized
tax counsel (which may be regular tax counsel to PSE&G or an affiliate but not
an employee thereof and which must be acceptable to the Property Trustee) that
any such distribution will not be a taxable event to the owners of the Series B
Preferred Securities for Federal income tax purposes. Under current Federal
income tax law and interpretation and assuming the Series B Issuer is treated as
a grantor trust, such a distribution should not be treated as a taxable event to
owners of the Series B Preferred Securities. Such a tax-free transaction would
result in the owner of Series B Preferred Securities receiving an aggregate tax
basis in the Series B Debentures equal to such owner's aggregate tax basis in
such owner's Series B Preferred Securities. An owner's holding period for such
Series B Debentures would include the period during which such owner had a
beneficial interest in the Series B Preferred Securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, PSE&G and
the Series B Issuer have agreed that the Series B Issuer will sell to each of
the Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co., Dean Witter Reynolds Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, PaineWebber Incorporated, Prudential Securities Incorporated and
Smith Barney Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Series B Issuer, the respective number of
Series B Preferred Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SERIES B
UNDERWRITER PREFERRED SECURITIES
- ---------------------------------------------------- --------------------
<S> <C>
Goldman, Sachs & Co.................................
Dean Witter Reynolds Inc............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................
PaineWebber Incorporated............................
Prudential Securities Incorporated..................
Smith Barney Inc....................................
----------
Total........................................... 3,800,000
----------
----------
</TABLE>
S-15
<PAGE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Series B Preferred
Securities offered hereby if any are taken.
The Underwriters propose to offer the Series B Preferred Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession of $ per Series B Preferred
Security, except that such concession will be $ per Series B Preferred
Security sold to certain institutions. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per Series B
Preferred Security to certain other brokers and dealers. After the Series B
Preferred Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds from the sale of the Series B
Preferred Securities will be used to purchase the Series B Debentures, under the
Underwriting Agreement, PSE&G has agreed to pay to the Underwriters an
underwriting commission of $ per Series B Preferred Security, except
that such commission will be $ per Series B Preferred Security sold to
certain institutions.
Prior to this offering, there has been no public market for the Series B
Preferred Securities. The Series B Preferred Securities have been approved for
listing on the New York Stock Exchange, subject to official notice of issuance.
Trading of the Series B Preferred Securities on the New York Stock Exchange is
expected to commence within a 30-day period after the initial delivery thereof.
In order to meet one of the requirements for listing the Series B Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Series B Preferred Securities to a minimum of 400
beneficial owners. The Representatives have advised PSE&G that they intend to
make a market in the Series B Preferred Securities prior to commencement of
trading on the New York Stock Exchange, but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Series B Preferred Securities.
PSE&G and the Series B Issuer 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 Series B Preferred
Securities ceases, as determined by the Representatives, or (ii) 30 days after
the closing date, not to offer, sell, contract to sell or otherwise dispose of
any Preferred Securities or any preferred stock or any other securities of PSE&G
which are substantially similar to the Series B Preferred Securities, including
any guarantee of such securities, or any securities convertible into or
exchangeable for or representing the right to receive any of the foregoing
securities, without the prior written consent of the Representatives.
PSE&G and the Series B Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
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<PAGE>
PROSPECTUS
PSE&G CAPITAL TRUST I
PSE&G CAPITAL TRUST II
PSE&G CAPITAL TRUST III
CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES
guaranteed to the extent the Issuer thereof has available funds as set forth
herein by
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
----------------
PSE&G Capital Trust I, PSE&G Capital Trust II and PSE&G Capital Trust III,
each a statutory business trust created under the laws of the State of Delaware
(each, an "Issuer," and collectively, the "Issuers") may severally offer, from
time to time, their respective cumulative quarterly income preferred securities
(the "Preferred Securities") representing undivided beneficial interests in the
assets of such Issuer. Public Service Electric and Gas Company, a New Jersey
corporation ("PSE&G"), will be the owner of beneficial interests represented by
the common securities (the "Common Securities") of each Issuer. First Union
National Bank is the Property Trustee of each Issuer. Concurrently with the
issuance by each Issuer of its Preferred Securities, such Issuer will invest the
proceeds thereof, together with the consideration paid by PSE&G for the Common
Securities of such Issuer, in a corresponding series of PSE&G's deferrable
interest subordinated debentures (the "Debentures"). The Debentures will be
subordinate and junior in right of payment to all Senior Indebtedness (as
defined herein) of PSE&G. The Debentures will be the sole assets of each Issuer
and payments in respect of the Debentures will be the only revenues of each
Issuer.
Pursuant to a guarantee agreement to be entered into by PSE&G with respect
to each series of Preferred Securities (each, a "Guarantee"), PSE&G will agree
to make payments of cash distributions ("Distributions") with respect to the
Preferred Securities of each Issuer and payments on liquidation or redemption
with respect to such Preferred Securities but only to the extent that such
Issuer holds funds available therefor and has not made such payments. The
obligations of PSE&G under each Guarantee will be subordinate and junior in
right of payment to all general liabilities (other than the MIPs Guarantees, as
defined herein) of PSE&G. As described herein, each Guarantee, together with
PSE&G's obligations under the Debentures, the Indenture relating to such
Debentures and the Amended and Restated Trust Agreement for each Issuer, will
provide for PSE&G's full, irrevocable and unconditional guarantee of the
Preferred Securities.
The Preferred Securities may be offered in amounts, at prices and on terms
to be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Preferred Securities issued pursuant to the
Registration Statement to which this Prospectus relates shall not exceed
$350,000,000. Certain specific terms of an Issuer's Preferred Securities will be
set forth in an accompanying Prospectus Supplement, including where applicable
and to the extent not set forth herein, the identity of such Issuer, the
specific title, the aggregate number, the Distribution rate (or the method for
determining such rate), the liquidation amount, redemption provisions, the
right, if any, of PSE&G to terminate such Issuer and cause the corresponding
series of Debentures to be distributed to the holders of such Issuer's Preferred
Securities and Common Securities, the period during which interest on the
corresponding series of Debentures may be deferred, the initial public offering
price, and any other special terms, as well as any planned listing on a
securities exchange, of such Preferred Securities.
The Preferred Securities may be sold in a public offering to or through
underwriters or dealers designated from time to time. See "Plan of
Distribution." The names of any such underwriters or dealers involved in the
sale of the Preferred Securities of a particular Issuer, the number of Preferred
Securities to be purchased by any such underwriters or dealers and any
applicable commissions or discounts will be set forth in the accompanying
Prospectus Supplement. The net proceeds to each Issuer will also be set forth in
the accompanying Prospectus Supplement.
The accompanying Prospectus Supplement will contain information concerning
material Federal income tax considerations applicable to the Preferred
Securities offered thereby.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January 28, 1997.
<PAGE>
STATEMENT OF AVAILABLE INFORMATION
Public Service Electric and Gas Company, a New Jersey corporation ("PSE&G"),
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission
("SEC"). Such reports and other information can be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. and at its regional offices at 500 West Madison Street,
Chicago, Illinois and 7 World Trade Center, New York, New York. Copies of such
reports and other information may also be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549-1004 at
prescribed rates. Such reports and other information can also be inspected at
the New York Stock Exchange, Inc. (the "New York Stock Exchange") where certain
of PSE&G's securities are listed.
No separate financial statements of PSE&G Capital Trust I, PSE&G Capital
Trust II or PSE&G Capital Trust III, each a statutory business trust created
under the laws of the State of Delaware (each, an "Issuer," and collectively,
the "Issuers"), have been included herein. PSE&G and the Issuers do not consider
that such financial statements would be material to holders of any Issuer's
cumulative quarterly income preferred securities (the "Preferred Securities")
because each Issuer is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose to
engage in any activity other than holding as trust assets the corresponding
series of deferrable interest subordinated debentures (the "Debentures") of
PSE&G and issuing Preferred Securities and common securities (the "Common
Securities," and together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in such Debentures. See "The
Issuers," "Description of the Preferred Securities" and "Description of the
Debentures."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by PSE&G with the SEC pursuant to the Exchange
Act are incorporated herein by reference:
1. PSE&G's Annual Report on Form 10-K for the year ended December 31, 1995;
2. PSE&G's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; and
3. PSE&G's Current Reports on Form 8-K dated January 19, 1996, March 14,
1996, May 24, 1996, June 10, 1996, July 2, 1996, July 22, 1996, October
23, 1996 and January 24, 1997.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering of the related Preferred Securities shall be deemed
to be incorporated by reference in this Prospectus and the accompanying
Prospectus Supplement and shall be a part hereof and thereof from the date of
filing of such document. Any statement contained herein or therein or in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein and therein shall be deemed to be modified or superseded for
purposes of this Prospectus and the accompanying Prospectus Supplement to the
extent that a statement contained herein or therein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
and therein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus or the accompanying Prospectus
Supplement.
PSE&G undertakes to provide without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon written or oral request of such person, a copy of
any or all documents described above under "Incorporation of Certain Documents
by Reference," other than exhibits to such documents not specifically
incorporated by reference therein. Such requests should be directed to the
Director--Investor Relations, Public
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Service Electric and Gas Company, 80 Park Plaza, T6B, P.O. Box 570, Newark, New
Jersey 07101, telephone (201) 430-6503.
THE ISSUERS
Each of PSE&G Capital Trust I, PSE&G Capital Trust II and PSE&G Capital
Trust III is a statutory business trust created under Delaware law pursuant to
(i) a trust agreement executed by PSE&G, as sponsor for each Issuer, and the
Issuer Trustees (as defined below) and (ii) the filing of a certificate of trust
with the Delaware Secretary of State. Each trust agreement will be amended and
restated in its entirety (each, as so amended and restated, a "Trust Agreement")
substantially in the form filed as an exhibit to the Registration Statement to
which this Prospectus relates. Each Trust Agreement has been qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
Each Issuer exists for the exclusive purposes of issuing and selling its
Trust Securities and using the proceeds from the sale of its Trust Securities to
acquire a corresponding series of Debentures, maintaining the status of the
Issuer as a grantor trust for Federal income tax purposes and engaging in those
activities necessary, convenient or incidental to the foregoing. All of the
Common Securities of each Issuer will be owned by PSE&G. The Common Securities
of an Issuer will rank PARI PASSU, and payments will be made thereon PRO RATA,
with the Preferred Securities of that Issuer, except that upon the occurrence
and continuance of an event of default with respect to the corresponding series
of Debentures (a "Debenture Event of Default") under the Indenture dated as of
June 1, 1996 (as amended and supplemented from time to time, the "Indenture")
between PSE&G and First Union National Bank, as trustee (the "Debenture
Trustee"), the rights of the holders of such Common Securities to payment of
cash distributions ("Distributions") and payments upon redemption and
liquidation will be subordinated to the rights of the holders of such Preferred
Securities. The Indenture has been qualified as an indenture under the Trust
Indenture Act.
Each Issuer's business and affairs are conducted by three trustees, each
appointed by PSE&G as holder of the Common Securities: (i) First Union National
Bank (the "Property Trustee"); (ii) an affiliate of the Property Trustee that
has its principal place of business in the State of Delaware (the "Delaware
Trustee"); and (iii) one individual trustee who is an employee or officer of or
affiliated with PSE&G (the "Administrative Trustee," and collectively with the
Property Trustee and the Delaware Trustee, the "Issuer Trustees"). The holder of
the Common Securities, or the holders of at least a majority in aggregate
liquidation amount of an Issuer's Preferred Securities if an event of default
under the Trust Agreement (a "Trust Agreement Event of Default") has occurred
and is continuing, will be entitled to remove and replace the Property Trustee
and the Delaware Trustee. In no event will the holders of the Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustee, which voting rights are vested exclusively in the holder
of the Common Securities. The duties and obligations of each of the Issuer
Trustees are governed by the applicable Trust Agreement.
Pursuant to the Trust Agreement of each Issuer, PSE&G will pay all fees and
expenses related to that Issuer and the offering of its Preferred Securities and
will pay, directly or indirectly, all ongoing costs, expenses and liabilities of
that Issuer except such Issuer's obligations under its Preferred Securities.
The principal place of business of each Issuer is 80 Park Plaza, Newark, New
Jersey 07101, and its telephone number is (201) 430-7000.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
PSE&G is an operating public utility company engaged principally in the
generation, transmission, distribution and sale of electric energy service and
in the transmission, distribution and sale of gas service in New Jersey. PSE&G
supplies electric and gas service in areas of New Jersey in which approximately
5,500,000 persons, approximately 70% of the State's population, reside. PSE&G is
the
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principal subsidiary of Public Service Enterprise Group Incorporated, which owns
all of PSE&G's common stock.
PSE&G's service area is a corridor of approximately 2,600 square miles
running diagonally across the State of New Jersey from Bergen County in the
northeast to an area below the City of Camden in the southwest. This heavily
populated, commercialized and industrialized territory encompasses most of New
Jersey's largest municipalities, including its six largest cities, in addition
to approximately 300 suburban and rural communities.
PSE&G's executive offices are located at 80 Park Plaza, Newark, New Jersey
07101, and its telephone number is (201) 430-7000.
USE OF PROCEEDS
Unless otherwise specified in the accompanying Prospectus Supplement, the
proceeds to be received by the Issuers from the sale of the Preferred Securities
offered hereby will be used by the Issuers to purchase Debentures from PSE&G.
The proceeds from the sale of the Debentures will be used by PSE&G to refund
certain outstanding preferred stock of PSE&G identified in the accompanying
Prospectus Supplement and for general corporate purposes, including
reimbursement of its treasury for funds expended therefor.
DESCRIPTION OF THE PREFERRED SECURITIES
Pursuant to the terms of each Trust Agreement, the Issuers will issue the
Preferred Securities and the Common Securities. The Preferred Securities of an
Issuer will represent undivided beneficial interests in the assets of such
Issuer and the holders thereof will be entitled to a preference in certain
circumstances with respect to the payment of Distributions and amounts payable
on redemption or liquidation over the Common Securities of such Issuer, as well
as other benefits as described in the applicable Trust Agreement. Each of the
Issuers is a legally separate entity and the assets of one are not available to
satisfy the obligations of any other.
GENERAL
The Preferred Securities of each Issuer will rank PARI PASSU, and payments
will be made thereon PRO RATA, with the Common Securities of that Issuer except
as described under "--Subordination of Common Securities." The proceeds from the
sale of the Preferred Securities and the Common Securities will be used by the
related Issuer to purchase a corresponding series of Debentures from PSE&G. The
Debentures will be held in trust by the Property Trustee for the benefit of the
holders of the related Trust Securities. Each Guarantee Agreement executed by
PSE&G for the benefit of the holders of each Issuer's Preferred Securities
(each, a "Guarantee") will be subordinate and junior in right of payment to all
general liabilities of PSE&G. Pursuant to each Guarantee, PSE&G will agree to
make payments of Distributions and payments on redemption or liquidation with
respect to such Preferred Securities, but only to the extent the related Issuer
holds funds available therefor and has not made such payments. See "Description
of the Guarantee."
It is anticipated that the assets of each Issuer available for distribution
to the holders of its Preferred Securities will be limited to payments from
PSE&G under the corresponding series of Debentures in which such Issuer will
invest the proceeds from the issuance and sale of its Trust Securities. See
"Description of the Debentures." If PSE&G fails to make a payment on a series of
Debentures, the related Issuer will not have sufficient funds to make related
payments, including Distributions, on the corresponding series of Preferred
Securities.
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DISTRIBUTIONS
Distributions on the Preferred Securities of each Issuer will be payable at
a rate specified in the accompanying Prospectus Supplement for such Preferred
Securities. 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 cumulative and will
accumulate from the date of original issuance and will be payable quarterly in
arrears on the dates specified in the accompanying Prospectus Supplement except
as otherwise described below. In the event that any date on which Distributions
are otherwise payable on the Preferred Securities is not a Business Day (as
defined below), payment of such Distributions will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect to any such delay), except that if such Business Day is in the next
succeeding calendar year, payment of such Distributions shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date (each date on which Distributions are payable in
accordance with the foregoing is referred to herein as a "Distribution Date"). A
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in The City of New York or the State of New Jersey
are required by law or executive order to remain closed.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the securities register of the related Issuer on the
relevant record date, which, as long as the Preferred Securities remain in
book-entry-only form, will be one Business Day prior to the relevant
Distribution Date. Subject to any applicable laws and regulations and the
provisions of the applicable Trust Agreement, each such payment will be made as
described under "--Book-Entry-Only Issuance--The Depository Trust Company." In
the event that any Preferred Securities are not in book-entry-only form, the
relevant record date for such Preferred Securities will be the 15th day of the
last month of each quarter, whether or not a Business Day.
So long as no Debenture Event of Default has occurred and is continuing with
respect to a series of Debentures, PSE&G will have the right at any time and
from time to time to defer payments of interest by extending the interest
payment period on such series of Debentures for up to the maximum period
specified in the accompanying Prospectus Supplement for such series of
Debentures (each, an "Extension Period"), provided that any such Extension
Period shall not extend beyond the maturity or any redemption date of the
Debentures of such series. As a consequence, quarterly Distributions on the
corresponding Preferred Securities would be deferred by the Issuer thereof
during such Extension Period, but the amount of Distributions to which holders
of the Preferred Securities would be entitled will continue to accumulate at the
annual rate applicable to quarterly Distributions thereon, compounded quarterly.
During any Extension Period, PSE&G may not declare or pay any dividend on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
shares of PSE&G's capital stock. Prior to the termination of any Extension
Period, PSE&G may shorten or further extend the interest payment period on a
series of Debentures, provided that such Extension Period, together with all
such previous and further extensions thereof, may not exceed the maximum
Extension Period or extend beyond the maturity or any redemption date of such
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, PSE&G may elect to begin a new Extension Period, subject to
the above requirements. See "Description of the Debentures--Option to Extend
Interest Payment Period."
REDEMPTION
Upon the repayment of any series of Debentures at maturity or upon
redemption, the proceeds from such repayment will be applied by the Property
Trustee to redeem a like amount of the corresponding Trust Securities of the
Issuer thereof at a redemption price (the "Redemption Price") equal to the
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liquidation amount of such Trust Securities plus all accumulated and unpaid
Distributions to the redemption date (the "Redemption Date"). The redemption
terms of a particular series of Debentures and the corresponding Trust
Securities will be set forth in the accompanying Prospectus Supplement.
If less than all the Trust Securities of the Issuer thereof are to be
redeemed on a Redemption Date, then the aggregate amount of such Trust
Securities to be redeemed shall be selected by the Property Trustee among such
Issuer's Preferred Securities and Common Securities PRO RATA based on the
respective aggregate liquidation amounts of such Preferred Securities and Common
Securities, subject to the provisions of "--Subordination of Common Securities."
REDEMPTION PROCEDURES
Notice of any redemption of Trust Securities will be given by the Property
Trustee to the holders of such 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, then, to the extent funds are
available therefor, the Issuer thereof will irrevocably deposit with the paying
agent for such Trust Securities funds sufficient to pay the applicable
Redemption Price for the Trust Securities being redeemed on the Redemption Date
and will give such paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders of such 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 such 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 such Trust Securities so called for redemption will cease, except the
right of the holders of such Trust Securities to receive the Redemption Price,
but without interest thereon, and such Trust Securities will cease to be
outstanding. In the event that any Redemption Date for Trust Securities is not a
Business Day, then the Redemption Price will be payable on the next succeeding
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 is in the next succeeding
calendar year, the Redemption Price will be payable on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date. 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 Issuer thereof or by PSE&G pursuant to the Guarantee as described
under "Description of the Guarantee," Distributions on such 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, PSE&G or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Issuer's
Trust Securities, as applicable, shall be made PRO RATA based on the respective
aggregate liquidation amounts of such Trust Securities; provided, however, that
if a Debenture Event of Default has occurred and is continuing with respect to
the corresponding series of Debentures, no payment of any Distribution on, or
Redemption Price of, any of such Issuer's Common Securities, and no other
payment on account of the liquidation of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions on
all of such Issuer's outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of a redemption, the
full amount of such Redemption Price on all of such Issuer's outstanding
Preferred Securities shall have been made or provided for, and all funds
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available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, all of such Issuer's
outstanding Preferred Securities then due and payable.
If a Debenture Event of Default has occurred and is continuing with respect
to a series of Debentures, the holder of the related Issuer's Common Securities
will be deemed to have waived any right to act with respect to such Debenture
Event of Default until the effect of such Debenture Event of Default has been
cured, waived or otherwise eliminated. Until any such Debenture Event of Default
has been so cured, waived or otherwise eliminated, the Property Trustee shall
act solely on behalf of the holders of the corresponding Preferred Securities
and not on behalf of PSE&G, as holder of such Common Securities, and only the
holders of such Preferred Securities will have the right to direct the Property
Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to its Trust Agreement, each Issuer shall be terminated on the
earliest to occur of: (i) the expiration of the term of such Issuer; (ii) the
bankruptcy, dissolution or liquidation of PSE&G or an acceleration of the
maturity of the corresponding series of Debentures held by such Issuer; (iii) if
provided for in the accompanying Prospectus Supplement, upon the election of
PSE&G to terminate such Issuer and cause the distribution of the corresponding
series of Debentures to the holders of such Issuer's Trust Securities; (iv) the
redemption of all of such Issuer's Trust Securities; and (v) an order for the
termination of such Issuer shall have been entered by a court of competent
jurisdiction. The election of PSE&G pursuant to clause (iii) above shall be made
by PSE&G giving written notice to the Issuer Trustees not less than 30 days
prior to the date of distribution of the corresponding series of Debentures and
shall be accompanied by an opinion of counsel that such event will not be a
taxable event to the holders of the Trust Securities for Federal income tax
purposes.
If a termination event occurs as described in clause (i), (ii) or (v) above
with respect to any Issuer, such Issuer shall be liquidated by the Issuer
Trustees as expeditiously as the Issuer Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of such Issuer as
provided by applicable law, to the holders of its Trust Securities a like amount
of the corresponding series of Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of such Issuer available
for distribution to holders, after satisfaction of liabilities to creditors of
such Issuer as provided by applicable law, an amount equal to, in the case of
holders of Preferred Securities, the aggregate liquidation amount per Preferred
Security specified in the accompanying Prospectus Supplement plus accumulated
and unpaid Distributions thereon to the date of payment (such amount, the
"Liquidation Distribution"). If the Liquidation Distribution with respect to an
Issuer's Preferred Securities can be paid only in part because such Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable by such Issuer on such Preferred
Securities shall be paid on a PRO RATA basis. The holders of such Issuer's
Common Securities will be entitled to receive the Liquidation Distribution upon
any such liquidation PRO RATA with the holders of its Preferred Securities,
except that if a Debenture Event of Default has occurred and is continuing the
Preferred Securities shall have a priority over the Common Securities with
respect to payment of such Liquidation Distribution.
TRUST AGREEMENT EVENT OF DEFAULT; NOTICE
A Debenture Event of Default shall constitute a Trust Agreement Event of
Default with respect to the Preferred Securities issued by the related Issuer
under its Trust Agreement.
Within 90 days after the occurrence of any Trust Agreement Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Trust Agreement Event of Default to the holders of the
corresponding Trust Securities, the Administrative Trustee and PSE&G, unless
such Trust Agreement Event of Default shall have been cured or waived. PSE&G and
the Administrative
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Trustee are required to file annually with the Property Trustee a certificate as
to whether or not they are in compliance with all the conditions and covenants
applicable to them under each Trust Agreement.
Under each 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 corresponding Preferred Securities may institute a
legal proceeding directly to enforce the Property Trustee's rights under the
Trust Agreement or the Indenture with respect to Debentures having a 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 a series of Debentures, holders of the corresponding
Preferred Securities may take such action if such action is not taken by the
Property Trustee. Notwithstanding the foregoing, if a Trust Agreement Event of
Default attributable to PSE&G's failure to pay principal of or premium, if any,
or interest on the Debentures of any series has occurred and is continuing, then
each holder of Preferred Securities of the corresponding series may institute a
legal proceeding directly against PSE&G for enforcement of payment to such
holder, all as provided in the Indenture.
If a Debenture Event of Default has occurred and is continuing with respect
to a series of Debentures, the corresponding Preferred Securities shall have a
preference over the related Issuer's Common Securities with respect to the
payment of Distributions and amounts payable on redemption and liquidation as
described above. See "--Liquidation Distribution Upon Termination" and
"--Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES
Unless a Trust Agreement Event of Default has occurred and is continuing,
any Issuer Trustee may be removed and replaced at any time by the holder of the
Common Securities. If a Trust Agreement Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed and
replaced at such time only by the holders of at least a majority in aggregate
liquidation amount of the outstanding Preferred Securities. In no event will the
holders of the Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustee, which voting rights are vested exclusively
in the holder of the Common Securities. No resignation or removal of an Issuer
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the applicable Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless a Trust Agreement Event of Default has occurred and is continuing, at
any time and from time to time, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust Property (as defined in each Trust Agreement) may at such time be
located, the holder of the Common Securities and the Administrative Trustee
shall have the power (i) to appoint one or more persons approved by the Property
Trustee either to act as co-trustee, jointly with the Property Trustee, of all
or any part of such Trust Property, or to act as separate trustee of any such
Trust Property, in either case with such powers as may be provided in the
instrument of appointment, and (ii) to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the applicable Trust Agreement. If a Trust
Agreement Event of Default has occurred and is continuing, only the Property
Trustee shall have power to make such appointment.
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MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation or other entity into which any Issuer 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
Issuer Trustee shall be a party, or any corporation or other entity succeeding
to all or substantially all the corporate trust business of any Issuer Trustee,
shall be the successor of such Issuer Trustee under the applicable Trust
Agreement, provided such corporation or other entity shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUERS
An Issuer 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. An Issuer may, at the request of PSE&G, with the
consent of the Administrative Trustee and without the consent of the holders of
its Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by a trust organized as such under the laws of any State, provided that
(i) such successor entity either (a) expressly assumes all of the obligations of
such Issuer with respect to such Preferred Securities or (b) substitutes for
such Preferred Securities other securities substantially similar to such
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as such Preferred Securities rank with respect to the
payment of Distributions and payments upon redemption and liquidation, (ii)
PSE&G expressly appoints a trustee of such successor entity possessing the same
powers and duties as the Property Trustee with respect to the corresponding
series of Debentures, (iii) 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 such Preferred
Securities are then listed, (iv) such merger, consolidation, amalgamation or
replacement does not cause such Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the holders of
such Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially similar to that
of such Issuer, (vii) prior to such merger, consolidation, amalgamation or
replacement, PSE&G has received an opinion of counsel to such Issuer to the
effect that (a) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of such
Preferred Securities (including any Successor Securities) in any material
respect, and (b) following such merger, consolidation, amalgamation or
replacement, neither such Issuer nor such successor entity will be required to
register as an investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and (viii) PSE&G or any permitted
successor assignee owns all of the common securities of such successor entity
and guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the related Guarantee and Trust
Agreement. Notwithstanding the foregoing, an Issuer shall not, except with the
consent of all holders of its Preferred 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 such
consolidation, amalgamation, merger or replacement would cause such Issuer or
the successor entity not to be classified as a grantor trust for Federal income
tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "--Mergers, Consolidations, Amalgamations
or Replacements of the Issuers" and "Description of the Guarantee--Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
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A Trust Agreement may be amended from time to time by PSE&G and the Issuer
Trustees, without the consent of the holders of the corresponding Preferred
Securities, (i) to cure any ambiguity, defect or inconsistency or (ii) to make
any other change that does not adversely affect in any material respect the
interests of any holder of such Preferred Securities. A Trust Agreement may be
amended by PSE&G and the Issuer Trustees in any other respect, with the consent
of the holders of at least a majority in aggregate liquidation amount of such
Preferred Securities, except to (i) change the amount, timing or currency or
otherwise adversely affect the method of payment of any Distribution or
Liquidation Distribution, (ii) restrict the right of a holder of any such
Preferred Security to institute suit for enforcement of any Distribution,
Redemption Price or Liquidation Distribution, (iii) change the purpose of the
related Issuer, (iv) authorize the issuance of any additional beneficial
interests in the related Issuer, (v) change the redemption provisions, (vi)
change the conditions precedent for PSE&G to elect to terminate the related
Issuer and distribute the corresponding series of Debentures to the holders of
such Preferred Securities or (vii) affect the limited liability of any holder of
such Preferred Securities, which amendment requires the consent of each holder
of the related Preferred Securities affected thereby. Notwithstanding the
foregoing, no amendment may be made without receipt by the related Issuer of an
opinion of counsel to the effect that such amendment will not affect such
Issuer'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.
The Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
executing any trust or power conferred on the Debenture Trustee with respect to
the corresponding series of Debentures, (ii) waive any past default pursuant to
Section 6.04 of the Indenture, (iii) exercise any right to rescind or annul an
acceleration of the principal of the corresponding series of Debentures or (iv)
consent to any amendment or modification of the Indenture, where such consent
shall be required, without, in each case, obtaining the consent of the holders
of at least a majority in aggregate liquidation amount of all outstanding
Preferred Securities of the corresponding series; provided, however, that where
a consent under the Indenture would require the consent of each holder of
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the corresponding Preferred
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of such Preferred Securities
except by subsequent vote of the holders thereof. The Property Trustee shall
notify all holders of Preferred Securities of any notice received from the
Debenture Trustee as a result of the Issuer thereof being the holder of the
corresponding Debentures. In addition to obtaining the consent of the holders of
the Preferred Securities of the corresponding series, prior to taking any of the
foregoing actions, the Issuer Trustees shall obtain an opinion of counsel to the
effect that the related Issuer will not be classified as an association taxable
as a corporation or a partnership for Federal income tax purposes on account of
such action and will continue to be classified as a grantor trust for Federal
income tax purposes.
Any required consent of holders of Preferred Securities may be given at a
meeting of holders of such Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each holder of record of such Preferred Securities in the manner set
forth in the applicable Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under certain circumstances, any Preferred Securities that are owned by
PSE&G, the Issuer Trustees or any affiliate of PSE&G or any Issuer Trustee
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
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BOOK-ENTRY-ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
all of the Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's nominee)
as the holder thereof. One or more fully-registered global securities will be
issued for the Preferred Securities of each Issuer, representing in the
aggregate the total number of such Issuer's Preferred Securities, and will be
deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. 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, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain custodial relationships with Direct Participants, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities of such Issuer is
discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of an Issuer's Preferred Securities
are being redeemed, DTC's practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities is limited to the
holders of record of the Preferred Securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to the Preferred Securities. Under its usual procedures, DTC would mail
an omnibus proxy (the "Omnibus Proxy") to the Property Trustee as soon as
possible after the record date.
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The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts such Preferred Securities are credited on
the record date (identified in a listing attached to the Omnibus Proxy).
Distributions on the Preferred Securities will be made in immediately
available funds by the Property Trustee on behalf of the related Issuer to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participant and not of DTC, the Property Trustee, the Issuer of the
relevant Preferred Securities or PSE&G, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of Distributions to
DTC is the responsibility of the Property Trustee on behalf of the related
Issuer, disbursement of such payments to Direct Participants is the
responsibility of DTC and disbursements of such payments to the Beneficial
Owners is the responsibility of the Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to any series of Preferred Securities at any time by giving reasonable
notice to the Property Trustee and PSE&G. In the event that a successor
securities depositary is not obtained, definitive Preferred Security
certificates representing such Preferred Securities are required to be printed
and delivered. PSE&G, at its option, may decide to discontinue use of the system
of book-entry transfers through DTC (or a successor depositary) as a result of
such discontinuance or as a result of DTC's ineligibility to so act, in which
case definitive certificates for such Preferred Securities will be issued. After
a Trust Agreement Event of Default, the related Issuer will issue definitive
certificates for such Issuer's Preferred Securities. Upon distribution of
definitive Preferred Securities certificates, owners of such Preferred
Securities will become the registered holders of such Preferred Securities.
The information set forth above concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers and PSE&G believe to be
accurate, but the Issuers and PSE&G assume no responsibility for the accuracy
thereof. Neither the Issuers nor PSE&G has any responsibility for the
performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.
In the event that the book-entry-only system is discontinued, the payment of
any Distribution, Redemption Price and Liquidation Distribution in respect of a
series of Preferred Securities will be payable in the manner described in the
accompanying Prospectus Supplement, and the following provisions would apply.
The Property Trustee shall keep the registration books for such Preferred
Securities at its corporate office. Such Preferred Securities may be transferred
or exchanged for one or more Preferred Securities upon surrender thereof at the
corporate office of the Property Trustee by the holders or their duly authorized
attorneys or legal representatives. Upon surrender of any Preferred Securities
to be transferred or exchanged, the Property Trustee shall record the
registration of transfer or exchange in the registration books and shall deliver
new Preferred Securities appropriately registered. The Property Trustee shall
not be required to register the transfer of any Preferred Securities that have
been called for redemption or on or after the liquidation date. The Issuers and
the Property Trustee shall be entitled to treat the holders of the related
Preferred Securities, as their names appear in the registration books, as the
owners of those Preferred Securities for all purposes under the applicable Trust
Agreement.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee is the sole Trustee under each Trust Agreement for
purposes of the Trust Indenture Act and shall have and be subject to all of the
duties and responsibilities specified with respect to an indenture trustee under
the Trust Indenture Act. The Property Trustee, other than during the
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occurrence and continuance of a Trust Agreement Event of Default, undertakes to
perform only such duties as are specifically set forth in each 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 exercise any of the powers vested in it by any
Trust Agreement at the request of any holder of Preferred Securities 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 a
Trust Agreement or is unsure of the application of any provision of a Trust
Agreement, and the matter is not one on which holders of Preferred Securities
are entitled under such Trust Agreement to vote, then the Property Trustee shall
take such action as is directed by PSE&G and, if not so directed, may take such
action as it deems advisable and in the best interests of the holders of the
corresponding Trust Securities and will have no liability except for its own
negligent action, negligent failure to act or willful misconduct.
MISCELLANEOUS
The Administrative Trustee is authorized and directed to conduct the affairs
of and to operate the Issuers in such a way that (i) no Issuer will be deemed to
be an "investment company" required to be registered under the Investment
Company Act or to be taxed as a corporation or partnership for Federal income
tax purposes, (ii) each Issuer will be classified as a grantor trust for Federal
income tax purposes and (iii) the Debentures held by such Issuers will be
treated as indebtedness of PSE&G for Federal income tax purposes. In this
connection, PSE&G and the Administrative Trustee are authorized to take any
action, not inconsistent with applicable law, the applicable certificate of
trust of the related Issuer or the applicable Trust Agreement, that PSE&G and
the Administrative Trustee determine in their discretion to be necessary or
desirable for such purposes, even if such action adversely affects the interests
of the holders of the corresponding Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
No Issuer may borrow money, issue debt, execute mortgages or pledge any of
its assets.
Except as otherwise provided in the Trust Agreements, any action requiring
the consent or vote of the Issuer Trustees shall be approved by the
Administrative Trustee.
GOVERNING LAW
The Trust Agreements will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF THE GUARANTEE
Each Guarantee will be executed and delivered by PSE&G concurrently with the
issuance by each Issuer of its Preferred Securities for the benefit of the
holders from time to time of such Preferred Securities. Each Guarantee has been
qualified as an indenture under the Trust Indenture Act and First Union National
Bank will act as indenture trustee (the "Guarantee Trustee") under each
Guarantee for the purposes of compliance with the Trust Indenture Act. Reference
under this caption to Preferred Securities means the Preferred Securities to
which a Guarantee relates. The Guarantee Trustee will hold each Guarantee for
the benefit of the holders of the related Issuer's Preferred Securities.
GENERAL
PSE&G will irrevocably agree, to the extent set forth in each Guarantee, to
pay in full, to the holders of the related Issuer's Preferred Securities, the
Guarantee Payments (as defined below) (except to the
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extent previously paid), as and when due, regardless of any defense, right of
set-off or counterclaim which such Issuer may have or assert. The following
payments, to the extent not paid by an Issuer (the "Guarantee Payments"), will
be subject to the applicable Guarantee (without duplication): (i) any
accumulated and unpaid Distributions required to be paid on such Preferred
Securities, to the extent that such Issuer has funds available therefor, (ii)
the Redemption Price to the extent that such Issuer has funds available
therefor, and (iii) upon a voluntary or involuntary termination and liquidation
of such Issuer (unless the corresponding series of Debentures are distributed to
holders of such Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount specified in the Prospectus Supplement per Preferred Security
plus all accumulated and unpaid Distributions on the Preferred Securities to the
date of payment, to the extent the Issuer has funds available therefor and (b)
the amount of assets of such Issuer remaining available for distribution to
holders of Preferred Securities upon a termination and liquidation of such
Issuer. PSE&G's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by PSE&G to the holders of the
corresponding Preferred Securities or by causing the related Issuer to pay such
amounts to such holders. While the assets of PSE&G 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 related
Issuer does not have funds available therefor as described above, PSE&G has
agreed under the applicable Trust Agreement to pay all expenses of such Issuer
except such Issuer's obligations under its Preferred Securities. Accordingly,
the applicable Guarantee, together with the backup undertakings consisting of
PSE&G's obligations under the applicable Trust Agreement, the corresponding
series of Debentures and the Indenture, provide for PSE&G's full, irrevocable
and unconditional guarantee of the Preferred Securities.
No single document executed by PSE&G in connection with the issuance of a
series of Preferred Securities will provide for PSE&G's full, irrevocable and
unconditional guarantee of the Preferred Securities. It is only the combined
operation of PSE&G's obligations under the applicable Guarantee, the applicable
Trust Agreement, the corresponding series of Debentures and the Indenture that
has the effect of providing a full, irrevocable and unconditional guarantee of
an Issuer's obligations under its Preferred Securities. See "Relationship Among
the Preferred Securities, the Debentures and the Guarantee."
STATUS OF THE GUARANTEE
Each Guarantee will constitute an unsecured obligation of PSE&G and will
rank subordinate and junior in right of payment to all general liabilities
(other than the guarantees (the "MIPs Guarantees") of PSE&G issued in connection
the MIPs Debentures, as defined herein) of PSE&G. The Trust Agreements provide
that each holder of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the related Guarantee. Each
Guarantee will rank PARI PASSU with all other Guarantees issued by PSE&G. Each
Guarantee will constitute a guarantee of payment and not of collection (i.e.,
the guaranteed party may institute a legal proceeding directly against PSE&G to
enforce its rights under the Guarantee without first instituting a legal
proceeding against any other person or entity). Each 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 corresponding series of Debentures pursuant to the applicable Trust
Agreement.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the corresponding Preferred Securities (in which case
no consent of the holders will be required), no Guarantee may be amended without
the prior approval of the holders of at least a majority in aggregate
liquidation amount of such Preferred Securities (excluding any Preferred
Securities held by PSE&G or an affiliate thereof). The manner of obtaining any
such approval will be as set forth under "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement." All agreements
contained in each Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of PSE&G and shall inure to the benefit of the
holders of the corresponding Preferred Securities.
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GUARANTEE EVENTS OF DEFAULT
An event of default under a Guarantee (a "Guarantee Event of Default") will
occur upon the failure of PSE&G to perform any of its 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, PSE&G
shall have received notice of such Guarantee Event of Default from the Guarantee
Trustee and shall not have cured such Guarantee Event of Default within 60 days
after receipt of such notice. The holders of at least a majority in aggregate
liquidation amount of the corresponding Preferred Securities (excluding any
Preferred Securities held by PSE&G or an affiliate thereof) will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of such Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under such
Guarantee.
Any holder of the corresponding Preferred Securities may institute a legal
proceeding directly against PSE&G to enforce such holder's rights under such
Guarantee without first instituting a legal proceeding against the related
Issuer, the Guarantee Trustee or any other person or entity.
PSE&G, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not PSE&G is in compliance with all the
conditions and covenants applicable to it under each Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The 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 each Guarantee and, upon a Guarantee Event of Default,
must exercise such of the rights and powers vested in it by the Guarantee and to
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 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 Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE 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
corresponding Preferred Securities or upon distribution of the corresponding
series of Debentures to the holders of the corresponding Preferred Securities.
Each Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of the corresponding Preferred Securities must
restore payment of any sums paid under such
Preferred Securities or such Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of New Jersey.
DESCRIPTION OF THE DEBENTURES
GENERAL
The Debentures will be issued in one or more series under the Indenture.
Each series of Debentures will rank PARI PASSU with all other series of
Debentures (including the $214,433,000 aggregate principal amount of 8.625%
Debentures, Series A)and the $154,639,176 aggregate principal amount of PSE&G's
9 3/8% Deferrable Interest Subordinated Debentures, Series A and the $61,855,670
aggregate principal amount of PSE&G's 8% Deferrable Interest Subordinated
Debentures, Series B (together, the "MIPs
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Debentures"). Each series of Debentures will be unsecured and will rank
subordinate and junior in right of payment, to the extent and in the manner set
forth in the Indenture, to all Senior Indebtedness (as defined below) of PSE&G.
See "--Subordination." The Indenture does not limit the incurrence or issuance
of Senior Indebtedness by PSE&G.
The accompanying Prospectus Supplement will describe the following terms of
any series of Debentures: (i) the title of such series of Debentures; (ii) the
aggregate principal amount of such series of Debentures; (iii) the date or dates
on which the principal of such series of Debentures shall be payable or the
method of determination thereof; (iv) the rate or rates, if any, at which such
series of Debentures shall bear interest, the interest payment dates on which
any such interest shall be payable or the method by which any of the foregoing
shall be determined; (v) any terms regarding redemption; (vi) the maximum
Extension Period for such series of Debentures; and (vii) any other terms of
such series of Debentures not inconsistent with the provisions of the Indenture.
Certain Federal income tax consequences and special considerations relating
to the applicable series of Debentures will be described in the accompanying
Prospectus Supplement.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Under the Indenture, PSE&G shall have the right at any time and from time to
time, so long as no Debenture Event of Default has occurred and is continuing
with respect to such series of Debentures, to defer payments of interest by
extending the interest payment period for such series of Debentures for up to
the maximum Extension Period provided for such series of Debentures, provided
that no Extension Period shall extend beyond the maturity or any redemption date
of such series of Debentures. At the end of the Extension Period, PSE&G shall be
obligated to pay all interest then accrued and unpaid (together with interest
thereon to the extent permitted by applicable law). During any Extension Period,
PSE&G may not declare or pay any dividend on, or redeem, purchase, acquire, or
make a liquidation payment with respect to, any shares of PSE&G's capital stock.
Prior to the termination of any Extension Period, PSE&G may shorten or further
extend the interest payment period, provided that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
the maximum Extension Period for such series of Debentures or extend beyond the
maturity or any redemption date of such series of Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
PSE&G may elect to begin a new Extension Period, subject to the above
requirements. PSE&G shall be required to give notice to the Debenture Trustee
and cause the Debenture Trustee to give notice to the holders of the applicable
series of Debentures of its election to begin an Extension Period, or any
shortening or extension thereof, at least one Business Day prior to the date the
notice of the record or payment date of the related Distribution on the
corresponding series of Preferred Securities or payment of interest on such
Debentures is required to be given to any national securities exchange on which
such Debentures or such Preferred Securities are then listed or other applicable
self-regulatory organization but in any event not less than two Business Days
prior to such record date.
If during any Extension Period PSE&G fails to pay dividends on any shares of
PSE&G's preferred stock for four consecutive quarterly periods, pursuant to
PSE&G's Restated Certificate of Incorporation, as amended, the holders of
PSE&G's preferred stock, voting separately as a single class, will be entitled
to elect a majority of PSE&G's Board of Directors. Such voting rights of the
holders of preferred stock to elect directors shall continue until all
accumulated and unpaid dividends thereon have been paid.
SUBORDINATION
All payments by PSE&G in respect of the Debentures shall be subordinated to
the prior payment in full of all amounts payable on Senior Indebtedness. The
term "Senior Indebtedness" means (i) the principal of and premium, if any, in
respect of (a) indebtedness of PSE&G for money borrowed and (b) indebtedness
evidenced by securities, debentures, bonds or other similar instruments issued
by
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PSE&G; (ii) all capital lease obligations of PSE&G; (iii) all obligations of
PSE&G issued or assumed as the deferred purchase price of property, all
conditional sale obligations of PSE&G and all obligations of PSE&G under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) certain obligations of PSE&G for the
reimbursement of any obligation, any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction entered into in the
ordinary course of business of PSE&G; (v) all obligations of the type referred
to in clauses (i) through (iv) of other persons and all dividends of other
persons (other than the Preferred Securities or similar securities) for the
payment of which, in either case, PSE&G is responsible or liable as obligor,
guarantor or otherwise (other than each Guarantee and obligations ranking pari
passu with such Guarantee); and (vi) certain obligations of the type referred to
in clauses (i) through (v) of other persons secured by any lien on any property
or asset of PSE&G (whether or not such obligation is assumed by PSE&G), except
for any such indebtedness that is by its terms subordinated to or PARI PASSU
with the Debentures and for indebtedness between or among PSE&G and its
affiliates.
Upon any payment or distribution of assets or securities of PSE&G, upon any
dissolution or winding-up or total or partial liquidation or reorganization of
PSE&G, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts payable on Senior Indebtedness
(including any interest accruing on such Senior Indebtedness subsequent to the
commencement of a bankruptcy, insolvency or similar proceeding) shall be paid in
full before the holders of the Debentures or the Debenture Trustee on behalf of
such holders shall be entitled to receive from PSE&G any payment of principal
of, premium, if any, or interest on, the Debentures or distributions of any
assets or securities.
No direct or indirect payment by or on behalf of PSE&G of principal of,
premium, if any, or interest on, the Debentures, whether pursuant to the terms
of the Debentures or upon acceleration or otherwise, shall be made if, at the
time of such payment, there exists (i) a default in the payment of all or any
portion of any Senior Indebtedness or (ii) any other default pursuant to which
the maturity of Senior Indebtedness has been accelerated and, in either case,
requisite notice has been given to the Debenture Trustee and such default shall
not have been cured or waived by or on behalf of the holders of such Senior
Indebtedness.
If the Debenture Trustee or any holder of the Debentures shall have received
any payment on account of the principal of, premium, if any, or interest on, the
Debentures when such payment is prohibited and before all amounts payable on
Senior Indebtedness are paid in full, then such payment shall be received and
held in trust for the holders of Senior Indebtedness and shall be paid to the
holders of the Senior Indebtedness remaining unpaid to the extent necessary to
pay such Senior Indebtedness in full.
Nothing in the Indenture shall limit the right of the Debenture Trustee or
the holders of the Debentures to take any action to accelerate the maturity of
the Debentures or to pursue any rights or remedies against PSE&G, provided that
all Senior Indebtedness shall be paid before holders of the Debentures are
entitled to receive any payment from PSE&G of principal of, premium, if any, or
interest on, the Debentures.
Upon the payment in full of all Senior Indebtedness, the holders of the
Debentures shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of assets of PSE&G made on
such Senior Indebtedness until the Debentures shall be paid in full.
CERTAIN COVENANTS OF PSE&G
PSE&G will covenant that it may not declare or pay any dividend on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any
shares of PSE&G's capital stock (i) during an Extension Period, (ii) if there
has occurred and is continuing any event that is, or, with the giving of notice
or the lapse of time or both would constitute, a Debenture Event of Default or
(iii) if PSE&G is in default
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with respect to its payment or other obligations under any Guarantee. See
"--Debenture Events of Default" and "Description of the Guarantee--Guarantee
Events of Default."
Any waiver of any Debenture Event of Default will require the approval of at
least a majority of the aggregate principal amount of the corresponding series
of Debentures or, if such Debentures are held by an Issuer, the approval of at
least a majority in aggregate liquidation amount of the Preferred Securities of
such Issuer; provided, however, that a Debenture Event of Default resulting from
the failure to pay the principal of, premium, if any, or interest on, such
Debentures may not be waived.
MODIFICATION OF THE INDENTURE
From time to time, PSE&G and the Debenture Trustee, without notice to or the
consent of any holders of Debentures, may amend or supplement the Indenture for
any of the following purposes: (i) to cure any ambiguity, defect or
inconsistency; (ii) to comply with the provisions of the Indenture regarding
consolidation, merger or sale, conveyance, transfer or lease of the properties
as an entirety or substantially as an entirety of PSE&G; (iii) to provide for
uncertificated Debentures in addition to or in place of certificated Debentures;
(iv) to make any other change that does not in the reasonable judgment of PSE&G
adversely affect the rights of any holder of the Debentures; (v) to comply with
any requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act; or (vi) to set forth the terms and conditions,
which shall not be inconsistent with the Indenture, of any series of Debentures
and the form of Debentures of such series.
In addition, PSE&G and the Debenture Trustee may modify the Indenture or any
supplemental indenture or waive future compliance by PSE&G with the provisions
of the Indenture, with the consent of the holders of at least a majority of the
aggregate principal amount of the Debentures of each series affected thereby,
provided that no such modification, without the consent of each holder of such
Debentures, may (i) reduce the principal amount of such Debentures, (ii) reduce
the principal amount of outstanding Debentures of any series the holders of
which must consent to an amendment of the Indenture or a waiver, (iii) change
the stated maturity of the principal of, or interest on, or the rate of interest
on, such Debentures, (iv) change the redemption provisions applicable to such
Debentures adversely to the holders thereof, (v) impair the right to institute
suit for the enforcement of any payment with respect to such Debentures, (vi)
change the currency in which payments with respect to such Debentures are to be
made, or (vii) change the subordination provisions applicable to such Debentures
adversely to the holders thereof, provided that if such Debentures are held by
an Issuer, no modification shall be made that adversely affects the holders of
the Preferred Securities of such Issuer, and no waiver of any Debenture Event of
Default with respect to such Debentures or compliance with any covenant under
the Indenture shall be effective, without the prior consent of the holders of at
least a majority of the aggregate liquidation amount of the Preferred Securities
of such Issuer or the holder of each such Preferred Security, as applicable.
DEBENTURE EVENTS OF DEFAULT
The following are "Debenture Events of Default" with respect to the
Debentures of any series: (i) default for 30 days in payment of any interest on
any Debenture of that series (other than the payment of interest during an
Extension Period); (ii) default in payment of principal of or premium, if any,
on any Debenture of that series when the same becomes due and payable; (iii)
default for 60 days after receipt by PSE&G of a "Notice of Default" in the
performance of or failure to comply with any other covenant or agreement for
such series of Debentures or in the Indenture or any supplemental indenture
under which such series of Debentures may have been issued or (iv) certain
events of bankruptcy, insolvency or reorganization of PSE&G. In case a Debenture
Event of Default has occurred and is continuing, other than one relating to
bankruptcy, insolvency or reorganization of PSE&G, in which case the principal
of, premium, if any, and any interest on, all of the Debentures of the
applicable series shall become immediately due and payable, the Debenture
Trustee or the holders of at least 25% in aggregate
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<PAGE>
principal amount of the Debentures of that series may declare the principal,
together with interest accrued thereon, of all the Debentures of that series to
be due and payable; provided, however, that if a Debenture Event of Default has
occurred and is continuing with respect to such Debentures and the Debenture
Trustee or the holders of at least 25% in aggregate principal amount of such
series of Debentures fail to declare the principal of such series of Debentures
to be immediately due and payable, then, if such Debentures are held by an
Issuer, the holders of at least 25% in aggregate liquidation amount of the
corresponding Preferred Securities shall have such right by written notice to
PSE&G and the Debenture Trustee. The holders of at least a majority in aggregate
principal amount of such series of Debentures, by notice to the Debenture
Trustee, may rescind an acceleration, provided that if the principal of such
Debentures has been declared due and payable by the holders of the corresponding
Preferred Securities, no rescission of such acceleration will be effective
unless consented to by the holders of at least a majority in aggregate
liquidation amount of the corresponding Preferred Securities.
PSE&G will be required to furnish to the Debenture Trustee annually a
statement as to the compliance by PSE&G with all conditions and covenants under
the Indenture and the Debentures and as to any Debenture Event of Default.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
PSE&G may not consolidate with or merge with or into any other person or
sell, convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any person, unless (i) the successor person
shall be organized and existing under the laws of the United States or any state
thereof or the District of Columbia and shall expressly assume by a supplemental
indenture all of the obligations of PSE&G under the Debentures and the
Indenture; (ii) immediately after giving effect to such transaction, no
Debenture Event of Default, and no event which after notice or lapse of time or
both would become a Debenture Event of Default, has occurred and is continuing;
and (iii) certain other conditions prescribed in the Indenture are met.
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, PSE&G will be discharged from any and all
obligations in respect of the Debentures of any series if PSE&G deposits with
the Debenture Trustee, in trust, (i) cash and/or (ii) United States Government
Obligations (as defined in the Indenture), which through the payment of interest
thereon and principal thereof in accordance with their terms will provide cash
in an amount sufficient to pay all the principal of, premium, if any, and
interest on, the Debentures of such series on the dates such payments are due in
accordance with the terms of such Debentures.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Subject to the provisions of the Indenture relating to its duties, the
Debenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of the holders of
any series of Debentures or the holders of the corresponding Preferred
Securities, unless such holders shall have offered to the Debenture Trustee
reasonable security and indemnity. Subject to such provision for
indemnification, the holders of at least a majority in aggregate principal
amount of any series of Debentures affected or the holders of at least a
majority in aggregate liquidation amount of the corresponding Preferred
Securities (with each such 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 Debenture Trustee with respect to such series of
Debentures or exercising any trust or power conferred on the Debenture Trustee.
The Indenture will contain limitations on the right of the Debenture
Trustee, as a creditor of PSE&G, 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 Debenture Trustee may be deemed to have
a
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conflicting interest and may be required to resign as Debenture Trustee if at
the time of a Debenture Event of Default (i) it is a creditor of PSE&G or (ii)
there is a default under either of the indentures referred to below.
First Union National Bank is the Trustee under PSE&G's Indenture dated
August 1, 1924, with respect to PSE&G's First and Refunding Mortgage Bonds and
PSE&G's Indenture dated as of November 1, 1994, as supplemented, with respect to
the MIPs Debentures. PSE&G also maintains other normal banking relationships
with First Union National Bank.
GOVERNING LAW
The Indenture will be governed by and construed in accordance with the laws
of the State of New Jersey.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE DEBENTURES AND THE GUARANTEE
Payments of Distributions and redemption and liquidation payments due on a
series of Preferred Securities (to the extent the Issuer thereof has funds
available for such payments) will be guaranteed by PSE&G as and to the extent
set forth under "Description of the Guarantee." No single document executed by
PSE&G in connection with the issuance of a series of Preferred Securities will
provide for PSE&G's full, irrevocable and unconditional guarantee of the
Preferred Securities. It is only the combined operation of PSE&G's obligations
under the applicable Guarantee, the applicable Trust Agreement, the
corresponding series of Debentures and the Indenture that has the effect of
providing a full, irrevocable and unconditional guarantee of an Issuer's
obligations under its Preferred Securities.
A holder of any corresponding Preferred Security may institute a legal
proceeding directly against PSE&G to enforce its rights under such Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
related Issuer or any other person or entity.
As long as PSE&G makes payments of interest and other payments when due on a
series of Debentures, such payments will be sufficient to cover the payment of
Distributions and redemption and liquidation payments due on the corresponding
Preferred Securities, primarily because (i) the aggregate principal amount of
such series of Debentures will be equal to the sum of the aggregate liquidation
amount of the corresponding Preferred Securities and Common Securities, (ii) the
interest rate and interest and other payment dates on such series of Debentures
will match the Distribution rate and Distribution and other payment dates for
the corresponding Preferred Securities, (iii) the applicable Trust Agreement
provides that PSE&G shall pay for all and any costs, expenses and liabilities of
the Issuer of such Preferred Securities except such Issuer's obligations under
such Preferred Securities, and (iv) the applicable Trust Agreements provide that
no Issuer will engage in any activity that is not consistent with the limited
purposes of such Issuer. If and to the extent that PSE&G does not make payments
on any series of Debentures, such Issuer will not have funds available to make
payments of Distributions or other amounts due on the corresponding Preferred
Securities.
A principal difference between the rights of a holder of a Preferred
Security (which represents an undivided beneficial interest in the assets of the
Issuer thereof) and a holder of a Debenture is that a holder of a Debenture will
accrue, and (subject to the permissible extension of the interest payment
period) is entitled to receive, interest on the principal amount of Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions only if and to the extent such Issuer has funds available for the
payment of such Distributions.
Upon any voluntary or involuntary termination or liquidation of any Issuer
not involving a distribution of any series of Debentures, the holders of the
corresponding Preferred Securities will be entitled to receive, out of assets
held by such Issuer, the Liquidation Distribution in cash. See "Description of
the
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Preferred Securities--Liquidation Distribution Upon Termination." Upon any
voluntary liquidation or bankruptcy of PSE&G, each Issuer, as holder of the
Debentures, would be a creditor of PSE&G, subordinated in right of payment to
all Senior Indebtedness, but entitled to receive payment in full of principal,
premium, if any, and interest, before any stockholders of PSE&G receive payments
or distributions. Since PSE&G will be the guarantor under each Guarantee and has
agreed to pay for all costs, expenses and liabilities of each Issuer (other than
an Issuer's obligations to the holders of its Preferred Securities), the
positions of a holder of such Preferred Securities and a holder of such
Debentures relative to other creditors and to stockholders of PSE&G in the event
of liquidation or bankruptcy of PSE&G would be substantially the same.
A default or event of default under any Senior Indebtedness would not
constitute a Debenture Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior Indebtedness, the subordination
provisions of the Debentures provide that no payments may be made in respect of
the Debentures until such Senior Indebtedness has been paid in full or any
payment default thereunder has been cured or waived. Failure to make required
payments on any series of Debentures would constitute a Debenture Event of
Default.
PROPOSED TAX LAW CHANGES
In late 1995, President Clinton proposed certain tax law changes that would,
among other things, generally deny interest deductions to corporate issuers if
the debt instrument has a term exceeding 20 years and is not reflected as
indebtedness on such issuer's consolidated balance sheet. However, on March 29,
1996, the Chairmen of the Senate Finance Committee and the House Ways and Means
Committee issued a joint statement to the effect that it was their intention
that the effective date of the President's legislative proposals, if adopted,
will be not earlier than the date of appropriate Congressional action. While
none of these proposals were enacted into law during the 104th Congress, it is
anticipated that President Clinton may renew these proposals as part of his
fiscal 1998 budget or as part of compromise tax legislation. The term of each
series of Debentures may vary and may exceed 20 years. PSE&G cannot predict what
effect, if any, the proposals discussed above will have on any series of
Debentures; however, if such proposals are adopted, PSE&G would not be able to
deduct interest paid on such Debentures which could, depending on the specific
terms of such Debentures and the corresponding series of Preferred Securities,
give rise to the right of PSE&G to redeem such Debentures and thereby cause a
mandatory redemption of the corresponding series of Preferred Securities.
Federal income tax information and consequences and redemption provisions, if
any, relating to each series of Debentures and corresponding series of Preferred
Securities will be discussed as applicable in the accompanying Prospectus
Supplement.
PLAN OF DISTRIBUTION
The Issuers may offer or sell Preferred Securities offered hereby to one or
more underwriters for public offering and sale by them. Any such underwriter
involved in the offer and sale of the Preferred Securities will be named in an
accompanying Prospectus Supplement.
Underwriters may offer and sell the Preferred Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices relating to such prevailing market prices or at
negotiated prices. In connection with the sale of Preferred Securities,
underwriters may be deemed to have received compensation from PSE&G in the form
of underwriting discounts or commissions and may also receive commissions.
Underwriters may sell Preferred Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from such underwriters.
Any underwriting compensation paid by PSE&G on behalf of the Issuers to
underwriters in connection with the offering of Preferred Securities, and any
discounts, concessions or commissions allowed by
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underwriters to participating dealers, will be set forth in an accompanying
Prospectus Supplement. Underwriters and dealers participating in the
distribution of the Preferred Securities may be deemed to be underwriters, and
any discounts and commissions received by them and any profit realized by them
on resale of the Preferred Securities may be deemed to be underwriting discounts
and commissions, under the Securities Act of 1933, as amended (the "Securities
Act"). Underwriters and dealers may be entitled, under agreement with PSE&G and
the Issuers, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act, and to
reimbursement by PSE&G for certain expenses.
Underwriters and dealers may engage in transactions with, or perform
services for, PSE&G and/or any of its affiliates in the ordinary course of
business.
Each series of Preferred Securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom Preferred
Securities are sold by the Issuers for public offering and sale may make a
market in such Preferred Securities but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. The
Preferred Securities may or may not be listed on a national securities exchange.
No assurance can be given as to the liquidity of or the existence of trading
markets for any Preferred Securities.
LEGAL MATTERS
Certain legal matters will be passed upon for PSE&G by R. Edwin Selover,
Esquire, Senior Vice President and General Counsel of PSE&G or James T. Foran,
Esquire, General Corporate Counsel of PSE&G and by Ballard Spahr Andrews &
Ingersoll, Philadelphia, Pennsylvania, special tax counsel to PSE&G and the
Issuers, and by Richards, Layton & Finger, special Delaware counsel to PSE&G and
the Issuers, and for the underwriters by 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. R. Edwin Selover, Esquire or James T. Foran, Esquire and Brown &
Wood LLP may rely on the opinion of Ballard Spahr Andrews & Ingersoll as to
matters of Pennsylvania law and on the opinion of Richards, Layton & Finger as
to matters of Delaware law.
ACCOUNTING TREATMENT
The financial statements of each Issuer will be consolidated with PSE&G's
financial statements, with the Preferred Securities issued by an Issuer thereof
shown on PSE&G's consolidated financial statements as "Guaranteed Preferred
Beneficial Interests in Company's Subordinated Debentures". PSE&G's financial
statements will include a footnote that discloses, among other things, that the
sole asset of each Issuer included therein consists of PSE&G Debentures and will
specify the principal amount, interest rate and maturity date of such PSE&G
Debentures.
EXPERTS
The consolidated financial statements and related financial statement
schedules of PSE&G incorporated in this Prospectus by reference from PSE&G's
Annual Report on Form 10-K for the year ended December 31, 1995 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is included in such Annual Report on Form 10-K and 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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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PSE&G OR PSE&G
CAPITAL TRUST II SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION
CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors.................................. S-3
PSE&G Capital Trust II........................ S-6
Public Service Electric and Gas Company....... S-7
Use of Proceeds............................... S-8
Capitalization................................ S-8
Certain Terms of the Series B Preferred
Securities.................................. S-9
Certain Terms of the Series B Debentures...... S-11
United States Taxation........................ S-12
Underwriting.................................. S-15
PROSPECTUS
Statement of Available Information............ 2
Incorporation of Certain Documents by
Reference................................... 2
The Issuers................................... 3
Public Service Electric and Gas Company....... 3
Use of Proceeds............................... 4
Description of the Preferred Securities....... 4
Description of the Guarantee.................. 13
Description of the Debentures................. 15
Relationship among the Preferred Securities,
the Debentures and the Guarantee............ 20
Proposed Tax Law Changes...................... 21
Plan of Distribution.......................... 21
Legal Matters................................. 22
Accounting Treatment.......................... 22
Experts....................................... 22
</TABLE>
3,800,000 PREFERRED SECURITIES
PSE&G CAPITAL TRUST II
% CUMULATIVE QUARTERLY
INCOME PREFERRED
SECURITIES, SERIES B
GUARANTEED TO THE EXTENT
PSE&G CAPITAL TRUST II HAS AVAILABLE FUNDS
AS SET FORTH HEREIN BY
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
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[LOGO]
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GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
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